Bidding for CAMS IPO kicks off: Here’s what leading brokerages say

NEW DELHI: The Rs 2,242 crore initial public offering (IPO) by Computer Age Management Services (CAMS) opened for bidding on Monday. The Warburg Pincus-backed company last week raised Rs 666.57 crore from a total of 35 investors at Rs 1,230 per share ahead of the public issue.

The price band for the issue has been fixed at Rs 1,229-1,230 and prospective retail investors need to bid for a minimum of one lot of 12 shares or in multiples thereof.

On the block are 1,82,46,600 shares held by NSE Investments, which will offload 37.4 per cent stake, following a February 4 Sebi directive to exit the company completely. The quota for retail investors in CAMS IPO has been fixed at 35 per cent of the net offer. QIB quota is fixed at 50 per cent and the NII quota at 15 per cent. There is a reservation of up to 1,82,500 shares for employees.

Here’s what brokerages said about the issue:

Anand Rathi: Subscribe

The brokerage said the issue is priced at 36.7 times FY21 EPS on an annualised basis. While currently there is no listed player for comparison, the brokerage believes the IPO is reasonably priced considering the latest numbers. “We remain optimistic on growth prospects of CAMS, given its 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,” it said.

Hem Securities: Subscribe

Astha Jain of Hem Securities likes the asset light business model of the company. She pointed out that the industry CAMS deals in is mainly concentrated between limited players, with the company holding a majority market share of 70 per cent.

“Also the company has a long existence since 1988 and has an experienced management and marquee shareholders. Since the company has no direct listed peer, the company will enjoy the benefit of a first mover on valuation perspective,” she said.

LKP Securities: Subscribe

The brokerage noted that the company carries no debt obligation, which is translating into healthy return ratios with return on capital employed and return on equity of 37 per cent and 35 per cent, respectively. Besides, the company is consistently paying dividends with FY20 payout at 40 per cent, LKP said. .

Motilal Oswal: Subscribe

The brokerage recommends subscribing to the issue with a long-term view to the IPO as CAMS enjoys first mover advantage, asset light business model and high entry barriers. It noted that the company’s top 5 clients contribute 71 per cent to its revenues, which along with technological disruption and data security & privacy pose risks.

“At the upper end of the price band, the issue is valued at 35 times FY20 P/E, which seems fully priced in. However, we like the company, given its leadership position, integrated business model, pan-India presence and robust financials,” it said.

IIFL: Subscribe

The brokerage said at the upper limit of the price band, the issue is priced at 35 times FY20 EPS, which is a 10-15 per cent discount to listed AMCs, exchanges and depositories. It expects the stock to trade in-line with other comparables and further re-rate.

“In our view, premium valuations are justified given dominant market share in a growing industry, low risk of competition, strong parentage, strong free cash flow generation, and robust RoEs,” it said. RoE stands for return on equity.

Choice Broking: Subscribe with caution

Based on its conservative estimate, Choice is expecting a 2.7 per cent CAGR rise in the topline growth for the company over FY20-23 to Rs 757.91 crore in FY23. It sees Ebitda and PAT to grow at 1.5 per cent and 6.4 per cent, respectively.

While the brokerage expects Ebitda margin to contract by 139 basis points to 39.7 per cent in FY23, PAT margin is seen expanding by 277 bps to 27.6 per cent in FY23. “There are no listed peers, whose business operations are comparable to CAMS. CDSL performs one of the functions similar to CAMS, so it can be considered at a proxy peer. At the higher price band of Rs. 1,230 per share, CAMS’s share is valued at a P/E multiple of 34.5 times compared with 40.5 times price multiple of CDSL,” it said. ..

YES Securities: Subscribe

YES Securities values the issue at 26 times FY22 P/E and believes it is reasonable. The brokerage said that the given CAMS would be a direct beneficiary of low MF penetration, but the growth would be lower given that fees are generally tiered in nature.

Also reducing the number of paper transactions would restrict revenue growth, which would be offset by our expectation of increase in share of equities in AUM (higher fee for equity AUM), it said. “The company earns a healthy RoE of 35 per cent, has zero debt, has a dividend payout policy of at least 65 per cent and generates robust free cash every year,” it said.

Samco Securities: Subscribe

Nirali Shah, Senior Research Analyst at Samco Securities, expects the issue to deliver solid listing gains. She believes the company has a robust business, with strong market leadership. Given the high entry barriers and the near duopoly nature of the market, the moat of the company remains intact, she said.

“CAMS has also delivered strong operating margins and shareholder returns consistently and maintains a clean balance sheet with negative working capital. With growth being linked to the rise in AUMs for mutual funds, the company is poised to generate consistent returns going forward. Investors just need to be cautious regarding the slower pace of growth as paper-based transactions which contribute a large part of revenues see a decline over time,” she said.

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