CAMS dominates India’s MF industry & is well positioned to capture the non-MF segment too
India’s largest registrar and transfer agent for MFs, with an aggregate market share of c. 68% (INR 27.3 tn) based on MF AAuM (INR 39.9 tn).
Computer Age Management Services Limited (CAMS) is a technology-led financial infra services provider to MFs and other financial institutions, with over two decades of experience. Its clientele includes four out of the five largest MFs, as well as 10 of the 15 largest MFs in AuM terms. CAMS has a pan-India presence with 280 service centers in 25 states and 5 union territories.
CAMS should gain traction from rising investments in the Indian MF Industry
The Registrar and Transfer Agents (RTA) industry in India is a duopoly, with CAMS commanding c. 68% market share and the rest with KFin Technologies (NSE: KFINTECH). CAMS MF revenue comprises 90% of its total pie while remaining 10% is from the non-MF business comprising Alternative Investment Funds (AIF), Portfolio Management service (PMS), RTA, Insurance Repository, CAMSpay, Account Aggregator and Central Record Keeping Agency for NPS. The Indian MF industry was sized at INR 38.4 tn as at FY23, expected to hit INR74 tn at 15% AUM CAGR in FY27. Also, AuM of AIF / NPS Industry is expected to touch INR 9.7tn/ INR 16.7tn at 5 years CAGR 28%/18% from INR 2.8 tn/ INR 7.2 tn in FY22. CAMS commands over 50% market share among AIFs and PMS.
Improving operational efficiency backed by strong client relationship
CAMS has reported steady growth of 7% YoY with PAT of INR 285.2cr (29.3% margin) at L3Y CAGR of 18.3% in FY23. Revenue/EBITDA in FY23 was INR 998.6cr/ INR 448cr (45% margin) at L3Y CAGR 11.5%/ 13.3% respectively. OPEX has significantly increased 13% YoY to INR 550.6cr in FY23. Leverage is fairly accommodative with zero debt and Interest coverage ratio of 58.9x. ROE stood at 36.4% with ROCE at 41.7%. for FY23. Equity component of Average AuM (AAuM) for CAMS/Industry saw growth of 22.6%/ 18.3% YoY at INR 12.4tn/ INR 18.6 tn each.
Cash & Cash Equivalent was INR482cr with current ratio of 4.34x backing strong liquidity.
Strong Outlook for Non-MF business
With progress on capacity and client buildup in products, higher growth of non-MF business (9.3% in FY23) compared to MF asset-based revenue business (7.3% in FY23). CAMS is aiming to double share non-MF business to 20% over the medium term along with a strong uptick in revenue wherein AIF/PMS RTA, Insurance repository, and Account Aggregator will be the key contributors. The dematerialization of insurance could act as another potential trigger for growth.
Valuation looks slightly on a higher end, though justifiable by a higher room for growth
CAMS is currently trading at a P/E of 39.4x. Close comp KFINTECH trades at 30.6x. On an EV/EBITDA basis, CAMS stands at 23.2x with KFINTECH at 18.8x. The promoters hold 19.91% share, while FII holds substantial 35.78% followed by retail investors holding 32.61% and DIIs holding 11.69%.
Continued market leadership in the duopoly RTA market, sizeable entry barriers, and high switching costs position CAMS favorably. An ample runway available with MF penetration in India at just 16% as against the global average of 63%, we expect CAMS could be a major beneficiary. Potential pressure on yields as a result of TER cuts and higher OPEX are possible risks to be considered. With investments in new businesses expected to continue, capex allocations towards technology, and revenue improvement start from FY24, we are LONG.
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