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AGS Transact Technologies IPO: How good is it?

India's leading cash and digital payment solutions company has come out with its IPO. Here is a set of questions (and answers) that will help you make an informed decision about it.

AGS Transact Technologies IPO: How good is it?

AGS Transact Technologies IPO: How good is it?

In our story, AGS Transact Technologies IPO: Information analysis, we have shared the key details of the IPO, along with important information about the company. Here we will answer some questions about AGS Transact Technologies and evaluate it on parameters like management, financials, valuations, etc.

IPO questions

The company/business

1) Are the company's earnings before tax more than Rs 50 crore in the last 12 months?
Yes. The company's earnings before tax stood at Rs 82 crore for FY21.

2) Will the company be able to scale up its business?
Yes. By focusing on growing its digital payment solutions business and being the second-largest ATM managed services and cash management company, it will be able to scale up its business.

3) Does the company have recognisable brands truly valued by its customers?
Yes. Even though brand recognition does not hold much significance in the B2B segment, the company has been able to gain a reputation among its customers.

4) Does the company have high repeat customer usage?
Yes. The company enters into contracts with its customers, typically three to ten years.

5) Does the company have a credible moat?
Yes. The company's moat stems from its large scale of operations and nationwide service infrastructure.

6) Is the company sufficiently robust to major regulatory or geopolitical risks?
Yes. The company is sufficiently robust to significant regulatory or geopolitical risks.

7) Is the company's business immune from easy replication by new players?
Yes. Being the second-largest outsourced ATM managed services company, the company's operations are immune from easy replication by new players.

8) Can the company's product withstand being easily substituted or outdated?
Yes. The company provides ATM and CRM outsourcing and managed services, and cash management services to banks (mainly). Even though cashless payment transactions are rising, cash will be the dominant payment method for the foreseeable future.

9) Are the customers of the company devoid of significant bargaining power?
No. The customers of the company are banks (mainly). Though the company enters into long-term contracts, the banks have greater negotiating power.

10) Are the suppliers of the company devoid of significant bargaining power?
No. The primary suppliers for the company are its workforce. Moreover, the company has lower bargaining power under its knowledge-sharing agreements with its technology providers.

11) Is the level of competition the company faces relatively low?
No. The level of competition in the ATM, cash management and POS business is considerably high.

Management

12) Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
Yes. Post-IPO, the promoter and promoter group will hold about a 66.1 per cent stake in the company.

13) Do the top three managers have more than 15 years of combined leadership at the company?
Yes. The Chairman and Managing Director Ravi Goyal (one of the promoters) has been with the company since its inception in 2002.

14) Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
Yes, we have no reason to believe otherwise.

15) Is the company free of litigation in court or with the regulator that casts doubts on the management's intention?
Yes, the company is free from any material litigation. However, there are quite a few cases against the company and its subsidiaries.

16) Is the company's accounting policy stable?
Yes. As per the auditors' report, the accounting policy is stable.

17) Is the company free of promoter pledging of its shares?
Yes. The company's shares are free of any pledging.

Financials

18) Did the company generate a current and three-year average return on equity of more than 15 per cent and return on capital employed of more than 18 per cent?
No. The company's three-year (FY19-21) average return on equity was 14.3 per cent and a return on capital employed of 18.9 per cent. For FY21, the company generated a return on equity of 10.3 per cent and a return on capital employed of 14.6 per cent.

19) Was the company's operating cash flow positive during the last three years?
Yes, the company reported positive operating cash flow during the last three years.

20) Did the company increase its revenue by 10 per cent CAGR in the last three years?
No. The company's revenue decreased from Rs 1,805.7 crore in FY19 to Rs 1,758.9 crore in FY21.

21) Is the company's net debt-to-equity ratio less than one, or is its interest-coverage ratio more than two?
No. The company's net debt-to-equity ratio stood at 2.12 as of August 31, 2021. The interest coverage ratio stood at 1.63 as of FY21.

22) Is the company free from reliance on huge working capital for day-to-day affairs?
No. Since its operations involve extending credit for extended periods to its customers, the company is not free from reliance on huge working capital for day-to-day affairs.

23) Can the company run without relying on external funding in the next three years?
Yes. The business generates strong free cash flows. It has recently raised additional funding in the form of debentures and, therefore, should run its business without external funding.

24) Have the company's short-term borrowings remained stable or declined (not increased by greater than 15 per cent)?
No. The company's short-term debt has increased 24.1 per cent from Rs 286 crore in FY19 to Rs 355 crore as of August 31, 2021.

25) Is the company free from meaningful contingent liabilities?
Yes. The company is free from meaningful contingent liabilities.

Stock/valuations

26) Does the stock offer an operating-earnings yield of more than 8 per cent on its enterprise value?
No, the stock will offer an operating-earnings yield of 6.6 per cent on its enterprise value.

27) Is the stock's price-to-earnings less than its peers' median level?
Not applicable. The company does not have any listed peers. Its post-IPO price-to-earnings ratio will be 38.5 times.

28) Is the stock's price-to-book value less than its peers' average level?
Not applicable. The company does not have any listed peers. Its post-IPO price-to-book ratio will be 3.9 times.

AGS Transact Technologies IPO: How good is it?

Also read AGS Transact Technologies IPO: Information analysis to learn about the company's key IPO details and important information.

Disclaimer: The author may be an applicant in this Initial Public Offering.