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Strong topline growth across segments

* CAMS reported operating revenue of INR3.6b in 2QFY25, up 33% YoY (6% beat). For 1HFY25, it grew 30% YoY to ~INR7b.

* The Non-MF businesses grew 31.9% YoY, led by strong growth in the CAMSPay, KRA, and AIF segments. The share of the Non-MF segment stood at ~12.9% of the overall revenue, and the company has maintained its guidance of 20%+ revenue growth.

* EBITDA grew 39% YoY to INR1.7b (6% beat). For 1HFY25, EBITDA grew 38% YoY to INR3.2b. EBITDA margins expanded to 46.6% in 2QFY25 vs. 44.4% in 2QFY24 (our est. of 46.5%). Management has guided to maintain EBITDA margins for FY25 in the range of ~47-47.5%.

* CAMS reported a net profit of INR1.2b, up 44% YoY (5.5% beat) in 2QFY25. The growth was driven by a YoY increase in the share of the non-MF business and an improved mix of equity AUM in the total MF AUM. For 1HFY25, PAT rose 43% YoY to INR2.3b.

* We have increased our earnings estimates by 5% each for FY25/FY26/FY27 to factor in higher-than-expected MF AUM and non-MF revenue growth. We expect revenue/PAT to post a CAGR of 20%/26% over FY24-27 and reiterate a BUY rating on the stock with a one-year TP of INR5,500, premised at a P/E multiple of 42x on Sept’26E earnings.

Increasing focus on the Non-MF businesses

* QAAUM grew 37.8% YoY/11.2% QoQ to INR44.8t in 2QFY25. The share of Equity AUM grew to 55.4% in 2QFY25 from 47.7% in 2QFY24 and 53.3% in 1QFY25. Equity AUM rose 60% YoY/15% QoQ to INR24.8t.

* MF segment’s revenue grew 33% YoY to INR3.2b, contributing ~87.1% of the overall revenue with yields remaining stable. MF asset-based contributes ~73.3% to the total MF revenue contributions, while non-asset contributes ~13.8%.

* The company’s sustained focus on expanding its Non-MF business led to 31.9% YoY growth to INR470m of revenues, which is almost in-line with the growth of the MF segment at 32.9% for the quarter.

* CAMS Alternatives posted a robust growth of 21% YoY in revenue on account of healthy signings for core businesses and rapid adoption of CAMS WealthServ and Fintuple offerings.

* CAMSPay’s revenue grew 69% YoY on account of the digital payment adoption, led by UPI Auto Pay. CAMSPay has entered the education segment and expects significant scale-up in the medium term. The current share of non-MF is 40-45%.

* Bima Central (CAMSRep) witnessed strong growth in the number of policies digitized during the quarter, which grew from 0.5m until FY24 to 1m in 2QFY25. CAMS sees huge growth opportunities in this segment.

* The overall cost grew 27.5% YoY to INR1.95b (6% above estimates). However, the C/I ratio declined to 53.4% from 55.6% on a YoY basis.

* Employee costs increased 21.4% YoY (in-line) on account of an increase in the headcount and increments. Management guides for employee cost to remain in the range of 30-32% of the overall revenue.

* Other expenses were 16% higher on a YoY basis on account of one-off charges related to the MF Central incorporation, data privacy charges, etc.

* For H2FY25, we expect Revenue/EBITDA/PAT to grow 26%/31%/35% to INR7.6b/INR3.6b/INR2.6b.

Key takeaways from the management commentary

* Regarding the rationalization of the commission structure and its impact on yields, CAMS does not expect any radical changes and will continue to sell at cheaper rates due to telescopic pricing. The yields were stable for the quarter.

* CAMS board has approved the formation of a joint venture with KFin Technologies Ltd to operate MF Central, an industry leading unified platform for mutual fund investors and intermediaries. The revenue split would be in the ratio of 50:50 between CAMS and KFin.

* Think360 revenue declined during the quarter because: 1) Algo360 served as a forerunner to account aggregators; however, CAMS has observed that the market for account aggregators is clearly indicating a preference and 2) one of the large US-based analytics contracts did not see the scale-up it expected.

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 have increased our earnings estimates by 5% each for FY25/FY26/FY27 to factor in the higher-than-expected MF AUM and non-MF revenue growth. We expect revenue/PAT to grow at a CAGR of 20%/26% over FY24-27 and reiterate a BUY rating on the stock with a one-year TP of INR5,500, premised at a P/E multiple of 42x on Sept’26E earnings.

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