KFintech Technologies Limited was incorporated on 8th June, 2017 as demerged entity from erstwhile Karvy Financials. 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 and provide several investor solutions including transaction origination and processing for mutual funds and private retirement schemes. As on 30th September, 2022, KFintech is India’s largest investor solutions provider to Indian mutual funds, based on number of AMC clients serviced. They are providing services to 24 out of 41 AMCs in India. As on September 30, 2022, they are the only investor and issuer solutions provider in India that offers services to asset managers such as mutual funds, alternative investment funds, wealth managers and pension as well as corporate issuers in India, besides servicing overseas clients in Hong-Kong, Malaysia and Philippines. The company services 301 funds of 192 asset managers in India and represent 30% market share based on Alternative Investment Funds serviced.
Source: Company RHP
Products of the company
Source: Company RHP
Platform with strong track record of growth and market leadership
KFintech is a leading technology driven financial services platform providing comprehensive services and solutions to capital markets ecosystem including asset managers and corporate issuers across asset classes in India. Additionally, the company also provide several investor solutions including transaction origination and processing for mutual funds and private retirement schemes in Malaysia, Philippines and Hong Kong. The company provides services to 24 out of 41 AMCs in India, (as on September 30, 2022) representing 59% of market share based on the number of AMC clients (as per RHP). They have on-boarded seven (including two AMCs that are yet to launch operations) of the last 11 new AMCs in India (including one AMC that has not yet appointed a registrar and transfer agent for their operations) for domestic mutual fund solutions. As on September 30, 2022, KFIN has also on-boarded 15 of the last 21 mutual funds launched in India. Further, within investor solutions for Indian mutual funds, they had a market share of 32% based on overall AAUM managed by their clients and serviced by them during September, 2022.
Revenue from Operations in various Categories
|Category (in Rs Crores)||H1 FY23||FY22||FY21||FY20|
|Domestic mutual fund||236||451||317||280|
|International and other investor solution||30||48||38||31|
|Global business services||23||42||42||36|
|Revenue from operations||349||640||481||450|
Source: Company RHP
Asset-light business model with recurring revenue, high operating leverage, profitability and cash generation KFIN operates an attractive business model with a demonstrated track record of consistent profitability and returns. The management believe their business operations are highly resilient and predictable to a large extent due to deep client entrenchment and largely recurring nature of revenues. The company asset turnover ratio was 3.20x and 2.57x in FY22 and H1 FY23 (on an annualized basis), respectively. They undertook a buyback of 14,987,846 Equity Shares in FY22. In addition, they repair their outstanding borrowings aggregating to Rs 400 Crores along with interest payments by December 31, 2021. KFIN return on capital deployed and return on equity during H1 FY23 is 20.71% and 24.72%, respectively (on an annualized basis).
Long-standing client relationships with a diversified and expanding client base
In India, the investor solutions business that the Company operates in typically has two to three 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 (as per RHP). The company has been able to retain a large proportion of its clients across its businesses. KFin has never lost an AMC or MF client over the last three fiscals and H1 FY23 to competition except where its client had been acquired by another AMC that was not its client or where its client had ceased operations. Also, the Company’s issuer solutions business, client loss is minimal and primarily restricted to merger and acquisitions and other corporate changes. Sale of services from entities that have been clients for more than five years constituted 79.80% of its total income in H1 FY23.
Revenue Contribution by Top five clients in each segment & years of client relationship
|Business||Top five clients||Revenue contributed by top five clients as a % of revenue from operations as of September 30, 2022||Duration of relationship / association (in years)|
|Domestic mutual fund solutions||Nippon Life AMC||24|
|International investor solutions||BPI Investment management||6|
|Global business services||Computer share||6.40%||8|
Source: Company RHP
Unique “platform-as-a-service” model provides comprehensive end-to-end
solutions enabled by technology solutions
The “platform-as-a-service” business model of the company provides its clients with comprehensive end-to-end solutions. The technology offering of company enables transaction lifecycle management combined with highly secure data collection, processing and storage. It has an integrated system of data centers which houses over 350 servers and data storage handling capacity of over 250 TB. They provide the flexibility of addressing all major asset classes for asset managers and corporate clients through its platform. The Company has launched over 20 new products over the last three Fiscals and six months ended September30, 2022, with two products in the pipeline. Further, it can onboard a client and customize its platform for their requirements and enable them to launch their business with quick turnaround times. KFin continues to automate processes and enhance its systems and risk management to ensure that all its obligations and regulatory requirements are completed on a timely basis. Its systems and infra -availability stands at 99.99% accuracy. Its 10 gigabyte enhanced intranet ensures data transactions to be processed with no latency.
Revenue contribution on the basis of services
|in Crores||(as % of revenue from operations)||in Crores||(as % of revenue from operations)||in Crores||(as % of revenue from operations)||in Crores||(as % of revenue from operations)|
|Core services (Fees and other operating revenue)||330.19||94.68%||600.8||96.96%||453.5||94.27%||432.12||96%|
Source: Company RHP
|Companies||Total revenues (crores)||EBITDA %||PAT%||EPS||PE||RoNW%|
|Kfintech Technologies Ltd.||639.51||45.50%||23.00%||9.44||38.77||29.99|
|Computer management services ltd.||909.67||47.60%||31.00%||58.73||39.37||49.32|
Kfintech Technologies Ltd. has witnessed a good growth in its revenues in past two years. It is the only company to compete against CAMS in this space. The company’s business model is asset light and major part of its revenues are derived from mutual funds solutions and issuer solutions. But company is facing certain regulatory litigations which may impact the business severely. Although we have positive view on the company’s business , we highlight few pertinent issues which may remain an overhang on stock’s performance in future.
Issues faced by the company (in our opinion)
Recommendation: At this point we recommend AVOID this issue if in future the stock is available t favourable risk reward, we will reassess to enter into it.
Use of Proceeds:
Book running lead managers:
ICICI Securities, Kotak Mahindra Capital, J.P.Morgan India, IIFL Securities, Jefferies India
Vishwanathan Mavila Nair (Chairman and Non-executive Director), Venkata Satya Naga Sreekanth Nadella (Managing Director & CEO)
|Equity share capital||167.57||167.57||150.84||150.84|
|Revenue from operations||348.77||639.51||481.14||449.87|
|Reveneue Growth (%)||19.89%||32.92%||6.95%|
|EBITDA margin (%)||39.15%||45.53%||44.72%||36.03%|
|Profit before tax||110.66||204.00||67.51||18.51|
|Net profit margin (%)||24.47%||23.23%||-13.41%||1.01%|