Focusing on acquisitions in technology, payments companies: says CMS Info System chief

You mentioned in a recent analyst call about new contracts from a large public sector bank and a private bank. What is the new order pipeline in the second half of the year?

The figures for the order book have not changed. Our revenue growth over the FY21-FY25 period has been roughly around 16-17 percent CAGR, and profits have grown at 20-21 percent over the same period. From FY25 to FY30, we have a base growth target of 12 percent for revenue. This applies to our three businesses, including ATM, retail and consumption-linked platforms, and the third is technology and payments.

The opportunities for us look promising at the moment. And if we can achieve that, it will actually come from expansion through mergers and acquisitions. Our companies generate a fair amount of cash flow. Our return on capital expenditure (RoCE) has averaged approximately 24 to 26 percent after tax over the past four years. If we can use this wisely to expand or diversify businesses, I think we can aim to grow our revenue by about 15 to 16 percent over the next four-five years. This may surprise some people as they feel there are limited growth opportunities in the ATM sector. I think cash and UPI can co-exist, there are areas where cash is used a lot. For example, cash is used extensively in semi-urban areas. Urban consumption today is much more dependent on the UPI…Our ATM business line has almost doubled in the last five years. Consolidation is taking place in our industry, which benefits larger players like us. As consolidation takes place, weaker players are leaving or customers are prioritizing higher quality companies to get better services.

You added 5,000 new retail points in H1FY26. What are the prospects for the second half of the year?

Cash management is part of our company. Currency must move efficiently in the country. Cash velocity is very important globally, especially in India where working capital is always a challenge and the cost of working capital is huge. If you think of a bank or an SME, they want all forms of payments, both cash and digital, to be in their system as quickly as possible.

Think of a very low margin business in the retail segment, there are X number of transactions happening through credit, debit, UPI and then cash. Now the settlement of digital transactions is possible immediately. But for cash, the settlement is annoying. First the reconciliation process takes place, then the money must be physically checked, verified and then deposited into a bank account. A banker will then have to reconcile the banknote in his ERP system and then close the transaction. In a low-margin business, you can’t afford even a 2 to 4 percent error. So we look at how can we increase the velocity of cash? It is crucial that retailers have access to money for growth. That’s why we try to get the money back within 24 hours.

Furthermore, we have built a system to digitize cash for them in a better way. For example, when our team member collects the money at the physical store, we will update our system that X amount has been collected from Y or Z company. And that collection will be reflected in their internal systems. Then we physically ensure that the data is in order, check the amount and validity of the currency and ensure that this money physically reaches the bank account of that retailer… We believe that there should be at least 5 lakh retailers using such services and currently only around 1 lakh retailers might be using them.

What is your strategy for using AI and how much of your revenue is generated from technology and payments activities?

I think the technology and payments sector is contributing about 10 percent right now. This should be 15 percent over the next five years, because other companies are also growing in a healthy trend. Our HawkAI business is a machine learning-based platform. It’s a lot about predicting patterns and seeing how you can prevent security incidents from happening based on certain triggers. If there are three people walking on the ATM premises, this is normally unusual. If they are wearing a helmet or mask, something may be wrong. If there is a lot of movement, there are sensors that detect this. We have trained our ML platform extensively over the last three to four years, and when a serious incident occurs, you learn from it and work on it… We use this tool at ATMs, branches and high-speed commerce. This is one of the fastest SaaS business growth in India; currently approximately 30,000 sites run on the HawkAI platform. We have aggressively set a goal of approximately 80,000 locations using this tool over the next five years; the growth opportunities are enormous and it is even cost-efficient.

What are the inorganic growth opportunities you see?

There will be merger and acquisition opportunities within our operations. We already have a very large market share on the ATM side, so I don’t think we’re necessarily very hungry for acquisitions there. On the technology and payments side, which is a smaller part of the business, we are growing it quickly and we want to grow it even faster. It’s also a big universe, so if there are good companies we can partner with or acquire, we’d love to do that. We are a first-of-its-kind company, growing our average revenue at 15-16 percent CAGR and profit at 18-20 percent since inception in 2009 to date. Nowadays, banks spend a lot of money on technology and payment services. That’s why we continue to look for niche options, for example B2B payments or players that create software for banks. Some fintechs post negative EBITDA, PAT. But for us, we’re focused on profitable growth. The profit must be there and sustainable. We want to build a company that maintains 20 percent plus RoCE. I think we have good chances… we have done one deal this year, and given the consolidation of the market, we could go for a deal at the right price. If we get a machine learning-based platform on the surveillance side, which is in a niche that we don’t operate in, we might consider such a company. If you are already on the ATM side and helping us scale faster, we will consider it, just like with Securens. So more acquisition on the HawkAI platform will definitely be more interesting for us.

Would you consider moving the technology activities into a separate entity?

Our largest revenue comes from ATM side, around ₹1,300 crore. That’s a good size. The technical size is just ₹250 crore. Now if it reaches ₹1,000 crore, can it be hived off?

First, why do we need to divest? One is unlocking value, otherwise the markets might not understand it in a conglomerate way, but right now that’s not necessary. If the turnover of our technology companies rises to over Rs 500 crore three-four years later, or if we get lucky and can scale much faster, I think we should think about it. A Rs 1,000 crore tech company that achieves an EBITDA margin of 15-20 percent with a RoCE of 30 percent could do much better as a standalone platform. The main reason for the spin-off is that the opportunity to grow much faster is better as an independent company.

Your indication for the EBITDA margin?

They have remained within reach for us. It was a bit low in the first half as investments were made and costs rose, but we want to get back to FY25 levels by March 2026. Our EBITDA margin is world class. That’s why I don’t want unnecessary pressure on the team to continue to strive for a very high number and sacrifice growth or market share.