Hi All,
After going through latest annual report of CAMS and also this entire thread, I have captured few observations:
- In general, CAMS business model looks cyclic to me. When broader markets corrected during 2018 & 2019, Sales and PAT were impacted to some extent. The growth in Sales and PAT was lower in FY19 and FY20.
- Though number of folios (and investors) will continue to go up over next few years, it is possible that, AAUM might drop if there is substantial market correction. There could be prolonged period where equity markets can remain stagnant. In those cases, Sales growth can slow down. It does not look like a Secular growth story to me, though long term growth in MF industry will be there.
- I have not seen much momentum in MF Central initiative where CAMS and KFINTECH were supposed to give seamless MF transaction platform to retail investors. If that would happen, then there could be more investors using MF Central and they may prefer investing in direct plans. Though this will not give any benefit to CAMS, but its visibility may increase.
- SEBI may keep regulating the expense ratio over next decade, in that case, transaction and processing fees charged by CAMS may reduce, thus reducing its margins. PAT growth may slow down as compared to past decade.
- Due to points mentioned above, CAMS may need to look at new revenue models as MF industry matures in India. Though Non MF revenue contribution is growing but need to become more significant to make it more robust business model.
- Majority of Revenue comes from Equity MF whereas Debt MF seems to be contributing very less. With RBI Retail Direct site, some HNI investors may invest in GOI bonds directly impacting growth in Debt Fund AUM to some extent. This may in turn impact CAMS revenues from Debt MF business. The impact could be very low.
Overall, it looks good high quality business for an investment, but valuations could be under pressure going forward. I may be wrong in my analysis.
Disc: Under watch list.
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