CAMS non-mutual-fund growth and AI automation support earnings visibility

Investment View and Valuation

Motilal Oswal Financial Services reiterates its Buy view on Computer Age Management Services Limited (CAMS) following the 1QFY27 results. The broker believes CAMS is well positioned for healthy earnings growth, supported by stable asset-based yields, mutual-fund market-share gains, AI-led automation, disciplined cost management and a rising contribution from high-growth non-mutual-fund businesses.

Motilal Oswal has largely maintained its estimates after the quarter and revised its target price to Rs 940, valuing CAMS at 36 times FY28E price-to-earnings. It forecasts revenue, EBITDA and PAT CAGRs of 11 per cent, 14 per cent and 16 per cent, respectively, over FY26-28E.

1QFY27 Financial Performance

CAMS reported operating revenue of about Rs 4 billion in 1QFY27, up 12 per cent year-on-year and flat quarter-on-quarter, although it was 4 per cent below Motilal Oswal's estimate. Mutual-fund revenue grew 9 per cent year-on-year to Rs 3.4 billion and contributed about 85 per cent of revenue, while non-mutual-fund revenue increased about 28 per cent year-on-year.

Mutual-Fund Franchise and Market Position

Mutual-fund average assets under management rose 15 per cent year-on-year to Rs 56 trillion in 1QFY27, while CAMS retained around 67 per cent market share. The equity mix increased to 56.1 per cent, with equity AUM rising 18 per cent to Rs 31.4 trillion.

SIP collections increased 21 per cent year-on-year to Rs 597 billion, ahead of industry growth of 17 per cent. Transaction volumes rose 20 per cent to 292 million and investor folios increased 19 per cent to 116.2 million. Equity net-sales share improved to 68.2 per cent, while CAMS's unique investor base rose 17 per cent to 48.5 million, compared with industry growth of 12 per cent.

One new AMC, Alpha, went live during the quarter. Carnelian, Oaklane and Nio are expected to go live before December 2026.

Management Guidance and Pricing Outlook

Management retained its FY27 guidance for about 13 per cent revenue growth, about 16 per cent EBITDA growth and a PAT margin of 30-31 per cent. Asset-based yields were stable sequentially, with FY25 pricing resets largely absorbed. Management expects only a limited impact from pending AMC renewals, although it continues to forecast long-term annual yield compression of 2.5-3.0 per cent.

Deferred annual salary revisions, equivalent to about 2 per cent of revenue, will affect 2QFY27 costs. Nevertheless, FY27 operating-cost growth is expected to remain below 10 per cent, with employee-cost growth near 5 per cent.

Non-Mutual-Fund Growth and Profitability

The non-mutual-fund business is expected to sustain growth above 20 per cent through FY27, led by Payments, Alternatives and KRA. Payments grew about 70 per cent year-on-year, driven by cards. Alternatives grew in the mid-20 per cent range, with AUM above Rs 3.2 trillion and 50 new mandates.

KRA revenue was weak following pricing cuts but is expected to recover from 2QFY27. Non-mutual-fund EBITDA margin fell to about 13 per cent in 1QFY27 because of KRA weakness and losses in emerging businesses. Management expects the margin to reach about 17 per cent by FY27-end and move gradually towards 20 per cent.

Account Aggregator, Pension and CAMS Repository remain loss-making, while Think Analytics is nearing EBITDA breakeven. At least one loss-making business is expected to turn quarterly EBITDA positive in FY27.

Technology Investment and Automation

Technology investment remains a further operating lever. Platform migration is on track for completion by FY27-end. AI processing has been deployed across four transaction types and handles about 10 per cent of transactions. Management targets 100 per cent maker-level AI processing within 12 months.

Automation is expected to deliver 4-5 per cent productivity gains in FY27 and about 100 basis points of annual EBITDA-margin expansion, potentially reaching 150 basis points with strong execution. Cloud and AI infrastructure costs will partly offset this benefit.

CAMS guides for Rs 750 million of FY27 on-premise capex. Its Rs 5 billion re-architecture project, of which Rs 2.9 billion has been capitalised, is expected to add depreciation of Rs 40-50 million in FY27 and Rs 120 million in FY28.

Growth Options

The SIF platform has crossed Rs 120 billion of AUM, with about Rs 10 billion in monthly net sales and roughly 50,000 investors within 10 months of launch. CAMS has received in-principle approval for KRA operations in GIFT City and is applying for a Payment Service Provider licence.

The GIFT City retail platform has onboarded about 10,000 investors and Rs 7.5 billion of AUM.

Key Risks to the Investment Thesis

• Continuing compression in asset-based yields.
• Volatility affecting mutual-fund revenue and AUM.
• Further KRA pricing pressure.
• Weaker execution in non-mutual-fund businesses.
• Ongoing losses or higher technology costs in emerging businesses.