AGS Transact IPO analysis: Risk-averse investors may wait for clear growth trend in AGS – The Economic Times

Clipped from: https://economictimes.indiatimes.com/markets/ipos/fpos/ags-transact-ipo-investors-may-wait-for-a-clear-growth-trend-in-financials/articleshow/88951324.cms

SynopsisThe company operates in a rapidly growing banking and finance sector. However, its revenue has been more or less flat in the past three years with a drop in net profit in FY21. It reported a net loss in the five months to August 2021.

ET Intelligence Group: AGS Transact Technologies, which provides online payment services to banks and corporate entities, plans to raise upto Rs 680 crore through an offer for sale (OFS) by promoters including Ravi Goyal and existing shareholders. Through an internal arrangement involving the exchange of compulsorily convertible preference shares (CCPS), Goyal will transfer a portion of the OFS to the company, which will be used to repay outstanding nonconvertible debentures (NCDs) worth around Rs 569 crore.

After the IPO, the promoter group stake will fall to over 66% from 98.2%.

The company operates in a rapidly growing banking and finance sector. However, its revenue has been more or less flat in the past three years with a drop in net profit in FY21. It reported a net loss in the five months to August 2021. Given these factors, risk-averse investors need to wait for a clear growth trend to emerge before making an investment decision.

Business
Incorporated in 2002, Mumbai-headquartered AGS provides ATM and customer relationship management (CRM) outsourcing, cash management, digital payments including merchant solutions, transaction processing, and mobile wallets. It had deployed 2.2 lakh payment terminals across the country as of August 2021. The domestic revenue comprised of 95.6% of the total revenue in FY21 while the rest was from international operations in Sri Lanka, Singapore, Cambodia, Philippines, and Indonesia. The payment solutions and banking automation divisions contributed 76.8% and 9.1% to the FY21 revenue, respectively while the remainder was from other automation solutions.

Financials
Revenue from operations and net profit fell by 2.3% and 34% year-on-year (YoY) to Rs 1,758 crore and Rs 54.8 crore, respectively, in FY21. The return on equity (RoE) fell to 10.3% in FY21 from 16.7% in the previous year. Non-current borrowings increased to Rs 866.2 crore from Rs 348.9 crore by similar comparison.

Risk-averse Investors May Wait for Clear Growth Trend in AGS

Concerns
According to the RHP, the RBI by way of its order dated March 4, 2021, revoked the authorisation granted to AGS in relation to setting up, owning, and operating white label ATMs. In another instance, AGS filed a writ petition dated April 28, 2021, against the Bank of India (BoI) before the High Court of Bombay to set aside the bank’s letter dated December 8, 2020, in relation to permanently debarring AGS from participating in the bank’s future selection processes for service providers. The court has stayed BoI’s decision. The matter is currently pending.

Valuation
The IPO demands a price-earnings (P/E) multiple of 38.5 based on FY21 net profit. The company does not recognise any listed entity as its peer. Recently listed CMS Info Systems, which provides cash management solutions to banks, trades at a trailing P/E of 27.4. (Originally published on Jan 17, 2022, 04:12 PM IST)

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