Radiant Cash Management Services

Cash manager for retail clients

Wide presence beyond tier 2 cities with high cash utilization provides growth opportunities, rising digitization and formalization of economy is a challenge

Radiant Cash Management Services is an integrated cash logistics player with leading presence in retail cash management (RCM) segment of the cash management services industry in India. It is one of the largest players in the RCM segment in terms of network locations or touch points served end March 2022.

Radiant provides services across 13044 pin codes in India covering all districts with 11 vaults, 16 strong rooms, 28 safes and 55513 touch points serving more than 5388 locations end July 2022. The marquee clients include some of the largest foreign, private and public sector banks. The end users of services include some of the largest e-commerce companies, retail chains, NBFCs, insurance firms, ecommerce logistics players, railways and retail petroleum distribution outlets.

The total annual currency handling amounted to Rs 130380 crore in FY2022. The company caters to broad set of outsourcing requirements pertaining to cash management services for banks, financial institutions, organized retail, and e-commerce companies in India. The business operates across five verticals, namely

Cash pick-up and delivery: The range of services under this segment, accounting for 67.9% of operating revenues in TTM ended June 2022, consists of collection and delivery of cash on behalf of clients from the end user. The average daily volume of cash moved from all customers was Rs 467.2 core in the four months ended July 2022 and Rs 417.9 crore in FY2022.

Network currency management: The services under this segment (21.5% of revenues) consist of cash collection from end user and deposit into own current accounts and subsequent transfer to the clients accounts. The network of 55513 touch points allows offering a unique value proposition to clients, especially private sector and foreign banks with limited branch networks.

Cash processing: As an integrated RCM service provider, the value-added cash processing services (4.8% of revenues) are offered to clients in the nature of trained executives sorting the notes into categories such as soiled, mutilated, fit, issuable, counterfeit, and ATM-ready bundles.

Cash Vans / Cash in transit: The specially fabricated armoured vans (4.5% of revenues) are provided on long term or ad-hoc hire for movement of cash or bullion within clients network. The company has a fleet of 739 specially fabricated armoured vans end July 2022.

Other value-added services: The company also provides man-behind counter and currency chest operations (1.3% of revenues) to large retail stores and banks.

The client base covers some of Indias largest foreign, private sector and public sector banks such as Axis Bank, Citibank, Deutsche Bank, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Standard Chartered Bank, State Bank of India, HSBC and Yes Bank. The end user segments are fairly well diversified across multiple sectors, including e-commerce companies, retail chains, NBFCs, insurance firms, ecommerce logistics players, railways and retail petroleum distribution outlets. Some of the end users of services include Bajaj Finance, Equitas Small Finance Bank, Ecom Express, Delhivery, and Hiveloop Logistics.

The integrated offerings are supported by customized technology and process controls, which enables to offer a wide range of solutions to clients, while generating cross-selling opportunities and driving synergies and efficiencies across business. Radiant also seek to continuously improve and bring the latest technologies to meet client demands and to improve customer experience.

The Indian cash management market has witnessed consolidation with the decline in number of players from 17 as of FY2015 to six by end December 2021 due to stringent compliance requirements and a growing trust among scaled players. In 2018, the Reserve Bank of India has issued guidelines to banks to engage services of only those players who meet minimum standards for cash management activities, including minimum net worth of Rs 100 crore, minimum fleet size of 300 specially fabricated cash vans, global positioning system tracking (GPS) enabling of all cash vans, tubeless tyres, CCTV monitoring of all vans and two armed guards in each van.

Radiant offers service clients across the length and breadth of the nation along with the support of a team consisting of 8780 persons, including employees and contractual workers.

Col. David Devasahayam is the promoter and Chairman and Managing Director of the company.

The Offer and the Objects

The initial public offer (IPO) consists of a fresh issue to raise Rs 60 crore issuing 63.83-60.61 lakh equity shares of face value of Rs 1 each at price band of Rs 94-99. An offer for sale (OFS) comprises of issuance of 331.25 lakh equity shares to raise Rs 311.38-327.94 crore.

The promoter Col. David Devasahayam is selling 101.25 lakh equity shares and investor shareholder Ascent Capital Advisors India is selling 230 lakh equity shares in OFS.

The promoter and promoter group shareholding would decline to 53.2% post IPO from 66.4% pre-IPO.

The issue is to be made through the book-building process and will open on 23 December 2022 and will close on 27 December 2022.

Out of the net proceeds of Rs 60 crore from fresh issue, the company proposes to use Rs 20 crore for working capital requirement and Rs 25.48 crore for capital expenditure requirement for purchase of 220 specially fabricated armoured vans.

The company also expects to receive the benefits of listing of the equity shares on the stock exchanges and enhancement of company brand name amongst existing and potential customers and creation of a public market for equity shares in India.

Strengths

Radiant is one of the largest players in the consolidating RCM industry in terms of touch points served end March 2022. The top three players, of which Radiant is one, account for more than 75% of the total market share of the RCM market. The size and wide reach of network enables to realize further economies of scale, allowing to increase the productivity of operations and profit margins.

The company has pan India presence with strong network of 55513 points, of which 86% are in Tier 2+ locations. Cash utilization and circulation in tier 2+ towns remain high providing growth opportunities.

The user segment is growing faster driven by increasing customer base in the form of rising number of retail outlets, cash-on-delivery (COD) in ecommerce, efficiencies arising from adoption of RCM and higher penetration of COD as a method of payment in tier 2+ cities.

Radiant serves a marquee client base covering some of Indias largest foreign, private sector and public sector banks.

The long-standing relationship and relatively sticky nature of business also provides significant ability to cross sell value added services such as network currency management and cash processing services.

Radiant has a track record of consistent delivery of quality and cost-effective services over the years.

The offerings and operations are backed by robust risk management policies with cash loss in transit of Rs 7.1 crore in the three years ended FY2022.

The risk management team consisted of 74 risk managers and 60 supervisors based across India, most of whom are retired junior commissioned officers from the armed forces. The company retains retired senior police officers as advisors in each state.

The company offer 100% indemnification to clients and all cash movements on behalf of clients are insured. It has not experienced any instances of uninsured losses for cash loss in transit in last three years.

The hiring policy is systematic. All staff is subject to rigorous background verification followed by police verification.

Over the years, Radiant has enhanced partner engagement and experience through digitization of processes and augmentation of technology platforms. With technology, clients and the end-users can track real time data for cash management which are outsourced toRadiant.

Weaknesses

The business is highly dependent on the banking sector in India and nearly all revenues were from customers in the banking sector.

The customer pool may be limited as new banking licenses for potential entrants are difficult to obtain in India

The fee income is derived on a fixed per-point basis or on volume of cash handled basis and it is determined through negotiations.

Top three clients contributed 43.1% of total revenues in FY2022 with largest client contributing 17.11%. Any loss of major client or deterioration in the business of a client may affect business.

There are no long-term agreements with customers and contracts are subject to periodic renewal,usually between every one to three years and are subject to pricing renegotiations at the time of renewal.

The business significantly depends on the use of cash remaining the predominant mode of payment in India. However, the proliferation of non-cash payment options has increased significantly which could hit the use of cash.

Promoting cashless payments has been a key part of the Government broader efforts to, among other things,to curtail the circulation of counterfeit Indian currency which could reduce the amount of cash in circulation and the use of cash.

The RBI introduction of digital currency may also impact the amount of cash in circulation.

Given the large volumes of cash handled, the company is exposed to various operational risks, including armed robbery, end customer or third-party fraud, theft or embezzlement by employees, reporting errors etc under applicable service agreements attracting penalty charges.

The company operate in tier 2 and tier 3+ towns and cities that may have limited or unreliable infrastructure, particularly for IT and road transportation and requires to incur additional costs and face obstacles in operations.

Valuation

Radiant has exhibited strong financial performance driven by scalable and asset-light model,focus on managing costs by using a technology and significant expansion of physical presence. It has posted industry leading EBITDA margin, ROCE and ROE amongst organized players in the cash management services segment. Radiant has recorded EBITDA margin 20.86%, ROCE of 33.07% and ROE of 27.34% in FY2022.

The EPS on post-issue equity works out to Rs 4.3 for TTM ended June 2022. At the price band of Rs 94-99, P/E works out to 21.9-23.1 times of EPS for the TTM ended June 2022.

Among the comparable listed peers, SIS is trading at PE multiple of 16.5 times consolidated EPS for the TTM ended June 2022. Further, CMS Info Systems is trading at PE multiple of 19.0 times consolidated EPS for the TTM ended June 2022.

On business front, Radiant is mainly serving retail cash management segment, while listed peers have presence across verticals such as ATM managed services which include software switching services, ATM maintenance, cash vans, and security services in which Radiant is not active.

Radiant recorded 29% growth in revenues for FY2022 followed by CMS Info Systems 22% and SIS at 10%. Net profit of Radiant increased 18% and CMS Info Systems by 33%, but that of SIS declined 11% in FY2022.

The EBIDTA margin of Radiant stood at 20.73%, CMS Info Systems at 25.52% and SIS at 5.48% in FY2022. The PAT margin of Radiant was at 13.31%, CMS Info Systems at 14.02% and SIS at 3.22% in FY2022. ROE of Radiant was healthy at 27.34%, CMS Info Systems at 17.84%, and SIS at 15.71% in FY2022.

As of March 2022, Radiant had a workforce of 8470 employees, 49980 touch points, 55 vaults and 739 cash vans. CMS Info Systems has workforce of 20000 employees, 40000 touch points, 400 vaults and 900 cash vans. SIS has network of 5000 touch points, 59 vaults and 1000 cash vans. In addition, CMS Info Systems manages 63000 ATMs and SIS 14000 ATMs, while Radiant has shut down ATM operations business in January 2019.