Buy Computer Age Management Services Ltd for the Target Rs 900 by Emkay Global Financial Services Ltd
CAMS logged a healthy 1QFY27 performance, with revenue at Rs3.95bn (+12% yoy; flat qoq), while EBITDA margin at 46.3% increased by 270bps yoy and was largely flat sequentially. MF asset-based revenue grew 11% yoy and 1.5% qoq, while non-MF based revenue increased 28% yoy driven by strong growth in the Payments and AIF businesses; the KRA business witnessed a decline owing to pricing contraction. With increased automation in processes led by the rearchitecture platform, Management plans to reduce the headcount by ~4-5% by year-end, while backfilling with more expensive AI talent is expected to drive overall employee cost growth of ~5%. Management gave guidance for ~13% revenue growth in FY27, with non-MF based revenue expected to grow ~20%. Given improved cost efficiencies, Management expects FY27 EBITDA to grow ~16% and at least a 100bps margin expansion on annual basis for the medium term. To bake in the 1Q developments, we tweak our estimates which results in a ~2% increase in PAT over FY28-29E. We maintain BUY on CAMS and Jun27E TP of Rs900, implying FY28E PER of ~34x.
Healthy performance across business lines
During 1QFY27, MF asset-based revenue at Rs2.93bn grew 11% yoy and 1.5% qoq , whereas MF non-asset-based revenue at Rs0.4bn declined 3% yoy and 6% qoq. MF revenue yields at 2.1bps were largely stable on sequential basis. Non-MF based revenue at Rs0.59bn grew 28% yoy on a low base, driven by strong ~70% growth in the payments business and >20% growth in the AIF business. The KRA business witnessed a decline owing to pricing correction across the industry. Employee costs at Rs1.24bn increased 1% yoy and declined 1% qoq, as annual hikes were deferred to 2Q. EBITDA at Rs1.83bn grew 18% yoy and was flat qoq, while EBITDA margin expanded by 270bps yoy (flat qoq) to 46.3% and was better than our and consensus’ expectations. PAT at Rs1.27bn grew 17% yoy and ~1% qoq, ahead of our and consensus’ estimates by 3% and 2%, respectively.
Positive outlook across businesses; focus remains on cost optimization
While the quarter saw renewal of a few MF client contracts, MF revenue yields were largely stable, indicating muted impact from renewals. Further, two more contracts are up for renewal, and the management does not expect any material impact on yields; this should lead to at least 12% growth for MF-based revenue. The KRA business is expected to see a bounce back from 2Q, while the Payments and AIF businesses continue to perform well. Management guided for ~20% non-MF based revenue growth, translating into ~13% overall revenue growth. With increased automation led by the re-arc platform, Management targets to maintain the employee cost growth at ~5%, with overall opex guided to grow at ~10%, translating into ~16% EBITDA growth for FY27.
We maintain BUY and Jun-27E TP of Rs900
To bake in the 1Q developments, we change our estimates – we cut our revenue estimate by ~1% while we increase our EBITDA margin estimate by 70bps over FY28-29; we keep FY27E EBITDA margin largely unchanged. Our PAT estimate increases ~2% over FY28- 29E. We maintain BUY on CAMS and Jun-27E TP of Rs900, implying FY28E PER of 34x.
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