AGS Transact Technologies

Weak revenue show though expects improvement in 2H

14 November 2022

AGS’s revenue performance was weak with the company reporting a 14% YoY and 6.4% YoY decline
for 1QFY23 and 1HFY23 , thereby driving further risks to company’s ‘double digit’ revenue growth
outlook for FY23. Margin performance was however better despite certain one offs. Net profits
came in line despite the operating miss on account of lower ETR and higher other income. Company
suggested that they have won a few sizeable PSU contracts on the ATM side which should aid
revenue growth recovery in 2H and retains its outlook on achieving the highest level of net profits in
FY23 albeit shies away from reiteration on the revenue growth front. We moderate our estimates by
9-14% on lower revenues primarily (we now build in 2.6% YoY growth for FY23 V/s

• Revenues decline; EBITDA affected by one offs: AGS reported 14.2% YoY decline in
2QFY23 revenues which was lower than JMFe of 6.2% decline. On a 1H basis the decline
was 6.4%. ATM managed services business underperformed, declining ~16% YoY. Cash
management business through its subsidiary Secure Value grew 4% YoY during the
quarter. Operational metrics were weak with sequential increase of only 92 ATM and
CRMs (-724 ATMs and +632 CRMs in 1HFY23) under management, number of PoS
machines deployed increased ~2% sequentially but total GTV declined QoQ implying a
dip in Average monthly GTV per machine. EBITDA margin declined 130 bps YoY in
2QFY23 vs JMF estimate of a flattish margin profile. The decline was due to a one off
charge of 55mn towards impairment loss on trade receivables. Adjusted for the one off
impact EBITDA margin was flat YoY.
• Reiterates profit outlook though shies away on revenue growth confidence: AGS had
provided an outlook of double digit revenue growth, 25%+ EBITDA margins and record
net profits for FY23 after 1QFY23. While the company seems on track with regards to
margins and net profits, revenues have declined by 6.4% YoY in 1H and thereby
notwithstanding the likely strong seasonality of 2H, potential ramp up on the recent PSU
ATM contracts etc, the company will find it difficult to achieve the revenue growth
outlook. (we note that a 10% revenue growth for full year will imply a 26.5% YoY
revenue growth in 2H). The company also shied away from providing a firm revenue
growth outlook however suggested that it was looking at a strong pipeline in ATM
upgrade and refresh led by the PSU banks. The company also expects the Digital POS
business to see better traction in 2H.
• Estimate cut but BUY rating stays with TP of INR 130: We cut our FY22-25E EPS estimates
by 9-14% to account for weak 1H revenue numbers. Retain BUY with a revised TP of INR
130 vs INR 140 earlier, based on unchanged average of (1) 4x 1-year forward EV/EBITDA
and (2) 12x 1-year forward EPS.