IPO Review - Computer Age Management Services - ICICI Securities

CAMS (formerly known as Computer Age Management Services) is India's largest registrar and transfer agent (RTA) of mutual funds with a market share of ~70% based on average assets under management (AAUM) managed by their clients as on July 2020. CAMS provides a comprehensive portfolio of technology-based services such as transaction origination interface, transaction execution, payment, settlement, record keeping, brokerage computation and compliance related services.

Apart from this, CAMS also provides services to alternative investment funds (AIFs), insurance companies, banks and NBFCs. Great Terrain is the promoter of CAMS with its pre-issue shareholding at 43.53%. Great Terrain is the wholly owned subsidiary of Harmony River Investment Ltd, which is directly owned by Warburg Pincus LLC (New York, US).

Investment Rationale

Largest services provider in growing mutual funds market

The Indian mutual fund industry comprises 41 AMCs with major market share contributed by top 10 AMCs. As on June 2020, ~59% of total MF AUM is managed by top five AMCs. As on June 2020, CAMS services four out of five largest AMCs - HDFC MF, ICICI Prudential MF, SBI MF and Aditya Birla Sun Life MF. In terms of top 15 AMCs, CAMS services nine out of top 15 AMCs, translating to ~70% market share in MF RTA business. As per Crisil Research, MF RTA business is expected to grow from ~Rs. 900 crore in FY20 to Rs. 1760 crore by FY25E; a CAGR of 15%. In terms of MF business, CAMS had a market share of ~70% as on June 2020, while in insurance services business its market share was at ~39%.

Strong RoE, consistent EBITDA margin

CAMS has delivered a robust financial performance with revenue growth from Rs. 478 crore in FY17 to Rs. 699 crore in FY20, registering 14% CAGR. Focus on opex has led to earnings growth at 12% CAGR from Rs. 124 crore in FY17 to Rs. 173 crore in FY20. Accordingly, CAMS has delivered consistent EBITDA margin in the range of 35-40% in FY17-20 while RoE has remained strong at or above 30% in FY17-20.

Priced at P/E of ~34.5x FY20 on upper end of band

At the higher end of the price band of Rs. 1230, the stock is available at a P/E of ~34.5x on FY20 EPS.

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

Source : Equity Bulls

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