CMS Info Systems (NSE:CMSINFO) Q1 2027 Earnings Call

0:01 Ladies and gentlemen, good day, and welcome to the Q1 FY 'twenty seven Earnings Conference Call of CMS Info Systems Limited, hosted by JM Financials. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions at the end of today's presentation. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Shaleen Chokshi from GM Financials. Thank you, and over to you, sir. Thank you, Manav. Good afternoon, everyone. On behalf of GM Financial Institution Securities, I welcome you all to the Q1 FY 'twenty seven earnings call of CMS and CMS Info Systems.

0:49 We have with us the management of the company represented by Mr. Rajiv Kaul, Executive Vice Chairman and Chief Executive Officer Mr. Pankaj Kandelwal, chief financial officer Mr. Anush Raghavan, chief business officer and Mr. Puneet Birani, chief operating officer. With this, I will hand over the call to the management for their opening remarks, post which we can open the floor for question and answers. Thank you, and over to you, Rajiv. Thank you. Thank you for joining our Q1 call. Let me take a few minutes to talk about the quarter and the year and then hand it over to the team for more details. The first thing we set out to do this year was to grow our services revenue run rate from INR609 crores in Q4 to INR650 crores.

1:35 In Q1, we came in at INR625 crores. This is some modest growth on Q4, but is INR25 crores short of what we aimed for. And the shortfall is entirely down to the worst cash supply squeeze this industry has seen in the last decade. Banks supplied about 70% of currency what the industry intended for on a daily basis. This is a risk we had called out in our May call and this INR25 crores revenue loss has an operating deleverage impact on the P and L. We believe this should normalize by the end of Q2, so we are setting our full year services revenue goal at INR2650 crores to INR2750 crores against the INR2700 crores and INR2800 crores earlier. The total revenue, including product revenue, is estimated accordingly at INR 2,750 crores to INR 2,850 crores.

2:29 Against this, we are raising our EBITDA margin guidance to about 27% from the 25% to 26% we had guided in May. So in summary, we have trimmed the revenue number affected by an external supply issue, but we have raised the guidance on a metric which reflects the quality of the business. This supply squeeze has been painful across the industry for banks, their customers as much as for the ATM deployers and operators. After extensive industry representation, the Indian Banking Association, IBA, has constituted a committee to review the situation and evaluate repricing legacy PSC contracts. Anush, our Chief Business Officer, is going to cover this in more on this in his commentary. A quarter like this does test how well a business can absorb a shock it did not fully see coming.

3:18 In this environment, we delivered our highest ever services revenue and expanded margins by 170 basis points, while carrying higher than normal wage and fuel inflation in the cost base. This is a result of the investments we have made over the last two years in higher technology spends, which drove productivity gains and also towards a flexible workforce model. Pricing discipline has also helped us step away from lower yield contracts and our shift towards fixed price contracts while winning large private sector bank contracts has also helped. Now I would like Anush, our Chief Business Officer, to take you through more details of the business environment, the key wins and after him, Pankaj, our CFO, will take you through the financial highlights. Thank you, Rajiv, good day, everyone.

4:03 Let me start by covering the currency supply situation, where it stands today, what are we doing about it and the business highlights. Starting with currency, we normally see some disruptions around election cycles. This year with the four key state elections in February to April, currency movements typically come under a lot more closer scrutiny through the model code of conduct period. There are currency imbalances, which strain the currency chest networks. Now this happens every cycle and we plan for it in accounts. This year, however, saw a much larger and a longer lasting impact on a geographically larger part of the country. When fulfillment constantly fails the levels of cash which are indented, everyone tends to behave a little differently and start indenting differently and effectively this creates a bullwhip effect.

4:52 Now this is not a demand problem. Currency in circulation is up 12% year on year and on the retail side of the business, our own same store volumes have held constant. The constraint imposed around currency supply affected distribution, and it was concentrated in Tier one and Tier three Tier two and Tier three locations where our transaction BLA status. Now this has a direct impact on the operating deleverage for us on 12% of our revenue base. On per transaction contracts, an ATM which is not filled does not earn, and there is no way to offset the operating costs. Across our own estate, ATMs that stayed well supplied saw transactions flat year on year. Those which saw currency supply lower at about 70% saw transactions fall by 27%.

5:42 So in effect, there is almost a near one to one correlation between currency supply and the impact on transaction at these ATMs. This in effect has lowered our revenues by INR18 crores in the BLA business and impact to us on the cash flow side from the work that we do for other MSPs is about INR 7 crores. As of today, the currency fulfillment has recovered partially through Q2 to about 80% of intended volume. And in our plan, we now assume that this should improve gradually by the end of the quarter. On the cost side, this year has seen very steep increases in state level minimum wages ranging from 6% to as much as 60% in certain key large states. Fuel costs are up 8% this year. Now this will all necessitate a larger price increase than average.

6:31 With private sector banks and our retail customers, the discussions are progressing well. As regards to public sector banks, the industry and banks are engaging through IBA, which is Indian Bank Association, which has set up a committee to look into this and come up with pricing to handle these large statutory increases. We hope to have an update for you on this by the end of the Q2. On the market share side, we've been able to retain our share gain over the last year. We are at 60% in ATM cash management and 38% in Retail Solutions. On the contract wins, we won INR500 crores of orders in Q1. The largest OPs is the HGSE Bank mandate, we announced in May, 6,000 ATMs over five years at a TCV of INR400 crores. This will effectively cement our market position with large long term contract wins at all three of India's largest banks in the last eighteen months.

7:25 Our Tech and Payment segment is seeing strong traction. Over the last year, we have invested significantly in creating a world class Hawkeye enterprise product on the back of a large win at a large PSC band. The demanding AI use cases developed there were tested and deployed over a national network and this will be key for us in competing for a large pipeline of similar bids across banks in the next two years. Similarly, there are other banks also evaluating our Algo MBS software, which is a multi vendor software for powering their ATM networks. This which has been deployed in SBI and will plan to go live at ICICI in Q3. With that, let me hand over to Pankaj, who will take you through the financial highlights. Thank you, Anush. Total revenue for the quarter was INR635 crores, with services revenue at all time high at INR625 crores, up 9.3% year on year basis and 2.6% quarter on quarter basis.

8:24 Rajiv and Anush has called out the currency supply impacting services revenue by INR25 crores out of which INR 18 crore in the Managed Services segment and INR 7 crore in the Cash segment. EBITDA came in at INR 173 crore, up 8.9% on a year on year basis and 6.8% sequentially, with margin expanding 170 basis points quarter on quarter to 27.2%. Three key drivers led to the EBITDA margin expansion. One, the automation and the technology investment for route and process automation, which have structurally lowered our unit costs. Pricing focus and yield management and increasing share of the higher margin Tech and Payment revenue grows in this space.

9:13 We are maintaining our increased spend on Tech at 1.5% of revenue, so this margin expansion comes after fully carrying that investment. At an EBIT level, Managed Services EBIT has impacted directly by INR 18 crore revenue drop in BLS business. The EBIT for Q1 was INR 32 crore at 10.3% margin versus 14.1% a year ago. If not for the 18 crore revenue impact, the EBIT would have been 15%. As and when the supply normalize and transition come back to earlier trend, the increased revenue will have positive impact. Depreciation is higher mainly due to higher CapEx incurred in H2 towards Hawkeye and Algo product development and incremental depreciation related to FSS acquisition impacting in Q1.

10:07 For reference, FY twenty twenty six saw peak CapEx of INR $3.50 crore as against our average CapEx run rate of 200 crore. For FY twenty twenty seven, we currently estimate CapEx to be substantially lower at INR 100 crore to INR 125 crore range. Apart from that, synergy benefits from the FSS integration should start flowing in H2. Our tax rate this quarter is lower at 20.3 due to the deferred tax gain. Our Sequence acquisition turned around operationally, which allowed us to recognize the deferred tax effect. PAT for Q1 is INR 84 crore, down 10.6% year on year and 5.8% sequentially.

10:57 PAT margin is 13.2, down 170 basis point year on year, but up 70 basis point quarter on quarter basis. As you are aware, we completed a share buyback on 06/19/2026 for 9.39 lakh shares at $3.40 per share, totaling to INR 168 crore. With this, I would like to hand over to Rajiv for closing remarks. Thank you, Pankaj. Over the last eighteen months, we have signed large long term contracts with State Bank of India, IGHF Bank and AGFC Bank. Execution for all of these is on track.

11:49 Midsize and some large banks are preparing for a product refresh after pausing this in FY 2026. We have won two of these mandates in Q1 for ATM recyclers to be executed by the year end. The Technology and Payment segment is growing ahead and now a meaningful part of our revenue. All of this should help us deliver a good growth here in FY twenty twenty seven. Platform wise, we expect ATM management and the retail and currency logistics platforms to grow between 11% to 14%, as supply normalizes and our pricing efforts deliver fruit. The Technology and Payments platform should grow between 35% to 40%. Combined, the services revenue growth should be in the 15% to 19% range.

12:35 When it comes to profitability, we are expecting this to be stronger than what we told you in May. Last year, we invested about INR350 crores of CapEx against an average of INR200 crores in prior years. This investment was for large project wins and also for the product development for our Hawkeye and Algo MBS products. The P and L now carry the full depreciation on these assets, while the revenue from them is still building out, which is what you're seeing reflected in the EBIT line this quarter. The CapEx in FY twenty twenty seven will drop to 100 crores to INR 125 crores, in line with our long term average. So, depreciation should normalize over FY 2027 and FY 2028. Now, Q1 EBITDA margins are strong at 27.2%.

13:22 This is something I want to reinforce. This is amongst the highest margins of any business services company in India, where the norm is single digits. We aim to maintain these levels for the year ahead of the 25% to 26% we had guided in May. We have a track record of converting 65% to 70% of this EBITDA into operating cash flows, as we have done for the last five years. For those of you who know us well, we run this company for margin, cash and returns. When assets stop earning, we will act on it. And if the currency supply and the transaction levels do not improve, we will prune the persistently underperforming ATMs out of our BLA estate. On our overall direction, we are executing as per the basis we set out at the Analyst Day in September 2025 sorry, 2024 and also reinforced in my letter to shareholders in May sorry, that is September 25 and our letter to shareholders in May.

14:28 Technology and Payment segment, which is 7% of our services revenue in FY 2022, has grown to 16% in FY 2026, is 18% in this quarter, and we expect this to cross 20% contribution by the end of Q4. The Hawkeye Enterprise product has now been proven in a very demanding national deployment at one of the largest banks in the country and we are bidding with this experience into a strong pipeline. The competition is broadening as attractive markets will attract newer entrants. But we like our position because we own the full stack of hardware and software, we are operating at national scale and our models are tuned on Vision AI and Cache Operations data over a decade, which a new entrant does not have and cannot build quickly.

15:18 We were early to machine learning, and we are now using AI inside our own operations. Cash forecasting and end to end world automation have gone live for us last quarter, built by our own technology teams. And some of the productivity gains which you are seeing in this quarter's margins comes from there. It is also why I'm pleased to welcome Will Pool to our Board. Will has co founded and leads Capria Ventures with more than 60 investments in companies putting AI to work in the real economy. And before that, he he built and scaled platform businesses at Microsoft. That is a judgment we wanted the room to help scale this part of our business. Overall, FY twenty twenty seven will be a good year with strong double digit growth rates in both revenue and profits with margins hopefully outperforming than revenue.

16:05 Thank you and we now look forward to your questions. Thank you very much. We will now begin the question and answer session. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking our question. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to only two per participant. Should you have a follow-up question, we request you to rejoin the queue. Ladies and gentlemen, you wait for a moment while the question queue We have our first question from the line of Praveen Kumar from Equities Capital Advisors. Please go ahead.

17:00 Yeah. Hi. Thanks for the opportunity. I had a couple of questions. The first one was on the cash crunch... The cash supply crunch you talked about. The question was, how much of it do you see as being transient versus being more structural in nature? Or do you... I mean, for example, do you perceive it as a behavior change from banks and RBI? And related to that is also the question on... You know, you have put the statistics on partly supplied ATMs versus fully supplied ATMs and different transactions. The question on that was, is it possible that some of the causality is other way around, meaning that, you know, the banks chose to supply lesser to ATMs, which they... Where they saw lesser potential. Right? That's my first question. Second question was on...

17:46 Broadly, you know, over the last couple of years, there have been multiple, I would say, exogenous kind of shocks, which have, you know, detracted from you achieving what you have set out to. So my question was what kind of changes have you made or are you currently making to your internal forecasting model to be able to, you know, give a better sense of what what could happen? Yeah. Those are my two questions. Thank you. Hi, Praveen. Very interesting questions. Let me tackle the first part in some, you know, because I think it's very interesting you're examining this from all different angles. I think as far as the transient nature of this is concerned, right now I can comment on the currency supply situation.

18:35 As you would appreciate, I think there are two parts to this issue. The first is how soon do we think the currency situation will normalize? And second, what are the implications of that normalization on further ATM transaction levels? As we speak, we've already seen that the worst of the debt is behind us, somewhere around May, June or April, May of Q1, the impact was as much as only 70% of the money that we were indenting is what we were receiving from the banks, which means there was almost a 30% dip in currency levels. That situation has improved. It has gone up from 70% closer to 80%, 85% now. In conversation with multiple industry stakeholders, banking association and what our association has also engaged with the regulator And we'll also be able to see this in the public data of what they show as currency in circulation, you'll be seeing that those levels are improving, which means there is fresh infusion of currency coming in.

19:35 I think this is just a situation where I don't think anybody has a perfect answer on why and what, but we don't know that unfortunately implications have been quite severe for the industry as a whole. With respect to your second part of your question on the supply of currency to ATMs of different transaction levels, so I don't think there was any such sorry to use the language, but I don't think there was conspiracy theory of that nature. Banks give us currency in bulk against Indians that we face. Now at some point from a forecasting perspective, we need to figure out what is the best way to supply the currency to ATMs. And this disparity was widespread in the nature of the fact that there were geographical imbalances. So when we are comparing and looking at differences, the differences in the way we have analyzed statistically between different ATMs of different banks, ATMs across different geographies.

20:27 So I think to that extent we've been able to sort of get to the conclusion that this is more a supply which was impacting the growth and not the demand side of the problem. With respect to your exclusion of things, I'll just hand over to Rajiv for that. Yes, Praveen, just to add to Anish's comments on this, we I think the press has covered this in fair detail, so I would sort of refer to that. There is a supply issue which has got a cascade effect, which was not sort of anticipated between the currency issuing banks to the various banks which are fulfilling the currency needs of the country. And a shortfall consistently overall builds more pressure on the system because the net level just keep going up. Now I think we're seeing this situation improve. It isn't back to normal. What happens to demand? We'll have to see, right?

21:16 I mean that will just play out and we'll get to know at the end of Q2. I think it will be very futile of us to try and estimate that right now. So we'll just track the trends and report it as soon as it's visible to us. Going back to your other question on your point on comment you made forecasting and how do we improve the quality of forecasting, it's a fair criticism. And as I reflect and we do reflect on this, just to put context, I think by 'twenty two, 'twenty three, 'twenty four were three years where we met or exceeded all forecast and high growth. 2025, '26, I think we have come under. Now I think we when we look at the forecast, this is a team which is trying to set good goals as per what we think our potential to perform in the market is. We don't put the highest number, but we do put a number which we think is realistic, but a stretch target. I think that's the culture. I don't want to set targets which are very safe and guide towards it. I think we will put our best foot forward. There have been some shocks.

22:14 Some of them have played out differently than we anticipated when AGS impact was both positive and negative as we have seen over the last one, one point five years. I do think that we are putting in the right investments to manage the quality of the business. So you think of EBITDA margins, I think we have done better. I hope we can maintain And we are looking at obviously also our forecasting and seeing how do we sort of get back to a trend line. So the year has just started, this is Q1. If you look at it last year, as soon as we felt there was going to be a dip, we were early to come and call it out. In Q1, we have seen a little dip, we have called it out. We will still put our best foot forward and hope in the next nine months, we are able to cross the growth numbers, which we are indicating right now.

23:04 Understood. Thanks for the question. Thank you. A reminder to all participants, please restrict yourself to only two questions per participant. Should you have a follow-up question, we request you to re rank the queue. Next question is from the line of Omang Shah from Banyan Tree Advisors. Please go ahead. Hi, sir. Thank you for taking my question. My first question was, in Q1, how much of our revenues will be coming from FFS acquisition? Hi, Uman. Ayush here. I think we've spoken about the FSS deal the last time most in terms of the overall revenue and effective valuation.

23:50 As we speak right now, the contracts are in process of getting rated. In Q1, I think it will be roughly close to INR20 crore accrual from SSS. Understood, understood. And sir, any thoughts on the government introducing or planning paving the way for introduction of MDR on UPI transactions? Any sense on how it will help increase cash transaction? Yes. I think that's a flavor of the season right now. We have spoken to some of our direct customers to try and see get a sense of how they're thinking about it, but I think what they tell us pretty much resonates with our own thinking and the fact is it's a little too difficult to anticipate without knowing the specific details of how exactly they will come out.

24:38 We've been hearing different media that will be in range of 30 to 50 bps. What I can try and tell you is that I think the two aspects that we are trying to keep in mind. First is, we go back and look at what is the fundamental mission that we have of CMS and what we set for ourselves when I look at from a cash perspective. Our goal has been always to try and invest in technology and process efficiency to keep the cost of cash as low as possible and to make the transaction as frictionless as possible. Ultimately, in the long run that is what will help keep cash relevant as compared to any other payment systems options. The second being, I think the fintech and the payments world is a lot more has a lot more competitive intensity. It has a lot more players. How the MDR situation between what has been announced to what eventually gets effectively implemented and passed on to merchants, I think we'll have to see how that goes.

25:33 Right now, when you sort of take the cost of a cash transaction to a merchant, it will be anywhere between 10 to 20 bps. So I mean to all of our current and potential customers, I think that is what we have placed to them as saying, this is what currency cash transaction costs you versus the new PI, which was historically perhaps free, which we'll have to see where the cost lands. Understood. And one clarification on your comments. You had mentioned that this shortage has affected 12% of your revenue base. Are you referring to the ATM logistics when you say 12% of the revenue base? No. This is a 12% of our revenue, which is from what we call the brown label estate or the transaction linked ATM revenues. Understood. Understood. Alright. Thank you so much. Thank you.

26:20 We have our next question from the line of Khrushy Parekh from Bajal Rock. Please go ahead. Yes. Hi, Dean. So one of my question is that we mentioned in the presentation that our touch points are currently somewhere around 155,000. What is the growth trajectory when it comes to these touch points? Because the data that I have last quarter... I mean, last June, we had somewhere around one fifty three thousand. So first of all, including acquisitions and excluding acquisition, what kind of growth are we witnessing in our touch points? So, Krishna, I think we keep updating this number on a quarterly basis.

27:09 I think right now we are sort of about 70,000 ATMs and 65,000 retail. Let me tell you about in the last twelve months, we have last quarter told you that on the basis of a 4% sequential growth in the cash business, we used that opportunity to also try and do a little bit of spring cleaning on our specifically retail business, which is to try to work weed out some of the lower yield long tail businesses that has induced certain churn. So from a and second is when you sort of look at this through not the lens of just your touch points, but also through the lens of overall the platform business which we have introduced in our September annual call. And we said we look at ATM business for example, it's no longer about discrete revenues lying in managed service contracts versus ATM cash management contracts.

27:57 A lot of the business that we are incrementally winning are integrated end to end contracts where a customer doesn't discern between managed service and cash management. And as we speak, more than 50% of our overall ATM touch points are today from those end to end integrated ATM contracts. I think Rajiv had mentioned in the beginning part of his commentary that overall between across both ATM as well as retail, we expect to grow between 10% to 13% on both those platforms and closer to 30% on the payments and tech. Okay. My second question is related to the Hawkeye. We are talking about a TAM of INR 3,000 crores for BFSI, 5,000 crores for non BFSI.

28:45 So first of all, how are we estimating this TAM for ourselves? Is it, like, some kind of an existing market which is there that we are looking to, you know, replace with the Hawkeye? Is it some kind of an internal study or it's, you know, an extrapolation of what is the current market and extrapolated to the existing number of, you either the retail stores or ATMs, etcetera? So I think on the BFSI, it's a lot easier because we've been a lot more proximate to that, and that's exactly the customer set where we started incubating Hawkeye four years back. And also the one where we've had the fastest historical growth rate just because of our present size in the customer accounts or being part of the broader ATM and branch ecosystem.

29:35 In those cases, think when we look at it, there are roughly close to about 400,000 ATMs and bank branches in the country today, of which the current outsourced market is in the range 100,000 to 120,000. So our estimate of the opportunity sizing is really saying in some timeframe of the next five to seven years. We anticipate ones which are not covered under the Hawkeye model, which is using AI based remote monitoring and visual surveillance for the banks to start outsourcing more and more into those. Right now, we see a very healthy pipeline of banks wanting to start implementing this either by way of helping set up a command center for them or also helping them with the branch surveillance. And the RFP pipeline is quite healthy for the next eighteen to twenty four months.

30:30 On the non BFSI and when we talk about those opportunities, I think it still sort of goes back to the sets of businesses where we have a use case or we've done certain pilots or POCs. These could be gold loan branches. These could be dark stores and warehouses. So in a way, it's sort of qualified by the set of industry that we're familiar with. Beyond this, they could be a much larger use case, but we don't know because we haven't done some of those things, but incrementally we've been having a lot of people talking to us. Just to give an example, this could be around border sensing. This could be around sort of monitoring and supervising how exams are conducted and to sort of weed out potential discrepancies in those. So I think there's a world of opportunity for that. We just need to pick and choose where we are the best positioned, where we have the video libraries which have been created, which have a high degree of accuracy and where we are confident on backing ourselves.

31:28 Okay. Just one thing, what was the currency handle this quarter and the corresponding quarter of the June last year? We'll just pull out the data and come back to you at the end of this call. Okay. Sure. Sure. Thank you. Thank you. A reminder to all participants, please restrict yourself to only two questions per participant. Should you have a follow-up question, we request you to rejoin the queue. Next question is from the line of Ankit Kanodia from ZenNavish. Please go ahead. Yeah. Thank you for taking my question. I just have one simple question. One of our competitors is... They're probably much smaller than us, but they have applied for payment aggregator license.

32:17 Do we have something on this line as to... Are we keeping that as an option for us, or have we looked at it in the past? Any color on that would be very helpful. Thank you. That is my only question. As of now, we don't have any plans to be in the merchant acquiring space. We find the space to be very competitive and very difficult to make any money. In the past, we've looked at companies which have licenses, including their PA license, but it's not something which has attracted our focus and attention right now. I think the market leadership there is clearly established and not a space we think competitively makes sense. Thank you so much. We have our next question from the line of Kush Shah from VIVO Commercial. Please go ahead.

33:15 Yes. Amish, congratulations for the good set of numbers. Sorry to interrupt you, Ghosh. Can you please speak a little louder? Hello. Yes. Hi. My question would be related to the future outlook of the polymer as there has been news by the government or the in the news that there has been rollout of new polymer sheets of the cash. So I just want to understand the future outlook of what would be the polymer as you are seeing for your view as a cash flow logistics business? I think right now from what we've read publicly again, I believe the Bolivunos are right now being planned for what we call the lower denomination, which is a 10s, 20s, 50s and may possibly go to the latest, typically 10s, 20s and 50s.

34:07 Generally, the industry's experience in sort of when I look at the life of a currency note is that and this is a little dated information, but last time I read RBS statistic, they said the life of Indian currency note is about eleven months on average, which means the 100s, 200s and 500s possibly last a little bit longer because the frequency of handing is a little lesser and the lower denomination extinguish a lot sooner. I think polymer is a great innovation to help try and extend the lifespan of that currency note. It has also been seen internationally that polymer notes tend to have a lower life cycle cost of currency printing and handling. So right now, if India is incurring roughly about 5,000 crores in currency printing annually, so polymer may have a slightly higher upfront cost.

34:57 But over a longer term period, it should reduce this. In Us, I think the implications are a lot lesser because ATMs are still not configured for doing some of the lower denomination, right? There are still hundreds, two hundreds and five hundreds. In terms of some of the work that we do for our CIT work and the current C shares work, I think there may be some incremental opportunities, especially by way of helping with the transaction and the processing work that we do. Maybe around three to five years, I guess, be it would take time. More or less three to five years or more than five years from your I point of can't help you on that, Kush, because I think that's more a matter for the regulators to decide what time frame. I think this has been in the talks for a while. It just seems to be picking up momentum now.

35:45 Okay. Okay. Thank you so much. That's all my share. Thank you. We have our next question from line of Manav Patra from Desvalado Advisory. Please go ahead. Hi, sir. I'm audible? Yes. Please go ahead with the questions. Yeah. Thank you for taking my question. I just had one question around the CapEx. The FY twenty six CapEx was around 350 crores and the guidance for FY 'twenty seven is around INR 100 to $2.25 crores. So does that mean that the CapEx that has already been done in 2026, like is it enough for FY 'twenty seven? Or are you becoming more selective on the incremental deployment?

36:38 So FY 'twenty six CapEx was mainly for the order integration, but we won around crore of orders. This year as we have earlier also explained that we are not going for the transition based BLA model etcetera. So we are focusing more on the Hawkeye and Algos platform where the investment we are looking for. That's the reason the CapEx investment has reduced to 100 crores to INR 125 crores. Okay, understood. You. Thank you for taking my questions. We have our next question from the line of Priyam Shivasar from My Capital. So I understand there are one lakh bank ATMs that have not yet outsourced cash logistics.

37:31 So what would you expect the pace of outsourcing for those ATMs to be? And also, are there any ongoing tenders or advanced negotiations for outsourcing deals? Sorry, could you just repeat the last part of your question? It wasn't very clear. Ongoing tenders? Yes. So I wanted to ask if there are any ongoing tenders or advanced negotiations for these outsourcing deals? Yes, if they were, don't think I would be able to talk about them, given that ultimately there's a competitive element to it. But in all seriousness, think if you look at the longer term trend of what the outsourced market has been, I go back ten years, I think that was closer to about 50%. Right now, think it's closer to 60%, 65.

38:18 So generally, the theory is that as and when the public sector banks primarily and when I look at these 100,000 ATMs, they will be primarily split into two cohorts. They will be the public sector banks where the on-site ATMs which are co located with the bank branch are serviced by themselves. And then you would have the white label ATM companies which typically fulfill a bulk of their ATMs to what we call the franchisee model where if it is managed in a much more decentralized manner. I think the public sector bank number will be closer to 75,000 which are managed by themselves. And with each RFP cycle, a larger percentage of this keeps getting outsourced. And I think that's a trend that we've been seeing and we'll continue to sort of see that. Coming to your second part of your question, from an industry RFP pipeline, I think two things I would call out. The first is FY 2026 was mostly when RFPs had taken a pause. In 2027, we started seeing the banks get back into the refresh cycle.

39:19 In Q1, we won two of those RFPs for replacement and growth of about 1,000 recyclers for banks. Between Q2 to Q4, we continue to see a fairly healthy RFP pipeline on the reseller side. The other area where I think we are quite excited looking at the RFP pipeline is especially in our payments and technology parts of the business, where across both Hawk AI, the enterprise solution, which is what we sell into the bank branches and the Algo MBS, both of those seem to be sort of having a fair degree of activity. Okay. Got it. Thank you. Thank you. We have our next question from the line of Praveen Kumar from Accutus Capital Advisors. Please go ahead.

40:14 Yeah. Hi. Thanks again for the opportunity. My question was on the EBIT margins. I mean, while sequential I mean, while on a Y o Y basis, EBITDA margins are better. But due to the higher depreciation, EBIT margins have been lower. So just want to get a sense of where do you see the fruits of the investment coming through and improving our EBIT margins back, hopefully, back to the FY 'twenty five. So this quarter, the depreciation was higher due to the FSS acquisition and the higher CapEx we have done in Q4, mainly in the Hawkeye and the Algo product development. The FSS we believe that the FSS integration and the synergy benefit will start from H2 onwards, as well as the Hawkeye and Algo product development of course what we have incurred. There is a lot of pipeline which are there and Rajiv has mentioned that we are expecting a high degree of growth in that particular segment, which will give us a better results and in the H2 or the coming year, the benefit will come.

41:30 Think Rohit, that's to summarize your answer. Depreciation and the ratio should trend back to a better level in FY '28. But H2, you should start seeing a lesser percentage and then getting better in FY 2028. I think the way you should think about it, there is an acquisition linked cost where the returns will come in hopefully in H2 itself. That is the track record we have when we did secured. And as per the Hawkeye, we there are a couple of large bid pipelines right now. Depending on bidding process and if we win them, I think that will help us support get good revenue where the development cost has already been mostly entailed. Understood. My next question was on broadly on capital allocation. I just wanted to get a sense, sir, how are you thinking about capital allocation at this point in time? I understand that you have referred to spending more on technology and investments in technology from here on.

42:25 But given that we had already done a buyback three months back and the stock, if at all, is somewhat cheaper compared to then, I understand that you can't do a buyback for some more time, but wanted to get your broad thoughts on how you're looking at capital allocation right As what we discussed, both capital allocation plans are thinking and the buyback as a result of that, the last quarter. Buybacks at that time were done with at some premium to market prices, right? Where we stand right now, I think we have roughly about INR400 crores of cash on books. Looking at our cash flow generating capacity at the end of the year, I would see that we will always keep a buffer with us to invest for inorganic opportunities.

43:16 We have been working in inorganic opportunities to diversify the business and also move more into tech and payments. That's an area of serious interest. That's something which we have maintained. There are opportunities there, but the pricing and the value is what we keep focusing on. I think anything which is surplus other than what we think we need realistically in the next one, one point five years would all of you return through a mix of dividend, if needed a buyback at that period of time. I think I would refer to my letter, which I wrote two, three months ago. I think that's the principle we'll follow. I don't think every quarter there'll be dramatic change to the way we think. I think we'll look at it only towards the end of the year. Understood. Thank you. Thank you.

44:01 We have our next question from the line of Amit, an individual investor. Please go ahead. Am I audible? Yes, Amit. Please proceed with So the just a data keeping question. What was the CapEx for Q1 net of CWIP? And also, if you were to look at CapEx since historically we've talked about CapEx as a block of two to three years. So what's the CapEx plan for, let's say, the FY 'twenty seven to 'twenty nine block? And how much of this is estimated to be, say, towards growth? So last year we have done a CapEx of INR $3.50 crore. The CapEx year before the CapEx was much lower. That's the reason that it was INR $3.50 crore. And we have explained that we are expecting a CapEx of around INR200 crore year on year basis, if you will see over last four, five years.

44:57 This year we are giving a guidance of around CapEx of INR125 crore mainly in our tech business. Right now based on how there is a lot of opportunity especially in the tech and Algo MBS side, if that comes right now the part of the visibility we have, we have given the estimate based on that. If that comes, the CapEx may increase. But right now, looking to that, it should not cross more than INR 200 crore. Thanks. That's quite helpful. Thank you. Thank you. We have our next question from the line of Shivram Prasad, an individual investor. Please go ahead. We have a next question from the line of Dhruv, an individual investor. Please go ahead.

46:00 Thank you. That goes along the lines of capital allocation. I think one of the things that I was concerned about being an individual investor is that despite the company doing well and producing strong cash flow, I think stock is trading at extremely low multiples, forward multiples of almost about 10 to 12 x on a PE basis. So I was just wondering how is the management thinking about rewarding shareholders, especially given the fact that there was a buyback which was done right now and the stock stock reaction, the market reaction to that, it's still not very positive. Just wondering if there are any further thoughts on that? I mean, I think that's a tricky question for management to answer. We will obviously focus on what we can do, which is run a good quality business and deliver growth in line with the markets over time will should hopefully normalize.

46:55 Thank you for your patience on holding the stock. I don't think the buyback is I don't think you should think in terms of the buyback as a reward. I think you should think it's just as a way to give back the capital, which we don't need, either through a dividend or a buyback format where we felt the stock was very cheap and therefore it makes sense to invest in our own stock. If we are able to perform on a journey and as the business continues to grow, we hope the stock price will reflect a fair multiple in the coming year. Got it. Thank you. Thank you. We have our next question from the line of Govanshak from Banning Tree Advisors. Please go ahead. Hi. Thank you for the opportunity again.

47:43 Sir, we are guiding for strong double digit growth. In this, I'm understanding that Hawk AI and Alpha NPS will be having a larger chunk of growth. Would we also have a similar growth in ground label ATM product business also? Anush here. No, I think our capital allocation from a business perspective, I think we're fairly clear on where we want to focus and where we would not want to invest incremental capital. The transaction ATM, BLA business is clearly one. I think we've been very vocal about this in the past, and we continue to maintain the same position going forward. This is not an area we would look at investing our capital at all.

48:29 I think there are interesting opportunities around fixed fee outsourcing and working with high quality banks, we will look at it. But from a business and growth, I think we'll be very choosy and try to direct an outsourced proportion of outsized proportion of our investment towards taken payments. Understood. And second question here was, we also see consolidation happening in the managed services space with you guys via reacquiring SSS. With this consolidation also happening, do you see more public sector banks looking to outsource their ATMs to players like us? I think the so when you think managed services, there are multiple types of orders and deals which come up there. We will see, and we've said this before, we will see a big shift in newer contracts to either fixed fee models because I don't think the industry is going to be bidding for transaction models anymore.

49:35 And when they come to fixed fee, these will be integrated contracts, right, from supply to management of managed services, cash management, whatnot. We are amongst the one of the two players who have these services in house. Will that result in a bigger win rate? Logically, yes. But again, we don't know how people will compete at what prices. The fact that we've had a fairly decent track record in the last twelve, eighteen months in the business is a reflection of the nature of the services being offered from us and the quality and also the pricing. So over time, do we see fewer companies doing majority of the work? I do think so. But let's see how these RFPs come and how we how the win rate is. Got it. Got it. And just last clarification, you mentioned that private sector renegotiation will end by Q2. We are targeting closure by Q2.

50:25 Public sector banks, you mentioned that IBA is constituting a committee. Any idea by when can the rates be transitioned or by when can we get the rates increased? I mean, from our side, I think the ideal goal is to have it happen as soon as possible. And but again, the nuances of managing a complex set of customers with multiple legacy contracts and RFPs, which are fairly binding on them. I think we're just being a little cognizant of that and still hoping to close as soon as possible. But I think as we come back to you and hope that by end of Q2, we should have a more positive update. Understood. Thank you so much. All the best. Thank you.

51:12 We have a follow-up question from the line of Rishi Parekh from Puzzle Drop. Please go ahead. Yes. Hi. Just if you guys can give a sense on when most of the, know, the contracts are coming up for the renewals over next two, three years, thereby, we may look for upgradation cycle and maybe even integrate our managed services along with those contracts? So that is the first question. So just trying to, you know... So for the contracts which CMS is directly servicing as a managed service partner, I think those are fairly long term contracts.

52:00 And given that this is a business that has just scaled up in the last two, three years, I think there's some time away from having a cliff in terms of that renewal cycle. As far as some of the other banks are concerned, I think they've sort of are most spread out and come up with different opportunities through the year. Again, our goal is simple, which is being one of the largest market participants with an ability to deliver end to end integrated service of a very high quality. We just continually keep betting on the fact that our incremental wins should be higher than our current market share, leading to continuing to grow that share of the business. Okay. And secondly, in terms of gaining share in the retail sector, especially when it comes to our direct efforts, How how are we doing there right now?

53:01 And what what is something... What is it that we are looking to do in the near future, which is one year? I specifically remember we were looking to gain share of, you know, like, you know, like, aggression was our strategy to gain volumes over here. No change in the strategy or approach, Kashy. I think we continue to be very focused on that. Think if I look at our current number of logos, there'll be around 170 to 175 logos that we're working with. So every quarter, every month we continue to chip away and keep adding to our set of customers that we work with. I think the solution and the offering that we have there is fairly compelling and quite solid. Having said that, there is also a constant effort to try and work on improving overall yield and realizations. Simply put, as we keep widening the base of the pyramid, you will tend to sort of pick up a mix of businesses. It takes a while, six months, one year or maybe longer to evaluate what is really fitting into our core thesis versus not.

54:03 So we continue to be very focused and very aggressive on that. Thank you, Anush. Thank you. Ladies and gentlemen, thank you for joining the call. That was the last question of the day. On behalf of GM Financials, that concludes the conference. Thank you for joining us, and you may now disconnect your lines.