Radiant Cash Management Services Ltd IPO

Published by Sharekhan Education | December 23, 2022

Amit Pathak | Sharekhan Education

Radiant Cash Management Services Ltd IPO details:

Issue size: ₹ 371-388 Cr
Price Band: ₹ 94-99
Issue opens on: Friday, 23 rd Dec’2022
Issue closes on: Tuesday, 27 th Dec’2022

Company Overview:

Radiant Cash Management Services (RCMS) is an integrated cash logistics player with leading presence in retail cash management segment. They cater to cash management services of banks, financial institutions, organized retail and e-commerce companies in India. Radiant provides Cash pick-up and delivery, Network currency management, Cash processing & Cash vans/cash in transit. They provide services across 13,044 pin codes in India with about 55,513 touch points serving more than 5,388 locations as of July 31, 2022.

Objectives of  the Issue:

The IPO consists of a fresh issue of equity shares aggregating to Rs 60 crores, and an offer for sale (OFS) of up to Rs 328 crores by existing shareholders.  The company will use the proceeds from the fresh issue to purchase specially fabricated armored vans and meet working capital requirements.Listing of the equity shares will enhance its visibility and its brand image among the existing and potential customers. Minimum application is to be made for 150 shares and in multiples thereafter. Post allotment, shares will be listed on BSE and NSE.

Industry Overview:

The Indian cash management services market grew at a CAGR of more than 10% during FY 2010-21. As per Frost & Sullivan, the CMS market is projected to reach a market size of ₹ 20.4 billion by FY27 from ₹ 6.8 billion in FY21, growing at a CAGR of 20.3%. The key growth driver is growth in currency-in-circulation, which is expected to reach ₹ 50.00 trillion by FY27. Customer base for the industry is increasing in the form of rising number of retail outlets, cash-on-delivery(“COD”) in ecommerce, NBFCs, microfinance, restaurants, etc. The growth in the organized retail sector is expected to be a key factor for the expansion of the CMS market in India.

Competitive Strengths:

The wide reach of their network enables them to realize economies of scale, allowing them to increase the productivity of their operations and their profit margins. Their platform offers their customers a single point of reference across India for their operations. They have a scalable and asset-light business model. Due to the relatively sticky nature of the business, it also has significant ability to cross sell their value-added services such as network currency management and cash processing services. These value-added services allow them to maximize value and earn better margins as compared to cash pick-up and drop services.

Business Strategy:

The company plans to expand its network of 5,388 locations and upgrade safes  into vaults in the medium term. Their strategy in this segment is to start offering Vaulting as a stand-alone service to the existing and new clients. The company plans to strengthen their existing sales and marketing team, which is currently spread across Mumbai, Chennai and Jodhpur. The company plans to offer special pricing to high-volume cash end-users to encourage adoption of network currency management as part of their service.

Key Concerns:

The company is highly dependent on the banking sector to generate revenues. Any adverse development with respect to Indian banking sector could have an adverse effect. Any decrease in the availability or use of cash as the primary mode of payment in India could have an adverse effect on the business, results of operations, cash flows and financial condition. The company faces operational risks and has incurred, and expects to continue incurring, risk costs and penalties.

Financials:

Radiant commands around 40% share of the retail cash management industry in India. During FY19-22, company’s revenue grew at a CAGR of 9.0%. EBITDA and PAT grew at a CAGR of 14.5% and 15.2% respectively, while EBITDA and PAT margins improved by 282bps to 20.5% and 203bps to 13.4%, respectively in the same time-period. As a result, RoE and RoIC – improved by 367bps to 27.3% and 2377bps to 62.8% respectively. At the upper end of the price band the IPO is priced at a TTM P/E of 23.1x.

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