CAMS IPO NOTE (Subscribe)

Review By Rudra Shares & Stock Brokers Ltd on Sep 20, 2020

COMPANY OVERVIEW

Promoted by Great Terrain Investment Ltd, Computer Age Management Services Limited ("CAMS") was incorporated on May 25, 1988. CAMS is a technology-driven financial infrastructure and services provider to mutual funds and other financial institutions with over 2 decades of experience.

ØIt  is India's largest registrar and transfer agent of mutual funds with an aggregate market share of approx. 70% based on mutual fund average assets under management ("AAUM") managed by its clients and serviced by them during July 2020.

ØIts mutual fund clients include 4 of the 5 largest mutual funds as well as 9 of the 15 largest mutual funds based on AAUM during July 2020.

CAMS key clients for its mutual funds services business include HDFC Asset Management Co. Ltd., ICICI Prudential Asset Management Co. Ltd., Aditya Birla Capital Ltd., SBI Fund Management Pvt. Ltd., DSP Investment Managers Pvt. Ltd., Kotak Mahindra Asset Management Co. Ltd. and Franklin Templeton Asset Management (India) Pvt. Ltd.

Among MF RTAs, CAMS has the highest AUM serviced, which is approximately 70% of the market share as of July 2020, followed by Karvy (including Sundaram BNP Paribas Fund Services). Also, the fastest growing MF RTA for the last five years has been CAMS with a CAGR of 18.6% in AUM managed whereas, the CAGR growth for Karvy and Sundaram BNP Paribas Fund Services remained at 10.4% and 6.6%, respectively. Based on AAUM serviced, it has grown its market share from approximately 61% during March 2015 to approximately 69% during March 2020.

As of March 2020, CAMS had a market share of approximately 73% among the top 10 mutual fund houses. During the past five financial years, the share of top 10 AMCs serviced by CAMS has risen consistently. The top 10 AMCs had a cumulative share of approximately 83% as on March 2020.

With the initiative of creating an end-to-end value chain of services, CAMS have grown its service offerings and currently provide a comprehensive portfolio of technology-based services and has leveraged its domain expertise, processes and infrastructure to diversify its offering of services in:

¶ Electronic payment collections services business

¶ Insurance services business

¶ Alternative investment funds services business

¶ Banks and non-banking services business

¶ KYC registration agency business

¶ Software solutions business

By providing a range of services, company play an important role in developing and maintaining its clients' market perception. As of July 2020, CAMS serviced Rs19.2 trillion of AAUM of 16 mutual fund clients. Further, its mutual fund clients had 19.77 million SIP accounts as of June 30, 2020.

Growth of assets under management ("AUM") of its mutual fund clients is important to them, as a substantial portion of its mutual fund revenues are based on the mutual fund AAUM of its clients. As a result of the nature of the funds and services provided, CAMS charge 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, at a CAGR of 19.1%, and as of June 30, 2020 was Rs 619,000 crore.

 

THE OFFER

       Issue Open : 21st September 2020 to 23rd September 2020

  »»  Issue Type:  Book Built Issue IPO

    »»  Total Issue Size:  Rs 2244.33 cr 

       Ü  Offer for Sale:  18,246,600 Equity Shares @ 10 aggregating up to Rs 2244.33  cr 

       »»  Face Value:  Rs 10 Per Equity Share 

  »»  Issue Price:  Rs 1229  - Rs 1230 Per Equity Share 

  »»  Market Lot:  12 Shares 

        »»  Employee Discount: 122

  »»  Minimum Order Quantity:  12 Shares 

  »»  Listing At:   BSE

 

CAPITAL STRUCTURE

The  share capital of Company, is set forth below:-

                                                                                                                   (Amount in ` except share data)

Authorized Share Capital :-

   50,250,000 Equity Shares @10 Aggregate value Rs 502,500,000

Issued, subscribed and paid up capital before the Offer :-

   48,786,800 Equity Shares @10 Aggregate value Rs 487,868,000

Offer for sale: Equity Shares @10 aggregating up to Rs 2244.33 cr

 

    OBJECT OF THE OFFER

The objects of the Offer are:

ØTo carry out the Offer for Sale of up to 18,246,600 Equity Shares by the Selling Shareholders

ØAchieve the benefits of listing the Equity Shares on the BSE.

CAMS will not receive any proceeds from the Offer and all such proceeds will go to the Selling Shareholder. Further, it expects that listing of the Equity Shares will enhance visibility and brand image and provide liquidity to its Shareholders and will also provide a public market for the Equity Shares in India.

 

BUSINESS VERTICALS

Mutual Fund Service Business-

Have 16 mutual fund clients with an aggregate of over 71.8 million accounts held by such clients as of June 30, 2020. The number of accounts added in the three months ended June 30, 2020 and FY20 was 0.9 million and 7.3 million, respectively

Electronic Payment Collection Services Business- For the three months ended June 30, 2020 and FY 2020, 2019 and 2018 executed over 22.3 million, 93.3 million, 80.6 million and 55.4 million ECS and ACH registrations and transactions, respectively.

Insurance Services Business- As of June 30, 2020 and March 31, 2020, 2019 and 2018, held over 2.9 million, 2.8 million, 2.1 million and 0.5 million e-insurance policies. According to the CRISIL Report, CAMS had a market share of 39% of the insurance repository business, based on e-insurance policies being managed, during FY2018.

Alternative Investment Fund Services Business- It has AIF clients, having an aggregate of Rs 16,027 crore in AAUM for June 2020. As of March 31, 2020, 2019 and 2018, they had 79, 66 and 60 AIF clients, respectively.

Banking and Non-Banking Services Business- Currently in the process of closing banking and non-banking services business and expect to complete this process by December 2020.  

Software Solutions Business- Through our subsidiary, SSPL,, have developed Investrak.NET, a scalable mutual fund transfer agency platform, among others.

Account Aggregator Business- Its Subsidiary, CFISPL was issued an in principle approval by the RBI on May 8, 2018 for undertaking business as an account aggregator, valid for a period of 12 months, within which CFISPL was required to put in place necessary technology platform and complete all legal and operational formalities to commence operations.

Further, they have applied for registration as a Central Recordkeeping Agency under the National Pension System as per PFRDA Regulations, 2015, by way of an application to the PFRDA dated July 31, 2020.

 

FINANCIAL HIGHLIGHTS

Ü Total income for the three months ended June 30, 2020 and FY2020 was Rs 163.46 crores and Rs 721.34 crores respectively.

Ü There was an increase in the AAUM serviced for mutual fund clients to Rs 18,149,683 million for the financial year 2020 from Rs 15,841,202 million for FY 2019

Ü For the three months ended June 30, 2020 and FY2020, revenue from mutual funds services business was Rs 133.32 crores and Rs  608.24 crores, while revenue from other businesses was Rs 15.3 crores and Rs 91.38 crores, respectively

Ü Profit after tax for the three months ended June 30, 2020 and FY2020 was Rs 40.82 crores and Rs 173.45 crores, respectively

Ü Paid Rs 59.39 crores, Rs 109.56 crores and Rs 96.05 crores as dividend (excluding dividend distribution tax) in FY 2020, 2019 and 2018, respectively.

 

INDUSTRY OVERVIEW

According to the CRISIL Report, the growth in the Indian mutual funds industry is expected to continue as a result of overall economic growth, a growing investor base, higher disposable incomes and investable surplus, increasing financial savings, government schemes focusing on increasing awareness, ease of investing, digitalization, and perception of mutual funds as long-term wealth creators.

 

Mutual Fund Registrar and Transfer Agent

Computer Age Management Services Limited ("CAMS"), KFin Technologies Private Limited (erstwhile Karvy Fintech Private Limited) ("Karvy"), Sundaram BNP Paribas Fund Services (acquired by Karvy in October 2019) and Franklin Templeton Asset Management (India) Private Limited are the mutual fund registrar and transfer agents ("MF RTA") operating in India. Among the top five AMCs, SBI Mutual Fund, HDFC Mutual Fund, ICICI Prudential Mutual Fund and Aditya Birla Sun Life Mutual Fund are serviced by CAMS and Nippon India Mutual Fund is serviced by Karvy.

Comparison of key players in the MF RTA business

CAMS has the highest revenue in the industry and also witnessed the highest revenue growth in the past five years with a CAGR of 12.8% in between FY 2015 and 2020. For FY 2020, EBITDA margins and ROE of CAMS are better than its competitors. On a consolidated basis, profitability of both Karvy Computer Share and Karvy were healthy FY 2020 with EBITDA margins being equal to or more than approximately 36% in their respective periods. CAMS is the most productive MF RTA with its monthly AUM per branch being the highest in industry.

 

Insurance repositories act as a single stop shop for policy servicing for e-insurance policies

Currently, four companies are performing the function of insurance repositories:

(a) CAMS Insurance Repository Services Limited;

(b) Central Insurance Repository Limited;

(c) KARVY Insurance Repository Limited; and

(d) NSDL Database Management Limited.

 

STRATEGIES AHEAD

?Maintain  Leadership Position by enhancing Service Offerings to Mutual Fund Clients

?Continue the Technology-led Services Innovations

? Achieve Leadership in Individual Businesses and then Target Scale

 Improve Automation in our Businesses

 

STRENGTHS

?Largest Infrastructure and Services Provider in a Large and Growing Mutual Funds Market?

?Integrated Business Model and Longstanding Client Relationships in our Mutual Funds Services Business

?Scalable Technology Enabled Ecosystem

? Strong Focus on Processes and Risk Management?

? Experienced Management and Board and Marquee Shareholders

 

RISK FACTORS

Ø Account aggregation business of one its subsidiaries, CFISPL may not be viable as there is currently no certainty of revenue from account aggregation operations.

Ø The outbreak of Corona virus, has had an adverse impact on the  business

Ø Future revenue and profit are largely dependent on the growth, value and composition of AAUM of the mutual funds, funds managed by the clients, which may decline.

Ø Significant disruptions in information technology systems or breaches of data security could adversely affect  on business

Ø Company is in the process of winding down its German operations and its banking and non-banking services business

Ø Inability to comply with laws and regulations.

 


Conclusion / Investment Strategy

Being the India's largest registrar and transfer agent of mutual funds having an aggregate market share of approx. 70% based on MF AAUM. It charges a percentage of AUM to AMC and charges more fees from equity mutual funds compared to other categories of mutual funds. As on July 2020, CAMS serviced `19.2 trillion of AAUM of 16 mutual fund clients. As growth is highly correlated with AUM of mutual funds, but increasing digital transactions and highly interest towards ETF, could offset the growth of the company. Given its market leadership, integrated business model (asset light model with no borrowings as of June 20), and pan India presence, provides cushion to company. In addition, consistent growth in revenue and profit with attractive return ratios (ROE of 34%), strong cash flow, entry barrier coupled with dominant market share in industry; all these will command premium valuations. Since, company has no direct listed peers(except CDSL who performs one of the function similar to CAMS), hence company will get first mover advantage. On an upper price band of ` 1230, with EPS at ` 35.57 for FY 20, the stock is available at a P/E ratio of 34.5x which makes valuation fair. Hence,We recommend to subscribe the issue for listing gains.

Reviewer recommends Subscribing to the issue.

Review By Rudra Shares & Stock Brokers Ltd on Sep 20, 2020

Review Author

Rudra Shares & Stock Brokers Ltd.

Rudra Shares & Stock Brokers Ltd. is Kanpur based brokerage houses offering services to Retail and HNI customers. Rudra Shares offer a range of financial services which includes institutional and retail brokerage of Equity, Currency, Commodities, Derivatives, Online Trading, Depository Services, Fixed Deposits, IPOs and Mutual Funds Distribution, Wealth Advisory and Research.

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