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Maintain ADD on Computer Age Management Services - Well-positioned for strong growth! - HDFC Securities
Posted On : 2021-02-15 17:14:43( TIMEZONE : IST )
Mr. Madhukar Ladha, Institutional Research Analyst, HDFC Securities & Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities
Being a market leader in a two-player RTA market with a market share of 73.0% (inc. FT AMC), CAMS is a play on India's growing asset management industry. Significant entry barriers coupled with customer stickiness puts the company in a uniquely advantageous position. We expect FY21-23E revenue/operating profit (OP) CAGR of 15.3/19.5%, which we expect would be driven by a resurgence in flows and improved performance of nascent businesses i.e., payments, AIF, and insurance. We maintain our ADD rating on the stock with a DCF-based target price of INR 1,751. The stock is currently trading at FY22E/23E EV/NOPLAT of 39.8/34.1 and P/E of 39.1/33.3x. Equity market declines impacting AAUMs, high client concentration impacting pricing power and any major IT system disruptions remain key risks.
3QFY21 highlights: CAMS printed revenues at INR 1,860mn (+5.6/8.7% YoY/QoQ), 3.6% ahead of estimates. Higher staff and operating expenses meant that the core operating profit beat estimates by only 0.7% coming in at INR 692mn (+27.5/13.4% YoY/QoQ). Higher-than-estimated treasury income of INR 64mn (-5.0/26.1% YoY/QoQ) drove APAT to INR 564mn (+22.0/15.3% YoY/QoQ).
CAMS' MF 9MFY21 AAUM market share rose 170bps to 70.4% resulting in MF AAUM at INR 20.8trn. MF asset-based revenue grew 11.0/8.3% YoY/QoQ as share of equity declined in overall mix, which was partly compensated by higher flows in debt. Non-asset-based revenues grew 14.5/20.4% YoY/QoQ as transaction revenue picked up. Paper-based transactions have dropped to 15% in 3Q, management expects it to grow to~20-25%, which should aid yields. Non-MF based revenue declined 31.3/4.2% YoY/QoQ as a result of (1) drop in ECS processing mandates and lower Insurance revenues, and (2) winding down of banking/NBFC outsourcing business.
Outlook: Over FY21-23E, we expect a gradual recovery in assets and earnings. For FY21E, we expect revenue/NOPLAT to grow by 1.3/12.6% YoY.
