Background
Computer Age Management Services Limited (CAMS) is set to launch it’s IPO on 21st September, 2020, the IPO will be open for subscription to the public for 3 days i.e 21-09-2020 to 23-09-2020.
It is a technology-driven financial infrastructure and service provider. It is India’s largest registrar and transfer agent of mutual funds holding approx. 70% mutual fund aggregate market share.
CAMS currently provides technology-based services including dividend processing, transaction origination interface, payment, transaction execution, dividend processing, intermediary empanelment, report generation, investor interface, settlement and reconciliation, compliance-related services, and brokerage computation.
The Company has offered to sell 1,82,46,600 equity shares by which NSE Investments will completely exit from the Company following the SEBI guidelines whereby it stated to NSE to exit from CAMS in full.
Background of Promoter:
The Company is promoted by the Great Terrain, which was incorporated as a private company limited by shares, with limited life, under the laws of the Republic of Mauritius on September 6, 2017. The registered office of Great Terrain is located at Warburg Pincus Asia Ltd, 8th Floor, Newton Tower, Sir William Newton Street, Port Louis, Mauritius. Great Terrain holds a Category I Global Business License issued by the Financial Services Commission. The principal activity of Great Terrain is that of investment holding and it is permitted to carry out investment activities under the provisions of the Republic of Mauritius’ Financial Services Act 2007. Great Terrain is wholly owned by Harmony River Investment Ltd, a company that is incorporated and validly existing under the laws of the Republic of Mauritius.
The Harmony River Investment Ltd is owned by various companies which are managed/ controlled by Warburg Pincus Group, which have more than 50 years’ experience in investing in private equity and managing the AUM of $ 53 Billion of assets having 14 offices in 10 countries globally.
Key Strengths of the Company:
1. Strong Industry Growth: The Company derives more than 85% of it’s revenue from the Mutual Fund Industry. The Mutual Fund Industry is one of the fastest- growing industries in India, which has witnessed an astonishing approx. 16.01% CAGR since 2000 and has clocked a growth of 17.9% since 2015 which is depicted by the below charts:
| Category | Equity | Debt | Liquid / Money Market | Others | Total |
| March , 2015 | 3,715 | 5,316 | 1,626 | 171 | 10,828 |
| March , 2016 | 4,255 | 5,835 | 1,994 | 244 | 12,328 |
| March ,2017 | 6,283 | 7,606 | 3,141 | 517 | 17,547 |
| March , 2018 | 9,219 | 7,994 | 3,355 | 791 | 21,359 |
| March , 2019 | 10,727 | 7,297 | 4,362 | 1,409 | 23,795 |
| March, 2020 | 9,740 | 6,797 | 6,272 | 1,818 | 27,628 |
| Financial Year 2015-2020 (CAGR) | 25.50% | 7.10% | 17.90% | 62.50% | 17.90% |
The mutual fund industry in India had grown very rapidly in the past, however, the study states the journey is not over and the best is yet to come.
India’s AUM to GDP ratio is 11%, significantly lower than the world average of 63% which indicates how under-penetrated the market is and the scope of the growth in the segment is many folds.
2. Rising awareness among the young India: India is the nation of young people, we have one of the youngest population of the world. Young India is more tech-savvy, knowledgeable about personal finance as compared to their ancestors. A decade or two decades ago, Investments used to mean only endowment plans sold by the Insurance Companies, however, the young India is exploring other means of investments and investing in mutual funds through SIPs instead of buying the endowment plans or keeping the money in FDRs only.
3. Almost the Monopoly in the Mutual Fund Registrar and Transfer Industry: The Company derives more than 85% of it’s revenue from Mutual Fund Industry, whereof it holds 70% market share. Among the top five AMCs, SBI Mutual Fund, HDFC Mutual Fund, ICICI Prudential Mutual Fund, and Aditya Birla Sun Life Mutual Fund are serviced by CAMS. The Company will be the sole listed company of the business segment in which it operates having no peer comparison which also favors the fortune for the Company.
4. High Dividend Payout Policy: The company was paying out 65% of it’s profits made during the year as dividend to the shareholders of the Company, the management of the Company in a recent interview also claimed that they are going to maintain such dividend payout policy in the future as well after the IPO as well.
5. Company is exploring other avenues of revenue: The Company has entered in other emerging businesses as well apart from the RTA of Mutual funds. The company is spreading it’s business verticals in Insurance Repository, Alternate Investment Funds, banking and non-banking services, software solution business for mutual funds, etc. all of those may reap the exponential growth in the business of the Company.
6. Strong Growth in key financial indicators and low debt: The Company has been generating good profits showing growth in their business more than the industry growth leading higher profitability and higher free cash flows, having very low Debt to Equity Ratio, the market is always inclined towards such companies and give a higher valuation to such stocks.
Below tables indicate the growth of the Company:
a) Cash Flow Summary (Rs. In Millions)
| Particulars | For the period ended 31.03.2020 | For the period ended 31.03.2019 | For the period ended 31.03.2018 |
| Profit / (Loss) before extraordinary items and tax | 2507.77 | 2008.73 | 2265.82 |
| Net Cash flow from Operating activities | 2011.52 | 1868.01 | 1619.48 |
| Net Cash flow from Investing activities | (838.52) | (311.92) | (189.45) |
| Net Cash Flow from financing activities | (989.40) | (1581.44) | (1383.69) |
b) Summary of EPS for past
| Period ended | Basic EPS | Diluted EPS |
| March 31, 2017 | 25.32 | 25.32 |
| March 31, 2018 | 29.93 | 29.93 |
| March 31, 2019 | 26.75 | 26.75 |
| March 31, 2020 | 35.57 | 35.54 |
7. Strong Infrastructure and other key factors favoring the fortune: The Company has a pan-India physical network comprising 271 service centers spread over 25 states and five union territories as of June 30, 2020. Which is very difficult to build and operate for a new player. The Company is having long term contracts with the existing clients (top AMCs of India) which give an edge to the Company as the clients are not going to switch to the new entrants leading the entry barriers for the competitors. AMCs are not going to switch their RTA and KYC agents easily due to huge data sensitivity issues as well.
8. Strong Management Commentary, Anchor Book and profile of shareholders: In a recent interview the management of the Company stated that they haven’t come up with the IPO because of the market situation rather they had to come up with the IPO due to compliance with SEBI instructions and they assured that the Company will continue to outperform the industry in the upcoming future as well. The Company raised Rs. 666.57 Crores ahead of the IPO through Anchor investors @ 1230 per share. Anchor investors consist of well promising names of the Industry i.e Small Cap World Fund, the Government of Singapore, Abu Dhabi Investment Authority and 13 Mutual Funds through a total of 30 schemes, they have given the overwhelming response to the IPO. Existing list of shareholders consists prominent names of the industry 1. HDFC 2. HDFC Bank 3. Great Terrain 4. HDB Trust 5. Faering Capital fund 6. ACYS.
Key Risks Factors should be considered before investing:
1. Valuation: The equity price per share @ 1230 per share will be trading at a P/E ratio of 35 based on FY 2020 EPS will be trading at a very expensive valuation.
2. Decline in the Mutual Fund Industry: The company derives more than 85% of it’s revenues from mutual fund segment only, decline in equity valuation, sudden rise in interest rates, redemptions/withdrawal of funds from mutual funds by the investors may result lowering the size of AAUM which will reduce the revenues of the Company.
3. Low Saving Rate in the Country: The world is going through from COVID-19 pandemic, resulting the downsizing of economies worldwide and job losses/decline in the earnings of the Individuals. Individuals are having lower income which may further reduce the saving rate at macro and micro level, leading adverse effect on the mutual funds industry and lowering the income of the Company.
4. Market Risk: The Company has launched it’s IPO at a time where the fundamentals are near zero, economies are witnessing the a de-growth in their GDP, but the market has seen a sharp rise arising out of the liquidity pumped by the Central Banks of the countries globally. Any bad news may lead to a sharp corrections in the markets which is going to affect the stock as well.
Concluding Remarks: The Company enjoys almost the monopoly in the segment wherein it operates hence, an investor building the long term portfolio shall always invest in such stocks which have niche in their segments and accumulate such stocks on all dips.
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Disclaimer: All the information have been compiled from red herring prospectus of the Company, AMFI data, and other public reports, authenticity of the content lies on the authenticity of the information processed. No information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any manner whatsoever it may be. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk.
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