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Marginal sequential decline in yield manageable

Result Highlights

* Asset-based Mutual Fund Revenue: Asset-based mutual fund revenue was up 2.3% QoQ and 6.6% YoY to Rs1.85bn, broadly mirroring the AAUM serviced by CAMS, which was up 3.4% QoQ and 6.3% YoY.

* Non-Asset-based Mutual Fund Revenue: Non-asset-based mutual fund revenue rose 1.2%/3.6% QoQ/YoY to Rs 0.33bn, driven YoY by call centre revenue and application revenue

* Non-Mutual Fund Revenue: Non-mutual fund revenue rose 4.3%/8.2% QoQ/YoY to Rs 0.24bn, driven YoY by strong growth in AIF business and CAMSPAY

* Operating profit margin: Calculated Operating EBITDA amounted to Rs 1,061mn for the quarter, translating to an EBITDA margin of 43.8%, up 240 bps QoQ

Our view – Marginal sequential decline in yield manageable

Despite a rise in share of equity in AUM serviced, revenue yield contracted marginally on sequential basis: Share of equity in AUM serviced has risen 180 bps QoQ to 45%, preventing the revenue yield from declining by a greater quantum on sequential basis. The decline in yield, as such, was, firstly, due to telescoping pricing, a factor that impacts equity AUM to a greater extent. Secondly, the decline in debt AUM has outpaced the decline in liquid AUM, which has had a negative impact from a mix perspective.

Lower ESOP cost led to sequential decline in employee cost: The employee expense was up by 11.3% YoY but down by -3.4% QoQ where the QoQ fall was driven by lower ESOP expense, which stood at Rs 65.2mn in 2QFY23 vs 95.8 mn in 1QFY23.

Management expects EBITDA margin could improve in the long-term: The calculated EBITDA margin was up/down by 240bps/-270bps QoQ/YoY to 43.8%. The management stated that they are comfortable with current EBITDA margin but expect margin could improve once all the businesses starts to contribute.

We maintain ‘Buy’ rating on CAMS with a revised price target of Rs 3010: We value CAMS at 40x FY24 P/E for an FY22-25E EPS CAGR of 14%.

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