Computer Age Management Services' (CAMS) IPO is set to hit the primary market on September 21. The price band for the issue is set between Rs 1,229-1,230 per share. NSE Investments will sell 1,82,46,600 shares through this IPO.
What does CAMS do?
CAMS is India’s largest registrar and transfer agent of mutual funds. It holds approximately 70% market share of mutual fund's average assets under management. Karvy is the distant second player with 27% share in the market.
CAMS' other services include payment, settlement and reconciliation, record keeping, and report generation. It is also into the dividend processing, intermediary empanelment related services.
Mutual fund transactions are the mainstay of CAMS' business model. It contributes ~85% of the total revenue. The company has 4 of the top 5 Mutual funds as clients. As these players grow, CAMS will likely see its revenues gain without much effort from its end.
What's working in its favor:
CAMS business model is asset-light and technology-driven. The company has invested heavily in technology. Also, as per the nature of the business, their services are irreplaceable for clients. The threat of AMCs switching to other service providers is also minimal due to the high cost. It also carries a high risk of business disruption and data loss.
CAMS is also a well-integrated player and caters to all aspects of the mutual fund industry. Apart from AMCs it also caters to distributors and investors. Long term nature of mutual fund investments also provides a stable client base.
The red flags:
Current sentiments around mutual funds are negative due to weak performance. But, growth drivers remain in favor of the industry in the long term.
Possible reduction of client charges is a major concern for CAMS though. As AMCs grow, the percentage of the AUM they pay goes down. It will put pressure on margins in the future.
The shift from paper-based transactions to electronic format will also impact the earnings. As electronic transactions grow, the charges are also likely to reduce.
The growth drivers:
Mutual Fund penetration remains very low in India which offers a long runway for growth. While the US has its AUM more than the country’s GDP at 103%, it is only 11% in India. The world average is 55%.
The growth prospect of MF industry also remains high given the saving habits of Indians. India's gross domestic savings rate is 30%. It is ahead of developed countries UK and US at 16% and 18% and the global average at 25%.
Key takeaways:
To sum it up, A Mutual fund is still a relatively new concept in India. With increasing awareness, the flow of access savings should divert towards the industry. Hence, we expect CAMS to remain bullish.
Verdict
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