Computer Age Management Services Ltd (CAMS) is India’s largest registrar and
transfer agent (RTA) of mutual funds with an aggregate market share of
approximately 70% based on mutual fund average assets under management
(AAUM) managed by its clients and fastest growing RTA for last 5 years. CAMS is
responsible for entire back end work of its mutual fund clients i.e. from account
creation to processing to redemption and also provides statutory statements,
transaction origination, operations, investor & distributor services, risk
management services and compliance services. For all the above service, CAMS
charges fees of 0.036% (FY20) on AUM managed by its clients. All 41 mutual
funds outsource back end/operational work to RTA.
Huge growth potential in Mutual Fund AUM to support CAMS’ revenue: Over the
past five years (FY15-20), equity AUM for the Indian MF industry has increased
2.7x from `3.24 lakh cr to `9 lakh cr. Further, overall AUM has nearly jumped
2.4x from `11.48 lakh cr to `27.14 lakh cr over the same period. There is a huge
growth potential for MF industry as the penetration of mutual funds is low in India
with an AUM/GDP ratio of 12% as of Dec 2019 vs. that of developed countries at
>50%. Lower attraction in real estate by investors due to subdued returns coupled
with lower inflation will direct investors from physical assets to financial savings,
resulting in MF AUM to grow at a healthy rate. Given that CAMS’ 87% revenue is
linked to AUM growth, MF industry growth is positive for CAMS.
Leadership position in MF RTA business and foray in new growing business:
CAMS is the largest RTA of mutual funds with an aggregate market share of 70%.
Its 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. Most of the
bank-led top mutual funds are CAMS’ clients. Leveraging on current domain
expertise, processes, and infrastructure, CAMS has also started to cater to AIFs,
insurance companies, banks and NBFCs.
Healthy financials to support higher dividend payout: Revenue has grown at a
steady CAGR of 13% over FY15-20.Its leadership position has helped to report a
healthy EBIDTA margin of 41% for FY20. Return on equity (ROE) for FY20 was
34% and the last 3 years average ROE was 31.3%. For FY20, CAMS has
registered dividend payout of 41%. Considering the ability to generate strong
cash flow from operations, we expect the company would continue to pay a
generous dividend to shareholders.
Outlook & Valuation: At the upper end of the IPO price band, it is offered at
34.6x its FY20 EPS and 11x its FY20 book value, demanding `6,000cr market
cap, which we believe is reasonable. Given CAMS’ leadership position, huge
growth potential of MF industry, strong return ratios, asset-light business and
higher dividend payout ratio, we are positive on this IPO and rate it as