Q3FY24 Review: Computer Age Mgmt.: Strong Q3; optimistic on margin expansion

8 Feb 2024 , 11:29 AM

CAMS’ Q3FY24 profits grew 21% YoY to Rs893mn, marginally ahead of estimates. Strong AUM growth drove profits in the MF-RTA business. The non-MF revenues grew 60% YoY- the growth was broad based. On the call, company talked about gradual improvement in margins as its non-MF business have started to gain scale. As highlighted in analysts of IIFL Capital Services recent note – CAMS is a play on the MF industry coupled with new opportunities in the BFSI space. Maintain BUY with ₹3,300 TP (16% upside). 

Strong Q3; arrests yield decline: 

CAMS’ consolidated profits grew 21% YoY to Rs893mn – 4% above IIFLe owing to better than expected MF-RTA business. In Q3, CAMS’ overall AUM grew 22% YoY (+4% QoQ) to Rs33.9trn. However, equity AUM grew faster – up 31% YoY to Rs16.9trn; improving its equity asset mix by 200bps QoQ (400bps YoY) to 50%. Increasing share of equity assets (higher yield) more than offset telescopic pricing impact as yields improved 1% QoQ to 2.49bps. Non-MF business grew 60% YoY to Rs368mn; led by traction in AIF, KRA business and Think360 acquisition. Non-MF segment constitutes ~13% revenue share; and it targets 20% by FY27. 

Margins to improve as non-MF business scales up: 

For non-MF businesses, CAMS’ highlighted that the cost structure is largely fixed now, and incremental revenues will largely translate into better profitability. In Q3, Ebitda margins from the Non-MF business improved to ~15% vs mid-single digit earlier and this is further expected to grow to ~25% over next 2-3 quarters; on improving revenue growth visibility from newer client wins across businesses. On overall basis, CAMS’ expects Ebitda margins to improve by 1ppt every year vs. earlier guidance of range-bound margins of 42-45%. 

Re-iterate BUY: 

Analysts of IIFL Capital Services estimate EPS to grow at 18% Cagr over FY24- 26 led by improving growth visibility on non-MF business and yield stabilisation in core MF-RTA business. Analysts of IIFL Capital Services value the stock at 35x FY26 EPS and ascribe a fair value of Rs3300. Maintain BUY.