Kfin Technologies IPO: Detailed Analysis

KFin Technologies Limited IPO opens for subscription on 19th December. The company is looking to raise up to Rs 1500 crore through the public issue. Here are the details: 

KFin Technologies Limited (KTL) IPO Details:

• KFin Technologies Limited IPO Date: 19 December - 21 December 2022
• KFin Technologies Limited IPO Price band: Rs 347 - Rs 366
• KFin Technologies Limited IPO Issue Size: Rs 1500.00 crore (Only Offer For Sale)
• Reservation: QIB 75%, Retail 10%, NII 15%
• Minimum Investment: Rs 14,640
• Post Issue Implied Market Cap: Rs  5,815 – Rs 6,133 crore
• Bid lot: 40 shares, and in multiples of 40 shares

KFin Technologies Limited IPO: Issue objective

The company will not receive any proceeds from the Offer, and all such proceeds will go to the promoter-selling shareholder.

KFin Technologies Limited IPO: About KFin Technologies

• KFin Technologies is a relatively new company - it was incorporated in 2017.
• KTL is a leading technology-driven financial service platform that provides comprehensive solutions and services to the capital market ecosystems.
• It provides service to asset managers and corporate issuers across asset classes in India and provides several investor solutions, including transaction origination and processing for mutual funds and private retirement schemes in Malaysia, the Philippines, and Hong Kong.
• KTL is India’s largest investor solutions provider to Indian mutual funds, based on many AMC clients serviced. They provide services to 24 out of 41 AMCs in India (30 Sep 2022).
• KFintech is servicing 301 funds of 192 asset managers in India, representing 30% market share based on the number of AIFs being serviced (30 Sep 2022).
• They are one of the three operating central record-keeping agencies (CRAs) for the National Pension System (NPS) in India.
• KFintech is servicing 18 AMC clients in Malaysia in addition to 3 clients in the Philippines and Hong Kong(CRISIL Report).

KFin Technologies Limited IPO: Business Verticals

The company classifies its products and services as follows:

• Front End: Account Setup, Transaction Origination, Channel Management, Customer communication management
• Middle Office: Transaction Processing Unit, Allocation KYC, Redemption Brokerage, Calculations Payment Processing, Fund Accounting Reconciliation
• Back End: Compliance / Regulatory Reporting, Recordkeeping, MIS / Decision Support
• VAS: Distributor Platform, Investor Platform, IT Infra, Web Hosting, and Data Analytics

KFin Technologies Limited IPO: Industry Overview

• Between FY14 and FY21, the net financial savings increased at a CAGR of approximately 15.7% as compared to approx 5.4% for saving in physical assets during the same period. This led to a decline in household savings in physical assets from 62% in FY14 to 47% in FY21. During the same period, financial savings grew from 36% to 52%. The increase in savings will translate to investments and help companies like KFin.
• The aggregate AUM of the Indian mutual fund industry has grown at a healthy pace over the past 10 years. Average AUM grew at a CAGR of 18% to Rs 39.05 trillion as of September 30, 2022, from Rs 6.65 trillion as of March 31, 2012. 
• However, between March 2017 and September 2022, the growth has been slower comparatively at a CAGR of 15%, as compared to a CAGR of 22% between March 2012 and March 2017.
• In the long term, i.e., between FY22 and FY27, the overall industry’s AUM is projected to sustain a high growth trajectory of ~14% CAGR, reaching approximately Rs 74 trillion.

KFin Technologies Limited IPO: Listed Peers

The company has only one listed peer. It has unlisted competitors for some of its services. For example, Linkin Time India and Bigshare Services provide Issuer Solution Services similar to KFin. Miles Software Solutions and Applied Software (unlisted) compete in the wealth management category.

The only listed peer of KFin Technologies is CAMS. It provides all services that KFin Technologies provide, except Issuer Solution. The financial comparison is as below:

• In terms of revenue (FY22), CAMS is a larger player with a revenue of Rs 909.67 crore. KFin has reported 2/3rd revenue of CAMS in FY22.
• The Earning Per Share (EPS) for KFin is much lower compared to CAMS, which has an EPS of 58.78.
• Return on Net Worth (RoNW) for KFin is 29.99%, while that of CAMS is 49.32%.
• The PE for CAMS is 39.37, while that for KFin is 39.10 on the upper band of the issue price. Both are similarly based on PE valuation.

KFin Technologies Limited IPO: Financials

• For FY20, FY21, and FY22, the company has reported revenue of Rs 449.87 crore, Rs 481.14 crore, and Rs 639.51 crore, respectively. The revenue growth was 19.16% for the above period.
• The EBITDA for FY20, FY21, and FY22 was Rs 164.02 crore, Rs 217.45 crore, and Rs 293.91 crore, respectively. The EBITDA margin for the same period was 36.03%, 44.72%, and 45.53%, respectively. It is important to note that the company operates in the sector with high EBITDA margins.
• For FY20, the company reported a small profit of Rs 4.52 crore. For the next financial year, the company reported a loss of Rs 64.51 crore and for FY22, they reported a profit of Rs 148.55 crore.
• The average EPS (Basic) and RoNW for the last three financial years were 1.81 and 4.63%, respectively.
• The company had a debt-to-equity ratio of 0.91 and 0.71 in FY20 and FY21, respectively. However, they have become debt free in FY22.

KFin Technologies Limited IPO: Unique Selling Propositions

Strong track record of growth and market leadership: They are a leading technology-driven financial services platform providing comprehensive services and solutions to capital market ecosystems. They are one of the two leading investor solutions providers in India and provide services to 24 out of 41 AMCs in India, representing 59% of the market share based on the number of AMC clients.

Diverse multi-asset servicing platform: They have a diverse multi-asset servicing platform that is well-positioned to benefit from strong growth across large markets in India and South East Asia. They operate in multiple large markets in India, Hong Kong, Malaysia, and the Philippines, along with a presence in Oman and Maldives, across several of these asset classes. It has allowed them to grow as a regional business and not just as an India-focused business.

Unique “platform-as-a-service” business model: KTL has a “platform-as-a-service” business model which provides its clients with comprehensive end-to-end solutions. The technology offering enables transaction lifecycle management combined with highly secure data collection, processing, and storage.

Deeply entrenched and long-standing client relationships: They serve clients to support their customers’ needs across the lifecycle of a relationship in an increasingly complex compliance landscape. They intend to further deepen client relationships by offering multiple platform solutions.

KFin Technologies Limited IPO: Growth Prospects

Deepen the relationship with existing clients: They have strong multi-year relationships with clients across the platform, primarily based on core services around registry and transfer agencies. KTL plans to continue to grow the overall share of revenues from the sale of different services to existing and new clients.

Expand customer bases through enhanced sales and marketing: In addition to the growth of existing clients, KTL actively pursues new client acquisition across its service offerings and different businesses. They undertake marketing and sales initiatives across their platform to target new clients and expand their client base.

Investing in technology solutions: They plan to develop a co-innovation laboratory with key industry players in ETF and index funds to drive research and development in this area. Also, they intend to continue to invest in technology innovations in line with the growth of their business and to meet client requirements.

Focused and selective international expansion: They plan to expand internationally beyond the geographies they are already present by further enhancing their global delivery model, wherein they will look to become delivery partners to global investors and issuer services providers to enter other markets.

KFin Technologies Limited IPO: Risks

Significant revenue from the mutual fund sector: Their mutual fund clients contribute towards a significant portion of their revenue from operations. A decline in the growth, value, and composition of AAUM of the mutual funds managed by their clients may adversely impact the average revenue earned by them from mutual funds and may have a significant adverse impact on future revenue and profit.

Legal proceeding: There are outstanding legal proceedings involving the Company, its subsidiaries, group Companies, and certain Directors.

Limited customer count: For FY20, FY21, and FY22, they derived 53.30%, 53.69%, and 53.05%, respectively, of their revenue from operations from the top five customers, and the loss of one or more such clients could adversely affect their business and prospects.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.