KFin Tech’s ₹1,500 cr IPO to open tomorrow. Subscribe or not?

Under the IPO, the offer for sale is up to 2,37,75,215 equity shares. The company has fixed a price band of ₹347 per share and ₹366 per share. The bid lot size is 40 equity shares and multiples thereof. The face value of the equity shares is ₹10 per piece. Of the total IPO size, 75% of the issue is reserved for qualified institutional buyers, while 15% will be allocated to non-institutional investors and the remaining 10% will be kept for retail individual investors.

Since the IPO is entirely an offer for sale, hence, KFin will not receive any proceeds from the public issue. The selling shareholders will receive the proceeds.

Companies like ICICI Securities, Kotak Mahindra Capital Company, JP Morgan India, IIFL Securities, and Jefferies India are acting as the book-running lead managers for the IPO. While Bigshare Services is the registrar of the offer.

KFin Tech is among the leading technology-driven financial services platform providing comprehensive services and solutions to the capital markets ecosystem including asset managers and corporate issuers across asset classes in India and providing several investor solutions including transaction origination and processing for mutual funds and private retirement schemes in Malaysia, the Philippines, and Hong Kong.

As of September 30, 2022, the company is servicing 301 funds of 192 asset managers in India — representing 30% market share based on the number of AIFs being serviced, as per the CRISIL report.

In the first six months of FY23, the company’s total income stood at ₹3,537.63 million and net profit at ₹853.45 crore. In FY22, the company’s total income climbed to ₹6,455.64 million from ₹4,861.98 million in FY21, while PAT jumped to ₹1,485.49 million against a loss of ₹645.07 million in FY21.

Should you subscribe to KFin Tech IPO or not?

In their note, Prabhudas Lilladher Advisory Team said, “One can subscribe for long term as it is India’s largest investor solutions provider to Indian mutual funds, based on the number of AMC clients serviced. The company is providing services to 24 out of 41 AMCs in India, representing 59% of the market share based on the number of AMC clients. It is one of only two players of scale in India’s issuer solutions space where the company holds a 46% market share based on the market capitalization of NSE 500 companies .”

The stock brokerage’s note added, “It also had a 40% and 29% market share based on the number of mainboard IPOs handled in FY’22 and H1FY’23, respectively. Through its acquisition of Hexagram, Kfin serves six AMCs in India on fund accounting. Kfin is servicing 301 funds of 192 asset managers in India representing 30% market share based on the number of AIFs being serviced.”

On the other hand, Reliance Securities in its IPO note highlighted that KFin has transformed the business into a financial technology-driven platform-as-a-service model. The technology offering enables transaction lifecycle management combined with highly secure data collection, processing, and storage. It processed 1.6 million average daily transactions, including 1mn systematic transactions like systematic investment plans (“SIPs”) per day and $3.2 billion, average daily settlement for domestic mutual funds in six months ended.

During FY22 and 1HFY23 it maintained an accuracy rate of above 99.5% of all transactions processed while adhering to the timelines as stipulated in agreements with clients. Based on FY22 earnings the company is valued at 41.3x P/E, and 9.7x EV/Sales, it added.

On a positive note, Reliance Sec’s note said, the company is the largest investor solutions provider in India with diverse products and services base, huge market share, and international presence. However, ongoing investigations for erstwhile promoters is an overhang. At the current valuation, the issue appears fully priced, discounting all near-term positives, and risk-reward is not favorable.

Further, while giving an ‘Avoid’ recommendation on the IPO, Religare Broking in its IPO note highlighted key risks. These are — there are outstanding legal matters against the promoter as well as the company; operate in a highly regulated environment; a significant portion of revenue is contributed by a few customers; fully Offered for Sale; and retail portion is just 10% of the total issue.

Post the IPO issue, the equity shares are proposed to be listed on the stock exchanges BSE and NSE.

In the gray market, on Sunday, the IPO is trading at a premium of ₹5 per equity share, as per IPO Watch data.

With the latest GMP of ₹5, the IPO has a possibility to list at ₹371 equity share ( ₹5 plus upper price band of ₹366 per share). However, the listing price prospects can change going forward. Generally, a gray market is where a company’s shares are offered unofficially to traders and hence they are not Sebi-regulated. A GMP does give a fair understanding of how a stock will be listed, however, there is no guarantee of the accuracy.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.