| AGS Transact Technologies Limited | ||||
| Rating Reaffirmed; NCD Withdrawn | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A+/Stable’ rating on the long-term bank facilities of AGS Transact Technologies Limited (AGS). CRISIL Ratings has also withdrawn its ratings on the non convertible debentures (NCDs) of Rs 550 crore after receiving independent confirmation from debenture trustee on full redemption of the NCDs and on the request of the company. The withdrawal is in inline with CRISIL Ratings policy on withdrawal.
AGS’s operations were impacted intermittently during the first quarter of the current fiscal due to localized lockdowns on account of the pandemic. However, operations subsequently picked up and automated teller machines (ATM) transactions are now reaching pre Covid 19 levels across many geographies aiding company to post revenues of ~Rs 900 crore in the first half of current fiscal (fiscal 2021: Rs. 1,769 crore).
AGS’s operating profitability which expanded over the fiscals 2018 through 2020, from 15% to 18% was impacted due to pandemic induced disruptions resulting in lower footfalls at ATMs in fiscal 2021 and declined to ~16.5%. However, operating margins have been improving in the current fiscal with transaction volume reaching almost 90% of pre-pandemic levels by quarter 2 and also aided by upward revision in interchange fee. With increased focus on the higher margin Independent Deployment (IAD) model of ATM management, increasing deployment of cash recycler machines (CRMs), increase in number of transactions and renewal of contracts with customer banks at higher rates along with improvement in performance of subsidiaries, overall margins are expected to improve to 17-18% over the medium term. The company is expected to generate healthy earnings before interest, tax, depreciation and amortisation (EBITDA, after factoring lease expenses) of over Rs 330 crore for fiscal 2022 (Rs. 290 crore in fiscal 2021) and over Rs 350 crore from next fiscal assuming normalisation of operations.
The company’s financial risk profile had moderated owing to AGS raising new NCD of Rs 550 crore to refinance the existing NCDs in its holding company (Vineha Enterprises Private Limited, Vineha). The holding company had raised NCD’s of Rs 450 crore in fiscal 2019 to provide exit to two private equity investors who had earlier held 42% stake in AGS (through Vineha). The NCD’s along with accrued interest was redeemed by Vineha in April 2021. Post the NCD, AGS’s consolidated net debt peaked to ~Rs 1,058 crore in fiscal 2021 and moderated its leverage and other debt protection metrics. Debt protection metrics have remained moderate in current fiscal also as interest burden increased on account of the NCDs.
As a part of the deleveraging plan, AGS has successfully completed its IPO in January, 2022 and raised ~Rs 680 crore by way of an Offer for Sale (OFS). Out of this, ~Rs 650 crore has been infused back in AGS which has enabled early redemption of NCDs and also to reduce other debt. Consequently, debt is expected to reduce sharply by fiscal 2022 end. This will further enable in improvement in debt metrics like debt/EBIDTA and interest cover from next fiscal.
Given the high interest outgo on account of NCDs, accruals are likely to be tightly matched with repayments in fiscal 2022. However, company has already repaid ~Rs 150 crore of total scheduled repayments of ~Rs 209 crore in fiscal 2022 mainly through accruals while capex is being funded through incremental debt. For fiscal 2023, cash accruals will benefit on account of lower interest outgo as NCDs have been redeemed, providing more cushion in repayment.
The ratings continue to reflect AGS’s healthy business risk profile driven by its strong market position in the ATM managed services industry, increasing presence in digital payment solutions and good visibility on revenues owing to longstanding association with customer banks. The ratings are also supported by its adequate operating efficiencies, which ensure steady cash generation. These strengths are partially offset by the company’s moderate financial risk profile, moderately working capital-intensive operations, risk of proliferation of digital payments over the long term and stagnancy in demand for ATMs in the domestic market. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the financial and business risk profiles of AGS and its subsidiaries as they have common management and are in similar lines of business. AGS has two main subsidiaries - Securevalue India Limited (SVIL) engaged in the business of cash management services, India Transact Services Limited (ITSL) engaged in the business of creating and dealing with electronic payment systems.
AGS has also adopted IND-AS 116 for accounting of assets given under lease and for lease liabilities in fiscal 2019-20, however, CRISIL Ratings has continued to recognize lease expenses as an operational expense and lease liabilities as operational liabilities respectively.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Strong market position in the ATM managed services industry with presence across the value chain AGS is one of the largest integrated omni-channel payment solutions providers, providing digital and cash-based solutions to both banks and corporate clients across India. AGS also provides automated and technology products for banking, retail, paints and petroleum sectors. The company commenced its banking automation business in 2004 which includes supply and installation of ATMs, site development and provision of maintenance services. Capitalising on the expertise in the automation space, AGS began to offer ATM outsourcing and managed services in 2009. The company further ventured into transaction switching services and cash management services (through its subsidiary, SVIL) in 2011 and 2012, respectively. This led to the company transforming into an end-to-end payment solutions and technology partner for the banking sector across the entire ATM value chain, thereby consolidating its market position. As of September 2021, the company has a network of over 33,000 ATMs under its ATM outsourcing and managed services business with a market share of ~15% and services over 48,000 ATMs under their cash management business in SVIL. Further, the company is also expanding its presence in installing cash recycler machines (CRMs) for various banks which should further strengthen AGS’s overall market position given the increasing preference by banks for CRMs to offer automatic deposit and withdrawal facilities to customers. This will in-turn also expand the portfolio of machines serviced by SVIL under their cash management business.
Increasing presence in digital payment solutions as well providing diversity to revenues To capture the growing demand in digital payments space and improve the mix between cash and digital payments, the company has recently diversified into digital payments solutions (through fully owned subsidiary, ITSL) providing services like switching software, merchant solutions (POS machines), and other electronic payment solutions. Leveraging their experience with in the petroleum retail space, AGS has also developed Integrated Payment Solutions (IPS) which in turn has helped the company to increase its presence in the digital payments space. The contribution from the digital payment solutions has been increasing over the last 2 years (currently contributing around ~12% of AGS’s revenues), improving the diversity of AGS’s overall revenue profile.
Good visibility on revenues owing to longstanding association with customer banks; healthy operating efficiencies AGS’s market position is underpinned by its established relationships with leading financial institutions, retail players as well as paint and petroleum majors. In the banking segment, the company has a diversified customer base of both private and public sector banks, viz; ICICI Bank Ltd, Axis Bank Limited, HDFC Bank Limited, State Bank of India, RBL Bank and Bank of Baroda. Further, the company has been able to secure repeat orders from them given its positioning and currently has long term contracts (of about 8-10 years) with many of its customers in the banking segment. Currently, around 70-80% of AGS’s turnover is derived from these recurring orders from banks; having stable revenue streams (with mix of both fixed fee and variable fee contracts (wherein revenues are linked to number of transactions in the respective ATMs). Furthermore, large portion of AGS’s existing ATM network has a long vintage in the market where customer footfalls have stabilised, thereby providing strong visibility on revenues for the next 2-3 years.
Besides, for customers, where the revenues to AGS are linked to the number of transactions done in the respective ATMs, AGS reserves the right to relocate the ATMs in case of shortfall in number of transactions. Hence, with increasing vintage of ATMs, AGS’s operating margins has been improving till fiscal 2020. While impact of pandemic in fiscal 2021 moderated margins, gradual improvement is expected and regain previous levels of ~18%.
Adequate financial risk profile; to improve gradually AGS’s net worth is healthy at over Rs 500 crore as on March 31, 2021, however, financial risk profile had moderated due to increase in debt (primarily NCDs). AGS’s holding company, Vineha had raised NCDs of Rs.450 crore in fiscal 2019 to provide an exit to two private equity investors who earlier held 42.41% stake in AGS. These NCDs along with accrued interest was due for redemption in April 2021. AGS has infused ~Rs 650 crore in Vineha from proceeds of NCD issuance and by utilizing own cash balances which in turn has been utilized to redeem the NCDs in Vineha.
Hence, with the issuance of fresh NCDs, overall net debt levels rose to ~Rs 1,058 crore at March 31, 2021 from Rs 573 crore at March 31, 2020 (Rs 559 crore at March 31, 2019). Consequently, consolidated gearing and debt/EBITDA peaked to over 2 time and over 4 times respectively, other while key debt protection metrics also moderated. The company has however, completed its IPO recently and proceeds have been utilized to retire substantial debt, mainly the NCDs. Furthermore, capex requirements of ~Rs 140-150 crore per annum is expected to be only partially funded through debt in fiscal 2023. Hence, debt metrics should gradually improve over the medium term, from the peak seen in fiscal 2021, also supported by progressive debt repayment.
Weakness Slowdown in number of ATMs and risk of proliferation of digital payments The Indian ATM industry had witnessed tremendous growth in the past decade. The number of ATMs in India had increased from 59,613 in fiscal 2010 to 2,22,318 in fiscal 2017. However, having grown at a very healthy pace till then, ATM deployment slowed down considerably post demonetisation. Further, increasing internet penetration and rising availability of smartphones have led many consumers to gradually shift to digital payment modes (like mobile banking, consumer mobile wallets, etc.). However, despite the slowdown in the number of new ATMs installed, replacement demand for existing ATMs is expected to be stable given the 5-7 years useful life for the ATM machines, and the need to upgrade ATMs based on evolving technology and regulatory requirements.
Besides, the number of transactions done at ATMs and the overall transaction value is still on the rise, since cash transactions continue to form the backbone of the economy. Further, with still a large proportion of India's population remaining unbanked or under-banked; compared to some of the major economies in the world, and with banks focus on improving financial inclusion, the number of transactions should continue its growing trajectory. Furthermore, cash transactions still remain a core part of the overall transactions in the economy, especially in semi-urban and rural parts of the country. Cash in circulation has also increased to an all-time high of ~Rs 29.70 lac crore in November 2021 from pre demonetization level of ~Rs 17.40 lac crore in September 2016. Hence, the structural shift to digital payments will evolve gradually over a longer time frame and is not expected to pose an immediate threat to the number of ATM based transactions. Moreover, the revision in interchange fee is also expected to add to revenues and aid improvement in profitability.
Moderate working capital intensity in operations AGS’s operations are moderately working capital-intensive marked debtors of around 85-90 days on average over the last 5 years. This is partly due to the longer collection cycle of around in the automation business and milestone-based billing in the payments business. However, AGS’s counterparties in the payments business are strong. |
Liquidity: Adequate Liquidity is adequate, marked by steady annual net cash accrual of over Rs 200-220 crore from the business, which would be more than adequate to meet maturing debt obligations of around Rs. 180-210 crore per annum. Of the total obligations of ~Rs. 209 crore in fiscal 2022, the company had already repaid ~Rs.150 crores by December, 2021 mainly from accruals while capex requirements have been met from incremental debt.
The utilisation of the fund based working capital limits is moderately high at around 84% (on standalone basis) over the last 12 months ended October 2021. However, the same is owing to lower drawing power availability, as AGS has increasingly funded its working capital requirements through long term loans raised by providing the contracted cash flows with customer banks as security. Furthermore, with progressive payment of debt, AGS gets sufficient cushion in its cash flows to raise debt. |
Outlook: Stable CRISIL Ratings believes that AGS’s business risk profile will remain healthy driven by its established market position and improving operating performance across divisions. Financial risk profile is expected to gradually improve with better cash accruals and progressive repayment of debt obligations. |
Rating Sensitivity Factors Upward Factors:
Downward Factors:
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About the Company AGS is one of India’s leading providers of end-to-end cash and digital payment solutions including customized solutions serving the banking, retail, petroleum and transit sectors. AGS’s operations cover approximately 2,200 cities and towns, servicing approx. 4,20,000 machines or customer touch points across India, as of March 31, 2021. AGS has two main subsidiaries - Securevalue India Limited (SVIL) engaged in the business of cash management services, India Transact Services Limited (ITSL) engaged in the business of creating and dealing with electronic payment systems. In addition to SVIL and ITSL, AGS has also started expanding its operations to Southeast Asian and other countries by forming overseas step-down subsidiaries in Sri Lanka, Philippines and Cambodia through subsidiary in Singapore. |
Key Financial Indicators (Consolidated)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
Annexure - Details of Rating Withdrawn
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Annexure - List of Entities Consolidated
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Criteria Details
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