CAMS- A play on Financialization of Indian Savings
07-11-2022

About the Company

CAMS is a financial infrastructure and services provider to Mutual Funds and other financial institutions. The Company is leading Registrar and Transfer Agency (RTA) to the Indian Mutual Fund industry with ~70% market shareand has a strong presence in the AIF and PMS RTA segment (50% market share among funds utilizing RTA services).

The company currently provides technology-based services including dividend processing, transaction origination interface, payment transaction execution, intermediary empanelment, report generation, investor interface, settlement and reconciliation, compliance-related services, and brokerage computation.

The Co. services top AMCs with over 18 years average relationship with 10 largest clients. The key clients for mutual funds services business include HDFC Asset Management Company, ICICI Prudential Asset Management Company, Aditya Birla Capital, SBI Fund Management, DSP Investment Managers, Kotak Mahindra Asset Management Company, and Franklin Templeton Asset Management.

The company has Pan-India physical network comprising 272 service centres spread over 25 states and 5 union territories.

Revenue Model

CAMS charges a fixed fee based on the AUM managed by the AMCs. Higher the AUM of its customers, the higher is the revenue for CAMS.

Mutual Fund Asset Based - CAMS charges MF fee based on AUM for registrar services it provides. This segment is directly linked to asset managed by AMCs. Company hasfour out of the five largest MFs as well as 10 of the 15 largest MFs as its customers based on Average AUM.

Mutual Fund Non- Asset Based – Company provides various value added services to MF players like customer-care services and paper based MF processing.

Non Mutual Fund – Services provided to PMS/AIFs, Account Aggregator platform, Insurance repository and Central Record keeping for National Pension Scheme (NPS) comprise of non-mutual fund revenue.

Cost Structure & Profit Margin (as a % of sales) -

CAMS is a service business, hence has an asset light model. The major cost is employee cost which forms around 30-35% of revenues. It enjoys net profit margins of 25-35% range making it a high ROE business. Such businesses with fixed costs and increasing revenues enjoy a benefit of operating leverage as costs as a % of revenues decrease with increasing revenues.

Financials

CAMS has low debt and good cash flow. Revenues have grown at a CAGR of 14% in last 5 years from FY17 to FY22. The margins have improved with increase in sales (due to growing AUM).

Management

Mr. Anuj Kumar is the Managing Director & CEO of CAMS. He joined CAMS after 25 years of professional experience with Godrej & Boyce Mfg. Co. Ltd., Blow Plast Limited, Escorts Finance Limited, Bill Junction Payments Limited, IBM India Private Limited and Concentrix Daksh Services India Private Limited.

He holds a Bachelor degree in Mechanical Engineering from Birla Institute of Technology, Ranchi and a Post Graduate Diploma in Management (PGDM) from IIM, Kolkata.

Future Prospects

CAMS is a direct play on the growing financialization of savings in India. It is a key enabler for digitization in the MF industry. With MF penetration in India at just 16% as against the global average of 63%, it can grow at strong 15% CAGR in AUM for the industry in the coming decade.
As India moves towards digitalization of Insurance (also underpenetrated), provides CAMS with another market for growth. Being RBI regulated Account aggregator will allow CAMS into positioning itself as platform required by both Financial Institutions and customers for ease and transparent financial data communication.
RTA being duopoly market and rigorous process to switch with few incremental gains along with regulatory requirements makes CAMS well situated. Being supported by increasing household savings in Financial Asset (Mutual fund to GDP ratio at 16% vs. global average of 74%), making CAMS a bet on Indian Mutual fund industry.
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, CAMS can be among the top five players in this segment providing services to the players in this segment.

Risk

Lower than expected savings allocation into equity markets and mutual funds.
Higher MF concentration, loss of a single customer can negatively impact the business as 67% of its revenue is concentrated in its top five clients.
CAMS maintain critical data records for investors on behalf of its clients. A financial liability may arise for CAMS in case of any data security breach.
Any technological disruption or data security issue. Also any change in technology can lead to CAMS spend a big amount on technology upgradation.