Computer Age Management Services Limited (CAMS) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Computer Age Management Services Ltd. Q2 and H1FY27 Earnings Conference Call. As a reminder, all participant clients will be in the listen-only mood and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touchstone phone. I now hand the conference over to Mr. Nikunj Seth from NUSG. Thank you, and over to you, sir.

Thank you, Huda. Good morning, everyone. Welcome to Q2 and H1 F527 earnings conference called Computer Before we proceed to the opening remarks, I would like to give a small disclaimer that this conference may contain certain forward-looking statements about the company which are based on beliefs, opinions, and expectations of the company. These statements are not guarantees of future performance and involve risk and uncertainties. A detailed disclaimer has been published in the investor presentation. Now, I would like to hand over the conference to Mr. Anuj Kumar for his opening remarks. Thank you, and over to you, sir.

Good morning, everyone, and thanks, Nikunj. Thanks, everyone, for joining this 2Q 527 earnings call of CAMPS. And the presentation would be with you now. I will take you through the initial highlights of the quarter and how the business transpired. Broadly, operating revenue at the enterprise level grew 10% year on year to become $415 crore. This is the first time we've crossed the 400 crore mark. And in a quarter which wasn't very easy, because you've seen the markets and you've seen the trends in AUM, et cetera, I think this is fairly creditable, and I'll get to the various components as I progress. On this 10% year-on-year revenue growth, EBITDA increased by 13.5% to almost 191 crore. Do keep in mind that this 191 is after absorbing a large-scale employee increment, which we had deferred from first quarter to second. So that cost was incurred in the second quarter. Also, the fact, so we're speaking about margins, EBITDA increased on this 10% revenue increase year and year. EBITDA increased 13.5%. This was after taking the cost of employee increments, which happened in the second quarter. Also, there is a component of about 4 crore rupees, which is, and we'll speak about that in detail, which is cost incurred on the new platform, which is now slowly coming into the P&L. So this 191 has to be read in the backdrop of that. EBITDA margin, 40 basis, I think is that typically in good quarters, we've had 20% and even higher than that. And therefore, you expect baseline results. This time, the asset growth was just north of 12%, so significantly worse than that in line with the industry. However, producing this quality of results, both in the revenue and the EBITDA side, I think is fairly credible. So a lot of you continue to ask us questions on what will happen if it wasn't such a strong quarter. I think this is a great example of a quarter. We did not see significant AUM growth in line with the past, but the financial results have vindicated how solid the model is. The back of the allocation outside of mutual funds was not as significant as what it is today. I think a lot of this financial gross contribution has been driven because of what's happened in the non-MF business in the past trailing 12 quarters. In most of the quarters, we've reported in excess of 20 percent annual growth in the non-MF business, and we are confident this will continue to happen. The good news is that this is not a cash-guzzling business. The margins continue to improve. So overall, non-MF business is about half years back. The MF and non-MF side, CAMS MF AUM, 8.5 lakh crore, 67% market share. But I think what is significant in this is that the equity AUM grew 15.5%. Why did this happen? If you reflect on the equity net sales for the last one year, Even longer, but I would say just look at it over the last one year, our share in equity net sales is upwards of 70%. So that's driven the growth in equity MFAUM. Now, SIP collections, I'm talking of the gross number, not the net number. But in the quarter, SIP collections grew 16.5% year-on-year. This is against the industry 12.4% number. So, again, you can look at it at a gross basis. Overall assets grew 12.1%. Equity AUM grew 15.5% ahead of the industry. Within that, SIP collections gross grew 16.5% against industry of 12.4%. So significant, you know, significant lift over the industry. This number is 70% of the industry in the last one year. So, all of this contributed to equity, still live SIPs. So, again, from a foundational metric, high teens growth, this was not even a teen at 14.5. The other trends which became visible, SIF new product class, almost 12 of our AM season now launched SIFs. Overall, AUM at 20,000 crores. Still early days, we were kind of getting to about 1 lakh investors, But we believe that from a portfolio diversification perspective, this will become a hugely popular product. Also, Gip City retail funds continue to scale. Five launches have happened. Two more, two to three more, will happen in the current quarter. So the AUM crossed 1,500 floor. I would again say early days, but the promising product allows you, and a lot of this is outbound. A lot of this is outbound domestic investors investing in FOFs or ETFs overseas through the Gibbs City architecture. So that's done well. InCred, AMC appointed CAMPS as its MFRTA, a fairly significant win for us. So we get with this from a client count perspective to 32 out of 64 licensed AMCs. You know that at one time, while our market share has been high 60s, early 70s, the count of AMCs was smaller. I think in the last two, two and a half years, we have flattened that complete license AMCs, and if you reflect on the logos in the last three to four years, we went live with the maiden funds, and Oakland and NIO in quarter, which is 3Q. So that will kind of continue from a new AMC and new AMC, and we'll continue to give support as much as we need from a new logo perspective. On the beyond mutual funds, non-MF revenue contribution grew to just short of 16%, 150 basis points up. But I would say that underneath the hood, some very strong trends, camps, pay grew in excess of 50% year-on-year, 13% quarter-on-quarter. Both the base, you know, recurring payments through Natch, E-Natch, and U-Pay AutoPay and the newly, you know, grown and growing carts business, both have done very well. Significant client addition, so we don't believe that any of this is either one time or will stay this way, will continue to scale. Alternatives, again, great story. I've been telling you that this year on year, revenue growth, no marquee relationships. So you will see that a lot of these businesses are with the non-capital market revenue. Alternatives is capital markets, but a lot of it is derived from non-MF AMCs. Those are not the AMCs. And when you look at KIA, they're five of the top actively doing business with us. We may not have 50 or 60 percent market share with them. We may have 10 to 25 percent, but it's a very nice break-in. And the reason we've shown you quarter-on-quarter revenue growth, because in the year-on-year numbers, there was that large fee remission of 20% plus that we had taken in the first quarter. So we believe Q&Q is a relevant number. Again, nothing one-off, nothing one-time. This is just native growth. And, again, given the fact that capital markets have had their share of headwinds, I think all of this is fairly creditable. I will get to the repository. We crossed 15 million, one-and-a-half crore DMAT policies. The important thing is that Beamer Central now has a module for brokers. So you can get to the CAMS app and the CAMS website and do your work, but you could also get to these brokers who are active sellers of insurance, and they are now driving to things, now start doing transactions on Beamer Central. Of course, it's like a bite-libered solution on their apps and their websites. So that's good. We expect that trend to continue deepening. Also, while it's early days, I don't want to start calling out the impact of potentially new regulation, et cetera. But you guys are aware that there is actually a possibility that this industry may go heavily into a digital format. It will continue to remain a sold product, a significantly sold product, not a short product. But digital interventions, do-it-yourself, et cetera, will become, is likely to become a lot more deeper and abiding, and we believe we are in the best place to take this journey forward for the industry, the single player which has this significant servicing layer on top. So again, like I said, early days, all of the story should likely unravel itself in the next two or three quarters. We'll keep you posted. Thank you. We will talk about this in more detail, perhaps, in the ensuing months when something solid has happened. But I think both in AA and in insurance, during DPDP implementation, we are focusing on the BFSI segment under implementation with 20 clients. We believe, of course, significantly, maybe 10 to 20x from these 20 clients to become meaningful in our product and business summary. But a very good start, a lot of mutual funds, broken houses, NBFCs, those kind of people have opted. Almost half of them would be mutual funds, I would say, the half are other entities. But it's a great start. We went into this market seriously, maybe in the month of April, May. So building it out is a great capability to have on the side as we move forward. On the technology side, I think some of the metrics are visible to you. But I will just say that the progress is very good and very strong. And some of this, I will not claim you're seeing it in the financial results already. A bit of it you are, but in the next three to four quarters, every quarter, starting from this quarter, you will see those things happen. So from a modernization, new launch perspective, FundsNet is really the face of the RTA utility, Because this is how the transactions, you know, millions of transactions every day come in. This is all gone live. We are planning to sunset the legacy utility by March, April. This will spread significant productivity in the organization. It will spread significant productivity, more importantly, in the MF industry, where time and effort taken by people, by brokers, by aggregators, by platforms, by AMCs, Their branches, their operations teams will significantly reduce, so it is productivity-enhancing for the entire industry and, of course, for CAMs. On the form reading, data reading, I think the use cases are already deployed. We've spoken a little about it. You've seen some impact on our headcount. We've continued to grow on falling headcount this year after April. You will continue to see that trend as we progress. We're also seeing rub-off benefits and lower complaints, et cetera. AI's ability to read written characters is very good. Of course, we have not taken out the maker yet. We've only taken out the checker in some cases. But after seven or eight months of having this in production after March, April, we are very convinced that this is the way to go, so we will continue deepening this. After CAMS lens, some of you I know have been in a closed user group, et cetera, with us testing this out. NISM adopted this as the AI Power Training Partner for compliance for themselves and for their students. So it becomes part of their pedagogy platform, which is good news for us. Platforms for GiveCity, you know, GiveCity platforms are complex because the way you do KYC, the way money gets transferred, there's forex involved. All of these things are the quality of APIs you build are very different. All of this is now getting done through the new utility. We also built out KYC Hub. Some of you may have seen this in the GFF, which is our new KYC platform, again, finding a lot of adoption across the industry. So very strong progress on the new platform side. I just think that it's probably 30% done. It's probably about, in all of the hours, 30% done. But the impact is already visible to us. I think the headcount impact is in the financials. A lot of that will become, you know, stronger and stronger. But for performance, quality of integration, quality of tech in the market, time taken to conclude anything, all of those things, time taken to build a new utility or a new app, time to onboard customers, curate or cure, you know, for all of that, just seeing a significant lift.

We've gone through the financial highlights. I'd just like to reiterate a few points, especially with regard to AEM2 growth and the question on yields. I think it's been a reasonably stable quarter with regard to yields. I think we have always guided that you will see some quarters, you will see a 3 to 3.5% drop in yields, but I think quarter-on-quarter you'll get much better. The drop in yields is less than a percentage. Year-on-year, due to a combination of factors, one is obviously the scale-based pricing because the assets have grown almost 7 lakh crore on a year-on-year basis, and also because of the mix, which is that you do have less of debt and more of passives in this mix, although both are almost like a similar number in terms of absolute AUM. So because of that, you will see, and it's well within the range that we have predicted, the yield drops around 3% year-on-year and less than a percentage on quarter-on-quarter basis. No big pricing corrections have happened, and as we have said, there are some negotiations happening. A couple have been closed. A couple are in progress. So there is no big price correction that's happened. Nor do we expect something large to happen in the next few quarters. In terms of a non-NEMF growth, I think, as Anuj mentioned, it's been an excellent quarter, 21% year-on-year growth, 11% quarter-on-quarter growth. CAMSPAY has done very well, and we have kind of – and KRA has bounced back. Care is bones packed in terms of its revenue growth. So this is kind of very beneficial from the overall non-mutual fund profitability perspective. We had said that, you know, we will try to exit the year with a close to 20% profitability. Happy to say that even in the last quarter, given the mix of growth that we have seen in the non-mutual fund business, the non-mutual fund profitability is upwards of 18%, right? So which means it's a very good development from a profitability perspective. So not only are we scaling non-mutual fund businesses, we're also scaling it profitably. And you've seen also from an expense growth perspective, we had guided in the initial part of the year that, you know, we will try to keep it less than 10%. Happy to say again that the expense growth on a year-on-year basis has been little more than 7%. And as Anuj pointed out, this is the quarter in which we have also given the annual appraisal. So that is an 8.5 crore impact, which is almost a 2% impact. And in spite of that, our expense growth even on a quarter-on-quarter basis is only 7%. So well on track, aided by productivity And some improvements happening because of deployment of re-architecture platform in AI. And as Anuj mentioned, this is going to be a sustained kind of a moment. It's not a one-off thing that we are seeing. So expenses well under control. I think yields are broadly in line with what we had predicted. We see no big strain on the yields going forward also. And the non-mutual fund growth diversification well on track with a 20% plus growth. We are at a 16% almost non-mutual fund proportion of sales. And as we said, our target is to get to 20% within the next couple of years. From a cash position, we entered the quarter of the very comfortable 900 crude cash position. This is after paying over 160 crores of dividend during the quarter for the earlier two quarters. And we've also declared a 3.25 rupees dividend as an interim dividend. Overall, I think very strong cost control measures. We have rationalized a lot of things, aided by technology productivity.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembled. The first question is from the line of Swarnab Mukherjee from 361 Capital. Please proceed.

Yeah, thank you for the opportunity and congratulations on a good set of numbers. I have two primary questions. One is on the I mean, both on the anonymous part of the business. So first wanted to ask on CAMP pay. So I think CAMP pay has delivered fairly strong growth for multiple quarters. And as we move ahead for the second of the year, I think the base is reasonably So, I just wanted to understand from you what underlying trends you are seeing and would you expect a similar kind of a growth momentum to be maintained in this or would we see some like natural modulation in growth because we are sitting on a very high rate and if the growth is likely to continue to highlight some, you know, what are the drivers of the So, that is on pay, and the second is on KRA. After last quarter in the call, we had discussed that, you know, you have some additional fetch-oriented revenue that has now started to get price. And so I just wanted to understand that this bounce back in CAMS-KRA, how much of this is attributable to, you know, the higher number of activity, higher amount of activity that was there in the market and to this, you know, additional pricing benefit that we are getting. And how should we think about this number? Should we roughly think about this to continue at a 100 pro plus kind of level at the quarter? These are no questions.

So on CAMS Pay, I would say you're right. In the last three years, you've seen us expand almost by the quarter, and the growth has been very strong. It was a business where we only had a payment aggregator license. Now we also do cards, so it is a PA plus PG. Some of the growth that you are seeing is coming out of the cards business from PG. We are still inside financial services. We don't have any point-of-sale presence. We don't do e-commerce or food delivery, et cetera, so we continue to remain focused. Our broad estimate is that obviously expecting 50% year-on-year on what is now almost a 100 crore-plus base is not going to be easy. Our public statements have been that CAM space should grow in a fair manner by about 30-odd percent for the next two years. So broadly, I would say that 50% may last for another quarter or two, may last. You should expect the payment business in the next two years to grow about late 20s, 30% each year in the next two years. That is something that we have a reasonable handle on without diluting on profitability or any other metric. So think more of 30, early 30s percent than 50%. That's one. On the KRA side, again, this is a slow change which has happened in the portfolio. Just like in payments, it's a change which has happened in the portfolio. It's a structural change, both product and sales. In KRA, again, it's led by both product and sales. We've continued to gain share. Wherever you see, we've continued to gain share. But the big thing is that we were playing three years back in, let's say, a 25%, 30% segment of the market. 30% segment of the market would be originators being mutual funds, 70%, 75% was DMAT and broking. Our share of demat and broking has continued to go up. So what you've seen, despite the price drop in the first quarter starting April, you've seen a significant quarter-on-quarter growth. I would say this is typically usage growth, both by the base, because there's been some increased activity, also by new clients which have been onboarded. So just think about it. If you had 70% share of the market segment that I was not selling in, I've started selling into it, and it continues to increase every quarter. Five of the top 10 brokerages are now our clients. Out of the 70%, they perhaps contribute 40 of the 70 to the overall market. So we are now playing in that segment. We are still not at optimum share. We would like more share there, but whatever share we have is having an impact. I think that's how you should read the KRA business. Will this continue? For some time, yes. You should expect this growth to continue over a period of time.

Just answer the second part of your question on the phase one hits, et cetera. Yes, the revenue for the current quarter, as we said last quarter, does include the phase one inquiry, status inquiry kind of EPIs, but not everything is attributable to that. And the factors that Anuj mentioned contribute a lot to this entire increase. To give you in terms of numbers, I think the incremental revenue It would be hardly around 1.5 crores because of this in the entire increase that you have seen. So, a lot of it is attributable only to the new customers we have onboarded and the increase in volume. And some of it is attributable to the phase 1 hitch that we have seen.

Very clear, sir. And I suggest one question. If I look at a consolidated level depreciation numbers, I see some volatility in the last C4 quarters. Like, it moved from 25% to 26% to 28% and then again came down to 25% and now again 28%. So, how should I think about this number and why this volatility?

So, two aspects. Number one is basically in terms of the depreciation that we follow. And I think I mentioned this in the last of the earlier call, which is basically written on value method. So, you do have a higher depreciation of 40% coming in year one, given the method of depreciation that we follow. And in quarters where you have a muted increased deprecation, you will see a drop in deprecation. So, in fact, last quarter when we said the deprecation, we also kind of said that this is not going to be the trend going forward also. So, I think if you take the current base, we did have a significant addition of storage servers, and given the hardware prices that they are, so the capitalization has increased this quarter, which causes this deprecation. Second aspect is the re-architecture. As Anuj mentioned, almost 30% of the work is done, which means that a lot of these modules have gone live. And once they go live, you start amortizing. So, actually, of the increased 3.5 crores in depreciation in the quarter, more than 1.5 crores is actually attributed to the new modules that have gone live in the re-architecture project. So, I would rather urge you to keep this as the base rather than any of the earlier quarters.

Understood, sir. Very clear. Thank you and all the best, sir.

Thank you. The next question is from the line of Supratim Datta from Jefferies. Please proceed.

Thanks a lot for the opportunity. So, my first question is on the yield bit. So, I do understand that, you know, you said that, you know, QoQ yield contraction has only been less than 1%. However, some of your larger customers have shown a QoQ increase in their yield. Also, what we, you know, have seen this quarter is, you know, some of the smaller AMCs have been going faster. So just wanted to understand that, you know, despite this, is it only related to telescopic pricing or, you know, is there something else also that is there that, you know, in the yield fees? If you could, you know, give some more color on that, that would be helpful. Secondly, you know, on the SIF data, and that has been a growing segment, are the yields similar to what you make on the equity side? You know, if you would clarify that. Moving to the non-MS business, you know, if you could give us some understanding around how is the margins now tracking in that business, you did suggest that, you know, there is a 15%, you know, increase, but I wanted to understand how is the margin tracking there. If you could give some color around that, that would be helpful. And then on the overall cost structure bit, you know, you have been managing costs fairly well. But if I look at it more from a three-year perspective, and if asset growth remains weak, then would you be able to manage, you know, cost growth at somewhere around that 10% level? And, you know, what would allow you to do that? You know, those were my three questions here. Thank you.

Yeah, the question on yield is a great question, and I'm sure many of your colleagues also have the same question. So I'll just say and just recap the basics in terms of what the yield is influenced by. A few of the things you did mention rightly, and if you see from overall perspective, the customer mix plays a part, the asset mix plays a part, the discount plays a part. And so, in this quarter, if you see, from an asset mix perspective, while it is true that equity has grown probably a little more than the overall asset growth, if you see the remaining asset classes, you have seen debt falling down by an X percentage, and you have seen the passive going up by the same percentage. So, in my asset mix, what you have seen is, whatever the yield is given the same absolute number, whatever the yield was contributing by debt, which is, say, a little more than 2.25 bps, has been replaced by passive, which is probably 0.5 bps, right? So that mix is having an impact on this entire, you know, the yield that you are seeing there. A lot of it is telescopic pricing. In a normal year, even just all assets going in the same place, you will get a 2% kind of a telescopic pricing impact. Rest will be because of impact. And in terms of yield, yes, some of the larger customers have grown also, which gives at least three of my top six customers have grown in line or greater than the average asset growth, Which means that overall mix from a customer perspective is also not great from a yield perspective. So all these things have contributed. The only thing I would try to reiterate is please don't use it as a proxy for any discount that we have given, right? And we reiterate the stance which we gave last time, which is there are no large customer discounts given or no renewal discounts that are given in the numbers that you are seeing. It is entirely attributable to either customer mix. In this case, it's more an asset mix as well as a telescopic pricing that you are seeing. That was on your yields. On the SIF, yes, the pricing of the SIF broadly mirrors what we do for the usual funds. So if it is an equity kind of a fund that we have, you will see the same raise that we are charging effectively for equity in regular schemes to be charged for SIF. So you won't see a higher or lower yield because of SIF. It will be kind of the same. It's almost like from a billing perspective, you should consider it as another scheme of the same mutual fund. You know, from a billing perspective, there is no big difference between the two. So, in your non-mutual fund business margins, and this is something that I mentioned, which is that we've not only grown non-mutual fund more than 20%, we've also grown it profitably, right? So, if you see our last quarter margins were much less than 15%, but given that payment continues to do business at reasonably good margins of 20%, and the KRA in the mix has increased. Scare is a very profitable business. It's now increased the overall scheme of things and has delivered growth profitably. The overall margin for non-mutual fund is much ahead of what we had projected, which is it's more than 18%. In fact, close to 19% is the non-mutual fund margin bucket that we have, which actually is very favorable from the overall margin profile also. So 16% of the business contributing 19% versus 15% contributing 12% last time, it's been a good plus from the overall margin perspective. And from a cost structure perspective, sustainability of cost.

Sure. So from a cost structure, I think your point was that if we see weaker AUM growth, last two years we've seen quite a bit. Last year was 17% AUM growth against a benchmark of 1920. This quarter we've seen 12% AUM growth, and therefore MF revenues grew. So our ability to manage cost, I think, in the next three or four years, a lot of it will be predicated on how we infuse productivity and how we manage the new platform. I would say that is contributor number one. There are many other contributors, but that's perhaps more than 50% of the contributors. We believe for the last many years we've not expanded headcount at company level. Last 12 months we've been dropping headcount just by not backfilling. And we believe that this has happened after 30% or approximately 30% of the work on the new platform is done. That is perhaps a trend which will last at least the next three more years, which means that we will continue to take modules live. We will be able to infuse significantly deep productivity inside the system. We will also be able to infuse productivity, significant productivity in the industry. But that's a different story. We will not get paid for it. What is internal is internal. So employee productivity is on an up and will be on a significant up. So therefore, I would condense the argument by saying that mentally we delivered a 12% growth in MFAUM and showed you a 14.5-15% pat growth. Is that demonstrable? We have demonstrated it. What if this happens for the next two years? Can we demonstrate it? I would say broadly, yes. I would say broadly, yes, that we are mentally prepared that if something like that were to happen, we know how to deal with it. Now, your next question can be that what if MFAUMs grow only 7% or 8%? Well, I can give you a hypothetical answer. We will answer it once we've seen a quarter like that. But at significantly moderate level of AUM growth, by growing the other parts of the franchise, by growing other parts profitably, by holding margins at enterprise level, and managing the cost line in real terms, nothing is one-off. There is no one-time billing. There is no one-time recognition. There is no past period thing which we've brought forward. None of that has happened. These are just as straightforward as you can.

Just one follow-up. So, you know, this thing, we should be taking the employee cost that you have entered in 2Q as largely the run rate for the remaining quarters. Would that be a fair assumption to make, given there is no one? Yes. Yes, you get it. Got it. And sorry, just one last question, you know, and this is more fundamental. So there is a lot of talk around headless architectures now on the software side. I just wanted to understand that given you also provide software, you know, solution, backend solutions to the mutual fund, how much of these AI systems and, you know, these headless architectures, how much of a risk is this? It may not be in two years' time or three years' time, but if I'm looking at it more from a five-year or ten-year perspective, how much of a risk could this be to a segment like yours?

See, right now our belief is that all of the AI is being deployed by us and used by us in various components of the software that we build and test. A lot of this build-out is still dependent upon understanding of regulations, understanding of process, et cetera. Just taking a large LLM or just building a more intelligent SLM on top of it, giving it some instructions and getting the software built is still some distance away. It's just like asking a question that can you build an entire airline booking and ticketing system and its linkages with the dozens of entities it deals with, or a core banking solution. Can you build it just by deployment of AI? I mean, simple steps, individual steps, individual modules, people are trying. When you try that on an LLM, you give up almost all your rights to the IP because you fed it into the LLM, it is available for the world to use, so you have to be discreet. And therefore, we have deployed discreetion. We do not believe, if your question is that can somebody just come in, Get on top of these utilities, start giving commands, now go and build a transaction origination system for mutual funds, go and build a KYC verification system for mutual funds. All of that is still from distance away.

Wonderful. Understood. That's very helpful. Thank you.

Thank you. The next question is from the line of Payesh Jain from Modinal Oswal. Please proceed.

Yeah. Hi, Anuj. Just as an extension to the previous question, actually, you know, AMCs today are paying, you know, especially the large ones are paying decent amounts to RTAs. At what size it becomes, you know, for them to kind of evaluate between having it in-house and using AI tools with some part of KYC, they already know they would be doing on the direct business, right? And probably, you know, you are helping them out there. But do you think at any point, at a certain scale, they would start thinking of building it in-house and using AI tools which can bring down the cost to kind of shift towards in-house? I know it's a hypothetical one, but yeah, I think that keeps running in the mind.

No, no, absolutely. Absolutely. So as something becomes easy, does it become easy and cheap? If it becomes easy and cheap, do I insource? I think the examples fresh are enough to be read when you look at global benchmarks. Go back and look at all the global banks, and if they insource a lot of stuff, there will be some instances, small ones, but 90-95% of the outsource industry has been intact, whether you take airlines, telcos, banks, insurance companies, all of that. When you see how the Indian MF industry is architected, and you can take a cohort, you can take, let's say, domestic insurance. It's a nice cohort, belongs to the same people who set up the same AMCs, and look at the cost structures. Then what you do is either you build some of the software yourself, but the core policy admin, et cetera, you buy from someone as a software. You set up your own service centers, and then you try to do everything yourself. This kind of mass-scale outsourcing is not possible. Show me one example where anybody is able to condense all their operating costs to seven or six or five or four. There will be no one. There will absolutely be no one. The same logic will apply for the MF industry. Today, this platform that you're seeing is deployed over a 60 lakh crore AUM base. It is deployed over, let's say, six crore, five and a half, six crore investors, about eight crore SIPs. So the benefit of scale is spread everywhere. The argument has to be that the same benefits are available at, let's say, 10 lakh crore or 11 lakh crore or 15 lakh crore or 20 lakh crore because progressively you are seeing that the instance of per unit cost is going down. And the effort involved in recruiting, managing today, just the regulations. So, for example, we are required to have four data centers, three which are, you know, normal data centers, one air-gapped. The asset managers are not supposed to have as many data centers because they only have a copy of the data, a constructed copy of the data. We have the full data. The amount of stuff that they will have to start doing will be significantly more than, well, Comparing the bill and seeing whether it can be done in the same amount, and doing it in the same amount is not going to be easy. I think just look at the world around you. Look at Indian banks. Look at foreign banks. Look at, you know, airlines and telcos and how many times this has happened because it is the same. It is getting easy. It is getting cheaper. The party line is the same. It's not any different for the Indian MF industry. I think that will call for a very large global trend to emerge for something like this to happen. And I don't think the world is ready for that yet.

Got that. Just extending that point further, you know, today when we are coming on the negotiation table with the AMCs, what are the points which they are putting across apart from the AUM growth that they have been giving to CAMs? What are the other points that they kind of bring across on the table for to cut yields? So, you know, whether it's AI costs that you are, AI can bring down costs or what other elements are they kind of pushing to bring down the, bring down the yields that they are being charged?

Well, if they want to ask the AI question, we should actually increase prices. Because like I said, apart from the base cost, I incurred four crores in one quarter. I mean, I took that much. I could not capitalize it. So we had to take it to the P&L. So we're actually incurring a little more cost. And that is true of the world range. Whoever is telling you that he's reduced cost hasn't really sunset the old system, has built a new one or parts of new one, and now he's paying for both the new and the old, and still trying to figure out how to get rid of some of the people that he doesn't need, like we've got rid of probably a not backfill 250 or 300. But that's not a very large mass. So today, AI has not, and in the next 12 months also, I don't see that unit cost will go down because two instances of a lot of things will exist. We will sunset some of them. We have begun sunsetting. Sunsetting itself is a process. So AI and our cost has never been an element with them because, you know, it's not a cost of pricing. A lot of outsourcing, including IT services and BPO, work on cost of pricing. This is eating of the same plate pricing, which means they get BIPs, we get BIPs. The distributor also gets BIPs, the fund accountant, the custodian gets BIPs. So in percent, we've grown 23%. We should get something extra. All the net sales have been small or the gross sales have been small. The market has been very large. We should get something extra. Those are typically vector number one and vector number two. I don't think so far cost is exposed to them to such an extent or headcount is exposed to them to such an extent. It's a very outcoming kind of industry, not an outsourcing industry. So, I would still say the arguments haven't changed. They're still the tough two arguments.

Got that. Last question, you know, again, more strategic question than based on quarter. How would you think you can diversify your revenues further? You know, today, obviously, we are scaling up the non-MF businesses, and they have reached 15% plus, And you do have a target of crossing 20% threshold in due course. Any other new business avenues that kind of excite you to get into and look to get into?

I think, Preish, the honest answer is that for a company of our size to run more businesses will not make a lot of sense. So, you know that the core franchise of MF continues to scale, and in the non-MF, three have passed the demonstration mark, okay? Payments, KRA, and alternatives have passed the demonstration mark. They're all, you know, 12, 15 years old. They're all of a critical size. They're all, two of them are immensely profitable. AIF is not that profitable. It is still services. The other two are pure platform. I would find it a good, and we are now scaling non-MF contribution by about 2% a year, slightly lower than what we would have thought. I would like it to grow a little faster, but we will continue doing 2% displacement this, you know, 84, we will come 82, right? And then there is an extent to which you want to contract your most profitable franchise, right? You don't need diversification in the name of diversification. I would be very happy if some of the stuff which is being spoken about in insurance turns into a directional, 10-year trend line, just like equity broking kind of hit that trend line in 2010. Mutual funds hit that trend line in 2014-15 when the SIP and digitization culture came in. I would hope that we find one market like that. Insurance, there is a 50% chance it could be that market, given what's happened in the last two, three months, but still very early days for me to predict. Right. Consent Pro is a good product to have, not expecting it to be a 100 crore franchise, could be a 20, 30 crore franchise two, three years from now. So, we will stay with the products right now, Pesh. We don't want to just, you know, start going after everything and then finding we can do nothing. We'll be very focused and stay with the franchise that we have today.

Got that. Thank you and all the best.

Thank you. Thank you. So, the next question is from the line of Devesh Agarwal from IIFL Capital. Please proceed.

Yeah, thank you for the opportunity, sir. So, first question on the yield, I think I wanted to understand on one more aspect of the yield. Basically, incrementally, we are seeing now the smaller and younger agencies which started operations in the last two, three years have So, is that also can have an impact on the overall yield, wherein the AEM growth is coming from these new AMCs, but revenue may come with a lag?

So, Devesh, when you say small AMCs, I assume that you mean the ones that have been launched at least more than five years, right? Because I think the other things, the revenue contribution will be very minimal. So, I'll just say that, and I think from a customer mix perspective, we have seen a fair share of the mid-sized AMCs growing, right? We don't take specific names, or at least three, four of them have outgrown the market. So this should, in normal course, have a positive influence on the yields. But the very smaller ones actually do not contribute significant revenue for them to make a difference on the yields. So the mid-sized ones growing is a good thing for us. Everybody growing is a good thing for us. Please don't get me wrong. But the mid-sized ones growing has got a positive impact on the yield. But the smaller ones do not impact it so much, given that the magnitude of the revenue is not very high.

And as this newer AMCs, which probably came in the last three to four years, as they gained size, could they have a drag on your blended yield? Or, again, that is unlikely?

No, that's quite unlikely. So, while I don't have a number in front of me, I will tell you that of this 58, 59 lakh crore, if I took the sigma of all the new AMCs which came in the last five years, I'll struggle to get to 3 lakh crore. I may get to $2 lakh crore, but that's also doubtful. So think of a $2 lakh crore on a $60 lakh crore base, and think of how much dispersion from means you will get there, and that dispersion from the means is not going to be very different a quarter from now or a year from now. But like Ram said, in each of those cases, absolute revenue for the same AUM will be better because the larger ones may be at lower yields given their scale. The younger ones will be at much better prices, much higher prices, because they are only 10 or 15 or 20,000 crores, but they are not 2 lakh or 3 lakh or 5 lakh crores. So to that extent, price will be better. All I'm saying is that at a portfolio level, that contribution of last five-year launches will not be either 20% of the AUM book or 20% of the revenue book. It will probably be 5% to 7% of the AUM and the revenue book. To that extent, whatever impact a better pricing in 5% to 7% of your revenue book can have, it will have the same effect.

Sure, sir. And secondly, sir, on the margin part, you did mention about this fork road expense being inferred towards a new platform. So, if you could give more details of what would be the trajectory going forward, and what will be the drag from this new platform?

So, this is kind of a continuous process, you know. So, as and when the modules keep going live, we will have, you know, the corresponding costs that we do to kind of make enhancements, small enhancements to the module, keeping the modules live, going to, this is the standard accounting treatment that we do. Just to give you a perspective, it's not something that's started now. In the overall project so far, we've actually taken around 27 crores to the OPEX already, cumulatively, over the period of time. So what is going to happen is this is going to accelerate. This is going to accelerate as more and more modules get light. Just to give you a perspective, in the Q2, you know, we actually had around 5 crores of cost coming in, which is probably 2.5 crores of incremental cost coming into the P&L, and there was another 1.5 crores of depreciation that came in. Going forward, this, you know, this 5 crores will become probably 8 crores and then 10 crores as we go for Q3 and Q4. This is just one part of the equation. The second part of the equation is, is there going to be some corresponding decrease in the cost because of, you know, obviously this will kind of replace some of the work that we're doing. Not all the work, but some of the work we're doing. So what we are saying is the increase in the re-architecture steady state kind of a cost that goes to the P&R We will be broadly offset by the savings that we get because of the productivity increases and the other savings that we do because of the new platform. So we don't expect the incremental cost per quarter from an OPEX perspective to be more than a couple of crores that we can obviously make good in terms of other productivity improvements, in terms of operating leverage, etc. Yes, so you will see this 5 crores per quarter going to 8 crores, going to 9.5 crores over the next two quarters, but the net impact will be much, much lesser. It will probably be incremental one and a half crores or maximum two crores a quarter, which will be more than made up by the other operating industries that we have. That is the way you look at this.

Understood, sir. And, sir, lastly, you did mention there has been some reduction in the headcount over the last 12 months. Could you give me what has been the reduction and what is the latest headcount?

So, when we started the year, we had around 8,450 was the headcount. I think we are ending the quarter on 8,200. So, there's been a 250 reduction in the headcount, and some other outsource kind of a reduction in headcount also. So, I think between 250 and 300 will be the reduction in headcount. So, currently, it's around 8,200.

Perfect. Thank you. Thank you.

The next question is from the line of Ansuman Deb from ICICI Securities. Please go ahead.

Yeah, hi. Thanks for the opportunity. Sir, could you just tell us any idea about the benefits that CAMSPAY can get from MDR on UPI? Any idea on that? That is the only question. Thank you.

I'm not sure. I mean, in your model, you should believe that there will be very little impact from the MDR. As you know that while MDR and UPI will be of the order of, you know, let's say 40 BIPs, on financial transactions and mutual funds, this will be of the order of, let's say, 2 BIPs. And therefore, its ability to drive, although it's an expanding segment, its ability to drive revenue upside for cams pay will be very small, which means that in a 100 crore book, once it becomes, once it gets implemented, you will certainly see 1 or 2 crore rupees up. So that you'll certainly see. But unlike a lot of the other companies which are in this retail UPI, you know, you've seen some of those statements where people believe they will gain, you know, tens of crores or hundreds of crores. CAMSPAY will not get that scale of benefit. It will get a couple of crores a year whenever this becomes implemented, but not very large numbers. It will not be a very large percentage of revenue.

Thanks, Pram.

Thank you. The next question is from the line of Aditya Cheda from INGREB Asset Management. Please proceed.

Following what has been delivered in H1 versus our earlier expectation of a 2.5 to 3% declining yields, would you want to revise the outlook for asset-based yields on what has transpired so far for FY27?

So, sorry, do you mean our river is upwards or downwards?

Upwards. The decline. The decline.

No, no, I don't think anything has happened which is causing us, you know, nothing has been surprising in this quarter, to be very clear. So, on a quarter-on-quarter, we have seen the decline to be sub 1 percentage. Year-on-year, for the reasons that I mentioned, it's kind of little more than 3 percentage. So, we have always said, you know, around 3 percentage will be what you will expect. In a good quarter, it will be less than 2.5. In a reasonable quarter, it will be around 3 percentage. So, we still hold that, absolutely hold that view, and I don't think that you will see any revision that is needed at all in the yields projection. As I said, the thing to take away is that there is nothing that has an incremental discount given to the customers, et cetera, that's causing. It's more a mix, either a customer mix or an asset mix and a scale-based pricing that's playing out. So, we don't see any reason for us to change the guidance that we have given.

Noted. Thanks.

Thank you. So, the next question is from the line of Divich Panjabi from Banyan Tree Advisor. Please proceed.

Yeah, hi. Thanks for the opportunity. I have two questions. One was on the non-asset-based MFs for revenue that is there. If you were to look at the last couple of years, the revenue mix of it has come down from around 14% to around 11% now. So, with the new platform coming Can you help us understand what this segment would look like in the next three to five years? That is question one. And the other question is, with the increasing mix of direct MF, do you see any impact on the asset-based business in terms of use?

I'll answer the first question, which is your non-asset-based revenue in your mutual fund. So, as I just had to recap that, you know, what it contains are transaction revenue, some application revenue, call center, NFO, and your reimbursement expenses. So, and these are not driven by asset base. So, we generally guide that, you know, you please don't build it based on asset increase, but rather kind of a percentage increase on a year-on-year basis because this is more driven by physical transaction increase, some MF central transactions, and call center and OPE revenue. So, I think overall, as asset grows, the percentage of this will keep coming down. The growth in non-asset-based revenue, although this quarter has been on par with asset-based revenue, but generally, you will see that that will lack the asset-based revenue. So, the share of that will keep coming down. The better way to look at it is to have a percentage increase on a year-on-year basis rather than link it to the assets. And that's why we segment the two and give it to you separately. In this particular quarter, for example, we had good uptick in transactions from an MF Central perspective, And we had some increase in misdainness, that is, your application fee, et cetera. But if you're here on your basis, NO4s went down drastically. So you would have seen a drop. So it's not something that you can model specifically based on asset growth, rather. On the second question, can you just repeat that question? Yeah.

So increasing mix of direct mutual funds, does that have an impact on our needs?

So, as far as our pricing is concerned, it's constant pricing. It does not matter where the transaction came in, what was the plan, how the units were held, significantly over a period of time. For a large segment of the market, this is for do-it-yourself consumers. There are a large number of consumers who are not do-it-yourself, for whom the regular plans will continue. It does not have any impact on our pricing.

Sure, if I can just ask one more question regarding the new platform. Like you mentioned that the funds net 2.0 was implemented and over a period of time more modules would be implemented. So, our understanding is that it makes more of the cost base fixed in nature. So, from a longer term point of view, can margins increase from current levels as operating leverage creep out?

Well, whether it's a new platform or the old platform, I think it has been a largely fixed cost model, which means that we don't flex costs too much. So our approach has been, and the reality of the business is, that the more revenue you pour on any platform business, the more margin you can get, because the larger and larger part of that will go to the top line. That is true of all our businesses today, except for AIF, which still retains a very services character. Everything else is turning, whether it is repository or KRA or payments or MFRT, at least these four are definitely 100% platform, I mean, largely platform. So, yes, your point is right that margins could expand. We've always said that in normal years, we expect margins to expand by 100 to 200 bps. That trajectory should continue.

Thank you and all the best.

Thank you. The next question is from the line of Dipanjan Ghosh from Goldman Sachs. Please proceed.

Hi, good morning. A few questions from my side. First, I think in your answer to one of the previous participants' questions, you mentioned that the yields have been stable and you do not expect any substantial renegociation or discounts over the next few quarters. So I just wanted to get some color on this statement. Does this also include any large renegociations with larger AMCs in FY28, or is it more of a 2-H guidance? So some color on that. The second question is on the non-EMF margins, which is closer to 18%, 19% right now. You have mentioned that you expect margins at the overall level to improve. But if you were to take more of a three- to five-year view, where do you see the non-EMF margins settling? And within that, maybe more specific to the AIF and the payments and the KRA business, which are relatively more margin-accurative, where do you see these three particular segments settling down? Yeah, those were my two questions.

Thanks, Ibanjan. So, from an EELTS perspective, definitely for H2, definitely for H2, and, you know, where we think have visibility into what will happen. In terms of the larger customers, we will see next year there is obviously a renewal that is going to happen with a couple of these large customers, and I don't think it will be proper for my part to comment on what's going to happen then now, but I think our stance has been very clear, and we have kind of clarified several times saying that there is no reason for us to have a disproportionate higher discount or a reduction in dips on any of these discussions, and there are several factors, including the productivity increases that we are bringing to the table, including the efficiency that we do, Including the cost of hardware that we are incurring, including the SEPI requirements that we are investing in, several hundred crores. So, those are for a discussion with the AMCs when they do come up for renewal, but our stance has been very clear in terms of the discounts that we are giving. So, yes, definitely H2. Next year, we will see what happens, but we are very confident that our stance will prevail, and I don't think you will see a similar event of what happened in the past, in the future. Whatever happens, we will kind of update you at that point of time. In terms of the non-mutual fund margins, I think just to give you broadly, the payments has been growing at a profitability level, which exceeded our expectations. So, you know, to have a card business mix and then still continue to have a margin of 20% is good, and we don't see this as any one-off. We see that this is sustaining. So, three years from now, there is no reason why this margin cannot be 25%. Predicated on KRA going, because KRA is a very profitable, you know, franchise for us. AAF is very stable at a 20 percentage kind of a margin. As Anuj mentioned, this is one of the things that probably operating leverage is a little less given the service nature of what we do in at least some part of the business. So if you kind of have these three growing the same proportion as what we are doing now, I think a steady state margin of 25 percent plus is very much on the cards in the three-year period that we're talking about. Our aim is to get it closer to 30, but a 25 percent margin is something very much on the cards.

Got it. Thank you and all of us.

Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to Mr. Ramchal for closing comments. Over to you, sir.

Thank you to all the participants for your interest in CAMS and taking time off to be part of this call. As usual, please do reach out to Anish or to the IR team in case you have any queries or you want further clarifications. We are happy to kind of get into a call. Thank you once again.

Thank you. On behalf of Computer Age Management Services Limited that concludes this conference, thank you for joining us and you may now disconnect your lines. Thank you.