It is exactly one year since the Computer Age Management Services Limited (CAMS) debuted on Dalal Street and the stock has done extremely well since, rising more than 140 percent above its issue price.
The stock has seen some selling pressure recently with a sharp correction of more than 25 percent in the last month. However, analysts believe that the business fundamentals are very much intact.
CAMS enjoys an annuity-like revenue, has a debt-free balance sheet and also enjoys high operating leverage and generates robust return ratios with return on equity above 30 to 35 percent.
The sectoral trends have also turned positive and favourable with positive net inflows in equity schemes for six months in a row. Redemptions in mutual funds have abated and investors are pouring in significant amounts in the new fund offers notch by mutual funds. CAMS will be a key beneficiary of this sector trend as 90 percent of its revenue comes from a mutual fund.
While the valuation looks expensive, with the stock trading at more than 50 times the estimated earnings for FY23 the business strength outweighs valuation. The recent correction offers an opportunity for long-term investors to accumulate the stock.
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