About the company:
Computer Age Management Services (CAMS) is coming out with an IPO and raising Rs 2,244 crore through an offer for sale of 37.4% of shares. The price band has been set at Rs 1,229 to Rs 1,230 per share for a lot size of 12 shares. The company provides tech-enabled operational services for the mutual fund industry along with clients including Insurance companies, AIFs, Banks, and NBFCs. The company has a dominant market share of 70% in a high entry barrier market in the Mutual Fund Industry (the company derives ~80% revenues from this segment). Based on the moat of the company, strong financials, and a clean balance sheet we recommend investors to Subscribe to this IPO for listing gains.
COMPANY OVERVIEW
CAMS is a financial infrastructure and services provider operating in 7 business verticals: Mutual Funds Services Business, Electronic Payment Collection Services Business, Insurance Services Business, Alternative Investment Fund Services Business, Banking, and Non-Banking Services Business, KYC Registration Agency Business, and Software Solutions Business.
The company is India’s largest registrar and transfer agent of mutual funds with an aggregate market share of approximately 70% based on mutual fund average assets under management managed by clients and serviced. Over the last five years, the company has grown its market share from approximately 61% during March 2015 to approximately 69% during March 2020, based on Average AUM serviced. CAMS’ mutual fund client list includes 4 of the 5 largest mutual funds as well as 9 of the 15 largest mutual funds based on Average AUM as of July 2020.
The nature of its services to mutual funds spans multiple facets of its relationship with the investors, distributors, and regulators. By providing a range of services, CAMS plays an important role in developing and maintaining its clients’ market perception. As of July 2020, CAMS serviced Rs 19.2 trillion of Average AUM of 16 mutual fund clients. Given the nature of the funds and services provided, CAMS charges more fees from equity mutual funds as compared to other categories of mutual funds. The AUM of equity mutual funds serviced by them grew from Rs 218,000 crore as of March 31, 2015, to Rs 522,800 crore as of March 31, 2020, CAGR of 19.1%, and as of June 30, 2020, it was Rs 619,000 crore.
The company has grown its service offerings and currently provides a comprehensive portfolio of technology-based services, such as transaction origination interface, transaction execution, payment, settlement and reconciliation, dividend processing, investor interface, record keeping, report generation, intermediary empanelment and brokerage computation and compliance-related services. CAMS also provide certain services to AIFs, insurance companies, banks, and NBFCs.
POSITIVES
• The company has scaled AUM serviced at a CAGR of 28% from 2015 to 2020 which converts into revenue growth.
• The company is a market leader with about 70% market share as of FY20 in a business with very few competitors and high barriers of entry, thereby giving the company a strong moat.
• Strong cash position at Rs 50.66 crore with Cash Ratio of 0.46 and a Current Ratio of 4.31 which indicates strong working capital and operational efficiency for the company.
• Strong shareholder returns with ROE at 32.1% (ROE for FY19 at 29% and FY18 at 32%) and ROCE at 34.6% as of FY20 (average at 34.4% from FY18-20).
• Further, the company has paid dividends of Rs 59.39 crore, Rs 109.56 crore and Rs 96.06 crore (excluding dividend distribution tax) in the financial years 2020, 2019 and 2018, respectively which indicates high dividend returns for shareholders.
RISKS
• As AUMs of mutual funds grow, the fees charged by the company falls which results in the revenues lagging the growth of AUM by about 4-5%.
• The company derives majority of mutual fund revenues from paper-based transactions. As the share of paper transactions reduces as AMCs move to digitized solutions, the revenue from this segment will decline.
• Revenues have seen a slow pace of growth as compared to the AUM size growth over the recent past due to the business model allowing for reduction in fees collected with a rise in AUMs.
Overall, CAMS is the market leader operating in an industry with high entry barriers which gives the company a strong moat and helps it secure its dominant position. Additionally, The company has generated stable cash flows and has delivered robust shareholder returns, thus duly rewarding shareholders.
Based on this, we recommend investors to Subscribe to this IPO for listing gains.
You can also checkout an exclusive analysis by our research analyst Mr. Anuragh Lodha in which he has shared some interesting business insights and his opinion about this issue.
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