Why CAMS is Reducing Dependence on MFs? Diversification Strategy of CAMS

Computer Age Management Services is a technology-driven financial infrastructure and service provider. It is India’s largest RTA (Registrar and Transfer Agent) and reflects the performance of the mutual fund industry. The RTA acts as a mediator or agent between investors and AMCs (Asset Managing Companies) and keeps track of all mutual fund transactions of an investor, such as buying, redeeming, switching in, switching out, updating personal information, changing bank mandates, etc.

CAMS, which enjoys a strong position with a 70% market share in terms of Average AUM serviced in the RTA duopoly, is looking to diversify its revenue streams and not just depend on the mutual fund industry. It is a proxy play for asset management companies. So, if the industry does well, CAMS will do well. The company believes there is headroom for growth in the new business segments such as alternate investment funds, CAMSPay, and insurance repository.

The company primarily generates revenue by providing RTA services to AMCs and technology-enabled services to private equity funds, banks, and non-banking financial services. Its mutual fund clients include the top 5 AMCs as well as 10 out of the top 15 AMCs. Currently, the mutual fund business accounts for 90% of revenue.

CAMSFinserv is the account aggregator platform that provides account aggregator services to banks, NBFCs and investment advisors. The account aggregator collects and pools the information and then shares it with customers once they get consent from an individual to get one statement of all their financial holdings. The account aggregation industry in India is still at a growing stage. Thus, providing a huge opportunity for growth. The current monthly volumes of the Indian Account Aggregation industry are less than 1% of volumes occurring in developed nations.

CAMS Account Aggregator platform was launched ion Sep-21. It has already gone live with 5 banks and is in the process of adding a few more. The company has signed agreements with 15 clients who are currently undergoing integration. These new clients are across various use-cases such as lending, housing finance, MSME (Micro, Small and Medium Enterprises) lending, brokerages and wealth management platforms. So, the account aggregation platform can potentially transform lending in the waytransform lending like UPI did for payments.

In FY22, the company launched an onboarding platform for AIFs and PMS called CAMS Wealthserv. More than 30 funds have signed up for AIF/PMS digital onboarding with either CAMS or Fintuple, in which CAMS has recently acquired a majority stake. (Fintuple is a new-age startup that has launched niche technology offerings for AIF and PMS in the areas of client digital on-boarding, KYC, fund data, Fact sheets and analysis and other digital support solutions.) The company targets to take this count to over 100 by June-23.

AIF and PMS business is gaining a lot of traction in India in recent years due to its ability to generate higher returns for High Net worthHigh-Net-worth Individuals and Ultra High Net worthWorth Individuals by investing in real estate funds, venture capital funds and start-ups. According to CRISIL research, the AIF industry is expected to grow at a CAGR of 27-29% between FY22 and FY27 due to rising AIF inflows in AIFs. Simplification of procedures, RBI allowance of foreign investment, GIFT City and tax allowance are the potential drivers for the AIF industry in India.

CAMSPay provides payment services to mutual funds, banks, NBFCs and insurance companies. So, the company charges for every SIP, EMI payment and, and premium payment. India’s digital payment volume has grown at a CAGR of 50% in the past five years. Rapidly growing digital payments in India shows the huge potential for CAMSPay.

CRA (Central Record Keeping Agency) is an essential part of the NPS (National Pension System) industry and earns revenue through account opening charges, annual maintenance fees and transaction-based fees. NPS Industry in India has witnessed a robust growth of 33% in AUM during FY17 and FY22. According to Crisil Research, NPS AUM is expected to grow at a CAGR of 18% - 19% during FY17 FY22 and FY22FY27, driven by an increase in the subscriber base and due to this, Central Record Keeping Agency (CRA) industry is expected to reach Rs.170 Cr by FY27 from Rs.120 Cr currently. As of now, 50% of subscribers and more than 80% of NPS AUM are is contributed by central and state government employees, which shows a huge opportunity for from private sector employees. To take advantage of this fast-growing business segment, CAMS launched the CRA platform on Mar-22March 22.

The insurance industry in India is highly underpenetrated (just 4.2% as ofonof FY21) with very low usage of e-policies. CAMS repository opens e-Insurance accounts, primarily in the life insurance segment, and is also expanding its reach to the non-life & General Insurance segments expanding expanding its reach to the non-life & General Insurance segments as well. Recently, it has launched the ‘PolicyGenie Deep Contact Tracing product’, which leverages emerging digital technologies to track untraceable policyholders and update their contact information. The Insurance repository business lacked strong momentum in the past, but the recent regulatory push to mandate the issuance of e-policies will be a key driver. Currently, CAMS hasve has a 39% market share with 41 lakh policies, and this segment has potential by way of annual maintenance charges.

With mutual fund penetration in India at just 16% as against the global average of 63%, the Indian mutual fund industry is poised to grow well. As per CRISIL Report, the mutual fund industry is projected to sustain a high growth of 13%-14% CAGR between FY22 and FY27, reaching approximately Rs.74 trillion. There could be some headwinds to the mutual fund industry like regulatory risk, increased competition, pressure on yields, and new players entering the mutual fund space. But considering India’s financialization story and new business segments of the company, its the company will continue to do well in the long run.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell stocks or MF.

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