Shares of KFin Technologies Ltd hit a new lifetime high of ₹1,620 apiece on Thursday, marking a meteoric rise from its lacklustre debut in December 2022 at ₹364, slightly below its public issue price of ₹366. The stock has more than quadrupled since then, a sharp reversal after languishing below its issue price for nearly six months. What has sparked this dramatic turnaround?
Perhaps, the market’s realization that KFin’s business as a registrar and transfer agent (RTA) offers a proxy play on the mutual fund (MF) industry. With only two dominant players—KFin and Computer Age Management Services Ltd (CAMS)—the sector presents a significant growth opportunity. Notably, KFin’s market capitalization has now surpassed that of CAMS, which services over two-thirds of the total MF industry’s assets under management (AUM). Since KFin’s listing, its shares have surged 300%, compared to CAMS’s relatively modest gains of 100%.
Is this surge justified?
Before taking a view on that, investors should note the fundamental difference in the revenue streams of both companies. KFin’s revenue stream is more diversified than that of CAMS. For FY24 and H1FY25, domestic MF operations accounted for about 70% of KFin’s total revenue, compared to CAMS’s higher dependency at 87% during the same period. Note that, KFin’s diversification stems from its exposure to the international MF business and its strong presence in the domestic corporate registrar segment.
Read this | A lot has to fall in place for IDFC First Bank’s stock to rebound
Though KFin’s non-domestic MF business growth rate is strong at 23% in H1FY25, the current boom in domestic MF overshadows it with 37% growth in its domestic MF business. Nevertheless, if domestic MF goes through a tough time, non-domestic MF’s contribution will become more significant.
KFin is also the leader in the corporate registrar business, now rebranded as issuer solutions, serving 6,677 corporate clients in FY24—a substantial increase from 4,413 in FY21. This segment contributed 13% of the company’s total revenue in FY24. The boom in initial public offerings (IPOs) has further bolstered this business, with new clients such as NTPC Green Energy and Hexaware Technologies added in Q2FY25.
International operations are another growth area for KFin. Operating in markets like Malaysia, Singapore, and Thailand, the company provides fund accounting and solutions for alternative investment funds (AIFs). This segment contributed 10% of revenue in FY24. Note that international business offers higher yields of about 5 basis points on AUM as against 3 basis points in India during H1FY25. KFIN has a strong pipeline of new clients, which should lead to significant expansion of international business in the second half of the fiscal year.
Risks and valuation premium
Despite its strong performance, KFin is not immune to risks shared by the industry. Regulatory tightening by the Securities and Exchange Board of India on the total expense ratio of asset management companies (AMCs) could reduce payouts to RTAs. Other risks include potential slowdowns in MF inflows due to equity market downturns or shifts toward lower-revenue passive funds from active funds.
Read this | CAMS shines on upbeat mutual fund prospects, but risks lurk
While KFin’s diversified revenue streams provide a competitive edge over CAMS, this advantage is already reflected in its valuation premium. KFin’s stock trades at 66x FY26 Bloomberg consensus EPS estimates, significantly higher than CAMS’s 44x. The stock’s recent momentum—rising 50% in the last two months—has even led brokerages like Jefferies India to adjust their targets repeatedly, raising it from ₹930 to ₹1,140 in October and again to ₹1,530 in December.
