CAMS sees over 30% premium in grey market ahead of IPO

Private equity firm Warburg Pincus and NSE-backed Computer Age Management Services (CAMS) witnessed strong demand in the grey market ahead of its initial public offering (IPO).

The public issue will open on September 21 at a price band of Rs 1,229-1,230 per share. It will close on September 23.

The grey market premium has been in the range of Rs 375-400 per share, i.e. 30.5-32.5 percent over the upper end of its price band, Mehta Equities and Rudra Shares told Moneycontrol.

The premium was on expected lines given the consistent earnings growth with no listed comparable peers in the same industry and experienced management team, said the brokerage houses.

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CAMS is the market leader with around 70 percent market share in the duopoly market of Registrar and Transfer Agents (RTA). CAMS derives almost 72 percent of the revenues as a direct charge to AMC on their Average Assets Under Management (AAUM).

"The company has consistently maintained an attractive level of return on net worth at 29-32 percent for the last three years, and even for Q1 FY2021, RONW remained in the above-mentioned range at 30.9 percent. The company is valued at 34.61x its FY2020 EPS and diluted EPS growth has been reasonably healthy over the past three years," Sharekhan said.

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The market capital, as per the upper end of the price band, will be Rs 6,000 crore, the brokerage added.

The IPO consists of an offer for sale of up to 1,82,46,600 equity shares by NSE Investments which has been asked by Sebi to divest its entire stake in CAMS.

At the upper price band, the issue size is at Rs 2,244 crore. The company will not receive any proceeds from the offer and all such proceeds will go to the selling shareholder.

During FY17-20, CAMS registered a revenue CAGR of 13.5 percent and a PAT CAGR of 11.8 percent. Return on equity (RoE) has been in the range of 34-35 percent and the balance sheet has zero debt.

The company has capital sponsorship from marquee investors such as Great Terrain (an affiliate of Warburg Pincus), HDFC, HDFC Bank and NSE Investments.

Kotak Mahindra Capital Company, HDFC Bank, ICICI Securities and Nomura Financial Advisory and Securities (India) are the book-running lead managers to the issue.