Buy Computer Age Management Services; target of Rs 3000: Motilal Oswal

Motilal Oswal's research report on Computer Age Management Services

CAMS, with a 70% market share (v/s 64% in FY15), is the leader in India’s MF registrar and transfer agent (RTA) industry. The addition of new customers and rising market share of its incumbent customers has led to the company consistently gaining prominence in this duopoly market. The company is entrenched with four out of the five largest MFs as well as 10 of the 15 largest MFs based on AAUM. This makes it is a direct play on the growing financialization of savings in India, and is also a key enabler for digitization in the MF industry. With MF penetration in India at just 16% as against the global average of 63%, we expect a strong 15% CAGR in AUM for the industry in the coming decade. Akin to its MF business, CAMS has a strong presence in the AIF and PMS RTA segment (50% market share among funds utilizing RTA services). We expect strong growth in this segment, led by: 1) increasing adoption of RTA services by existing funds, and 2) a significant increase in launches. The Account Aggregator business has the potential to revolutionize lending and financial planning, the way UPI did for payments. Given its strong technological capabilities and expertise in handling large databases, we expect CAMS to be among the top five players in this segment. We expect the MF/non-MF business to register a FY22-25 revenue CAGR of 13%/20%, with 15%/13% CAGR each in PAT/operating cash flow, as operating margin is expected to remain flat. We expect RoE to touch 45% by FY25. Dividend payout is healthy at 65%.

Outlook

We initiate coverage with a Buy rating and a one-year TP of INR3,000 (36x Sep’24E EPS). We value it a premium to AMCs (14-25x one-year forward P/E), given the duopoly nature of the RTA industry and large growth opportunities in new segments.