KFIN Technologies Limited taps the capital markets with its Rs 1,500 crore offering. The price range of the edition is between Rs 347-368. The issue will be published from December 19th to 21st.
The company completed the allotment to anchor investors on Friday by allocating 1.84 billion shares to 30 anchor investors comprising 44 entities. Of this, 37.78 percent, or 69.67 lakh shares, was allocated to nine 17-unit domestic mutual funds. The allotment was made at the top end of the price range of Rs 366. The company has made a fair distribution with 7.41 per cent being the highest allotment and the same has been done for many companies.
KFIN Company is a technology-driven financial services platform that provides comprehensive services and solutions for the capital markets ecosystem. The company began operations in 1985 with an issuer solutions business. Added domestic mutual fund business solutions in 1995 and alternative and wealth management business solutions in 2010. In 2018, General Atlantic bought the company. Just recently, in the current year 2022, the company bought Hexagram, a fund accounting system, to expand its offering and increase its share of the business.
The company faces 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, this is a duopoly business in the two industries mentioned. A key metric is the fact that more than 99 percent are repeat or repeat deals that come from the same group of customers. In other words, customer stickiness is very high. Gross margin is more than a healthy 60.19 percent.
The business grew 19.9 percent with an adjusted PAT margin of 24.12 percent. His customers include 24 of the 41 AMCs in India. The business has high barriers to entry and KFIN has consistently served its customers.
Shares were allotted to PE investor General Atlantic in November 2018 at Rs 74.06. The company shared shares with Kotak Mahindra Bank at Rs 185.35 on this IPO in November 2021. General Atlantic now owns 72.51 percent of the company KFIN. The issue price today is Rs 347-368 or about 1.97 times the upper end of the price range of Rs 368 of the issue price Kotak paid about 13 months ago. For General Atlantic it would be 4.96x in 4 years.
Turning to the financials of the company, reported revenue for the year ended 22nd March was Rs 639.50 crore and newly reported profit after tax was Rs 148.55 crore. 67.75 percent of the proceeds came from the domestic retail fund business and 13.38 percent from the business with issuer solutions. Earnings per share on a fully diluted basis were Rs 9.36. The PE multiple in the price range is 36.76-38.77. The PE multiple of the competitor CAMS is almost similar at 39.37. The NAV for KFIN is Rs 38.45 while for CAMS it is Rs 132.43.
Obviously the issue price in terms of PE is more or less similar in both cases, while the same in terms of book price is significantly higher for CAMS compared to KFIN. The premium is given to the leader, which in this case is clearly CAMS and not KFIN. In the future, the business model could see KFIN joining the new business initiatives and catching up with CAMS. The fact that this is only an offer to sell and that the PE investor is making a lot of money, one would have expected that something would have been left on the table. With pricing exactly the same as competitor CAMS, there can only be money to be made if this company, which currently ranks second only to CAMS, gets a re-rating. KFIN’s past has been somewhat shady, with the former founder’s stake (around 12 percent) being confiscated and frozen by the ED. The company reported 21 losses during the fiscal year, and as such the issue is 75 percent reserved for QIBs, 15 percent for HNIs, and 10 percent for retailers.
The recent IPOs that have come to market have not done well and raised no money for investors. Additionally, the last three IPOs opened for subscription last week have struggled. In such a scenario, and at the end of the year with the holidays approaching, it may make financial sense to skip the subscription spend and look at it after the listing. In any case, the issue is more than highly valued and immediately raising funds to list appears to be a major challenge.
(The author is the founder of
Kejriwal Research and Investment Services, a consulting firm)
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