By Anant Agarwal

India Ratings and Research (Ind-Ra) has upgraded Securevalue India Limited’s (SVIL) bank facilities as follows:

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Term loans

-

-

February 2026

INR954.9 (increased from INR953)

IND A+/Stable

Upgraded

Fund-based working capital bank facilities

-

-

-

INR85

IND A+/Stable/IND A1

Long-term rating upgraded, Short-term rating affirmed


Analytical Approach: To arrive at the ratings, Ind-Ra continues to factor in the strong support provided to SVIL by its 100% parent AGS Transact Technologies Limited (AGS, ‘IND A+’/Stable) in view of the robust operational and strategic ties between the entities. 

The upgrade follows a similar rating action on SVIL’s parent (AGS) in April 2021. 
 

KEY RATING DRIVERS

Strong Linkages with Parent: SVIL has strong operational and strategic linkages with AGS. While AGS provides corporate guarantees as security against the debt taken by SVIL, this amounts to only 12% (reduced from 60% on a year-on-year basis) of SVIL's debt, and there are no cross-default provisions between the two entities. However, SVIL remains operationally integral to AGS's overall operations. AGS is a leading end-to-end player in the ATM management business, and SVIL directly handles major cash management and transit services. Thus, SVIL builds on AGS’s operations, increasing operational efficiency in the cash management business, and maintains control over the cash management value chain by bolstering the consolidated entity’s end-to-end presence.

 

Furthermore, banks continue to totally outsource their ATM services to third-party players; the resultant increase in orders benefit AGS and SVIL, as they are the leading players in the industry. Additionally, as cash management is a low capital-intensive business and has low capex requirements, SVIL will continue to bolster the consolidated cash flows for the foreseeable future. Through SVIL, which is the second-largest player in the industry with close to 20% market share, AGS will have long-term access to the growing cash-management market.

 

Stable Business Profile: SVIL is a leading player in the cash management business, with longstanding customer ties with top financial institutions and ATM managed service providers (MSPs). The company’s focus on cash-in-transit, cash management and cash security services has enabled it to attract business from several banks, MSPs and financial institutions. SVIL offers a complete range of currency processing solutions; it managed over 48,000 ATMs at end-December 2021 (an increase of 10,000 ATMs under management on a year-on-year basis), has 232 dedicated cash vans and replenished cash worth more than INR20 billion in FY21 (FY20: INR10 billion) on a daily basis. SVIL's revenue grew 25.3% yoy to INR4.02 billion in FY21 due to an increase in the number of ATMs served by SVIL during the year. SVIL will likely grow its market share over the near term, given it is the only pan-India player compliant with all the Reserve Bank of India and Ministry of Home Affairs guidelines applicable for cash management service providers.  Consequently, its operating EBITDAR increased to INR467 million in FY21 (FY20: INR407 million). The EBITDAR margin moderated to 11.6% in FY21 (FY20: 12.7%), on account of an increase in power and fuel cost along with subcontracting expenses. However, the company was able to maintain control over its fixed cost base. Despite the overall economic slowdown, cash-in-circulation in the economy remained high at INR27.5 trillion at end-December 2021. AGS and SVIL should continue to improve their scale, given their end-to-end product offerings and existing relationships with the large private banks. 

 

Healthy Credit Metrics: SVIL’s EBITDAR interest coverage (operating EBITDAR/gross interest expenses) deteriorated slightly to 3.2x in FY21 (FY20: 3.6x), owing to the slightly elevated interest costs. The net leverage (debt less cash/operating EBITDAR) increased marginally to 2.9x in FY21 (FY20: 2.8x) as the total debt increased to INR1,362 million (INR1,146 million) as the company expanded its fleet of vans. However, the metrics remain healthy. The agency expects SVIL's metrics to be stable over the medium term due to strong EBITDAR generation and stable cash flows, as well as improved operating leverage from the increased fleet size and ATMs under management.

 

Liquidity Indicator - Adequate:  The company’s cash flow from operations turned negative at INR85 million in FY21 from INR428 million in FY20, due to a working capital outflow of INR408 million, as opposed to a large working capital inflow of INR94 million the year earlier. The agency expects the cash flow from operations to turn positive in FY22, given the nature of operations and lower working capital requirements. During FY21, the company incurred capex of INR168 million (FY20: INR536 million); the agency expects the capex to reduce substantially to around INR100 million from FY22, given capex over FY19-21 will cover the majority of acquisitions of new vehicles. Finally, there is adequate supervision from AGS, given that all treasury services are managed by the parent.

 

However, at the consolidated level, Ind-Ra continues to monitor AGS’s liquidity situation over FY23-24, given the elevated utilisation levels of its fund-based limits and large scheduled debt servicing requirements. 

Key Business Risks: SVIL’s business prospects continue to depend on cash transactions remaining the dominant payment mechanism in India. At end-December 2021, the cash in circulation in the Indian economy touched a massive INR27.5 trillion. While the company expects cash to remain the primary method of payment over the medium term, a major switch to digital payments could hurt the growth of SVIL’s business. However, the agency believes India lacks the digital infrastructure for a meaningful shift towards large-scale adoption of digital payment methods. While the COVID-19-led lockdown saw cash transactions fall during 1QFY22, current trends show transactions are returning to historical levels, emphasising the crucial role cash continues to play in the Indian economy. SVIL runs on an asset-heavy model in comparison to newer, digital players, as the company’s business model relies on owning vans for cash transit services. SVIL’s growth prospects also depend on ATM transactions maintaining their upward growth trajectory. 
 


RATING SENSITIVITIES

Positive:  A positive rating action could result from a rating upgrade of AGS.

 

 Negative: A negative rating action could result from any of the following events:

·           any significant weakening of SVIL’s linkages with AGS by way of a reduction of its strategic importance to AGS, or lower operational oversight by AGS of SVIL

·           a rating downgrade of AGS 



COMPANY PROFILE

SVIL, a wholly owned subsidiary of AGS, provides cash management services, including cash pick-up, cash-in-transit, cash vaulting and cash processing, for ATMs managed by the parent and other operators. 

Financial Summary

Particulars*

FY21

FY20

Revenue (INR million)

4,025

3,212

EBITDAR (INR million)

467

407

EBITDAR margin (%)

11.6

12.7

Operating EBITDAR/gross interest expenses (x)

3.2

3.6

Total adjusted net debt/operating EBITDAR(x)

2.9

2.8

Source: SVIL, IND-RA,



RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

16 Oct 2020

18 July 2019

25 June 2018

Term loans

Long-term

INR954.9

IND A+/Stable

IND A/Stable

IND A/Stable

IND A- (SO)/Stable

Fund-based working capital limits

Long-term/short-term

INR85

IND A+/Stable/IND A1

IND A/Stable/IND A1

-

-



COMPLEXITY LEVEL OF INSTRUMENTS

Instrument Type

Complexity Indicator

Fund-based working capital limits

Low

Term loan

Low

 

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.
 

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

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For more information, visit www.indiaratings.co.in.

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Analyst Names

  • Primary Analyst

    Anant Agarwal

    Senior Analyst
    India Ratings and Research Pvt Ltd DLF Epitome, Level 16, Building No. 5, Tower B DLF Cyber City, Gurugram Haryana - 122002
    0124 6687271

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121