CMS Info Systems Limited (CMSINFO) Q4 2026 Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the CMS InfoSystems Q4FY26 Earnings Call, hosted by IIFL Capital Services Limited. All participants are currently in listen-only mode. There will be an opportunity to ask questions following the conclusion of the management's opening remarks. Please note that this conference is being recorded. I now hand the conference over.

Thank you. Ladies and gentlemen, good morning, and thank you for joining us on the post-Q4 FY26 results conference call for CMS Infosystems Limited. It is my pleasure to introduce the senior management team of CMS who are here with us today to discuss the results. We have Mr. Rajiv Khol, Executive Vice Chairman and CEO, Mr. Pankaj Khandelwal, CFO, Mr. Anush Raghavan, Chief Business Officer, and Mr. Puneet Birani, Chief Operating Officer. We will begin the call with opening remarks by the management team, and thereafter we will open the call for a Q&A session. I would like to now hand over the call to Mr. Rajiv Kol to take the proceedings forward. Thank you, and over to you, sir.

So thank you so much. Good afternoon, everyone. I hope you all have the link to and you can see the presentation. And I hope some of you at least have had a chance to read our shareholder letter, which we published last night. If not, I would recommend you have a look at the letter also in parallel to get a better flavor of what we're going to talk to you now. So we're going to cover the last year. We'll talk about some of the wins in this year and the shift in our business. And we'll talk in detail about capital allocation. And then we'll quickly move forward towards FI27 and FI30. Slide number three. To summarize, FI26 was a hard year. Even though Q1 wasn't aligned with our plans, Q2 saw a sharp impact from four factors which converged around the same time. To detail them out, there was a significant impact on H1 on consumption linked to a very prolonged adverse climate cycle and geopolitical issues. We think this had an impact of almost 25 crores on our revenue. The SBI cash outsourcing delay got us off guard with a significant investment in routes and infrastructure. This RFP closure delayed from February to April to December had a huge 100-crore revenue impact for us in the year. We learned and we have made fixes in our operating processes post that. The off-site ATM market contracted after AGS exited the sector. And many private and public sector banks were not able to find MSPs who were willing to deploy new ATMs on the transaction fee models. This has affected our ATM cash management business with the revenue impact of almost 30 crores. So you total just these three items, the impact to our FI26 revenue was 150 crores on our services revenue base. Had this revenue come in, our rev growth for the year would have been 13% for services and 9% overall. We also, if you remember, had mentioned this in Q2, we had to give out larger than usual wage hikes, which are linked to our long-term employee settlement cycles, which are done every three to four years. So overall, for FI26, our revenue grew to 2,487 crores, which is about a 3% growth, and our services revenue, which is our annuity revenue, that grew to 2,312 crores, almost a 6% growth rate. On our part, we called for an analyst meeting as soon as things weren't looking good in September to avoid any surprises and to share with you as we saw the lay of the land changing. And we took quick actions to fix and control what we could. In September, we told you about what we're going to focus on to try and address this decline. We have always minted that a good manager team has to focus on balancing revenue growth, market share, and margin profile. I think we focused the remainder of the year on protecting our revenue and trying to gain market share. End result is that our cash logistics business grew in market share by 200 bps, and at the managed services business, we moved from number five to number three position. We have been always a big deployer of technology and leveraging it. We were able to accelerate that using AI, and we were able to drive significant cost efficiencies. Our immediate focus was on our route network, and using ML, we were able to reduce our route network by a sharp 10% in the September 25 to March 26 part. Given the overall weakness in the MSP segment, we were able to drive a more sensible commercial model of fixed price contracts. Historically, the industry has not been to get off the transaction fee model. And I feel at this stage, for all practical purposes, the transaction fee model is dead in the ATM business. We, in fact, ourselves won a contract for 700 crores at a reasonably high transaction fee of 19 rupees per transaction, but we still chose to stick to our principle of not doing any transaction fee business model deals. And we didn't want to take the risk, even though this could have meant a 75 crore annual revenue to start with at reasonable margins in the first few years. We chose to preserve that 100 crore of capital for expansion and diversification into businesses which would have a more sustainable return metric. After years of strong growth in the prior years, we also examined our longer tail of lower yielding customers. And try to drive price increases where possible. And in cases where we couldn't, we migrated some contracts where the prices did not make sense. We also significantly tightened DSOs around our managed services business segment. Our OCF to EBITDA ratio in H2 was 173% compared to a negative 40% in H1. We had told you that we will be making a big investment in technology, and even in a tough year, we continue to do that. In fact, we ramped up our tech investments to almost 40 crores of investment, which is 1.6% of our revenue, up from our usual 1% of revenue in the prior years. We also made a significant... For investment in a gig delivery model of about 15 crores, we feel this is very critical to convert some part of our fixed cost network into a variable cost structure and for expanding our retail business into tier three, tier four markets in India. The Q2 deterioration was arrested by Q3, and we sharply recovered in Q4. Q4 saw a 6% Q&Q services revenue growth. In fact, if you notice, we have given you a 12-quarter trajectory. We have been sort of stuck in the 535 to 575 crore services revenue for eight quarters and have meaningfully broken out. In February, we had mentioned that Q3 will be the bottom for us on margins, and we aimed to expand margins by 150 to 170 bps in Q4, and another similar expansion in FI27. I'm glad to report that we are able to sharply improve margins by 280 bps in Q4. So overall Q4 services revenue is at 609 crores, 6% growth. The total revenue for Q4 is 633 crores at 2.4% growth. EBITDA for Q4 at 162 crores, which is 15% Q&Q growth, but flat year-end year. PAT for Q4 at 79 crores, 38% growth Q&Q, but a 19% dip YRY. The full year numbers on services revenue at 2312 crores at 6% year-on-year growth, and overall total revenue at 2487 crores, 3% growth year-on-year. EBITDA for the year at 600 crores, negative 5%, and PAT of 303 crores, negative 20%. The EBITDA and PAT numbers mentioned here include the wage code impact. Now, for historical purposes, we will show you the segment breakup. However, we have guided you to the fact that segments no longer make sense anymore for us because this was an IPO when our business was mostly 70% cash management, 30% managed services. That split since then has moved to 60-40 and last year went to 55-45 split. Given we are able to drive a lot of our business and growth towards integrated contracts, where splitting a margin is not possible and feasible. So, on our overall EBIT margins in Q4 have gone from last year, Q4 was 22.6%. They dipped to 15% in Q3 and have come back up to 90% in Q4 of this year. For the full year EBIT margins for FY26, they have contracted by 360 BIPs from 19.2% to 15.6%. Let me shift gears now. After patiently waiting for the right opportunity and the right price and valuations for the last four years, we finally did two acquisitions in FI26. We have kept you periodically abreast of our M&A thinking plans and the sectors of focus. We have intensely worked on 15 opportunities, letting some go after a lot of time analysis and investment of time. Either the sectors finally didn't make sense to us to take a risk on, or the valuations were way out of our comfort zone. All of this experience has sharpened our approach, how we quickly screen deals and the terms we operate on. The two deals in the year specifically, Securance is a key deal for us to scale in the Vision AI segment and to grow this business. The deal has closed and integrated and will be accretive to us in FI27. In Q4, we signed our deal with FSS for the managed services business. This not only helps us consolidate the managed services segment, but more importantly for CMS, it allows us an entry into mid-sized private banks for cross-selling. It also helps us influence and shift those contracts from a transaction fee model historically to fixed fee models when those contracts expire. We hope to close this and integrate this deal at the end of Q1. We have been able to drive this shift of transaction to fixed fee by showing the value of such contracts to the largest banks in India, and the rest of the market will follow in a matter of time. I'm now on slide number nine. As we talked about M&A, I wanted to talk about capital allocation. This is covered. In significant detail in the shareholder letter we have published last night, and I would request you to go through that letter. But to summarize, our IPO was an offer for sale, no capital raised. Over these five years, the company has averaged a high 70% OCF to EBITDA and generated almost 2,275 crores of cash, out of which 1,000 crores have gone in for organic growth into capital investment. In fact, even if you look at the trends of CapEx investment, we have invested capital when we have been clear and convicted of the investment opportunity and the returns on it. So we went from an average of 200 crores of CapEx investment in FI 22 and 23, and it dropped to 200 crores in FI 24 and 25, as most of the contracts which were being bid were transaction price oriented, and the prices are very low, and we stayed out of those businesses, which affects our FI 25, FI 26 growth, but we preserve capital for better times. In FI26, in the middle of the storm, we upped our CapEx spend significantly to drive higher growth in the coming years, and we have invested 350 crores of CapEx in FI26. Dividends, or broadly in terms of shareholder returns, I think have been linked to PAT and have grown each year till FI25. We have returned 4,38 crores through dividends to shareholders, including the special dividend we did in FY25. For those of you who know us well, CMS is a self-funded compounder and not a grow-at-any-cost operator. Let me pause before I move to slide 10. We are seeing a significant change in the business mix, which is critical to our transformation journey and to continue growing at our historical growth rates. This slide shows you a massive shift in the customer mix. In our prior years, our growth was led by the managed services segment and SBI. Due to the transaction fee model being impacted in the country and that affecting the growth opportunity, we have been steadily and consciously diversifying our base to other large banks, especially in the private sector and retail segments. So you can see the sharp shift in the mix, which was 58.42 in FI25. End of FI26, this mix has shifted to 48.52. There's a very big shift in just one year. And we'll hopefully accelerate in the coming years. Slide number 11. At the analyst day, we introduced to you a new way of thinking about CMS. And we identified the three platforms we think will lead our growth to FI-13. The ATM management solutions, the retail and currency logistics business, and the technology and payment solutions. These businesses were a 63, 37 split, and FI-22. And in the four-year period, you can see this mixed change again in these segments. It's 58-26-16. The technology and payment solutions business has had a significant mixed change from 7% to 16% of revenue. In fact, it was 12% revenue last year itself. This is now a 370 crore business now for us. And what is driving this shift is Hawkeye. Which is now 200 crore revenue and has doubled for us in the last two years. Through the Securus acquisitions, we have scaled this business significantly. We today have 50,000 sites live, which are being actively monitored by our software. Think about this. This is a phenomenal scale when you compare this to the fact that it took us 20 years to get to 70,000 ATMs. 20 years to get to 65,000 retail points, but four years to get to 50,000 retail sites, to RMS sites. This is targeting a large 8,000 crore TAM for us. Within BFSI, which has been historically our strength, we have quickly moved to gain a market-leading pole market share of 36%. That is the power of this technology-oriented business. We end FI26 with a solid order book, not only from size, which is 2,000 crores, but Even if we say so, it's a high quality wins. None of these deals is linked to any transaction contract, transaction fee-linked contract. All of them are fixed fee models. We are especially proud to have had a unique year. We had three huge deals and wins from SBI, ICICI Bank, and HDFC Bank. These are marquee banks. And to have big contracts, long-term contracts signed for CMS in these years is huge for us and gives us a good tailwind as we move forward into the coming year. In fact, these contracts help us secure 85% of the FI27 target and goal we have. And we have these contracts in hand and going live. End of 25 itself, we have set out our FI 27 revenue goal. Despite the hit we took in FI 26, we are still maintaining that revenue as a goal. Our services revenue goal remains at 2,700 to 2,800 crores, which will mean a 17 to 21% growth on FI 26 numbers. At an overall revenue goal, total revenue, we are targeting 28 to 2,900 crores, which would mean a 13 to 17% growth. On margins, we have historically never guided to margins, and there are emerging pressures on possible impact of consumption linked to inflation or geopolitical impact, but we are still aiming to be in the 25% EBITDA margin range. Q4 has helped us significantly ramp up margin profile, and we will look to maintain and defend that in the rest of the year. We've had a lot of feedback on this topic in the last nine months. It seems to be a favorite topic for many of our investors. Our position on shareholder return has been very clear. We will do what is equitable and fair to all classes of shareholders. And in the prior years, it didn't make any sense, given we weren't fully clear on our capital needs for growth. Also, the taxation structure was unfavorable to many classes of shareholders. The taxation rules since then have changed. We have done two deals. We have invested a significant 350 crores of capex last year, and we have weathered the FI26 storm, and we are well positioned for the coming years. With clarity on our capital needs and our cash balance of 650 crores, the board has approved a 168 crore buyback, roughly a 3% of our outstanding equity shares, at a 340 rupees price point. After this buyback, we'll still retain sufficient liquidity for our foreseeable growth needs. As a team, we are meticulously focused on a higher TAM as a goal for us and to help us continue driving high growth rates. Our three platforms today target a TAM of 20,000 crores. We are seeing a strong market consolidation and link to that repricing upside opportunity in the coming years. Over the last four years, we've grown our services revenue at 12% CAGR. This includes the slower years in FI25 and FI26. Over the next four years, we see our opportunity to accelerate this growth to a 13-14% CAGR, which is more in line with our historical growth of 15% CAGR. Thank you for your patience and your belief in our tough year. And with this, we end now and move on to Q&A.

Thank you so much, sir. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask a question may click on the raise hand icon from the participants tab on your screen. We'll wait for the question queue to assemble. We request all participants to restrict to two questions and then return to the queue for more questions. To rejoin the queue, you may click on the raise and icon again. We'll take a first question from Beidik Sakar of Unify Capital. Beidik, please unmute your microphone and go ahead with your question.

Rajiv, hi. Good morning. It's been a tough year overall. I hope 27 beyond is better for you and the team. Thank you very much. A couple of questions. You know, like you alluded to in your opening comments, there was softness in private bank, KTMs, and H1 of last year. How's that sentiment overall behaving today? You know, that, especially in the context of what's happened in the last two months, they're all macro at a global level, but decision making has, you know, come into. Things at a country level as well. How are you reading decision makings there? And this question is from the perspective that our guidance of 2,900 crores while is a very strong task. The exit that we have in Q4 pegs our revenues at roughly 2,500 crores. And of course, the HDFC wins probably adds to what, you know, takes that number to roughly 2,600 crores. So which means we still need a line of sight to balance the incremental 300. How would you rate the quality of decision-making in this environment and the probability of us getting there?

Hi, Vaidhik. Anush here, let me answer some of your questions. First of all, let me take the one on what is happening to the overall ATM industry, how are banks thinking about growth? As Rajesh spoke, and as you also shared earlier, we're sort of starting to see two or three trends. The first has been the shift in the mix of banks preferring to move from what we traditionally call ATMs, which are cash dispensers, into recyclers, which enable them to transfer a lot more of the transaction banking activities from a bank branch to an ATM site. So this can do cash acceptance, it can do video KYC, it can do card issuance. So it's sort of similar to what a digital banking unit would have delivered. So we sort of started to see banks change that. And the second is a change which is being pushed by primarily CMS of urging banks to switch from a transaction price model to a fixed fee model. I think it's some of our earlier calls. We had told you how the effective market clearing price for transaction fee has been constantly inching up higher. The last RFP that one bank did, this came at close to 25 rupees, which is anyway, it's not an economical price for that bank, given interchange is at 19. So in FI27, we know the 6,000 to 7,000 units that we see in different stages of bank RFP pipeline planning are mostly all either product purchase and with subsequent services outsourcing or will be a fixed price outsourcing deals. The second point on how are we thinking about our revenue shift, similar to our last call, our goal at that point in the end of Q3 call when we spoke to you in February was to exit FI26 on a strong revenue momentum so that we enter Q1 with about 650 crores of revenue. So between 577 crores of Q3 to 650 crores for Q1, 609 is sort of a step in between there So a lot of the execution and order execution, as well as... The revenue ramp up of some of the new wins that we've had are underway. So the 650 should get us to a 2,600 crore run rate. It also means that through the year, we have to win and deploy about 100 crores of products. And the balance is things that need to be, you know, additional orders which need to be executed. If I look at FY26, we won about 2,000 crores of overall orders, of which we have close to about 400 to 500 crores of work, which is still to be executed.

On the margin front, I understand, you know, the fuel inflation is something that has just happened. In our typical pricing, how does pass-through work on our ETM milk runs? Is this something that we can pass on overnight, or do we have to absorb this before this gets escalated?

I think there's a rhythm and a routine to how we've done this over the last decade, decade and a half. We've sort of been, as a company and a team, been through various inflation cycles, Benign ones and more difficult ones, different playbooks, different tools. Simply put, there are some of our contracts which offer a CPI-WPI-linked inflation increase. Our effort is to constantly have more contracts move into a regime like that. For the ones which don't, we do have periodic price resets. So, effectively, I think the way I would look at it is as we move from 26 to 27, we also shared in our analyst meet in September when we met that we are trying to get price increases across a lot of our contracts. So, the normal inflation-linked increases get set off with price increases, which are part of these efforts on an annual basis. In case there are some things which are more extraordinary or, you know, things that we can't plan for, you know, it may be certain states which have undergone a much steeper minimum wage increase or fuel price increases which are beyond, you know, beyond normal. Those are times where we try to... You know, push on, pass on a price increase, which is outside these annual cycles.

I think the industry gets together at these moments to discuss with the key clients. Again, it's really client relationships and the value drive. So some of it is, some of, I don't think it's linked to, directly linked to headline inflation. I think either it's linked to a contractual terms or negotiations, which are logically based in what the ground reality is. The private sector engagements, it is far different than it will be the public sector.

No, no, I understand. Mine was a very topical question, given what happened yesterday on the price hikes. So the simple point being that, you know, does it represent a risk to our 25% margin aspiration? That's the only thing I'm trying to drive at.

I mean, I think it's a fair question, Vedic. You know, we have, and you've known us for some time, we are very reticent on margin forecasts, because not always easy to control what the competitors will do and the market will be. I think we've had a good Q4. We don't want to get carried away with extrapolating that straightaway into next year. I think we will want to wait and see what happens in Q1. Right now, there is just unknown volatility given we all feel in India that a lot of the price impact on fuel may have been deferred for whatever consideration. So let's see this play out. We've seen one price hike yesterday. I don't know what more will come in. We don't know what will happen to work from home as a concept right now. So I think we'll wait for Q1 to see how things pan out. But our effort, given the investments we have made and the nature of our contract, some of the M&A we have done, is to... Get to a 25% zip code. Setting in May, impossible to tell you today if we will hit it, achieve it, or miss it. I don't think there is significant risk as of today, but we would prefer to be conservative on this. If we are able to drive the revenue growth, I think it gives us a better margin to, I mean, like last year, we talked about, and I think in the Q2 or Q3 call, we did wean away some of our lower yield retail customers. That's revenue gone, but also lower margin business gone. So if we have to sort of wean away some business at the end of the year, if you drop 25, 30, 40 crore revenue to maintain a higher margin profile, we'll look at that in H2.

You know, just a beautiful question before I get back. There seems to be a wrap-up, you know, depreciation costs, I understand. The acquisitions have not yet been closed, you know, the FSS one. I'm just curious, what's driving this sequential wrap-up from 56 to 59 first?

Depreciation wrap-up, you said? I don't know if I can answer, sorry. Depreciation, there is some change.

So, during the year, we have done around 350 crore rupees of the capex. And as well as the security we have already added. So, related to that, the depreciation has increased from 54 to 59 crore rupees.

Got it, got it. And just the last question on the FSS acquisition, you know, is it expected to be earnings accreted from the first year itself or do we wait before it runs accreted?

Let's finish the deal in Q1, Bediq. And after that, we can tell you better.

Thank you so much, Baidik. We request all participants to restrict to two questions only. And if you wish to have any follow-up questions, please raise your hand and you can rejoin the queue. We'll move to our next participant, Raveen Kumar from Equitas Capital Advisors. Raveen, please unmute your microphone.

Yes. Hi, I'm Audible.

Yes, Prevent, please go ahead.

Hi, Rajiv and team. Thanks for the opportunity. The investor letter was very, it read in a very heartfelt and frank manner. Thanks for writing that. I had a couple of questions. One was, if I look at your FY27 revenue guidance, if I were to do something like a pre-mortem on that, assuming, let's say, one year down the line for some reason that's not achieved, what are the top two or three reasons you would We know that's happening. That is the first question.

It's a great question. Can you tell us a second while we think of the answer to that?

Sure. Second question was on the kind of transaction-linked... Kind of project that you walked away from, which happened in the, you know, later part of 25, right? I just wanted to understand who, which of the other, I mean, did any of your competitors take up that? And because, you know, you have been hinting that industry is moving more and more towards the fixed price kind of model. So I was just wondering, given that size of contract, was it taken up by someone? And if so, how do you look at that? Yeah.

So, um... Where we are right now on revenue, and I think Baidik also referred to that, the 633 crores, you extrapolate that right now, just out of simplicity, into four. That gets you to 2,500 crores. We are executing and going live on the AGFC contract, which should get us another 5,75 crores of revenue in the year. That gets you closer to the 2,600 crore number. Now we're talking about another 200 crores. I'm talking about the bottom end of the range. Let's forget the higher end of the range right now. Do you want to call? I think there are orders and order wins which could help us contribute to that delta. What could go wrong? What could go wrong on the revenue side right now would be if there is a sharp dip in consumption in, let's say, Q1, right? Because Q1 is then into a four issue. There could be risk to consumption both at the retail side or at the transaction per ATM level. We have seen, in March and April, a dip in currency supply in the country, which impacts ATM transactions. So I think if that trend continues, let's assume, for the next 10-12 months, there could be a 50-70 crore impact on the revenue. Unlike last year, we don't have a... I mean, last year, forecast was based also on 100 crores of revenue we were presuming would accrue to us from the SBI contract, which didn't happen. We don't have that risk right now. We don't have any such large risk, which is sort of assumed to happen and therefore could sort of dip. In the math, is the contract either going live or already signed? So there is a delta from 2,600 to 2,800 crores. Absolutely. I think with the rest of the year, we need to go work hard to earn it. So that's the answer to your first question. Your second question was, did somebody else take the contract? Yes. Should we name it? No. And will those ATMs go live? Hopefully. And will we get some part of the business from there? We should. And but again, you know, it's really at 90 rupees, I think is a great price, because as a max, you can really get at interchange today. For us, it was really about could we foresee us making money over a seven year cycle of the contract? And we could, I mean, we could, but not in the levels at the threshold and the return metrics we have. I've said this historically also to some of you, is that growing our business is not a challenge. There is business, but growing this business at a 25% zip code and EBITDA margins, the ROC levels, is a challenge. And therefore, for us to keep aspiring to grow double digits, maintaining that return profile, is something we have created as a ring fence around ourselves, and we have to keep maintaining that high threshold. So I do think there will be some players who can make reasonable returns on that project. There is a little more risk. We prefer to take the 100 crores and deploy it when we find a segment or a company where we like the return ratios more in favor to what we prefer.

Thank you. Thanks for the response.

Thank you so much, Praveen. We'll take our next question from the line of Omanksha of Banyan Tree Advisors. Please unmute your microphone.

Hi, sir. Good afternoon. Thank you for the letter and the way you communicate every time. I had two questions. First question was, in the analyst meet last year, you had broken down the cash logistics business into ATM cash, retail cash and CIT. Can you give that number for FY26?

Umang, would you like to ask the second question as well? Yes, yes, I'll do that. Sure.

And sir, we see that offsite ATMs are reducing by private sector banks. And we also see a number of transactions as per RBI data coming down. In this context, why would banks want to? Increase off-site ATMs. That was first part. And second is that between off-site and on-site ATMs, do our services change? And if yes, which is more profitable?

Hi, Ramang. Let me answer the second one first. Very good question. It's a trend that we had called out early that we are seeing a shift between the behavior of on-site and off-site ATMs. Like I said, I think banks at the point have changed reasons for why they need a certain network in scale. If you'd asked me this question five years back, or even 10 years back, both private and public sector banks expanded ATM growth rapidly, mostly on the back of independent ATM deployers or what we call the BLA model, executing this on a transaction basis, simply because there was a significant arbitrage to be earned between, you know, interchange fee, which is what one bank settled with the other, versus the cost of running an ATM network. So it made sense for banks to invest and create net ATM capacity, which was probably running ahead of what they truly needed in terms of their debit card issuance and spread in terms of savings account. Five years back, we started seeing some banks, specifically the private sector banks, changing and taking a pause, saying, you know, this is not about having the biggest or the largest network. It's also about using the network for the right reasons, which is driving penetration and growth in newer areas that they're entering into. So if you set up a branch, they typically wanted the branch to be surrounded by 102 ATMs. It helped in building CASA. It also helped in branding and distribution. Right now, if you sort of see what banks are doing, they're treating the ATM channel as a way to effectively act as an alternate servicing mechanism to their bank branch. So it's not just about cash distribution or cash withdrawals anymore. It's also about trying to cater to the customer lifecycle and the needs. So some of the work that we're doing, and let me take ICC Bank as an example. Two years back, they had, I think, about 20% cash recyclers and 80% cash dispensers. Two years since now, since we've been working with them, it's gone the other way. We had 80% cash recyclers and 20% dispensers. And now, to most of us, we still call an ATM an ATM. But fundamentally, from the views of a banker, a cash recycler provides... This could be service to a whole set of customers who are otherwise walking into a bank branch to deposit that cash. These could be, you know, SME customers, these could be traders, these could be retail accounts, but all of this then moves into a cashless side club. Second, as you are going live with the Algo MBS software this year, that allows a bank to upsell. A lot of the value-added services or a lot of the non-financial banking services and package that into a cash recycler. So this could be account opening. It could be video KYC. It could be asking for a cross-selling a loan, which is specific to you as an individual, not just a traditional loan product. It could be Instacart issuance. It could be passport computation in the context of public sector banks. So I think we are seeing the cycle shift. Banks are willing to commit their own CAPEX as opposed to getting private parties to put up CAPEX here. And on the back of this CAPEX, they're looking at transferring a lot of the expensive transaction banking activities from a branch to an alternate channel model. I'll just go back to your earlier question on the split. I think if you look at it, we also said we will resegment our revenues into the three platforms. So all of ATM cash goes into ATM solutions. We have retail and CIT combined, and we have technology and payment services. The specific mix of those splits are captured in our presentation.

Yeah, I think the cash MS split, we said it's the 60-40 historically has gone to 55-45. Beyond that, I don't think we even have the live numbers. We are starting to internally just focus on the three platforms and measure them. That split is already mentioned. And I think you talked about the transactions and the stability. Okay, cool.

Sure. Thanks, sir.

Thank you, Umang. We'll take our next question from the line of Divyansh Gupta of Latent PMS. Divyansh, please go ahead.

Yeah. Hi. I have three questions for FSS business. The first one being that whatever revenue that FSS was doing. Some would be through CMS and some will be through other players. So, how are we thinking of moving all of that business to CMS or will the contrast expire and then only CMS will take up those business revenue opportunities? The second one is more a basic question and then a buildup on that. The fixed fee versus, let's say, transaction. Does it get fixed at FSS level? And if yes, then is there a certain percentage of revenue that FSS is currently doing on transaction basis, which that way leads us to some bit of exposure to that kind of revenue stream? And the third one is that while we have mentioned that there is a cross-sell opportunity of Hawkeye and Algo MVS. Do the current client base do not have that offering and therefore it's more of a, let's say, be doing an inception sale to them that these are the advantages or it's a replacement of existing vendors and therefore, again, how do we see that timeline moving to CMS?

So, let me go one by one. As far as the first question is concerned, so the contracts that we are transferring from FSS would be all the managed services contracts. For SS, we are already one amongst the largest cash management partners. So I think when we talk about incremental revenues, it's mostly the parts that were not attributed to us in terms of the overall managed services for these ATMs and possibly for some ATMs that we are outsourcing to others. Right now, in terms of when we have sort of done our internal math, in terms of the focus is really more on getting the customer innovations done, bringing back the quality and stabilizing those networks for the banks. We're not really right now thinking too much in terms of arbitrage of what we do versus what other people do. I think fixing the quality and stabilizing network is our focus right now for Q1 and Q2. To your second part, yes, there would be some contracts of this which would have a transaction exposure. However, again, the reason that we are differentiating this from what we typically bid for is in contracts like this, which have already had two, three, four years of transaction history and aging, it's a lot easier to understand how those ATMs are performing and to take certain calls of what needs to be running, what investments you need to make to either fix and improve the sites, or what ATMs need to be shut down. It's an entirely different call from a capital allocation perspective of bidding for a new contract, going and hunting and, you know, chasing and setting up those sites and then waiting for the transactions to come.

So I do want to add here a couple of points here, Divyansh. One is FSS, and if you're aware of the company, has run a very good quality managed services business for the last decade. It's a respected name, both on the technology side and what they've done for banks, and historically done very well. For their own portfolio needs, this is a business they were looking to maybe exit for some time. We, as a company, have analyzed maybe five managers, providers from acquisitions at different points of stage of time. In our mind, MS, the FSS business is the highest quality business out there in the sector, the client relationships and the profile of the work they do. Their transaction-linked business, which is there, I think is a very good question, has thankfully been contracted mostly to what I would say a high-quality base at reasonable price points. There may have been some impact in the last one year to that base of business, given how overall transactions have occurred. And that reflects the deal value in the pricing which we have negotiated. And we also have a trend line on when these contracts can end and what we can upsell and how we can convert them. To your question on, you know, cross-selling with Hawkeye, primarily, let's say, Hawkeye and Algo, Algo would be a new opportunity, right? It would be a new opportunity for us to be able to crack one or two deals. I think they'll be totally accretive. The Hawkeye business, I again think that some of the mid-sized banks haven't really deployed aggressively, or they are doing it, I would say, that with a smaller quality or a lower quality vendor and not across the whole base. Consolidating this also, you know, as we said, CMS is a... Number five, was a number five MSP. Before even FS's acquisition, we became a number three. Post that, I don't know what happens to the stack rank there, but also helps us consolidate and deliver some synergy and cost savings automatically, right? Because a team which is going to be handling a larger base of ATMs, both at managed services level itself, helps us drive some synergy out there.

Got it. And the second question was the revenue ramp up that you mentioned, let's say 625 into 4, 2500, HDFC around 5260. And just looking from a lower guidance perspective, what would be the ramp up of the SBI and ICICI contract? And rather on a general basis, if we're in a seven year or five year deal, how should we think? the revenue ramp up happening across years.

Well, I, I think, um, You know, the Excel modeling, I'll leave it to you. I think we have given what information we should share about some of these customers and contracts. I think the SBI contract is over a period of 7 to 10 years. The ICICI, GFC1s, Anush can correct me, is about 4 or 5 years, roughly.

ICICI is longer.

ICICI is longer. And GFC is how many years? 5 years. So, you know, all of that revenue is not going to be exactly divided by 5 in the first year. Obviously, some of it is linked to either a pricing change or to a base increase. But for sake of simplicity, divide it by the number of years and just assume that will flow through for the first year itself. Got it. Also, the bases don't remain static, right? Bases change, right? There is churn always. Something gets shut down, something gets added. We have taken, I would love to say this is very conservative, but we won't know, right, how the base of the machines changes with some of these banks over a period of time. This is the basis of what we have right now.

Got it. And if I may ask another question.

Sorry, Divyanj, would you mind rejoin the queue, please? Thank you so much. We will take our next question from Govinder Rajan Chalapa of CSIM. Go in the run. Please unmute your microphone.

Yes, please. Hi. Yeah. Hi. Thanks for taking my questions. I have a couple of them. One, there seems to be heightened activity, M&A activity across the globe in this space again. So first question is, especially on NCR and Brinks merger, would you see any opportunity or threat? Do we run a Hitachi kind of risk here? I know drinks is very small, but just your thoughts on that.

And go on the second question.

Yeah, my second question is, see, you still have a reasonable exposure to 28%, I think is what you mentioned to MSPs. And that space, at least the smaller ones have struggled to find funding. So of that 28%, are there still any of the MSP customers of yours who you would classify as at risk, in terms of their own balance sheet, their own ability to get funding, their ability to pay you up? And a related question is, in your balance sheet, I see about 58 crores of loans and advances. I'm guessing that is to a client. If you could just talk about the thought process around that.

So, on NCR and Brinks acquisition, so we'll see how this pans out. I'm sure they'll get regulatory approval to do this around the world. I don't think we will, we are sort of looking at this and saying, you know, they are too small or too big. I fundamentally feel the base we have in the network and density we have in India is impossible to replicate. It's something I mentioned towards the end of my letter also saying you cannot replicate what CMS has in terms of network reach and density. Can that mean that at some point of time, NCR as an MSP customer can shift some base to brings and brings invest to grow? Absolutely. But I think we have time to ramp up. And therefore, I mean, I don't think we are necessary. Our diversification is linked to that. But I think our expansion business will make sure that we have enough growth to compensate for some of these trends which it happens. Is there any opportunity? I don't think so. There's no opportunity, right? But is there a risk? We presume there'll be risk. Will that finally pan out or not? God only knows. But I do think this is a more complex global merger. If I was sitting at Brinks in the US, my priority would be to focus on the top five markets, which for them is US, Canada, and large geographies in Latin America. These are complex deals where global teams have to align and merge, and therefore, you know, far away in other countries, let's see what the impact is and when it comes in. It brings, for those of you who are aware or not aware, in India is predominantly a player focused on the bullion space. And Global Bullion, they are the largest company and huge and do a great job on that. They have some network presence in India, but linked to basically, I think, the larger tier cities. In the cash management space, they are a very small player. And I think if they had to scale in India, this would need significant investments across the country to invest in infrastructure, vans, routes, and all. And let's see what happens. We'll know when we know on this. Your second question was on the MSP base. Yeah, so I think the 28% of, so as we finish FY27, you will, or as we get out of FY27, let's see what the base of revenue from the managed service customers comes into. But you're right, that sector is going to be, as I said, the prior growth was led by some of these customer segments. The next four years' growth will not be led by these segments. And so for us to model, we are modeling as a lesser growth from these segments. But the slack will be picked up by our expansion into the new platforms we talked about and some of the newer customers, especially the larger private sector banks we talked about. And your third question was linked to advances in the loans. Anush, if you know, you can just...

Yeah, I'll just quickly cover this, Govan. So, you know, if you recollect about four or six months back, and I think in our third quarterly call, we spoke about some of the midsize MSPs being under liquidity stress, and us talking about solving for this in different ways. So as we speak, and we've also said that by end of FY26, we hope to sort of have these addressed. So as we speak, you know, with one of them, we've entirely solved for it. The ESOs have come down. We have much lesser exposure. With the second one, you know, we've made this announcement in the fall in FSS, wherein, you know, post the acquisition will be a combination of our receivables from them plus a cash consideration. And in the case of a third MSP customer, we've converted what was our exposure into a secure outstanding, which was backed both by physical assets with a significantly higher cover, but also more importantly, getting access to receivables directly from the bank in escrow facility, which covers both the loan amount as well as the normal work that we render for them.

Okay, yeah. So, basically, you've converted unsecured receivables to secured loans. That's the right way of thinking about it?

Yes, unsecured or secured plus, you know, getting the collections from their banking customer directly into an escrow account. Okay.

Just one small clarification. My question on the exposure to MSPs was not in terms of growth opportunity, but in terms of risk of further receivables issue. Of the 28%, do you see any of your customers having any issues on balance sheet?

No, Govan, I think we took a provision last year already in Q2. I think the activities you've done, both, which Anush detailed about, should cover us from any potential risk in this area.

Okay, cool.

Thank you.

Thank you so much. Thank you. We have Darshan Shah from Multi-Act Equity Consulancy. Darshan, please go ahead. Darshan, please unmute your microphone so that we can hear your question.

Yeah. Hi. Am I audible now?

Yes, Darshan. Please go ahead.

Yeah. Hi. I'm Akshat from Multiac. I had two questions. The first one is on the margins, right? So while we've guided on EBITDA margins, you know, reverting back to 25% plus for FY27 and also for the longer term. But if you really look at the cost structure below EBITDA, our depreciation over the last three years has jumped from almost 132 crores to 200. And 10 crores approximately for FY26. So, you know, as a percentage of revenue also, it's inched by about one and a half to two percentage points. So, you know, in terms of EBIT margins, what is the thought process? And, you know, because these investments, when do they yield results in terms of better EBITDA margins, etc, that is one. And second is on the buyback. So, you know, what would be the participation from, you know, Mr. Call on this buyback and what is his view on whether, you know, they will be participating in tendering their shareholding. Yeah, those were my two questions.

Actually, I think, let me tackle the first one, which is, so, I think when you look at FY26 in context, you know, You should also look at it in terms of how our overall construct or the structure of our business is changing. We are switching from being a 70% cash business to investing into longer term growth potential, especially around technology businesses. Those will necessitate more upfront investment, but will yield results and more recurring revenue streams on a five to seven, eight year time period. So, you know, the context of CapEx investment and depreciation would mostly be linked to some of our longer term investments. And you should also see in the fact in the light that in FI26. We did get headwinds in the form of consumption weakness, slowdown, and transaction impact, especially for some of our, both the ATM as well as the retail business. So in a way, sort of the margin and the structures are weathering both of these ups and downs. As we think about FI27, there will always be a sort of a lead and lag effect from an EBITDA and a PVT or a PACT perspective. When you look at Securance or you look at FSS, I think we would normally want to assume that... It would take a few quarters for the synergy benefits to kick in, whereas the depreciation, you know, gets recognized from day one. So we do hope that over a period, you know, things should get better.

You know, also, Darshan, I think in the last couple of years, Pankaj has alluded to in his comments that the right way to think of this is ROCs. ROCs, apart from this year, have been fairly strong in the 25% range. I think we focus on that. To your second question on participating in buyback, specifically you called me out, but I don't intend to participate in the buyback at all.

Great, great. Thank you. Thank you for your, you know, clarification on both these questions. Really helpful and all the best for the year ahead.

Thank you. Thank you so much, Dachshan. We'll take our next question from Amish Kanani of NOA's Investment Managers. Amish, please go ahead.

Hi, sir. Congress on a good 2-4 margin recovery and, you know, top three banks in our bank. First question, sir, how do you see the pipeline this year since these three large contracts is already done? You know, how do you see the other contracts? You did mention in the presentation that, you know, we are looking at from 6,000 to 8,000 ATM looking for moving from fixed fee to fixed fee pricing model. But just in general, how is the pipeline visa? As we say last year, is it looking similar, better, or maybe a little lower because of the three large contracts that we've already had? And in that context, maybe you can cover the FSS, you know, acquisition. You did mention we have a lot of mid-cap banks, you know, for want of a better word, in our kitty. How are we planning to cross-sell overall things? So maybe, you know, pipeline in the context of those new clients, bank clients that we've had.

Amish, hi. So, you know, very valid point, Samish. I'll just start off by saying, you know, despite all the headwinds and the challenges that we had on FI26, I think 2,000 crores order wins has been amongst the best years that we've had. Um, we've executed, um, I think, as I said earlier, close to about 75% of this. So there is still 25% of work to be done in terms of this execution. So that's, you know, we entered FI27 with just, um, you know, I, I suspect Q1, Q2, H1 really sort of being fairly intense here from an execution perspective, both, um, of some of these orders to be rolled out, um, the integration of FSS, and, you know, just generally looking at how the macro setup is. We do see in FI27 banks coming back into the refresh cycle. They've taken a pause in FI26. We see them coming back into this. However, I think it is a little early for us to comment on how exactly this will work out, simply because... Given how the overall situation is, we do have some RFPs which are in different stages of the pipeline, but I think we'll wait to, you know, maybe at the end of our Q1 or Q2 call to comment about how exactly this is panning out.

The margins, you know, we had a fairly good margin bump up in Q4 over Q3, though IOI looks completely flat off. The question is, sir, how did we, you know, if you can explain the nuances of the margin, maybe within cash versus the other business, at an EBIT level, there's a huge swing in the cash business. The question is, where does this come from? And if you can give us some flavor of, you know, the improvement that has come versus volume versus price increase that we have had because of the low, you know, pricing that we had in the past. The question is from 25%, we do understand that our aspiration is to maintain, but how much is due to say a better pricing versus operating leverage? And, you know, we understand the fuel price hike is a big overhang. So, how do we think? How have we improved it? And, you know, what are the levers that we are using to kind of make it stable and maybe improve?

So, Amish, I'll just quickly jump in. If you go through a pass call, we really don't get into this level of detail on margins. I think for us, given FY26 was a significant dip, we sort of went out on a limb to say we will push back our margin profile. But you're right. I mean, a significant part of the, you know, as revenues start climbing back up, you get the operating leverage and the work which Puneet and his team have done on rationalizing our routes. What Anush and his team have done in trying to get pricing hikes and the new fixed price contracts, I think they all start contributing back to the margin profile. Your question would be, I also think, would be linked to how much of this is sustainable in the future. I don't know. I think we have a good base. Q1, historically, not historically, seasonality-wise, is a lower margin profile, bases, wage hikes, and increments, and whatever happens. We'll wait to see how Q1 goes through. We will also finish all our contracts, but then we are almost done all our contract execution. The new one, HDFC, will go live this quarter, and we will have a better sense of the year on the margin side. I think cash and managed services, I told you, they are fungible, really. It's very difficult for us to even call out how much is where. And overall fuel cost and vehicle cost is a percentage of our business is roughly about 6% of our overall revenue. So if that goes up by X percentage, you can start doing some calculations on that. We have built a pretty tight operating network. I also do want to caution here saying as we roll out new contracts and new businesses, there will be expansion and investment back into a route network and all. You can't exactly time it to quarter by quarter, but hopefully we should be able to maintain those sort of margin profiles.

Sure, sure. Thanks. Thanks and all the best. A great letter to the shareholders. Thanks.

Thank you so much, Amish. We will take that as the last question. I will hand it over back to the CMS management team for the closing remarks. Over to you, team.

No, I mean, I really don't have anything more to say. I think we've given out this time a fairly detailed letter, which normally would have come in the annual report. We thought it's a good trend to get it more circulated widely at the end of the year for every investor to read. That specifies and details out exactly the way we are thinking so that you are able to both get a better sense of the business, what we are doing, which can't be covered in a presentation accurately, and also hold us accountable for it. We have, we are still maintaining a North Star goal of FI 23 and FI 30, despite having a reset in FI 26. Not easy, but we feel quite confident that we have done a superb hard work in the last six, eight months to fix things which were breaking down and the things which were under control. And, you know, wish us all the best. And thank you for your belief and patience in a tough year. And yeah, talk to you at the end of Q1.

Thank you so much. On behalf of IIFL Capital Services Limited, that concludes today's conference. Thank you all for joining us, and you may now click on the leave icon to exit the meeting. Thank you for your participation.