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In-line performance, PAT up 41% YoY

* CAMS reported a net profit of INR1.07b, up 41.3% YoY (in line with our estimate) in 1QFY25. Growth was driven by a YoY increase in the share of non-MF business and an improved mix of equity AUM in total MF AUM.

* Operating revenue reached INR3.3b, up 26.8% YoY, in line with our estimates. The continued strong growth in Non-MF businesses led to a 40bp YoY increase in their revenue contribution to 13.3% vs 12.6% in 1QFY24.

* The management is confident that CAMS WealthServ, CAMSPay, CAMSRep and Think360 would contribute sizable revenues in the coming quarters. It expects 20%+ growth in revenues from Non-MF businesses.

* We broadly maintain our estimates and BUY rating on the stock with a 1-year target price of INR4,600 premised at a P/E multiple of 42x on FY26E earnings.

Increased focus on Non-MF businesses

* QAAUM grew 34.3% YoY and 8.3% QoQ to INR40.3t. Equity AUM grew 55% YoY to INR21.5t.

* Revenue contribution of non-MF businesses was 13.3% vs. 12.6% in 1QFY24.

* Non-MF revenue increased by 34% YoY to INR441m. CAMS KRA/CAMS Pay/ Alternative Services segments recorded YoY revenue growth of 104%/45%/ 22% in 1QFY25.

* Overall expenses grew 20% YoY and 8.7% QoQ to INR1.8b (in line). Employee expenses rose 19% YoY and 7.8% QoQ to INR1.1b, primarily led by increments and hiring in non-MF businesses.

* The cost-to-income ratio came in at 54.8% vs. 57.9% in 1QFY24 and 53.8% in 4QFY24.

* EBITDA came in at INR1.5b, up 36.1% YoY and 4.5% QoQ (in line with our estimates). EBITDA margin stood at 45.2% vs. 42.1% in 1QFY24.

* PAT grew 41.3% YoY and 3.9% QoQ to INR1.07b, in line with our estimates.

* The board has declared a dividend of INR11 per equity share.

Key takeaways from the management commentary

* CAMS announced a strategic partnership with Google Cloud to redesign its RTA platform. The new platform will integrate state-of-the-art practices in service design, database design (and performance) and security protocols.

* In the first year, Think360 has not scaled up much because 1) Algo360 served as a sort of forerunner to account aggregators; however, CAMS can see that the market for account aggregators is clearly indicating a preference, and 2) one of the large US-based analytics contracts has not seen the scale-up it expected.

* CAMS expects ~15-20% YoY growth in the AIF segment.

Valuation and View

* Empirically, CAMS has traded at a premium to listed AMCs in terms of one-year forward P/E. The premium for CAMS 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.

* Structural tailwinds in the MF industry would drive absolute growth in MF revenue. With favorable macro triggers and right investments, revenue contribution of non-MF businesses for CAMS is expected to increase in the next three to five years.

* We broadly maintain our estimates and BUY rating on the stock with a 1-year target price of INR4,600 premised at a P/E multiple of 42x on FY26E earnings.

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