Motilal Oswal Sets Target Price of Rs 1,400 for KFin Technologies amid strong growth projections

Motilal Oswal Securities Ltd. (MOSL) has initiated coverage on KFin Technologies, setting a target price of Rs 1,400, recognising the company's robust financial growth and significant expansion efforts. KFin, a leader in technology-driven financial services, showcases substantial growth across various business segments, including mutual fund registrar and transfer agent (RTA) services, international issuer solutions, and alternative investment funds (AIF).

KFin's strategic expansion into Southeast Asia has notably increased its client base in Malaysia and Thailand, benefiting from strategic mergers and acquisitions aimed at extending its market reach into new regions such as Europe and the Middle East. This expansion is part of KFin’s broader strategy to transform into a data processing and analytics powerhouse, with an increasing emphasis on value-added services that accounted for 6% of total revenues in FY24.

In the company issuer solutions industry, known for its fragmentation and competitive intensity, KFin has leveraged superior technology and other value-added services to secure a dominant position, capturing about 48.2% market share in the NSE 500 by market capitalisation. From FY20 to FY24, the number of investor folios doubled to 124 million, and the number of corporate clients rose steadily to 6,071. The growth in this segment is propelled by an increase in company listings and folio counts, boosting revenue despite the lack of pricing power compared to the depository business.

The XAlt platform, a fully integrated transfer agency fund administration solution overlaid with digital CRM and analytics, is another strategic innovation by KFin. Designed to be multi-asset, multi-geography, multi-lingual, and multi-currency, XAlt is prepared to cater to global markets beyond India. With a 37.5% market share in the AIF segment registered with SEBI as of September 2024, and significant growth in AAUM which more than tripled to INR 987 billion from FY20 to FY24, KFin is on a strong upward trajectory.

MOSL's financial projections for KFin indicate a promising trajectory with expected compound annual growth rates (CAGR) of 23% in revenue, 29% in EBITDA, and 32% in profit after tax (PAT) from FY24 to FY27, driven by KFin's increasing market share in the mutual fund RTA business and a robust push towards leveraging technological innovations to expand its client base.

Despite potential challenges such as yield compression in mutual fund operations due to regulatory changes and market volatility that could impact the asset under management (AUM) mix and revenue, KFin's operational efficiencies and strategic initiatives position it well to navigate these complexities and capitalize on emerging opportunities. As KFin continues to expand both domestically and internationally, its focus on integrating and optimizing its service offerings remains crucial for sustaining growth and enhancing shareholder value.