KFin Technologies IPO opens today: Should you subscribe?

New Delhi: The Rs 1,500-crore initial public offering (IPO) of KFin Technologies kicks off for subscription on Monday. The company is looking to sell its shares in the range of Rs 347-366 apiece.

The issue, which is open till Wednesday, December 21, is entirely an offer for sale (OFS) of up to 4,09,83,607 equity shares by its promoters General Atlantic Singapore Fund in the lot size of 40 equity shares.

Incorporated in 2017, KFin Technologies is a leading technology-driven financial services platform providing comprehensive services and solutions to the capital markets ecosystem.

It provides several investor solutions, including transaction origination and processing for mutual funds and private retirement schemes in Malaysia, the Philippines and Hong Kong.

ICICI Securities, Kotak Mahindra Capital Company, JP Morgan India, IIFL Securities and Jefferies India are the book-running lead managers of the issue, whereas Bigshare Services has been appointed as the registrar to the issue.

KFin Technologies raised Rs 675 crore from anchor investors as the company allocated over 1.84 crore shares to 44 funds at Rs 366 apiece, according to a circular uploaded on BSE.

The company has reserved 75% of shares for qualified institutional buyers (QIBs), whereas 15% of shares will be allocated to non-institutional investors (NIIs). Retail bidders will get the remaining 10% of shares.

Brokerage firms have mixed views on the issue. A few believe the company is a lucrative long-term play given its strong position in the duopoly market, whereas others suggest keeping off the issue, citing rich valuations and complete OFS status.

Here are brokerage recommendations on the IPO:

Anand Rathi Research
Rating: Subscribe
The company has an asset-light business model with a recurring revenue model, high operating leverage, profitability and cash generation. The company is available at 41.3x its FY22 earnings, said Anand Rathi Research in its IPO note.

"The valuation of the IPO appears to be reasonable when we compare with listed peers. The company has significant scope for growth, considering its diverse product profile and addition of new client base and bright prospects ahead," it added with a subscribe rating.

Cholamandalam Securities
Rating: Subscribe for long term
KFin’s financial track record is strong in both revenue and margin terms. The company’s asset-light service-based model is attractive from a profit generation point of view, said Cholamandalam Securities.

"KFin is a proxy play to the mutual fund industry's growth in India. It is priced in line with the leader in the industry CAMS which is at 39-times price to earnings," it added with a subscribe for long-term rating.

Religare Broking
Rating: Avoid
"The company posted losses of Rs 64.5 crore in FY21 due to Covid-led disruption, however, in FY22, profits saw decent growth and improved to Rs 148.6 crore. On the valuation front, we believe it is expensive as compared to near peers," said Religare Broking.

The brokerage has cited a highly regulated environment, full offer for sale, small retail portion and dependence on a few big players as key risks for the issue. It has suggested investors to avoid the issue.

KR Choksey
Rating: Neutral
KFin has significant scope for growth, considering its diverse product profile and extensive client base. It will maintain its operating margins at a sustainable level, resulting in healthy earnings and returns ratios, it said with a 'neutral' tag.

SMC Global
Rating: Neutral
The company's bottomline underwent a roller-coaster ride over the last three fiscals. It has an asset-light business model, with a recurring revenue model, high operating leverage, profitability, and cash generation, said SMC Global.

"However, significant disruptions in its information technology systems or breaches of data security could adversely affect its business and reputation. A long-term investor may opt for the issue," it said with two-star rating out of five.

Sushil Finance
Rating: Subscribe for long term
The IPO is priced at 39x at FY22 earnings, asking a P/E of 36x. There is only one listed peer CAMS who is trading at a P/E of 39x and the industry average P/E is 39x. Fintech IPO's share price is fully priced and investors can subscribe for the long term, it said.

Reliance Securities
Rating: Not Rated
On a positive note, the company is the largest investor solutions provider in India with a diverse products and services base, huge market share and international presence, said Reliance Securities with no rating for the issue.

"However, ongoing investigations against erstwhile promoters are an overhang. At current valuation, the issue appears fully priced, discounting all near-term positives and the risk-reward is not favorable," it added.

Ashika Research
Rating: Neutral
EBITDA margin has remained sturdy above 45% in FY21 and FY22. PAT suffered in FY21 due to higher taxes but profitability is back on track in FY22 and further in H1FY23 with a PAT margin of 23% and 24%, respectively, Ashika said.

It aims to improve EBITDA margins with cost management and higher contribution of value-added services. In terms of valuations, there isn’t much on the table for listing gains and the issue is fully priced, added the brokerage with a 'neutral' tag.

Ventura Securities
Rating: Subscribe
In the OFS, the promoter is selling 40,983,606 shares, which will reduce its shareholding to 49.9%. At the IPO price of Rs 366, it is trading at a P/E of 36.9X, which is significantly lower than its peers, said Ventura.

"Considering the long-term growth opportunity in the Indian capital markets and the strong fundamentals of KFin Technologies, we recommend a subscribe rating," it added.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)