Key Points to Know Before Applying to AGS Transact Technologies' IPO

The year 2021 was a record-breaking year for the Indian primary market.

63 firms hit the market and raised Rs 1.2 tn through initial public offerings (IPOs), the most ever raised in a single calendar year.

The same can be assumed for 2022, as several firms have lined up to obtain capital through an IPO in the following months.

AGS Transact Technologies, one of the largest omnichannel payment solutions providers, will kickstart the IPO season of 2022.

The first mainboard public issue of the year will open on 19 January 2022 and close on 21 January 2022.

Prior to this, the company had made several attempts to go public. Earlier in 2018, AGS Transact Tech had filed draft papers with regulator to raise Rs 10 bn through an IPO. It had secured the regulator's go-ahead too but did not go ahead with the plan.

The price band has been set at Rs 166-175 per share. The issues size of the offer is Rs 6.8 bn, a cut-back from earlier estimate of Rs 8 bn.

The bidding for anchor investors will open on 18 January 2022 and the issue will conclude on 21 January 2022.

ICICI Securities, HDFC Bank, and JM Financial are book-running lead managers for the issue.

AGS Transact Technologies IPO Details

Issue Type	Book Built Issue IPO
Face Value	Rs 1 per equity share
IPO Price	Rs 166 to Rs 175 per equity share
Market Lot	1 lot - 85 shares
Issue Size	Rs 6.8 bn
Offer for Sale	Rs 6.8 bn
Basis of Allotment Date	Thursday, January 27, 2022
IPO Listing Date	Tuesday, February 1, 2022

Data Source: Company's Red Herring Prospectus (RHP)

Promoter's stake in the company

The public issue is purely an offer for sale (OFS) of equity shares by a promoter and other selling shareholders.

Promoters of the company are Ravi B Goyal and Vineha Enterprises. Together they hold 97.61% stake in the company. The shareholding of AGS Transact Employees Welfare Trust stands at 1.51%.

Post listing, promoters' stake in the company will come down to 66.07%.

Category-wise reserved portion

Up to 50% of the net issue is reserved for qualified institutional buyers (QIBs), whereas non-institutional buyers will have 15% shares allocated for them.

Retail portion has been fixed at 35% of the net offer. Retail investors can invest a minimum of Rs 14,875 for one lot and their maximum investment would be Rs 193,375 for 13 lots.

Utilisation of the net proceeds

The public offering is simply an OFS of equity shares by the promoter. As part of the OFS, promoter Ravi B Goyal will sell shares worth up to Rs 6.8 bn.

The company will not get any proceeds from the sale of the issue.

A brief insight of the company

AGS Transact Technologies is one of the India's leading omni-channel payment solution providers.

It's the second largest company in India in terms of revenue from ATM managed services and also the largest deployer of point of sale (POS) terminals at petroleum outlets in India.

It not just serves Indian market but also expanded internationally in other Asian countries including Sri Lanka, Cambodia, Singapore, Indonesia, and Philippines.

The firm primarily operates in 3 business segments

• Payment solution: Provides services such as ATM and cash recycling machines (CRM) outsourcing, cash management services, digital payment solutions, transaction switching services, POS machine services, agency banking, etc. As of 31 August 2021, it has a portfolio of 14,099 ATMs and CRMs under outsourcing.
• Banking automation solutions: That is sale of ATM and CRM, self-service terminals, currency technology products, and relevant services. As of 31 August 2021, AGS Transact has 50+ banking customer base i.e., ICICI Bank, Axis Bank, and HDFC Bank.
• Other automation solutions: It's for customers in petroleum, retail, and colour segments such as system automation products, system integration, remote management, and other service offerings.

As of 31 August 2021, it had installed a network of 2,21,066 merchant POS, 17,924 petroleum outlets, 72,000 ATMs and CRMs offering cash management services, 46,800 cash billing terminals, and installed 88,521 colour dispensing machines. The business serves customers in 2,200 cities and towns through 4.5 lakh machines or customer touch points.

Quick look at the company financials

AGS Transact Technologies has given good financial performance. The company has made a profit of Rs 547.9 m in the financial year 2021.

For the five months period ended on 31 August 21, the company reported net loss of Rs 181.1 m due to second wave of Covid-19.

During the same period, the company's total income stood at Rs 7.6 bn, while for the financial year 2021, AGS Transact's total revenue came in at Rs 18 bn.

Key Parameters

(Rs m)	FY19	FY20	FY21	Aug-21
Total Income	18,236	18,335.3	17,971.5	7,623.0
Growth (%)		0.5%	-2%
Expenses	13,807.6	13,380.7	13,203.9	5,682.4
Net Profit\Loss	661.9	830	548	-181.1

Data Source: Company's RHP

For more details, check out AGS Transact Technologies' Red Herring Prospectus.

Future prospects

India ATM managed services market is expected to register positive compound annual growth rate (CAGR) of around 6.7% during the period 2018-2023 in terms of revenue.

ATM repair and maintenance along with cash management services will expect to have positive impact on overall revenue generation for the India ATM managed services market.

Indian digital payments industry is expected to reach US$700 bn by 2022 in terms of value of transactions. It's expected that more than 80% of the urban population in India will adopt digital payments as a part of their routine by 2022, and 70% of the retail chains will adopt the same.

This bodes well for the company.

Competitive strengths

• Customer driven portfolio with strong capabilities to develop customised solutions in-house.
• Long-standing relationships with technology providers and customers.
• Dedicated in-house infrastructure and technological capabilities.
• Leading omni-channel integrated payment and cash solutions provider.
• Experienced board of directors and senior management.
• Diversified product portfolio, customer base and revenue streams leading to cross-selling opportunities.

Key IPO risk

• A small number of clients account for a large amount of their revenue.
• The pandemic had, and may continue to have, some negative consequences for the business.
• It's engaged in fee-based activities. If the company is unable to earn revenue from these activities it will have a negative impact on the business.
• Lack of use of cash as a payment method can have a negative impact on the company.
• Any payment delay or default by a client might result in a decrease in their profitability.
• The central bank and other government bodies heavily regulate the sector.

What's the ideal IPO strategy to follow?

The IPO pipeline for the year 2022 looks solid.

Several companies have received approval from the market regulator to go ahead with their IPO plans, including Adani Wilmar, Go Airlines, ESDS Software, Skanray Technologies, Emcure Pharmaceuticals, Tracxn Technologies, Fusion Micro Finance, MobiKwik and many other companies.

Before investing in any of these firms, investors should avoid getting caught up in the hype and instead examine prices and fundamentals.

If you recall, due to high valuations, Omicron fears, and tightening by the US Federal Reserve, the market became turbulent in the last quarter of 2021, losing more than 11% from record highs.

Paytm, Metro Brands, Star Health, Rategain Travel, and Shriram Properties all failed to impress investors due to excessive valuations, earnings instability, and Covid-related worries.

As companies line up to raise funds from the market amid high valuations, investors need to consider many factors before investing their money in an IPO.

If you are investing in an IPO, weigh in all the positive and negative factors affecting the company.

Take a close look at the company's financials and valuations. It would give you a clear picture of what's brewing.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...