HDFC Sec bullish on this debutant but target suggests it may not reclaim IPO price

2 months ago 37

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New Delhi: Domestic brokerage firm HDFC Securities has initiated coverage on

, the company which floated the first initial public offering (IPO) for the year 2022.

It expects a recovery in the payment solution business, led by the revival in ATM transactions, increasing cash circulation, higher demand for CRM machines, preference for RBI & MHA compliant vendors and growth in the digital payment business.

AGS Transact Technologies (AGS) is the second-largest ATM outsourcing and cash management player in India. It sustained the impact of COVID-19, supported by its strong relationship with top Indian banks.

On the back of COVID-led restrictions and a fall in fixed price ATMs of PSU lenders, AGS' ATM management revenue (transaction and fixed price) was down up to 10% in the last two fiscals.

However, improvement in ATM transactions can lead the cash management business to deliver 13% CAGR over FY22-25E and EBITDA margin could expand to 15-18% with scale, the brokerage said.

AGS has a total of 2.4 lakh POS machines, with a 4% market share. Out of the total order book of 80,000 POS machines, about 50,000 are installed and the rest will be done over the next two years.

"The growth was driven by tie-ups with major OMCs for POS installation at petrol pumps across India. The revenue from digital payments is expected to increase at a CAGR of 16% over FY22-25E, led by OMC POS," the brokerage said.

AGS reduced its debt to Rs 700 crore in FY22 through pre-payment of Rs 550 crore NCDs issued in FY21. The reduction in the interest payout will provide a boost to profitability in FY23E. "We don’t expect any further increase in debt levels."

AGS Transact Technologies had raised Rs 680 crore through its initial stake sale, by selling shares for Rs 175 apiece. However, the stock on Tuesday, traded around Rs 80, wiping out over half of investors' wealth.

AGS is pivoting itself to a profitable growth terrain in FY23E, supported by margin expansion in the ATM/cash management and reduction in debt, leading to interest savings, said

Securities in its report.

"We expect AGS to deliver over 10 and 15% revenue and PAT CAGR over FY22-25E, respectively, with an RoE of 17%," it added with a buy rating and a target price of Rs 123 on the stock which signals a 54% upside in the counter.

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