Putting down my understanding of CAMS business after going through thread. Pls correct where needed. One of very few businesses of very long sustainability.
At the end, also attached valuation excel considering pessimistic growth scenarios for next 10 years.
Investment Thesis -
1 Linked to Mutual Fund Investment growth trend
2[ No. 1 player with 70% Market share
3 Complete IT infra provider to MF companies - high dependence and no switch over chances of customer
4 RTA cost is very minuscule in end product (0.04% of AUM) coupled with high value (complete operations handling - freeing MF company to focus on marketing strategy and business mgmt)
5 Entry barriers - regulatory approvals needed to work as RTA. Currently duopoly with K-fin (Karvy) having smaller players (30% MS)
6. Needed IT infra and operation intelligence is accumulated knowledge base of decades which new player cannot get
7. Other businesses (10% of revenue) growth possible - DigiLockers, NEFT transaction share, GIFT City Account Aggregator)
Business Aspects -
Strong Points -
1 Negetive working capital business
2 Growing trend of digital CLM (Customer Lifecycle Management - eKYC, paperless transactions etc)
3 Convenience of access - 24 X 7 availability
4 Customer data bank - though cannot sell data as MF is owner of data
5 High dividend distribution - 65% of profits - no incremental capex needed as more like a platform business with technology leverage available
Lowlights -
1 Cap on revenue - fixed 0.04% charges of AUM. Growth will be linear to market. Even charges decrease as AUM grows beyond certain limit. So growth below MF industry growth possible
2 Largly stagnant customer target base - 40 large MF houses in market. There will be new players coming but at the same time consolidation of MF companies also happens. So larger players will become large and get RTA fees discount as AUM grows
Risks -
1 Data security breach may lead to severe punishment from regulatory bodies and may also result in termination of licenses
2 Any further regulatory cap on fees for MFs may result into RTA fees reduction (though SEBI cap is highly possible, less possibility for RTA fees reduction considering high value addition and very high customer dependence on RTA)
3 Future Technology adoption - like blockchain etc.
4 SEBI allowing new player as RTA
Things to track -
1 Revenue growth remains in line with MF AUM growth
2 Blockchain like technology introduction in RTA space and CAMS compliance capability
3 Other business growth - this will be cherry on top
CAMS Summary and Valuations D1.0.xlsx (19.0 KB)