AGS Transact Technologies IPO Review

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AGS Transact Technologies IPO

7

Company Background

7.0/10

Price Band

7.0/10

Financial Health

6.5/10

Industry Situation

7.5/10

IPO Proceeds Usage

7.0/10

Pros

  • Clients Across Multiple Industries
  • Long Standing Relationship with Partners
  • Various Revenue Streams

Cons

  • Few Concerns in Internal Financial Controls
  • Limited Profitable Years

AGS Transact Technologies Background

AGS Transact Technologies is in the business of end-to-end cash and digital payment solutions and automation technology.

They started their operations with banking automation solutions in 2004 and today, they are one of India‘s leading providers of customised products and services that comprise of TM outsourcing and cash management, and digital payment solutions which include merchant solutions, transaction processing services and mobile wallets.

According to the India ATM  Managed Services Market Outlook to 2023, Ken Research, June 2018, AGS Transact Technologies was the second largest company in India in terms of the number of managed ATMs, revenue from ATM managed services and number of ATMs provided with cash management services.

Also, they were the 4th biggest in terms of revenue from cash management. They now offer their services to other Asian countries like Sri Lanka, Singapore, Cambodia, and the Philippines.

The 3 main segments in which their business operates are payment solutions, banking automation solutions and other automation solutions, which cater to retail, petroleum and colour sector customers.

AGS Transact is coming up with an IPO in order to manage some of its business and related operations.

AGS Transact Technologies Management Information

The Board of AGS Transact Technologies comprises of 8 Directors.

Mr Ravi B. Goyal is the Chairman and Managing Director, Mr Badrinarain K. Goyal and Mrs Anupama R. Goyal are the Non – Independent and Non – Executive Director. Mr Sudip Bandyopadhyay, Mr Jagdish Capoor, Mr Sivanandhan Dhanushkodi, Mr Vijay Chugh and Mr Rahul Narain Bhagat are the Independent and Non – Executive Directors of AGS Transact Technologies.

Ravi B. Goyal is a qualified engineer from the Mumbai University and has an experience of more than 23 years in the field of technology. Currently, he as the Chairman and Managing Director is engaged in the management of overall operations of AGS Transact Technologies and its subsidiaries.

AGS Transact Technologies IPO Data Points

AGS Transact Technologies IPO will open on (undisclosed) and close for subscription on (undisclosed).

The IPO size will be of (undisclosed) Equity shares and the face value of each share will be ₹10. Out of these (undisclosed) shares, (undisclosed) shares will be reserved for market makers and the rest (undisclosed) shares will be issued to investors.

The price band range has been set at ₹(undisclosed) – ₹(undisclosed) per share. The IPO size is expected to be up to ₹1000 Crore. The market lot size is of (undisclosed) equity shares and the shares will be listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

There is a further segregation between the fresh issue of equity standing at ₹400 Crore and offer for sale at ₹600 Crore.

The retail allocation of the total IPO size is set at 35%.

The Offer comprises two main kinds of shares:

  • A Fresh Issue of (undisclosed) Equity Shares, aggregating up to ₹4000 million by AGS Transact Technologies
  • An Offer for Sale of up to (undisclosed) Equity Shares aggregating up to ₹6000 million by the Selling Shareholders.

Pursuant to a resolution on June 7, 2018, the fresh issue of equity shares has been authorised by the Board of Directors and shareholders of AGS Transact Technologies Limited.

AGS Transact Technologies Financial Performance

There has been a consistent gradual increase in total revenues and total assets over the last three years.

 

However, the profit after tax was negative in two out of the last 3 years. The loss increased from the financial year ended March 31, 2016, to 2017 and the company started generating profits in the financial year ended March 31, 2018. The PAT became ₹63.21 million from a loss of ₹215.21 million in the last year.

The numbers of Return on Net Worth of the company were 3.89%, 1.17% and 1.55% for the fiscal years ended March 31, 2018, 2017 and 2016, respectively.

Furthermore, let’s have a quick look at the cash flow into the company through its operational, financial as well as financing activities:

 

AGS Transact Technologies IPO Objectives

As discussed above, there are 2 parts to the AGS Transact Technologies IPO. Furthermore, these parts have their specific requirements and intentions to raise :

  • Offer For Sale – The proceeds of the shares offered for sale will belong to the selling shareholders. The company will not be entitled to any of the proceeds of the offer for sale shares.
  • A Fresh issue of Equity Shares – The proceeds of the fresh issue will be used for the following two purposes:
    • For repayment or prepayment of some loans taken from banks and financial institutions
    • For meeting expenses related to general corporate purposes

Other than the above-mentioned objects, AGS Transact Technologies will benefit from the IPO by enhancement of their brand image and visibility.

AGS Transact Technologies IPO Events

AGS Transact Technologies filed the Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) on August 20, 2018, for the book built IPO.

The offer will open on (undisclosed) and close on (undisclosed). The finalisation of basis of allotment is expected to happen by _ and the initiation of refunds is expected to start by (undisclosed).

The transfer of shares to demat accounts is expected to start on (undisclosed) and the expected listing date will be (undisclosed).

AGS Transact Technologies IPO Recommendation

Let us examine some of the strengths and risks related to the business of AGS Transact Technologies.

One of their biggest strength is their end to end solutions and technology cater to diverse industries like banking, retail, petroleum, toll and transit, cash management and financial technologies not only in India but also in other Asian countries like Sri Lanka, Philippines, etc.

The business possesses strong capabilities of developing in-house customised solutions for their clients. Their experience and expertise have helped them increase their innovativeness to provide customised payment solutions to address the changing needs of the customer.

Another big strength of their business is that their product portfolio, customer base and revenue streams come from a diversified range, which gives them cross-selling opportunities.

They also share good long-standing relationships with global technology providers, such as Diebold Nixdorf and ACI. They have got repeat orders from their customers like ICICI Bank  Limited, Axis Bank and HDFC Bank Limited.

They have an in-house infrastructure and technological capabilities. Their experienced and efficient management team is also a great asset to the company, which helps them in identifying opportunities in the industry and apply their business strategies to expand and grow their business.

They also have string strategies planned out for further growth and expansion purposes. Total revenues of the business from operations were ₹14,813.17 million in the financial year ended March 31, 2018. Between the financial years 2016 to 2018, the total revenues from operations increased at a CAGR of 10.7%.

Now, coming to the risks related to their business.

A significant amount of revenues of AGS Transact Technologies is derived from their banking industry clients. Any changes that may adversely affect the growth of the number of ATMs or their usage in India will have an adverse effect on the profitability of the company.

Their dependence on one or two of their largest clients poses another risk for the company. There is also an industry related risk to the business. Their clients’ industry is highly regulated by the Reserve Bank of India (RBI). Any changes in the policies or laws may affect the business of AGS Transact technologies.

Possible problems in operating and maintaining their leased sites used for ATMs, dependence on third parties for some products and services are some other risks related to the business.

Another important risk factor is that their auditors have pointed out a material weakness in the Company‘s internal financial controls over recording the receipts and issue of refurbished inventories. This could result in incorrect accounting in the financial statements.

Also, there are some legal proceedings going on which involve the company, group entities, the Directors, subsidiaries of the company and one of their Promoters. The company reported losses in the years 2017 and 2016 and negative EPS too. They are not healthy signs for a company. Although the company has started reporting profits from the last fiscal year, it is difficult to predict its future performance.

It can be said that the investors should remain cautious and may choose to avoid investing in this offering. The profitability of the company is yet to be seen in the coming quarters.

Although, if you have a relatively higher risk appetite, you may choose to invest in long-term investments.

In case you are looking to apply for this IPO or any other investments in general, let us assist you in taking this forward:

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AGS Transact Technologies IPO Advisors Information

ICICI Securities Limited, Axis Capital Limited, HDFC Bank Limited, IIFL Holding Limited, IndusInd Bank and Nomura Financial Advisory and Securities (India) Pvt Ltd. are acting as the Book Running Lead Managers for the issue.

Link Intime India Private is acting as The Registrar to the AGS Transact Technologies IPO. Axis Capital and Edelweiss Financial Services are acting as the merchant bankers of the issue.

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