Rating Rationale

Key Rating Drivers & Detailed Description

Weaknesses:

Constrained liquidity position leading to delays in debt servicing: There is substantial deterioration in the liquidity position over the past 2-3 months owing to delays in collection from receivables. As per discussions with the management, the company was not able to meet the SLAs with its customers. This led to delays in servicing interest and debt obligations on term loans in December 2024 and January 2025.

Slowdown in number of automated teller machines (ATMs) and risk of proliferation of digital payments: A structural shift is being witnessed in the Indian payment industry with strong surge in digital payments. The volume of digital payments transactions increased by 44% in a year from 113.9 billion transactions in FY 2022-23 to 164.4 billion in FY 2023-24. This surge is particularly being driven by Unified Payments Interface (UPI) and its share in total digital payment has increased to ~83% in 2024 from ~34% in 2019. This is also having an impact on the number of ATM additions in the country. The total number of ATMs stood at 2.15 lacs as on September 2024 compared to 2.19 lacs a year earlier. Even, company’s revenues from ATM management division (accounting for ~66% of FY24 revenues) has been on a declining trend. Revenues from this division de-grew to Rs. 982 crore in fiscal 2024 as against Rs. 1,137 crore in fiscal 2021. Going forward, evolution of the payment landscape along with company’s ability to garner a larger share of ATM servicing contracts would remain a key monitorable..

Large working capital requirement: Operations have been working capital intensive, as indicated by debtors of around 137 days as on March 31, 2024, and 166 days as on September 30, 2024, owing to pending realisation with few large customers and retention money. As per management, the stretched receivables were on account of the company’s inability to meet the SLAs with its customers and non-payment of goods and services tax (GST) to tax authorities, resulting in customers withholding payments.

Strengths:

Strong market position in the ATM managed services industry with presence across the value chain: AGS is one of the largest integrated omnichannel payment solutions providers, providing digital and cash-based solutions to both banks and corporate clients across India. As of March 2024, the company had a network of around 38,00 ATMs and CRMs under its ATM outsourcing and managed services business with a market share of ~15% and serviced over 40,000 ATMs under the cash management business at SVIL. The company also provides automated and technology products for the banking, retail, paint and petroleum sectors.