A National Stock Exchange subsidiary is divesting its entire stake in Computer Age Management Services Ltd. through an initial public offering starting Monday, tapping a buoyant stock market after investors piled into two recent share sales.
Business
Incorporated in May 1988, CAMS is a technology-driven financial infrastructure and service provider for mutual fund houses, electronic payment collection platforms, insurance companies, alternative investment funds, banks and non-banks, KYC registration agencies and software solutions.
The company has capital sponsorship from investors such as Great Terrain, an affiliate of Warburg Pincus, which is also the promoter, HDFC Ltd. and HDFC Bank Ltd.
Almost 90% of CAMS’ total revenue comes from mutual funds. Karvy Ltd. is India’s second-largest mutual fund registrar and transfer agent.
As of June 30, CAMS’ mutual fund clients included four of the top five, and nine of the 15 largest houses by average assets under management. The company has serviced Rs 19.2 lakh crore of AAUM for 16 mutual fund clients as of July 2020.
Financials
CAMS’ revenue, operating and net profit grew at a compounded annual rate of 3%, 2.7% and 6%, respectively from fiscal 2018-2020.
“The revenue is highly correlated with AUMs (assets under management) of mutual funds. Whenever AUM grows, clients have an advantage as they get fee remission, and the company sees revenue growth,” Anuj Kumar, chief executive officer at CAMS, had told BloombergQuint in a recent interview. “If mutual fund AUM is expected to grow 17-18% on a compounded basis for the next five-six years, then the company’s revenue growth will be expected to be between 12 and 13%,” he had said.
Peers
CAMS’ direct peer is Karvy but it has no competition in the listed space.
According to Kumar, increased access to mutual funds with entry of more retail investors will provide an opportunity for the company.
Key Risks
- The company is subject to periodic audit inspection by SEBI. Non-compliance with SEBI observations could expose the companies to penalties and restrictions.
- Future revenue and profit dependant on growth, value and composition of AAUM of mutual funds managed by the company’s clients, which may decline.
- Client concentration risk is there as 70% of revenue comes from top five clients.
- Regulatory challenges such as limit of total expense ratio stunts the growth of mutual fund registrar and transfer agents.
(Information sourced from the red herring prospectus and a report by Axis Capital)
RECOMMENDED FOR YOU
POPULAR