KFin Technologies Ltd Q2 FY2025 Concall Summary

Key Takeaways

• 34% YoY revenue growth, broad-based: Domestic MF (+39%), international (+44%), issuer solutions (+25%), and VAS (~46%) all expanded, with VAS now over 6.5% of revenue and targeted at 15%.
• International business inflecting: 10 new clients won in six months, Thailand subsidiary approved, and pipeline swelling; revenue from new deals will clock in over the next 6-9 months.
• AAUM market share has a 500 bps tailwind: Domestic MF AAUM share rose to 32.4% vs SIP share of ~40%; management believes the gap will close over time as the sticky retail book pulls overall share higher.
• Margins held despite investment surge: Tech spend tripled to 27-28% of revenue in three years and IT headcount crossed 1,200, yet EBITDA margins stayed in the 40-45% guided range.
• What to watch next quarter: Revenue conversion from the 6 international client transitions that started in October, the pace of AIF contract conversions to the basis-points model, and any decision on the non-core GBS mortgage business.

International Expansion: The Inflection Story

• Thailand is the beachhead: The first contract (Krungsri, a top-3 bank-based AMC) is for fund accounting plus transfer agency, a combined yield 70-80% higher than TA alone; full go-live is expected in December.
• RBI approved the Thailand subsidiary: In-principle approval received; management will quickly set up a physical office to demonstrate commitment, which it says local asset managers require before signing.
• Hub-and-spoke model working: Wins in one Asian geography open doors in others; KFin is now talking to several of the top 5 AMCs in both Malaysia and the Philippines.
• International pricing is structurally better: No telescopic pricing; most contracts carry price escalation clauses. Management says it learned from mistakes in the Indian market.
• Competition is mostly in-house, not other vendors: The market is heavily skewed toward captive solutions; KFin's pitch is a fit-for-purpose standardized platform that is 30-50% cheaper than in-house when clients properly account for overhead, infrastructure, and data centers.
• Revenue is flow-driven, with MTM tailwinds emerging: International revenue growth in 1H was nearly 100% from new client go-lives, not mark-to-market; but green shoots of MTM gains and net flow increases appeared in Hong Kong, Thailand, and Malaysia from late August.

Sreekanth Nadella: "We do not have telescopic pricing. In fact, we have price escalation. We learned our mistakes from Indian market, and we have only price escalation clauses in most of our international markets."

Domestic Mutual Fund: Share Gains and the Yield Equation

• AAUM share rose to 32.4%, SIP share is ~40%: The SIP book is stickier retail money; management believes overall AAUM share will trend toward the SIP share over time, implying a potential 500 bps upside.
• Core growth is 13-15% sustainable: Of the 39% YoY domestic MF revenue growth, one-third came from net inflows and two-thirds from mark-to-market; the underlying inflow-driven growth rate sits in the mid-teens.
• Yield slightly rose, no compression this quarter: Asset mix helped: equity carries higher bps, and MTM expansion plus NFOs largely brought equity. Most clients are medium-to-large AMCs not at the top tier of AUM where compression typically bites.
• Volume growth stresses costs: Low-ticket SIPs (Rs 100) grow AUM but increase transaction volumes disproportionately because KFin charges on AUM, not per transaction. Management addresses this through technology investment.
• Industry yield context: Management notes the RTA industry operates at a few paise vs other financial infrastructure businesses at several tens of rupees; mutual respect between clients and vendors keeps blended yield capped.

Sreekanth Nadella: "Today, there is no industry in the world which operates with the core operating business being operated at less than about INR3, INR3.5 paise. You compare that to even within India, any KRA or depository participants any other industry which runs into several tens of rupees, the RTA operations run at few paise."

Value-Added Solutions: The Controllable Revenue Engine

• VAS grew ~46% YoY, now over 6.5% of revenue: Management is deliberately building revenue lines not directly linked to equity markets; the target is 15% of total revenue, implying VAS must grow materially faster than the core.
• Data lake contracts signed with clients and non-clients: Solutions are expanding beyond capital markets into broader BFSI, including AML, PML, and unified KYC.
• KRA business approved: The board approved investment into a KYC Registration Agency the previous evening; management is building a materially different KYC solution and sees the investor base quadrupling to 40-50 crore over the next 8-10 years.
• Commercial models vary by product: API infrastructure uses ping-based unit pricing; data engineering is project plus AMC; mobility solutions are SaaS subscriptions. All are highly profitable while reducing client TCO.
• New platforms launched: mPowerWealth (wealth platform, in-principle go-ahead from a prominent wealth manager), KFINSIGHTS for REITs (with intent to expand into InVITs), and the country's first insider trading platform latching onto the depository ecosystem.

Alternatives and Issuer Solutions: Annuity Plus Upside

• Alternative funds AUM rose 55% to ~INR 1.3 trillion: KFin serves 526 funds with nearly 38% market share; 37 new funds signed in Q2 and 50-odd more are in the signature stage.
• Contract model shifting from fixed to basis points: Existing contracts are being converted from a fixed-cost-per-scheme-per-month model to a basis-points model; all new contracts are entirely on basis points. This purposeful orchestration is expanding revenue and yield.
• Issuer solutions grew 25% YoY: 358 corporate clients added in Q2; NSE 500 market share rose from 46.4% to 48.2%. Revenue is 75% annuity from folios, 15% corporate actions, 10% corporate events.
• IPO franchise is dominant: After handling LIC, Bajaj Housing Finance, and Hyundai (largest IPO ever in India), the next bunch of largest IPOs will also be handled by KFin; in the coming week alone, 4 out of 6 IPOs are with KFin including NTPC and Leela Hotels.
• Folio expansion from large mandates: Successful transition of SBI and NHPC mandates added over INR 1.15 crores in folios; ~70% of issuer solutions revenue is folio-based.

Sreekanth Nadella: "We have changed many of our contracts from that model into a basis points model. So what you're seeing actually is an expansion because of actually the nature of existing contract conversion, even as all new contracts are entirely based on the basis points."

Technology and Talent: Building for the Next Wave

• Tech spend tripled to 27-28% of revenue in three years: IT headcount expanded from 750 to 950 at KFinTech, plus Webile (acquired 18 months ago, grown 2.5x and cash-profitable), totaling 1,200+. Further expansion is expected.
• Management's identity thesis: The goal is to be a tech company more than an operations company; the next wave of technology transformation is already underway because the previous transformation is insufficient for coming years.
• Multi-location talent expansion: New centers being set up in Bhubaneswar (data and analytics CoE), Vijayawada (mobility solutions), Chennai, Gujarat, and soon Madhya Pradesh; capacities are being built for the next three to five years.
• XAlt platform going to Asia: The fund administration platform, currently live in India for Indian funds and Gift City, will launch in Thailand and Singapore in coming quarters.

Sreekanth Nadella: "I always felt that this should be a tech company more than an operations company."

GBS: The Non-Core Outlier

• Mortgage BPO is not asset management: The Global Business Solutions segment is a liability and mortgage management BPO, an outlier from the core fund administration business.
• U.S. mortgages under stress, Australia growing: The business fluctuates based on headcount required; sharp decline in U.S. numbers, sharp increase in Australia.
• Management is not committed to staying: GBS generates some cash and provides a USD hedge, but it is not a focus area for growth; the organization will take a cautious and purposeful decision on intent to stay in this non-core business at some point.

Guidance & Commitments

Key Metrics