Buy KFin Technologies; target of Rs 1100: Emkay Global Financial

What happened

Emkay Global Financial said KFin Technologies' second-quarter revenue was Rs4.02bn, up 13% quarter on quarter, and beat estimates by about 2%, helped by strong Issuer Solutions growth. EBITDA was Rs1.6bn with a 40.1% margin, and profit after tax was Rs1bn.

Confirmed

Global impact / market context

Stronger revenue and a 40.1% EBITDA margin, which means profit before interest, tax, depreciation and amortisation as a share of revenue, show the company is converting sales into profit efficiently. That supports management's guidance and underpins the broker's Rs1,100 target, which assumes about 40 times forecast earnings.

Analyst inference

Management kept its 18-20% revenue growth and about 40% EBITDA margin guidance despite a challenging economy, and expects international clients to start contributing in coming quarters. It also wants fund-administration revenue tied to assets under management, which means the value of funds it administers, to fall to about 50% as the international business grows.

Analyst inference

What to watch

1. Management targets the mutual fund assets under management-based revenue to contribute about 50%, down from about 52% now, over the next few quarters as the international business scales up. Confirmed
2. Management targets Ascent's EBITDA margin, meaning profit before interest, tax, depreciation and amortisation as a share of revenue, to increase to about 20% in FY28E, and maintained 18-20% revenue growth guidance. Confirmed
3. Watch whether the healthy $47mn international pipeline converts into clients going live in coming quarters; delays would slow the shift away from asset-based revenue and could weaken the growth assumptions behind the Rs1,100 target. Analyst inference

Evidence

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