KFin Technologies is the leading
technology driven financial services platform providing comprehensive services
and solutions to the capital markets ecosystem including asset managers and
corporate issuers across asset classes in India. Globally also it provides
several investor solutions including transaction origination and processing for
mutual funds and private retirement schemes in Malaysia, Philippines and Hong
Kong. The
company was incorporated on 08 June 2017 and it took over register and transfer
agent (RTA) business of Karvy Computershare on 17 November 2018.
Technology products, solutions and
platforms help clients to focus on their core business functions such as
investment management and sales and marketing functions whilst entrusting bulk
of operational front office, middle office and back office activities to
platform. It helps clients reduce cost, time, errors and operational risk and
allows them to reallocate resources to other value-creating activities that are
core to their business.
KFin Technologies is one of the two
investor solutions providers to Indian mutual funds. It services 59% or 24
Asset Management Company (AMC) clients out of 41 AMCs in India end September
2022. In addition, it has signed
two new AMCs that are yet to launch operations. Further, through acquisition of
Hexagram, the company serves six AMCs in India on fund accounting.
The company provides an array of
products and services to AMCs including valued added services (VAS) and
products such as data analytics, digital acquisition tools and omni-channel
customer communication management.
The market share of AMC clients in overall
AAUM has increased from 25% end March 2020 to 32% end September 2022 with market
share of Equity AAUM rising from 29% to 35%. Further, the market share based on
monthly SIP inflows has grown from 41% end March 2021 to 42% end September
2022. The company is also servicing
301 alternative investment funds (AIFs) of 192 asset managers out of 1018 AIFs in
India end September 2022, representing 30% market share.
It is one of the three operating
central record keeping agencies (CRAs)
for the National Pension System (NPS)
in India end September 2022. The number of corporate clients stood at 1756 and
subscriber base 841938 (4% market share) end September 2022.
KFin Technologies is the only investor and issuer solutions
provider to mutual funds, offering services beyond India. The company is
servicing 18 of out of the 60 AMCs end June 2022 in Malaysia across
wholesale funds, unit trust funds and private retirement schemes. In addition,
they have three clients in Philippines and Hong Kong end September 2022. It has
also signed two new AMCs in Malaysia and one AMC in Singapore that are yet to
launch operations.
The company is the largest issuer
solutions provider in India based on number of clients serviced and one of only
two players of scale in Indias issuer solutions space. Its market share stands
at 46% based on the market capitalization of NSE 500 companies and a 37% based
on number of clients serviced within NSE 500 companies. The company serves more
than 5051 listed and unlisted corporates with 107.7 million issuer solutions
folio out of a total of 172.9 million folios. The company also had a 40% market share based on number of main
board initial public offerings handled in FY2022 and 29% in H1FY2023. Issuer
solutions business contributed 11.60% of revenues in FY2022 and 13.38% in
H1FY2023.
As an issuer solutions provider, the
company provides a comprehensive set of corporate registry services including
investor folio creation and maintenance, transaction processing for various
corporate events and issues including initial public offerings, follow on
public offerings, dividends, buybacks, rights issue and bonus issues, along
with various compliance related reporting requirements and recordkeeping.
The company has adopted a platform
driven product design and delivery approach to service the varied needs of clients.
It has an end-to-end transaction management platform across multiple asset
classes such as mutual fund, direct stock investments, alternate investment
funds, wealth and pension across India, Malaysia, Philippines and Hong Kong.
The company constantly enhances platform
by adding new products and solutions such as digital customer acquisition tools
as well as enhanced data analytics services. It provide offerings such as
platform as a service (PAAS) and
use technology to create products and platforms that eliminate manual
intervention, improve the accuracy of transaction proceeding and reduce cost by
eliminating the manpower needs in conducting day to day business.
Within global business services
business, the company manage a global center of excellence for a large global
mortgage and issuer services provider, wherein it provides global business
services such as mortgage services, legal services, transfer agency services
and finance and accounting services on a fully outsourced basis by leveraging technology
and execution skills as well as Indias low-cost advantage.
The company operates at such scale
while maintaining requisite thresholds around turnaround time and accuracy, in
line with agreements with clients. It has maintained an accuracy rate of above
99.50% in H1FY2023. The clients are provided with an omni-channel experience by
combining platform with a physical pan India network of 182 service centers end
September 2022.
The
Offer and the Objects
The
initial public offer (IPO) consists of an offer for sale (OFS) to raise Rs 1500
crore by issuing 4.10 crore equity share of face value of Rs 10 each at upper
price band of Rs 366 per share and 4.32 crore equity share at the lower band of
Rs 347 per share.
The
promoter General Atlantic Singapore Fund Pte is selling shareholder in OFS. The
promoter and promoter group shareholding would decline to 49.91% post IPO from
74.37% pre-IPO.
The
issue is to be made through the book-building process and will open on 19
December 2022 and will close on 21 December 2022.
The
company expects to receive the benefits of listing of the Equity Shares on the
Stock Exchanges and enhancement of Company brand name amongst existing and
potential customers and creation of a public market for equity shares in India.
Strengths
The company has achieved market
leadership position across businesses by leveraging in-house technology and
services, deep domain expertise, low-cost operations for international clients and
continued enhancement of platform.
The company has built in-house
platforms with scale to handle growth in the number of investors, assets and
transaction volumes.
The products and services are
applicable across asset classes, industries and geographies helping to expand.
With diverse multi-asset servicing platforms, the company is
well-positioned to benefit from strong growth across large markets in India and South East Asia.
The QAAUM of mutual fund industry has
grown at a CAGR of 17.2% between March 2015 and September 2022 to reach Rs 39.05
lakh crore. The rise in financial assets is expected to further boost the
financial investments under mutual funds, equity, pension schemes, insurance
and alternate assets benefiting the company.
The clients are regulated financial
institutions.
The company
has deeply entrenched, long-standing client relationships with a diversified
and expanding client base.
The company serves clients to support their customers needs across the
lifecycle of a relationship in an increasingly complex compliance landscape and
its integral to the business and operations of clients which results in
long-term engagement with limited client churn.
In India, the investor solutions
business has only two to three players, as it requires high technology
intensity and a track record of delivery at scale and it is subject to
stringent compliance and regulations, resulting in high barriers to entry for
any new entrant.
For issuer solutions business also,
client loss is minimal and primarily restricted to merger and acquisitions and
other corporate changes.
The business model and underlying
revenue model has a high proportion of recurring revenues from clients at 99.3%
in FY2022.
The business
model is asset-light with recurring revenue model, high operating leverage,
profitability and cash generation.
The company repaid outstanding borrowings aggregating to Rs 400 crore along with interest
payments by December 2021.
Promoter General Atlantic
is a leading global
growth equity firm with more than four decades of
experience providing capital and strategic support for over 479 growth companies throughout its history.
The company is regulated
by several regulatory entities in India and other jurisdictions, including
SEBI, RBI, PFRDA, Depositories and Stock Exchanges and undergoes periodic
inspections and audits by these entities.
The company has taken several actions
to separate Company from erstwhile promoters and Karvy group.
Weaknesses
Erstwhile promoters are subject to ongoing
investigations by enforcement agencies. The ED has also issued Freezing Order
encumbering their residual shareholding aggregating to 14.12% in favor of
certain lenders until further orders. Any action to liquidate such shares by
the ED may adversely impact market price of equity shares.
The company is a technology driven
financial services platform and any significant disruptions in information technology
systems or breaches of data security could adversely affect business.
Mutual fund business contributes a
significant portion of revenue at 60.8% average for last three years. A decline in the
growth, value and composition of AAUM of the mutual funds managed by clients
may adversely
impact the average revenue earned and future revenue and profit.
A substantial portion of the fees
charged to mutual fund clients is calculated on basis points of the AAUM of the
funds serviced and its not directly linked to expenses that may be unable to
pass on to clients.
The fees charged differ between asset
classes of mutual funds and the change in composition of AAUM of the funds
managed by clients could adversely affect revenue and profit.
Top five customers contributed 53.05% of
revenues in FY2022. The loss of one or more of significant clients or a
reduction in the amount of business obtained from them could have an adverse
effect on business.
Consolidation in the financial services industry could adversely affect
revenues by eliminating some of existing and potential clients.
The clients are subject to several laws and
regulations and new laws or regulations or changes to existing laws or regulations
that could affect clients and in turn adversely impact business.
The issuer solutions business contributing
11.60% of revenue in FY2022 is affected by seasonality and may also be impacted
by
client
demands and competition.
The company will not receive any proceeds from the IPO as it is
entirely an OFS.
Valuation
KFin Technologies has recorded healthy
growth in revenue of at a CAGR of 19% with revenue from investor solutions rising
at 27%, issuer solutions 21% and global business services 8% from FY2020 and
FY2022. The revenue growth has been healthy at 20% and net profit growth at 26%
for H1FY2023. Return on capital deployed (ROCE) has
been strong at 20.71% and return on equity (ROE) at 24.72% for H1FY2023.
In November 2021,
Kotak Mahinda Bank acquired 9.86% stake in the company through allotment of
1.67 crore equity shares at Rs 185.35 per share implying PE of 22.9 times of consolidated annualized EPS of Rs 8.1 for H1FY2022.
The consolidated EPS on post-issue equity works out to Rs 9.9 for
TTM ended September 2022. At the price band of Rs 347 to Rs 366, P/E works out
to 35.0-36.9 times of consolidated for EPS TTM ended September 2022.
Computer Age
Management Services (CAMS) is the listed comparable peer of the company in the
RTA business, which is trading at PE multiple of 37.0 times consolidated EPS
for TTM ended September 2022.
CAMS and KFin are the two
qualified mutual fund RTAs in India. Apart from three business verticals - Domestic
MF, AIF and Wealth and NPS that are common between KFin and CAMS, KFin also
operates in international investor solutions, issuer solutions and global
business services where CAMS is not present. Further, CAMS also has other
business verticals such as insurance repository, payments, account aggregator
where KFin is not present.
CAMS derived approximately 90% of its
revenue from domestic MF business vertical in H1FY2023. KFin is diversified
with respect to offerings and revenue mix with Mutual Fund business accounting for
67.7% of revenues and non-mutual fund businesses at 32.3%.
AUM of mutual funds serviced by CAMS
stood at 69% and KFin at 31% respectively. However, in terms of number of AMCs
serviced, KFin is the largest investor solutions provider to mutual fund
industry, providing services to 24 out of the 41 AMCs operating end September
2022, thereby accounting to 59% of the market in terms of clientele.
In addition, KFin is mandated by two
AMCs, namely, Bajaj Finserv and Frontline Capital Services which are yet to
commence operations for their RTA services. CAMS is also mandated by Zerodha,
yet to commence operations, for their RTA services.
AUM of mutual funds serviced by KFin
witnessed a faster CAGR of 19.7% as compared to 13.7% for mutual fund serviced
by CAMS between March 2019 and September 2022. This has led to an increase in KFins
market share from 28% in March 2019 to 31% in September 2022.
Total equity (including equity and
hybrid funds) AUM of mutual funds serviced by KFin has witnessed a faster CAGR
of 31% as compared to 17% for mutual fund serviced by CAMS between March 2019
and September 2022, leading to an increase in KFins market share from 27% in
March 2019 to 35% in September 2022.
Equity AUM as a proportion of overall
AUM for industry has increased from 42% end March 2019 to 50% end September
2022. During the same time, share of equity AUM as a proportion of total AUM
serviced by KFin increased from 44% in March 2019 to 56% in September 2022. The
share of equity AUM as a proportion of total AUM serviced by CAMS stood at 47%
at end of September 2022.
The share of KFin in
overall mutual fund folios has increased from 42.5% end March 2021 to 47.2% end
September 2022. The share of CAMS in overall mutual fund folios reduced from
57.5% and 52.8% during the same period.
KFin Technologies :
Issue highlights
|
For Offer for Sale
Offer size (in shares crore)
|
|
- On lower price band
|
4.32
|
- On upper price band
|
4.10
|
Offer size (in Rs
crore)
|
1500
|
Price band (Rs)
|
347-366
|
Minimum Bid Lot (in
no. of shares )
|
40
|
Post issue capital (Rs
crore)
|
|
- On lower price band
|
167.57
|
- On upper price band
|
167.57
|
Post-issue promoter
& Group shareholding (%)
|
49.9
|
Issue open date
|
19-12-2022
|
Issue closed date
|
21-12-2022
|
Listing
|
BSE, NSE
|
Rating
|
45/100
|
KFin Technologies:
Consolidated Financials
|
|
2003 (12)
|
2103 (12)
|
2203 (12)
|
2109 (6)
|
2209 (6)
|
Income from Operations
|
449.87
|
481.14
|
639.51
|
290.90
|
348.77
|
OPM (%)
|
35.26
|
44.14
|
45.01
|
44.74
|
38.28
|
OP
|
158.63
|
212.40
|
287.85
|
130.15
|
133.50
|
Other Income
|
5.39
|
5.05
|
6.06
|
2.53
|
5.00
|
PBDIT
|
164.02
|
217.45
|
293.91
|
132.69
|
138.50
|
Interest (Net)
|
53.30
|
51.95
|
52.88
|
24.29
|
5.24
|
PBDT
|
110.72
|
165.50
|
241.03
|
108.39
|
133.26
|
Depreciation /
Amortization
|
92.21
|
97.99
|
37.03
|
17.52
|
22.60
|
PBT before EO
|
18.51
|
67.51
|
204.00
|
90.88
|
110.66
|
EO
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
PBT after EO
|
18.51
|
67.51
|
204.00
|
90.88
|
110.66
|
Tax Expenses
|
13.98
|
132.02
|
55.45
|
23.08
|
25.31
|
PAT
|
4.52
|
-64.51
|
148.55
|
67.80
|
85.35
|
EPS * (Rs)
|
0.3
|
-3.8
|
8.9
|
8.1
|
10.2
|
Adj BV (Rs)
|
27.2
|
23.0
|
38.5
|
17.9
|
44.0
|
*EPS annualized on
post issue equity capital of Rs 167.57 crore of face value of Rs 10 each
Figures in Rs crore
Source: KFin Technologies Issue Prospectus
|
|