KFin Technologies Ltd (KFINTECH) Q2FY27 Concall Transcript - Sep-2026 Qtr
Shaurya: Ladies and gentlemen, good day, and welcome to KFin Technologies Limited Q2 and FY '27 earnings conference call hosted by IIFL Capital Services Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Devesh Agarwal from IIFL Capital Services Limited. Thank you, and over to you, sir.
Devesh Agarwal (IIFL Capital Services Limited): Thank you, Shaurya. Good morning, everyone, and welcome to the Q2 FY '27 earnings call of KFin Technologies Limited. Today, from the company, we have with us Mr. Sreekanth Nadella, MD and CEO; Mr. Vivek Mathur, CFO; and Mr. Ram Gattani, Head of Investor Relations. I will now hand over the call to Sreekanth for his opening remarks, and thereafter, open the floor for Q&A session. Thank you, and over to you, Sreekanth.
Sreekanth Nadella (KFin Technologies Ltd): Thank you, Devesh. Very good morning, and good evening if you are dialling in from outside of India, and a very warm welcome. Well, we bring to you yet another quarter of a certain sense of consistency.
Sreekanth Nadella (KFin Technologies Ltd): As the saying goes, patience, consistency, and hard work, I think that's that's pretty much the, you know, the need of the hour. That's pretty much what sets organizations that have a long-term vision, to stay dogged at it, and to ensure that we deliver to the promises we make. As your organization, you know, continues to make, strident, you know, steps in the forward direction. You know, our market share expansion, our growth in terms of client wins, and steadfast focus on innovation, you know, driven productivity, not arbitrary, not based on the vagaries of the market, but, in a scientific and a clinical fashion of driving technology, driven, productivity is, you know, is pretty much the sum and substance of what we could do in the previous quarter. And we will continue to stay on course in terms of making sure that it's, you know, we deliver quantitative and qualitative results over a period of time. From a glance, you know, overall if you see, you know, where KFin Tech stands today, by and large many of the metrics that we typically speak to you are, you know, in the similar range, in terms of, you know, we are, continue to be the largest registrar and transfer agent in India and amongst the largest in the world in terms of the number of human beings you know we service, whether it's in India abroad, between the capital markets, the securities market and the mutual funds. It's it is it has now crossed over 12 and 1/2 crores in India, and roughly about 75 lakhs outside of India. So, that makes us probably one of the largest, maybe, ex-China. In terms of our growth on the individual business lines, very heartening to see and hear and tell you that nearly every business line we have grown, albeit in an extremely challenging environment in the form of macros. Whether it's our win rates in the form of new client mandates, whether it is mutual funds, whether it is issuer solutions, alternates, internationals, so on and so forth, had had been one of the most striking feature of this quarter. AUM growth and revenue growth, in a environment where the markets have been significantly down, you know, but obviously hints at the direction of, you know, net new wins. And hopefully, in time to come when the markets, you know, do recover, we should have a compounding effect of significantly additional clientele and volumes then with some help of mark-to-markets and things that we may get. In terms of our market share in issuer solutions you know had been one of the you know big turnaround over the last 18 months even excluding Jio platforms IPO you know, which is happening real-time as we speak. And we've completed the entire activity two hours ahead, considering it's the world's largest IPO, one, we are extremely honored and privileged to have been chosen as the RTA and, two, to have delivered significantly beyond, you know, much of the expectations in terms of the timelines. And including the allotment statuses with investors that are checking where the latency time has been less than 40 milliseconds. Now that obviously is going to be for the upcoming quarter, but by and large, they're very happy with the progress made in terms of wins in the case of issuer solutions. Same is the case with our international. We have added 18 new clients, you know, which are in the transition, and they are expected to go live into the coming, you know, quarter two, two, depending upon the transition timelines, which will then go on to add hopefully additional AUM and consequent revenue, no sooner after that. Our acquisition of Hexagram, and its integration is one of the most strategically important initiatives that we've embarked on. Happy to inform you that we continue to grow the business again against extremely challenging macro, especially given 25% of our revenues comes from Middle East for Hexagram. And given the situation there one would have imagined, you know, maybe the growth could have been tepid, but, again thanks to some really wonderful work by the business development teams, in each of the operating geographies, you know, we continue to grow 30% plus on Hexagram. And again with committed focus on cost optimization, the margin profile continues to expand. We hope to hit double digit EBITDA numbers you know, in in the next couple of quarters also. Pensions too you know, entire of last year we grew 3x of the pace of the industry. Industry grew at about 12. KFin grew at 36. This year we've grown faster than that. I think 42% as against similar 12% to 13% growth of the industry.
Sreekanth Nadella (KFin Technologies Ltd): So again, it's a long haul when it comes to pensions. It tends to compound, but not only have we broken even about three quarters back, our, you know, growth continues to be significantly ahead of that of the industry. Now, all of this gives us a fairly well rounded, you know, growth across business lines and, again, a product transformation driven productivity gains and new new feature roll out has been, you know, one of the most important focus areas that we've had. The overall AUM, you know, for KFintech clients, you know, this quarter had grown at 15% whereas industry grew at 13%. So that's very heartening. Now, it is also however true that the share of the passives, you know, for our clients seem to be on the higher side you know, as compared to that of the industry. And, you know, so, again, some of these dispositions tend to change and if it were to come back towards more actively focused, again, that would be something that will add additional revenue bump up into the coming quarters and the years. Overall market share, you know, has grown, you know, in the last two quarters for KFintech in the form of overall moving beyond 33% and equity inching close to 33% as well. Our market share on the SIPs, which I continue to believe is the bellwether in terms of where long term averages could be at, continues to be closer to about 37%, which, you know, means that there is a 400 basis points of, you know, bridge that I expect to happen, you know, or to build over the next three to five years, as the SIP is the sticky retail book and will always tend to gravitate and precipitate towards the overall market share on the SIPs. We have launched a couple of very important platforms in the mutual fund space. Arya.ai is India's and probably world's first you know, generative AI intelligence platform, not just for purchase and redemption and commercial transactions, but also for all non commercial transactions, which means that you can literally speak to your phone and then ask your agent to change your bank account, add a bunch of nominees, buy and sell a bunch of things, all of this through natural language processing and just talking to the to the to the application. And the beta stage has gone live and we are doing a public launch into later part of this month. Now, that marks the first of the consumer facing AI tech roll out by KFintech, even as there are several inward looking, you know, AI transformational, you know, solutions we have implemented, which were principally one of the important reasons for the margin expansion. If you saw the overall margin moving from about 34% to 40% thereabout on EBITDA profile. Part of that is the scale benefits in the form of our international business and part of it is productivity, again, driven through, you know, large scale RPA and AI native solutions. These are in early stage in terms of implementation. There are several more, as I have called out in the previous quarters too. Nearly every business line and the underlying platform in our organization is under a massive rework and rebuild given many of these are, you know, a couple of decades old. So we will be live with the issuer solutions, pensions, and wealth in the next three months. So by January, we should have gone live with many of these, you know, next generation AI native, cloud native, you know, platforms which should help us with significantly faster go to market and productivity as well. For mutual funds, it's a little bit more challenging and much more complex given the size and scale of it. But we have already deployed about 30% to 35% of the total use case and have seen some benefits associated with that. Again, you know, by end of Q4 this fiscal year, we would have rolled out, you know, nearly all of the transformation platforms that we've been working on. Our growth on issuer solutions, I've already called out. You know, we continue to have a significant market share expansion on the IPOs, and especially the large ones. You know, nearly all the largest IPOs have been orchestrated by KFintech in terms of both volumes and value. And there are several more in the pipeline, which, I guess, you know, should the prevailing market conditions improve, should see a tangible progress from there. We have
Sreekanth Nadella (KFin Technologies Ltd): million dollars. US million dollars, that is. Now, that used to be roughly around $20 million about 12 months back. Now, it speaks about, you know, increase in the, you know, a pipeline of several new deals, where the deal size is, you know, substantially larger than a typical GFS deal that we have seen thus far. There are at least six deals which are over $4 to $5 million in the total contract value. Some of them are in advanced stages. Some of them, you know, are progressing in that direction. We have had several successful RFP and client presentations in our operating geographies in the last three to four weeks. Again, you know, they we have been down-selected to the final two in many of those. And in time to come, hopefully, you know, there'll be closure on some of those. One of the earlier project, you know, on the Philippines-based pension, you know, that I've kind of called out, there may be questions around that. So, that deal is still under works. It neither has been awarded nor has it been canceled. It is something that, you know, we are discussing with the local authorities in terms of the next steps, and I'm still, you know, very confident that, you know, we should be able to turn that around in the coming few weeks or so. Overall, you know, in terms of the productivity gains, you know, our total count in terms of the head count has come down to a certain extent, but we have used that opportunity to scale up our faster-growing businesses given the number of net new clients, in addition, had been substantial, whether it is wealth or whether it is alternatives, whether it is pensions, so on and so forth, which are still, you know, sub-scale in order to, you know, from the standpoint of driving significant operating leverage. We have, you know, from a pure transformation and AI-led platform rollout into the coming weeks and month, we should be seeing an immediate rollout of the Arya.ai, you know, 2.0. As I said, that's one of the most important ones, followed by our platform rollout of FINx, which is for mutual funds, and the GFS, that is, the international business re-platforming is something that's under way, as well, something that we believe will add substantial might in terms of our progress towards winning new deals, you know, elsewhere in the world. Our total share of the international business now is 20%, and I think I've called out mutual funds' share of revenue purely from the standpoint of AUM-driven revenue is, you know, just under 52%. I expect this number to get to 50% into the next two to three quarters, which, in some sense, had been our, you know, an internal target to get that far over a 5-year period. But happy to inform you that, you know, we're getting there in under 3 years. We will also be working on, obviously, expanding the total pie so that the concentration risk of any one single client does not go beyond 2.5% to 3%. And that's also something that I believe could be accomplished in the next, you know, probably about six quarters, if not earlier. So, that's probably the update at my end. Into the coming quarter, we foresee some headwinds, obviously, you know, given where the markets have been the past, you know, 10 odd days. But as I said, you know, our growth, we are not necessarily hoping and praying for the markets to turn around, but do everything that we can do to close the contractual conversions real quick, focus on productivity so that our margin commitments, you know, remain sacrosanct. And so far, this quarter gives us a lot of heart that, you know, our strategy had been on the right path. And even as I look at our upcoming forecast for this quarter and the subsequent quarter, despite the headwinds, I'm still confident that we do not have to change any of the estimates at this point in time, unless there is a continual protracted downtown, you know, from here on as well. So, we have enough buffers to to cushion any kind of a blow like this, you know, tactical market correction over the last 10 days. But, of course, anything that persists significantly longer, given we are market capital markets player, will impact. But at this point in time, we continue to stick with our estimates. I will now request Vivek to cover the financials, and then we'll leave the floor open for questions.
Vivek Mathur (KFin Technologies Ltd): 10%. Expenses were pretty much controlled in terms of the cost optimization initiative. Sequentially, the expenses have gone up only by 3% quarter-on-quarter, while the revenue quarter-on-quarter went up by about 13%. And you know, we believe that this will continue to play out in Q3 and Q4 as well. As a result of that, the EBITDA improved by about you know, sequential basis about 18.7% against last year same quarter, 32% growth. Half year ended FY '27, there is a 13.4% growth year-on-year for the half year. EBITDA margins for Q2, excluding Ascent, were 45.8% and including Ascent, were 40%. That's the aim that we are targeting, that we will end the year including Ascent with a consolidated EBITDA margin of 40%. And that's where, you know, it gets demonstrated from Q2 onwards. So, there is a there is integration of Ascent in Q2, but also you know, the margins are maintained at at the guidance level. PAT has touched 100 crores for the quarter, and has gone up by 7.5% year-on-year, 33% as compared to the same quarter last year. For the half year, it's 2 point about 3% growth year-on-year. PAT margins have improved in Q2, including Ascent at 25% and excluding Ascent at little more than 30%. For H1 FY '27, consolidated margins are at 23% including Ascent. We maintain healthy cash and cash equivalent situation of about 550 crores after the dividend was paid out, and the diluted EPS at the end of H1 stands at INR10.12. Happy to take questions now.
Moderator: Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Karthik Chellappa from Indus Capital Advisors Limited. Please go ahead.
Karthik Chellappa (Indus Capital Advisors Limited): Yeah. Hi. Thank you for the opportunity. Good morning team. Am I audible?
Moderator: Yes, you are audible. Please go ahead.
Karthik Chellappa (Indus Capital Advisors Limited): Okay, excellent. Just three quick questions from my side. The first question is we have seen the domestic MF yields, this business stabilize and probably even grow a bit sequentially. How much of this is coming from mix and how much of this is basically any other factor? And can we reasonably conclude that from here on, the yields will more or less stabilize sequentially? That's my first question. The second one is on the issuer solutions. We have seen a very good quarter this quarter, both on margins as well as growth. Given the visibility you have on pipeline, can we extrapolate this resilience to the rest of the year as well? And my third question is in the beginning of the year, our aspiration was to grow our earnings in low double digit and and it's heartening to see that Sreekanth, you actually reiterated that that is pretty much on track. You also mentioned you had some buffers in case if capital markets were to turn for the worse. What would some of those buffers be, if you could give us some additional color? Thank you very much.
72 more turns of this transcript: log in to Stocksigma to read the full call.