It's better to skip KFIN tech IPO altogether

KFIN Technologies Limited is tapping the capital markets with its offer for sale of Rs 1,500 crore. The price band of the issue is Rs 347–368. The issue opens from 19-21 December.

The company completed allocation to anchor investors on Friday by allotting 1.84 crore shares to 30 anchor investors comprising 44 entities. Of these, 37.78 per cent or 69.67 lakh shares were allotted to nine domestic mutual funds comprising 17 entities. The allocation was done at the top end of the price band of Rs 366. The company has done an equitable distribution with 7.41 per cent being the highest allocation and the same has been done to many entities.

The company KFIN is a technology driven financial services platform, providing comprehensive services and solutions to the capital markets ecosystem. The company began its operations in 1985 with an issuer solutions business. It added domestic mutual fund business solutions in 1995 and alternative and wealth management business solutions in 2010. In 2017, it launched its pension services business and international business solutions business in South East Asia. In 2018, General Atlantic bought out the company. Just recently in the current year 2022, the company bought Hexagram, a fund accounting system to add to the offerings and increase the wallet share of business.

The company has competition from CAMS in the mutual fund business and with Link Intime in the RTA business for the capital markets. While there are other players as well, this is a duopoly business in the two verticals mentioned. What is a key metric is the fact that more than 99 per cent is repeat or retained business which comes from the same set of clients. In other words, the stickiness of clients is very high. Gross margin is a more than healthy 60.19 per cent.

The business has seen a growth of 19.9 per cent with an adjusted PAT margin of 24.12 per cent. It has 24 of the 41 AMCs in India as its clients. The business has high entry barriers and KFIN has delivered to its clients in a continuous manner.

The PE investor General Atlantic was allotted shares at Rs 74.06 in November 2018. The company further allotted shares to Kotak Mahindra Bank at Rs 185.35 in November 2021. The shareholding of Kotak as of date is 9.85 per cent and they are not selling any shares through this IPO. General Atlantic owns 72.51 per cent of the company KFIN as of today. The issue price today is Rs 347-368 or roughly 1.97 times at the top end of the price band of Rs 368 to the issue price which Kotak paid roughly 13 months ago. For General Atlantic it would be 4.96 times in 4 years.

Coming to the financials of the company, revenues reported for the year ended March 22 were at Rs 639.50 crore and restated profit after tax was at Rs 148.55 crore. The breakup of revenue was 67.75 per cent from domestic mutual fund business and 13.38 per cent from issuer solutions business. The EPS on a fully diluted basis was Rs 9.36. The PE multiple at the price band is 36.76-38.77. The PE multiple for the competitor CAMS is almost similar at 39.37. NAV for KFIN is Rs 38.45 while it is Rs 132.43 for CAMS.

Clearly the issue price in terms of PE is more or less similar in both cases while in terms of price to book, the same for CAMS is substantially higher compared to KFIN. Premium is given to the market leader which in this case is clearly CAMS and not KFIN. Going forward the business model could see KFIN getting its act together in the new business initiatives and drawing equal with CAMS. The fact that this is entirely an offer for sale and the PE investor is making money hands over fist, one would have expected that something would have been left on the table. With pricing made exactly the same as the competitor CAMS, money can only be made if this company, which is currently second to CAMS, gets rerated. The past of KFIN has been a bit shady with the erstwhile promoter's shareholding (around 12 per cent) being impounded and frozen by the ED. The company had reported losses in FY21 and hence the issue is 75 per cent reserved for QIBs, 15 per cent for HNIs and 10 per cent for retail.

The recent lot of IPOs to have hit the market have not done well and have not made money for investors. Further the recent three IPOs last week which opened for subscription struggled. In such a scenario and year end with holidays looming, it may make financial sense to skip the issue for subscription and look at them post listing. In any case, the issue is more than richly valued and finding immediate money on listing seems a tall order.

(The author is the founder of

Kejriwal Research and Investment Services, an advisory firm)