General Atlantic-backed financial services provider KFin Technologies has filed draft red herring prospectus (DRHP) with capital market regulator SEBI. KFin Technologies is all set to raise INR2,400 crore via Initial Public Offering (IPO). The issue is completely an offer for sale (OFS) where the promoter company General Atlantic Singapore plans to release its stake. Here are the 7 things you must know about KFin Technologies IPO.
#1 KFin Technologies: Sector Dominator
KFin Technologies is a leading technology-driven financial services platform provider. The company provides comprehensive services and solutions to the capital market ecosystem including mutual funds, alternative investment funds (AIFs), wealth managers, pension fund managers and corporate issues. KFin Tech provides several investor solutions such as transaction origination and processing for mutual funds and private retirement schemes.
KFin Tech is one of the two leading investor solution providers in India. It provides services to 25 out of 42 Asset Management Companies (AMCs) in India. As of 31 January 2022, it had on-boarded 15 out of the last 20 mutual funds launched in India. In December 2021, the company recorded INR48.51 crores of SIP (Systematic Investment Plan) inflow which translates to a market share of 42.92%, up from 39.01% as on 31 March 2021.
Also, it is the largest issuer solution provider in India based on the number of clients. In India, there are only two players which provide their services to main board IPOs. The market captured by KFIN Tech is 43% in terms of market cap and 34% in terms of number of clients served within NSE 500 universe. This proven industry leadership is likely to help KFin Technologies IPO.
#2 Overseas Presence
KFin Tech has a noticeable overseas presence as a technology-driven financial services platform provider. Besides India, the company serves in South East Asia, Hong Kong, Malaysia, and the Philippines, among others. In Malaysia, there are 60 AMCs and KFin counts 18 of them among its clients. In addition, there are three clients in the Philippines and Hong Kong and two clients in Singapore as of 31 January 2022.
#3 Deeply entrenched client relationship
KFin Tech aims to provide comprehensive client support across the lifecycle of relationship which is characterized by very lengthy timeframes. That’s why the client portfolio looks small but is actually very dense. KFIN Technologies had 98.16% and 96.2% logo retention in their issuer solution business over FY2021 and 9 months of FY2021, respectively. It has a very strong relationship with its clients more than 10 years. The following table highlights some of this stickiness with the clients.
| Business | Top Clients | Duration of Relationship |
| Domestic Mutual Funds Solutions | Nippon Life AMC | 24 |
| UTI AMC | 13 | |
| Axis AMC | 12 | |
| International Investor solutions | BPI Investment Management | 6 |
| Issuer Solutions | RIL HUL | 17 |
| Infosys | 13 | |
| HUL | 17 | |
| Global Business Services | Computershare | 8 |
#4 Asset-light business model with recurring revenue
The company provides VAS products such as “Digix” which is an analytical and reporting tool, Distributed Initiated Transaction (DIT), and “Kbol Go” which is a front-end app for AMC sales channel. The company has a digital tool named “KaRISMA” which is used for folio management, processing of corporate actions, and registry transfer services. Most of these services do not need physical assets and thus, are highly scalable.
The USP of the company’s business model is high reliance on recurring revenues. The company’s recurring revenue during FY2019, FY2020 and FY2021 stood at 98.29%, 95.78% and 99.01%, respectively. A high degree of revenue visibility and client stickiness are often hallmarks of a great business and help tremendously in bolstering profits and cash flows. The following table highlights the company’s revenue models in different segments.
| Segment | Revenue Model |
| Mutual fund solutions (domestic mutual fund solutions and international investor solutions) | • % of AUM • Transaction based • Fixed fee for the number of AMC branches serviced • Fee for information technology products and services such as website, CRM tools • Fee for white-labelled customer communication |
| Pension services | • Fixed account opening charges • Annual maintenance fees • Fee per transaction |
| Alternatives and wealth management | • % of AUM • Fixed fee |
| Issuer solutions | • Number of folios • Number of corporate actions • Hybrid model for value-add products and services |
| Global business services | • Per full-time employee (FTE) |
Once again, repeat business from customers is highly coveted and it will likely work in favor of KFin Technologies IPO subscription.
#5 KFin Technologies IPO – Capital Structure
Singapore based private equity investor General Atlantic is the biggest stakeholder in KFin Technologies. General Atlantic holds nearly 74.94% of total equity capital; followed by Compar Estates and Agencies Private Limited with 10.99% and India’s third-largest private bank player Kotak Mahindra Bank holding 9.98% stake. All the shares offered in KFin Technologies IPO will be sold by General Atlantic.
| Name of the Shareholder | No. of Equity Shares | Percentage of the pre-Offer equity share capital |
| General Atlantic Singapore Fund Pte. Ltd. | 125,580,400 | 74.94 |
| Compar Estates and Agencies Private Limited | 18,414,296 | 10.99 |
| Kotak Mahindra Bank Limited | 16,725,100 | 9.98 |
| C. Parthasarathy – HUF | 1,986,974 | 1.18 |
| Total | 162,702,770 | 97.09 |
#6 KFin Technologies IPO – All Offer for Sale (OFS)
As we discussed earlier, the major holding of KFin Technologies is held by General Atlantic Singapore. This upcoming IPO is purely on Offer for Sale (OFS). In this public issue, the company promoter General Atlantic Singapore is going to sell its shares. This means the INR2,400 crores straightaway go to the company promoter’s pocket and the company wouldn’t get any IPO proceeds. Since the company’s business isn’t cash intensive, full OFS IPO need not be seen as a negative.
#7 Financial footprint
The company’s financial performance in recent years is underlined by improving margins and cash flows. As of 31 December 2021, the company also became net debt free. While deferred liabilities in FY2021 lowered its profit and return ratios, the company’s nine-month performance indicates the dip last year was an aberration.
| Particulars | 31 March 2019 | 31 March 2020 | 31 March 2021 | 9M FY2022 |
| Operating Cash Flow | 63.21 | 101.43 | 204.63 | 187.02 |
| Investing Cash Flow | (864.41) | 93.01 | (103.73) | (69.50) |
| Financing Activity Cash Flow | 775.35 | (206.04) | (89.40) | (112.22) |
| Return on Net Worth | 1.72 | 1.10 | (18.62) | 16.56 |
| EBITDA Margin | 41.24 | 36.03 | 44.72 | 45.08 |
| Profit Margin | 5.51 | 1.01 | (13.41) | 21.30 |
Given that its peer CAMS has rewarded investors in a handsome way, it is expected that KFin Technologies IPO will be keenly watched by market participants. Of course a lot will depend on KFin Technologies IPO pricing, initial impressions are positives and the stock could be a long-term portfolio holding.
