Here’s All You Need To Know About CAMS IPO
The IPO opens on Sept. 21 and closes on Sept. 23.
A National Stock Exchange subsidiary is divesting its entire stake in Computer Age Management Services Ltd. through an initial public offering starting Monday, tapping a buoyant stock market after investors piled into two recent share sales.
The Warburg Pincus-backed mutual fund transfer agency—that according to its red herring prospectus is the nation’s largest with 70% market share—plans to raise Rs 2,242 crore through the IPO, the price band for which has been fixed at Rs 1,229-1,230 apiece.
The maiden issue consists of an offer-for-sale of 1.82 crore shares by NSE Investments Ltd. to the public. The arm of the nation’s largest bourse was asked by the Securities and Exchange Board of India to divest its entire 37.4% holding in CAMS after it failed to seek the market regulator’s approval while buying the stake in 2013. SEBI had asked NSE to pare the entire stake within a year.
- Issue opens on: Sept. 21
- Issue closes on: Sept. 23
- Face value: Rs 10 apiece
- Listing on: BSE
- Minimum Bid: 12 shares (and in multiples of 12 shares thereafter)
The IPO—the third this month and the fifth since the Covid-19 pandemic impacted the economy—values CAMS at Rs 5,997 crore at the upper end of the price band, according to BloombergQuint’s calculations. After the share sale, total promoter shareholding will be intact at 43.5% and public shareholding will be 56.5%.
This offer comes at a time investors bid for IT firm Happiest Minds Technologies Ltd. 151 times over, making it one of India’s most successful IPOs of this decade. Route Mobile Ltd., a cloud infrastructure provider, was oversubscribed 74 times. The sales, according to a Bloomberg report, are a bright spot in a market that’s seen little over $2 billion being raised from IPOs in 2020, the least for the period since 2016, despite the 50% jump in the main equity indexes from the March lows.
CAMS, in the prospectus, said the proceeds will not be received by it, and will go to selling shareholder NSE Investments that will exit the company.
Kotak Mahindra Capital Ltd., ICICI Securities Ltd., HDFC Bank Ltd and Nomura Financial Ltd. are the book running lead managers to the issue.
Business
Incorporated in May 1988, CAMS is a technology-driven financial infrastructure and service provider for mutual fund houses, electronic payment collection platforms, insurance companies, alternative investment funds, banks and non-banks, KYC registration agencies and software solutions.
The company has capital sponsorship from investors such as Great Terrain, an affiliate of Warburg Pincus, which is also the promoter, HDFC Ltd. and HDFC Bank Ltd.
Almost 90% of CAMS’ total revenue comes from mutual funds. Karvy Ltd. is India’s second-largest mutual fund registrar and transfer agent.
As of June 30, CAMS’ mutual fund clients included four of the top five, and nine of the 15 largest houses by average assets under management. The company has serviced Rs 19.2 lakh crore of AAUM for 16 mutual fund clients as of July 2020.
Financials
CAMS’ revenue, operating and net profit grew at a compounded annual rate of 3%, 2.7% and 6%, respectively from fiscal 2018-2020.
“The revenue is highly correlated with AUMs (assets under management) of mutual funds. Whenever AUM grows, clients have an advantage as they get fee remission, and the company sees revenue growth,” Anuj Kumar, chief executive officer at CAMS, had told BloombergQuint in a recent interview. “If mutual fund AUM is expected to grow 17-18% on a compounded basis for the next five-six years, then the company’s revenue growth will be expected to be between 12 and 13%,” he had said.
Peers
CAMS’ direct peer is Karvy but it has no competition in the listed space.
According to Kumar, increased access to mutual funds with entry of more retail investors will provide an opportunity for the company.
Key Risks
- The company is subject to periodic audit inspection by SEBI. Non-compliance with SEBI observations could expose the companies to penalties and restrictions.
- Future revenue and profit dependant on growth, value and composition of AAUM of mutual funds managed by the company’s clients, which may decline.
- Client concentration risk is there as 70% of revenue comes from top five clients.
- Regulatory challenges such as limit of total expense ratio stunts the growth of mutual fund registrar and transfer agents.
(Information sourced from the red herring prospectus and a report by Axis Capital)