Computer Age Management Services settles at 14% premium over issue price

Shares of Computer Age Management Services (CAMS) closed at Rs 1,401.60, a 14 per cent premium against the issue price of Rs 1,230 per share on the BSE on Thursday. The stock opened at Rs 1,518, a 23 per cent premium against the issue price, and hit a high and low of Rs 1,550 and Rs 1,306, respectively, in the intra-day trade. As many as 13.2 million equity shares changed hands on the counter on the BSE.

The Rs 2,250 crore initial public offering (IPO) of CAMS was subscribed 47 times. The portion of share sale reserved for retail investors was subscribed 5.55 times, while those reserved for non-institutional investors and qualified institutional buyers were subscribed 112 and 73 times, respectively, data available on the exchanges showed.

CAMS is India’s largest registrar and transfer agent (RTA) of mutual funds (MF) with a market share of around 70 per cent based on average assets under management (AAUM) managed by their clients as of July 2020. CAMS provides a comprehensive portfolio of technology-based services such as transaction origination interface, transaction execution, payment, settlement, record keeping, brokerage computation, and compliance-related services.

As of June 2020, CAMS services four out of the five largest asset management companies (AMCs) - HDFC MF, ICICI Prudential MF, SBI MF, and Aditya Birla Sun Life MF. In terms of top 15 AMCs, CAMS services nine out of the top 15 AMCs, translating to nearly 70 per cent market share in MF RTA business.

CAMS has delivered a robust financial performance with revenue growth from Rs 478 crore in FY17 to Rs 699 crore in FY20, registering 14 per cent CAGR (compound annual growth rate). Focus on opex has led to earnings growth at 12 per cent CAGR from Rs 124 crore in FY17 to Rs 173 crore in FY20. Accordingly, CAMS has delivered consistent EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin in the range of 35-40 per cent in FY17-20 while RoE has remained strong at or above 30 per cent in FY17-20, analysts at ICICI Securities said in an IPO note.

Nirali Shah, a senior research analyst at Samco Securities, notes that CAMS 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. 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 that contribute a large part of revenues sees a decline over time," Shah had said in an IPO note.

What should investors do now?

Analysts suggest that investors with a long-term view should hold the stock as it is likely to give stable and steady returns over the years given its business model while those who have not received the allotment can wait for a while and let the market settle a bit before acquiring the shares. 

"Those who got the allotment in the IPO should hold the stock because the company has a differentiated business model and from a long-term view, the stock looks a good bet," says Urmil Shah, a research analyst with IDBI Capital. 

Sudip Bandyopadhyay, Group Chairman at Inditrade Capital, agrees. "If you are a long-term investor it would be a good idea to hold it and if you don't have it you can buy the stock a little later once the things settle down," Bandyopadhyay suggests.

Adding, "Over 80 per cent of CAMS’ revenues are contributed by the mutual fund (MF) industry and that is a good thing as MF is an ever-growing segment and has a lot of potential. Further, the company has the right set of investors and is an efficiently managed organisation. So, there is no harm in holding or acquiring the stock."