Computer Age Management Services
Computer Age Management Services is coming out with a 100% book building; initial public offering (IPO) of 1,82,46,600 shares of Rs 10 each in a price band Rs 1229- 1230 per equity share.
Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
The issue will open for subscription on September 21, 2020 and will close on September 23, 2020.
The shares will be listed on BSE.
The face value of the share is Rs 10 and is priced 122.90 times of its face value on the lower side and 123.00 times on the higher side.
Book running lead manager to the issue are Kotak Mahindra Capital Company, HDFC Bank, ICICI Securities and Nomura Financial Advisory and Securities (India).
Compliance Officer for the issue is Manikandan Gopalakrishnan.
Profile of the company
The company was incorporated as ‘Computer Age Management Services Private Limited’ on May 25, 1988 at Madras, Tamil Nadu as a private limited company under the Companies Act, 1956, and was granted the certificate of incorporation by the Registrar of Companies, Tamil Nadu at Chennai (RoC). The company became a deemed public limited company under section 43A of Companies Act, 1956 on April 15, 2000 and the name of the company was changed to ‘Computer Age Management Services Limited’ and the certificate of incorporation of the company was endorsed by the RoC to that effect. The company became a private limited company, pursuant to Section 43A (2A) of Companies Act, 1956 with effect from March 29, 2001 and the name of the company was changed back to ‘Computer Age Management Services Private Limited’. The certificate of incorporation of the company was again endorsed by the RoC to that effect. Subsequently, the company was converted from a private limited company to a public limited company, pursuant to a special resolution passed by the company Shareholders at the EGM held on September 9, 2019 and the name of the company was changed to ‘Computer Age Management Services Limited’. Consequently, a fresh certificate of incorporation was issued by the RoC on September 27, 2019.
The company is a technology-driven financial infrastructure and services provider to mutual funds and other financial institutions with over two decades of experience. With the initiative of creating an end-to-end value chain of services, the company has grown its service offerings and currently provide a comprehensive portfolio of technology based services, such as transaction origination interface, transaction execution, payment, settlement and reconciliation, dividend processing, investor interface, record keeping, report generation, intermediary empanelment and brokerage computation and compliance related services, through its pan-India network to its mutual fund clients, distributors and investors. It also provides certain services to alternative investment funds, insurance companies, banks and non-banking finance companies. The nature of company’s services to mutual funds spans multiple facets of their relationship with their investors, distributors and regulators. By providing a range of services, it plays an important role in developing and maintaining its clients’ market perception.
The company’s technology driven infrastructure and services are integral to the operations of its clients. Its solutions help reduce the need for its clients to make significant investments in operational infrastructure, thereby allowing them to increase their focus on their core business activities. The company offer an integrated and customized portfolio of services through its pan-India physical network comprising 271 service centers spread over 25 states and five union territories as of June 30, 2020, and which are supported by call centers in four major cities, four back offices (including a disaster recovery site), all having real time connectivity, continuous availability and data replication and redundancy. Further, it offers many of its services online and through its several mobile device applications, to investors, clients, their distributors and their channel providers. The continued development of proprietary platforms and applications has furthered company’s competitive technology advantage.
Proceed is being used for:
Carrying out the Offer for Sale of up to 18,246,600 equity shares by the selling shareholder.
Achieving the benefits of listing the equity shares on the BSE.
Industry overview
The aggregate assets under management (AUM) of the Indian mutual fund industry has grown consistently over the past 10 years, against the backdrop of an expanding domestic economy, robust inflows, and rising investor participation, particularly from individual investors. Mutual fund assets in India have seen robust growth, especially in recent years, driven by a growing investor base due to increasing penetration across geographies, strong growth of the capital markets, technological progress and regulatory efforts aimed at making mutual fund products more transparent and investor friendly. India’s mutual fund penetration (AUM to GDP) is significantly lower than the world average of 63% and also lower than many developed economies such as U.S. (120%), Canada (81%), France (80%), and UK (67%), and even emerging economies such as Brazil (68%) and South Africa (48%). Low penetration of mutual funds in India is also evident from the equity mutual fund AUM to GDP ratio of 5% compared with 75% in U.S., 55% in Canada, 40% in UK, and 18% in Brazil.
Between April 2016 and July 2020, the monthly amount invested through SIPs has risen from approximately Rs 31 billion to approximately Rs 78 billion. Such an increase is the result of low contribution minimums increasing accessibility to lower income households. This is reflected in an increase in the number of SIP accounts to 32.7 million in July 2020 from 21.1 million in March 2018. Further, the mutual fund industry added roughly 982,000 SIP accounts each month in financial year 2020. The mutual fund industry collected approximately Rs 1 trillion in financial year 2020 through SIPs which was 8% higher than Rs 927 billion collected in financial year 2019. In the first quarter of financial year 2021, SIP contributions to mutual funds reached approximately Rs 244 billion. As of July 2020, the aggregate SIP AUM was approximately Rs 3.2 trillion or 11.8% of the total industry AUMs.
Pros and strengths
Largest infrastructure and services provider in mutual funds market: The company is India’s largest registrar and transfer agent of mutual funds with an aggregate market share of approximately 70% based on mutual fund AAUM managed by its clients and serviced by it during July 2020. The nature of company’s services to mutual funds spans multiple facets of their relationship with their investors, distributors and regulators. By providing a range of services, it plays an important role in developing and maintaining its clients’ market perception. The company’s operating model has assisted in contributing to the growth of its mutual fund clients by providing real time, uninterrupted, pan India services. Its mutual fund clients include four of the five largest mutual funds as well as nine of the 15 largest mutual funds based on AAUM during July 2020. As a result of company’s domain expertise, established processes, technology driven infrastructure and marquee clients, it is well positioned to capitalize on such growth.
Integrated business model and longstanding client relationships: Utilizing company’s diverse portfolio of technology enabled services and leveraging its pan-India physical network, domain expertise of the Indian financial services ecosystem and a comprehensive risk management system, the company has built an integrated business model and has longstanding client relationships in its mutual funds services business. Its business model and client relationships offer it several key advantages. The company offers an integrated business model wherein its portfolio of services offered and its pan-India physical network enable its clients to leverage its technology-driven financial infrastructure thereby reducing the need for them to make significant investments to develop and offer such services. Further, it is challenging for company’s clients to replicate its ecosystem in-house and moving to a competitor is time consuming and disruptive.
Scalable technology enabled ecosystem: The company’s competitive technology advantage stems from the capability, functionality, integration and scalability of its proprietary platforms, which deliver breadth and quality of service and cost efficiencies. Its proprietary platforms are built to absorb growth in the number of investors, assets and trading volumes. From handling over 98 million transactions in the financial year 2015, it handled over 328 million transactions in the financial year 2020. The continuing investment in its proprietary IT platforms continues to strengthen this competitive advantage by further increasing operating leverage, driving ongoing innovation, anticipating industry developments and delivering increased efficiencies while continuing to provide its clients and other stakeholders with its integrated services. The company’s technology driven infrastructure is integral to the operations of its clients. its solutions help reduce the need for its clients to make significant investments in infrastructure, thereby allowing them to increase their focus on their core business activities.
Strong focus on processes and risk management: The company’s clients are regulated financial institutions and the services it provides to them must be accurate, timely and continuous, secure and technologically advanced as they are considered to be necessary to the functioning of financial services industry. In its mutual funds services business, the company assists its clients with their compliance requirements, including submission of reports to regulators. It continuously monitors its systems and processes and endeavor to not only benchmark them against Indian competitors but also incorporate industry best practices and technological advancements in its operations. The company’s relentless focus on systems and processes has contributed significantly to its growth and allowed it to become a trusted provider of services to its clients and other stakeholders. The company continues to automate processes and enhance its systems and risk management to try to ensure that all its obligations and regulatory requirements are fulfilled on a timely basis and without error.
Risks and concerns
Derives significant portion of revenue from mutual funds services business: The company derive a significant portion of its revenue from its mutual funds services business. A substantial portion of the fees that the company charges its mutual fund clients is calculated and charged on basis points of the AAUM of the funds serviced by it. Its fee structure therefore is not directly linked to its expenses and it may incur costs that it may be unable to pass on to its clients. In addition, the fees that the company charges its clients differs between asset classes of mutual funds. Further, the amount of investments held by investors through its clients, the level of investor transactional activity it process on behalf of its clients, trading volumes, market prices, and liquidity of the securities markets are affected by general national and international economic and political conditions, and broad trends in business and finance that result in changes in participation and activity in the securities markets.
Derive significant portion of revenues from few clients: The company is dependent on a limited number of mutual fund clients for a significant portion of its revenues. The company’s contracts with such mutual fund and AIF clients are typically perpetual in nature, unless terminated by either party. For its other clients the validity for such contracts ranges between one to three years. It negotiates pricing terms with these clients on a periodic basis and its contracts permit them to terminate their arrangements with it by providing three to six months’ written notice, after which they may engage the services of its competitors. The loss of one or more of company’s significant clients or a reduction in the amount of business or fees it obtains from them or an adverse change in the determination of the fees that it receive from them could have an adverse effect on its business and results of operations.
Face competition: The markets for company’s services continue to evolve and are competitive. It competes with a number of entities that provide similar services in each of the business lines in which it operate. The company’s competitors may be able to respond more quickly to new or changing opportunities, technologies, and client requirements and may offer better technological services, more attractive terms to clients and adopt more aggressive pricing policies than it will be able to offer or adopt. In addition, the markets in which the company competes will continue to attract new competitors and new technologies, including international providers of services similar to its. The company competes on the basis of a number of factors, including execution, depth of product and service offerings, innovation, reputation, price and convenience. If the company fails to compete effectively, its market share could decrease and its business, results of operations and financial condition could be adversely affected.
Dependent on number of key managerial personnel: The company’s performance depends largely on the efforts, expertise and abilities of its key managerial personnel, senior management, and its operational personnel who possess significant experience in the industry in which it operate. The inputs and experience of company’s KMP and senior management, in particular, and other key personnel are valuable for the development of its business, operations and the strategic directions taken by the company. It cannot assure you that these individuals or any other member of its senior management team will not leave it or join a competitor or that it will be able to retain such personnel or find adequate replacements in a timely manner, or at all. The company may require a long period of time to hire and train replacement personnel when qualified personnel terminate their employment with the company. Moreover, it may be required to substantially increase the number of its qualified personnel in connection with any future growth plans, and it may face difficulty in doing so due to the intense competition in the asset management industry for such personnel.
Outlook
Computer Age Management Services (CAMS) is a technology-driven financial infrastructure and service provider. It is India's largest registrar and transfer agent of mutual funds. The company currently provides technology-based services including dividend processing, transaction origination interface, payment, transaction execution, dividend processing, intermediary empanelment, report generation, investor interface, settlement and reconciliation, compliance-related services, and brokerage computation. It has developed in-house and own Investrak.NET, a mutual fund transfer agency platform, myCAMS, a mobile device investor interface application, GoCORP, a distributor focused application, and MFDEx a market intelligence product/information database, among many other services. The company’s management team has extensive experience in a variety of financial services sectors, with a demonstrated ability to grow and diversify its business and innovates its services. On the flip side, the company relies heavily on its existing brands and, specifically, the ‘CAMS’ brand name, the dilution of which could adversely affect its business and prospects. Besides, the company relies on third-party service providers in order to conduct its business in several of its areas of operations. If the standard of services provided by such third parties are inadequate or not in compliance with applicable guidelines, it could suffer reputational harm, which may adversely affect its business and prospects.
The issue has been offered in a price band of Rs 1229-1230 per equity share. The aggregate size of the offer is around Rs 2242.50 crore to Rs 2244.33 crore based on lower and upper price band respectively. On the performance front, the company’s total income increased by 1.3% to Rs 7,213.43 million for the financial year 2020 from Rs 7,118.08 million for the financial year 2019 due to an increase in revenue from operations and other income. The company’s profit for the year increased by 32.5% to Rs 1,734.56 million for the financial year 2020 from Rs 1,308.95 million for the financial year 2019. A key element of company’s business strategy is to continuously enhance the scope of its service offerings in its core mutual fund registrar and transfer agency business and further deepen integration with its clients and improve value delivery. Through automation, the company targets to not only improve cost efficiencies but also enhance customer experience. It is currently engaged in several automation projects, including automation of subscription reconciliation, purchase and SIP processes, document receipts and storage.
