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Leading play on financialisation

Computer Age Management Systems (CAMS) remains one of the best plays on Indian financialisation story with a steady growth outlook considering the aggregate nature of its business. Current momentum in overall AUM in Indian mutual fund industry could potentially lead to strong earnings growth and operating leverage. Optionalities too will gather further momentum with digitisation of financial records. Maintain ADD with revised target price of Rs3,340 (Rs2,548 earlier) based on 45x (unchanged) Sep’23E (average of FY23E/FY24E) earnings estimates (FY23 earlier).

* Steady performance in MF business and momentum in optionalities mark a strong FY21/H1FY22. CAMSfinserv (account aggregator) is gaining traction with 18 FIU (financial information user) and four FIP (financial information provider) sign-ups as on Q1FY22. CAMSPay (payment solution for MFs, NBFCs and insurance) touched a historical high of >10mn transactions per month in Q1FY22. Franklin Templeton operations went live in Jul’21. CRA platform (central record keeping agency for NPS) is expected to be launched in Q4FY22. Mycams (B2C app) touched 4.2mn registered users with 250,000 logins per day. CAMS and K Fintech launched MF Central, a one-stop digital platform to access all MF-related activities. As per CAMS, the platform will also incorporate provisions for buying / selling of MF units and provide value for ecosystem partners (distributors and others).

* CAMS is an aggregate play on financialisation theme with optionalities – this combination will likely keep valuations rich. The theme of financialisation of savings is playing well. This is evident across capital market players like exchanges, retail brokerages, AMCs, depositories and others. CAMS, being an aggregate play on AMCS, is poised to benefit from the same. Strong ~70% AUM market share largely underwrites a ~13-15% long-term earnings growth model on a steady-state basis for CAMs. This remains the bedrock investment thesis for CAMS as a steady ‘aggregate play’ on Indian AUM growth with lower dependence on individual fund performance. This definitive outlook along with superior cost performance was well exhibited in FY20/FY21. Additionally, the stock has multiple optionalities including account aggregator, payment aggregator, central record-keeping agency for NPS, MF Central etc. – all of which have significant potential. In addition, CAMS has expanded its product portfolio to offer digital lien services for banks and lending companies. As such, valuation multiples are likely to remain elevated. The only other play with similar positioning is CDSL, which currently trades at 53x FY23E EPS (see charts 1&2 for comparison between CDSL and CAMS valuation).

* We expect an earnings CAGR of 24% between FY21-FY24E driven by 20% AUM CAGR. The asset management industry is currently operating in a positive flow cycle in tandem with strong growth in capital markets. This should help CAMS improve its margins with operating leverage. Having already seen 26.5% AUM growth in H1FY22 over FY21, we expect CAMS AUM to grow 7-8% in H2FY22 over Q2FY22 ending AUM and grow at 20% CAGR between FY21-FY24 (AAUM). We factor aggregate yields on AUM to remain range-bound at 2.6-2.68bps in this period (we have seen some stability in MF yields in the recent times). Our sensitivity analysis indicates ±15% in FY23E change in earnings for ±10% change in yields.

* We upgrade FY22/23 earnings on the combination of factors. We have changed our AAUM growth estimate between FY21-FY23 to 22% (vs 17% earlier) and we now factor a combined drop of 2% yields for FY22 and FY23 (vs decline of 8% in earlier) due to rising equity mix.

* Expect PAT of Rs700mn in Q2FY22: Q2FY22 overall industry AAUM came in at Rs36.2trn; we estimate CAMS’ share in it at 69.9% (accounting for Franklin Templeton AUM). Based on improvement in equity mix, we expect CAMS’ equity mix at 37% in Q2FY22 vs 35% in Q1FY22. We expect overall yields at 2.76bps. Asset-based revenues are estimated at Rs1.76bn and non-asset based revenues at Rs0.3bn. Non-MF revenues are likely at Rs195mn, which leads to total operating revenues of Rs2.2bn, up 11% QoQ. We expect EBITDA margins to improve to 47.1% vs 46.2% in Q1FY22. Q2FY22 PAT is estimated at Rs722mn.

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