Good day and welcome to Computer Age Management Services Limited Q2 and H1 FY 2027 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nikunj Seth from MUFG. Thank you, and over to you, sir.
Thank you, Huda. Good morning, everyone. Welcome to Q2 and H1 FY 2027 earnings conference call for Computer Age Management Services Limited. [audio distortion] Mr. Anuj Kumar, MD and CEO, Mr. Ram Charan , CFO, and Mr. Anish Sawlani, Head of Investor Relations. 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 that are based on beliefs, opinions, and expectations of the company and its management. 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.
Hey, good morning, everyone, and thanks, Nikunj. Thanks, everyone, for joining this 2Q FY 2027 earnings call of CAMS. 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 INR 415 crore. This is the first time we've crossed the INR 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 INR 191 crore. Do keep in mind that this INR 191 crore 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
Ladies and gentlemen, the line for the management got disconnected. Just give me a moment while we reconnect them. Ladies and gentlemen, the management is back online. You may continue.
Okay, great. Sorry about the disruption. I think there was a blip on the line. Speaking about margins, EBITDA increased on this 10% revenue increase year-on-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 INR 4 crore, and we will speak about that in detail, which is cost incurred on the new platform, which is now slowly coming into the P&L. So this INR 191 crore has to be read in the backdrop of that. EBITDA margin expanded 140 basis points to 46%. Now, how I would characterize this entire thing is that typically in good quarters, we have had asset increases of 18%, 19%, 20%, and even higher than that. Therefore, you expect baseline results to kind of align to that kind of asset growth and that kind of revenue growth.
This time, the asset growth was just north of 12%, so significantly lower than that, in line with the industry. However, producing this quality of results, both on the revenue and the EBITDA side, I think is fairly creditable. 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. PAT on the back of this 140 basis point expansion in EBITDA grew 14.5% year-on-year. So, 10% revenue growth, 13.5% EBITDA growth, 14.5% PAT growth. That's really the summary of the quarter.
Also, I would say that three or four years back, when our revenue diversification outside of mutual funds was not as significant as what it is today, I think a lot of this financial growth contribution has been driven because of what has happened in the non-MF business. In the past trailing 12 quarters, in most of the quarters, we have reported in excess of 20% 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, this business, the non-MF business grew almost 22%. CAMSPay, the payment services, crossed 6% revenue contribution. This used to be about 3% two, two and a half years back, so fairly significant build-out there. Just kind of splitting this, I will move to the next chart on the MF and non-MF side.
CAMS MF AUM, as I said, grew about 12.5%, got to about INR 58.5 lakh crore, 67% market share. But I think what is significant in this is that the equity AUM grew 15.5%, so ahead of industry. Industry was 15.2%. 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%. That has driven the growth in equity MF AUM above industry. The net sales number of 70% of the industry net sales, driven to an extent by SIP collections. The SIP collections, I am 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.
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 lift over the industry, and the net sales number is 70% of the industry in the last one year. All of this contributed to equity MF AUM increase ahead of the industry. Live SIPs and investor base, both of them grew in share and grew ahead of industry. Again, from a foundational metric perspective, everything is solid, everything positive in a quarter against baseline of high teens growth. This was not even a teen MF AUM growth, 12%, but we managed to grow every metric significantly, including PAT at 14.5%. Some of the other trends which became visible, SIF new product class, almost 12 of our AMCs have now launched SIFs.
Overall AUM at INR 20,000 crore. Still early days. We are 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, GIFT City retail funds continue to scale. Five launches have happened. Two to three more will happen in the current quarter. So the AUM crossed INR 1,500 crore. I would again say early days, but a promising product allows you. A lot of this is outbound. A lot of this is outbound domestic investors investing in FOFs or ETFs overseas through the GIFT City architecture. That has done well. InCred AMC appointed CAMS as its MF RTA, 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 completely, so 32 out of 64 licensed AMCs. If you reflect on the logos in the last three to four years, we continue to believe that we won everything that we wanted to. ASK Investments and Carnelian, these two went live with their maiden funds during the quarter. Oaklane and Neo are expected to go live in the coming quarter, which is 3Q. That will kind of continue from a new AMC and new AMC MF AUM build-out perspective, will 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. I would say that underneath the hood, some very strong trends. CAMSPay grew in excess of 50% year-on-year, 13% quarter-on-quarter. Both the base recurring payments through NACH, eNACH, and UPI AutoPay, and the newly grown and growing cards business, both have done very well. Significant client additions, so we don't believe that any of this is either one-time or will stay this way. We'll continue to scale. Alternatives, again, great story. I've been telling you that despite the significant depth of what competitors are doing, 22% year-on-year revenue growth, AUM just crossed INR 3.3 lakh crore, 50+ new mandates, 15 new marquee relationships. You will see that a lot of these businesses, BF especially, doesn't have a lot to do now with the capital markets.
A lot of it is diversified as non-capital market revenue. Alternatives is capital markets, but a lot of it is derived from non-MF AMCs. Those are not the AMCs with whom we do MF work. When you look at KRA, three years back, we literally had almost 100% of the revenue derived from mutual funds. Today, five of the top 10 broking houses in India are actively doing business with us. We may not have 50% or 60% market share with them. We may have 10%- 25%, but it's a very nice break-in. The reason we've shown you quarter-on-quarter revenue growth, because in the year-on-year number, there was that large fee remission of 20%+ that we had taken in the first quarter. We believe Q-on-Q is a relevant number. Again, nothing one-off, nothing one-time. This is just native growth.
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 repository. We crossed 15 million, 1.5 crore demat policies. The important thing is that Bima Central now has a module for brokers. You can get to the CAMS app or the CAMS website, the CAMS app website, and do your work. You could also get to these brokers who are active sellers of insurance, and they are now driving two things. They're driving policies in demat. They're driving those consumers of theirs to now start doing transactions on Bima Central. Of course, it's like a white-labeled solution on their apps and their websites. 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. You guys are aware that there is directionally 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 sought product. Digital interventions, do-it-yourself, et cetera, is likely to become a lot more deeper and abiding. 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. Again, like I said, early days, all of this story should likely unravel itself in the next two or three quarters. We'll keep you posted.
Account Aggregator grew 19% again on a small base, but in the analytics use case, you know that for one of the largest banks in India, we have deployed the PFM module for their banking app. They are showing now financial wellness and financial scores. This will get adopted by many other players over a period of time. Also, in the Account Aggregator market, although it remains a small business, a new pricing model remunerating FIPs, et cetera, is about to come in. You may have read something about it. We will talk about this in more detail perhaps in the ensuing months when something solid has happened. I think both in AA and in insurance, there are possibilities that some of these regulatory events may shape a more meaningful future course, but we will keep keeping you posted on how that works.
ConsenPro, we have been talking about this product. You may have seen some of our PR. It's a pioneering DPDP implementation. We are focusing on the BFSI segment. Under implementation with 20 clients, we believe, of course, this has to scale significantly, maybe 10x- 20x from these 20 clients to become meaningful in our product and business summary. But a very good start. A lot of mutual funds, broking 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, it's a great capability to have on our side as we move forward. On the technology side, I think some of the metrics are visible to you.
I will just say that the progress is very good and very strong. Some of this, I will not claim you are 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, millions of transactions every day come in. This has now gone live. We are planning to sunset the legacy utility by March, April. This will spread significant productivity in the organization, 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.
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 have spoken a little about it. You have seen some impact on our headcount. We have continued to grow on falling headcount this year after April. You will continue to see that trend as we progress. We are also seeing above 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 have 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. You may have read about CAMS Lens.
Some of you, I know, have been in our closed user group, et cetera, with us, testing this out. NISM adopted this as the AI-powered training partner for compliance for themselves and for their students. It becomes part of their pedagogy platform, which is good news for us. Again, from a data reporting, new platforms for GIFT City. GIFT City platforms are complex because the way you do KYC, the way money gets transferred, there is 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 KYCHUB. Some of you may have seen this in the GFF, which is our new eKYC platform, again, finding a lot of adoption across the industry. Very strong progress on the new platform side.
I just think that it's probably 30% done. It's probably about, in all of ours, 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 stronger and stronger. But from a 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 faulty transactions, all of that is seeing a significant lift. I will pause here now and hand over to Ram Charan to take you through the financials.
Thanks, Anuj. Anuj has already gone through the financial highlights. I will just try to reiterate a few points, especially with regard to AUM to growth and the question on yields. I think it has 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%-3.5% drop in yields. But I think quarter-on-quarter, we have done 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. Also because of the mix, which is that you do have less of debt and more of passives in this mix, right? Although both are almost like similar number in terms of absolute AUM.
Because of that, you will see, and it's well within the range that we have predicted, which is that the yield drops around 3% year-on-year and less than a percentage on quarter-on-quarter basis. No big pricing corrections have happened. As we have said, there are some negotiations happening. Couple have been closed, couple are in progress. So there is no big price correction that has happened, nor do we expect something large to happen in the next few quarters. In terms of non-MF growth, I think as Anuj mentioned, it has been an excellent quarter, 21% year-on-year growth, 11% quarter-on-quarter growth. CAMSPay has done very well, and KRA has bounced back. KRA has bounced back in terms of its revenue growth. This is kind of very beneficial from the overall non-mutual fund profitability perspective.
We had said that 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%. Which means it's a very good development from a profitability perspective. Not only are we scaling non-mutual fund businesses, we are also scaling it profitably. You have seen also from the expense growth perspective, we had guided in the initial part of the year that 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%. As Anuj pointed out, this is the quarter in which we have also given the annual appraisal.
That is an INR 8.5 crore impact, which is almost a 2% impact. In spite of that, our expense growth even on a quarter-on-quarter basis is only 7%. So well on track, aided by productivity improvements and some improvements happening because of deployment of our re-architecture platform in AI. 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. The non-mutual fund growth diversification well on track with a 20%+ growth. We are at the 16% almost non-mutual fund proportion of sales. As we said, our target is to get to 20% within the next couple of years.
From a cash position, we ended the quarter with a very comfortable INR 900 crore cash position. This is after paying around INR 160 crore of dividend during the quarter for the earlier two quarters. We have also declared a INR 3.25 dividend as an interim dividend. Overall, I think very strong cost control measures. We have rationalized a lot of things aided by technology productivity. The non-mutual fund growth back on track in terms of KRA and doing very well in terms of payments and stable in terms of a few other businesses. AIF doing very well in terms of growth. We are looking forward to this growth in non-mutual fund sustaining. As Anuj said, none of it is one time, nor are we expecting some slowdown in growth in our major non-mutual fund businesses.
That' s the summary of the financials, and I will leave it to the moderator to open it up for questioning.
Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Swarnabha Mukherjee from 360 ONE Capital. Please proceed.
Yeah. Hi, sir. Thank you for the opportunity and congratulations on a good set of numbers. I have two primary questions. One is both on the non-MF part of the business. First wanted to ask on CAMSPay. I think CAMSPay has delivered fairly strong growth for multiple quarters. As we move ahead for the second half of the year, I think the pace is reasonably high in terms of growth. 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 a natural moderation in growth because we are sitting on a very high base? If the growth is likely to continue, highlight some, what are the drivers of the strategy which things can play out.
That is on Pay, and the second is on KRA. Sir, last quarter in the call, we had discussed that you have some additional fetch-oriented revenue that has now started to get priced. I just wanted to understand that this bounce back in CAMS KRA, how much of this is attributable to the higher amount of activity that was there in the market and to this additional pricing benefit that we are getting? How should we think about this number? Should we roughly think about this to continue at a INR 100+ crore kind of a level? These are my questions. Thanks.
Yeah, sure. On CAMSPay, 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're 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 INR 100+ crore base is not going to be easy. Our public statements have been that CAMSPay should grow in a fair manner by about 30-odd percent for the next two years.
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. 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 is 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 have continued to gain share. Wherever you see, we have 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 demat and broking. Our share of demat and broking has continued to go up. So what you have seen, despite the price drop in the first quarter starting April, you have seen a significant quarter-on-quarter growth. I would say this is typically usage growth, both by the base, because there has been some increased activity, also by new clients which have been onboarded. Like I said, some of these clients, just think about it. If you had 70% share of the market segment that I was not selling in, I have 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 to 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 these phase one inquiry, status inquiry kind of APIs. 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 would be hardly around INR 1.5 crore 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 one hits that we are seeing.
Very clear, sir. Understood. Just one question. If I look at a consolidated level depreciation numbers, I see some volatility in the last three, four quarters. It moved from INR 25 crore in Q2 2026 to INR 28 crore in 4Q, then again came down to INR 25, and now again INR 28. How should I think about this number, and why this volatility?
Two aspects. Number one is basically in terms of the depreciation that we follow, and I think I mentioned this in the last or the earlier call, which is basically written down value method. You do have a higher depreciation of 40% coming in year one, given the method of depreciation that we follow. In quarters where you have a muted increased depreciation, you will see a drop in depreciation. In fact, last quarter when we said the depreciation, we also kind of said that this is not going to be the trend going forward also. I think you should take the current base. We did have a significant addition of storage servers, and given the hardware prices that they are, the capitalization has increased this quarter, which causes this depreciation. 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, we start amortizing. Actually, of the increased INR 3.5 crore in depreciation in the quarter, more than INR 1.5 crore is actually attributable to the new modules that have gone live in the re-architecture project. 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.
Thank you. The next question is from the line of Supratim Datta from Jefferies. Please proceed.
Hi, thanks a lot for the opportunity. My first question is on the yield bit. I do understand that you said that QoQ yield contraction has only been less than 1%. However, some of your larger customers have shown a QoQ increase in their yields. Also, what we have seen this quarter is, some of the smaller AMCs have been growing faster. Just wanted to understand that, despite this, is it only related to telescopic pricing or is there something else also that is there in the yield piece? If you could give some more color on that, that would be helpful. Secondly, on the SIF data, and that has been a growing segment, are the yields similar to what you make on the equity side? If you could clarify that.
Moving to the non-MF business, if you could give us some understanding around how is the margins now tracking in that business? You did suggest that there is a 15% increase, but wanted to understand how is the margin tracking there. If you could give some color around that, that would be helpful. Then, on the overall cost structure bit, you have been managing costs very, very well. But if I look at it more from a three-year perspective, if asset growth remains weak, then would you be able to manage cost growth at somewhere around that 10% level? What would allow you to do that? Those were my three questions. Thank you.
Yeah. The question on yield is a great question, and I am sure many of your colleagues also have the same question. I will 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. If you see from overall perspective, the customer mix plays a part, the asset mix plays a part, the discount plays a part. In this quarter, if you see, from the asset mix perspective, while it is true that equity has grown probably little more than the overall asset growth, if you see the remaining asset classes, you have seen debt falling down by X percentage, and you have seen the passives going up by the same percentage.
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, 2.25 basis points, has been replaced by passives, which is probably 0.5 basis points, right? So, that mix is having an impact on this entire, the yields 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 the impact.
In terms of yield, yes, some of the larger customers have grown also, which gives a, a t 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 will try to reiterate is, please don't use it as a proxy for any discount that we have given, right? We reiterate the stance which I gave last time, which is there is 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 is 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. If it is a equity kind of a fund that we have, you will see the same rates that we are charging effectively for equity in regular schemes to be charged for SIF. So, you will not 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. From a billing perspective, there is no big difference between the two. In your non-mutual fund business margins, and this is something that I mentioned, which is that we have not only grown non-mutual fund more than 20%, we 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, KRA is a very profitable business. It's now increased in 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, because it is more than 18%. In fact, close to 19% is the non-mutual fund margin bucket that we have. So, which actually is very favorable from the overall margin profile also, right? So, a 16% of the business contributing 19% versus a 15% contributing 12% last time. It has been a good plus from the overall margin perspective and from a cost structure perspective, sustainability of cost.
Yeah, sure. So, from a cost structure, I think your point was that if we see weaker AUM growth, what happens, or more moderate AUM growth. I think in the last two years, we have seen quite a bit. Last year was 17% AUM growth against a benchmark of 19%-20%. This quarter, we have seen 12% AUM growth, and therefore MF revenues grew sub-10%. 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 have not expanded headcount at company level. Last 12 months, we have 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 is 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 MF AUM 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 MF AUM grow only 7% or 8%? Well, I can give you a hypothetical answer. We will answer it once we have seen a quarter like that. But at significantly moderate level of AUM growths, 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 brought forward. None of that has happened. These are just as straightforward as you can. So that's how I would answer your question.
Thanks a lot for that answer, Anuj. Just one follow-up. Then 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-off?
Yes. Yes, you can take that.
Got it. Sorry, just one last question, and this is more fundamental. There is a lot of talk around headless architectures now on the software side. Just wanted to understand that given you also provide software solution, backend solutions to the mutual fund, how much of these AI systems and these headless architecture, how much of a risk is this? May not be in two years' time or three years' time, but if I'm looking at it more from a five or 10-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. Therefore, we have deployed discretion. 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 some distance away.
Got it. Understood. That's very helpful. Thank you.
Thanks.
Thank you. The next question is from the line of Prayesh Jain from Motilal Oswal. Please proceed.
Yeah. Hi, Anuj. Just on an extension to the previous question, actually. AMCs today are paying, especially the large ones, are paying decent amounts to RTAs. At what size it becomes 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? Probably, 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. As something becomes easy, does it become easy and cheap? If it becomes easy and cheap, do I insource? I think the examples, Prayesh, are enough to be read when you look at global benchmarks. Go back and look at all the global banks, and if they insourced 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. Today, 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.
There, 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 7 or 6 or 5 or 4 basis points. 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 MF AUM base, it is deployed over, let's say, 6 crore, 5.5, 6 crore investors, about 8 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. The effort involved in recruiting, managing today, just the regulations. For example, we are required to have four data centers, three which are 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, constricted 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 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, today when you are coming on a 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 to cut yields? Whether it's AI cost that AI can bring down costs, or what other elements are they kind of pushing to 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 4 crore 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, Prayesh. 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, not backfilled, 250 or 300, but that's not a very large mass.
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. AI and our cost has never been an element with them because it's not a cost-plus pricing. A lot of outsourcing, including IT services and BPO, work on cost-plus pricing. This is eating of the same plate pricing, which means they get bps, we get bps. The distributor also gets bps, the fund accountant, the custodian gets bps. So everybody gets some bps. Typically, I think the price question has always been, the first vector has been that, look, market has grown 19%, we've grown 23%, we should get something extra.
Or the net sales have been small, or the gross sales have been small, the market-to-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. I would still say the arguments haven't changed. They're still the top two arguments.
Got that. Last question, again, more strategic question than on based on quarter. How would you think you can diversify your revenues further? Today, obviously, we are scaling up the non-MF businesses, and they have reached 15%+ , 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, Prayesh, the honest answer is that for a company of our size to run more businesses will not make a lot of sense. 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 are all 12, 15 years old. They are all of a critical size. 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 84 will become 82, 80, and probably go down to 78, 76.
Maybe in five years' time, we could be in the early 70s on the MF side. 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, 2015 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 has happened in the last two, three months, but still very early days for me to predict. ConsenPro is a good product to have. Not expecting it to be a INR 100 crore franchise.
Could be a INR 20, INR 30 crore franchise two, three years from now. So we will stay with the products right now, Prayesh. We don't want to just start going after everything and then finding we can do nothing. We will be very focused and stay with the franchise that we have today.
Got that. Thank you and all the best.
Thank you.
Thank you. 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 wanted to understand on one more aspect of the yield. Basically, incrementally, and we are seeing now the smaller and younger AMCs which started operations in last two, three years have started to ramp up. So, if that also can have an impact on the overall yield, wherein the AUM growth is coming from these newer AMCs, but revenue may come with a lag?
Devesh, when you say small AMCs, I assume that you mean the ones that have been launched at least more than five years, right? I think the other things, revenue contribution will be very minimal. I will 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, so at least three, four of them have outgrown the market. 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 yield. 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 one 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.
As these newer AMCs, which probably came in last three to four years, as they gain size, could they have a drag on your blended yield, or again, that is unlikely?
No, Devesh, that's quite unlikely. While I don't have a number in front of me, I will tell you that of this INR 58 lakh crore, INR 59 lakh crore, if I took the sigma of all the new AMCs which came in the last five years, I will struggle to get to INR 3 lakh crore. I may get to INR 2 lakh crore, but that's also doubtful. Think of a INR 2 lakh crore on a INR 60 lakh crore base, and think of how much dispersion from means you will get there. 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 10,000 or 15,000 or 20,000 crore, but they are not 2 lakh or 3 lakh or 5 lakh crore. To that extent, price will be better. All I am 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%- 7% of the AUM and the revenue book. To that extent, whatever impact a better pricing in 5%- 7% of your revenue book can have, it will have the same effect.
Sure, sir. Secondly, sir, on the margin part, you did mention about this INR 4 crore expense being incurred towards a new platform. If you could give more details of what would be the trajectory going forward, and what will be the drag from this new platform?
This is kind of a continuous process. As and when the modules keep going live, we will have the corresponding costs that we do to kind of make enhancements, small enhancements to the module, keeping the modules live, going through. This is the standard accounting treatment that we do. Just to give you a perspective, it's not something that started now. In the overall project so far, we have actually taken around INR 27 crore to the OpEx already, cumulatively over the period of time. What is going to happen is this is going to accelerate. This is going to accelerate as more and more modules get live.
Just to give you a perspective, in the Q2, we actually had around INR 5 crore of cost coming in, which is probably INR 2.5 crore of incremental cost coming into the P&L, and there was another INR 1.5 crore of depreciation that came in. Going forward, this INR 5 crore will become probably INR 8 crore and then INR 10 crore as we go further to Q3 and Q4. This is just one part of the equation. The second part of the equation is there going to be some corresponding decrease in the cost because of, obviously, this will kind of replace some of the work that we are doing. Not all the work, but some of the work we are doing.
What we are saying is the increase in the re-architecture, steady state kind of a cost that goes to the P&L 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. We don't expect the incremental cost per quarter from an OpEx perspective to be more than a couple of crores. I think which is something that we can obviously make good in terms of other productivity improvements, in terms of operating leverage, et cetera. Yes, so you will see this INR 5 crore per quarter going to INR 8 crore, going to INR 9.5 crore over the next two quarters, but the net impact will be much, much lesser.
It will probably be incremental INR 1 crore or INR 1.5 crore, or maximum INR 2 crore a quarter, which will be more than made up by the other operating leverage 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?
When we started the year, we had around 8,450 was the headcount. I think we are ending the quarter around 8,200. So, there has been a 250 reduction in the headcount, and some other outsourced 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, sir. Thank you and all the best.
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 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, let's say, 40 basis points. On financial transactions and mutual funds, this will be of the order of, let's say, 2 basis points . And therefore, its ability to drive, although it's an expanding segment, its ability to drive revenue upside for CAMSPay will be very small, which means that in a INR 100 crore book, once it gets implemented, you will certainly see INR 1 crore or INR 2 crore up. So that you will certainly see. But unlike a lot of the other companies which are in this retail UPI, you have seen some of those statements where people believe they will gain tens of crores or hundreds of crores. CAMSPay will not get that scale of benefit.
It will get a couple of crore a year whenever this becomes implemented, but not very large numbers. It will not be a very large percentage of revenue.
Thanks, sir. Thank you, sir.
Thank you. The next question is from the line of Aditya Chheda from InCred Asset Management. Please proceed.
Following what has been delivered in H1, versus our earlier expectation of a 2.5%-3% declining yields, would you want to revise the outlook for asset-based yields on what has transpired so far for FY 2027?
Sorry, do you mean revise upwards or downwards?
Upwards. The decline.
No, I don't think anything has happened which is causing us. Nothing has been surprising in this quarter, to be very clear. On a quarter-on-quarter, we have seen the decline to be sub-1%. Year-on-year, for the reasons that I mentioned, it's kind of little more than 3%. So we have always said, around 3% will be what you will expect. In a good quarter, it'll be less than 2.5%. In a reasonable quarter, it'll be around 3%. 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's as an incremental discount given to the customers, et cetera, that's causing it.
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. The next question is from the line of Divij Punjabi from Banyan Tree Advisors. Please proceed.
Yeah. Hi. Thanks for the opportunity. I had two questions. One was on the non-asset-based MF revenue that is there. If you were to look at the last couple of years, the revenue mix of it has come down from say, around 14% to around 11% now. So with the new platform coming through, can you help us understand what this segment would look like in the next three to five years? That is question one. The other question is, with the increasing mix of direct MF, do you see any impact on the asset-based business in terms of yields?
Okay. I will answer the first question, which is your non-asset-based revenue in your mutual fund. As I just tried to recap that, what it contains are transaction revenue, some application revenue, call center, NFO, and your reimbursement expenses. These are not driven by asset base. So, we generally guide that, you please don't build it based on asset increase, but rather a 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, all of this quarter has been on par with asset-based revenue, but generally you will see that it will lag the asset-based revenue. So the share of this 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 MF Central perspective, and we had some increase in miscellaneous, that is your application fee, et cetera. But if you do on a year-on-year basis, NFOs went down drastically, so you would have seen a drop. It' s not something that you can model specifically based on asset growth, rather. On the second question, can you just repeat that question?
Direct plans.
Yeah. So, increasing mix of direct mutual funds, does that have an impact on our yields?
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. The pricing remains constant. Direct plans have kind of, they did not exist at one time, and then they have grown significantly over a period of time. But for a large segment of the market, this is for do-it-yourself consumers. There are large number of consumers who are not do-it-yourself, for whom the regular plans will continue scaling. 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 FundsNet 2.0 was implemented, and over a period of time, more modules would be implemented. Our understanding is that it makes more of the cost base fixed in nature. From a longer-term point of view, can margins increase from current levels as operating leverage plays out?
Well, whether it is a new platform or the old platform, I think it has been a largely fixed-cost model, which means that we don't flex cost too much. 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 a 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 MF RTA, at least these four are definitely 100% largely platform. Yes, your point is right, that margins could expand. We have always said that in normal years, we expect margins to expand by 100- 200 basis points. That trajectory should continue.
Sure. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Dipanjan Ghosh from Goldman Sachs. Please proceed.
Hi, good morning, everyone. Few questions from my side. First, I think in your answer to one of the previous participant's question, you mentioned that the yields have been stable and you do not expect any substantial renegotiation or discounts over the next few quarters. So, I just wanted to get some color on this statement. Does this also include any large renegotiations with larger AMCs in FY 2028, or is it more of a 2H guidance? So, some color on that. The second question is on the non-MF 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-MF margin settling?
And within that, maybe more specific to the AIF and the payments and the KRA business, which are relatively more margin-accretive, where do you see these three particular segments settling down? Yeah, those were my two questions.
Thanks, Dipanjan . So, from a yields perspective, definitely for H2, and 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. I don't think it will be proper from 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 bps 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 SEBI 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, 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 franchise for us. AIF is very stable at a 20% 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 doing the same proportion as what they are doing now, I think a steady-state margin of 25%+ is very much on the cards in the three-year period that we're talking about. Our aim is to be able to get it closer to 30%, but a 25% margin is something very much on the cards.
Got it. Thank you and all the best.
Thanks.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to Mr. Ram Charan 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.