CAMS: Start with ‘add’ and DCF-based FV of Rs 1,850

Key pick among MF plays: CAMS’ prospects are directly linked to those of India’s MF industry, with a market share of ~70% in MF AAUM. As a dominant operator in a duopoly RTA market, its breadth offers protection against market share volatility. We do note that its revenue concentration among top AMCs limits its pricing power and compresses yields. We expect its improving productivity and unit economies to mitigate slower MF AUM growth to drive 14% EPS CAGR over FY2021-24E. We initiate coverage with an ‘add’ rating and DCF-based fair value of Rs 1,850 (5% upside).

CAMS has a dominant position in India’s registrar and transfer agent (RTA) market duopoly, which reduces risks of market share movements. This makes it one of the best MF plays and provides visibility for its earnings. We continue to be cautious about medium-term challenges to India’s mutual fund industry, which will likely pressure CAMS’ revenues, driving (moderate) 14% EPS CAGR during FY2021-24E.

CAMS’ model is intrinsically directly linked to Indian MF AAUMs, serving about 70% of Indian MF AUMs—this makes it broadly agnostic to market share movements among AMCs. Its MF revenues (87% of total in FY2020), although mostly linked to served AUMs, have lagged asset growth due to persistent yield compression. This is a result of the high revenue concentration from top clients (~36% from top-2 AMCs and ~67% from top-5), which limits its pricing power vis-a-vis AMCs.

Along with its subsidiaries, CAMS provides several value-added services to mutual funds, insurance companies and AIFs as well as related stakeholders like distributors and investors. Its business proposition is underscored by wide distribution, diverse product bouquet, domain expertise and proprietary software and technology platforms.