Upgrade to Buy KFin Technologies Ltd for the Target Rs.1,150 by Motilal Oswal Financial Services Ltd
Revenue in line; operating efficiency fuels PAT beat
* KFin Technologies’ (KFin) operating revenue grew 30% YoY/3% QoQ to INR3.6b in 1QFY27 (in line). Revenue from domestic MF solutions grew 7% YoY (in line), while issuer solutions grew 8% YoY (5% beat). International solutions witnessed a 182% YoY growth (in line) due to Ascent’s contribution.
* Total operating expenses grew 46% YoY/7 QoQ to INR2.3b (in line), with employee expenses growing 44% YoY to INR1.6b and other expenses growing 52% YoY to INR738m. EBITDA grew 7% YoY but declined 5% QoQ to INR1.2b, with an EBITDA margin of 34.2% vs. 41.5% in 1QFY26 (MOFSLe of 32.6%).
* KFin posted a net profit of INR752m, down 3% YoY/7% QoQ (7% beat due to operating efficiency) in 1QFY27, with a PAT margin of 21.1% (vs. 28.2% in 1QFY26).
* Management’s FY27 guidance implies 18-20% revenue growth despite a subdued market environment, supported by the ongoing cost optimization initiatives. For FY27, KFin’s EBITDA and PAT are likely to grow 17-20% and 12-15%, respectively. Consolidated EBITDA margin (including Ascent) to exceed 40% by the end of FY26, with Ascent turning EBITDA-accretive by FY26-end/early-FY27 and achieving fullmargin convergence over the next 3–5 years.
* We maintain our FY27/FY28 earnings estimates, based on KFin’s 1QFY27 performance, and we expect the company to deliver a revenue/EBITDA/PAT CAGR of 22%/22%/18% over FY26-28E. We upgrade the stock to a BUY, as we expect
1) continued momentum in the domestic MF business
2) a robust pipeline for the issuer solutions business
3) gradually improving margins of the international business, which would result in consolidated margin expansion for KFin. Our one-year TP of INR 1,150 is based on a 39x FY28 EPS multiple.
MF yield declines, primarily led by a change in asset mix
* KFin’s total MF AAUM serviced during the quarter rose 16% YoY/3% QoQ to INR27.3t. Equity AAUM, at 56.8% of total MF AAUM, grew 14% YoY/4% QoQ to ~INR15.5t, reflecting a market share of 32.4% (33.0% in 1QFY26).
* MF revenue growth (7% YoY) was lower than AUM growth (16% YoY), driven by weaker equity MTM gains, slower client decision-making amid geopolitical uncertainties, and higher allocation toward liquid funds.
* MF fee revenue contribution dipped to 55% from 66% in 1QFY26, in line with the guidance of reducing it further to <50% over the next three years.
* MF yields declined to 3.2bp in 1QFY27 (vs. 3.5bp in 1QFY26 and 3.3bp in 4QFY26), primarily due to a shift toward lower-yield liquid funds (~30% of the decline), with the balance reflecting provisions for an upcoming AMC contract renewal, partly offset by a favorable equity mix.
* Issuer Services revenue grew 8% YoY to INR356m, but it remained flat QoQ due to lower corporate actions (~30% contribution in overall revenue). Expects growth to recover on the back of a healthy IPO pipeline, while continuing to focus on SME IPOs to build long-term client relationships.
* The mainboard IPO market share (issue size basis) surged sequentially to 79.2% in 1QFY27 from 58.3% in 4QFY26 despite a fall in the number of IPOs handled (8 vs. 9 in 4QFY26).
* International revenue surged ~192% YoY, including Ascent, and ~32-33% organically, primarily driven by new client wins and expanding wallet share of existing clients rather than market appreciation, highlighting execution strength.
* KFin continues to leverage its technology platform globally while also bringing international product capabilities into India, particularly through GIFT City.
* Ascent revenue increased 32% YoY (guidance to grow at ~25%), led by new client wins and improving AUM growth in the Southeast Asian business, supporting better yields and profitability.
* In the alternates and wealth business, KFin’s AUM grew 28% YoY/19% QoQ, driven by benefits from existing client expansion, transitions, and GIFT City mandates. Its market share stood at 37.3% and is expected to approach ~40% based on the committed wins.
* The NPS business contributes ~15% of EBITDA margins and expects pensions to become one of the highest-margin businesses due to its platform-led operating model. The subscriber growth stood at ~39% vs. ~13% for the industry.
* Total operating expenses grew 46% YoY/7 QoQ to INR2.3b (in line), with employee expenses growing 44% YoY to INR1.6b and other expenses growing 52% YoY to INR738m. The cost-to-income ratio was 65.8% (58.5% in 1QFY26).
* KFin’s other income grew 3% YoY/declined 31% QoQ to INR104m vs. MOFSLe at INR100m.
Valuation and view
* Structural tailwinds in the MF industry, coupled with increasing diversification into international, issuer solutions, alternates and pension businesses, are expected to drive KFin's long-term growth. Its technology-led, asset-light platform model, improving global fund administration capabilities through Ascent, and continued focus on operational efficiency position the company well to capitalize on opportunities across both Indian and global markets.
* We retain our FY27/FY28 earnings estimates, based on KFin’s 1Q performance, and we project the company to deliver a revenue/EBITDA/PAT CAGR of 22%/22%/18% over FY26–28E. We upgrade the stock to a BUY, as we expect
1) continued momentum in the domestic MF business
2) a robust pipeline for the issuer solutions business
3) gradually improving margins of the international business, which would result in consolidated margin expansion for KFin. Our one-year TP of INR 1,150 is based on a 39x FY28 EPS multiple.
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