Computer Age Management Services: Yield pressure to ease; non-MF business to grow faster

5 Feb 2024 , 10:46 AM

Recommendation: Buy

Target Price: ₹3,300

CAMS is seen as a play on the domestic mutual fund (MF) industry given its dominant market-share. Company is also expanding its non-MF portfolio by offering digital solutions in the fast growing BFSI sector. It is confident of increasing share of non-MF segment from 13% now to 20% in 3 years. Thus, long term growth potential in the MF-RTA segment coupled with new opportunities in BFSI space (2x growth likely) makes it a compelling story. Analysts at IIFL Capital Services value CAMS at 35x FY26 estimated EPS.

Yield pressure behind in the core business

CAMS is bigger of the two players in the duopoly MF-RTA space. It services 69% of domestic MF AUM and derives 90% of its revenues from the segment. Thus, it is seen as a play on the domestic MF industry. In last 1 year it has seen a higher compression in revenue yield compared to KFintech (down 9% versus 3% for KFin). This was owing to price reset with one its large client after a gap of5 years. The impact of this is now fully in the base, and thus the yield movement hereon would be guided by the telescopic pricing. Management also shared that they do not foresee any major reset over the next few years and thus there is no risk to the current yield. As such analysts at IIFL Capital Services expect CAMS’s RTA revenues to grow at 13% pa over FY24-26 driven by 17% pa growth in serviced AUM. CAMS has won 4 of the last 5 MF mandates underlining its competitiveness and ensuring sustainability of long term market share.

Non-MF business would grow at 2x of the core business

Currently, non-MF accounts for 13% of CAMS revenues, company is confident to increase this to 20% by FY27 – thus the implied growth is 30-35% pa. Within non-MF business, companies remain confident of AIF/PMS segment, payments business, KRA business and Account Aggregator (AA). Company has also made acquisitions in recent years – Fintuple Technologies (digital on-boarding in AIF/PMS) and Think360 (modules to support AA application) which would strengthen its product offering and drive growth.

Upgrade estimates; re-iterate Buy

Analysts at IIFL Capital Services have upgraded CAMS’s FY24-26 EPS by 2-6% as they factor in better growth in domestic MF AUM. Currently the stock trades at 8-10% discount to its long term average.  Analysts at IIFL Capital Services believe this can narrow with visibility on yield stabilization in the core RTA business and improving growth visibility on the non-MF business.