Q3FY24 Review: KFin Technologies: Broad based growth; robust outlook

30 Jan 2024 , 12:56 PM

KFin Technologies’ (KFin) Q3FY24 PAT grew 25% YoY to Rs668mn; in-line with estimates. Profit growth has been driven by all its segments driven by new client wins and supportive macros. KFin has created a diversified revenues model across asset classes & geographies, thus lowering concentration risk. This coupled with strong execution has led to a constant re-rating since listing. Analysts of IIFL Capital Services value KFin at 32x FY26 EPS (10% discount to CAMS) and ascribe a fair value of ₹600 (7% upside). Maintain BUY. 

Inline Q3: 

KFintech’s Q3 PAT grew 25% YoY and 9% QoQ to Rs668mn; largely in line with estimates. Overall revenues grew 16% YoY and 5% QoQ to Rs2.19bn. Domestic MF-RTA business, accounting for 68% of revenues, grew by 18% YoY (6% QoQ) to Rs1.49bn driven by 23% YoY (6% QoQ) growth in serviced AUM to Rs15.6trn partly offset by lower yields YoY. As such yields were flat QoQ at 3.81bps as the impact of telescopic pricing was offset by increasing share of equity in AUM mix. Issuer solution segment surprised positively with 19% YoY revenue growth – healthy growth in new folio additions (+9% YoY) and improved yields (supported by VAS) drove growth. International and alternatives segment although contribute only 10% of revenues but is the fastest growing segment – revenues grew 28% YoY. 

Robust outlook: 

In Q3FY24 earnings call hosted by IIFL, KFin mgmt. shared that 1) traction continue in international business with new client wins (18 clients added in last 12 months and 4 in Q3FY24); 2) also 4 new clients are likely to add to revenues as their transition is likely to be completed in Q4, 3) profitability in international business is higher given better yield and lower costs, 4) in alternatives, Kfin launched new integrated platform – ‘XAlt’ – a comprehensive solution for global asset managers, 5) domestic AIF business seeing strong growth (100+ funds yet to draw capital), and 6) expect mid-teens growth over medium term in the domestic MF-RTA business and Corporate issuer business; focus on increasing VAS contribution to de-risk impact of market cyclicality. 

Upgrade EPS; maintain BUY: 

Analysts of IIFL Capital Services upgrade FY24-26 EPS by 3-5% to account for strong Q3 performance. They estimate KFin FY24-26 EPS to grow at 15% pa. Stronger than expected growth (25% Cagr in base case) in the international business could drive earnings surprises. Analysts of IIFL Capital Services value KFin at 32x FY26 EPS and increase their TP to ₹600 (vs ₹565 earlier). BUY.