Buy CAMS Ltd for the Target Rs. 4,900 by Motilal Oswal Financial Services Ltd
Yields largely reset; trajectory expected to stabilize
* CAMS reported operating revenue of INR3.8b in 2QFY26 (in line), up 3% YoY, driven by 3% YoY growth in MF asset-based revenue of INR2.8b. For 1HFY26, revenue came in at INR7.3b, +5% YoY.
* Total operating expenses grew 7% YoY to INR2.1b (in line). Employee expenses/ other expenses grew 5%/10% YoY to ~INR1.2b/INR843m. EBITDA came in at INR1.7b, down 2% YoY, reflecting an EBITDA margin of 44.5% (vs. 46.6% in 2QFY25 and our est. of 45%). For 1HFY26, EBITDA came in at INR3.2b, +1% YoY.
* PAT was down 6% YoY at INR1.1b (in line), with PAT margins of 30.2% (vs. 33.1% in 2QFY25). For 1HFY26, PAT came in at INR2.2b, down 3% YoY.
* Impact of repricing by a large client is largely behind, with ~90% of yield compression already absorbed over the past two quarters; management expects only marginal residual impact in 3QFY26. With no major client renewals due in the next 18 months, the yield decline would be restricted to telescopic pricing.
* We have cut our earnings estimates by 4%/3%/3% for FY26/FY27/FY28 to factor in the decline in yields on MF and other income. We expect revenue/EBITDA/PAT to post a CAGR of 10%/11%/12% over FY25-28. We reiterate a BUY rating on the stock with a one-year TP of INR4,900, premised at a P/E multiple of 40x on Sep’27E earnings.
Guidance on track
* AAUM grew 16% YoY and 7% QoQ to INR52.1t in 2QFY26, with a market share of ~68%. Equity mix stood at 55.1% vs. 55.4% in 2QFY25 and 54.8% in 1QFY26. Equity AUM rose 16% YoY to INR28.7t.
* Transaction volume increased 16% YoY to 259.8m in 2QFY26, with SIP transactions up 14% YoY to 203.3m. Live folios grew 19% YoY to 102.2m.
* MF segment’s revenue grew 1% YoY to INR3.2b, contributing ~86% to total revenue. MF asset-based contributions accounted for ~73.4% of total MF revenue, while non-asset contributions made up ~14.3%.
* Management continues to guide that non-MF revenue contribution would rise to ~20% over the next three years (vs. ~14.4% currently), driven by a 25% YoY growth trajectory. Key growth levers include profit-accretive segments such as KRA (revenue up 45% YoY), CAMSPay (revenue up 26% YoY), and AIF (revenue up 11% YoY), while the insurance business (revenue up 18% YoY) is approaching the breakeven.
* Currently, non-MF EBITDA margins stand at ~10-13%, with a potential to expand to 25-30% over the next few years as the segment scales up (KRA/Payments/AIF margins in 30s/mid-20s/mid to late 20s).
* CAMS Alternatives continued to solidify its leadership position, driven by strong signings (44 new mandates in 2Q, including one from the GIFT City, i.e., DSP Global Equity Fund). Revenue grew 11% YoY and services asset size stood at INR2.8t in 2QFY26.
* With a significant ramp-up in the payments gateway (cards) business, CAMSPay posted a strong rebound in 2Q, with revenue growth of 38% YoY/ 26% QoQ. It secured 25 new in 2Q and achieved strong transaction growth, with insurance/digital transactions rising 7.7%/7.1% QoQ.
* CAMS KRA: After a dip in 1Q owing to soft market conditions and muted demat additions amid the derivative regulatory overhang, a strong recovery has since been observed, with revenue growing ~45%. With the integration of NSE’s KRA business, CAMS KRA expects to add another ~1.3m-1.4m PANs to the total of ~20m PANs.
* CAMSRep posted 18% YoY growth in revenue. With TATA AIA onboarding the Bima Central platform, CAMS services total four insurer companies. The unique user base has reached 1.2m, averaging, >0.1m interactions per month.
* Other income came in at INR122m vs. INR126m in 2QFY25.
* Total expenses came in at INR2.1b vs. INR2b in 2QFY25. CIR stood at 55.5% vs. 53.4% in 2QFY25 and 56.4% in 1QFY26. Management has reaffirmed its cost guidance of 10-11% YoY, remaining on track, apart from a one-off provision related to delayed collections that temporarily impacted other expenses but would reverse next quarter.
* Employee costs/other expenses rose 5%/10% YoY to INR1.2b/INR843m.
Key takeaways from the management commentary
* The integration of NSE's KRA business with CAMS KRA is progressing as planned, with SEBI’s NOC already received and revenue contribution expected to begin from 4QFY26.
* On the SIF side, CAMS launched its first SIF scheme (Magnum SIF from SBI Mutual Fund), garnering over INR10b in its NFO in Oct. More launches are expected from the AMCs associated with CAMS in the coming quarter.
Valuation and view
* After the correction in yields on the MF RTA business owing to a reset for one of the large customers, the yield decline will be restricted to a telescopic structure. However, we remain optimistic about future AUM growth as SIP momentum continues to be strong for the industry. In spite of the yield pressure, the profitability has started improving given the scale benefits arising in the non-MF businesses, which are largely platform-led businesses.
* We have cut our earnings estimates by 4%/3%/3% for FY26/FY27/FY28 to factor in the decline in yields on MF and other income. We expect revenue/EBITDA/PAT to post a CAGR of 10%/11%/12% over FY25-28. We reiterate a BUY rating on the stock with a one-year TP of INR4,900, premised at a P/E multiple of 40x on Sep’27E earnings.
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