Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- KFin Technologies Ltd (BOM:543720, Financial) reported a 34% year-on-year revenue growth and an 18% sequential growth, indicating strong financial performance.
- The company's international business services grew by 44% year-on-year, showcasing successful global expansion efforts.
- Value-added solutions and services revenue increased by 46% year-on-year, contributing to a more diversified revenue stream.
- KFin Technologies Ltd (BOM:543720) has won several large mandates, including handling the largest IPO in India, which strengthens its market position.
- The company has received RBI approval to set up a wholly-owned subsidiary in Thailand, enhancing its international footprint.
Negative Points
- Despite strong revenue growth, the company faces challenges with yield compression due to increased volume and low-ticket size investments.
- The Global Business Solutions segment, particularly in the US mortgage market, is under stress and not a focus area for growth.
- The company has seen a significant increase in expenses due to higher transaction volumes and investments in technology and manpower.
- KFin Technologies Ltd (BOM:543720) is facing competitive pressure in international markets, primarily from in-house solutions of asset managers.
- The company's expansion into new markets like Thailand requires significant investment and carries the risk of slow initial client acquisition.
Q & A Highlights
Q: Can you discuss your execution capabilities given the recent deal wins and how you plan to manage execution effectively? Also, is there pressure on yields, and how do you plan to address it?
A: Mr. Sreekanth Nadella, Managing Director & CEO, explained that the company is expanding both payroll and technology solutions to manage execution. They are hiring engineering talent across various locations and focusing on technological transformation to handle volume expansion. Regarding yield pressure, he noted that while there is some expectation of discounts from clients, the company has managed growth despite yield compression and maintains a mutual respect with clients to cap current pricing.
Q: What is the opportunity size in the Thailand market, and how do you plan to expand there? Also, can you break down the 11% quarter-over-quarter growth in international business into inflows versus mark-to-market gains?
A: Mr. Sreekanth Nadella highlighted that Thailand presents a significant opportunity as they have won a major client there. The market is about 1/5th the size of India, but KFin Technologies is the only player offering both transfer agency and fund accounting, which can lead to higher yields. The recent growth in international business is primarily due to new client wins rather than mark-to-market gains.
Q: How do you plan to expand value-added services from 7.9% to 15% of revenues, and what are the pricing models for these services?
A: Mr. Sreekanth Nadella stated that the company aims to expand value-added services by offering data engineering, mobility solutions, and analytical services. The pricing models vary, including project-based, subscription-based, and unit pricing. These services are as profitable as the core mutual fund business, leveraging KFin Technologies' expertise in both technology and asset management.
Q: How competitive are international markets, and what is the growth outlook given the current pipeline?
A: Mr. Sreekanth Nadella noted that competition mainly comes from in-house solutions. KFin Technologies offers a fit-for-purpose platform and demonstrates cost savings to clients. The company has seen significant client wins and expects continued growth, with a pipeline expanding as successful deliveries open doors to more clients.
Q: What is driving the increase in domestic yields, and can you provide details on issuer solutions' revenue composition?
A: The increase in domestic yields is driven by a favorable asset mix and growth in medium-sized asset management companies. In issuer solutions, 75% of revenue comes from annuity services based on portfolios, 15% from corporate actions, and 10% from corporate events. The business benefits from expanding portfolios and companies, with contracts typically including price escalation clauses.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
