CAMS IPO ANALYSIS BY FINCAREPLAN

 

CAMS IPO ANALYSIS BY FINCAREPLAN

 

CAMS generally knew as COMPUTER AGE MANAGEMENT SERVICES. The company shifts itself to a public sector by an IPO through an offer for sale.

The issue size of IPO is rupees 2244.3 Cr for 1.82 Cr shares. They provide a special discount of Rs. 120 per share to employees.

The offer for sale is majorly is due to the redemption of NSE complete holding of 37.48% and Great Terrain becoming promoter with 43.5% share.

This article of us is not a promotional towards this IPO, rather before investing in a company, you should need to understand them,

·       Business Model.

·       Revenue growth

·       Assets and liabilities.

·       Fundamental and Intrinsic Value of the company.

We always mention that, “Invest on a company for its business and value and not on price or momentum in the market”.

 



CAMS IPO – BUSINESS OVERVIEW:

 

The company produces technology-based service for mutual funds industries. That includes,

·       Transaction

·       Dividend

·       Payment

·       Settlement

·       Brokerage compensation

·       Compliance

·       Electronic related services.

They are the biggest registrar and transfer agents of transactions related to mutual funds. They hold 70% of the market share leading front ahead of their competitor Karvy (27%) and Franklin (3%).

In addition to this, they also have footprints in serving other sectors

·       Loans against Mutual funds

·       Insurance companies.

·       AMFI

·       AIF & PMS

·       Banks

·       NBFC

The company has backed with Rs. 721.34 Cr for the FY 2019-20. The revenue split across operations are,

·       Data Processing (76.72%)

·       Customer Care Service (8.67%)

·       Recoverable (5.03%)

·       Miscellaneous Services (5.38%)

·       Software license fees, development, and Support (1.2%)

·       Others (0.3%)

 

CAMS IPO – FINANCIAL ANALYSIS:

 

Financial Statement - CAMS IPO

 

 

The above image is the pictorial representation of CAMS from FY 2016-17 to FY 2019-20 and Jun-2020.

The company’s asset has grown at a rate of 8.22% per annum in the last 4 years.

In the last 5 years, the revenue has grown at a rate of 12.8% and 4 years growth is almost 9.47%.

Profit after tax also have seen better growth in the last 4 years of 8.73%

 

Amid the COVID situation, the company has shown a sustainable business which equals the average quarterly sale of FY2019-20.

Since the company has acquired 70% of the market share, it behaves as a monopoly in its business.

As mutual funds and schemes are increasing day by day, CAMS is going to benefit.

Let us have a snap of how the mutual fund has grown in the last 5 years. The industry is growing at a rate of 14.87%.

 

Mutual funds - Market growth

 

 

CAMS 80% of revenue is generated through the mutual funds business. So, the company is looked to be in good shape for long term investors.

 



CAMS IPO – FUNDAMENTAL ANALYSIS:

 

As an intelligent investor, you should be focusing on calculating the value of the company by

·       Fundamental Earnings of the company

·       Excess cash per Share

·       Intrinsic value.

 

FUNDAMENTALS:

 

The current Earnings per Share (FY2019-20) is 35.57.

 The 3-year growth of EPS is 11.77%.

 

P/E Ratio: The Total number of shares the company holds is 4.88 Cr shares.

The current P/E ratio (FY2019-20) is 35.44.

This is a very high valuation in terms of more than 35 times the earnings per share.

ROE (Return on Equity) – 31.4% (last three years)

ROCE (Return on Capital Employed) – 34.44(last three years)

 

EXCESS CASH PER SHARE:

 

Excess cash per share is termed us the liquidable cash which a company has. This is the corpus which company holds after the investments, dividends, and all the expenses.

Excess cash is positive for a company.

 

Current Assets:

          Investments – 315.52 Cr

          Cash and Cash Equivalents – 2.92 Cr

          Bank Balance – 81.04 Cr

          Other Assets – 5.88 Cr

Fixed Assets:

          Investments – 0.55 Cr

          Property Asset – 63.27 Cr

          Other Assets – 71.7 Cr

Total Liquidable Assets (Current & Fixed) = 540.88 Cr

 

Total Liabilities – Rs. 307.26 Cr

 

Excess Cash (Liquidable) = Total Liquidable Assets – Total Liabilities

                                             = 233.62 Cr

So, Excess cash (Liquidable) per Share – Rs. 47.87

 

INTRINSIC VALUE:

 

With the growth of Revenue which has seen 12.87% over the last 5 years, the intrinsic value should be Rs. 656.

When we expect a growth of 20%, the intrinsic value will be Rs. 979.4.

These values are calculated without a margin of safety (MOS).

If we calculate with a minimum 20% margin of safety,

The intrinsic value will be ranging between – Rs. 524.8 to Rs. 783.53 per share.

So, as per intrinsic value calculation, the IPO price band is overvalued by 56%.

 



STRENGHT:

 

·       The company has a 70% market share in the mutual fund’s digital industry.

·       The 5 years revenue is growing by 12.87% per year.

·       The excess cash per share is 47.87%

·       There was significant growth in both EPS and PAT.

·       Strong fundamentals in cash flow and business management.

·       Strong ROE and ROCE have significantly seen.

 

WEAKNESS:

 

·       Apart from Mutual fund, the business other operational sectors like insurance and NBFC’s have started falling.

·       The revenue is from paper based Mutual Fund AMC’s. In recent days, many AMC’s are focusing on digital transformation. This might affect revenue growth.

·       High P/E of 35.44.

·       The IPO price of CAMS is 56% overvalued than the intrinsic value.

 

IMPORTANT DETAILS OF CAMS IPO:

 

·       IPO opening Date: 21 September 2020.

·       IPO Closure Date: 23 September 2020.

·       Face Value: Rs. 10 per Share

·       Issue Price band: Rs. 1229 – Rs. 1230 per share

·       IPO lot Size – 12 shares

·       Minimum Lot – 1 Lot – Rs. 14, 760.

·       Maximum Lot – 13 Lots – Rs. 1, 91, 880.

·       Finalization of Allotment – 28th September 2020

·       Initiation of Refund – 29th September 2020

·       Credit of shares to DEMAT Account – 30th September 2020

·       IPO Shares Listing in the market – 1st October 2020.

 



CONCLUSION:

 

·       Here we have a share of the details of CAMS as a company.

·       It is always insisted not to invest in a company with 35 times earnings.

·       Of course, in this bullish market, all the IPO’s are launched at a high price band.

·       IPO becomes complete speculation and the risk is totally in your hands.

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