Buy Computer Age Management Service Ltd for the Target Rs 850 by Emkay Global Financial Services Ltd
CAMS delivered a healthy 2QFY27 performance, with revenue growing ~5% qoq and ~1% above our estimate, while EBITDA at Rs1.90bn increased ~4% qoq despite annual increments during the quarter and beat our/consensus estimates by ~4%/2%. MF AUM-based revenue grew ~4%, with AUM growing 4.5% qoq, while revenue yields dipped marginally. Non-MF revenue grew ~12% sequentially, led by strong growth in CAMS PAY and KRA businesses. Going forward, the management expects no large pricing corrections in the MF business in 2HFY27 and does not expect disproportionate discounting for large renewals due next year. While non-MF business margins have expanded to ~18- 19%, the management targets further expansion to ~25-30% over the next three years, while the company-level margins are expected to see 100-200bps expansion in normal years, driven by productivity gains. To bake in the 2Q developments, we tweak our estimates, resulting in largely unchanged (-1% to +1%) PAT over FY27-29E. We maintain BUY with an unchanged Sep-27E TP of Rs850, implying FY28E PER of ~34x.
Healthy revenue and EBITDA growth
During 2QFY27, revenue at Rs4.15bn grew 5% qoq and was higher than our and consensus estimates by ~1%. MF QAAUM at Rs58.4trn grew 4.5% qoq, while MF revenue yield dipped marginally, resulting in MF AUM-based revenue of Rs3.03bn, up ~4% qoq. Non-MF-based revenue at Rs659mn grew ~12% qoq and ~21.5% yoy, led by strong growth in CAMS PAY and CAMS KRA businesses. Employee expense at Rs1.33bn grew ~8% qoq, driven by annual increments during the quarter. As a result, EBITDA at Rs1.9bn grew 4% qoq and was higher than our estimate of Rs1.82bn, while EBITDA margin at 45.9% contracted 30bps qoq and was higher than our and consensus estimates of 44.5% and 45.4%, respectively. PAT at Rs1.315bn grew ~3% qoq and beat our and consensus estimates of Rs1.26bn and Rs1.29bn, respectively.
Productivity gains to drive margin expansion
MF revenue yields dipped qoq owing to the impact of telescopic pricing and a mix shift from debt to passives, which offset the rise in equity mix. The management does not expect large pricing corrections in 2H, while in FY28, few large contracts are up for renewal, for which the management does not expect significant discounting given the productivity it brings and the rise in hardware costs. The management is confident of controlling costs, even if AUM growth stays weak, aided by automation-led headcount reduction. Non-MF business margins have improved to ~18-19% from ~15%, with a target of ~25-30% over the next three years, and the management expects ~100- 200bps of margin expansion in normal years, led by productivity gains.
We maintain BUY with Sep-27E TP of Rs850
To bake in the 2Q developments, we tweak our estimates, resulting in largely unchanged revenue (-1% to +1%), while our EBITDA margin increases by 20-50bps over FY27-29E. Our PAT estimates remain largely unchanged (-1% to +1%) over FY27-29E. We maintain BUY with an unchanged Sep-27E TP of Rs850, which implies FY28E PER of ~34x.
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