Q2FY24 Review: KFin Technologies: New businesses drive earnings beat

25 Oct 2023 , 10:30 AM

KFin Technologies (KFintech) Q2FY24 PAT grew by 28% YoY to Rs614mn, 10% ahead of estimates. Steady yield in the domestic MF-RTA business and robust growth in new businesses, led to the revenue beat. Company remains confident of new faster growth in the alternatives and international business, driven by new client addition. Analysts of IIFL Capital Services upgrade their FY24-26 EPS by 4-6% to account for better Q2 and better-than-expected growth in new businesses. Analysts of IIFL Capital Services value KFintech at 32x FY26 EPS with TP of Rs535. Maintain BUY. 

Robust growth in non-MF business drives earnings beat: 

KFintech’s Q2FY24 PAT grew 28% YoY and 42% QoQ to Rs614mn – 11% above estimates. Beat was driven by non-MF business (10% beat), aided by issuer solution business (+13% YoY, 6% YoY increase in folios + 7% YoY increase in blended folio charge to Rs10.2 aided by higher corporate actions) and international and other investor solution business (+48% YoY driven by new client addition in international RTA and FA; alternative revenues too, doubled YoY, owing to 36% YoY growth in AUM to Rs844bn). In the core domestic MF-RTA business, revenues grew by 17% YoY, driven by 21% AUM growth to Rs14.8trn. The moderation in yield was lower than expected – down 3% YoY to 3.8bps (3% beat). Aided by strong revenue growth, KFintech saw operating leverage benefits driving Ebitda margins by 517bps YoY and 602bps QoQ to 44.8%. 

New client wins to drive growth in new businesses: 

Management remains confident on the new business, particularly on the alternative space and international operations. With the addition of fund administration platform (mPower), Kfintech now offers a comprehensive solution (TA + FA) to AIFs/PMS. In the international business, company has started seeing traction in addition to Malaysia – during Q2 – it went live with a client in Singapore (2 more in transition) and also entered Thailand market with maiden contract for fund administration (FA). Domestically, the company won LIC pension fund worth Rs250mn to be executed over seven years. In Corporate issuer business, the company sees strong growth visibility with healthy pipeline of IPO mandate and new client addition, along with upward price revision for renewals. 

Upgrade estimates:

Analysts of IIFL Capital Services upgrade FY24-26 EPS by 4-6% to factor strong growth in new businesses. Increasing share of newer businesses, along with improving margin profile is likely to further aid profitability.