CAMS IPO: Good, bad, ugly reviews from top brokerages

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NEW DELHI: The Rs 2,242 crore CAMS IPO, the biggest issue of FY21 so far, is set to open for subscription on Monday. The company is expected to announce the anchor allotment details later in the day.

The price band for the issue has been fixed at Rs 1,229-1,230 and prospective retail investors need to bid for a minimum of one lot of 12 shares or in multiples thereof. Retail investors can bid for a maximum of 13 lots.

On the block are 1,82,46,600 shares held by NSE Investments, which will offload 37.4 per cent stake, following a February 4 Sebi directive to exit the company completely. The quota for retail investors in CAMS IPO has been fixed at 35 per cent of the net offer. QIB quota is fixed at 50 per cent and the NII quota at 15 per cent. There is reservation of up to 1,82,500 shares for employees.

Here’s what brokerages say on the issue:

IIFL: Subscribe

The brokerage said at the upper limit of the price band, the issue is priced at 35 times FY20 EPS, which is a 10-15 per cent discount to listed AMCs, exchanges and depositories. It expects the stock to trade in-line with other comparables and further re-rate.

“In our view, premium valuations are justified given dominant market share in a growing industry, low risk of competition, strong parentage, strong free cash flow generation, and robust RoEs,” it said. RoE stands for return on equity.

YES Securities: Subscribe

YES Securities values the issue at 26 times FY22 P/E and believes it is reasonable. The brokerage said that the given CAMS would be a direct beneficiary of low MF penetration, but the growth would be lower given that fees are generally tiered in nature.

Also reducing the number of paper transactions would restrict revenue growth, which would be offset by our expectation of increase in share of equities in AUM (higher fee for equity AUM), it said. “The company earns a healthy RoE of 35 per cent, has zero debt, has a dividend payout policy of at least 65 per cent and generates robust free cash every year,” it said.

Choice Broking: Subscribe with caution

Based on its conservative estimate, Choice is expecting a 2.7 per cent CAGR rise in the topline growth for the company over FY20-23 to Rs 757.91 crore in FY23. It sees Ebitda and PAT to grow at 1.5 per cent and 6.4 per cent, respectively.

While the brokerage expects Ebitda margin to contract by 139 basis points to 39.7 per cent in FY23, PAT margin is seen expanding by 277 bps to 27.6 per cent in FY23. “There are no listed peers, whose business operations are comparable to CAMS. CDSL performs one of the functions similar to CAMS, so it can be considered at a proxy peer. At the higher price band of Rs. 1,230 per share, CAMS’s share is valued at a P/E multiple of 34.5 times compared with 40.5 times price multiple of CDSL,” it said.

Hem Securities: Subscribe

Astha Jain of Hem Securities, who was in the middle of preparing the CAMS report, said she has a ‘subscribe’ rating on the issue with a long-term view, citing strong financials.

Samco Securities: Subscribe

Nirali Shah, Senior Research Analyst,Samco Securities, expects the issue to deliver solid listing gains. She believes the company has a robust business, with strong market leadership. Given the high entry barriers and the near duopoly nature of the market, the moat of the company remains intact, she said.

“CAMS has also delivered strong operating margins and shareholder returns consistently and maintains a clean balance sheet with negative working capital. With growth being linked to the rise in AUMs for mutual funds, the company is poised to generate consistent returns going forward. Investors just need to be cautious regarding the slower pace of growth as paper-based transactions which contribute a large part of revenues see a decline over time,” she said.

Motilal Oswal: Subscribe

The brokerage recommends subscribing to the issue with a long-term view to the IPO as CAMS enjoys first mover advantage, asset light business model and high entry barriers.

It noted that the company’s top 5 clients contribute 71 per cent to its revenues, which along with technological disruption and data security & privacy pose risks.

“At the higher end of the price band, the issue is valued at 35 times FY20 P/E, which seems fully priced in. However, we like the company, given its leadership position, integrated business model, pan-India presence and robust financials,” it said.

About the company

Incorporated in 1988, the company is India’s largest registrar and transfer agent of mutual funds today, with an aggregate market share of 70 per cent based on mutual fund average assets under management (AAUM). The company’s MF clients include four of the five largest mutual funds and as well nine of the 15 largest mutual funds based on AAUM during July 2020.

As of July, CAMS serviced Rs 19.2 lakh crore of AAUM of 16 mutual fund clients, according to the Crisil report.

Anuj Kumar, President and CEO at CAMS said, the MF business is the largest source of revenues for the company, but there are other businesses that the company has built in over the last 5-10-years. They include the AIF business, insurance business and electronic collections. He said the company has 39 per cent market share in the insurance repository business, with 2.9 million policies held. In case of the AIF business, the company has 77 AIF clients with an AAUMs of Rs 16,000 crore, Kumar said in a virtual conference.

Besides, the company is into verification and maintenance of KYC records of investors for use by finance institutions. Kumar said the company received account in-principle approval aggregators in May 2018 and would soon launch the business services.

Overall, revenues from the MF business stood at 86.9 per cent in FY20 while non-MF businesses accounted for 13.1 per cent of the total. The AIF business is somewhat similar to the MF business, Kumar said.

Overall, data processing activity accounted for 79 per cent of the company’s revenues in FY20. Customer care services added another 8.94 per cent. Margins of 37 per cent in FY20 was higher than 31 per cent in FY19 but equals FY18’s 37 per cent.



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