Computer Age Management (CAMS) IPO review (May apply)

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Review By Dilip Davda on September 16, 2020

•    CAMS is a technology-driven financial infrastructure and service provider.
•    It enjoys approx 70% market share based on mutual fund AAUM managed by it.
•    The company has PAN India presence in 25 states with a network of 271 centres.
•    Based on P/BV and P/E parameters, the issue appears fully priced.
•    Likely to generate fancy as the first mover in the segment post listing.

PREFACE:
Computer Age Management Services Ltd. (CAMS) filed its DRHP in the month of January 2020 for IPO of 12164400 equity shares. But when RHP came that showed IPO of 18246600 shares, it shocked with a hike of nearly 50% on the originally proposed IPO size. This dampens market sentiment for a while as indicated by its grey market activities that witnessed declining trends in the GMP.

According to management, in compliance with the requirement of the SEBI letter, NSE had to exit in full and hence the size of the issue is hiked to that extent. The residual portion of holding by NSE will be offloaded before the opening of this IPO. (Refer page 71 of RHP dated September 11, 2020).

ABOUT COMPANY:
Computer Age Management Services Ltd. (CAMS) is a technology-driven financial infrastructure and services provider to mutual funds and other financial institutions with over two decades of experience. It is India's largest registrar and transfer agent of mutual funds with an aggregate market share of approximately 70% based on mutual fund AAUM managed by its clients and serviced by the company during July 2020 (according to the CRISIL Report). CAMS's mutual fund clients include four of the five largest mutual funds as well as nine of the 15 largest mutual funds based on AAUM during July 2020 (according to the CRISIL Report). The company has 16 mutual fund clients with an aggregate of over 71.8 million accounts held by such clients as of June 30, 2020. As of June 30, 2020, it had 4,243 permanent and 1920 contractual employees.

The five-year CAGR of QAAUM of mutual funds between March 2015 and March 2020 was 18% according to the CRISIL Report, while the five-year CAGR of the QAAUM of mutual funds serviced by CAMS over the same period was 21%. Further, its mutual fund clients had 19.77 million SIP accounts as of June 30, 2020.

CAMS's business verticals include Mutual Fund Service 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 Solution Business. Currently, the company is competing with number of entities that provide similar in each of the business lines in which it operates. However, over the period, currently, there are only two mega players in this field and CAMS enjoys lion share.

It offers an integrated and customized portfolio of services through a pan-India physical network comprising 271 service centres spread over 25 states and five union territories as of June 30, 2020, and which are supported by call centres in four major cities, four back offices (including a disaster recovery site), all having real-time connectivity, continuous availability and data replication and redundancy. Further, the company offers many of its services online and through its several mobile device applications, to investors, clients, their distributors and their channel providers. The continued development of proprietary platforms and applications has furthered the company's competitive technology advantage.

Although the company has historically derived a significant majority of its revenues from mutual funds Services business, it intends to focus on growing the revenue and market share of other businesses. However, CAMS cannot assure that it will be successful in implementing such a strategy or that it will be able to continue to grow further, or at the same rate. Its other businesses may face several challenges, including obtaining additional governmental or regulatory approvals, identifying and collaborating with local business partners with whom it may have no existing relationship, successfully marketing company's services and maintaining standardized systems and procedures. Further, its services may not be accepted by clients or meet profitability expectations. To address these challenges, CAMS may have to make significant investments that may not yield desired results, or incur costs that it may not be able to recover. These are the major concerns for this company.

ISSUE DETAILS/CAPITAL HISTORY:
To provide an exit to existing stakeholders and avail listing benefits, CAMS is coming out with a maiden IPO with a secondary offer (i.e. full IPO as an offer for sale) of 18246600 equity shares of Rs. 10 each. The price band has been fixed at Rs. 1229 - Rs. 1230 per share. The company aims to raise approx. Rs. 2242.51 to Rs. 2244.33 cr. (based on its lower and upper price bands). The issue opens for subscription on September 21, 2020, and will close on September 23, 2020. Minimum application is to be made for 12 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE only. The company has reserved 182500 shares for eligible employees and from the balance shares, it has kept 50% for QIBs, 15% for HNIs and 35% for retail categories. Employees are offered a discount of Rs. 122 (approx 10%) per share.

Having issued/converted initial equity at par, the company also raised further equity in the price range of Rs. 20 to Rs. 984.66 between February 1999 and June 2020. The company has issued bonus shares in the ratio of 1 for 1 (August 1993), 9 for 1 (October 1994), 1 for 1 (January 1996), 1 for 1 (February 1999), 2 for 1 (August 2000), 1 for 1 (January 2004), 1 for 1 (January 2005), 3 for 1 (May 2010).

The average cost of acquisition of shares by the promoter/selling stakeholders is Rs. 187.86 and Rs. 686.88 per share. Post issue, CAMS's current paid-up equity capital of Rs. 48.88 cr. will remain the same as the company is coming with a fully secondary offer.  As of June 30, 2020, the company's paid-up equity capital of Rs. 48.88 is supported by free reserves of Rs. 479.41 cr. With this issue, the company is looking for a market cap of Rs. 6000 cr.

In compliance with the requirements of the SEBI Letter, NSE intends to divest its entire shareholding, held through NSE Investments, in the Company by way of sale and transfer of (i) 18,246,600 Equity Shares pursuant to the Offer; and (ii) the balance 38,400 Equity Shares at a price of Rs. 1,230 per Equity Share pursuant to the NSE Investments SPA. The Equity Shares to be transferred pursuant to the NSE Investments SPA shall be transferred as per the terms of the NSE Investments SPA and prior to the Bid/ Offer Opening Date.

The issue is jointly lead managed by Kotak Mahindra Capital Co. Ltd., HDFC Bank Ltd., ICICI Securities Ltd., and Nomura Financial Advisory and Securities (India) Pvt. Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue.

FINANCIAL PERFORMANCE:
On the financial performance front, on a consolidated basis, CAMS has posted revenue/net profits of Rs. 657.82 cr. / Rs. 146.31 cr. (FY18), Rs. 711.81 cr. / Rs. 130.90 cr. (FY19) and Rs. 721.34 cr. / Rs. 173.46 cr. (FY20). For the Q1 of FY21, it has earned a net profit of Rs. 40.83 cr. on revenue of Rs. 163.46 cr. For the last three fiscals, on a consolidated basis, CAMS has posted an EPS of Rs. 31.68 and RoNW of 31.40%.

The issue is priced at a P/BV of 11.36 based on its NAV of Rs. 108.27 as on June 30, 2020. (Based on upper price band)

If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 36.81. Based on FY20 earnings, asking price is at a P/E of 34.61. Since this company will be the first mover in the segment, there is no average industry P/E is available. Based on P/E and P/BV parameters, the issue appears fully priced. The company is operating on an asset-light business model.

CAMS is following dividend policy of distributing 65% of PAT (Profit after Tax) and going to maintain the same going forward, as disclosed by the management.

BRLM's TRACK RECORD:
The four Book Running Lead Manager's (BRLM's) associated with this offer have handled 17 public issues in the past three years, out of which 6 issues closed below the issue price on listing date.

COMPARISION WITH LISTED PEERS:
As per offer documents, CAMS has no listed peers to compare with.

CAMS IPO FAQs