IGI Logo

Strong outlook for non-MF businesses

* CAMS reported a PAT of INR721m in 2QFY23, +12% QoQ but 4.7% below our estimates. A 2% miss on revenue along with a higher-than-expected tax rate resulted in a weaker-than-estimated PAT. EBITDA margin was at 43.8% (below our estimate of 45.1%) v/s 41.4%/46.5% in 1QFY23/2QFY22, respectively.

* Management entered into revised agreements with all but one of its major AMC customers wherein some have rolled over agreements on existing pricing, while a few have taken some cuts. Non-MF businesses particularly AIF, Insurance Repository and Account Aggregator are expected to grow at a healthy pace from FY24.

* We adjust our earnings to factor in the earnings miss in 2QFY23 and increased confidence of management on non-MF businesses’ growth outlook. Resultantly, we cut our EPS estimates for FY23/FY24/FY25 by 5%/4%/2%, respectively. Maintain BUY with a one-year TP of INR2,900 (premised on 36x Sep’24 EPS).

Margins recover from the 1QFY23 lows

* QAAUM stood at INR27t (+3% QoQ). Equity AuM rose 11% in Sep’22 over Jun’22. Operating revenue grew 6% YoY/2% QoQ to INR2.42b. This was broadly in line with our estimates.

* Share of Non-MF businesses in revenue was at 9.8% in 2QFY23 vs 9.6% in 1QFY23. Alternative Services vertical continued with its high-growth trajectory, recording ~32% YoY growth in revenue in 2QFY23. eInsurance Account and e-Policy doubled in volume over 1QFY23, aided by sustained news of KYC requirements, eIA and e-Policy.

* EBITDA came in at INR1,061m (5% below our estimate) and EBITDA margin stood at 43.8% v/s 46.5%/41.4% in 2QFY22/1QFY23, respectively. PAT grew 12% QoQ to INR721m during the quarter.

* Sales/EBITDA/PAT for 1HFY23 grew 12%/3%/1% to INR4,780m/INR2,040m/ INR1,368m, respectively. The Board declared an interim dividend of INR8.5/sh.

Key takeaways from the management commentary

* Barring one, CAMS has entered into new agreements with all major AMCs and does not expect revisions in the next 2-3 years. Some contracts have been rolled over at previous rates while a few have seen marginal reduction in pricing.

* AIF segment clocked 32% YoY growth in 2QFY23 with more than one signings every week. CAMS has gained significant market share in this segment.

Tweak estimates to factor in PAT miss and strong non-MF revenue outlook

* Empirically, CAMS has traded at a premium to listed AMCs in terms of oneyear forward P/E. This premium is well deserved, given: 1) the duopoly nature of the industry and high-entry barriers, 2) relatively low risk of a market share loss, and 3) higher customer ownership as compared to AMCs.

* Based on one-year forward P/E multiple, the premium enjoyed by CAMS over HDFC AMC has narrowed to 20% from 60% over the last one year. This was on account of the weak environment in the AMC space, given the pressure on yields, outflows from the Debt segment, and an MTM hit on Equity AUM. We expect these factors to reverse in the coming months, as the intensity of the fall in yields abates, debt inflows increase with the topping of bond yields and a rebound in the equity market.

* We adjust our earnings to factor in the earnings miss in 2QFY23 and increased confidence of management on non-MF businesses’ growth outlook. Resultantly, we cut our EPS estimates for FY23/FY24/FY25 by 5%/4%/2%, respectively. CAMS is expected to deliver a revenue/EBITDA/PAT CAGR of 13%/12%/14% over FY22- 25, respectively, with an RoE of 44.9% in FY25. We maintain our BUY rating with a one-year TP of INR2,900 (premised on 36x Sep’24 EPS).

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer