Research Recommendation of Computer Age Management Services Ltd IPO

Computer Age Management Services India’s largest registrar and transfer agent of mutual funds with an aggregate market share of approximately 70% based on mutual fund average assets under management.

Promoter of the company – Great Terrain an affiliate of Warburg Pincus.

Services provided by CAMS include:

• Transfer Agency Services: CAMS helps process transactions of active Mutual Funds for recording these transactions and maintaining them

• Distributor Services: There are many sub-agents of distributors in the country leading with a retail investor base and they will need information regarding Mutual Fund transactions. So, CAMS offers Distributor Services packages to all distributors who operate using retail sub-agents.

• Other Services: CAMS also provides technology-based service solutions to Life Insurance companies, Private Equity Funds, banks and Non-Banking Finance Companies (NBFC).

Financial Performance:

Shareholding Pattern:

Source: DRHP, EWAL Research

Strengths:

• Largest Infrastructure and Services Provider in a Large and Growing Mutual Funds Market

• Integrated Business Model and Longstanding Client Relationships in Mutual Funds Services Business

• Strong Focus on Processes and Risk Management

Key Highlights:

• The AUM of equity mutual funds serviced by us grew from ₹2,180 billion as of March 31, 2015 to ₹5,228 billion as of March 31, 2020, at a CAGR of 19.1%

• Over the last five years, it has grown market share from approximately 61% during March 2015 to approximately 69% during March 2020, based on AAUM serviced.

• Top five clients contributed 70.9%, 67.4%, 67.1% and 66.9%, of revenue from operations, respectively.

Risk Factors:

• As an RTA, the company is subject to periodic audit inspections by the SEBI. Non-compliance with observations made by the SEBI during these inspections could expose it to penalties and restrictions.

• The clients are subject to several laws and regulations, and new laws or regulations or changes to existing laws or regulations could affect clients and, in turn, adversely affect business and results of operations.

• The company derives a significant portion of revenues from a few clients and the loss of one or more such clients could adversely affect its business and prospects.

Outlook:

Computer Age Management Services (CAMS) is the largest registrar and transfer agent of mutual funds. Its Total revenue increased at a CAGR of 4.43% from Rs. 6415.36 crore in Fiscal 2018 to Rs. 6996.30 crore in Fiscal 2020.The term of relationship with HDFC Asset Management Company Limited, ICICI Prudential Asset Management Company Limited, SBI Funds Management Private Limited and Aditya Birla Capital Limited, four largest mutual fund clients, averages approximately 18 years as of June 30, 2020. The mutual fund RTA industry overall is expected to grow at a CAGR of approximately 15% up to financial year 2025. At the higher end of the price band of Rs. 1230, the stock is available at a PE multiple of 34.5x on FY20 EPS. Considering the risk factors and financial position of the company we would recommend listing gain to this IPO.

 DISCLOSURE IN PURSUANCE OF SECTION 19 OF SEBI (RA) REGULATION 2014

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