Financialisation of savings and greater participation of individuals in the capital market is expanding the capital market ecosystem, and Kfin Technologies could be the beneficiary.
Further, savings tools like SIPs are also gaining ground. This should bode well for KfinTech. “The share of financial assets as a proportion of net household savings is expected to increase over the next 5 years due to an increase in financial literacy, the relative outperformance of financial assets over recent years,” says a report from SBI Securities.
The firm provides comprehensive services and solutions to the capital markets ecosystem including asset managers and corporate issuers across asset classes in India. It also provides solutions including transaction origination and processing for mutual funds and private retirement schemes in Malaysia, Philippines and Hong Kong.
KFintech offers a “platform-as-a-service” business model provides with end-to-end solutions enabled by technology developed in-house. Its technology offers transaction lifecycle management combined with a highly secure data collection, processing and storage. The company’s data center houses over 350 servers and with a storage handling capacity of over 250 TB.
With its platform, KFintech provides the flexibility of addressing all major asset classes for asset managers and corporate clients through
its platform. It has several deep product stacks, and has a strong track record of growth and market leadership.
It is one of the two investor solutions providers in India for mutual funds, servicing 24 out of 41 AMCs in India, which is a 59% market share based on the number of AMC clients.
In addition, the company has signed on two new AMCs that are yet to launch operations. The company on-boarded seven of the last 11 new AMCs in India for domestic mutual fund solutions. Within investor solutions for Indian mutual funds, company had a market share of 32% based on overall AAUM managed by its clients.
Further, KFinTech has a strong track record of growth and market leadership. One key takeaway for long-term investors is its asset-light business model, which will provide lower investments and higher returns on investments in the coming years.
There have been legacy issues with regards to the erstwhile promoters, and that remains a key overhang on the stock. Overall, valuations are fair when compared to other players. Its shares are available at a price-earnings multiple of 41.3 times its FY22 earnings at the upper end of the price-band.
“The valuation of the IPO appears to be reasonable when we compare with listed peers. The company has significant scope for growth, considering its diverse product profile and addition of new client base and bright prospects ahead, we recommend a “Subscribe” rating to this IPO,” says a report from Anand Rathi Securities.
Nevertheless, its issuer solutions business could be slowing. “If 1HFY23 transactions are annualised, the 3-year FY20-23 CAGR has been 23%, implying revenue broadly tracks transactions. However, number of IPOs serviced have tapered off in 1HFY23, with 4 IPOs serviced by KFIN. However, there was a large IPO serviced by KFIN in the form of the LIC IPO in 1HFY23, which would have contributed heavily to transactions,” says a report from Yes Securities.
Besides, its price earnings multiple leaves less room for an uptick if you are looking for listing gains on the IPO. On the financials front, the company’s revenue has grown at a CAGR of 19.2% over FY20-22. The company posted losses of Rs 64.5cr in FY21 due to Covid led disruption, however in FY22, profits saw decent growth and it improved to Rs 148.6cr.
On the valuation front, it is trading at PE of 40x FY22 EPS which we believe is expensive as compared to its near peers,” says a report from Religare Securities.
Its long-standing client relationships with a diversified and expanding client base: In India, the investor solutions business that it operates in typically has two to 3 players, as it requires high technology intensity and a track record of delivery at scale, and are subject to stringent compliance and regulations, resulting in high barriers to entry for any
new entrant. That should make it a good long term play though for investors looking for good businesses to invest in.
“At the upper price band of Rs 366, Kfin Technologies Ltd is valued at a P/E multiple of 36.6x of its TTM earnings and post issue market capitalization of Rs 6,133 cr. The company provides diverse multi-asset class platform to long standing clients and is well-positioned to benefit from strong growth across large markets in India and South East Asia. The issue is fairly priced, hence we recommend long term investors to Subscribe the IPO at cut-off price,” says a report from SBI Securities.
