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Macros in favor of the non-MF business

* CAMS derives ~12% of its revenue from the non-MF segments, such as AIF/PMS RTA, CAMSPay, Think360, CAMS KRA, and CAMSRep. However, these businesses are set to register higher-than-MF segment growth over the next couple of years.

* AIF/PMS RTA: Over the past couple of years, affluent investors have been increasing their allocations to AIF/PMS products. Resultantly, non-EPFO PMS AUM/AIF funds registered a 22%/20% CAGR over the period. CAMS commands ~50% market share among funds utilizing RTA services. Demand for RTA services from these funds is expected to grow at a robust pace, propelled by: 1) increasing adoption of RTA services by existing funds, and 2) a spike in launches.

* CAMSPay: The share of digital transactions has been increasing for AMCs and this could result in a healthy CAGR for CAMSPay, which is a key player in this segment. Additionally, it plans to expand the use cases to other financial segments.

* Think360: A data analytics and AI/ML tool development subsidiary, Think360, is slated to expand its presence in its existing domain, as lenders continue to adopt technology across the ecosystem. Further, these tools can be expanded into CAMS’s existing business domain, helping clients (AMCs) make better business decisions.

* Account Aggregator (AA) & NPS: The AA business, while still at a nascent stage, is witnessing an exponential growth in account linkages (over 10x jump in a year), FIP/FIU registrations, and number of fetches. For CRA (NPS), the increasing subscriber base and rising adoption of the scheme – as a tax saving instrument – will continue to be the driving force.

* There is a sustained focus on expanding the Non-MF businesses with an aim to increase their share to 20% going ahead. Currently, we have a BUY rating on the stock with a TP of INR3,450 (based on 32x FY26 earnings).

AIF/PMS RTA – aspiring to be the fastest non-MF segment to reach INR1b in revenue

* Over the past two years, the affluent customers have scaled up their allocations to big-ticket capital market instruments, such as AIFs and PMS, so as to generate alpha over the performance of actively-managed MFs and owing to the declining yield of fixed-income products.

* Resultantly, the non-EPFO PMS AUM (excluding advisory) witnessed strong momentum, registering a 22% CAGR over the last two years to INR6.2t in Dec’23. Similarly, funds raised by AIFs posted a 20% CAGR to INR4.3t in Dec’23.

* CAMS commands ~50% market share among funds utilizing RTA services. We expect a strong growth in this segment, led by: 1) increasing adoption of RTA services by existing funds, and 2) a significant increase in launches.

* CAMS WealthServ provides full-stack services for investor onboarding, fund accounting, and operations. Its WealthServ digital onboarding service provides a transformational experience to investors.

* CAMS expects this segment to be the fastest to reach INR1b mark in revenue terms. As of 9MFY24, this segment contributed ~2.7% of total revenue (INR226m).

The future is digital – CAMSPay to gain traction

* The digital payments market in India is likely to clock a 50% CAGR and should exceed 400b transactions by FY27 (according to the Protium report). With the increase in transaction volumes and new product offerings, CAMSPay is expected to grow at a much faster pace.

* CAMS has now received the RBI's in-principle license to be a payment aggregator. The company has expanded its presence to cater to the growing digital payments ecosystem (merchant base is growing rapidly within the BFSI space).

* CAMSPay has 50%+ market share in the mutual fund ecosystem. CAMSPay’s product offerings are further fortified, and the UPI autopay offering expands beyond MF with adoption by fintech channels and prominent third-party apps. This is very clearly visible in the transaction volume growth rate.

* Margins here are higher than the entire non-MF business segment, but lower than the MF business (on account of pricing pressure). CAMS expects contribution from this segment to improve over the coming quarters (as of 9MFY24, CAMSPay accounted for 2.6% of the total revenue).

Think360 – AI stack for Digital Financial Services

* Data, Algorithm, and Applications are the three pillars of AI. The share of digital lending now accounts for 30%+ of all lending and fintechs, providing 95%+ digital lending solutions.

* Among others, Think360's flagship alternative credit scoring product, Algo360, is India's leading alternate data solution, which powers income estimation and risk estimation based on device data.

* CAMS and Think360 bring exciting synergetic opportunities, and the value added services can be expanded to newer markets ("GenAI" capability completed its first engagement with an international client) to transform customer onboarding and drive smarter decisions.

* The AI stack offering through Think360 is an exciting value proposition, and management expects this business to scale up exponentially given its low base. As of 9MFY24, this business contributed ~1.6% of the total revenue.

Increase in NPS subscribers to aid the NPS business

* The formalization of the economy will be an important growth driver of the retirement fund industry. Further, the tax benefits under income tax are likely to boost the subscriber base in the corporate segment.

* During FY17-23, the total NPS subscriber base reported a 34% CAGR (~71m subscribers as of Dec’23); whereas, the corporate NPS subscriber base posted a 19% CAGR (~1.9m subscribers as of Dec’23). Over the same period, the overall NPS AUM recorded a ~32% CAGR, whereas corporate NPS clocked 41% CAGR. CAMS is one of the Indian players that caters to the corporate segment.

* CAMS CRA has developed the industry’s first features of CKYC and UPI-based bank account verification. As of now, the revenue contribution from the NPS business is not material. Nevertheless, as the private sector adoption increases, we believe the company will see an improvement in market share.

Scaling up of the AA Ecosystem

* The National Financial Information Registry (NFIR; announced in Union Budget 2023-24) aims to change the way credit is distributed and underwritten to newto-credit (NTC) and underbanked borrowers. The focus is to facilitate cash flowbased lending and economic inclusion.

* The AA network went live in Sep’21 and is still in its nascent stages. NFIR, when integrated with the AA system, will have a game-changing impact on the domestic financial services industry.

* According to the latest (as of Feb’24) FIP-AA mapping, 74 entities are live with One Money followed by 53 entities with CAMS (vs. 45/32 for One Money/CAMS as of May’23). The count of accounts linked to the FIP AA ecosystem has surged to ~48.7m as of Feb’24. Even the count of accounts for which the consent has successfully been fulfilled has jumped to ~52.6m as of Feb’24.

* CAMSFinserv is the platform for AA and TSP offerings. CAMS is a leader in the industry in terms of FIP integration. For bank account verification, CAMS is the first to test a new use case with the help of AA for better information flows.

Regulatory triggers to boost the insurance repository business

* The mandatory requirement of insurance policies in dematerialized form was announced as a forward-looking step by the regulator back in Sep’22. The necessary regulation is still not passed, but there is a very active dialogue in the marketplace between the regulator and the key ecosystem entities.

* The potential e-insurance policy market size is ~500m and the revenue potential is likely to be ~INR5b annually. Considering the competition, even if the prices deplete by 50%, the market size is expected to be ~INR2.0-2.5b annually.

* Now with Bima Central going live and entering the non-life segment, CAMSRep provides a huge growth opportunity for eIA sign-up and policy servicing for customers. It would be imperative to gauge the sales execution of CAMSRep in this space (this business contributed ~1.5% of the total revenue as of 9MFY24).

Valuation and View

* From a long-term perspective, the structural tailwinds in the MF industry will continue to drive AUM growth, translating into a strong absolute growth in MF revenue for CAMS (15% during FY24-26). CAMS has been investing in the nonMF businesses over the past couple of years, which will lead to an improvement in the share of revenue to 20% over the next five years. Operating leverage will drive margin expansion in these businesses, percolating to an overall PAT CAGR of 23% during FY24-26.

* Empirically, CAMS has traded at a premium to the listed AMCs in terms of oneyear forward P/E. After the outperformance of AMCs, however, the valuation premium between CAMS and AMC stocks has narrowed. The premium for CAMS is well warranted, 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 vs. AMCs. We reiterate our BUY rating on the stock with a TP of INR3,450, at a P/E multiple of 32x on FY26E earnings.

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