CAMS IPO Review – Is the IPO over priced?
IPO investors might be excited as there are dozen IPOs that are in queue. CAMS IPO news has been buzzing for some time. CAMS IPO (Computer Age Management Services IPO) would open for subscription on September 21, 2020. CAMS is technology-driven financial infrastructure and service provider in India. In fact, it is India’s largest registrar and transfer agent (R&TA) of mutual funds. If you are investing in mutual funds, CAMS should be a well known name for you where several investors are using their platform to invest in direct mutual funds. Should you invest in a CAMS IPO? What are the risk factors you should consider before investing in this CAMS IPO? Let me review this IPO and provide our recommendation.
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About Computer Age Management Services Limited (CAMS)
They are a technology-driven financial infrastructure and service provider to mutual funds and other financial institutions with over two decades of experience. They are India’s largest registrar and transfer agent of mutual funds with an aggregate market share of approximately 70% based on mutual fund average assets under management managed by its clients and serviced by them during July 2020, according to the CRISIL Report.
Over the last five years, the company has grown its market share from approximately 61% during March 2015 to approximately 69% during March 2020, based on AAUM serviced. Its mutual fund clients include four of the five largest mutual funds as well as nine of the 15 largest mutual funds based on AAUM during July 2020.
With the initiative of creating an end-to-end value chain of services, they have grown their service offerings and currently provide a comprehensive portfolio of technologybased services, such as transaction origination interface, transaction execution, payment, settlement and reconciliation, dividend processing, investor interface, record keeping, report generation, intermediary empanelment and brokerage computation and compliance related services, through its pan-India network to its mutual fund clients, distributors and investors. They also provide certain services to alternative investment funds, insurance companies, banks and non-banking finance companies.
CAMS IPO Issue details
Here are the issue details.
| IPO Date | Sep 21, 2020 to Sep 23, 2020 |
| Face Value | Rs 10 per equity share |
| IPO Price band | Rs 1,229 to Rs 1,230 per equity share |
| Issue Size | Total of Rs 2,244 Crores |
| Fresh issue | Nil |
| Offer for sale | Rs 2,244 Crores |
| IPO Lot Size | 12 shares |
| Lead Managers | Kotak Mahindra Capital, HDFC Bank, ICICI Securities, Nomura Financial Services |
| Listing at | BSE Only |
*CAMS IPO retail allocation would be 35%
Download CAMS IPO RHP
Objects of CAMS IPO
Here are the objects of the IPO issue.
A) Offer for Sale (OFS): The object of the Offer for Sale is to allow the selling shareholders to sell equity shares held by them. The company will not receive any proceeds from OFS.
B) Achieve listing benefits. The company will not receive any proceeds from this offer.
Who are the Company Promoters?
Great Terrain Investment Ltd is the promoters of the company.
Company Financial Performance
Here is the financial performance of the company in the last few years (consolidated).
| Fin. Year ending |
Total Revenues (Rs in Crores) | Profits after tax (Rs in Crores) |
Profit % |
|---|---|---|---|
| Mar-2018 | 657.8 | 146.3 | 22.2% |
| Mar-2019 | 711.8 | 130.0 | 18.3% |
| Mar-2020 | 721.3 | 173.4 | 24.0% |
Its average EPS in the last 3 years is Rs 31.68 and FY2020 is Rs 35.54.
CAMS IPO – Reasons to Invest
Here are a few reasons to invest.
1) CAMS is a technology-driven financial infrastructure and service provider in India. It is the well known brand and largest infrastructure service provider for mutual funds.
2) Steady revenue growth in the last 3 years.
3) CAMS generating steady margins in the last few years.
4) Company is following a dividend policy of distributing 65% of PAT and as per prospectus they would continue to follow this policy in future too.
5) CAMS employees would get a discount of Rs 122 per share.
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CAMS IPO – Reasons why NOT to Invest
1) Company has been successfully generating revenues from mutual funds business. Now it intends to focus on other business. It may or may not be able to be successful.
2) Company intention to grow other businesses might require huge capital and such high investment may or may not yield results.
3) As an RTA, they are subject to periodic audit inspections by the SEBI. Noncompliance with observations made by the SEBI during these inspections could expose us to penalties and restrictions.
4) The coronavirus disease (COVID-19) has had an adverse effect on its business and operations and the extent to which it may continue to do so in the future, is uncertain and cannot be predicted.
5) Company future revenue and profit are largely dependent on the growth, value and composition of AAUM of the mutual funds managed by its clients, which may decline.
6) Significant disruptions in its information technology systems or breaches of data security could adversely affect its business and reputation.
7) They derive a significant portion of its revenues from a few clients and the loss of one or more such clients could adversely affect its business and prospects.
8) NSE needs to divest its share in CAMS. Post this the company shares would get listed on NSE too.
9) For complete internal and external risk factors, you can refer the RHP of the company.
CAMS IPO tentative table / schedule
| Offer Open | 21-Sep-20 |
| Offer close | 23-Sep-20 |
| Finalization of Basis of Allotment | 28-Sep-20 |
| Unblocking of ABSA and Initiation of Refunds | 29-Sep-20 |
| Credit of shares to Demat Accounts | 30-Sep-20 |
| IPO Shares Listing Date | 01-Oct-20 |
CAMS IPO price – Is it worth or over priced?
If you see the upper price band of Rs 1,230, issue price looks very high and many think is it worth investing in this IPO. CAMS IPO in grey market is trading at a premium. The valuation can be checked only with P/E Ratios.
1) On the upper price band of Rs 1,230 and EPS of Rs 35.54 for FY20, the P/E ratio works out to be 34.6x.
2) For last 3 years EPS of Rs 31.68, P/E ratio is 38.8x.
3) Means, the company is asking the issue price of Rs 1,230 in the P/E range of 34.6x to 38.8x.
4) There are no listed peers to compare whether the issue price is under priced or overpriced. While it is not apple to apple comparison, but if we check NIFTY50 current P/E is at 33x, NIFTY Bank P/E at 25x and NIFTY Next50 is 34x. Considering some of these indices, CAMS IPO Price is over priced.
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CAMS IPO – Should you Subscribe to this IPO?
CAMS is technology-driven financial infrastructure and service provider in India. The company is showing steady growth in revenue and profits. However, as per my view the IPO price is over priced. There is a lot of craze about this IPO in the stock market now. High risk investors can invest in this IPO for the long term. Considering the fancy in this IPO, investors can expect listing gains.
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you just hit to the point !! great work 🙂
No doubt it is overpriced.But after the failure of Karvy, this seems to be the only alternative.Subscribers should take into account the prevailing Covid 19 Pandemic in India wherein the cases are at a kissing distance of 50 lakhs.The issue is Only for the brave hearted!
Hi Ramakrishna, I agree. However, stock markets are zooming keeping fundamentals aside. Hence we indicated that this IPO might give listing gains (which would be immediate after the closure of the IPO) or invest for long term.