Computer Age Management Services Ltd Q4 FY2024 Concall Summary

Key Takeaways

• Strongest quarter in years: All cylinders fired across MF and non-MF businesses, with profit growth outpacing revenue growth due to cost control and operating leverage.
• MF business delivered a clean sweep: Won every single new mutual fund AMC that set up operations, while equity AUM and SIP book growth both ran ahead of industry rates.
• Non-MF share gained despite a surging MF base: KRA grew 90% YoY and finserv market share scaled from 2-3% to 13% in two years, even as the core MF business posted significant growth.
• EBITDA margin expanded 220 bps YoY to 46.1%: Management flagged this level as slightly stratospheric and guided to a more moderate 45-46% range in coming quarters as the annual appraisal cycle hits.
• What to watch next quarter: The actual yield depletion on MF contract renewals now under negotiation, the pace of GIFT City build-out over the next 45-60 days, and whether account aggregator starts making a visible increment to financials.

MF Business: Share Gains and Yield Mechanics

• Equity AUM share gains sustained: Retail equity AUM, the highest-yield and most profit-accretive segment, grew ahead of industry and has been gaining share for about six quarters.
• SIP book outpaced the industry: Live SIP book grew 37% against an industry growth rate of 32%, while the unique investor base grew 25% versus the industry's 18%.
• Yield decline was routine, not structural: The 2.3% sequential yield decline despite 10% AUM growth and a 200 bps equity share increase sits on the lower side of expectation but is not abnormal. Some quarters see adjustments depending on which customer grows from a scale perspective, and AUM-to-AUM fee growth of 60-70% is normal.
• Contract renewals are a routine cycle: Some contracts are due for renegotiation on 1st January or 1st April, with dialogue ongoing. Management expects moderate impact rather than a steep discount, given the marginal cost for customers is not huge, and characterized it as a routine development rather than anything exceptional.
• Non-AUM fee revenue has four stable legs: Transaction fees (8-11% of paper transactions, absolute numbers not declining), call center fees (more regions added), miscellaneous and application fees (more subscribers to applications and APIs), and out-of-pocket expenses (which never go down).

Anuj Kumar: "I estimate all you have seen the results by now. We had a very strong quarter, perhaps the strongest in the last many years. And I think the great news is that we had all cylinders firing."

Non-MF Engines: KRA, Pay, and AIF Lead

• KRA was the biggest growth engine in FY24: 90% year-on-year growth, with a first-to-market advantage on 10-minute KYC creating salience and thought leadership. The top 1-3 brokerages are still not using KRA but are expected to start working with CAMS at some point.
• Finserv market share scaled dramatically: From 2-3% market share two years ago to double-digit (13%) in a hypercompetitive market where incumbency was not theirs.
• Pay and AIF were the second and third engines: AIF revenues grew 5% QoQ, with newer lines like WealthTrak, WealthServ, onboarding, and an analytics module coming in. Almost all AIF revenue is annuity in nature, with fund-life fluctuations causing revenue variations rather than the billing model.
• AIF billing is shifting toward investor count: Most billing is less than 25% AUM-based; the majority depends on the number of investors onboarded to a particular scheme, as customers insist revenue be linked to investors serviced rather than AUM.
• Account aggregator is still nascent: Expected to start making its presence felt in FY25 in terms of at least some increment to company financials, though very small.

Insurance and New Mandates

• IRDA mandated electronic policy issuance: Physical policies will now be issued only on specific request; policies can be issued in DigiLocker, EIA, or PDF. This is a structural tailwind for CAMSRep and the insurance repository business.
• Bima Central is now live: The platform is integrating insurance companies and building data exchange. Over time, as regulation and market frameworks align, premium payments, renewals, lien marking, and borrowing of monies are all slated to occur on the platform.
• Insurance KYC contracts won: Think and Rep won insurance KYC contracts from SBI General and Oriental Insurance; Oriental is now live. CAMS also went live with authentication services for LIC.
• EIA adoption will not take 5-6 years: Management expects the journey to seamless data exchange for the insurance sector may take a couple of years, not the longer timeline seen in other markets.
• CAMSRep has been slower than expected: Management would have expected a little more action, which may happen in ensuing quarters. Something material needs to happen as Bima Central becomes a large franchise or consumers wake up to EIA accounts.

Anuj Kumar: "Think of it as exactly the mirror image of what happens in the Demat account, the securities Demat account. So the advantages are legendary, and are fairly significant and consumers will start adopting."

Pricing Across the Portfolio

• Pricing depletion is a managed constant, not a shock: Management does not see cause to worry about pricing depletion as a force of nature that will hit suddenly; it is something dealt with every day and every month.
• Non-MF pricing varies sharply by segment: KRA pricing is stable with 3-4 participants and no endemic price selling. Repository policy conversion and annual maintenance pricing is half to one-third of what it was five years ago. Account aggregator data-pull pricing is half to one-third to one-fourth, and sometimes less. Payments pricing sits at INR 2-3 per trigger as standard, with accommodation for smaller SIP collections.
• Pricing is finding a floor: Policy conversion and maintenance used to be upwards of INR 10, now could be half that. As consumption goes up, prices dwindle down, but no predatory pricing is seen from stable competitors. Management has a stated position of not being a price player and does not sell on price unless it is a relationship deal or a client they really want to be with.
• MF yields face no big disruption ahead: Management expects continued some depletion due to telescopic pricing and minor price adjustments, but no big disruption or depletion going forward.

Anuj Kumar: "I don't think there is cause to worry about pricing depletion is one force of nature, which is going to hit us on the face. It is something that you deal with it every day or every month."

Margins and Cost Structure

• EBITDA margin expanded 220 bps YoY to 46.1%: Profit growth was higher than revenue growth due to good cost control and operating leverage, with a 100+ bps sequential uptick as well.
• Management calls 46% stratospheric: Expects a more moderate number between 45% and 46% in the next couple of quarters, with some moderation possible due to the annual appraisal cycle in April. PAT margins may also slightly moderate in the coming two quarters.
• Non-MF margins improved structurally: Margins crept up from 15% to more than 20% because platform businesses are predominantly all platform businesses. Steady-state EBITDA for non-MF is probably close to 35% to 40%.
• Platform investment run rate stays steady: No exceptional expenses are planned for FY25, and the run rate of INR 7 crores per quarter for new platform investment will not change drastically. Expense growth is expected to be no different from last year.
• Headcount growth was modest: Average around 550 headcount added year-on-year, with vendor staff at less than 500.

New Initiatives and Optionality

• RBI payment aggregator license received: Final authorization to operate as a PA was received in Q4 last year, and CAMS is planning payment gateway work with Indian Bank, Bank of Baroda, and Canara.
• GIFT City build-out underway: A larger office has been leased, opening in July, with a much larger team hired. Management sees a lot of potential that will play out over the next 45 to 60 days.
• APY participation opened up: The regulator made a formal notification allowing CRAs to participate in Atal Pension Yojana. CAMS has the capability and will soon begin participating, though how the numbers pan out will become visible only over a period of time.
• New client wins span the ecosystem: AngelOne, Torus Oro, and Unifi Capital were won on the MF side. Fintuple turned EBITDA-level profitable. Algo360 had a start with AngelOne. An analytics transformation deal commenced with Moneycontrol. CAMS was empanelled by State Bank of India and should be able to go live with them.
• Acquisition radar is on: Management is looking at the market, with good targets potentially coming out of payments and insurance.

Guidance & Commitments

Key Metrics