Buy KFin Technologies Ltd for the Target Rs 1,100 by Emkay Global Financial Services Ltd
KFINTECH delivered largely in-line 1Q performance. Revenue at Rs3.6bn (+3% qoq) came in line with our and consensus estimates, while EBITDA margin at 34.2% (-160bps qoq) was higher than our estimate of 33.1% and in line with consensus estimate. MF revenue yields dipped sequentially, owing to a shift in the asset mix from debt to liquid funds and a provision made for contract renewal. The management remains focused on expanding the addressable market and diversifying revenue mix by reducing the contribution of Domestic MF business to ~50% over the next 3 years. The company has undertaken several cost optimization measures, and the management remains optimistic about delivering ~40% EBITDA margin for FY27. Accordingly, the management raised PAT guidance to ~12-15% for FY27. To bake in 1Q developments, we cut our revenue estimates by ~2% over FY27-29 while raising EBITDA margin estimates by 40-70bps, resulting in largely unchanged PAT over FY27-29E. We maintain BUY and Jun-27E TP of Rs1,100, implying FY28E PER of ~38x.
MF business sees yield moderation; Non-MF businesses deliver strong growth
During 1Q, revenue grew ~3% qoq to Rs3.6bn, largely in line with our and consensus estimates. While MF QAAUM grew ~3% qoq, yields dipped ~3% to 3.2bps, resulting in MF-based revenue of Rs2.18bn (+1% qoq). The qoq moderation in yield was driven by a shift from debt funds to liquid funds and due to a provision made for contract renewal. The Issuer Solutions business saw modest ~8% yoy revenue growth amid modest retail participation. The International and Other Investor Solutions segment saw strong ~7% qoq revenue growth, led by robust growth in Ascent’s revenue. EBITDA margin at 34.2% dipped by 160bps qoq but was higher than our estimate of 33.1% and in line with consensus estimate. PAT at Rs0.75bn declined ~7% qoq and was higher than our estimate (Rs0.71bn) and in line with consensus (Rs0.76bn).
International business outlook healthy; cost optimization underway
The international business segment saw several large deal wins, with AUM of over ~$100mn, as the company shifted its strategy from focusing on small boutique managers to large clients. The US market remained a standout geography for the company with recent deal wins, while the opportunity of US alternatives and public market funds remains huge. With the integration of Ascent largely being done, the management expects to deliver double-digit margins over the next few months, and targets to achieve company-level margins over the next few years. The company has undertaken several cost optimization measures, which include automation-led payroll optimization, reduction in non-discretionary IT personnel spends, and lower non-payroll IT costs through migration from enterprise licensing to open-source architectures. The management remains optimistic about delivering ~40% EBITDA margin for FY27 and raised its guidance to~17-20% EBITDA growth, translating to ~12-15% PAT growth in FY27.
We maintain BUY and Jun-27E TP of Rs1,100
To bake in 1Q developments, we tweak our estimates, resulting in a ~2% cut in FY27- 29E revenue. We raise EBITDA margin estimates by ~40-70bps over FY27-29, given the cost-optimization measures. This results in largely unchanged PAT estimates over FY27- 29. We maintain BUY and Jun-27E TP of Rs1,100, implying FY28E PER of ~38x.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
