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The last IPO that closed the IPO stream of 2021 was also a payment systems IPO, CMS Info and even the first IPO of the new year is an IPO from a payment solutions provider. AGS Transact Technologies operates across payment solutions, banking automation solutions and retail level automation. For example, with a 20 year operating pedigree, AGS Transact Technologies is already the second largest player in this space. It deployed over 2.21 lakh payment terminals and is the largest operator of POS at petrol pumps across India.
The promoters currently hold 98.23% stake in the company and the current offer for sale will reduce the stake of the promoter to around 66% overall. The company is into ATM outsourcing and white labelling solutions for ATMs with presence across 4 countries in South East Asia and 1 in South Asia. It is a key player in Sri Lanka. Some of its major competitors in the payment solutions and ATM solutions business include CMS Info Systems, Brinks Arya, Hitachi Payments, NCR Corporation etc. The IPO of AGS Transact Technologies will open on 19-January and close for subscription on 21-January.
Here is how the above IPO will be structured. It will be an offer for sale, with no fresh issue component in the IPO.
- The original size as per the DRHP was Rs.800 crore which was subsequently reduced in the final filing to Rs. 680 crore considering the market conditions. Being an offer for sale, there will be no fresh funds coming into the company and no dilution of the equity base.
- The OFS component overall is about the sale of 3,88,57,000 shares and at the upper price band of Rs.175, the OFS is worth Rs.680 crore. That will also be the size of the overall IPO issue.
- The main promoter Ravi Goyal will offer the bulk of 387.19 lakh shares (or 99.6% of the IPO size) valued at Rs.677.58 crore. The remain five early shareholders who are selling in the OFS will offer a combined 1.38 lakh shares for Rs.2.42 crore.
- Post issue, the promoter stake will come down from 98.23% to 66.07%. Public shareholding overall will be 33.93% post the IPO.
- There has been some revenue and profit pressure in the last fiscal year.One more thing visible is that while EBITDA margins are impressive, net margins at 3.05% have been under pressure. Even the ROE is very low among the peer group.
The indicative market cap of Rs.2,107 crore discounts the FY21 earnings at a P/E ratio of 38.5 times. This is nearly twice the P/E at which CMS Info came out with its IPO, if you look at a similar peer group IPO. That is a note of valuation caution for investors
How should investors approach AGS Transact Technologies Ltd IPO ?
There are a number of parameters that investors must consider ahead of investing in the AGS Transact Technologies IPO
- The company has deep relationships with leading banks and financial institutions in India, as well as expertise in technology and process controls. Its best practices get a boost from its strong presence across South East Asia.
- Payment solutions account for nearly 76% of revenues and this is a business with high EBITDA margins but relatively lower levels of net margins. That tends to depress the ROE and could be a factor in valuations.
- The company is heavily investing in the digital shift and has also adopted an omnichannel approach to cash management. That is likely to hedge its bets based on how the payment solutions evolves in India.
- Finally, let us look at valuations. At a P/E of 38.5X, and an ROE of 10.3% the stock is much more expensive compared to its competitor CMS Info, which came out with an IPO in December 2021. This must be kept in mind while investing.
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