This part of research report highlights the big data accumulated by RTAs.
CAMS Since having market share of more then 70%, could they use the data accumulated over two decades to grow their business? They could share the data to other fintech companies like Groww, Paytm, Zerodha, etc. This could prove beneficial for CAMS and generate additional revenue without much of additional expenses.
Does any SEBI regulation prevents them to share investors data?
I think investor data is owned by the respective mutual funds, so CAMS would not be able to share it with others.
Meeting highlights:
FIP’s: Share data for users(Depository, Banks, MF’s etc)
FIU’s: Use customers data (For insurance, banks who sells insurance etc.)
AA: Account Aggregators (CAMS, phonePe)
FIU’s pay AA’s for customers data, 30-40 Rs per data pull.
Feature’s mentioned in call:
CAMS along with Sterling Software would be technology solution provider for FIP’s & FIU’s to onboard to this network, analytics to FIP’s & FIU’s, so this would be additional revenue source for CAMS as compared to other AA’s.
So CAMS seems to play the central figure in all of this.
CAMSFinserv is the app on android, IOS development going on.
AA framework exist on UK, can someone let us know what’s the business per-se in UK.
Quarter results announced
Dividend Declared
i believe the results are excellent. On a consolidated level there eps has increased both QoQ and YoY. Although i am not sure which subsidiary is contributing so much to the EPS. Can we get the Quarterly results of the subsidiaries anywhere?.. I would definitely like to see if the subsidiary results are sustainable in the long future or is this something short term only.
Disc :- Invested
Investor Presentation is out
90% of the revenue as expected is from Mutual Funds .
The next topline growth will come from CamsFinserv,NPS,GIFT city Admin services .
CAMS Aims at Technology Product company for mutual Fund Services rather than a Tech enabled Service provider- says the MD of CAMS.
Q2FY22 CCT Notes
You all read about MF Central which is the utility which was put together at the specific behest of regulatory guidance and both together, this went live in the month of September, saw upwards of 75,000 registrations. These are basically investors who are trying to look at a combined portfolio across all mutual funds in India not just CAMS service funds. And then from a non-financial transaction perspective like changing a bank or adding a nominee, they are able to do all of these transactions again across our mutual funds in India. It’s a unique proposition which just went to market in September and we’re seeing good traction initially.
On the other initiative which is account aggregator you have seen a lot of activity both in the media and outside in terms of coverage, articles, use cases and B2B participation which we have seen. This is run in a subsidiary called CAMS FinServ which is the account aggregator. We also over the last two, three quarters seen that there is a strong demand for a technology service provider in the small corporate consumer space. People who don’t want to invest a lot of money in building out their own interfaces and integration capabilities and ability to create constant architecture, etc., So two offerings therefore; there is a TSP offering and there is an account aggregator offering, both B2B. They are active in the market with same interest. Like we have said that we are expected to see revenues this year. We have some signed contracts now. So it’s a good beginning. However from a revenue aggregation perspective and supporting anything which is meaningful on the financial results side, it’s probably still a couple of quarters away.
AA
So let me talk about the current aggregator first. See, initially when the market kind of started getting built almost five quarters back, most of the assumption was that there is a pipe through which consents travel and then data travels back from the financial information provided to the user which is the account aggregator business and that business will charge the user on a per pull basis as mini statements get pulled in that fashion. Over a period of time, what has become clear is that there is also a technology service provider part of the business. That technology service provider is largely meant for medium and small users who find it difficult to have captive technology capabilities to build out the consent architecture and integration capabilities. So, it looks like the business has these two streams which will fetch revenue. The TSP part and the account aggregator part and both of these are a B2B sell for us. So over a period of time, the account aggregator will sign up contracts with the financial information users and charge them on a per pull basis. The TSP entity will sign contracts with both financial information users and providers and will largely charge on annual maintenance contract kind of basis; there could be some charge on per pull basis also. So those are the two revenue streams. Difficult to say what the partition will be, but looks like TSP will be a larger share of the market than account aggregator. Account aggregator by itself may be a slightly undifferentiated service. That is how it is supposed to build out over a period of time as lending, non-lending, capital markets, insurance all kinds of entities join in. There could be several hundred entities tied up to this entire overall set of platform. So that’s how this will pan out. While we have contracts which are under implementation right now, it needs very intense selling over a period of time to acquire a substantial enough number and then billing, etc., will commence in some time, but that’s really the overall business model.
I’ll give you some very broad indicators. You can think of it this way that account aggregators single pull depending upon what are the unit economics for a particular relationship, could cost anything between Rs.5 to Rs.15. Take them as indicative numbers not precise numbers, but that is how the whole thing will pan out. And this will be a very large number of units which will get used but per unit that is approximately the range in which this will get priced. Small size TSP contract on an annual billing basis may build between Rs.5 lakhs to Rs.10 lakhs. Larger one will build between Rs.10 lakhs to Rs.15 lakhs. So to create any meaningful revenue base, one needs to have maybe about 100 TSP clients, at which size it will start looking meaningful. Account aggregator pulls is a number which will scale significantly. It could be like digital payments, UPI transactions. I mean, you read about all the stuff that the market is talking about. Anything that we say right now is like speculation because nothing much has begun in the market. It’s early adoption. But from a scale and per unit revenue perspective think of those as the numbers.
So there are two views that the industry is taking and again it will take time for this to pan out. So one of the obvious moats is on the TSP business. The TSP is one IT provider fully integrating with the user, whether that user is an FIU or FIP. And that’s the moat because once you’ve integrated like you’ve seen in most software-based integrations it is just tough to rip that relationship. So that’s an obvious moat, but that’s more of the TSP business. Account aggregator every financial information user will probably sign up with more than one just to make sure that they have enough BCP and enough load balancing happening because sometimes this FIU will be integrated by the TSP and not by the user directly, the FIU by itself will be I think a low exit barrier kind of architecture which means the TSP is tightly integrated to the user, the user then integrated either to the TSP or the FIU, but everybody is using more than one, and that will be smaller. The third is which is not played out in the market but may play out that anybody who’s able to position their consumer app widely. Think of a situation where somebody’s got a few million downloads from the consumer app will then have a strong moat in terms of a consumer franchise because once that consumer franchise is available, a lot of users may come to that aggregator just for that consumer franchise. But it’s early days for that to happen. That will probably play out over a longish period of time. So strong consumer franchise as manifest by a large number of downloads, TSP to an FIU kind of architecture will have significant moats and then the pure account aggregator will have a moderate exit barrier but not a very effective one. That’s what it looks like right now
Passive Funds
Let me talk about passive first. You’re right, we have seen across the board in the marketplace over the last maybe four to five months. The set of products being launched on the index and ETF side. Just keep in mind that a lot of this activity is about placing the product on the shelf. From a consumption perspective if you see I’ll take about 8% of our assets comprise ETFs if I just take the ETF category. And within that under 1% comprise retail ETFs. So while 8% of our overall assets comprise ETFs, that 8% is equal to 7% plus 1%, one is an exaggeration, it’s a much smaller number of retail and then the balance 7% is institutional, most of which is EPFO money. So while from a product category, you’re correct, everybody’s trying to place the right product on the shelf, the product isn’t selling as much as one would have thought. For passives, obviously, the yields are smaller; one, of course, the intensity of activity is lesser for us and that’s really the core operating metric. But is that influencing yields or is that any meaningful force which is influencing the yields right now, the answer is no. The second thing is as far as NFOs are concerned, you know that category wise it is one scheme offering that is allowed. So a lot of the NFOs are around innovative categories. When they come up our job is to make sure that the lakhs of investors and some of these successful NFOs may get close to a quarter of a million or half a million investors coming in. All of them are onboarded accurately, all the initial setup activities are done, the accounts are managed and that investor successfully becomes our investor. We get about a total of 10 to 12 days to do that, but it’s an intense two or three day period when all of this concludes 80%, 90% of the traffic is to be handled. Once onboarded, it is part of the AUM and the transaction architecture through which we charge. So it just becomes part of the base. For the coming in category, there are some revenue left; so one is of course the new transaction, the NFO transaction is chargeable for us; and secondly whenever it comes in there are a lot of new investors to mutual funds who have to go through a KYC process. So those are small amounts of revenue that come in, but other than that after the NFO is concluded, all of that is part of the base asset quantum and the base transaction count quantum and continues to be charged like that. Lastly, on myCAMS, as you know, we have steadfastly kept away from any form of advisory, recommendations and we absolutely don’t do selling. Initially when myCAMS was designed it was supposed to work as just a digital investor service center. Over a period of time, it has got very smart tools and techniques which can tell you about your IRRs of holdings, your tax statements, grandfather taxes and those kind of things and gives a complete portfolio of view. But we do not sell, we do not recommend and therefore there is no distribution like activity not even a sliver of it and there is no revenue coming from any of that scope.
CAM Pay
So let me just clarify, “CAMS Pay” was incorporated as a subsidiary last year, but the payments business as such is very old, we’ve been doing it for more than a decade in CAMS, it’s run as a SBU in CAMS. In fact we have a line share of the SIP processing for the mutual fund industry. So the CAMS Pay business is up and running. In fact it’s one of the contributors to the non-MF business; it almost contributes 25% of the revenue for the non-MF revenue perspective. It’s a profitable business which is running predominantly on the ACH platform now and got enabled for other digital things like IMPS, Net Banking, UPI in the last few quarters. We are very bullish on the prospects of that. But just to clarify, it’s an existing business which is a profitable business, high EBITDA margins and currently run as a SBU in the parent company. Why we incorporated the subsidiary was to get a separate license and run it in the subsidiary but that’s on hold as of now but the business is very much live and running in CAMS.
NPS & CRA
It’s quite simple, unlike in the mutual fund market, here you get paid on almost a per consumer basis. So every consumer who signs up with you in e-NPS that will be almost a direct consumption by a consumer, so the consumer comes onto a CRA platform directly. For corporates and government it will be through a POP, POP is basically a selling entity, a point of presence. And therefore that selling entity has first got to integrate with us before we get the first consumer. So POP is a bulk acquisition. NPS will be an individual acquisition and we will get paid on a per consumer basis. So that is how the revenue build out will happen. Today, amongst the two incumbents, one of the incumbents is much older and therefore occupies a disproportionate share of the market and share of revenue. As far as e-NPS will be concerned, I think the consumer will go to the best provider, the most friendly app, the easiest onboarding and exit process. So that will be a more democratic kind of a marketplace. For the corporate and government because every POP is now integrated with one of the two CRAs and one to many architectures are not very common because it’s a tight coupling. We have to start finding out which of the POPs will be willing to come over to us either the ones who are getting registered new or the ones who are in the market already. So that’s how the market will play out. Displacement in the corporate and government sector will be slightly tougher. NPS will be a democratic market which will look almost the same for every provider. Will not matter too much whether someone came 15-years back or five years back or coming in today.
They may not switch over, correct. What the regulator is trying to do is again make it democratic, make it portable, so you can move technically the consumer can express his intent to move from one CRA to another, but yes, you’re right that’s like porting which will not be a very common phenomena.
The pricing in fact is publicly available on the PFRDA website. So there are three charges; one is the onboarding, the initial part of it get paid per transaction and there’s the AMC charge that we get.
So as far as commissioning, etc., is concerned, I don’t want to kind of comment on behalf of the AMCs but I can just give you general background statements. AMCs have long term strategies in terms of engaging with distribution and commissioning and then they will have short-term moves in terms of what they want to do in a month or a quarter or in a product class. In a general way you can say that AMCs have to manage expenses in a certain way but I don’t think that they are linked so closely or so tightly with what happens in one NFO what happens in a quarter. So right now we are not seeing any direct correlation of any kind with our yields and what the AMCs choose to spend, if they have chosen to spend more. That’s part one. Part two as far as FT is concerned just think of it this way that despite the very high level of automation and untouched by hand process execution, there is a significant amount of knowledge that this business needs. In fact we run a large knowledge worker shop because the entire architecture and mode of execution of mutual fund transactions is very nuanced, very multi-layered, very detailed and is a creative by experience, you just can’t get employee into a training room, training him for six months and believe that he’s as good as the rest because it doesn’t work like that. So when the FT contract was up obviously we were also interested in taking over the employees. And as far as FT was concerned they are a very employee-centric organization and they wanted uniformly positive rub offs on the business in every which way and they couldn’t think of a better way than to ask us to take over the employees. So that’s how the whole deal got structured. Those employees have now joined but there’s always some bit of contraction, but outside of that contraction those employees have joined. And one of the reasons why we’ve been able to kind of stabilize and make it steady within a matter of a few weeks is that the benefit of experience was with us. Without the benefit of experience it could have been a job with at least one more notch of complexity if two
AUM vs Yield
So broadly what we are seeing and what we have seen in the past is that there will be a depletion in the yields when there is an increase in the AUM and we don’t see that reversing. Yes, if there is a huge increase in the mix and not the 3% or 4% that I am talking about it’s probably much higher than that in terms of the mix and it becomes very favorable to us, you could come across a situation where the yield is not flattish or depleting. But what we have seen in our experience over the last few years has been that increase in the AUM, there has been a decrease in the yield and it’s kind of balanced out the increase in mix. So that’s the experience we have seen in the last few quarters for sure.
EBITDA Margins
While your point is right in terms of operating leverage, but what we have seen is that we continue to invest in resources and in CAPEX and in various other things, for example, the NFOs we saw the revenue part of it. From a cost perspective we have to do a short term hiring of more than a few hundred people to ensure that the data entry happens. So there is always an increase in cost that accompanies the increase in revenue. So while there is theoretical operating leverage available, the wage expansion because of either the salary increment that we have or because of the people that we need to get in for the volume increase or for the talent that we invest, all those things will suppress this to a large extent. So we do not see the EBITDA margins growing very high. We would assume that in a growth phase that we are seeing in a cycle like this more than 40 is probably to be expected, but our long term normal has been between 35 and 40.
What’s your view on the observation that the Account Aggregator pulls is a number which will scale UPI transactions? I thought AA comes into picture only when a loan enquiry is made, so how can AA volumes compete with UPI volumes. Or am I missing something?
You are right, the volumes should be more similar to CKYC, CIBIL data pull volumes rather than payment transactions.
I guess what the management meant was that it will scale quickly like UPI rather than reach the size of UPI. All lenders will quickly start using AA to get better visibility before lending.
I believe combined AA pull request would be proportional to & roughly equal to the combined new loan book across all banks & NBFC loan book in India, which I believe should be much less than UPI transaction volume/day but surely would scale exponentially.
Total loan requests i.e. new loans sanctioned plus the rejected applications, which approximates to the CIBIL / Credit Bureau enquiries as mentioned by @hack2abi above.
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)
Any negative news ? Company is going down since last three months ? Is value in the company intact ?
I don’t think there is any negative news. I saw a message in chat box of money control website under CAMS that HDFC AMC seems to have offloaded part of their stake in a bulk deal…
Whenever Any such bulk deal happens , naturally the short sellers/ traders try to make some money by shorting !
News needs to be confirmed from reliable sources.
NSE/BSE websites show that Great Terrain Investments (promoters) sold 3.5 million shares via bulk deals. No details on the buyer though…
Great Terrain is the promoter. So will it be a very negative news for CAMS that promoters offloaded 7.2% stake? Or is there any mandate for CAMs like companies where promoter has to reduce its stake? Any expert views on this?
Though I am not an expert on the subject…
I feel these kind of technology/ platform based mid-cap companies with unique business models are always attractive for investment with mouth watering ROCE/ ROE…but the structure of these companies are such that these are often involved in events like stake sell, bulk deal, exit of Anchor investors/ PE investors…
… If we invest in these kind of companies, we should be ready to face short term volatility due to these events…
… Unless, there is a serious corporate governance issue or if the company is reporting stunted growth quarter after quarter or there is a change in Govt policy/ business environment which could affect companies business.
For every sell, there is a buyer…today the new price of CAMS has been fixed by a bulk+ buyer who finds value in CAMS… @2750.
Discl : Invested @2100-2500 level…willing to remain invested for long term.
But will watch for company performance for next few quarters…and then take a call…
It is not an investment advice…please do your own assessment before investing .
Thanks a lot for the Insight All and 1957. I have been burnt few times that’s why i am entering in to this cautiously. Again reason for discussion is to understand the situation. Is there an example of similar situation ( so that we can relate. ) . With my limited knowledge , what I see if something is of real value , no big investor would exit that ( Unless regulatory mandate to reduce % of Stake) and even then price again go up or stabilises sooner , but this has been going down consistently. check attached price mvmt.
Disc: have very small quantity and would like to accumulate once get clarity on the topic.
