ProfitNama

ProfitNama

Piramal Alternatives Invests in ATM Operator TSI India

Piramal Group - WikipediaIntroduction:

Piramal Alternatives has invested Rs 200 crore in Transactions Solutions International (TSI) India, the country’s leading ATM operator, from their Performing Credit Fund. TSI India manages over 14,000 ATMs and offers automated bill payment solutions.

Analysis Of This News For A Layman:

TSI India is an ATM operator company that owns and operates ATM machines across India. ATM stands for Automated Teller Machine, which is an electronic machine that allows bank customers to complete basic banking transactions like cash withdrawals, deposits, balance enquiries, mini statements, etc. without going to the bank branch.

Piramal Alternatives is the alternative asset management business of Piramal Group. It has various funds that invest in private equity, real estate and credit/debt. The Performing Credit Fund (PCF) is one such fund with a corpus of Rs 300 crore, primarily from Canadian pension fund CDPQ. This fund focuses on providing credit to well-performing companies.

Piramal Alternatives has invested Rs 200 crore from PCF in TSI India. This investment will be used by TSI India for expanding its business – deploying more ATMs, upgrading technology, expanding to newer geographies, etc. It will also use the funds to accelerate deployment of other payment processing solutions like bill payments, merchant payments, etc.

Original Analysis:

This investment comes at an opportune time when RBI is pushing for deeper penetration of digital payments and financial inclusion. With this capital infusion, TSI India will be able to accelerate rollout of ATMs and payment processing infrastructure across India. This will directly enable more Indians to access digital payment ecosystem and do cashless transactions. For Piramal, this presents a good investment opportunity to fund the growth of a specialized operator like TSI. Given TSI’s strong track record of managing ATM networks & payment solutions for leading banks, this investment offers the potential for attractive returns. The sectoragnostic Performing Credit Fund’s decision to deploy a majority of their corpus in this single transaction also indicates the confidence Piramal has on TSI’s business model and growth projections.

Impact On Retail Investors :

This investment news does not have any direct bearing for most retail investors as TSI India is not a publicly listed company. However, this highlights the rapid growth happening in India’s payments processing industry, which is enabling digital financial services to reach tier 2/3 cities and remote areas.

Retail investors looking for exposure to this high-growth digital payments theme can evaluate listed players like Infosys, TCS, SBI, HDFC Bank. With deepening penetration of payment networks, these IT/Banking majors stand to benefit. Investors should assess their financials, management track record, and outlook in tapping emerging opportunities like merchant payments, microATM services, etc.

Apart from large banks/tech companies one can also evaluate mid/small-cap stocks like Equitas Small Finance Bank, AU Small Finance Bank that are expanding in semiurban and rural centres riding on the government push towards financial inclusion through Jan Dhan accounts, DBT transfers, etc. Stocks like Infibeam Avenues, Mswipe Technologies are also leveraging growth in digital payments acceptance. Investors should evaluate business fundamentals, valuations and risk-reward while deciding allocations to this theme.

Impact On Industries:

This investment has positive implications for various industries enabling wider adoption of digital payments:

  • Banking & Financial Services: TSI’s expanded ATM and payment network will directly benefit banks by allowing them to deploy digital financial services across India without heavy infrastructure investments. This saves costs related to ATM site acquisition, maintenance, cash management etc. Banks can thus focus capital spending on value-added customer offerings.
  • Payments Technology:
  • Players offering payments technology platforms, POS machines, payment gateways, etc stand to gain significantly as digital payment acceptance points expand across India. TSI’s plan to deploy merchant payment solutions offers new growth avenue.
  • Cash & ATM Management Companies: With over 17,000 ATMs under management currently, TSI works closely with specialized cash/ATM management companies that transport cash, refill ATMs and maintain them. TSI’s expansion will drive more business for these vendors.
  • Utilities & Financial Inclusion Enablers: Expansion of TSI’s bill payment solution helps utility providers and financial inclusion enablers by increasing digital payment convenience and reach for their target customer segments.

Long Term Benefits & Negatives:

  • Long term positives:
    • Mainstreaming of digital payments: Investments like these, combined with governmental pushes can over time make digital payments ubiquity a reality even in remote Indian villages. This brings efficiency, convenience and transparency.
    • Growth of ancillary industries: As highlighted earlier, TSI’s expansion directly spurs growth for payment technology providers, cash management companies, financial inclusion enablers creating a virtuous cycle.
    • Financial inclusion: An expanded payments infrastructure is the stepping stone for bringing unbanked and underbanked segments into formal financial ecosystem allowing wider economic progress.
  • Potential long term risks:
    • Cybersecurity threats: As digital payments normalize, India’s payments infrastructure becomes an attractive target for cybercriminals. Sophisticated threats can undermine user trust.
    • Overdependence on technology: In a country where literacy levels and tech comfort is low among elders and in non-urban centres, forced adoption of tech-centric payments should be balanced with traditional cash/paper options.
    • Job losses: Rapid expansion of payment tech, if not managed properly could render some traditional money handling roles redundant putting livelihoods at risk. Proactive skilling programs are vital.

Short Term Benefits & Negatives :

  • Short term positives:
    • Increased pace of ATM expansion providing wider basic banking access
    • Faster deployment of payment acceptance points across utilities, online services, in-store payments driving convenience
    • Revenue and profitability growth for TSI as transaction volumes increase. This ensures healthy return potential for Piramal’s investment.
  • Short term risks:
    • Execution challenges: Too rapid expansion across technologies, payment verticles and geographies raises project execution risks that can undermine ROI.
    • Market competition: Success of TSI and large investments will intensify competition. Smaller local/regional players may get edged out unable to match scale and pricing power. This causes market consolidation.
    • Job losses: In the short term, transition from cash to digital causes some job losses in cash logistics area before reskilling catches up. Managing labour unrest is important during the transition.

Companies Will Gain From This:

Listed companies that can benefit from TSI’s expansion:

  • Infosys (NSE: INFY): Being a leader in payments technology solutions, Infosys offers digital transformation and consulting solutions to global banks & financial institutions. TSI’s growth provides cross-selling opportunities for Infy.
  • TCS (NSE: TCS): Similar to Infosys, TCS also has strong presence among BFSI majors globally. TSI’s payment infrastructure expansion allows TCS to enter newer partnerships with banks.
  • SBI (NSE: SBIN): Owning over 22,000 ATM/CDMs of its own, SBI is well positioned to benefit from TSI’s network growth by avoiding duplication of efforts and cost savings by relying on TSI’s infrastructure in underpenetrated geographies. This allows SBI to optimize capital allocation.
  • HDFC Bank (NSE: HDFCBANK): HDFC Bank can leverage TSI’s network to expand affordable payment solutions targeted at value conscious customers from rural/semi-urban centres without straining its physical branch infrastructure. This enables last mile distribution.
  • AU Small Finance Bank (NSE: AUROSMALL): This fast growing SFB’s rural/semi-urban focus gels well with TSI’s expanding network. It helps acquire financially underserved customers at lower acquisition costs compared to setting own physical branches.

Companies Which Will Lose From This:

While most players stand to gain from payments ecosystem expansion in long term, near term technology transition can pose some challenges:

  • CMS Info Systems (NSE: CMSINFO): This leading cash management company handled over 20% of India’s ATM cash in FY22. Rapid shift from cash to digital could dent revenue growth rates in the medium term though this impact may be offset partially by their currency chest operations for RBI.
  • AGS Transact Technologies (NSE: AGSTTL): Leading integrated omni-channel payment solutions provider AGS, which also operates over 11,000 ATMs and is in merchant acquiring business could face some growth headwinds and possible margin pressures on its core ATM managed services business as transactions shift to digital payments. However aggressive pivots can offset risks.
  • Vakrangee (NSE: VAKRANGEE): This financial inclusion player operates a network of next generation Vakrangee Kendras offering banking, insurance, eGovernance and other services to unserved and underserved rural customers. For them, an interlinked payment ecosystem can make such last mile physical presence redundant impacting growth plans. Though diversification into new verticals offers cushion.

Additional Insights:

While TSI’s expansion directly benefits banks and digital payments players, investors should remember that India still has very low penetration of payment infrastructure compared to many emerging and developed economies. This offers a long growth runway for the eco-system as a whole though near term transitional challenges exist as user habits evolve. Regulatory support remains vital for managing change.

Conclusion:

The Rs 200 crore investment by Piramal Alternatives’ Performing Credit Fund in ATM network operator TSI India offers growth capital for TSI to accelerate rollout of ATMs, merchant payment systems and financial inclusion infrastructure. This has positive long term implications for penetration of digital payments in India spanning bankers, payments technology majors, cash management companies and consumers though poses some transitory risks that necessitate nuanced policy responses.

Citation:

Balakrishnan, R. (2023, December 3). Piramal Alternatives to deploy Rs 200 crore in ATM player TSI India. The Economic Times. https://economictimes.indiatimes.com

error: Content is protected !!
Scroll to Top

Subscribe to Profitnama to access all articles, explanations, stock analysis
Already a member? Sign In Here