Release Date: May 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Computer Age Management Services Ltd (BOM:543232, Financial) reported a strong quarter with the highest performance in many years.
- The mutual fund AUM scaled sharply to INR37.2 trillion, marking a 10% quarterly growth and 33% year-on-year growth.
- The company's equity AUM, representing the retail part of the franchise, grew almost 50%, indicating high profitability.
- Non-mutual fund businesses saw significant growth, with a 52% year-on-year increase in revenue.
- Overall EBITDA grew by 31% year-on-year, with an EBITDA percentage of 46.1%, indicating strong operational efficiency.
Negative Points
- Despite the strong performance, there is an expectation of potential moderation in profit margins in the coming quarters due to the annual appraisal cycle.
- The insurance repository business faces challenges as the current regulations do not mandate storing policies in Demat accounts, potentially slowing consumer transition.
- The non-mutual fund business, while growing, still contributes a smaller share to overall revenue, indicating a need for further diversification.
- There is a risk of pricing volatility in non-mutual fund segments due to competitive pressures and market dynamics.
- The company faces ongoing challenges in maintaining yields in the mutual fund business, with a noted 2.3% sequential decline in yield despite AUM growth.
Q & A Highlights
Q: On the insurance repository business, how will you drive consumers towards moving away from PDF copy towards EIA accounts?
A: Anuj Kumar, Managing Director: Digital issuance policies like email attachments or DigiLocker do not have the intelligence of an EIA account, which allows for managing all policies together, setting reminders, and making claims. The transition will involve creating financial infrastructure, ensuring seamless data exchange among insurance sector participants, and consumer adoption. This process may take a couple of years.
Q: Regarding the CRA business, how do you see the opportunity in the Atal Pension Yojana (APY) business?
A: Anuj Kumar, Managing Director: The APY business is a mass-market product with thin pricing, but we are excited about the opportunity. We have the capability to participate and will soon begin. The market penetration and numbers will become visible over time.
Q: Are there any major mutual fund contracts coming up for renegotiation in FY25?
A: Anuj Kumar, Managing Director: Typically, contracts hold out for three to five years. Some contracts are currently under negotiation, and we are in discussions with clients to establish a price regime for the future. This is a routine development.
Q: What caused the 2.3% sequential decline in mutual fund yield despite a 10% growth in AUM?
A: S. Ramcharan, CFO: There was no adjustment or significant price reduction. The decline is due to the growth in smaller scale customers. This normalizes over time, and no major change in assumptions is needed.
Q: Will the growth in non-asset-based mutual fund revenues continue?
A: S. Ramcharan, CFO: Non-asset-based revenues, including transaction fees, call center, and application fees, are expected to continue growing. Despite digitization, paper transactions remain steady, and other components are on an upward trajectory.
Q: What segments in the non-mutual fund business will see maximum growth in FY25?
A: Anuj Kumar, Managing Director: Pay, KRA, and AIF will lead the growth, with account aggregator also contributing. Insurance repository and Think360 could also participate if they achieve penetration and scale.
Q: How should we think about expense growth in FY25?
A: S. Ramcharan, CFO: Expense growth will be in line with previous years, around 15-18%. No exceptional expenses are planned, and investments in new platforms will continue at a steady rate.
Q: Can you provide the current headcount and split between MF and non-MF business?
A: S. Ramcharan, CFO: The current headcount is around 7,800, with 1,200 in front office MF, 2,500 in back office MF, 800 in technology, 100 in risk and compliance, and the rest split among non-MF businesses.
Q: What is the quality of margins between the MF and non-MF business?
A: S. Ramcharan, CFO: Non-MF margins have improved from 15% to over 20%, with a potential to reach 35-40%. The bulk of margin increase comes from the mutual fund business. We expect steady-state margins around 45%.
Q: What is the current cash position and plans for utilization?
A: S. Ramcharan, CFO: The cash position is INR 617 crore before the recommended dividend. After the dividend, we will have around INR 525-530 crore. The cash is available for shareholders, with potential use for dividends and inorganic growth opportunities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
