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Demonetisation Unravels Huge Opportunity for Point of Sale Systems
Dec 26, 2016


I stay with my cousins. We are all chartered accountants working in different areas. Our dinner discussions are damn boring...

But insightful!

On 8 November 2016, we all had different opinions about demonetisation. As an analyst, my views always concern the economic impact. My cousins bring more social and behavioural concerns to the table.

Now, I have met a number of companies since demonetisation, and I've written about the worst-hit sectors, i.e. auto and microfinance.

The way I see it, the short-term will be painful, but India's manifold growth story is just beginning.

However, last week at dinner, my cousins caught me up with an important question concerning de-monetisation. Here's how it went...

Me: It may have failed to curb black money. But it will be a drive towards digital India. My professor says history will not remember it as a monumental mistake but a leap frog to digital India.

Cousin: It may look good in books. But many villages in India are unbanked and have no internet connectivity.

Me: You are right. But history will see this as an inflection point.

I clearly take a longer-term view, but my cousin's point is valid: Is India ready for this transition?

Consider this:

  • Only 15% of India's one billion wireless subscribers have a broadband connection
  • Around six lakh villages do not have adequate mobile or internet connectivity
  • India has only around 15.1 lakh point of sales machines

These are disturbing points that stand in way of India's digitisation.

What to make of this?

I always keep things simple. Yes, the challenges are many...

For example, the demand for debit and credit cards, point of sale systems, e-wallets, etc exceeds current supply. According to the RBI, between October 2013 and December 2015, ATMs increased 43% and point of sale machines increased 28%. These growth rates look impressive...only because we started with so few. For April 15- December 15, share of debit card transactions at point of sales machines accounted for just 12% and 6% in terms of value and volumes, respectively.

But the good news is that, even though demonetisation will disrupt a number of sectors, it's a great opportunity for the players who will build this infrastructure.

    When there's a war going on, don't buy the companies that are doing fighting; buy the companies that sell bullets. - Peter Lynch

Demonetisation is war. Sectors like microfinance and real-estate are leading the fight. And they will bleed in the short term. The biggest opportunity, however, is for players who will make India a cashless economy.

One such opportunity in the point of sale systems. As per an SBI report, India needs at least twenty lakh point of sale systems for this transition to happen.

Imports and unorganised players dominate the market. Global players include Radiant and Micros.

But ever since demonetisation was announced, the analysts at Equitymaster have been deciphering the winners and losers across sectors. And finally, my Hidden Treasure team has spotted one listed player in this space...

The company, promoted by a reputed corporate, is already a leader in the point of sale systems market. And in the last two years, it has almost doubled revenues and profits. Of course, we'll have to meet the management before we can recommend it. So do stay tuned...

Meantime, if you're looking for something actionable, we still love Junior Bluechips. These are small caps with five crucial bluechip-like properties. They're three of our highest-conviction stock picks, and we believe they'll do well in the long term, irrespective of demonetisation.

Data Source:RBI Firstpost

This Chart Of The Day was published in The 5 Minute WrapUp - Stocks to Buy When Bullets Fly

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