Incorporated in 2017, KFin Technologies Limited is a leading technology driven financial services
platform providing comprehensive services and solutions to the capital markets ecosystem including asset managers and corporate issuers across asset classes in India. The company also provides several investor solutions including transaction origination and processing for mutual funds and private retirement schemes in Malaysia, Philippines and Hong Kong. KFin Technology is India’s largest investor solutions provider to Indian mutual funds based on the number of AMC clients serviced. The company provides services to 24 out of 41 AMCs in India, representing 59% market share based on the number of AMC clients. Further, through the acquisition of Hexagram, the company serves 6 AMCs in India on fund accounting. KFin is the only investor and issuer solutions provider in India that offers services to asset managers such as mutual funds, alternative investment funds (AIFs), wealth managers and pension as well as corporate issuers in India, besides servicing overseas clients in South-East Asia and Hong Kong. The company is servicing 301 funds of 192 asset managers in India, representing 30% market share based on the number of AIFs being serviced. The company is also one of the three operating central record keeping agencies (CRAs) for the National Pension System (NPS) in India.
Objects of the issue:
The IPO proceeds of the issue will be used towards the following purposes:
- To carry out the offer for sale.
- To achieve the benefits of listing the equity shares on the stock exchanges
Investment Rationale:
Scalable platform, robust growth track record and market leadership provides confidence about the company’s growth prospects
KFintech is a leading technology driven financial services platform providing comprehensive services and solutions to the capital markets ecosystem including asset managers and corporate issuers across asset classes in India. It is one of the two leading investor solutions providers in India and provides services to 24 out of 41 AMCs in India, representing 59% market share based on the number of AMC clients. Further, within investor solutions for Indian mutual funds, they held a market
share of 32% based on the overall AUM managed by their clients and serviced by them. Out of the 60 AMCs in Malaysia, they are servicing 18 AMC clients in Malaysia, in addition to 3 clients in Philippines and Hong Kong. The company holds a 46% market share based on the market capitalization of NSE 500 companies in India’s issuer solutions space. The company serves more than 5,051 listed and unlisted corporates with 107.7 million issuer solutions folio out of a total of 172.9 million folios.
Also, the company had a 40% and 29% market share based on the number of mainboard initial public offerings handled in FY22 and H1FY23, respectively. They are servicing 301 funds of 192 asset managers in India, representing 30% market share based on the number of AIFs being serviced. The revenue from their investor solutions, issuer solutions and global business services grew at a CAGR of 26.6%, 20.6% and 8.1%, respectively, between FY20 and FY22. Moreover, the company’s technological backbone is inherently scalable in nature which helps to expand operations with minimal impact on the margin profile.
share of 32% based on the overall AUM managed by their clients and serviced by them. Out of the 60 AMCs in Malaysia, they are servicing 18 AMC clients in Malaysia, in addition to 3 clients in Philippines and Hong Kong. The company holds a 46% market share based on the market capitalization of NSE 500 companies in India’s issuer solutions space. The company serves more than 5,051 listed and unlisted corporates with 107.7 million issuer solutions folio out of a total of 172.9 million folios.
Also, the company had a 40% and 29% market share based on the number of mainboard initial public offerings handled in FY22 and H1FY23, respectively. They are servicing 301 funds of 192 asset managers in India, representing 30% market share based on the number of AIFs being serviced. The revenue from their investor solutions, issuer solutions and global business services grew at a CAGR of 26.6%, 20.6% and 8.1%, respectively, between FY20 and FY22. Moreover, the company’s technological backbone is inherently scalable in nature which helps to expand operations with minimal impact on the margin profile.
Strong growth prospects across large markets in India and South-East Asia gives sectoral tailwinds to the business
KFintech is geographically diversified and operates in multiple large markets including India, Hong Kong, Malaysia and Philippines, along with a presence in Oman and Maldives, across several asset classes. This has allowed the company to grow as a regional business and not just as an India focused business. Moreover, the countries in South-East Asia and Hong Kong represent a large mutual fund AUM and robust expected growth in mutual fund AUM in these countries is expected to aid,
KFintech’s business. On the domestic side, the market leadership in India and strong client relationships provide the company with a platform to benefit from the anticipated growth in the Indian economy. A combination of macro factors in KFintech’s end-markets such as increased government focus, higher investor pool and client engagement, broadening distribution channels, digital disruption, and a shift in the attitude of investors provides the company with a significant growth opportunity across these markets.
KFintech’s business. On the domestic side, the market leadership in India and strong client relationships provide the company with a platform to benefit from the anticipated growth in the Indian economy. A combination of macro factors in KFintech’s end-markets such as increased government focus, higher investor pool and client engagement, broadening distribution channels, digital disruption, and a shift in the attitude of investors provides the company with a significant growth opportunity across these markets.
Valuation and Outlook:
KFin Technologies, a leading technology driven financial services platform, grew at a CAGR of 19.2% during FY2020-22 period. Going forward, the company plans to expand internationally beyond the geographies they are already present. This is likely to be executed by further enhancing their global delivery model wherein the company will look to become delivery partners to global investors and issuer services providers. KFintech is also actively pursuing new client acquisition across their service offerings and different businesses. Furthermore, the company operates an attractive asset-light business model, with a demonstrated track record of consistent profitability, returns and strong free cash flows. It is interesting to note that the company’s IPO issue is 100% OFS. On the upper price band, the issue is valued at a P/E of 38.8x based on FY2022 earnings which we feel is richly valued. We, therefore, recommend a “AVOID” rating for the issue
