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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.

Key Growth Levers For AGS Transact | NDTV Profit

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