Q4FY23 Review: Computer Age Mgmt.: In-line quarter; regulatory uncertainty weighs

9 May 2023 , 10:46 AM

Subdued AUM growth, coupled with yield moderation and higher opex, led to muted Q4FY23 performance for CAMS. Going ahead, the company is bullish on the non-MF business (revenue contribution from AAs, NPS CRA, etc.), However, core MF business may see further moderation in yields. Stock has corrected >20% in last 6 months and trades at 31.5x FY24 EPS (22% discount to average). However in near term regulatory uncertainty would continue to weigh on stock performance.

In-line Q4; gains market share in equity segment: 

CAMS’ consolidated PAT was up 0.7% YoY and 1.1% QoQ to Rs744mn- in line with estimates. Subdued AUM growth (+5% YoY), yield moderation despite higher equity share (contract renewal for multiple large players + acquisition of L&T MF by HSBC came into effect) and higher opex (including investment in new businesses) led to subdued quarter. Although overall market share declined 50bps YoY to 68.2%; company saw 300bps YoY gains to 67.2% in the higher profitability Equity segment. Non-MF revenues grew 7.5% YoY and 18.5% QoQ driven by AIF, CAMSPay and CAMSRep business. ow constitute 11% of revenues. Consol. Ebitda fell 2.7% YoY (marginally up QoQ) on investment in new businesses (Rs30mn/Q) and general increase in expenses pertaining to compliance, travelling and marketing. Ebitda margins contracted by 236bps YoY and 66bps QoQ to 43.8%.

Regulatory uncertainty looms in MF business; non-MF expected to grow: 

Although management remains hopeful of AUM growth (debt funds continue to see flows in April and May), yield may see some moderation as full impact of contracts negotiated in FY23 will be captured in FY24. In addition, another 2-3 contracts would be up for renewal in FY24. Also, any significant change in TER regulations would pose additional risk. In the nonMF business, the company expects Account Aggregator (AA) and NPS CRA business to see ramp-up in revenues, along with continued traction in the IF and Payment businesses. This would help the company to achieve its 15% target vs 10% in FY23. Ebitda margins likely to be between 40-45%.

Near-term upside capped on TER uncertainty: 

Slowdown in FY23 earnings (flat YoY) and uncertainty on TER regulations have weighed on stock’s performance. Although the stock trades at 22% discount to its historical average, regulatory overhang in the core MF business would cap near-term upside. Analysts of IIFL Capital Services forecast FY23-26 EPS to grow by 15% p.a. (no impact of TER cut assumed) and value the stock at 35x 2YF EPS.

Analysts of IIFL Capital Services maintain buy with target price of Rs 2700.