Computer Age Management Services (CAMS) initial public offering (IPO) issue opened for subscription on Monday, with a price band at Rs 1,229-1,230 per share.
Chennai-based company seeks to raise Rs 2,240-2,242 crore from the market. The IPO consists of an offer for sale of 1,82,46,600 equity shares by Great Terrain Investment, NSE Investments, Acsys Investments, HDFC and HDB Employees Welfare Trust, as per the draft papers filed with Sebi.
The issue size is Rs 2,244 crore at the higher end of the price band, of which the company has already garnered Rs 667 crore through 35 anchor investors on September 18.
About the company: CAMS is the largest registrar and transfer agent (RTA) of mutual funds with an aggregate market share of approximately 70 percent based on mutual fund average assets under management.
The company has an experience of over two decades and works essentially as a services provider to mutual funds and other financial institutions.
It provides services like record keeping, report generation, transaction, payments and settlement, brokerage compliance, dividend processing along with other integrated financial services.
Brokerages' View: Majority brokerages are bullish on the company given its unique business and low valuations.
Motilal Oswal recommended a 'subscribe' to the issue in view of its asset-light model business and high entry barriers. The issue is fairly valued in, and we like its integrated business model, leadership position, strong financials and pan-India presence, the brokerage said.
During FY17-20, the EBITDA and net profit of the company grew at a CAGR of 13 percent and 12 percent respectively. The company has paid consistent dividends with FY20 payout at 40 percent.
Furthermore, the issue is priced at 36.7 times FY21 EPS on an annualized basis, with no listed player in comparison, said brokerage firm Anand Rathi in its report by giving out a 'subscribe' call.
The brokerage also said that the company's leadership position in the market, scalable technology with robust infrastructure, strategic growth initiatives, high entry barriers in the industry and gradual growth in AAUM in the coming time are key growth prospects.
"CAMS business model is asset-light. Hence, earnings are generously distributed among shareholders. It reports RoE of more than 25 percent. Considering a healthy balance sheet, high return ratio, and market leadership position, the IPO will see strong interest across market participants,” said Jaikishan Parmar from Angel Broking.
IIFL Securities also assigned a 'subscribe' call to the IPO by saying that the opportunity landscape of mutual fund business in India is huge. It further added, "At Rs 1,230 per share (IPO price), CAMS is priced at 35x FY20 EPS, at a 10-15 percent discount to listed AMCs, Exchanges and Depositories. We expect the stock to trade in-line with other comparables and further re-rate."
The company earns a healthy RoE of over 35 percent, has zero debt, has a dividend payout policy of at least 65 percent and generates robust free cash every year. The valuations are reasonable at FY22E P/E of 26x, said Yes Securities in its report with 'subscribe' rating.
Explaining the company's business, Aditya Shah of JST Investments said that CAMS, being a monopoly and RTA (registrar and transfer agent) inherently has high client stickiness and will continue to milk its annuity businesses."Note that Karvy, the biggest competitor with 27 percent share is hanging by a thread, (1 percent margin, 3 percent RoE) so it is quite possible that CAMS will use tactics to attract new customers. Although, it needs to be considered that as MFs expense ratios get squeezed, to what extent does CAMS pay the bill," concluded Shah.