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Base business steady; new products to add gradually

* CAMS posted a steady set of numbers in terms of business growth, which was in line with industry. A similar performance was reflected in its topline growth while cost controls and reduced tax boosted bottomline.

* For CAMS, average assets under management (AAUM) serviced increased 19.2% YoY, 7.3% QoQ to | 22.3 lakh crore, largely in line with the industry AAUM growth of 18.9% YoY. Equity AAUM increased 18.5% YoY, 12.1% QoQ to | 7.9 lakh crore (calculated) while debt AAUM surged 19.6% YoY to | 14.4 lakh crore. On a sequential basis, equity asset mix increased marginally by 1% to 35%

* Transaction volume growth rose 5% QoQ to ~8.2 crore vs. flattish growth of 1% in previous quarter. SIP book rose 5% QoQ to ~2.1 crore while number of SIP transactions processed was up 5% QoQ to ~6.1 crore. Increasing traction in various business parameters has enabled CAMS to maintain its dominant position with a market share of 70.1% in MF servicing.

* Revenue from operation was up 14.3% YoY to | 199.8 crore. This was slower than AAUM serviced growth due to a fall in non-MF revenue. Growth in asset based revenue was 18.5% YoY, in line with AAUM growth. Non-MF revenue declined 15.9% YoY due to winding up of banking and NBFC outsourcing business while account aggregator business is yet to kick off. MF’s share in total revenue is up to 90% now. Steady yields amid marginal increase in equity mix implies static pricing without any meaningful downward revision. Cost were kept under control while EBIDTA margin was largely stable at 45.7% vs. 45.9% QoQ. PAT came in at | 60.1 crore, up 39.6% YoY, partly driven by a lower tax rate regime.

* The company will continue to invest in technology and security in order to improve process efficiency while it has also strengthened senior management team by adding a Chief Risk Officer and Chief Platform Officer to improve execution capabilities. During the current quarter, the company signed a letter of intent with 15 entities for account aggregators business.

Valuation & Outlook

CAMS is a structural growth story with opportunity to participate in relatively under penetrated and high potential Indian asset management market. It is a proxy to growing mutual fund industry with high RoE. Technological expertise, long standing client relation and leadership in duopoly RTA market with entry barriers remain key business strengths. Technology spends and investment in new businesses are expected to limit improvement in EBITDA but a gradual pick-up in new businesses (account aggregator & CRA for National Pension Scheme) are expected to drive performance. We expect PAT to grow at 14% CAGR in FY21-23E to | 267 crore with RoE at ~40%. We prefer platform oriented businesses with market leadership. Therefore, we revise our target price to | 2800/share (earlier | 2100), valuing the stock at ~51x FY23E EPS. We maintain BUY.

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