KFin Technologies: International business seeing traction

15 Feb 2024 , 12:09 PM

Analysts of IIFL Capital Services hosted KFin Technologies at IIFL’s Investor conference in Mumbai. Key takeaways from the meetings are 1) company is nearing transition of new clients which would drive international revenue, 2) new client wins would continue to remain strong as company expands operations in Singapore and other SEA countries, 3) traditional MF-RTA and corporate RTA businesses are likely to grow in mid-teens, 4) new segments to grow at ~2x its traditional business, and 5) overall margin profile is likely to improve as newer businesses scales up. 

New client wins drive traction in Intl. business: 

KFintech’ expansion into TA-FA businesses globally has picked up momentum as it won 18 new clients (total: 54 clients) over last 12 months; largely concentrated in South-East Asia markets. In Malaysia, KFin services 26 out of 60 AMCs, incl. 3 out of Top-10. It believes Singapore could be a large market with +7,000 funds in the alternate segments. Company is very confident of its FA offering – ‘mpower’ to lead to more client wins. There is no other thirdparty service provider globally; and is competing with captive model. KFin’ highlighted its right to win strategy globally is based on providing cost effective, customised solutions for mid-to-small funds. To tap the fast growing alternative space – Kfin offers both platform service (23 clients) as well as full service offering (31 clients); however the endeavour is to grow the full service offering where it has an asset based charging. 

Core business to grow steadily: 

Kfintech’s core business constitutes – MF-RTA solutions and corporate issuer segments contributing around 85% of its revenues. Given the meaningful size in both these business – ~30% market share in MF-RTA and 47% share in issuer solutions – it is likely to in-line with industry growth i.e. in mid-teens. The growth would largely be from volume/size; with limited scope for price revisions. 

MF-RTA business – Domestic vs Global: 

Asset yields in global markets are higher at 5-6bps vs 3-4bps in domestic segment. Further, domestic yields are regulated by telescopic prices; which is not the case globally. Infact, global contracts have price escalation, which would drive yields higher. Margins also tend to be better in global markets given high ticket size and low transaction intensity.