Computer Age Mgmt.: Spreading out, eyeing newer opportunities

11 Sep 2023 , 11:09 AM

Recommendation: Buy; Target Price: 2800

Analysts of IIFL Capital Services recently attended the maiden analyst meet of Computer Age Management Services Limited (CAMS). In the meet, management laid out a strategy for leveraging its domain and technology expertise, coupled with its trusted brand — to diversify and accelerate growth in new business while maintaining dominance in the core MF-RTA businesses. Key takeaways: 1) Continuing market share gains in the core MF business. 2) CAMS foresees every business in the Non-MF segment to scale up to Rs1bn by FY27. 3) Expect Ebitda margins to improve to 44-45% in near term. Maintain BUY with TP of Rs2,800. 

Core MF-RTA business going from strength to strength: 

CAMS expects the MF industry AUM to grow to Rs100trn by FY30 (13% Cagr). Given its market leadership in the MF-RTA services and ~70% market share by serviced AUM — it remains a key beneficiary. Superior product suite – integration with payments and KRA services- has enabled CAMS to win 4 out 6 new clients in FY23; besides migration of Navi MF. Market share gains by large MFs (caters to nine out of 15 large AMCs) and new client wins to further aid in expanding market share dominance. 

Non-MF segment to propel growth: 

In recent years, CAMS has identified and invested in developing strategic businesses within the Financial space. This offers high growth potential, supported by regulatory developments and evolving landscape driven by technology – IR; AIF/PMS; AA-TSP; Payments, etc. Management expects the Non-MF segment to grow at 18-20% in near term — higher than the MF-RTA business. Further, it foresees each of its newer businesses to be highly scalable – can achieve Rs1bn ticket size by FY27. Additionally, CAMS is also keen to pursue inorganic opportunities in high-synergy businesses like Analytics and Mid-office. Except for the Payments business where margins are at 20%, other businesses yield ~40%; which is largely in line with the company’s overall margin profile. 

Maintain BUY: 

Analysts of IIFL Capital Services estimate earnings to grow at 14% p.a., over FY23-26, largely driven by strong revenue growth; especially in the Non-MF segment. They value CAMS at 35x Sept-25 with TP of Rs2,800 (15% premium to KFin) – given its dominance in in the MF-RTA segment and better return profile.