Consider cash management services. AGS Transact launched its cash management business to enhance its service offerings around ATM management. This segment is a key growth vertical as banks are increasingly outsourcing their ATM operations to cash management companies such as AGS.

This vertical also has growth levers in place. A Ken ATM report pegs the number of ATMs in India under managed services to increase from 2.17 lakh to 2.32 lakh by FY26. Besides, the Ken ATM report notes that AGS Transact’s subsidiary, SVIL, is the only cash management company that has followed the MHA guidelines of August 2018, and the Reserve Bank of India guidelines of 6 April, on an all-India basis. Focusing on these guidelines allows AGS Transact to secure favourable fees and improve its margins. SVIL is also among the few providers with cassette swapping systems across multiple ATM locations in Mumbai.

While AGS has widespread operations, the firm is expanding. AGS is focussing on offering cash-pickup, sorting, and deposit services to establishments, including retail outlets with the use of sophisticated technology, with little or no human intervention, to enable firms to shorten their working capital cycles.

The rising digital pie

But even as cash continues as a significant mode of transaction, AGS has captured a large portion of the digital payments market, thanks to its deployment of point-of-sale machines. AGS has also enhanced its offerings by including device-based and device-less payment solutions, and prepaid and loyalty programs.

AGS provides solutions for firms for all forms of digital payments including card-based (debit and credit), RFID, Bharat QR and UPI online acceptance and biometric-based (Aadhar Pay). Contracts range from three to five years. For AGS, this provides a regular cash business, as the firm is paid an initial set-up fee, with either a recurring monthly fixed fee or a percentage of total gross traded value, or both modes.

One of the highlights about growing this business is that AGS quickly became one of the largest deployers of POS terminals at petroleum outlets in India. One of the segments of focus for the company has been the oil marketing companies, and other corporate merchant outlets. AGS quickly scaled up the business to about 2.21 lakh in August 2021, of which over 37,000 are located at oil marketing companies. Interestingly, the gross traded value of POS transactions at OMC outlets was Rs9,518 crore for the five months ending August. That was Rs2,538 crore in FY19.

Overall, the gross traded value of goods has also been steadily increasing, to Rs20,517 crore in FY21 compared to about Rs8,200 crore in FY19. With digital payments gaining ground with the deeper and wider penetration of debit and credit cards, and other modes of payment, AGS should continue to be a beneficiary of continuous growth in this vertical.

“Way back in 2015, as you know, we were in the payment space, and in payment, cash payment is important; at the same time digital payment is also growing, so we formed a 100 per cent subsidiary called India Transact Services Limited to basically take care of digital payments. That is where we started deploying these card swipe machines for retailers, corporates and oil marketing companies and that is also doing fairly well. We have 200,000-plus terminals; we are doing a GTV of around Rs20,000 crore and that is growing year on year,” says Goyal.

AGS has also put up intelligent cash deposit machines for the retail industry, which reduces the time taken for cash pickups. In fact, these intelligent cash deposit machines are manufactured by AGS, and the firm runs contracts ranging from three to five years.

Further, on the digital front, AGS has implemented transaction switching services, which integrate payment processing, card management and merchant solutions. A switch aids in routing payments across devices and over different payment networks. AGS has already processed 487 million switching transactions for the five months ending August 2021, which compares well with the 936 million transactions for the full year FY19.

To further capitalise on growth opportunities, AGS has introduced technology which enables merchants to launch loyalty programs with a feature called Ongo, prepaid and rewards programs. Retail outlets have the liberty of customising solutions. Typically, AGS gets paid a percentage of the total loading value.

Not only this – the firm has also started Fastlane Solutions, which is a cashless, contactless and paperless payment technology utilising advanced RFID technology. This system allows fleet operators and retail consumers to ensure that vehicles are filled with the right grade and quantity of fuel. AGS offers a mobile application where a user can pre-set the fuelling amount, and the meter reading is set to zero. 

This Fastlane solution includes a loyalty program. AGS gets paid for services both as a fee and on the value of transactions. Further, in the transit space, the company implements automatic fare collection for public transport networks such as metro rail, and buses.

Such innovative solutions have naturally led to a steady growth in its revenues from payment solutions, and are the biggest contributor to the growing revenue pie of AGS Transact, from Rs1,278 crore in 2019 to Rs1,350 crore in 2021. For the five months ending August, AGS clocked revenues of Rs561 crore in this segment.

With the rise is digital payments, this line of business has further room to grow. According to India Payment Services Market Outlook to 2026 and Ken Research, August 2021, growth rates in the payment space should increase by 5-6 per cent year-on-year from FY22. Growth in digital payments is driven by innovative payment models, growth in smartphones, and a strong push towards digital channels.

“Diveification of our business and revenue base is a key component of our success. We believe that our financial performance is tied to our ability to provide diversified, customised end-to-end solutions to existing and new customers. We derive a significant majority of revenue from our payment solutions segment, particularly from providing ATM outsourcing and cash management services. We are growing our digital solutions business and to the extent that our diversification strategy is successful, this will mitigate risks associated with revenue concentration, if any,” says Saurabh Lal, CFO at AGS Transact.

ATM base marches ahead

In its banking automation solutions verticals, where AGS sells ATMs, cash dispensers, CRMs and other self-service terminals such as deposit kiosks, the firm has managed to swell soundly despite the competition. AGS sells its own brand of hardware products such as note sorters, and banking automation solutions. AGS not only offers ATM hardware and software solutions, it also configures various solutions such as cardless cash withdrawals and fingerprint sensors, depending on the bank’s requirements.

Further, in 2015, AGS began to assemble ATMs and cash dispense in its Daman facility through co-operation agreements with Diebold Nixdorf. Besides, the firm develops sites and supply-related assets and carries out site interior construction work for banks. Already, AGS has assembled 14,558 ATMs.

AGS has also been propelling cash recycler machines, which allow bank customers to make quick deposits, and lower the cash handling cost. Over the years, AGS has been successful in installing approximately 72,000 ATMs and CRMs even in the remote parts of the country. In addition to continuously increasing the installation base, AGS also gets annual maintenance contracts, which add another revenue stream.

Not content with success in India, AGS Transact has also set its sights on global shores. The firm invested in Nova Technologies, which has subsidiaries in five countries such as Sri Lanka, Indonesia, Philippines, Cambodia, etc. The firm is looking at replicating its success with point-of-sale machines in these countries. The international business contributes about 4.5 per cent of its total revenues.

“Our international business is small, but growing. In Sri Lanka we have got a contract from People's Bank which almost gives us around 20-25 per cent of the Sri Lankan market. We will roll out POS machines in the Philippines; we plan to roll out in Indonesia too and that is going to be a fairly large expansion,” says Goyal.

Goyal, no doubt, has the keen knack of spotting business opportunities. While he started the firm as a supplier of ATMs, AGS has benefitted immensely due to the high goals the managing director sets for the company. A seasoned technocrat, Goyal has approximately 26 year of experience, and even set up a proprietary concern to market computer-aided textile designing software. Goyal has also won numerous awards for his contribution in various fields.

Needless to say, under his stewardship, AGS has seen steady revenues for the past three years despite the Covid-19 related lockdowns, which stifled revenue growth. In FY21, the firm recorded revenues of Rs1,797 crore, while the net profit stood at Rs82.4 crore. This compares well with the pre-Covid year of FY19 when the firm recorded revenues of Rs1,823 crore. AGS is also doing well to operate at healthy margins of about 25.5 per cent. AGS’s competitive advantages due to its size and scale of operations augur well for its margin profile.

For the next leg of its growth, AGS Transact plans to list its shares on the bourses. One of the key objectives of the issue is to enhance the company’s brand name and to create a public market for its equity shares. Nevertheless, the funds received by the promote will be brought back into the company through an escrow account to pare down some debt, by way of promote compulsorily subscribing to the convertible preference shares of Vineha Enterprises Ltd, which is held by AGS. “We are infusing the sale proceeds to retire a certain portion of the debt,” says Goyal.

Economic levers in place

For AGS, this will be one of the steps to boost performance at the net level due to lower interest costs. Besides, with all but a few segments of the economy firing well after Covid lockdowns, both cash and digital payments are perking up. Needless to say, the strong growth in the payments sector is reflected in the number of transactions, which grew from 31,383 million in FY19 to 46,405.8 million in FY21, according to India ATM Market Outlook to 2026 and Ken Research, August 2021.

In value terms, the transactions have come down due to the Covid-19 lockdowns, but as the economy continues to grow, value-wise transactions should bounce back. Indeed, India’s payment services market based on transaction value is expected to surpass Rs2,000 lakh crore in FY26 from the current Rs1,471 lakh crore, as per Ken Research, dated August 2021.

“AGS Transact is the largest integrated omni-channel payment solutions provider in India, with a focus on increasing scale in core business, which will help in improving operational efficiencies. They have a longstanding relationship with technology partners and customers which in turn help to develop customised solutions and further deepen client relationships,” observes the analyst in a report prepared by Prabhudas Liladhar.

For AGS, that opens up a steady stream of revenue growth. What the company has shown is that when a new channel for business has opened, AGS has not shied away from grabbing the opportunity. Besides, what makes AGS different from other cash management and managed services players is the way the company has ramped up its digital offering when others have solely focussed on cash management. With digital coming to the forefront, it’s a strategy that other competitors in the cash management business may not like very much.