ICICI Direct - Stock Tales - Computer Age Management Services Ltd

Computer Age Management Services (CAMS) is India's largest registrar & transfer agent (RTA) of mutual funds with ~70% market share of MF AUM. CAMS provides a comprehensive portfolio of technology-based services, such as transaction origination interface, execution, payment, settlement, record keeping, commission computation and compliance related services.

CAMS is also engaged in RTA services to alternative investment funds (AIFs), acts as insurance repository, account & payment aggregator and CRA for NPS. Great Terrain, an affiliate of Warburg Pincus, is the current promoter of CAMS with ~31% stake while other marquee shareholders include HDFC Bank (3.33% stake) and HDFC Ltd (5.99% stake).

Near monopoly as RTA in growing Indian AMC sector

Under penetration and increasing financialisation are expected to drive MF AUM, which is anticipated to grow at 12-15% CAGR in FY21-25E. Leadership in RTA business with ~70% share in a duopoly market with high entry barrier puts CAMS in a uniquely advantageous position. Technology expertise, client integration & relation act as a moat making CAMS a play on the Indian MF industry. With revenue based on percentage of managed AUM, topline is seen following AUM growth at ~12% CAGR in FY21-23E.

Core business growth steady; new products long term drivers

Focus on technology, longstanding client relationship & development of proprietary application to drive growth in core business. New products like insurance registry, RTA for AIFs, account management, CRA for NPS (refer Exhibit 11) are at a nascent stage with potential to drive future earnings.

Consistent performance; high RoCE favour premium valuation

CAMS posted healthy growth in revenue, EBITDA at 13%, 16% CAGR, respectively, in FY15-20, while operating efficiency led to higher RoE at ~30%. Resurgence of MF flow, digitisation, cost rationalisation to drive earnings at 13.4% CAGR in FY21-23E with RoE improving to ~38%. Higher equity AUM growth of 18-19% CAGR to dilute impact of yield reduction.

Valuation & Outlook

CAMS is a structural growth story with opportunity to participate in relatively under penetrated and high potential Indian asset management market. It is a proxy to the growing mutual fund industry with high RoE. Technological expertise, long standing client relation and leadership in duopoly RTA market with entry barriers remain key business strengths. We expect PAT to grow at 13.4% CAGR in FY21-23E to Rs. 259 crore and RoE at ~38%. Valuing the stock at ~40x FY23E PAT, we arrive at a BUY recommendation with target price of Rs. 2100/share.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_CAMS_StockTales_Mar21.pdf

Source : Equity Bulls

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