Neutral KFin Technologies Ltd for the Target Rs. 1,300 by Motilal Oswal Financial Services Ltd
Steady performance during the quarter
* KFin Technologies (KFin) reported a 10% YoY growth in operating revenue to INR3.1b in 2QFY26 (in line). The revenue was driven by 10%/16%/33% YoY growth in domestic MF solutions/issuer solutions/international solutions segments.
* Total operating costs rose 13% YoY to INR1.7b (in line), with employee expenses rising 12% YoY to INR1.1b (in line) and other expenses growing 14% YoY to INR595m (in line). The cost-to-income ratio was at 56.1% (vs. 54.9% in 2QFY25).
* KFin’s EBITDA grew 7% YoY to INR1.4b, with EBITDA margin at 43.9% (vs. 45.1% in 2QFY25). It posted a net profit of INR933m, up 4% YoY (in line), with a PAT margin of 30.2% (vs. 31.8% in 2QFY25). For 1HFY26, it reported a PAT of INR1.7b (+8% YoY).
* Yields are likely to dip 3.5-4.0% annually due to the impact of telescopic pricing. Major renegotiations are done, with only two contracts pending renewal over the next two years. Ascent will be merged from 3QFY26.
* We raise our earnings estimates for FY26/FY27/FY28 by 3%/5%/4%, considering the higher growth in international business. While expenses are broadly retained, we expect lower growth in issuer solutions. We expect KFin’s revenue/EBITDA/ PAT to post a CAGR of 16%/16%/18% over FY25-28. We reiterate our Neutral rating on the stock with a one-year TP of INR1,300, premised on a P/E multiple of 45x on Sep’27E earnings.
Equity AAUM share stable; yields dip
* KFin’s total MF AAUM serviced during the quarter rose 17% YoY to INR25t. Equity AAUM, at 58% of total MF AAUM, grew 14% YoY to INR14.6t, reflecting a market share of 33% (33.4% in 2QFY25).
* Strong net flows with stable market share offset by a slight decline in yield to 3.5bp in 2QFY26 (vs 3.7bp in 2QFY25) resulted in a 10% YoY growth in revenue from the domestic MF business to INR2.2b (in line). This segment contributed 70% to the overall revenue in 2QFY26 (71% in 2QFY25).
* In the issuer services business, the main board IPO market share (basis issue size) rose YoY to 43.8% in 2QFY26 (34.4% in 2QFY25 and 18% in 1QFY26). KFin handled 18 IPOs during the quarter (vs. five in 2QFY25), resulting in a 16% YoY revenue growth to INR483m. The segment contributed 16% to the overall revenue (15% in 2QFY25 and 12% in 1QFY26).
* In the international investor solutions business, the number of clients reached 93, taking the total AUM serviced to INR934b. Revenue from this segment rose 33% YoY to INR431m, contributing 14% to overall revenue (12% in 2QFY25).
* In the alternates and wealth business, KFin’s market share stood at 39% with an AUM of INR1.8t. NPS market share continues to rise at 10.3% in 2QFY26 (8.9% in 2QFY25), with an AUM of INR602b.
* The non-domestic mutual fund revenue contributed 30% to the overall revenue, flat on a YoY basis. The value-added services contributed ~9.3% to its revenue vs 7.9% in 2QFY25.
* Other income grew 2% YoY/7% QoQ to INR108m (in line).
Key takeaways from the management commentary
* The domestic mutual fund revenue share continues to decline gradually and is likely to fall below 55% post-Ascent consolidation, from the current ~62% level. Over the longer term, the share of MF will reduce below 50%.
* The wealth platform (at a nascent stage) is now live with several clients and is fully multi-currency, multi-asset, and multi-geography ready. Advanced discussions are underway in Singapore and the Philippines, providing greater expansion opportunities.
* Ascent is now EBITDA positive across all geographies; the business is projected to turn fully neutral in FY26 and become EPS accretive from FY27 onward. Over the next 3-5 years, Ascent’s margin profile is expected to converge with KFin’s.
Valuation and view
* Structural tailwinds in the MF industry are expected to drive absolute growth in KFin’s MF revenue. With its differentiated ‘platform-as-a-service’ model offering, technology-driven, asset-light model, growing contribution from nonMF segments, and integration of global fund administration capabilities through Ascent, KFin is well-positioned to capitalize on strong growth opportunities in both Indian and global markets.
* We raise our earnings estimates for FY26/FY27/FY28 by 3%/5%/4%, considering the higher growth in international business. While expenses are broadly maintained, we expect lower growth in issuer solutions. We expect KFin’s revenue/EBITDA/PAT to post a CAGR of 16%/16%/18% over FY25-28E. We reiterate our Neutral rating on the stock with a one-year TP of INR1,300, premised on a P/E multiple of 45x on Sep’27E earnings.
* We have not built the Ascent acquisition into our model yet, and we shall incorporate the same post-3QFY26 results. We provide below a pro forma table of the merged financials.
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