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00:00 [MUSIC]
00:05 >> Hello and welcome to NDTV Profit.
00:07 Today we have with us Mr. Anuj Kumar, the MD of GAMS.
00:11 Welcome to the show, sir.
00:12 >> Hi, good afternoon and thanks for having me over.
00:17 >> Thanks, thanks for taking out the time, sir.
00:19 So my first question would be around the company reported its earnings.
00:23 So what is your take on that?
00:27 >> You would have seen it was a solid quarter for us, perhaps,
00:31 beating our expectations and one of the best in recent years.
00:35 In sequential year terms, overall revenue grew 25%.
00:40 So we were fighting on all cylinders.
00:42 Mutual funds, which is the core spine of the business, revenues grew 21%.
00:47 Non-MF, coming off a small base, revenues grew 52%.
00:53 On a constant base, if I take out the contribution of Think360,
00:56 which was an acquisition made in one queue last year.
00:59 On a constant base, non-MF revenues grew 38%.
01:03 And overall, PAT grew 38%.
01:05 Now, given the trend of previous results, I think this is stellar.
01:12 This is very strong.
01:13 And it's just indicative of the sound business franchises that we've built
01:18 across various business lines.
01:19 >> Sure, sir, got that.
01:23 Next, I want to understand your mix around mutual fund and
01:27 non-mutual fund business.
01:28 I see a higher yield from the non-MF sector and
01:33 while MF is a little bit of muted.
01:36 So any take on that?
01:38 >> No, I would say that there was a significant ahead of the market growth
01:44 across the board.
01:45 MF revenues, like I said, grew 21%.
01:49 Our non-MF contribution is a key metric.
01:52 It's a key diversification metric.
01:54 Non-MF was at 11% in four queue last year,
01:57 has grown to 13.5% contribution this year.
02:02 Which means that despite the fact that there was a runaway growth in mutual fund
02:07 assets, there was a runaway growth in mutual fund revenue.
02:10 Despite that, non-MF increased share by 2.5%.
02:13 That's the best way to look at it.
02:14 Multiple reasons there, our business grew 90% year on year.
02:20 Payments grew 24% and alternatives grew again mid 20s.
02:26 So contribution by a basket of non-MF businesses which all grew strongly,
02:31 put non-MF at 52%.
02:33 You obviously can't do that to a very large revenue base, but
02:36 MF growth at 21% has been very satisfying.
02:38 >> Right, right.
02:43 You mentioned about sustained investment in scaling up the tech backbone in
02:48 your earnings.
02:49 So will that affect margins going ahead?
02:52 And if yes, to what extent?
02:55 >> I think it's all costed in.
02:58 It's all costed in.
02:59 I mean, we just got on the earnings call when I just see transaction volumes.
03:04 They've gone up almost 32% during the year,
03:08 which means one year back we had done about 13 crore transactions.
03:14 And in four queue we did 17 and a half.
03:16 So that's a runaway increase.
03:19 It's also the fact that this is a deeply retailized market.
03:22 So the number of SIPs, retail investors, small size SIPs,
03:26 daily collections, all of that is becoming very common.
03:30 It just needs an incredibly strong backbone to be able to make sure
03:35 that every part of the transaction mix, every communication,
03:39 every SMS, every email,
03:41 reach of the intended recipient that we just keep the parameters very, very strong.
03:45 But all of this growth in technology, assets, data centers,
03:50 security, etc., have been costed in.
03:52 There's nothing new there.
03:53 We continue to invest and we will continue to make it stronger and stronger.
03:56 >> So these kind of investments are already there in the cost,
04:01 do you indicate that?
04:04 >> That's correct.
04:05 That's correct.
04:05 We typically do an IT CapEx of between 35 to 50 crore a year.
04:08 In a busy year, maybe about 60 crore rupees.
04:11 That continues as a standard practice.
04:14 >> Okay, so all in all, you expect the margins to remain in these levels, is it?
04:19 >> So if you see, we have stated in the past that our operating EBITDA,
04:25 which is basically the lead margin indicator,
04:27 should expand by about a percent every year.
04:29 In 4Q, we have delivered operating EBITDA of 46.1%.
04:35 This was 44.8 last quarter.
04:38 So just given the sharp revenue increase,
04:41 I think profits are looking better than we were expecting.
04:45 Expect perhaps more moderate 45 to 46 kind of margin in the next two quarters.
04:52 We will undergo annual compensation increases, etc.,
04:56 which will moderate margins a little.
04:59 So expect the next two quarters to come between 45 to 46%.
05:04 >> And what about the second half of the year?
05:07 >> So second half of the year, everything depends upon our core franchises
05:12 in the capital markets.
05:13 If markets shape up, which means the annual growth to 15% growth continues,
05:18 I think we will expect some margin expansion to happen towards the later
05:22 part of the year as markets stabilize.
05:25 But you know that there could be surprises and there could be a bit of
05:28 cyclicity in the first half.
05:30 I think a 45 to 46 range-bound margin delivery can be expected.
05:36 >> Sure, right.
05:37 Very clear picture on margins front.
05:40 Let's move on to pricing.
05:42 There was talk in last quarter and the earnings call currently as well.
05:49 What's your take from the pricing renegotiations?
05:53 Are you seeing such with the existing clients and
05:57 your outlook on the pricing of deals?
05:59 >> So our core pricing architecture is very attractive to the buyer because it
06:05 is telescopic, which means every time the buyer grows, they pay a little less.
06:09 That is just part of the overall architecture.
06:12 That creates a small contraction in prices, as you know how business runs, and
06:16 that's been part of the architecture for the last many decades.
06:18 It's nothing new.
06:19 Whenever there's a sharp run up,
06:22 clients might believe that they should get a bit of a fee remission.
06:26 We are not worried about fee remission at all.
06:28 Fee depletes by about 2, 2.5% a year.
06:31 I think that's been the historical course.
06:33 We're not expecting anything new.
06:35 You should expect about 2 to 2.5% on fee on a fixed basis fee to deplete.
06:40 All of that is factored into our estimates, our cost estimates and our outlook.
06:45 >> Right, another point on CAMS-KRA,
06:51 that was strong last year, like around 100% of growth.
06:56 So what is the take this quarter?
06:59 >> So CAMS-KRA used to service only mutual funds.
07:04 We were going after a subset of the market for strategic reasons.
07:09 About a year and a half back, we started selling to brokerages.
07:13 You know that the world of Demat and
07:16 broking accounts is from an account number perspective has been growing faster
07:20 than the mutual fund segment.
07:22 So we went into that segment.
07:24 We service several brokerages now.
07:26 The top two or three are still not our clients for KRA.
07:29 The others are.
07:31 And that has led to this 90% revenue growth during the year.
07:34 It is again coming off a small base.
07:37 As we continue to penetrate the markets,
07:39 expect growth to remain sustained for at least one more year.
07:42 And then I think we will come back to the mid 20s, early 20s kind of growth.
07:46 >> So the growth in this segment is directly related to the MF growth, is it?
07:52 >> Part of it, like I said, new KYCs are done by customers who are entering
07:59 mutual funds, but they're largely being done by people who are opening new
08:03 broking accounts for either F&O or cash delivery.
08:06 And also those opening Demat accounts.
08:08 So that's a slightly bigger growth driver compared to mutual funds.
08:12 >> Right, okay, now in terms of TAM, right?
08:18 The addressable market seems to be divided into MF and non-MF largely.
08:22 So once this kind of market is captured,
08:27 what is your vision for the beyond these two?
08:31 Or is there some more headroom, bigger headroom that can drive the business going
08:35 ahead?
08:36 >> I think we have all the business drivers in place.
08:40 We have the markets, and we have the products, we have the platforms, and
08:44 we've done what we had to do.
08:45 Today, we are not planning to either enter newer markets or
08:50 launch new business lines.
08:52 Because obviously you spread yourself very thin when you start doing those things.
08:57 On the MF side, of course, we've been leaders for many decades, and
09:01 we will protect that position of 68% market share and the growth that comes.
09:05 On the non-MF side, we have six core franchises, all operating within India.
09:10 We are very sure that those are the businesses we want to be in.
09:13 So you will see all the scale up happening in the same six markets outside
09:17 mutual funds.
09:18 You will also see any inorganic activity or
09:20 acquisitions that we may plan to happen in the same markets.
09:23 We want to remain focused, don't want to fritter away the advantage,
09:27 don't want to spread ourselves thin, so that's really the story.
09:29 >> Right, so one last question from my end.
09:35 I'm looking at this opportunity on the Atal Pension Yojana,
09:38 which the government has opened for organizations other than protein.
09:41 So I think that could be a big opportunity for the company.
09:44 What's your take on this?
09:48 >> The Atal Pension Yojana, of course, being available to CRAs outside of
09:52 the incumbent or outside of protein, I think is great news for us.
09:56 So we're excited by it.
09:58 As you know, it's a socially relevant pension scheme, and
10:03 therefore, pricing, etc., is thin.
10:05 All that, of course, we'll deal with.
10:07 So we're very excited with our entry into the segment, and
10:11 we will focus on scaling a component of that marketplace.
10:17 >> Sure, sir, sure, sir.
10:18 Thank you so much for taking out time for us today, and
10:22 very great insights on the company.
10:24 So that was Mr. Anuj Kumar from CAMS.
10:27 It's time for a short break.
10:28 We have a special earnings conversation with P&B's management lined up for
10:32 you on the other side.
10:33 Do stay tuned.
10:34 [MUSIC]