IPO Analysis: Radiant Cash Management Services

The IPO opening date is December 23, 2022 and it will be closing on December 27, 2022.

IPO Rating:  Avoid

About the issue: 

Radiant Cash Management Services, engaged in retail cash management (RCM) services for banks, financial institutions and organized retail and e-commerce companies, is coming out with its initial public offering (IPO) of equity shares of the face value of Re 1 per equity share. The price band of the issue has been fixed at Rs 94 to Rs 99 per equity share. The issue size is Rs 387.9 crore at higher price band. The IPO opening date is December 23, 2022 and it will be closing on December 27, 2022. The IPO market lot size is 150 shares and in multiple thereof.  

The IPO consists of fresh issue of around 0.61 crore shares and OFS of 3.31 crore shares, aggregating to a total of Rs 387.94 crore. The company will utilize the proceeds for funding its capex requirements and purchase of specialty armored vans. 

This company's IPO is listing on both NSE and BSE. 

IPO Detail: 

Promoter holding  

Post-IPO, the promoter group stake will be at 53.21 per cent, compared to pre-IPO stake of 66.39 per cent.  

About the company: 

Radiant Cash Management Services (Radiant) offers a wide range of services consisting of collection and delivery of cash on behalf of its clients from the end user. Radiant primarily provides the services: 1) Cash Delivery Services for banks, individuals and commercial and government establishments, 2) Cash Processing like sorting notes and coins, 3) Network Currency Management which involves collection, transfer and deposit of cash, 4) Cash Vans / Cash in Transit where it offers specially fabricated armoured vans for movement of cash or bullion within their client’s network and vaulting services for bulk cash and ATM cards, cassettes and important documents and 5) Other Value-Added Services. 

The Indian cash management market mainly comprises of ATM replenishment services, retail cash management services and cash-in transit services. Over FY10-21, this market grew by 9.7 per cent CAGR to Rs. 2770 crore in FY21 and is likely to grow by 19.1 per cent CAGR over FY21-27 to Rs 7900 crore. With 52 per cent revenue share, ATM cash management is the biggest segment in cash management services market. This is followed by retail cash management (RCM) and dedicated cash-in-transit vans, each with 24 per cent revenue share in FY21. The RCM market is estimated at Rs. 680 crore in FY21 is projected to grow by 20.1 per cent CAGR over FY21-27 to 2040 crore in FY27. The growth in the organized retail sector as well as the corresponding outsourcing potential is expected to be major factors for the development of the RCM market in India.  

Radiant is an integrated cash logistics player with leading presence in RCM segment. With market share of around 40 per cent, it is one of the largest players in the RCM segment in terms of network locations or touch points served by the end of FY22. As of  July 31, 2022, Radiant provided services across 13,044 pin codes in India with about 55,513 touch points serving more than 5,388 locations. Moreover, around 70 per cent of its touch points are in tier-3+ towns and cities, followed by 17 per cent and 12 per cent in tier-2 and tier-1 cities, respectively. Over FY19-22, total annual currency movement across its RCM business increased by 4.8 per cent CAGR to Rs. 1.3lakh crore in FY22. 

Financial  

For the period between FY20-22, its revenue and PAT clocked CAGR of 7 per cent and 2 per cent respectively, while EBITDA margin dipped slightly from 21.1 per cent in FY20 to 20.5 per cent in FY22. The company reported revenue of Rs 286.97 crore in FY22, up 29per cent YoY, while EBITDA increased to Rs 58.5 crore in FY22 from Rs47.3 crore in FY21. PAT for FY22 stood at Rs38.2 crore as against Rs32.4 crore in FY21 and Rs36.5 crore in FY20. Its ROE during FY20, FY21 and FY22 stood at 30.5per cent, 25.5per cent and 27.3per cent respectively.  

During Q1 FY23, consolidated revenue increased by 41.2 per cent Y-o-Y to Rs. 84 crore. EBITDA and PAT margin expanded by 662bps and 573bps Y-o-Y, respectively, to 25.6 per cent and 18.2 per cent. On TTM basis, top-line stood at Rs. 310.5cr with an EBITDA and PAT margin of 22.1 per cent and 14.8 per cent, respectively. 

 Valuation and Outlook 

Based on FY22 earnings, the company’s share price is valued at PE of 27.5x. Nonetheless, if we annualise first quarter earnings and calculate EPS based on expanded equity post issue, PE comes to around 17.3x. Compare this with one of the listed player engaged in the similar business, CMS Info System, which is available at 16.67x. Even if we compare market cap to sales, IPO seems to be not keeping anything for the IPO subscribers.  Radiant is available at market cap to sales of 3.71 times compared to 3.07x at which its competitor, CMS Info System is available. Hence, our advice to investors is to skip the issue and if interested to take exposure to the sector, they can invest in shares of currently listed companies. Besides, the sector also does not look very promising in the long run with the digital modes of payments and digital currency posing threat to such businesses.