Bengaluru-based KFin Technologies Ltd has launched its initial public offering (IPO) today— Dec 19. The firm was incorporated just five years ago! In this article, we’ll look into the company and its IPO.
Company Profile – KFin Technologies Ltd
Established in 2017, KFin Technologies Ltd (KTL) is a technology-driven financial services platform. It offers comprehensive solutions and services to the Indian capital markets ecosystem, including asset managers and corporate issuers across asset classes (equities, fixed-income securities like bonds, etc). They also provide transaction origination and processing services for mutual funds and private retirement schemes in Malaysia, Hong Kong, and the Philippines.
Here’s how KFin Tech classifies its products and services:
- Investors Solutions: Account Setup, Transaction Origination, Redemption of Funds, and Brokerage Calculations.
- Issuer Solutions: Transaction Processing for IPOs, Corporate Action Processing, Folio Creation & Maintenance, Customer Communication Management (e-voting systems), and Compliance or Regulatory Reporting.
- Value Added Services: Distributor Platforms, Investor Platforms, IT Infrastructure, Web Hosting, and Data Analytics.
- KTL is one of the largest investor solutions providers to Indian mutual funds. As of Sept 30, 2022 (Q2 FY23), they provide services to 24 out of 41 asset management companies (AMCs) registered in India.
- The company services 301 funds of 192 asset managers in India, which represents a 30% market share based on the number of alternative investment funds (AIFs) being serviced.
- KFin Tech is one of the three operating central record-keeping agencies (CRAs) for the National Pension System (NPS) in India.
- They provide services to 18 AMC clients in Malaysia and 3 clients across the Philippines and Hong Kong.
About the IPO
KFin Technologies Ltd’s public issue opens on December 19 and closes on December 21. The company has fixed ₹347-366 per share as the price band for the IPO.
The IPO is purely an offer for sale (OFS) of 4.09 crore equity shares by promoters and early investors, aggregating to ₹1,500 crore. Individual investors can bid for a minimum of 40 equity shares (1 lot) and in multiples of 40 shares thereafter. You will need a minimum of ₹14,640 (at the cut-off price) to apply for this IPO. The maximum number of shares a retail investor can apply is 520 equity shares (13 lots).
The primary objective of the IPO is to provide an exit strategy (or liquidity) for promoters. The company aims to achieve the benefits of listing the equity shares on NSE and BSE. The total promoter holding in KFin Technologies will decline from 74.37% to 49.91% post the IPO.
- KFin Tech suffered a financial setback in FY21 but made a strong comeback in FY22 with a net profit of ₹148.55 crore.
- Between FY20 and FY22, the company’s revenue grew by 19.16%.
- KTL derives ~65% of its revenues from the domestic mutual fund business, where it earns fees based on average assets under management (AAUM).
- The company became debt-free in FY22.
- KTL’s promoters are subject to ongoing investigations by the Enforcement Directorate, the Finance Ministry, and the Central govt. The outcome of such investigations may adversely impact the company and its stock price. [SEBI imposed a fine of ₹1.5 crore on KTL for redeeming its units in a mutual fund based on privileged info.]
- Significant disruptions in information technology (IT) systems or data security breaches could adversely affect the company’s business and reputation.
- In FY22, KFin Tech derived nearly 55% of its revenue from its top five customers. The loss of any of these clients could severely affect its overall business.
- A decline in the growth, value, and composition of assets under management (AUM) of the mutual funds managed by KTL’s clients may adversely impact their average revenue from mutual funds. It would also affect the company’s future revenue and profit.
IPO Details in a Nutshell
KFin Technologies Ltd filed the Red Herring Prospectus (RHP) for its IPO on Dec 5. You can read it here. Out of the total offer, 75% is reserved for Qualified Institutional Buyers (QIBs), 15% for Non-Institutional Investors (NIIs), and 10% for retail investors.
Ahead of the IPO, KTL raised ₹675 crore from 44 anchor investors. The marquee investors include Goldman Sachs Funds, Aberdeen Standard SICAV, Pinebridge Global Funds, Citigroup Global Markets Mauritius, Nippon Life India, Axis Mutual Fund, etc.
The average AUM of the Indian mutual fund industry has grown at a healthy pace over the past 10 years. It grew at a CAGR of 18% from ₹6.65 lakh crore as of March 31, 2012, to ₹39.05 lakh crore as of Sept 30, 2022. With better disposable incomes, a large proportion of Indians are increasing their financial savings and investing in stocks and mutual funds. The growth in savings will lead to more investments, which will benefit companies like KFin Tech.
Going ahead, KTL aims to grow the overall share of revenues from the sale of different services to new and existing clients. The company will continue to invest in technological innovations in line with its business growth and to meet client requirements. They plan to develop a co-innovation laboratory with key industry players in exchange-traded funds (ETFs) and index funds to drive research and development in this area.
KTL will compete directly with Computer Age Management Services (CAMS) once it gets listed.
The company has not received much interest from investors in the grey market. KTL’s IPO shares are trading at a premium of ₹5-8 in the unofficial market. Before applying to this IPO, we will wait to see if the portion reserved for institutional investors gets oversubscribed. Do consider the risks associated with the company and come to your own conclusion.
What are your views on KFin Technologies Ltd’s IPO? Will you apply for it? Let us know in the comments section of the marketfeed app!