KFin Technologies: Revenues to grow at CAGR of 11%, expanding its footprint in the global financial services Industry

KFin provides critically important services to capital market ecosystems while adopting platform-driven product design and delivery approach to service the clients’ needs. They particularly note the growth potential in the emerging international segment, bolstered by the strategic acquisition of Hexagram’s fund accounting platform, while Indian MF RTA and issuer solutions provide a direct play on the surging Indian domestic capital markets and prospective AUM growth.

Based on a projected FY25E EPS of Rs15, the recommendation is to initiate a BUY on the stock with a target price of 450. The expected operating revenues for KFin are predicted to have a compound annual growth rate (CAGR) of 11% between FY23-25. This growth will be driven by various factors, including a 9% CAGR in the domestic MF solutions business, a 12% CAGR in the issuer solutions business due to positive capital market activity, a strong 25% CAGR in other investors’ solutions business, and a 10% CAGR in other operating revenues.

Operating expenses are projected to have an 8% CAGR, leading to an improvement in EBITDA margin from 41% in FY23 to 44% in FY25E. Overall, the profit after tax (PAT) is expected to grow at a CAGR of 14% to reach Rs2.5bn between FY23 and FY25E. The assigned multiple of 30x is based on the sustainable earnings growth outlook and an average return on equity (ROE) of 24% for the period FY23-25.

KFin is a capital market player that stands out for its diversified business compared to others in the market. The key segments of KFin’s business include investor solutions, issuer solutions, and global business services. The investor solutions segment serves various clients, such as domestic mutual funds, international investors, alternatives and wealth managers, and pension funds. In terms of operating revenues, the investor solutions business accounted for approximately 77% of the total, with domestic mutual funds representing 68% and other investor solutions accounting for 9%.

The other investor solutions segment comprises three businesses, namely international business, AIF/WM/PMS, and NPS CRA, with a mix of 62%, 28%, and 10% respectively as of FY23. On the other hand, issuer solutions, global business services, and other segments contributed 14%, 6%, and 4% respectively to the overall operating revenues in FY23. This diversification across various business segments positions KFin uniquely in the capital market landscape.

The international segment presents significant growth opportunities, with an addressable TAM of US$1.3 trillion, 2.5x of Indian MF business. KFin’s Indian MF RTA business enjoys higher yields due to its association with smaller AMCs with a higher equity AUM mix. KFin has shown a strong financial track record with a CAGR of 13% in operating revenues and 20% in EBITDA between FY19 and FY23.

KFin Technologies Limited (KFin) is a leading technology-driven financial services company providing comprehensive services and solutions to the capital market ecosystem. Its clients include asset managers and corporate issuers across multiple asset classes in India and South-East Asia, and is now expanding to other parts of the world.

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Updated: 22 Jul 2023, 10:03 PM IST

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