Add Computer Age Management Services Ltd For Target Rs.2,515 - ICICI Securities
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Higher non MF revenue growth continues; MF yields/margin outlook better
CAMS reported a steady Q1FY24 performance with PAT of INR 757mn. While the quarterly PAT has remained range-bound at ~INR 730mn levels for past 8 quarters, there are multiple levers ahead for growth. These include: (1) relatively small incremental investments in new businesses (INR 180mn-200mn annual outgo already in the base); (2) improving margins of new businesses (currently at 25% levels); (3) no big drop in MF yields going ahead as major periodic resets of large clients are already factored in the aggregate MF yield of 2.54bps in Q1FY24; and (4) traction in non-MF segments, which adds to diversification and have >15% revenue growth potential on a sustainable basis. Strategic acquisitions (Fintuple, Think360, partnership with Multifonds) will help in this diversification. Key risks include monetisation challenges of new initiatives, and cut in yields due to TER cut in AMC ecosystem.
Downgrade to ADD
We downgrade the stock to ADD with a revised target price of INR 2,515 (earlier: INR 2,413) based on 30x FY25E EPS of INR 84 (earlier: INR 80). We expect CAMS’ AAUM to register a CAGR of 16.2% between FY23-FY25E with realisations dipping from 0.027% in FY23 to 0.0253% in FY24E and 0.0252% in FY25E. We expect EBITDA margins at ~43.6% / 46.2% in FY24E / FY25E respectively resulting in INR 3.3bn / 4.1bn PAT in the respective years (20% CAGR between FY23-FY25E).
Q1FY24 result review
Q1FY24 AAUM serviced by CAMS stood at INR 30trn (up 7.4% QoQ) while asset-based revenues increased marginally by 1.9% QoQ. EBITDA margin was at 42.1% vs 43.2% in Q4FY23. Decline in yields led to lower revenue growth compared to AUM and also resulted in EBITDA margin contraction apart from a 7.9% / 8.3% QoQ increase in opex / employee expenses. Yields in asset-based revenues dipped from 0.0267% in Q4FY23 to 0.0254% in Q1FY24, mostly driven by the impact of periodic contractual resets of certain large key customers. Non-asset based MF revenues increased ~9% QoQ. Higher growth in the non-MF segment continued – revenue mix increased to 13% in Q1FY24.
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