CX banks on India ATM opportunity

"India is significantly under-penetrated when it comes to the number of ATMs per person, or the number of ATMs per square kilometer, compared to economies such as China, Europe or even Brazil," says Vatsal Goyal, an investment professional with CX Partners, which recently acquired a 75% stake in the Indian ATM unit of Australia's Transaction Solutions International (TSI). 

The investment values TSI India at around $29 million and it is structured across two tranches. The first, of INR805 million, will come through the purchase of existing TSI shares plus INR125 million of new shares; the second, of INR412 million, will be entirely new shares.

The participating vehicle is CX's $515 million maiden fund, one of the largest India-focused vehicles targeting growth opportunities.
In making this acquisition the private equity firm is riding a wave of opportunity coming via India's financial services sector as state-run banks seek to tackle the ATM shortage by opening up the industry to independent contractors.

The plan is to outsource 63,000 machines to various service providers. This liberalization is expected to see the number of ATMs in India rise from approximately 95,000 in 2012 to at least 200,000 by 2017.
TSI India has operating in the country since 2006 and is responsible for more than 1,000 ATMS.

In March the company signed a nine-year agreement with Tamilnad Mercantile Bank (TMB) to deploy and manage an additional 200 ATMs, with the ability to extend that to 400 machines. In addition, TSI holds contracts for automation of bill payments processes. Its clients include HDFC Bank, Punjab National Bank, Tamil Nadu Mercantile Bank, SBI Cards and IndusInd Bank, among others.

"This is one of earlier starters in this market in India. It has good management team, which until now had been constrained by lack of access to capital," says Goyal.

With this extra investment we are very excited by the potential of the company," says Goyal, adding that the industry as a whole has strong growth prospects, even without government support via state-owned contracts.
However, TSI India is still in a crowded space and is by no means the biggest operator - its network is dwarfed by those of Euronet and Prizm. Goyal reflects while it is easy to fuel growth in the ATM space through acquisitions, the greater challenge going forward will be getting the capital allocation right and focusing on maximizing profitability.

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• Topics
• Financials
• South Asia
• Investments
• CX Partners
• India
• Financial Services