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00:00Well, hello and welcome. You are watching NDTV Profit. I am Harsh Saita and we have
00:14with us the management of AGS Transact Technologies. We have Ravi Goyal who is the Chairman and
00:21Managing Director at AGS. The update is that they have renewed their agreement with a large
00:28private sector bank and what they are suggesting is that incrementally it will add 30 crore
00:34of revenue because they have gone and they have changed the terms of the agreement with
00:42the private bank. So, let's try and dive a little deeper, try and understand what impact
00:48this will have on the overall business because it might change for pretty much all their
00:52agreements. Mr. Goyal, good morning.
00:55Good morning.
00:57Sir, just give us some insight, give us some understanding what exactly has changed as
01:02part of the terms of the agreement.
01:06Thank you, Harsh. So, as you know, we are there in the HEM outsourcing business and
01:12we have contracts with the majority of the banks, private sector and public sector in
01:17India. We have been pioneering bringing this concept of outsourcing in India. These contracts
01:26are normally from three to five years and every time when the contracts get over, it
01:35is renewed and renegotiated. So, this is a part of that. So, this time we have not only
01:44gone for only transaction model. I mean, as you know, the outsourcing contracts, some
01:49are on fixed model, some are on transaction model. This particular contract, what we
01:56have renewed is on fixed plus transaction model instead of only transaction model. And
02:05we see a lot of contracts getting renegotiated, renewed in the similar lines.
02:14Got it, sir. And so, my understanding is you have 10 to 12 odd clients in this space. And
02:20therefore, likely that most of those 10 to 12 as those contracts come up for renegotiation
02:27will move to the transaction based model.
02:30No. So, as I said that a lot of banks are on a fixed model, some banks are on a transaction
02:36model. So, we have basically converting the transaction based model into a fixed plus
02:41transaction based model. And we see this trend continue in the future also.
02:49OK, let me try and keep it more direct. 30 crore of revenue added due to this change.
02:56First off, I want to understand, 30 crore right off the bat in this year itself?
03:02Yes, it is, yeah.
03:04And what's the potential like therefore? So, say out of the 10 to 12 clients, you have
03:09maybe 3 or 4, you expect such renegotiations to start to happen over the next maybe 2 to
03:163 years. How should one look at it?
03:19Yeah, over next 2 to 3 years, definitely, even in this year, we are discussing with
03:25few more banks and we will keep you informed on that. But definitely in next 2 to 3 years,
03:32we see more contracts getting renewed.
03:35Understood. And the cost structure for you remains the same. So, that does not change.
03:39This should incrementally do you better on margins?
03:43Absolutely. Absolutely. That's right.
03:45So, this should typically trickle through to margin as well as bottom line, the 30 crore.
03:51Absolutely. Absolutely.
03:52Understood. And therefore, where should this take margins with the maybe 2 to 3 new
03:57clients also expected to get onboarded this year?
04:00Right. So, the cost structure remains the same. So, this incremental will definitely
04:06go to the bottom line and should kick in at least 1.5% to 2% better margin.
04:14Understood. Got it. And with regard to just top line growth, otherwise, outside of some
04:20of these, so your top line for your context is around 1500 crore for FY24, 30 crore added
04:27to the top line, maybe 2, 3 more clients, maybe 100 odd crore coming from this kind
04:33of a structure change in terms of agreements. So, a likely 6% incremental revenue, maybe
04:40FY26. But just to try and break this down a little bit better, what's the kind of growth
04:46trajectory you're looking to clock? Because you've signed new agreements with an SBI as
04:51well with regard to new ATM setup. You continue to do good growth on some of those areas as
04:58well. So, talk to us about that.
05:01So, as we mentioned last time that we have got two contracts from SBI. One is on a CapEx
05:10model of around 75 crore. And second is on an outsourcing model for 7 years. Here we
05:15are going to deploy around 2,550 machines, which would give us a revenue roughly of
05:21around 1100 crore of over 7 years. So, this should be on a full year basis, it should
05:28give us a revenue of around 150 crore. This year, the rollout would start from H2. And
05:39we should be able to complete it in this financial year itself. The CapEx order would definitely
05:44get completed before September. So, we see that this itself should give us more than
05:52around 150 crore of incremental revenue.
05:55Understood. So, last 5 years, FY20 to FY24, in your own disclosure at the end of FY24,
06:06and I'm referring to that, top line hasn't expanded. In fact, it's contracted a little
06:10bit. Talk to us about and give our viewers some context. What has happened and what changes
06:18going forward just in terms of growth?
06:21Right. So, as mentioned in Mr.'s call also, what we have done over the last 2 years is
06:30that we were there in a lot of product businesses like retail hardware for billing. We were
06:38there for in-color dispensing machines. We were there in the oil marketing, retail outlet
06:45automations. So, there were a lot of product businesses and our service revenues used to
06:50be around 85% of our total revenue. Over the last 2 years, we have been cutting down on
06:58our product businesses. So, our revenue of services has gone from 85% to 95%. And what
07:06we have seen is also this brings a lot of focus on our services and also reduces the
07:16working capital.
07:19Understood. And therefore, just in terms of growth, what's the kind of top line growth
07:25that one can expect coming from you over the next 2 to 3 years?
07:30So, as I said that this SBA order itself should give us around 152 crore revenue minimum on
07:38an yearly basis. We are working on some other contracts also. There is a lot of focus also
07:44on the digital side where we have started issuing the cards on our PPI license. And
07:55there also we see a lot of growth coming in the revenues in the next few years.
08:02Understood. And so, with regard to cash profit as well, it's been quite muted just in terms
08:11of your cash profits largely because of margins. Now that margins will likely recover this
08:18year, 2 percentage points is what likely you are suggesting or indicating. Would that margin
08:27also improve and will it get better?
08:31Yes, definitely it will get better over a period of time.
08:37Understood. And where do you see that going therefore? So, this 150 odd crore order should
08:43add maybe another 10% to top line. And thereafter, you have another 30 crores coming from the
08:50current restructured agreement. And of course, all of that adding to margins. So, where should
08:57this overall look? I mean, how should one look at numbers overall?
09:00As I said that for future, we are working on few more contracts. And obviously, once
09:09those contracts get materialized, it would be added to the future revenues and the bottom line.
09:16Understood. And with regard to net debt, it's been coming off from some of those highs.
09:22But do you believe that this is the level at which you'd like to be at when net debt is concerned?
09:30So, again, Harsh, we had mentioned it in our analyst call that we have reduced our debt by
09:36around 100 crore last year. And what we expect is in the next four years time, we should be debt free.
09:46Okay. What are the newer growth levers that you're looking for? Because of course, you have SBI,
09:55of course, you may be pitching certain ATM related services to other customers as well.
10:03But they are not converting significantly likely at least as of now. So, what are the new growth
10:09levers you're looking for in terms of digital? And how will that start adding up for you in terms of business?
10:17Right. So, Harsh, I mean, as you know, we are in the payment space. I mean, cash,
10:23we are doing it in ATM outsourcing. We are also doing a cash management through our 100%
10:31wholly owned subsidiary secure value. So, in cash, we have a substantially good market share.
10:38On digital front, we have been working on our issuance of ongo cards through our PPL license.
10:48And we have got three major lines of businesses in that. One is we are doing it on a co-branded
10:57platform. So, we have already signed a deal with Patanjali for issuing of their
11:06closed loop cards to our ongo platform. And that should be around 25 lakh cards.
11:13They have already issued, they have a GTV of around 1500 crore every year. So, we expect those
11:20cards to be converted to our open loop cards and bring it on our platform. We are also working on
11:27similar kind of tie ups with other corporates. Second, we have tied up through RBL Bank
11:36for issuance of Bangalore Metro NCMC card. This has already started, we have already issued around
11:4650,000 cards. And we expect this to grow in the next few years. We already have around 35 lakh
11:55cards as a closed loop cards. And we expect that in next few years, those all cards would be
12:03migrated on this our new platform. Third, which is very interesting is we are also launching,
12:12we have already doing a pilot with HPCL for ongo fuel. And this very soon we should be able to
12:20launch nationally. And this should give a very, very good growth to our digital business.
12:27Understood. So, my last question is on cash balances, you're generating roughly 250 to
12:32300 crore of cash every year, what are you doing with it?
12:36So, this is basically for the, obviously the payments of, we are reducing the debt
12:44every year. And this is also used for our growth for outsourcing and digital platform.
12:51Understood. Mr. Goyal, it's been a pleasure interacting with you breaking this down.
12:56Congratulations on this new hybrid agreement that you've signed. And likely many more to go,
13:03we'll wait for some of those announcements to come, but thank you so much for speaking with us.