Radiant Cash Management Services Ltd

Radiant Cash Management Services Ltd: A Emerging Business

About The Company

Incorporated in 2005, Radiant Cash Management Services Limited is market leader in retail cash management services for banks, financial institutions, and organized retail and e-commerce companies in India. The company offers a range of services under this segment consisting of collection and delivery of cash on behalf of its clients from the end user.

Business Overview

The company are an integrated cash logistics player with leading presence in retail cash management (“RCM”) segment of the cash management services industry in India and are one of the largest players in the RCM segment in terms of network locations or touch points served as of March 31, 2022. (Source: Company Commissioned F&S Report). the company provide services across 13,044 pin codes in India covering all districts (other than Lakshadthe companyep) with about 55,513 touch points serving more than 5,388 locations as of July 31, 2022. Our marquee clients include some of the largest foreign, private and public sector banks, and the end user of our services include some of the largest e-commerce companies, retail chains, NBFCs, insurance firms, ecommerce logistics players, railways and retail petroleum distribution outlets. For the four months ended July 31, 2022, Fiscals 2022, 2021 and 2020 our total annual currency movement, or the total value of the currency passing through our RCM business, amounted to ₹485.85 billion, ₹1,303.80 billion, ₹ 912.22 billion, and ₹ 1,290.77 billion. In Fiscal 2021, the company the companyre the Company with the second highest EBITDA margin, ROCE and ROE amongst organised players in the cash management services segment.

The company cater to broad set of outsourcing requirements pertaining to cash management services for banks, financial institutions, organized retail and e-commerce companies in India. The company operate our business across five verticals, namely 1) cash pick-up and delivery; 2) network currency management (also known as cash burial in industry parlance); 3) cash processing; 4) cash vans /cash in transit and 5) other value added services.

Business Verticals

Cash pick-up and delivery: The company's range of services under this segment consist of collection and delivery of cash on behalf of their clients from the end user. Based on volumes, multiple modes of transport are used for movement of cash and valuables, including two wheelers, hired vehicles and specially fabricated armoured vans. Their average daily volume of cash moved from all customers in the four months ended July 31, 2022, Fiscal 2022, Fiscal 2021 and Fiscal 2020 was ₹ 4,672 million, ₹ 4,179 million, ₹ 3,649 million and ₹ 4,303 million.

Network currency management: The company services under this segment consist of cash collection from end user and deposit into their current accounts and subsequent transfer to the client’s accounts either on the same day or on the next working day. They believe that their network of 55,513 touch points and a wide network of bank accounts with various banks across the country, allows them to offer a unique value proposition to their clients, especially private sector and foreign banks, with limited branch networks. 

Cash processing: As an integrated RCM service provider, they also offer value added cash processing services to their clients. These primarily are in the nature of thier trained executives sorting the notes into categories such as soiled, mutilated, fit, issuable, counterfeit, ATM-ready bundles, etc. 

Cash Vans / Cash in transit: The company also offer specially fabricated armoured vans, on long term or ad-hoc hire for movement of cash or bullion within their client’s network. 

Other value added services: The company also offer man-behind counter and currency chest operations to large retail stores and banks. As on July 31, 2022, we had 11 vaults, 16 strong rooms, and 28 safes.

Geographic Coverage

Segmental Overview

Client base across the banking sector

Company have a client base covering some of India’s largest foreign, private sector and public sector banks (including India’s largest public sector bank). Amongst our key clients are Axis Bank Limited, Citibank, Deutsche Bank Limited, HDFC Bank Limited, ICICI Bank Limited, Kotak Mahindra Bank, Standard Chartered Bank, State Bank of India, The Hongkong and Shanghai Banking Corporation Limited and Yes Bank Limited. Four of our top five clients in Fiscal 2021, have been with us for a period of more than five years. Our end user segments are fairly well diversified across multiple sectors, including e-commerce companies, retail chains, NBFCs, insurance firms, ecommerce logistics players, railways and retail petroleum distribution outlets. Some of the end users of our services include Bajaj Finance Limited, Equitas Small Finance Bank Limited, Ecom Express Private Limited, Delhivery Private Limited and Hiveloop Logistics Private Limited.

Industry Overview

India’s Economic Growth – Fastest Growing Economy in The World

According to the International Monetary Fund's GDP growth predictions, India remains the world's fastest-growing major economy (IMF). The IMF forecasts India's growth to be quite robust in 2022, making it the world's fastest-growing major economy, nearly twice as fast as China's 3.2 percent. In the first quarter of the current fiscal year (Q1 or the months of April, May, and June), India's GDP increased by 14%. According to the data released by IMF, India overtook the UK to take over as the world's fifth-largest economy, trailing only the US, China, Japan, and Germany in terms of GDP total. IMF also predicts the Asian superpower to trail only the US, China, Japan, and Germany this year after surpassing the UK on an annual basis in dollar terms. India was the eleventh-largest economy ten years ago, while the UK was the fifth largest.

Two waves of the Covid-19 pandemic have had a significant impact on the country's economic growth, with the consequences still being felt across multiple industries. The macroeconomic management of the pandemic has resulted in a strong recovery thus far and is expected to continue in the future, until the effects of Covid-19 are diminished. The country has well-defined safety protocols and has made significant progress in managing Covid-19 and maintaining its capacity to operate safely even as infection levels rise. India is now one of the world's most vaccinated countries. However, the possibility of emerging vaccineresistant mutations remains. And this is something that could have a long-term influence on the nation's economic growth.

The conflict between Russia and Ukraine has also slowed the pace of recovery in 2022, with its effects manifesting in recordhigh commodity prices, a weakened global GDP outlook, and tighter global financial conditions. A negative trade shock, rising oil prices, and the impact of geopolitical concerns on business confidence are all weighing on the country's GDP projection in the short term. The Russia-Ukraine crisis has had a significant economic impact, driving up crude prices and pushing retail inflation in India, the world's third-largest oil importer, to its highest level in 17 months. Owing to this, the 2023 IMF projections for India's GDP is expected to witness a slight decline to 6.1 per cent, but the country's growth is still expected to be higher than that of other global nations affected by the geopolitical conflict.

Despite recent economic setbacks, India is expected to see an increase in pent-up demand. As trade circumstances improve and India exports its agricultural products to newer markets in the Middle East and Africa, rural consumption is expected to stay high. The country has been able to recover strongly from the economic effects of the last several years thanks to targeted monetary and macro-financial policies. The development of a single national market; an expansion of industry as a result of the renewable-energy transition; a change in supply chains away from China; and sustained dominance in information technology (IT) are some of the primary variables projected to catalyze the Indian economy's growth.

Key Growth Drivers Of The Business

• Demographic trends in India - Rising Middle Class Income Levels
  In the decade ahead, India's middle-class population will continue to grow, boosting consumer demand and spending. By CY 2030, the upper and lower middle classes are estimated to account for 43.5% and 34.2% of the population, respectively. Discretionary spending will rise as disposable income rises, resulting in an increase in transactions, cash volume, and so on.
• Increase in Working-Age Population
  In contrast to China's decline, India's working-age population is predicted to rise between CY 2018 and CY 2030. India is in the midst of a demographic shift, with youth accounting for a sizable portion of the population. With India adding 12 million individuals to the working population each year, the share of the working-age population is predicted to rise from 66.77 % in CY 2018 to 68.4% in CY 2030.
• Financial Inclusion in India
  The acceleration of financial inclusion in India over the last decade has been largely attributed to political will, as well as high-impact government initiatives such as the Pradhan Mantri Jan Dhan Yojana (PMJDY), Direct Benefit Transfer (DBT), and the introduction of RuPay cards, among others. To attain its goal of financial inclusion, the government has taken a three-step method. For starters, it has enabled widespread access to banking services by establishing "no frills" accounts for the general public. Second, through efforts such as digital payments and promoting the use of RuPay cards, it has attracted and retained people in the financial system. Third, the Government has concentrated on establishing the essential infrastructure through expanding financial services' reach and accessibility.
• As a result, the country has seen the emergence of a new generation of financial services accessible via mobile phones and the internet. Other than PMJDY, there are several other financial inclusion schemes in India — Jeevan Suraksha Bandhan Yojana, Pradhan Mantri Vaya Vandana Yojana, Pradhan Mantri Mudra Yojana, Stand Up India scheme, Venture Capital Fund for Scheduled Castes under the social-sector initiatives, Pradhan Mantri Suraksha Bima Yojana (PMSBY), Atal Pension Yojana (APY), Varishtha Pension Bima Yojana (VPBY), Credit Enhancement Guarantee Scheme (CEGS) for scheduled castes, and Sukanya Samriddhi Yojana.

Management Of The Company

Col. David Devasahayam is the Chairman and Managing Director and founder of our Company. He holds a bachelor’s degree in science from Jawaharlal Nehru University along with a master’s degree in science in defence studies from  University of Madras. He has also completed the 44th session of the Owner/President Management Program at Harvard Business School. He has served in the Indian Army for over twenty four years.  He has been associated with our Company since its incorporation in 2005. He has 16 years of experience in relation to his professional association with the Company. He received an award at the Security Leadership Summit in 2011 and was also awarded one of Asia’s Greatest Leader Award by ‘Asia One’ in 2018.

Investment Rationale

Currency in circulation (CIC) and its impact on economy
Cash in Circulation (CIC) is the sum of cash held by banks and currency held by the general public. As per the below chart, currency in circulation has been witnessing an increasing trend along with the nominal GDP. In the last decade (FY 12-FY 22), CIC has almost increased three folds (at a CAGR of 10.5%), showing a positive growth rate for the period. (Source: RBI, Secondary Sources) A growth in CIC is essential for higher economic activity in the country and augurs well for the companies engaged in cash management industry. While demonetization had a significant impact on CIC, the release of pent-up demand after re-monetization, wealth redistribution, and lower lending rates, led to a vshaped recovery of the total cash in circulation, which has since then almost doubled (in FY 21). Despite Covid, India's CIC grew by around 32.5% between March 2020 and March 2022. (Source: RBI). As on October 31, 2022, CIC in India stood at a value of INR 30.8 trillion. CIC is predicted to reach INR 43.4 trillion by FY25, growing at a CAGR of 11.4%.

Leading integrated cash logistics player in a consolidating industry present across the value chain of retail cash management

The company are an integrated cash logistics player with leading presence in RCM segment and are one of the largest players in the RCM segment in terms of network locations or touch points served as of March 31, 2022. The Indian cash management services market revenue grew at a CAGR of more than 10% during the period between Fiscal 2010 and Fiscal 2021, growing from approximately ₹ 10.0 billion to ₹ 27.7 billion during this period. The RCM market is estimated at ₹ 6.8 billion in Fiscal 2021 and is projected to reach a market size of ₹ 20.4 Billion by Fiscal 2027, growing at a CAGR of 20.3%. The growth in the organized retail sector as well as the corresponding outsourcing potential is expected to be prime factors for the development of the RCM market in India.

Pan India presence with strong network in Tier 2 and Tier 3+ locations and fast growing end user segments

Through our 55,513 touch points as of July 31, 2022, covering 13,044 pin codes across India, we offer our services in all districts in the country with the exception of Lakshadweep. Of our touchpoints as of July 31, 2022, 55,513 or 86.06% are located in tier 2 and tier 3+ towns and cities. Our revenue from operation from these markets in the three months ended June 30, 2022 and in Fiscal 2022, Fiscal 2021 and Fiscal 2020, was ₹ 719.54 million, ₹ 2,493.65 million, ₹ 1,913.92 million and ₹ 2,186.09 million, respectively. Our touch points in tier 2 and tier 3+ locations has increased proportionately from 40,588 on March 31, 2020 to 47,773 as on July 31, 2022. In the three month period ended June 30, 2022 and each of Fiscal 2022, Fiscal 2021 and Fiscal 2020, we earned 85.61%, 87.19%, 86.34% and 88.05% of our revenues from tier 2 and tier 3+ towns and cities.

Diversified client base with long standing relationship and ability to cross-sell value added services

Company's ability to offer RCM services across India, with presence in tier 2 and tier 3+ towns and cities has enabled them to attract some of the largest foreign, private and public sector banks in India as their clients. They have a marquee client base covering some of India’s largest foreign, private sector and public sector banks (including India’s largest public sector bank). Amongst their key clients are Axis Bank Limited, Citibank, Deutsche Bank Limited, HDFC Bank Limited, ICICI Bank Limited, Kotak Mahindra Bank, Standard Chartered Bank, State Bank of India, The Hongkong and Shanghai Banking Corporation Limited and Yes Bank Limited. For the three months period ended June 30, 2022 and Fiscal 2022, Fiscal 2021 and Fiscal 2020, tehir top three clients contributed 39.44%, 43.10%, 39.80% and 45.10% of our total revenue from operations, with their single largest client contributing 14.17%, 17.11%, 13.91% and 19.44%, respectively.

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