IPO Analysis : Computer Age Management (CAMS)
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About Company:
Computer Age Management Services Ltd. (CAMS) is a technology-driven financial infrastructure and services provider to mutual funds and other financial institutions with over two decades of experience. It is India's largest registrar and transfer agent of mutual funds with an aggregate market share of approximately 70% based on mutual fund AUM managed by its clients and serviced by the company during July 2020 (as per CRISIL Report). CAMS's mutual fund clients include four of the five largest mutual funds as well as nine of the 15 largest mutual funds based on AUM during July 2020 (as per CRISIL Report). The company has 16 mutual fund clients with an aggregate of over 71.8 million accounts held by such clients as of June 30, 2020. As of June 30, 2020, it had 4,243 permanent and 1920 contractual employees.
The five-year CAGR of QAAUM of mutual funds between March 2015 and March 2020 was 18% according to the CRISIL Report, while the five-year CAGR of the QAAUM of mutual funds serviced by CAMS over the same period was 21%. Further, its mutual fund clients had 19.77 million SIP accounts as of June 30, 2020.
CAMS's business verticals include Mutual Fund Service Business, Electronic Payment Collection Services Business, Insurance Services Business, Alternative Investment Fund Services Business, Banking and Non-Banking Services Business, KYC Registration Agency Business and Software Solution Business. Currently, the company is competing with number of entities that provide similar in each of the business lines in which it operates.
It offers an integrated and customized portfolio of services through a pan-India physical network comprising 271 service centres spread over 25 states and 5 union territories as of June 30, 2020, and which are supported by call centres in four major cities, four back offices, all having real-time connectivity, continuous availability and data replication and redundancy. Further, the company offers many of its services online and through its several mobile device applications, to investors, clients, their distributors and their channel providers. The continued development of proprietary platforms and applications has furthered the company's competitive technology advantage.
Financial Performance:
On the financial performance front, on a consolidated basis, CAMS has posted revenue/net profits of Rs. 657.82 cr. / Rs. 146.31 cr. (FY18), Rs. 711.81 cr. / Rs. 130.90 cr. (FY19) and Rs. 721.34 cr. / Rs. 173.46 cr. (FY20). For the Q1 of FY21, it has earned a net profit of Rs. 40.83 cr. on revenue of Rs. 163.46 cr. For the last three fiscals, on a consolidated basis, CAMS has posted an EPS of Rs. 31.68 and RoNW of 31.40%.
The issue is priced at a P/BV of 11.36 based on its NAV of Rs. 108.27 as on June 30, 2020. (Based on upper price band)
If we annualise latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 36.81. Based on FY20 earnings, asking price is at a P/E of 34.61. Since this company will be the first mover in the segment, there is no average industry P/E is available. Based on P/E and P/BV parameters, the issue appears fully priced. The company is operating on an asset-light business model.
CAMS is following dividend policy of distributing 65% of PAT (Profit after Tax) and going to maintain the same going forward, as disclosed by the management.
Issue Details and Capital History :
To provide an exit to existing stakeholders and avail listing benefits, CAMS is coming out with a maiden IPO with a secondary offer (i.e. full IPO as an offer for sale) of 18246600 equity shares of Rs. 10 each. The price band has been fixed at Rs. 1229 - Rs. 1230 per share. The company aims to raise approx. Rs. 2242.51 to Rs. 2244.33 cr. (based on its lower and upper price bands).
Having issued/converted initial equity at par, the company also raised further equity in the price range of Rs. 20 to Rs. 984.66 between February 1999 and June 2020. The company has issued bonus shares in the ratio of 1 for 1 (August 1993), 9 for 1 (October 1994), 1 for 1 (January 1996), 1 for 1 (February 1999), 2 for 1 (August 2000), 1 for 1 (January 2004), 1 for 1 (January 2005), 3 for 1 (May 2010).
The average cost of acquisition of shares by the promoter/selling stakeholders is Rs. 187.86 and Rs. 686.88 per share. Post issue, CAMS's current paid-up equity capital of Rs. 48.88 cr. will remain the same as the company is coming with a fully secondary offer. As of June 30, 2020, the company's paid-up equity capital of Rs. 48.88 is supported by free reserves of Rs. 479.41 cr. With this issue, the company is looking for a market cap of Rs. 6000 cr.
In compliance with the requirements of the SEBI Letter, NSE intends to divest its entire shareholding, held through NSE Investments, in the Company by way of sale and transfer of (i) 18,246,600 Equity Shares pursuant to the Offer; and (ii) the balance 38,400 Equity Shares at a price of Rs. 1,230 per Equity Share pursuant to the NSE Investments SPA. The Equity Shares to be transferred pursuant to the NSE Investments SPA shall be transferred as per the terms of the NSE Investments SPA and prior to the Bid/ Offer Opening Date.
Competitive Strengths:
1. Largest infrastructure and services provider of mutual fund
2. A diverse portfolio of technology-enabled services
3. Pan-India physical network
4. Scalable technology enabled ecosystem
Important Date:
In my view, one should apply in this IPO for listing gains as well as for long term, since their is no peers available in this field, hence CAMS is running a type of monopoly business.
Sources:
Various publications
Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.
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