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KFin Technologies Limited : NEUTRAL

Issue Open: December 19, 2022

Issue Close: December 21, 2022

Incorporated in 2017, KFin Technologies Limited is a leading technology-driven financial services platform. The company provides services and solutions 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. As on September 30, 2022, the company is India's largest investor solutions provider to Indian mutual funds, based on several AMC clients serviced. The company is also servicing 301 funds of 192 asset managers in India as on September 30, 2022. The company has classified its products and services in three categories viz. Investor solutions (Account setup, Transaction origin, Redemption, Brokerage calculations, Compliance, / Regulatory reporting), Issuer Solutions (Folio creation and maintenance, Transaction processing for IPO, FPO etc), Global business domestic mutual services (Mortgage services Legal Services Transfer Agency Finance and accounting)

Positives: (a) Asset-light model with recurring revenue model. (b) Long standing client relationships with a diversified and expanding client base. (c) Unique “platform-asa-service” business model providing comprehensive end-to-end solutions enabled by technology solutions developed in-house.

Investment concerns: (a) Significant disruptions in information technology systems or breaches of data security could adversely affect the business and reputation. (b) A decline in the growth, value, and composition of AAUM of the mutual funds managed by clients may adversely impact the average revenue earned from mutual funds and may have a significant adverse impact on future revenue and profit.

Outlook & Valuation: In terms of valuations, the post-issue P/E works out to 41.3x FY22 EPS (at the upper end of the issue price band) which is more than its peer CAMS. Further, both the companies have similar EBITDA margins, however, CAMS has better Net Profit margins. In addition, KTL has minimal debt while CAMS operates at zero debt. Considering all the factors, we believe this valuation is at expensive levels. Thus, we recommend a NEUTRAL rating on the issue.

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