Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Year-on-year revenue growth of 31%, EBITDA growth of 42%, and PAT growth of 57%.
- Significant market share expansion in mutual funds, with overall AUM market share increasing from 37% to 42%.
- Strong performance in the international market, with notable gains in Malaysia and the Philippines.
- Successful acquisition and integration of Hexagram, contributing to an 80% year-over-year growth in platform sales and implementation.
- Robust cash and cash equivalents of INR 452 crores, positioning the company well for future M&A activities.
Negative Points
- Expected dip in margins due to wage inflation and contract resets at the beginning of the fiscal year.
- Revenue per folio in issuer solutions has decreased, indicating potential pricing pressures.
- ESOP costs have increased significantly, from INR 2.6 crores in FY24 to INR 3.11 crores in Q1 FY25.
- Yield compression in the mutual fund business due to renegotiated contracts.
- Dependence on regulatory approvals for international acquisitions, which can delay expansion plans.
Q & A Highlights
Highlights of KFin Technologies Ltd (BOM:543720, Financial) Q1 FY25 Earnings Call
Q: My first question is on the M&A front. What outcomes are you looking to achieve both from a capability point of view and from a financial impact of the acquisition in the near term to, let us say, two to three-year time frame?
A: We are looking at international expansion followed by new capabilities and consolidation. The current M&As under consideration are largely on the international side, aiming to open new geographies with significant addressable markets. Financially, we expect these acquisitions to be margin-accretive and add 10% to 15% to our annual top-line numbers.
Q: Given that you're looking for an international acquisition rather than a capability-building one, will the earnings accretion be driven more by cost takeout or improving operational efficiency?
A: It will be both. We are targeting acquisitions that will allow us to cross-sell and up-sell our existing capabilities, particularly in fund accounting and digital platforms. This will add value both from a revenue and operational efficiency standpoint.
Q: On the mutual fund business, when would the revenues from new contracts hit the P&L, and what kind of size contracts are we looking at?
A: The milestones for two of the three contracts have already started, and revenue will start to kick in this quarter. These contracts carry annual maintenance and change contract-driven revenue, making them recurring in nature.
Q: What is the size of the international acquisition you are comfortable with, and would you finance it through your own balance sheet or other forms of financing?
A: Our sweet spot is around USD 50 million to USD 75 million, which can be financed with our internal accruals. We have around INR 450 crores to INR 500 crores in cash, which should cover the size of the acquisition we are looking at.
Q: On the issuer solutions piece, what could be the uplift in revenue if Hyundai and Bajaj Housing complete their IPOs this year?
A: We expect a mid-20s growth profile this year, including the IPO revenues. These IPOs will provide immediate revenue and annuity contracts, contributing to higher revenue in subsequent years.
Q: How do you see the EBITDA margin trajectory for the rest of the year and possibly for FY26?
A: We expect the EBITDA margin to be higher than FY24. Our guidance remains in the range of 40% to 45%, and we will see sustainability of enhanced margins over a period of time before moving our guidance beyond 45%.
Q: On the international business segment, any update on the overall USD 20 million guidance, and has Thailand specifically gone live?
A: The USD 20 million pipeline continues to be steady and growing. We have signed a large contract and expect another soon. The Phase 2 of the Thailand contract is expected to go live in late September, contributing significantly to our revenue.
Q: On the domestic alternatives business, do you think the pricing will settle at 3 to 4 basis points, and how do you see competition affecting this?
A: 3 to 4 basis points is reasonable for Indian alternatives. Internationally, the numbers are much higher. While competition is increasing, our localized platform and cost to serve give us a significant advantage.
Q: Regarding the new asset class SEBI has introduced, do you see a significant opportunity from an RTA side or the back-end side of it?
A: Yes, every new asset class provides an opportunity for growth. We are confident that it will emerge as a significant opportunity, and we are working on creating solutions to cater to this new asset class.
Q: What is the reason for the reduction in promoter holdings?
A: General Atlantic, our promoter, is a private equity firm whose job is to deliver returns to their investors. They have been a wonderful partner for the past seven years and will continue to be so, even as they may sell some blocks over the next few years.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
