Stock To Buy: This Duopoly Financial Services Sector Stock Likely To Surge 46%

Computer Age Management Services Limited. Gets a buy call by Bonanza Research, a well-known brokerage firm. Bonanza Research suggests buy the stocks of the company for a target price of Rs 3,400 apiece. It sees potential gains of 46% if the investors buy the shares of the company at the current market price. Computer Age Management Services Limited is a financial sector company. It is a mutual fund transfer agency serving Indian asset management companies.

Stock Outlook & Returns

On 11 August, the share price of the company closed at Rs 2,368 apiece, after a jump of 2.65%. Currently, the stock is trading Rs 330.85 above the 52 week low of Rs 2037.15 apiece and Rs 1699.4 below the 52 week high of Rs 4,067.40 apiece, respectively.

Over the past 1 week, the shares of the company have fallen 3.06%. Whereas, in the past 1 month, the shares moved up by roughly 4.14% and in 3 months by 4.36%, respectively. However, over the past 1 year, the shares have fallen 23.83%. The stocks of the company got listed on the exchange in October 2022, and since then it has given a positive return of 68.97%.

The stock's TTM PE ratio is 43.27. PB ratio is 20.21. TTM EPS is Rs 54.73. The dividend Yield is 1.64% and the face value is Rs 10. ROE is 47.87%. Computer Age Management Services is a small cap financial services sector stock with a market capitalization of Rs 11,395.40 crore.

Q1FY23 Performance

Revenue/EBITDA/PAT grew by 17.5%/5.7%/2.4% YoY and -2.8%/-13.6%/-12.2% QoQ respectively. The decline in profitability was due to decrease in the valuation of the AUM after market correction along with increasing operating expenses which we expect will improve in next few quarters.

Asset based/Non-asset based/Non-MF revenue posted 15.9%/28.9%/15.3% YoY while -0.3%/-9.7%/-10.7% QoQ respectively. Equity share in total AUM increased to 43.2% in Q1FY23 from 41.4% in Q4FY23.

 

Key triggers for next level of growth

Strong growth potential in Duopoly RTA industry and high switching cost with strong client base of all the top 5 mutual funds and 10 of the top 15 mutual funds in India creates a strong entry barrier for Computer Age Management Services.

Rising proportion of high yielding equity segment (43.2% by Q1FY23, which is expected to reach above 50% in next 2-3 years).

Increase in the market share of new SIP registrations to 61% in Q1FY23 (No. of SIPs - 28 Lakh) from 55% in Q1FY22 (37 Lakh).
Increase in contribution from AIF & non-MF business [9% of total revenue] to offset volatility in the MF business.

According to the Bonanza Research

Computer Age Management Services reported inline revenue growth (17.6% YoY, while marginal dip of 2.8% QoQ) in Q1FY23, but EBITDA saw de-growth of 14% QoQ.

Despite short term headwinds like reducing equity inflows and drop in valuation of AUM after market correction, high operating expenses, we continue to like Computer Age Management Services for medium-to-long term primarily due to -

1. Huge growth opportunity for duopoly RTA market (15-20% AUM growth estimated for the next 3 to 5 years), significant entry barriers, high switching costs along with retaining its market leadership (69% by Q1FY23).
2. Increasing share of high yielding equity segment (41.4% by Q4FY22 to 43.2% by Q1FY23) and beating industry growth as well (Industry equity AUM grew by 29%/0.1% YoY/QoQ while CAMS posted AUM growth of 35.1%/2.6% YoY/QoQ respectively).
3. Computer Age Management Services  share in New SIP registrations increased to 61% in Q1FY23 (28 Lakh) from 55% in Q1FY22 (37 Lakh).
4. Achieved #2 position in e-NPS just after its launch in Q4FY22 followed by market share gain of 10.3% (in terms of e-NPS registrations).

Over FY22-25E, we expect the company to deliver Revenue/EBITDA/PAT CAGR of 16%/14%/13% and EBITDAM/PATM/ROE/ROCE of 46%/29%/47%/68% respectively for FY24E.

Buy for target price of Rs 3,400 apiece

The brokerage said, "We expect that a lot of downside has already priced in but uncertainty in the markets is still prevailing. We believe Computer Age Management Services has a huge potential to grow so we maintain a BUY, 45x PE (its average since listing) on FY24E EPS of Rs 75.6, for a target price of Rs 3,400 for the potential upside of 47%."

About - Computer Age Management Services Limited

Computer Age Management Services  is a technology-driven financial infrastructure and services provider to Mutual Funds and other financial institutions for over two decades. As the market-leading Registrar and Transfer Agency to the Indian Mutual Fund industry, Computer Age Management Services serves 69% of the average assets under management - as of June 2022. Computer Age Management Services also provide technology-enabled service solutions to Alternative Investment Funds and Insurance Companies. Besides serving as a B2B service partner, Computer Age Management Services also serves customers through a variety of touch points such as a pan-India network of service centres, white label call centre, mobile app, online and chatbot.

Disclaimer

The stock has been picked from the brokerage report of Bonanza Research. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.