CMS Infosystem Q3 FY26 Earnings Call Summary and FI27 Outlook

Ladies and gentlemen, good day and welcome to CMS Infosystem Limited's conference call hosted by MK Global

Financial Services Limited. As a reminder, all participant lines will be in the listenon mode and there will be

an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the

conference call, please signal an operator by pressing star then zero on your touchstone phone. Please note that

this conference is being recorded. I now hand the conference over to Mr. Vinage Singh from MK Global Financial

Services Limited. Thank you and over to you sir. Good afternoon everyone. I would like to

welcome the management and thank them for this opportunity. We have with us today Mr. Rajiv Call executive vice

chairman and CEO, Mr. Frank Chandelwal, CFO and Mr. Anush Ragawan CBO. I shall now hand over the call to the management

for their opening remarks. Over to you gentlemen. >> Good afternoon and welcome. Uh this is

Rajie. Uh let me start by with an opening. This has been a very hectic quarter. Before we dive in, I want to

remind rewind back and to set some quick context for those of you who may be uh recent participants on our calls. In

FI22 to 24, we have successfully achieved our three key operating goals and metrics on revenue growth, margin

expansion and market share gains. FI 24 and 25 saw an increase in comparative intensity and we sat out on most uh most

transaction BLA RFPs where the pricing was pretty low. We in line reduce our capex expense from average of 200 crores

a year to 100 cr level levels to preserve capital and to avoid low quality growth. At the beginning of this

year in FI26, we were quite optimistic and positive. ATM interchange increase had been approved and announced. A key

competitor was winding down operations and we were almost certain to be awarded a large cash RFP which was fairly unique

from the country's largest bank for almost 10,000 ATMs as the sole eligible bidder. This itself would have been 100

to 125 cr of incremental revenue for FI26 of which would have been a 4% growth from one contract and for this we

invested in network expansion ahead ahead of the contract. The tide certainly turned in May with

severe impact from both external and internal factors. We updated you on these in detail in our September 30th

analyst meeting. In hindsight, we invested ahead of this contract and our anticipation on things

becoming normal was very aggressive given the subsequent delays to that RFP. This has been a big learning for us and

since then we have tightened our deployment norms to align strictly with contracted milestone with key customers.

But in this volatility we have retained our long-term focus and doing the things which we think are right and investing

in them. We restructured the company into three platforms. ATM management solutions, retail and currency logistics

and tech and payment solutions. All of these are now at good scale. have market leadership and a strong margin profile

with ability to generate free cash flows to drive their growth. We also invested in broadening and diversifying our

customer base. We invested for growth in retail and tech segments. In the ATM business, our focus has been on higher

value and yield and more fixed price contracts. FI's 26 year to date, we have very

strong 1,600 crores plus of high quality order. As we enter calendar year 26, things are

beginning to turn. GSC2 has had a strong positive impact on consumption in the retail segment and we see the segment

starting to grow again. Order wins and execution of the order book is strong and cost optimiz optimization efforts

are also bearing results. I would now like Anush our CBO to share more details on the business and these initiatives.

>> Thank you Rajie. Good afternoon everyone. I'll spend a few minutes on the business and operational performance

for the quarter. The macro environment has been mixed but we are seeing signs of stabilization. On the retail side,

cash usage is holding steady which is a strong positive. In fact, if you look at our investor deck, we have shared some

information on how on the same store basis post GST 2.0 0 we have seen volumes you know rebound meaningfully

in our ATM segment transaction volumes have stabilized and this provides a floor for deployment planning.

In terms of our key business updates our SBI cash RFP after intense negotiation was finally awarded and contracted in

December. It is now getting rolled out in Q4. Our total revenue from this is 1,000 crores over 10 years of which 500

crores would be incremental revenue to CMS. In terms of other order book, our

execution is on track. We have over 750 crores of order book just with two customers, ICA bank and India Post

payment bank. Both of these are about 75% live. Our tech and payments business is growing from 235 crores revenue to

330 cr revenue in one year and is on track to hit 400 crores in FI27. This is a 30% KGA.

I would also like to provide you an update on the higher DSOs from a few midsized MSPs due to credit tightening

by lenders post the AGS issue. We had alluded to to this in our previous call. Since then we have

mitigated these risks to a large extent. We had made provisions in Q2 and in Q3 we took strong practical actions which

included limiting services to ensure payment discipline. This has had a negative revenue impact but was

necessary to drive cash flow improvements. DSOs are getting streamlined and should be back to normal

levels by end of March. On improving margins, we have taken the following actions.

We are optimizing our network and have exited a long tale of unprofitable retail points. This again has had a

small impact on revenue but it ensures a healthier revenue base and good profitability going forward.

The geek operating model for the direct to retail business which was being piloted for most of last year has now

scaled to a team of 2,000 plus partners who are covering 20% of our retail points and have achieved a certain

critical mass. We will also get a more agile and flexible network through this model to

handle peak periods and convert part of a fixed cost base to a variable structure.

We have strong business momentum building up again. Large customer RFPs are being decided as we speak and this

should help deliver a good Q4 and to FI27. With that I would like to invite our CFO

punkage for a financial update. Thanks Anush and good afternoon everyone.

Let me take you through the Q3 financials. I will focus on the underlying operating

performance as our reported numbers this quarter includes regulatory and one-off items.

Our consolidated revenue stood at 618 crential growth of 1.6%.

While headline growth appears modest, the quality of revenue has improved sharply.

Service revenue is up 4% on quarteron quarter basis. Managed services and technology is up 18% quarteron quarter

from 216 cr to 254 cr. AITA and margin operational efficiencies on track. Uh business AITA grew 9%

quarteron quarter to 158 cr rupees. Abita margins expanded by 160 basis points moving from 23.9%

in Q2 to 25.5% in Q3. This margin expansion were driven by the two segments cash logistics AITA up by

6% and margins expanded by 170 basis points. manage services and tax service attack

up by 12% to 78.5 cr rupees. I want to clarify the moment in PBT and PAT to ensure the underlying trend is

understood. Reported PBD dropped from 95.6 cr to 88.1 cr in Q3. This is due to a specific

one-off item. In Q2 that there is a base effect of one time gain of around 12 cr rupes from the re provision reversal of

ESOP and performance link incentives. If you normalize the these exceptional items our core uh operating PBT has

actually grown s sequentially reflecting the business and margin improvements. In Q3 we have also made onetime

provision for new labor code of rupees 11.1 cr resulting in pat after exceptional items for uh 54.4 cr.

Now I'll talk about the capex and liquidity. Uh ytd capex is around 275 cr while we

have conservative in capex for 24 and 25. This current spend is linked to the execution of around 100 1,600 cr rupees

order book that Rajiv mentioned. This growth cap this is growth capex not maintenance capex and it is primary

driver for the revenue visibility in FI27. In terms of outlook,

business momentum has picked up a pace in FI25 our AITA AITA margin was 26.1%.

Which is dropped to 22.8% in this quarter. However, in Q3, we we should see that the overall AITA margin

expanded by 10 basis points to 25 24.5%. This should further improve to 25 to 26% raise for the FI27.

With that I hand hand it back to the Rajiv. Thanks Rankage. Um in our closing I just

want to cover three topics. First the revenue mix. Secondly M&A and capital allocation and thirdly the FI27 outlook.

I do want to point out and you can refer this to the slides we have on the investor deck. Um our mix of revenue is

substantially changing. It's getting much better and broader. Over two years from FI24 to year-to- date FI26, the

contribution from our largest customer has reduced from 22% of revenue to 18%. The whole category of private sector

banks and the direct to retail revenue that contribution is increasing from 24 to 30%. The PSU bank revenue

contribution is up from 19 to 22%. and the revenue we earn from our MSP partners is down from 35% to 29% of

revenue. This mixed change is going to have a positive impact on margins as we broaden and diversify the nature of our

business and the nature of our customers. Second, on M&A capital allocation, I

will reiterate what we have said always. Our capital allocation priority is first fund organic growth and orderbook

execution. Second, pursue accreditive M&A where we see either consolidation opportunities or a synergistic expansion

opportunity. Third, return surplus capital to shareholders through Newtons. We see as of now a very good or I would

say a better M&A environment than we have seen in the past. Earlier this year on the back of having scaled our vision

AI platform into a market leader, we were able to make an accreditive acquisition of a leading player.

This was our first deal in the last four years. The investment here finally is 70 cr rupees.

On February 11th, a couple of days ago, we signed a term sheet for a business transfer agreement with the leading MSP

to acquire their ATM management solutions business. The deal value here we estimate to be in the range of 100 to

125 crores and we aim to close this deal by March. This is going to drive consolidation of the market and will

also be value accredititive to CMS. More details on this once the transaction closes.

At the same time, we are closely evaluating deeply other opportunities in both the retail and the payment tech

infrastructure sectors on buybacks given feedback we had both at the analyst call and after from shareholders given the

recent change in taxation which makes it more equitable to all shareholders and also keeping in mind the growth

opportunity ahead of us. This has been discussed at the board. We will be evaluating this in line with better

clarity on our balance sheet and the needs of capital by the end of the year and we'll update you accordingly. Let me

move to the third item which is uh relevant and most important right now is the FI27 outlook. As we have already

alluded to, CY Caloria at 26 is is off to a pretty good start and we hope to retain and build on that momentum going

forward. FI25 and 26 saw us defend our revenue position well even though we didn't grow much but we depend our

revenue well and we also maintain our market share amidst a lot of volatility in the overall ecosystem.

Our Hawkeye business specifically is growing rapidly. We have taken this business from 0 to 100 crore revenue run

rate ARR in FI 21 to 25 and FI 20 sorry FI 21 to 24 in 3 years and from FI 24 to 26 we are seeing this double from 100 cr

to 200 CR level range. Um not more importantly we have now built a strong enterprisegrade product which will be

very useful as we bid for some large RFS coming up in the coming year in new sectors uh for Hawkeye.

While Q2 and Q3 were adversely impacted and this has affected margins for the year. We have detailed these out in our

past calls and the analyst meeting. With Q3 we have bottomed out with momentum strong from execution of order wins. We

have we do forecast a strong positive trend going forward. Overall revenue for FI27 should be in the 2800 cr to 2900 cr

range. The services revenue component of this should be in the range of 2700 or 2,800 crores which was a target we set

out when we met you in September 30th. The bridge from where we are right now to getting to this is that we are hoping

to end Q4 strong. There are some key deals under discussion and negotiation which we hope to finish strongly by

March which will allow us to end Q4 strong. Enter FI27 with a services run rate revenue closer

to 650 crores. If you if you gross it up by four times that'll give you roughly a 2600 cr services revenue for FI27. And

then growth in the year should get us closer to the 27 to 2,800 cr services revenue growth. Add product revenue of

roughly about 100 crores. We should be in the ballpark of that 2,800 to 2900 cr overall revenue. EITA margins. Punkage

has detailed out the reasons of us going down and our bridge from there. I mean if you want to summarize our overall dip

in EITA margins would I would just you know uh put them into three factors about roughly about one and a half%

impact in both wage inflation and the investments we made in building infrastructure for a contract which took

time to pan out and then about 1 one and a half% dip in margins which is linked to both increase in fleet cost um as

well as a higher uh overall pro ECL provisions and risk provisions. we these are improving. I think we'll see

improvement of that in Q4 and with the bridge from there to next year we should be able to see ITA margins in the 25 to

26 26% range for FI27. Uh thank you and now we can move on to Q&A. >> Thank you very much sir.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on

Petstone telephone. If you wish to withdraw yourself from the question queue, you may press star

and two. Participants are requested to use handset while asking a question.

Ladies and gentlemen, we'll wait for a moment while the question cube assembles.

First question is from the line of Pravin Kumar from Equitas Capital Advisor. Please proceed.

>> Yeah. Hi. Uh thanks for the opportunity. I had a couple of questions. The first one was to get more uh clarity on the

revenue bridge to FI27 which you spoke about. Uh so if I look at it from a different perspective of uh how much of

this bridge uh to FI27 revenue are are things which you have already contracted and have in hand versus where you are

counting on let's say consumption improving or you know some uh other uh improvements in the broader macro. So

could you if you could break it break it up into those two kind of components. Thank you.

Hi Pre Manisha U3 if you look at it was about 57 crores as u you know we all shared I think there's

a lot of work that has happened on the order execution through this year we also have the large SBI order which is

going live in Q4 so that plus a few other deals that we're in discussion with um the goal for us is right now to

just just be relentlessly focus on execution and to enter Q1 with a services base of the 577 growing to

about 650 cr. So 650 into 4 gets you to 2600. 2600 you add about 100 crores of incremental growth through FI27 and 100

to 125 crores of product that gets you to that range of about 28 to 2,900 that we alluded to.

So would you would you say that this 650 which you're talking about is largely what you you have in hand and you have

to just execute on that or is there any you know assumption built into that saying that you know consumption needs

to improve or you know >> so you know let me try and give this answer in a different manner because you

know I have to be cautious of the fact that there's a team which forecasted very well for 3 years and then I think

in the last one month and a half the forecast have not really played out. So we will be a little careful right now

provin and therefore bear with us as we build confidence and forecast in reality. Um the 650 sort of a number I

think we have almost 95% certainty on this number. Um but we would want to wait to see where we end with March and

u so I think the 650 into 4 that 2600 is fairly certain the bridge from 26 to 27 2800 that's something we had to earn and

work for in the remainder of the year. >> Unders understood. uh just couple of other questions. One was on uh on the

retail cash management part. I think you have uh in your presentation you you have referred to rationalizing low yield

customers. So I just wanted to understand that earlier you were uh somewhat uh I mean is this is this kind

of a indication that this is kind of a course correction from your earlier uh kind of uh aggression in this uh part of

the market or I mean just wanted to get some color on that. So uh it's a great question. You know I

think we the way I would phrase is in the last two to three years we've been fairly aggressive on this market from a

market share perspective right as other businesses are scaling very well we are happy to invest with you know aggressive

pricing network expansion um and also we built up a sales engine in the last 2 three years to attack and address the

D2R customers in a year which was reasonably tough I think it was very important for us to look back and

optimize and network and look at what makes sense we did go and engage and when you're growing the network there

will always be a x percentage of network which is not going to be profitable right as you're entering newer markets

look smaller locations um when uh I think in Q2 Q3 given the overall trend of the business we wanted to step back

and look at how much of this customer will be profitable longer period and we took an attempt to see if where we can

increase prices and where we think the prices just don't make any sense so I think what Anush and his team have done

with Punit have done is sort of um I would say just do a sort of I don't know what the right word is but just prune

this up in line with making sure that we are building our business and margins um in the right line. Now I think this will

be a journey we'll go through up and down right when you are in more aggressive and high growth periods you

will invest uh invest some investors will make bare fruit some will not and then you are post correct

>> understood understood and uh one other question on the provision that you had taken on on in terms of the receivables

in Q2 I think Anush referred that uh you know you expect that to stabilize by the year end so a couple of uh I mean just

wanted some clarity on that one is that what kind of revenue hit have you taken on you know in terms of having to uh

tighten your uh receivable norms uh with with these uh kind of uh customers and uh secondly you know given I mean if you

are continuing to see stress in the ecosystem uh how much more revenue hit you can expect from this kind of a you

know stress persisting in the system thank you >> um we'll answer that question in two

parts one is I'll I'll take the revenue part and I'll hand over to pankage for the ECL for the provisioning part. Um

the Q2 was a you know a specific provision that we had to take on account of you know seeing the significant

change in the you know external market conditions and what some of our customers especially the midsize MSPs

were going through post you know the shock in the ecosystem the tightening of um the liquidity and the credit tabs to

them Q3 we took a slightly different u approach as I shared which is we we were really focused on trying improving our

overall DS PSO situation. That meant that we had to take certain calls in terms of our revenue exposure but more

importantly how we invested quality and cost in running networks or sometimes you know

shutting them down. Not easy calls to take but um the effect of that is visible in the Q3 revenues. With respect

to the provisions will just answer that. >> Yeah. For risk and ECL provisioning we look

into the on an annual basis not on a quarterly basis. The risk provision for FI23 bars around 5% of the revenue which

we have reduced to 4% in FI24 and 3.7% FI25. However, this year we are expecting the

same to be range of around 4.25 to 4.5% of the revenue because the ECL specifically have a lag effect. So as

the DSO increases, ECL increases but as Arush has explained to you the DSO reduces over a period will impact the

reduction in the DCL provisioning in going forward. >> Uh thanks for the clarification but

Anosh could you >> sorry to interrupt Mr. Pravin May we please request you to rejoin the queue

for the followup question sir several participants are waiting for their time. >> Okay

>> thank you. Next question is from the line of Abhishek Chawan from Iklavia Capital.

Please go ahead. >> Uh yeah, I have two quick questions. Uh so the first one is uh last quarter the

management had forecasted 9% uh uh growth in the services revenue in H2 compared to H1. So what is the services

revenue growth uh for Q3 uh uh as compared to Q2? That is the first question I wanted to ask.

>> 4%. >> 4%. All right. And the second is uh there is a uh dramatic increase in the

employee benefit expense uh this quarter of about 18 crores and that looks pretty big for a quarter where appraisals are

generally not due. Uh so what was the specific reason uh of this uh increase? So uh as I explained to you there there

was a last quarter in last quarter there is a one-off item of around 12 cr rupes wherein we have reversed the

provisioning for the esau as well as the performance link incentive provisioning. So that is the impact of around 12 cr

reduction in the last quarter. Otherwise the total cost employee cost and service and security cost there is a reduction

in the overall service and security cost and the employee cost. And whenever you look look both the add

both the items service and security cost and employee cost add both the things and calculate the number. There is a

reduction in in considering existing of 12 cr rupes and adding this both there is a reduction in the cost of this

thing. Right. Service and security is different from employee benefit. I wanted to ask

specifically about couple cr. >> Yeah. 12 cr is purely in the employee

cost. >> Mhm. >> When we and we when we add about the

total employee employee and the workforce cost. Workforce is either our own employee or the third party

employees. You have to add both. So service security includes the outsource uh staff which will be working

with us. So therefore that's overall part of our wage cost. >> Okay. Okay. All right. Got it. Thank

you. Uh that's all from my time. >> Thank you ladies and gentlemen. In order to ensure

that the management is able to address questions from all the participant in the question queue per participants

questions to two per participants. Should you have a follow-up question please rejoin the queue.

Next question is from the line of Rashid Parik from Bugle Rock PMS. Please go ahead.

>> Yeah. Hi team. Uh so I think my question is in continuation to the uh earlier question on the aggression that we had

shown in the retail side but now we are pruning a little. So uh that I think that part is clear. uh uh can you just

help me understand uh also uh additionally is that how we are looking to take this up going forward uh and any

particular uh areas that we are targeting first of all surrounding surrounding this how is the gig strategy

deployment uh working out for us the challenges that we have overcome and within the growth part any new uh areas

for Hawkeye for RMS that we are looking to deploy especially when you mentioned that some new sectors we are looking to

build the solutions for. So that is my first question. >> Hi Rash let me answer both your

questions. As far as the retail is concerned I think our in terms of our sales focus aggression continues to be

you know what it was simply because we think this is an important part of our future growth. Retail is a very large

opportunity and you know we think of it more in terms of decadel um you know opportunity because the formalized and

outsourced as part of what is broader retail in India is still so small. I think the way to think of it is it is

our responsibility to do what we can to create this addressible market. Now as part of that

it will always take a little bit of time for us to figure out the parts of the business which have been onboarded. You

need to give them some time 6 months one year one and a half years for them to sort of achieve full revenue status in

terms of translation into what is the estimated realizations and throughput in Q3 post GST 2.0 Z and as you have

shared for us to start looking at the sector by sector along with the consumption report that we have it gave

us a lot more clarity on the parts of the sector which are seeing you know more vibrancy versus some you know deals

that we had which probably didn't. Given that we were getting into the whole network optimization stage, it made a

lot of sense to sort of take start taking some calls right which is you know every business every operations

will have some churn that we would like to impose. it maybe 2% of the long tail it maybe 5% of the long tail that is

what we have alluded to um coming into Hawkeye I think we've spoken about how you know within Hawkeye

itself you know we the goal for us is in the longer term to think about productizing this the experience that

we've had and the amount of investments that we made in the technology and the R&D in building a lot of advanced AI use

cases will serve very well when we think about translating this into to the broader retail. So either way when I

think about retail I think the combination of both what we have as a Hawkeye product and the retail cache

along with a lot more of technological integration working into you know helping stores with reconciliation and

um you know selling automation solutions will be a very powerful I think for us I would also like to add to what Anish

said you have to take the fe you have to keep in mind the industry and how overall retail sector in India suffered

in H1 of last year we saw consumption you know all of you will be investor invested in other companies consumption

really get impacted till September end so there was a churn in the sector itself it is a relatively lower margin

sector there were clear sector trend shift from I mean from physical retail to online retail to quick commerce which

is impacting those customers from our side I think today we have almost unish what 150 plus direct to retail logos

>> 165 >> 165 customers right this number was maybe zero 2 and a half years ago uh

With these customers, we are cross-selling, right? We are not only in the business of retail cash management.

We are upselling them with retail cash vaults. We are upselling them with Hawkeye based solutions. And where we

end up seeing the return uh makes sense from both revenue and margin perspective. We will continue to deepen

our presence there. There will be some customers as you work with them for 6 months, you realize the amount of volume

of cash and the revenue you can earn is not going to be material. At that point you need to have a sort of a clinical

viewpoint and examine and sort of let go of that and use that network capacity for better quality customers and that's

what we I think have done. I don't think you should read too much into this in terms of change in strategy. I think

there sort of a aggressive launch and growth. We assessed things in the last 3 to 6 months uh to sort of take stock and

say what makes sense what doesn't make sense. But overall I think we are um we are fairly um what are the word I think

we are seeing a lot more opportunity of cross-selling into our retail customers than just pure cash management.

>> Sure. No no uh my query was also in relation to one of the competitor talking about increased uh you know

competition in this area in the on the retail side and and uh I mean we being the aggressors in this area. So that is

what I was kind of >> yeah I think you're right and we have ourselves in prior calls said that we

are going to be very aggressive in this area because again we feel that will you know if you want to grow a market you

will have to make investments whether it's low cost low price deeper market expansion um I think we've done that we

have sort of uh consolidated back right now in this year and we'll again you know launch further expansion as we see

opportunities in the coming year. appreciate my second question is that for the SBI

you know order uh there were talks of 10,000 ATMs uh that were in freight for the outsourcing

but the announcement that we made is I think pertaining to 5,000 ATM so rest of the ATMs will it be uh coming in uh over

next year or uh it's uh that particular piece is still away right now. No, I think the total order is 10,000 in

terms of what SBA wants to award. Um, if you go back, I think to some of our earlier commentary in the first version

of the outsourcing process, we were the only eligible participant and um that would have you know meant we get the

entire 10,000 but unfortunately with that getting scrapped and then coming out with a new RFP um of that we were

the L1 uh participants. So we got about 5,000 of those volumes whereas going to other industry participants.

>> Okay. So the rest of it has gone to uh someone else. >> Okay. Yeah. Thank you. I'll get back in

you. Thank you. >> Thank you. Next question is from the line of Nihar

Mata from Bay Capital. Please proceed. >> Yeah. I just had a couple of questions. one if Anush can comment on the overall

RFP rollout. How is the outlook looking like in terms of new rollouts from banks and cash logistics?

So I think for most of FY26 the RFP pipeline has been fairly subdued just on account of the both industry being

volatile banks you know struggling with um you know uh dealing with the fallout of AGS shutting down the ATMs industry

consolidating and understanding you know where things are. Um all of that has led to banks sort of making a shift in their

outsourcing strategy and the two key shifts here are they are moving away from or depending less on ATMs and

pivoting more towards recyclers. They see recyclers as being a very strong complement to helping branch

transaction. And the second pivot is moving away from transaction based pricing to fix based

pricing. That is something that as CMS we've been advocating for a long time. We've stayed out of the transaction

market for almost last 12 to 18 months now. Uh when I think about the RFP pipeline in FI27,

we see meaningful activity coming back into the market. As we speak, we are aware of almost about 6 to 8,000 ATM

units which are in various stages for the pipeline. um this means that there's a total contracted value opportunity of

about 2,000 crores. I think the timing of when these come out and you know what we win and how we position ourselves

that's going to be key. >> Okay, understood. And just one more question. What's the

>> Sorry to interrupt Mr. Mata your you are not audible. Your voice is breaking. >> Yeah, just uh one more question. What's

the amount of cash on the books as on December 8? Hello.

>> Hello. >> Um I'm just asking for this about 600. It's about 600 crores.

>> Hello. Yes. >> Uh Mr. Ma, does that answer your question?

>> I could not get the last part. 600. >> Yeah, 600 crores. >> Okay. Thank you. That's it from my side.

All the best. >> Thank you. Next question is from the line of Prahar

Agarwal from Dexter Capital Advisor. Please go ahead. >> Yeah. Hi team. So thanks for the

opportunity. So my question was along the lines of our uh outstanding order book. I see like we have one uh 1,600 cr

worth of order books in FY26. So I wanted to understand like which side of our managed services business uh is this

order book tilted to? I mean is this related to mostly software or our banking automation business? If you

could provide some color on that. >> Um it's mostly a mix of both um you know integrated contracts on the managed

service side and you know Hawkeye especially when you look at the large you know uh complex branch RFP uh roll

out. >> Okay. So this also includes like Hawkeye uh contracts with uh uh for customers.

>> Okay. Yeah, that's all from my >> Thank you. Next question is from the line of Axad

Hara from Multiac PMS. Please go ahead. >> Yeah. Hi, thank you for the opportunity. So my question was more related to the

cash management services. So sequentially if you look at the numbers we've still had a degrowth in the cash

management part and uh if you look at it that revenue for that segment has peaked out at around 417 crores and now we are

down to around 384 crores. So with uh the services guidance that you've given for next quarter and for the next year

uh what is the outlook on this specific segment and uh you know how much will the SBI order help for this you know the

recovery in this segment? I think specific to SBI you know as you called out it's about 500 crores of

incremental opportunity over a 9 10 year period so you should think of that as about being about 50 crores per year. um

the delta between 41 5 417 to 385 I think you know we've sort of explained in in different ways but fundamentally

it's a link of two three things it is a dip in our overall business points or ATMs that we used to handle the the

4,000 odd um dip that we had going in from Q1 to Q2 and Q3 that has had an impact the cleaning up of retail that

we've done has had an impact and um also the calls that we had to take to fix Our DSO situation has had an impact with

most of these you know you know either being fixed or normalizing right now. We anticipate this to get improve in the

coming quart. >> Also just you know I I do want to we have mentioned this before I I would

like our uh analysts and investors both to start looking at our business in total because the managed services

business and it itself being a customer cash management is now ramping up and we have a lot of integrated contracts. So

the revenue is actually and that's why you'll see an interview sort of a knockoff as we merge our P&Ls into the

three business lines we talked about ATM solutions will will be one complete business line where you'll see ATM cache

managed services uh brown level ATMs fixed price machines all of that will be in one revenue bucket we think that

business overall should grow 15 to 18% next year the retail and currency logistics business should grow about

12-ish% and our technology and payments business which includes Hawkeye and cards would I think grow about 20% for

the next year. So that will give you the blend of revenue growth which we are thinking about. We are working to uh

build a P&Ls on these business lines and so that you will be able to see the growth in each category by themselves

instead of cash and MS and um tech. >> Okay, fair fair understood. Um so this question was specifically uh you know

from your margin guidance also. So for next year you know we are guiding the margins to go back to our FI25 aida of

around 25 26%. And uh you know if you look at your old segments so where we've moved to new segmental uh reporting but

since we continue to report uh old segments also uh the margins have broadly been impacted due to the

operating delegation service. So uh you know the recovery for cash manager services is also important

for your margins and based on the next year margin guidance uh it is fair assessment that the cash management also

has bottomed out within services and it should uh grow from these levels. No

>> no absolutely you're absolutely right. I mean uh I think from a cash management perspective both from a macro

perspective and even from our own uh what decisions we had to take in Q2 Q3 the revenue has bottomed out. I think

currently the trend line is to grow uh is already growing higher and Anush mentioned to it is on our investor tech

if you look at specifically the retail cash volumes they're very robust even um in December and Jan for segments our ATM

uh cash management contracts we have from let's say SBI and then we think of the ICI order which is a managed

services and cash management order win I think that will all lead to both the cash management revenue growing as as

well as uh the margin profile increasing. Um to set you a quick context, we were roughly about 70,000

ATMs under cash management about a few quarters uh ago, which dipped to 68,000. We are back to 70,000 now. We are

targeting an aggressive ramp up to 74 75,000 ATMs by the end of March or April. As that ATMs under cash

management come in, you will also see the margin profile improving back on the overall business.

>> Understood. Understood. Very helpful. So last question is on the cost side. Uh so uh you know sequentially I understand

that last quarter had some reversals on account of ESOP and the bonus forgo. But uh even if I ignore the last quarter and

if I look at you know uh your YI employee cost so that run rate has gone from around 81 cr to around 100 cr. So

we've grown that by around 20 plus%. um uh and your uh vehicle uh sorry your service uh charges have remained flat.

So we are seeing a insourcing trend. So you know just wanted to understand the background behind this and whether the

insourcing trend as you know is it's complete and what should be our employee cost and services under that we should

you know uh understand going forward. So let me give you the philosophy on how what this what has happened and then

specifically pankage can maybe answer. I'm not pro to the 800 cr number right now which you're referring to. Uh the

overall employee cost you should think in conjunction of both employee cost and service security. Uh it's not you

insource outsource depending on where in the regions are you working and also what nature of business. Um right some

of the higher value more risk business will always be insourced. um uh we have had an increase in overall employee cost

if you com combine the P&Ls both two reasons one was wage inflation linked to us signing long-term wage settlements

earlier in the year we talked about this in Q1 we have a 3 to four year cycle of signing wage settlements we normally

recoup it back through productivity but this year given volume growth was low recouping it back within the year was

difficult but I think we'll start seeing that in Q4 Q1 going forward the second was linked to the fact that we invested

and made the wrong decision of investing for capacity assuming we were getting the whole SBI contract in April May that

was with hindsight a terrible call to make and we're paying for that and we're trying to fix that right now um so if

you think of u the overall number pank you want to talk about the overall number which you let me

>> yeah so if we'll see that uh if you add both the service and security and the employee cost uh it is increased around

6 to 7% over uh Q3 of FY25 to Q3 of FI26 and this is because of the as we explained to you there is LTS

impact and the new business whatever we got is impact of related to that >> and so there's no there's no change in

insourcing outsourcing I think for that we are fairly agile on what we need to do for the business

>> okay understood understood uh one last question >> sorry to interrupt Mr. Hurry, may we

please request you to rejoin the queue for the followup question, sir? >> Sure.

>> Thank you. >> Next question is from the line of Suraj Singhana from Ratnatraa Capital. Please

proceed. >> Yeah. Hi sir. Uh thank you for the opportunity. Most of my questions have

been answered. Just uh one question was around your capeex estimates for FI26. You had earlier guided for 300 crores of

capeex. Now we have done 275 crores this year. So what what is the capex that we estimate for this year and next year?

That's one. And one is the data keeping question which is since secur business is now being consolidated in

our P&L. What is the revenues and aida from the securance business in Q3 FI26? So um as we have given the guidance that

the our capex will be around uh 300 to 325 cr rupees and we have already spent 275 cr. We expect that we will in the

range of 300 to 325 cr rupes only uh secures uh in around 18 cr rupees uh uh increment 12 crores

>> uh total revenue of 18 cr rupes. So incremental revenue of around 12 cr rupes in Q3

>> and uh security will have actually a negative PBT because we will be front loading the depreciation on that assets.

>> Got it. Got it. So 6 crores was accounted in the last quarter if I understand.

>> Yeah. Yeah. >> Got it. Thank you. >> Thank you.

Next question is from the line of Danch Gupta from Latin PMS. Please go ahead. Hi uh one question you had mentioned

that uh the contracts are now moving from let's say cash machines to recyclers. Uh so the question is that as

recyclers uh do the number of trips that we have to do reduce and therefore lead to a revenue pressure for us going

forward or we price it in and increase the realizations.

Um no Vanch I mean if if I look at our current base also recyclers are a lot more um have a lot more complexity than

native and especially in terms of how they need to be managed and more importantly serviced. Um the

expectations from customers is also that the quality of service and uptime on these machines have to be of a much

higher order. Generally recyclers are deployed at onrem branch sites which means that you know for they generally

have a higher footfall and you know so banks are very keen to sort of you know for example if atm 95% of time and

recyclers it's almost 97 98%. So um to us we actually see recyclers as being sort of an upsell and a higher value

solution than ATMs. But when you say uptime it means more cash availability or I'm assuming it

means more cash availability but given that >> more end user end user availability

right now which which is which could be cash availability which could be you know how how do you fix the faults it

could be things to do with the software things to do with the hardware but end user availability

>> uh but sorry just to double click on it see assuming that machine of an ATM and a cash recycler both are of sufficiently

good quality in let's say non-cash uh metrics will largely be same and given that the customer can deposit cash the

cash out situations will reduce so therefore does it reduce the number of trips that was my I think you should

look at you know what a recycler means to different stakeholders to a bank it definitely brings about a greater degree

of efficiency in terms of how the currency is utilized it is effectively less cash at float to us. We also like a

recycler model simply because both unit economics wise and in terms of the complexity it has a higher value which

means that in in terms of the monthly fixed fee it is usually pegged above an ATM. Um now the number of visits might

be lesser in certain cases but that doesn't really change the nature of the revenues simply because the amount of

work that still needs to be done especially in an ATM you only need to withdraw cash and load it in a recycler

you might have to load it you might have to evacuate it there's a lot of reconciliation work that also needs to

be done so it's not as plain speaking as that but um netnet it it ensures to us a higher realization than what a normal

ATM would to a bank it's not necessarily higher cost because they need to look at it in

terms of what what a cost of a branch transaction is visa v what that of a recycler would be so it is generally a

more efficient way of managing things understood and the second question was in the analyst day right we have

mentioned that we have 38% market share in the retail cash management uh but uh at least that my understanding

was that currently we do not have pricing power or we were looking to increase pricing after

uh some time. So is there a target market share which will allow us or how should we understand that when should

pricing ability to price it higher for retail cash management can be expected. Uh let me let me take an analogy on the

ATM business right or rather you know when I look at what we gain in terms of our ability to you

know both influence the market as well as influence our own outcomes I think with each step change in our overall

market share it creates a very different kind of an outcome and we've seen this we've seen you know um what CMS was 15

years back 10 and now especially in terms of the way we've been able to unlock incremental uh IBIDA margins ac

you know as we scaled up in the ATM business as we went from a 35 to 40 to 45 50 and closer to 57 58% market share

all of that step change has had a differential outcome in terms of pricing route optimization right now in the

retail I think we're in a zone where we are focusing more on yield management and yield improvement which means that

we are sort of evaluating things on a contract by contract basis um our focus there is really to continue to increase

market share to continue to expand the addressable market opportunity and to invest in both building the sales

capability as well as using that to cross-ell into technology solutions. I think for I would uh you know the way I

would ask you to think about is and this is a question we ask ourselves right uh first of all you want to defend your

revenue and market position in the market right that's the most important thing right now you don't want to suffer

on revenue and market position uh margins can go up and down we are fortunate in many ways to have a margin

profile which is substantially better than anybody else we know of in internationally or locally maintaining

that margin profile and growing revenue rapidly both of those are not easily possible right so something has to give

at some points of time um I would argue Now with hindsight like the last year has seen the opposite happen where we

defended market um and revenue and therefore has had some impact on margins possibly. We will hope to undo that in

the coming two three quarters specifically to retail. I think Anu said we will look at our network and look at

our capacity to see how we can keep growing revenue at a sensible margin profile. Um and is there a particular

mar market shared number where it makes sense? I don't know right. I mean I think it if you have one competitor who

is willing to anyone right now there are four competitors in the sector if you have only two the second one can keep

aggressively being u aggressive on pricing maybe right so really you can't determine when and how much pricing

power you can get I think if you can keep focusing on quality cross-selling to the customer other lines of

businesses I think you're fine >> understood and just one last question sorry to interrupt Mr. Gupta, may we

please request you to rejoin the queue, sir, for the follow-up question. Thank you.

>> Next question is from the line of Shivam Parik from Valuewise Wealth Management. Please go ahead.

>> Yeah. Hi sir, good afternoon. Thanks for the opportunity. So we are having a good cash position of around 600 crores in

our books and having a great balance sheet as well. So also with us being market leaders in the business that we

do and further consolidating our market share furthering in in the la in tough times last financial year and this

financial year. So are we thinking of enhancing shareholder value through buybacks to gain advantage of the low

valuations currently? >> Yes. Hi um I think as um perhaps you have

joined late in the initial part of our opening remarks as Raji mentioned uh given the changes to the buyback

regulation that have been announced um and we feel that right now it is a lot more equitable for all stakeholders as

opposed to the earlier regime. Uh this is something that has been discussed at the board level. We will evaluate this

closer to the end of this year as we look at our overall capital needs in terms of growth capital M&A. Yeah, I

think we, you know, we h we do have a fairly active Mday pipeline. We've been working on that for a long time. Uh we

are looking at um investing for growth. As I said, our priority is simple, organic, uh then inorganic and then

returning shareholder uh returning capital shareholders whether that's through dividends or buybacks. I think

we will take the we will have the board discuss at the appropriate time. Um right now we are seeing active

opportunities in the M&A pipeline. We don't know that doesn't mean deals will happen. we will uh continue working on

them and what makes accretive sense for us to build and scale our business in uh with good returns I think that's the

first priority for us as a team uh to us and to our shareholders >> okay so sir with you seeing buybacks

favorably for us so you are seeing >> no sorry sorry let me let me let me let me clarify it's not about seeing

buybacks favorably for or unfavorably I think buyback >> because there has been a constant ask

and question on buybacks we want to address it proactively in line with our capital allocation philosophy which we

have entailed out. We're not saying a buyback is going to happen or not. If we do see excess capital and we don't have

a need for it, we then will evaluate returning it via dividend or buybacks as the board deems fit.

>> Okay. So sir, if any uh buyback was to be possible, so uh can we expect uh in financial year 27 or uh this year this

financial year? I I I don't uh think I could forecast this at all. Uh this is not a decision

which a management team makes. I think I think we've been fairly clear on the way we think about it. Uh we will let you

know end of the year if there's any change to the thinking. >> Also with buybacks being taxed

unfavorably. So does that have a bearing on our decision? That was my last question.

Certainly yes. Absolutely. You're right because we have to think of capital allocation in with light of all of that.

That's why we have proactively talked about it. Not to say that there's something happening just to share with

you how we think and we are clear to our shareholders equally to give you an answer on our thinking. We do see

capital needs for the growth of the business both organically and organically. If after that we see a

sufficient cushion for us to return capital, we will definitely look at it. >> Okay sir. Thank you sir. It was very

helpful. >> Thank you ladies and gentlemen. We will take this as the last question for the

day. I now hand the conference over to the management for the closing comments. >> Thank you so much. Uh thank you for your

uh Q&A and for all the questions you asked us. I think I'll summarize by saying that yes, we've had uh two

quarters of disappointing numbers. We are hoping to turn the tide with Q4 and going into Q FI27 strong. Um I know

there's a revenue forecast which may seem little aggressive given the Q3 specific numbers. um and the last two

three quarters of sort of underperformance but we're hoping to turn it and deliver stronger numbers for

you and for us to meet our own internal target which we had set for FI27 of 2700 to 2,800 cr of services revenue and

overall revenue of 28 to 2900 crores and with an IITA margin of 25 to 26% for the for the year.

Thank you. >> Thank you sir. On behalf of MK Global Financial Services Limited, that

concludes this conference.