KFin Technologies IPO: 5 Things to Know

Recently, I saw a tweet which showed statistics of various countries using digital platforms to make online payments like Google Pay, Phonepe, etc. Not surprisingly, India ranked number one in the list.

India's fintech sector has seen phenomenal growth over the past few years. High penetration of internet and the smartphones have played important role in the evolution and spread of the fintech sector.

According to a report by the ministry of commerce and industry, 40% of the world's total digital transactions happen in India. The fintech industry in the country has made all of this possible.

Lately, the primary markets have been busy with companies looking to tap the primary market in a bullish environment. Investors and Indian mutual funds have also showed their support and lapped up the offers.

Looking to take advantage of bullish environment and a booming industry, KFin Technologies has come out with its initial public offer (IPO).

Here are some key details about the fintech company's IPO.

Issue period: 19 December 2022 to 21 December 2022

Issue size: Rs 1,500 crore (about Rs 15 billion)

Type: Offer for sale

Price Band: Rs 347 to Rs 366 per equity share

Bid lot: 40 shares and multiples thereof

Application limit: Minimum one lot maximum thirteen lots

Face value: Rs 10 per equity share

Grey Market Premium (GMP): Rs 5

Please note, GMP is as of 19 December 2022.

The company has reserved not less than 75% shares of the offer for qualified institutional buyers (QIB). It has reserved not less than 15% for non-institutional buyers (HNI). Hence not more than 10% of shares are available for retail individual investors.

Tentative IPO allotment date: 26 December 2022

Tentative listing date: 29 December 2022

Here are five key details of the IPO.

#1 About the company

Incorporated in 2017, Kfin Technologies 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 30 September 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 for the same period.

At present, KFin Technologies is the only investor and issuer solutions provider in India that offers services to asset managers such as mutual funds, alternative investment funds (AIFs), wealth managers and pension as well as corporate issuers in India.

KFin Technologies is one of the two operating central record-keeping agencies (CRAs) for the National Pension System ("NPS") in India as on 30 September 2022.

KFin Technologies is India's largest issuer solutions provider based on several clients serviced.

#2 Financial position

For the financial year 2020-21, most of the businesses were affected and reported decreasing revenues as they were hurt by the aftermaths of pandemic. During the said period, KFin Technologies was in an interesting position.

Its revenue increased marginally by 6.8% However, in the same period, it reported a loss of Rs 645.1 m, which is worse. Despite increasing revenues and decreasing expenses, it reported losses.

The situation improved in the financial year 2021-22. In the said period its revenue increased to Rs 6,455.6 m, a jump of 32.8% compared to last year.

Similarly, the profit also increased to Rs 1,485.5 m in the said period. Even return on net worth and basic earnings per share have increased during the said period.

Financial snapshot

Particulars	31-Mar-22	31-Mar-21	31-Mar-20
Revenues (Rs m)	6,455.60	4,861.90	4,552.60
Revenue Growth (%)	32.80%	6.80%
Expenditure Before Tax	4,415.60	4,186.90	4,367.60
% of Total Income	68.4	86.1	95.9
Net Profit	1,485.50	-645.1	45.2
Net Profit Margin (%)	23	-13.3	1
Net Worth	3,952.60	3,047.40	3,023.50
Return on Net Worth (%)	29.3	-17.1	1
Basic Earnings per share (Rs)	9.4	-4.3	0.3

Data Source: Company's Red Herring Prospectus (RHP)

#3 Peer comparison

As per the company's red herring prospectus (RHP), Computer Age Management Services (CAMS) is its listed peer.

Company	Total Income (2022) (Rs m)	Net Profit	EPS (Basic) (Rs)	Return on Net Worth (%)
KFin Technologies	6,395.10	1,485.50	9.4	29.9
Computer Age Management Services	9,096.70	2,869.00	58.7	49.3

Data Source: Company's Red Herring Prospectus (RHP)

#4 Arguments in favour of the business

• It has a big platform with a strong track record of growth and market leadership.
• Its diverse multi-asset class platform is well-positioned to benefit from strong growth across large markets in India and Southeast Asia.
• It has a unique 'platform-as-a-service' business model providing comprehensive end-to-end solutions enabled by technology solutions developed in-house.
• Deeply entrenched, long-standing client relationships with a diversified and expanding client base.
• Its asset-light business model with a recurring revenue model, high operating leverage, profitability and cash generation.
• It has an experienced management team, backed by a strong board and marquee shareholders, along with a strong culture of compliance.

#5 Risk factors

Its business is heavily dependent on IT which exposes it to various cybersecurity threats. Any significant disruptions in its information technology systems or breaches of data security could adversely affect its business and reputation.

The company's business is concentrated. In financial years 2020, 2021, and 2022 it derived 53.3%, 53.7%, and 53.1% of its revenue from it's the top five customers. A loss of one or more such clients could adversely affect its business and prospects.

Its technology infrastructure, including its disaster recovery site, is reliant on information technology systems of third-party providers and is concentrated in the southern regions of India.

In the event of a disaster, and its disaster recovery and business continuity plans may fail, it could result in the loss of client data and adversely interrupt operations.

To conclude

There has been a paradigm shift in how investors think these days. People are moving from traditional means of investment to mutual funds.

You would see headlines reading how SIP investments were at an all-time high in so and so month. The trend has been going on for months by the way.

As Indian mutual fund industry touches leaps and bounds in the coming years, KFin Technologies has bright growth prospects. The industry is underpenetrated at the moment.

KFin Tech could be a big beneficiary especially due to absence of strong competition.

However, if we take a look at the price range of the company, its shares are priced at the same price to earnings (PE) multiple as CAMS.

Considering the prospects of the company, in the coming three to four years the company could do well. Both these companies will operate in a duopoly market. Long term investors may look forward to the IPO in hopes of long-term investing.

However, if an investor is looking for strong listing gains, he may end up disappointed because the shares a trading at a high PE multiple.

Stay tuned to get further updates on this IPO and all upcoming IPOs in the market.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...