AGS Transact is a cash management firm looking to halve its debt with IPO money

• Payment solutions provider AGS Transact Technologies opened its IPO today and will close on January 19.
• The IPO is entirely an offer for sale by existing promoters and shareholders of ₹680 crore through the public issue.
• Out of the ₹677 crore IPO proceeds of Ravi B Goyal, chairman & managing director, ₹650 crore will be used to pay half of the company’s debt.
• Cash management being a core business of the company in the growing digital world, its financial performance has been on a declining trend in the last three years.

Payment solutions provider AGS Transact Technologies that has opened its initial public offering (IPO) today is going through a rough phase because of COVID-19.

Our business is largely linked to cash management and due to the pandemic some transactions were impacted, says Ravi B Goyal, chairman & managing director at AGS Transact Technologies to Business Insider in an interview.

The company reported a loss of ₹18 crore in the first five months of the financial year April to August, 2021. It raked in less profit in the last financial year than it did in the year before the pandemic.
The company operates in three business segments:

Payment solution	Offers services such as ATM, cash management, digital payment solutions, POS machine service and so on
Banking automation solutions	Sale of ATM, cash recycler machine etc
Other automation solutions	System automation products for clients in petroleum, color segment

“As a business we have gone through a lot of challenges, it all started with demonetisation, where we had no cash as 85% got wiped up and we had a new currency. And all these ATMs needed to be recaliberated so that was also a massive job. So first no cash then cash available but cannot be used. Then we have a first pandemic with massive lockdown but ATM being an essential service, our team in the field has done a remarkable job,” added Goyal.

The company earns 75% of its revenue from the payment solutions segment and only 15% from digital initiatives.

While the entire ₹680 IPO is an offer for sale by existing promoters and shareholders, the company’s chairman is selling shares worth ₹677 crore.

Out of the ₹677 crore IPO proceeds of Goyal ₹650 crore will be used to pay half of the company’s debt.

Currently, the company’s debt is at ₹1,100 crore debt after the 650 IPO proceeds, it will halved to ₹550 crore

Goyal indirectly owns 97.61% of AGS Transact with 55% through direct equity ownership and 42% through Vineha Enterprises, which is also a firm held by him and his wife.

While Goyal is selling shares worth ₹677 crore, among others VC Gupte, Shailesh Shetty, Rakesh Kumar, Nikhil Patiyat and Rajesh Harshedrai Shah will sell the remaining ₹2.42 crore worth of shares.

Further, analysts recommend avoiding the IPO because of increasing digital payments in the country that could have an adverse effect on AGS Transact’s business.

“The company is one of India's leading Omni-channel payment solution providers with a strong network. However, the government's focus on digital payments will further decrease the use and availability of cash can have an adverse effect on business activities,” said analysts at Swastika Invest while recommending a ‘avoid’ rating to the IPO.

“AGS has high client concentration with top three customers accounting for 33.6% of revenues and has reported a loss for the first five months of FY22. Given premium valuations, high client concentration and losses in the first five months we have a neutral recommendation on the IPO,” said Jyoti Roy, DVP - equity strategist at Angel One.

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