IPO Filings/DRHP’s are some of the best places to learn from when you are trying to understand the company and industry it operates in. In this letter, we will delve into the IPO filing of CAMS (the largest RTA in the country)
Founded in 1998, CAMS ( Computer Age Management Services Pvt. Ltd ) is India’s largest registrar and transfer agent of mutual funds with an aggregate market share of 69.4% based on mutual fund AUM managed by its clients (Asset Management Companies) during November 2019
This IPO is an offer of sale .i.e. the proceeds from the IPO will be going only to the existing shareholders selling their shares.
Shareholding pattern is available here. The subreddit does not let us post pictures.
Growth in the mutual fund industry on back of increasing savings moving towards financial assets: See chart here. Company has shown 17.4% CAGR from 2000-2019.
India’s mutual fund AUM as a % of GDP is significantly lower than the world average: See chart here. India is at 11%, compared to 103% for USA, 75% for France, 68% for Canada
The number of mutual fund houses have been largely stable over the last few years, hence, the growth in the revenues will be largely on back of growth of AUM managed by the fund houses.
Mutual fund industry comprises of 41 AMCs (excluding Infrastructure Debt Funds) and a majority of the total mutual fund AUM is managed by the top five AMCs which have approximately 60% of the total market share as of March 2019. (Market share of top five AMCs has risen in the last few years from 54% in financial year 2015 to 58% in financial year 2019)
Services provided by RTA’s to AMC’s:
Knowledge partner of AMC’s: Given the history of RTA’s association with AMC’s, they apply analytics to accumulated data and help AMCs in the development of innovative products
Service aggregator: RTA’s bring cost efficiency to the table due to having similar scope of work across major AMC’s (e.g. sending notifications to the customer)
Revenue is derived from fees charged for servicing the AAUM (average assets under management ) of the funds serviced by CAMS
Charge higher fees for equity mutual funds v/s debt funds
Contracts with Mutual fund and AIF clients are typically perpetual in nature, unless terminated by either party while it is 3-5 years for other clients
Major part of the revenue earned (estimated to be over 80%) is by means of tiered fees charged on the AUMs managed for which the MF RTAs provide service. These tend to decrease as a proportion of total AUMs once the AUMs surpass the tiers for which the fees are agreed on.
With the increase in AUM managed, the fees charged as proportion of AUM has been falling, but the extent of decline in pricing despite the strong growth in AUM (i.e. approximately a 30% CAGR) indicates the reasonably strong bargaining power enjoyed by MF RTAs
In FY 2020, MF RTAs witnessed some pricing pressure, as the SEBI reduced the total expense mutual funds were allowed to charge.
According to CRISIL, a moderate reduction in fees charged by RTAs as a proportion of AUM as the size of industry AUM increases is expected. However, RTAs will benefit from an expected increase in the share of equity and hybrid funds in industry AUM.
There is no impact of direct plans growth on RTA’s as RTAs as these are charged based on AUM, irrespective of which plan is opted for by investors
RTA’s also offer similar services to Alternate Investment Funds (AIF)
In addition, RTA’s also have offer similar services to insurance companies for policy servicing of e-insurance policies. There are 4 insurance repositories in India :
CAMS Insurance Repository Services Limited;
Central Insurance Repository Limited;
KARVY Insurance Repository Limited; and
NSDL Database Management Limited.
Following are the are the mutual fund registrar and transfer agents operating in India:
Computer Age Management Services Limited (“CAMS”),
Sundaram BNP Paribas Fund Services (acquired by Karvy in October 2019)
Franklin Templeton Asset Management (India) Private Limited
See market share and total AUM of top fund houses here. CAMS services the 4 out of the top 5 AMC’s and 9 of the 15 largest AMC’s. It has been able to manage and hold on to its market share in the last few years: See chart here. CAMS is the clear leader vs/ peers in profitability with RoE of 29.5% , PAT margin of 19% and witnessed the revenue CAGR of 20% over 2016-19: See chart here. CAMS also has a 3X higher business per branch despite having only 22% higher number of branches than Karvy: See chart here. There are multiple reasons for the oligopolistic nature of the RTA industry leading to significant entry barriers:
High client stickiness due to humongous hassles involved in migration ,business disruption , customer and regulatory hassles . New players have not gain traction, only consolidation or building in-house RTA have led to switching of RTA’s - this is evidenced by the CAM’s number of clients being the same over the last 5 years: See chart here.
The average term of CAM’s relationship with its ten largest mutual fund clients is 18 years as of September 30, 2019
High Technology intensity requiring continuous up gradation of systems due to changes in regulations
Need of extensive branch network to address service needs of customers
High operating leverage: RTA helps in addressing investor and distributor needs which are not addressed online
CAMS also has a significant presence in insurance repository market: Given the miniscule penetration of e-policies, there is a significant headroom for growth in this market.
Regulatory Risk : SEBI in its press release in September and October 2018 had provided a maximum cap on the Total Expense Ratio (TER) which can be charged by mutual fund companies on the various type of products . This capping can potentially impact the revenues of service providers like CAMS since the AMC’s can renegotiate their fee contracts with CAMS
Client concentration Risk: Top 5 clients have contributed to 65-67% of revenues in last 4 years. Given the Oligopolistic nature of the market, the client concentration doesn’t seem to be reducing soon.
Consolidation in Industry: M&A in AMC’s can reduce the number of clients and grant more bargaining power to the AMC. In the past, they lost one of mutual fund clients’ due to their merger with another mutual fund that was serviced by a competitor
Provides portfolio of technology-based services, such as transaction origination interface, transaction execution,payment, settlement and reconciliation, dividend processing, investor interface, record keeping, report generation, intermediary empanelment , brokerage computation and compliance related service
Also provide certain services to alternative investment funds, insurance companies, banks and non-banking finance companies.
Managed mandated transactions (collections , reconciliations) for AMC,s NBFC’s etc
For Insurance companies - processing of new applications, holding policies in demat form, servicing and support for policies
Digitization of account opening, back office processing for banks and NBFC’s
Number of folios serviced by CAMS are 38.3 million as of September 30, 2019
Has 278 service centers, four call centers, four back offices of which three are in Chennai
See chart here. CAMS operates in 7 business verticals namely: Mutual Funds Services Business, Electronic Payment Collection Services Business, Insurance Services Business, Alternative Investment Fund Services Business, Banking and Non-Banking Services Business, KYC Registration Agency Business and Software Solutions Business Mutual Fund vertical services
Transfer services like transaction origination , managing KYC , execution of transaction processing from investors and payments, calculation & payment of brokerage commission fees to distributors, risk management services like reporting to SEBI, anti money laundering services, Customer care services through service branches for customer and distributors and call centre.
Distributor services like record and maintenance of brokerage structures , computation of payable /clawback brokerage/ distributor queries
Also has developed a bunch of applications including mobile apps and solutions for investor, corporate and AMC needs
Electronic Payment Collection services: Manage end-to-end automated clearing house transaction and electronic clearance services and service mutual funds, non-banking financial companies and insurance for automated payments Insurance services: Scrutinizing and processing of applications, training and onboarding of new insurance agents, submission of proposals, scanning, indexing and data entry, reminding policyholders of payment receipts Alternative Investment Fund Services: Similar to MF Banking and Non Banking Services Customer interface and back office processing KYC Registration Agency Business: Maintain KYC records on behalf of capital market intermediaries registered with SEBI, eliminating the need to repeat KYC procedure. Software Solutions Business: Software solutions business through subsidiary, SSPL which owns, develops and maintains the technology solutions for mutual fund clients, with a team of 362 people .
As of September 30, 2019, CAMS employed 4,314 full time and 2,136 contractual employees.
Given the high operational intensity of the business, employee expenses is the major cost at ~38% of the revenues.
Dividend Distribution Policy:
Company adopted a formal dividend policy on February 20, 2018 which was further amended on January 2, 2020.
Company aims to distribute a minimum dividend of 65% of the consolidated profit, net of tax, for relevant financial year
Notes on financial information:
Nearly 254 Cr investments in mutual funds , 45 Cr of trade receivables, 157 Cr of cash & cash equivalents as of HYFY19
No debt on the books, just long term lease liabilites of 105 Cr as of HYFY19
Bulk of the revenues is from data processing
Data processing comprises of core AAUM based revenue, revenue from services to insurance companies, banking and non-banking financial services companies and services to alternative investment funds and our KYC registration agency business.
Customer care services primarily comprise paper transaction volume-based fees and NACH volume based fee from electronic payment collection services business.
Recoverables comprise out of pocket expenses incurred on clients
Miscellaneous services comprises revenue from call centre services and fees for applications made available to clients. Software license fee, development and support services comprises fee earned by Subsidiary, SSPL for providing services to external clients.
Major part (~50%) of the operating expenses is the service expenses
Service expenses: Out of pocket expenses incurred for communication services to investors or distributors, stationary and postage on behalf of clients
Data entry expenses: primarily incurred to process paper applications in mutual fund services business
Customer service centre charges: Expenses primarily associated with management of service centres and payment of fees to centre heads
Claims: Incurred on account of claims raised against CAMS as well as funds set aside by CAMS to provide for future claims
There is no debt on the books of the company or its subsidiaries
At current share capital of 48,760,000 shares, this translates to a price of 1230/- , meaning a current P/E of 36x on FY20E
Other comments: Given that the growth in the CAM’s business with be primarily driven by the clients’ AUM growth , unless CAMS acquire more clients (which looks difficult to high entry barriers) and low pricing power, the earnings growth in the future will be largely in line with industry AUM growth. Note: All the notes are based onthe filed CAMS IPO prospectus, please consult your financial advisor for advice before investing in any product. P.S - Apologies. A lot of the charts are images that cannot be posted on this subreddit. However, all of these are available on the source article - https://www.thegalacticadvisors.com/post/computer-age-management-services-decoded.
Arbitrage opportunities in options - how options are priced, explained in layman's terms - without resorting to the BS pricing model
Alright retards, I've been laid off at work due to beervirus and I've been eyeing and toying with the idea to get back into options trading. I'm writing this post to raise the bar for discussion on this sub, I'm tired of seeing just memes. We'll never match WSB unless there is a healthy mix of dankass memes and geniass discussions. Now, when it comes to options, I am completely self-taught (completely from first principles, back in 2008, before you autists came up with the idea of watching videos on youtube). Since I am completely self-taught, my perspective will be different from the people who learnt this stuff while studying MBA/finance courses/NSE accredited investing courses. So if what I'm saying is different from what you've heard from the dude who swindled you of 20K for two days of options education or your gay BF's live-in partner, remember when it comes to maths, there are many ways of approaching a problem, ultimately, all are the same - profit means account balance goes up, loss means a loss post on ISB goes up. Now, I'm assuming that you understand how options work. If not, I suggest heading to Zerodha's Varsity to read up on options. If you're too lazy for this, get your micro-dick outta options, this is a man's game, surprise butt-sex awaits amateurs. I'm also assuming that you've come to realise that the sustainable way to make money in options is to write options. Unless you've got Trump or Ambani on speed dial to get access to news before it becomes news, YOLOing whatever rent money you have on buying options will blow up your account, eventually. Writing options also means the possibility of account balance going tits up is a real possibility. You gotta, gotta, gotta measure and manage your risk. You can do this only when you understand options as well as your dick. Towards this, I intend to put up a bunch of posts (depending on many of you shit heads are still reading at this point) that comment about little things that are more of 'wisdom' than 'education'. The example below talks about currency derivatives. Why currency? Read below:
Lower margin needed. I can short a CE/PE contract with only Rs.2000, unlike the >Rs. 70,000 for index contracts. You get to learn, play and wisen up with an order of magnitude less money than with Nifty or Banknifty contracts.
More stable underlying. When you're shorting contracts, the last thing you want is the underlying asset going crazy like a broncho during rodeo.
Sooner or later, you end up acquiring a more balanced education on economics as a whole, rather than the shit fest that goes on in the local circles.
The more contracts you can short, the more strategies you can pursue
Decent hedging is possible without throwing away all of your potential profits
Lesser stress (anybody else going through premature hairloss or is it just me?) because of points outlined above.
Alright, today, I'm going point how the put-call parity works and by extension, show proof for 'efficient markets' by pointing out how opportunities for arbitrage is pretty much non existent, so you guys can cool it with the whole 'market manipulators' knee jerk reaction. Alright, to start off, here's the current spot rate of the USD-INR pair: https://preview.redd.it/qup28ay567j51.jpg?width=452&format=pjpg&auto=webp&s=b79ef1a3480e5cbafa42547143c651397ec57f13 Here's today's USD-INR futures closing rate for Sep expiry: https://preview.redd.it/krghirc677j51.jpg?width=511&format=pjpg&auto=webp&s=60d52b785baa8a1cd240d0df7949a48c8391ba2d The difference between spot and futures rates is due to differences in what is construed as 'risk-free' interest rates in the US and in India. Check out this video if you want to understand why the Sep futures is trading at a premium of 27 paisa to the spot rate. Alright, so the deal is, if you buy 1 futures contract @ 74.49, unless the USDINR exchange rate rises by 27 paisa at the end of Sep (i.e. a spot rate of 74.49) you won't make a profit (ignoring brokerage and stuff). If the exchange rate were to remain the same without any change, you stand to lose (0.27 * 1000, currency derivatives have a lot size of 1000) Rs. 270 per lot. Even worse if the rupee were to appreciate (i.e. exchange spot rate goes down). Now bear with me if the next few paras are exceedingly boorish, I need to spoon feed people who aren't used to currency derivatives. My strategies are mostly aimed at playing a more risk balanced play, something that yields consistent returns which can be compounded. 10% profit compounded monthly gives 314% growth per year, 3.5% profit compounded weekly gives ~600% growth per year. Given how the USDINR rate is crashing, one way to profit would be to short a futures contract (duh!). The orange line indicates the current USDINR exchange rate As indicated above, if the exchange rate does nothing and remains as is till end of Sep, each lot of USDINR futures shorted yields about Rs. 250 in profit (for something that takes up Rs.3000 in margin, that's a >8% profit in return). Things look even better if the exchange rate were to fall further. The problem is that things heat up quickly if the exchange rate were to go up. Ideally we would want to hedge against it (which also reduces the margin needed drastically). One way to hedge it would be to buy a at-the-money call (74.25CE @ rate of Rs. 0.555 -> Rs. 555 per lot (i.e 0.555*1000)). https://preview.redd.it/ze16kyphv7j51.jpg?width=588&format=pjpg&auto=webp&s=a3c2bba9fb314beff309671f03a013e69e08f4e0 Having purchased a call option, the P/L curve now looks like: The max loss is now limited to Rs. 315 The keen-eyed among you will recognise the above P/L curve as one that matches that of a put option. By shorting a futures contract and buying a call option (both with same expiry), we have created a synthetic put option that would have costed us Rs. 315 (0.315*1000) for one lot. Now, why go through all of this hassle if we can get the same returns by just buying a put option? Makes sense, as long as we can purchase the 74.25 strike put option at a price lesser than Rs. 0.315 (see above). Let's see what the put options are going for: Well, how about that... The market price of 74.25 puts are exactly the same price as our synthetic put. While the synthetic put came in at Rs. 0.315, the put costs another 0.005 extra to avoid the trouble of shorting a futures contract and buying a call at the same time. This is not by chance, big trading desks have algos (trading bots for the virgins here) that keep an eye out for price disparities. In this case, if someone were to be willing to pay more, the algos would compete amongst themselves to sell the puts at any price above 0.32. And if someone were to be willing to sell a put for less than 0.315, the algos would immediately buy. The price of the puts move in sync with the prices of the futures and call contracts. Conversely, we can create a synthetic call, and you will notice that the price of the synthetic call works out to be the same as the market price for the 74.25 strike call. We can also create a synthetic futures contract the same way. The prices of derivatives aren't decided willy-nilly. They are precisely calculated at all times, which forms the basis for the best bid/ask prices. There is no room left for someone to come in and make free money via arbitraging using synthetic contracts. If you found this insightful, and would like more of this sort of posts, let me know. Options when used properly, can be used to generate risk adjusted returns that are commensurate with the amount of risk you are taking. If you are YOLO-ing, sure, you can double or triple your money, because you can also lose 100% of your margin. Conversely, you can aim for small, steady returns and compound the crap out of them. Play the long game, don't be penny wise and pound foolish.
I don't know if it is only me, but Zerodha's P/L and tradebook and ledger really needs a lot more work to be properly usable. I trade solely on equities, and for the love of my life, I still cannot get a clear idea of the charges incurred for each transaction. Let's say I have Rs 5000 as my opening balance on a fine morning. I haven't placed any sell order within a week, and so, there is no chance of DP charges. I place a bunch of buy orders, amounting to about Rs. 4990, they go through, I am happy and go to sleep. I wake up the next day, and instead of Rs 10 balance, it's negative. Obviously, going through the contract note gives me an idea of additional charges incurred. Now, to add to the problem, Zerodha Console's P/L needs a lot of time to be updated. The DP charges incurred on 20/05/2020 has still not been updated in P/L. I understand the system of eventual consistency, but, seriously? 4 days and it still hasn't been updated? Also, Kite app's funds doesn't seem to be up-to-date. According to my ledger, it turns out I placed buy orders with negative balance, where I know for a fact that Kite rejects any CNC buy order if I don't have adequate margin. The entire system seems to be kludgey. Currently. if you want to calculate and recheck your balance, you have to move between Ledger and Tradebook in Console, and Contracts in email. Is it not possible for Zerodha to provide a simple order-wise breakdown of transactions, along with incurred charges? Or am I missing something?
Can someone help me understand what's the turnover we need to declare while filing ITR? I understand we have to do audit if turnover is above 2Cr but my issue is in calculating the turnover. I use Zerodha and when I check the P&L report for the year 2019-20, I can see they have mentioned total turnover in the beginning of the F&O tab. But that seems way too less, or my understanding of turnover wrong? My total turnover over is showing around 1.5L even though I had bought two lots of Nifty Futures (150 shares) using their margins which itself would come around 18L and several such trades using f&o margins. Is it because the margins are not included while calculating the turnover?
Brokers said they could end up paying 30-35 per cent less in initial margins. The Securities and Exchange Board of India (Sebi) is looking to revamp margins on derivatives trading to reduce costs for market participants, said two people aware of the development. The regulator will consider a single margin system that will help those who trade in futures and options to hedge their share portfolios. Brokers said they could end up paying 30-35 per cent less in initial margins and trading costs could drop 5-10 per cent for others, depending on the nature of their bets. Sebi and stock exchange officials discussed the matter in the last week of October, the people said. Market participants have been lobbying for such a move on the grounds that margins in India are among the highest in the world. This is said to be one of the factors behind foreign portfolio investors (FPIs) preferring to trade Indian derivatives in offshore locations such as Singapore instead of on-shore. The regulator didn’t respond to queries. Derivative market traders currently pay two margins — standard portfolio analysis of risk (SPAN) and exposure. The first is an upfront margin that traders pay at the time of placing trades, a percentage of the value of the trades as calculated by the SPAN software. Exposure is an additional margin that brokers collect from their clients for trading in derivatives at the time of initiating a trade. The regulator and the exchanges are looking at scrapping the second and retaining only SPAN, the people said. An increase in SPAN margins will partially offset this, benefiting hedged bets. “If the proposal is implemented, several traders using hedging strategies will end up paying substantially lower margins since SPAN margin is calculated at a portfolio level,” said Chandan Taparia, derivatives analyst, Motilal Oswal Securities. The exposure margin, on the other hand, pertains to that particular trade. “This is a welcome step since such hedging strategies carry limited risk and hence would not be subjected to high margins,” Taparia said. Brokers said a single margin structure will help individual traders bet on options trading strategies at lower cost. “On Indian exchanges, retail traders don’t trade option strategies as the margin requirements make them non-viable even though the maximum risk is limited,” said Nithin Kamath, founder and CEO of Zerodha. “With the new proposed margins, we would be enabling retail to trade options through strategies, which have limited risks.” The regulator had received several representations from industry bodies, including FPIs, to rationalise the margining system for the derivatives market. In the run-up to settlement, margins on some stocks surge as much as 100 per cent of the contract value whereas the global standard is 10-20 per cent. “The idea of Sebi was to simplify the margining structure and also give some benefit to genuine traders who use derivatives for safety net purposes,” said one of the persons cited above. “However, Sebi is planning to tweak the existing calculation for SPAN margins by increasing the multiplier. This would mean SPAN margins could go higher in lieu of exposure margin.” A single margin structure will help market participants allocate capital more efficiently. “Until now, introducing a single margin wasn’t possible since BSE and NSE do it at the exchange level. However, with the introduction of interoperability before the clearing corporations, such a step has been made possible,” said a senior exchange official. “We have also represented to Sebi not to increase the SPAN margins substantially higher since an internal study done by us showed current SPAN margin calculation covers losses that could occur in 99 per cent of scenarios.” However, those punting on highly volatile stocks are unlikely to get any relief from the scrapping of exposure margins, said the head of derivatives at a domestic brokerage. “Such contracts are currently subject to more margins, including additional surveillance margins (ASM) and bonus margin for highly leveraged stocks,” the person said. “Our sense is that Sebi will continue to charge the additional margins on such counters.” About 30-40 stocks are subject to additional margins. In October, Sebi proposed to impose 35 per cent higher margins on the contracts of companies where more than 25 per cent of the promoter shareholding is pledged. This impacted nine counters including Bajaj Consumer, Dish TV, Sadbhav Infrastructure and GMR Infrastructure. https://m.economictimes.com/markets/stocks/news/sebi-mulls-lowering-cost-of-derivatives-trading/articleshow/72016315.cms
Zerodha margin calculator helps you to calculate the margin money needed to execute trades. Now you can also know Zerodha future margin for all buying or selling exchanges like futures & options, equity futures, commodity, and more within a second.
Zerodha Equity Margin Calculator Equity Intraday Margin. Zerodha Equity MIS (stands for Margin Intraday Square Off), being an intraday product, is bought and sold for a single day and Zerodha team charges you for closing your call and trading. So, always try to close the trade before closing time. Zerodha Intraday MIS can provide up to 20 times margin based on the stocks you are trading in. Brokerage calculator Margin calculator Holiday calendar. Updates. Z-Connect blog Pulse News Circulars / Bulletin IPOs. Education. Varsity Trading Q&A. SEBI Registration no.: IN-DP-431-2019 Commodity Trading through Zerodha Commodities Pvt. Ltd. MCX: 46025 – SEBI Registration no.: INZ000038238 Registered Address: Zerodha Broking Ltd., #153 The Zerodha F&O calculator is the first online tool in India that let's you calculate comprehensive margin requirements for option writing/shorting or for multi-leg F&O strategies while trading equity, F&O, commodity and currency before taking a trade. Zerodha Margin Calculator is a tool which will help you to calculate the leverage provided by Zerodha for the segments like Intraday, Delivery, F&O, Currency & Commodity.. You will be able to calculate Zerodha margin funding & the total amount of extra shares that can be bought with the extra leverage provided by the stockbroker. Before step into the discussion of the Zerodha Margin Calculator, let’s get acquainted with the concept “Margin” in the trading field. Let’s assume that a trader is engaged in the stock market and doesn’t have enough funds to initiate a trade. Here, in this situation, he can get a loan from his brokerage firm to purchase securities.
Hi dosto, is video me main bataunga ki , zerodha kitana leverage deta hai , aur zerodha me margin ko kaise calculate karte hai. zerodha margin calculation ke... Hello everyone in this video I am going to walk you through the Zerodha's margin calculator and Leverage trading. Zerodha recently removed the calculator from the Equity but they have added the ... now open an account in Zerodha click the below link, https://zerodha.com/?c=LJ4413 now open an account in Angel broking click the below link, https://itrade.... Zerodha new margin calculator अब Share लेना हुआ और भी आसान Intraday Trading Trading Street - Duration: 4:19. Trading Street 13 views New Zerodha me future trading ya option trading me kitana margin lagta hai? How to calculate margin in future trading? call option buy / sell margin calculation, put option buy / sell margin required ...