KFin Technologies (NSE:KFINTECH) Q1 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to KFINTECHE Q1 FY 'twenty seven Earnings Conference Call hosted by IIFL Capital Services Limited. As a reminder, all participant lines will be in a listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Devesh Agarwal. Thank you, and over to you, sir. Thank you, Avira. Good morning everyone and welcome to the Q1 FY twenty twenty seven earnings call of KFINTECHOLOGIES Limited. Today from the company, we have with us Mr. Frikan Nadella, MD and CEO Mr. Vivek Mathur, CFO and Ram Gadani, Head of Investor Relations.

0:46 I would now hand over call to Srikanth for his opening remarks and thereafter we'll open the floor for Q and A. Thank you and over to you Srikanth. Thank you, Devesh. Very good morning to one and all, and thank you so much for taking time out this morning for our conference. As we have published the results the Friday of the previous week, our narrative continues to be... To double down on our strategy, which has been working exceedingly well, broadly to continue to grow the addressable market for the organization. And while doing it, diversify the risk that a singular asset class or a singular geography or a singular business process affords us. As you could clearly see over the past five years, our revenue has increased manifold even as the geographical diversification, asset class diversification and the business process diversification has started to give the necessary yields and the resilience that is required in times like this with the markets not necessarily providing us the right kind of lift that is required.

1:49 In a quarter and a year that had gone by where the mark to market gains have been negligible or negative, our performance excludes confidence for us in terms of the future that lies ahead of us as the markets will improve. As an organization, from a similar glance standpoint, we continue to be the single largest registered and transfer agents in India in terms of the number of portfolios that we manage. Nearly every individual in India who has invested in our financial asset class has some connection with KFINTECHOLOGIES, whether you are in the direct securities market in the form of IPOs, whether you are in the secondary markets within mutual funds, alternate investment funds, pensions, private retirement schemes, so on and so forth. However, being recorded across all these asset classes and geographies as testimonial in terms of the execution of the strategy that we have set for ourselves.

2:35 As you could see from the mutual fund standpoint, the quarter that had gone by, we have our funds in fact have performed better than the industry average in terms of the overall AUM and even on the equity side of it. Similarly is the case with the issuer solutions where nearly 80% by market cap of all the IPOs that have happened in the quarter that had gone by have all been orchestrated by Kfin Technologies. Similarly, in terms of International Fund Solutions, both the revenue and the fund addition is superlative with the overall revenue growing at over 30 year on year on international. Essentar acquisition that happened in the October of the previous year continues its stellar performance in terms of both new client addition as well as expansion of the AUM of the existing clients, notwithstanding the fact that the digital currencies have tapered down in terms of overall mark to market in spite and despite of the overall AUM and hence the revenue corresponding to that has grown. And that is largely on account of expansion of the net new asset management companies and more importantly, the wins of large fund managers. In fact, the organization had won six new fund managers with a fund value of over $100,000,000 so to speak.

3:48 In terms of pensions, as we have been over the past four years, we continue our outperformance vis a vis the industry. Even as industry has grown at certain percentage, we've grown nearly 3.5x of that particular growth, making us the second largest CRA in the country and in fact, thus allowing us newer business lines as we have orchestrated across the globe in terms of getting into the pension fund administration beyond just in India. The quarter had that had gone by also on a qualitative aspect has significantly enhanced our ESG score to 63, which was 54 the preceding year, which means our performance is not just purely on the financial, but also is summarily in terms of the overall overarching and the holistic, you know, work it takes, whether it's in terms of environment, social and the governance aspects of it, not to mention all aspects pertaining to the technology and cybersecurity where we have been rated amongst the highest around eight ten on the midsize score. We continue our focus in terms of new product innovation and deployment.

4:47 Nearly every quarter, we try to develop and make innovative solutions, which not just in India, in fact, many parts of the world have not seen. I will call out one such thing in the mutual fund industry, which we have just launched. But before that, as you have already seen the headlines, our total revenue has grown over 3% year on year consolidating Essent. Excluding Essent, also, we have grown nearly 10% thereabouts. EBITDA grew about 7% plus. And in past, there was a marginal decline to flattish performance, largely on account of the depreciation, amortization and several noncash items, which we have already explained in the past. What is also happening is to see the overall share of the nondomestic mutual fund business now stands over 40%, close to 40%, in fact.

5:33 I think four years back when the strategy was unveiled, there was fair amount of skepticism in terms of it's possible to orchestrate certain such large businesses. But lo and behold, in a matter of four years, a near 40% of the revenue comes from businesses which are beyond. Now these are young, fast growing businesses. At an individual contract level, they are profitable, margin accretive. But obviously, with a fast growing business, it always comes the addition in terms of transition related costs, where the costs are incurred at this point in time where the revenue will come in the future. And same is the case with the SG and A as well as the commission structures that are required to grow faster geographies and the addressable markets where it is much larger. So clearly, even at a contract level, if the margins are much higher, you will not necessarily see it in the consolidated business level simply because of the transition costs associated with But the diversification story continues. We do believe that the fast outperformance of each of these businesses would mean the dependency on a similar business will come down to below 50% into the coming three years and if not sooner.

6:39 In terms of international business, obviously, with the S and S expansion, we have grown nearly 200% year on year. Even if you exclude S and K, just the KFINTECH, organic business has grown over 32%. This ties back to our, if not formal guidance, our confidence to continue to grow these businesses over 30% clip. This also is notwithstanding the fact that mark to market gains, much of Asia, at least we operate in the geographies we operate in, which unfortunately is not Korea. Mark to market gains have been tepid, which effectively means that the growth has been largely on account of several new client wins, which shows, if not anything else, the genuine value that we are able to add to the larger fund administration ecosystem.

7:24 And our right to win has been consolidating both in terms of the cost optimization we are able to offer and render to the various asset managers, but also the value that we are able to bring both in terms of approval engineering capabilities and technological advances, which we are impacting currently in India, but we are also able to take it to the rest of the world. And honestly, the cross pollination works the other way around as well. There are several fund structures that get created as well beyond India, which have a lot of relevance in India, and we are able to bring some of those solutions here, especially in Gift City. Issuer Solutions, we have added six seventy odd clients into the previous quarter. Clearly, the our intent of winning knee IPOs beyond the mainboard IPOs is a slight detour in terms of our strategy into the previous year, where we wanted to drive for larger market share. Many of the SMEs today can become medium to large cap companies at some point in life. So that strategy is working well in terms of adding several new logos as well as unlisted companies.

8:20 It is also heartening, as I've already called out, in terms of the number of IPOs that have happened in the quarter gone by and million IPOs that is to happen in the coming quarters, most of them are current KFINTECH clients who would be going live. Our market share on the NSE Finite company stands at 50%. There is a slight reduction in terms of the market cap production for some of the clients that we currently manage. But of course, as the markets improve and change, the number would go back to the numbers that we were seeing in the previous quarters, which were around 52%. We have also won the IPO mandates of Razorpay, Garuda and then Push Brand, and there are several others as well. Of course, we are awaiting the large IPOs pending for Jira, etcetera, into the coming quarters as well. The mainboard IPOs managed by us in Q1 in terms of market share by market cap on issue size is roughly about 80%.

9:08 Moving on to the other businesses on the alternatives. Again, this is a line of business which we were very focused upon into the past four years, having created India's first fit for purpose alternative investment platform called Exalt. Our total consolidated count of the funds today is roughly around seven thirty one, and it occupies a share of about 37.3%. The wins that we have, which are yet to launch, if we add that, we believe that market share will be closing around 40%. We continue to win from all the existing clients in addition to transitions as well as winning of several mandates in the Give City continues to be our footing. If you also recollect into the previous year, we have foray into the wealth management business on a very high conviction basis. We created arguably one of the best platforms we have in India today called Empower Wealth for the wealth management industry.

10:02 Very happy to inform you that we have won three mandates on this particular line of business, which are currently in the process of transition and deployment. In time to come, revenues will be recognized. And we should also be closing in one of the bank based wealth management platform, which opens the doors for much larger wealth management outfits, not just in India but across the globe. I've already called out on the National Pension System. In the previous quarter, we have broken even. We continue to consolidate in terms of driving the margins in this line of business. It is no longer loss making but adds to about roughly 15% plus in terms of the EBITDA. And in times to come, it should get to be one of the highest margin generating business, largely in the context that it is platform based business that we have today without necessarily needing the headcount that our typical operations processes and mutual funds and other businesses occupy.

10:50 Scale is critical. The current growth vector gives us confidence that into the coming years as the consolidation in terms of the plans continue. Today, we managed a little over 2,500,000 pensioners in our country. And as I've already called out, we are taking the sign of business elsewhere in the world, having won the PPI contract in Philippines in the previous year and also now reaching for large RFPs for pensions across the globe and not just within India. I'll just quickly spend a little bit of time in terms of the overall, you know, individual asset class performance in the previous quarter at an overall international level and a color in terms of how we have performed. Mutual funds continues to grow on a year on year basis, even though there was a slight moderation of growth into the previous quarter in terms of the NFOs and obviously the mark to market gains have been precious as well.

11:47 But the net flows in spite and despite of it are robust and something that gives us the confidence that as the market turns around, we should get back to very fast growth at the industry level well past 20%, which is what we have seen post COVID. For the Q1, the industry had grown a little around 15% on the overall AUM even as KFINTECH has grown a little over 16%, so it's 100 basis points faster growth at the overall AUM level. Albeit on the equity AUM side, though there has been a reduction year on year, but for the quarter that had gone by our market share for the equity AUM we better by nearly 80 basis points compared to the overall industry, so to speak. In terms of the other asset classes, continued interest in terms of higher ticket asset classes such as BMS alternatives is very, very welcoming.

12:38 It is an area where we have consolidated significant position in terms of our capabilities. The recent circular that had come in the previous week, which many of you might have seen in terms of MF only BMS, I expect it to be a harbinger for a significant amount of flows into the industry, very early days yet. But after SIR, this is yet another asset class that will drive both the financialization as well as movement of money into the structure, which is very, very lucrative for the investments to be done properly. The number of DMAD accounts continued as well, albeit I have to admit in terms of a deceleration of the net new folios into the industry despite IPOs being there. That has marginally impacted the issuer solutions top line.

13:24 We also know that Q1 is not a quarter where lot of corporate actions happen. And in fact, I would even like to slightly tippet corporate action movement into at least the next quarter. As you may have seen that several top tier IT services companies have decided not to declare dividends. And that might change, obviously, within a quarter as well. But at this point in time, the visibility we have is that the corporate actions could be a little tepid into the Q1 into the Q2 based on the financial performance and the overall growth that many of the top tier IT services companies see. But that notwithstanding, many of the manufacturing, auto, others are back in the pink of health, and we expect corporate actions to be strong on all other businesses outside of IT services. I will now spend a little bit of time on and throw color on the international business, one that's probably of more interest to a lot of you.

14:20 The Ethent integration continues to be an ongoing activity. We have now thoroughly integrated at a function to function level, which is very, very critical in terms of improving the margins on a short, medium, long term basis. What I mean by that is much of the finance functions, business development functions, etcetera, are orchestrated with the joint clearance amongst both the entities, thereby driving the upsell cross sell opportunities. To exemplify what I mean by that is, for example, as we gain strength to strength on, say, pensions as a line of business, the freedoms that our subsidiary has across 18 countries is proving to be invaluable in terms of, one, securing RFPs two, positioning ourselves and gaining the right kind of support needed to be able to submit and win the opportunities.

15:13 And likewise, many of our public market funds who are present for us in Malaysia, Philippines, etcetera, also have private mandates, which we are able to expose to our subsidiary who are then able to go and win. Similarly, many of our value added solutions and services, including the wealth management platform, is a very important is a very important solution in the of offerings that Essent has in their geographies. Many of them are in discussions. Some of them are in advanced negotiation stage. Hopefully, in quick time, we'll be able to call out some of the wins that we are going to see in each of these. As I called out, what is probably the most heartwarming performance is the win of six mandates of fund managers who are above $100,000,000 As I've called out, our strategy had been largely to scoop up many of the small boutique fund managers, but it is exceptionally important for our subsidiary to start looking at larger fund managers as that provides the scale that is required and the efficiencies that drive the margin as against multiple fund managers contributing to $100,000,000 One client giving $100,000,000 kind of a fund obviously gives you a much higher margin profile.

16:25 So that is something that's going to start showing up into the margins in the coming quarters. In terms of the margin of the entity itself, it had already turned the corner into the previous quarter as you heard from the Q4 of the previous year. This year too, it continues to be around 8.4% in terms of the EBITDA margin. And we believe that in quarters to come, we would expand that. We do believe that into the Q2 notwithstanding, we should hope we are hoping to hit we are working towards hoping to hit double digit margin expansion by end of year. And subsequently, depending upon the pipeline that we have, continue to add at least 500 basis points every single year from thereon and continue to get to the path of the profitability that KFINTECH currently enjoys at this moment in time.

17:15 In terms of the total funds themselves, they are distributed across the geographies. You have the presentation with you. We have shared it is a well spread out geographical expansion, which gives us a hedge both at a currency level as well as at a market corrections level. Onethree of the funds from missiles between Singapore and Hong Kong, onethree across Middle East and parts of Cayman Islands and U. S. And U. K. U. S. Proven to be a geography which had given a significant attraction into the previous two quarters. Many of the new deals we have won are in The U. S. As one would obviously fully know, U. S. Alone is a $70,000,000,000,000 alternatives and public market funds. Even if you split it half, alternatives are roughly around 35,000,000,000,040 trillion dollars We haven't even scratched the surface. As we grow strength to strength in terms of increasing the wins at higher size and higher ticket size, so will the reputation and the opportunity for us to follow in bigger RFPs will come through.

18:19 As is the case with the diversification geographically, it is the same in terms of the type of the funds as well. You know, it is a near 30 equivalent splits between hedge funds, private equity, venture and, you know, the digital asset funds. I've called out already that the digital asset funds obviously has a direct bearing in terms of what happens in the crypto market. And as we all know, the crypto markets have taken a beating into the previous quarter and into this quarter as well. In spite and despite of it, this is a growth. As many of these asset classes tend to be cyclical and fluctuating, it is quite possible that digital assets also come back to think of health into the coming quarters, at which point in time it will be a force multiplier, which means in addition to the wins that we've had and the expansion of the asset classes at the hedge fund level, if the digital currency funds also grow by mark to market growth in terms of the cryptocurrency values, it will add a significant expansion to the overall revenue profile itself.

19:13 The organization has we are to start our facility in Cayman Islands in terms of substance requirement that has come through as a part of the regulatory requirement, which means that we are going to have pitons within Cayman Islands as well. While that is obviously a near term cost that we have already baked in terms of the formal setup, it is also true that it will help us to win a greater degree of funds having a presence physically in a geography which has global funds translating from there. I'll spend a little bit of time on the wealth management. I've already called out three distinct wins in the wealth management side. But on the overall AIF itself, we have 115 new funds into the previous quarter.

20:01 These are the newer funds. But of course, the existing funds, capital commitments and the drawdowns that continue to add to the AUM as well as the mark to market gains will continue to add to the revenue. This business over the past four years has compounded over 60%, and we believe that we have enough to continue to grow, if not at 60%, at least 40% for the foreseeable future and hopefully more than that. We have one on the technology side, as I said, big our big focus had been to differentiate ourselves through our technology capabilities in a market where volumes are going to expand manifold and best focus is the need of the hour. Our solutions that we have created, especially on the big data solution side, has yielded us opportunity to bid and win a reasonably large investment management from a domestic based entities, big data solutioning mandate, which is over INR25 crore turnover order revenue to be booked into the next eighteen months as the delivery will start. Likewise, there are several such smaller INR 3 to 4 to 5 crore kind of deals that we have signed into the quarter that had gone by.

21:14 The previous year, given the uncertainty with the war that has started in the month of February, meant that many corporate has deferred their tech spend plans, and that's one of the reasons why the Q4 of the previous year, we did not see a spike in some of these tech revenues. What we have, however, seen is conversion of some of those deals into this quarter in terms of signing the contracts, revenue of those which will come into the coming quarters as the delivery will start. And that still leaves a fair number of tech opportunities which have been negotiated, waiting the client signatures. And accepting the macro scenarios, we should be in a position to close out those deals and getting into the delivery mode rather quickly. And these are all the controllable revenue streams that we are orchestrating.

22:02 We have called out our strategies also not just to diversify away from a similar asset class, but also to drive as much revenue as possible, which is controllable, right? For example, all the tech contracts that we signed have no bearing on what happens in the market. Some of the businesses in terms of wealth, etcetera, also do not have a bearing with the market. So it is with that intent to reduce the unpredictability of our financial results, both for ourselves as well as you as a community and for our shareholders to drive that amount of predictability. We wanted to get to at least 20% plus of the total revenue to come from controllable items. VaaS today stands at roughly 6% of the total book. And if you add the other non market related businesses that lag to another 5% to 6% broadly, So we have another 8% to fill, which is something we are working very hard in terms of creating additional tech solutions that many corporate clients, whether it is in asset management space, wealth management space, direct corporate space, other NBFCs, including data lake solutions for banking insurance, etcetera, are in works as well.

23:13 Empower, which is effectively our auto management system, middle office back office solution for fund accounting and administration has been continuing to add significant gravitas across the globe. Now being there in terms of 26 clients in India, eight asset management companies, mutual funds use our particular platform, eight pension fund managers use, which is nearly 60% of the total pension funds that exist in our country as well as on the insurance side as well. We have a good pipeline in Malaysia, Philippines, Thailand for Empower installations into the coming months, even as our team extensively spending time to conversion of the deals by physically present by being physically present there. Pensions have already called out, nothing more to add except that we've been in the front and center of the technological changes that are happening, whether it is the first one to have launched the platform for big economy workers by onboarding Zomato, if you would recollect into the previous quarter.

24:12 Similarly, with the health tie up that we've had in terms of SWAT as well as many different initiatives that the PFRDA has launched, we have always been the first and foremost in terms of creating the tech solutions that would take forward India to be a pensionable society. This business has moved from INR 3 crores turnover to nearly about INR 17 crores in a matter of three point five years. We believe that as the scale consolidates, the revenue augmentation will be faster than what we have seen thus far, further more adding to the margin profile. So that's broadly the call out. Q1 in terms of meet our expectations in terms of top line despite a fairly benign market condition.

24:57 In terms of the margins, we have taken certain initiatives into the Q4, very little of that has gone into the Q1. Having said that, we have several strategic initiatives in terms of cost optimizations, which we have initiated. Given there is a quarter delay in terms of fruition of those initiatives to show into the P and L, we expect Q2 onwards, there should be sizable expansion on the markets. That's broadly the overall state of affairs at the KFINTECH level, and I would urge Vivek to take you through broadly on the financial performance, and then we'll throw the floor open for questions. Thank you, Shrikanth. On the overall financial performance, as Shrikanth mentioned, revenue from operations has grown 30% year on year and sequentially it has grown at 9.6% year on year for the same quarter last year versus this year. Sequentially over last quarter, it has grown marginally about 1.6% excluding Ascent and including Ascent about 2.7%.

26:02 So if you look at the contribution of mutual fund revenue, it is fee based revenue is just 55% of the total revenue, which used to be about almost 66 in Q1 of FY 'twenty six. So there is a shift in terms of dependency on market driven business to a large extent, which is fueled by the Ascend integration. VAS revenue has not grown as much as the mutual fund AUM growth and resultant fee has been because of lack of decision making at the client's end in terms of geopolitical situation. Many of the clients also park their funds in liquid funds as compared to equity, which also resulted in a mix change.

26:48 And therefore, the mark to market driven growth and net inflows growth was not as robust as you would have seen in the past. If you look at contribution of non MF revenue, it has gone up to 38%, which was 24.5% in Q1 of FY 'twenty six. There is growth across various segment of businesses. While sequentially, you would have seen that Q4 is a little better as compared to Q1. So Q1 growth as seasonality for our kind of business because of lack of corporate actions in issuer solutions usually is tepid. But we have a robust pipeline of IPOs, as Sirikanth mentioned, and up in terms of mainboard IPOs.

27:37 If you look at EBITDA margins, EBITDA has gone up overall at 7.1% year on year and 5.1% quarter on quarter. And this is something which we continue to work upon where the margins have come down because of asset integration. But without Essent integration, they are good at 39.4%. While with Essent, it is 34.2%. Essent is a relatively new business where they have invested in resources and infrastructure, which are getting we are setting it out where the growth in revenue and therefore the resultant margins will flow through in times to come. We have just completed nine months of integration with Essent. And as we mentioned, it will take us a couple of years to really go beyond double digit margins.

28:28 So you will see it becoming EBITDA accretive by the end of this year or early next year. But coming to EBITDA margin of KFINTECH level, it will take about three to five years. On the PAT margins, the overall growth year on year is 2.6% and quarter on quarter 7.3%. PAT margins are 21% including Ascend and 26.6% excluding Ascend. So there is no fundamental change in the guidance, both on the revenue as well as EBITDA and PAT margins. So we continue to maintain that we have a robust pipeline of sales where revenue will continue to be in the range of 18% to 20% CAGR. EBITDA margins will be in the range of 40% to 45%.

29:20 We will maintain 40% threshold, including S and N by the end of this year. And there is a lot of action in terms of cost optimization that has been taken, which will be visible from Q2 onwards. We have a healthy cash and cash equivalents of INR687 crores at the end of June. About INR 200 odd crores will get utilized towards payment of dividend, which has been declared by the Board. And we still remain cash accretive business, where about 51% of the EBITDA gets converted into free cash flows. So that's pretty much about the financial performance. Happy to take questions now. Thank you. We will now begin the question and answer session.

30:10 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'll wait for a moment while the question preassembles. The first question is from the line of Kartik from Indus Capital. Please go ahead. Hi. Good morning, team. Thank you for the opportunity. Am I audible? Yes, Kartik, you are. Very good morning. Okay. Excellent. Two questions from my side. The first one is if we look this quarter in the domestic mutual fund business, despite a single digit revenue growth and some element of yield compression year on year, we have by and large held on to our EBIT margins from the segment results.

31:00 So what would be some of the cost takeouts or cost savings that we managed to accomplish in this segment, which has actually helped us get a better margin outcome? And secondly, if yields were to stabilize at these levels sequentially, is there a case that margins in this segment have more or less bottomed out and there is a case for them to expand? That's my first question. Thank you, Kartik. Right. So in terms of the non MF, I think the first question is in terms of the margin expansion because of certain cost optimization initiatives beyond mutual funds. As we've always maintained, technology the only scientific way we look to optimize our costs.

31:50 We have never done irrational cost optimization, doing knee jerk reactions, you know, based on the margin expansion or, you know, contraction for multiple reasons. Our transformational initiatives, you know, whether it is EXALT implementation for alternatives, whether it is, upgrading our PRIMA platform for National Pension System, etcetera, these were have scientifically proven to be the reasons for optimization at payroll level. We have given full scale increments to our entire staff into this fiscal year. We have not done any ad hoc interventions in terms of moving the cycles or anything like that. So it is a very scientific basis on which we have optimized the cost, whether it is on payroll, on the non payroll items, including movement in terms of away from the enterprise check into open source architectures.

32:47 It's very important if you recollect, and I've always called out there are three important ways to optimize our costs. You know, one is obviously automation straight through transformation driven payroll cost optimization. Two, as the systems and platforms get better, you know, with the latest and greatest technology, What it will also do is optimization of nondiscretionary IT personnel spend, which is something that we have also seen. Third thing it also does is effectively the non payroll cost for IT, which is in the form of licensing, etcetera, which is where you end up paying top dollar to many enterprise tech, whether it's on the data side or on the application or on the license on the software side of it. So we have seen optimization across all of those three, but the bigger items are yet to come, Right? In fact, if I call out to your attention, just ten days back, we have launched India's first, and I would argue, probably the world's first, you know, SiP to be done, you know, within three working days, end to end. 99.7% of the transactions today we're able to process within three working days, which until recent past is a three week affair.

33:53 It used to take twenty one days in the industry. And we intend to bring it down to a singular day as well even though we have dependencies on external parties such as banks, for example, for mandate registration in the case of an SID. Right? So it is largely through very scientific advancements in terms of our platforms, which has yielded a certain amount of margin improvements in non M and A business, but that is still just a tiny sliver in terms of the overall optimization that is yet to happen, which, as Vivek has followed, we'll start to see into the coming quarters. Now the yield stabilization, of course, as we call it out always, there is a misunderstanding in the industry that yield contracts or expands or contracts mostly only for discounts. That's not true. Yield is a factor of three distinct factors.

34:39 One, of course, is definitely the pricing and hence the discount plays a role. Second is the asset mix. We have seen in Q4 because of silver and gold ETF expansion, it has contracted. In fact, if you see in Q1, whilst the metals have the sheen has gone away from the metals, but because of the geopolitics, a lot of money moved into liquid funds and not so much into the equity funds, especially on the large ticket sized institutional money. Now that also has obviously impacted a certain amount of the Third is which AMC growth is also just as important, right, given the telescope repricing is how it is priced into this industry. So all these three factors tend to have an impact. I would probably argue that depending upon where the impact is higher, the contraction, and in fact, even expansion also is possible in some quarters as we have seen in the past. But that said, I do believe that the aspect around the pricing driven stability is there and will be there from here on. That is something that we're very confident.

35:38 The other two aspects in terms of which asset class grows and which asset manager grows is something that is obviously not in our hands. In this quarter, if you have seen, it is KFINTECH clients who have grown much faster than the overall industry. And that's the reason why even though the overall industry grew at 2.8% quarter on quarter, we grew 3.6%. That's a good 80 basis points over and above the industry. Now that wasn't the case in the Q4 or in the Q3, so to speak. So yield stabilization pertaining to the price, I do believe we will achieve rather soon. The other aspects, which are not in our control, will continue to play some amount of growth, sometimes through the positive side, sometimes through the negative side. And hence, the overall margin expansion will be possible in mutual funds. Again, that is also one which is on the aspect of what happens with our clients. What is controllable with us, obviously, is, again, the transformation of the overall platform. The SiP automation that I spoke about is the first big AI native launch that happened under KFINTECH as a transformation which we have called out that we are doing in mutual funds.

36:39 The next big launch in the case of mutual funds transformation as a part of KFINTECH will happen by end of this calendar, where we would have substantively automated at least three large processes starting with noncommercial transactions, then moving into the purchase of a transaction, basically. Now these two will yield not just in terms of a significantly improved way of transacting in this industry, first of its kind in the world, as well as give us an opportunity to optimize cost, thereby improve the margins. I'm sorry, gave you a wrong answer, but I just wanted to make sure that I call out that the margin expansion is a factor of multiple things, and the price stability driven yield is just one aspect of Got it. Thank you for the detailed response, Shrikanth. So my second question is, if you were to look at our consolidated financials excluding Essent and including, the gap in the profit on an after tax basis is about 47,000,000 So I'm just trying to see how much of this loss narrowing is going to come from cost takeouts versus, let's say, revenue growth? And with reference to the cost takeouts, over what period of time can we actually accomplish this?

37:55 Kadik, I missed the first bit. You're talking about at EBITDA level or at a PAT level? No. At a PAT level, if I compare $799,000,000 with about $752,000,000, the gap is about 47,000,000. So as this loss narrows, I'm just trying to see how much of it is going to come from cost takeouts or cost savings, and how much of it is just going to come from the business growing at a much faster pace? I would say it's both, obviously. I mean, I I can't necessarily attribute... Here's the deal. I mean, Ascent is currently at about seven to 8% EBITDA levels. Right? So, clearly, you know, a faster top line growth, at a volume and a value level will mean in absolute numbers. It will definitely take away the pain that is there under the EBITDA level into the bag, which is largely some noncash items in terms of amortization of goodwill pertaining to the contracts and the payments that we have made and some amount of capitalization on account of a large platform built called One Constellation.

38:56 So obviously, the top line faster expansion, even at an 8%, would mean that some of this will get negated. Cost optimization is very, very critical. And our cost optimization is what we are focusing more in KFINTECH, if I may. And at at that level, our focus continues to be to drive market share expansion and not and and and not necessarily to curtail, you know, the growth by putting constraints on the cost at this point in time. So we will do the heavy lifting from the whole core standpoint in terms of cost optimization because many of our initiatives have already been underplay, and that is where much of the cost will be taken out. For Ascend, the focus will continue to be to drive market share when the market exists and when our brand value is taking off quite well. This is the time that we capitalize in terms of winning several new mandates because as we all know, as you win these mandates, you tend to stay with you for life. So it is a combination of both, maybe a little bit more percentage weighted towards top line growth. On the cost optimization, it will be more lifted by KFINTECH.

39:57 Excellent. And if I heard the opening remarks correctly, we are looking to go to double digit margins for Accent in about two to three years. Right? Did I hear that part correctly? Yes. Okay. Excellent. That's it from my side. Thank you very much, and wish you all the very best for the rest of the year. Thank you, Bhakti. Thank you. The next question is from the line of Swarnum Mukherjee from three sixty one Capital. Please go ahead. Hi, sir. Thank you for the opportunity. Two, three questions. First of all, in terms of the yield, I mean, just wanted to understand, you highlighted that this is basically an outcome of the mix moving towards liquid. Is my understanding correct? Or would there be any other factor also? Because when I look at your disclosure, it shows that the equity AUM mix has been relatively stable quarter on quarter.

40:54 So if you can throw some more color on that, that how much of this could be due to telescopic pricing, any renegotiations and mix change, that will be very helpful. We could break it down and that will give us a sense that how should we think of it spanning out over the the remaining three quarters of the year. Because I think sequentially, around 2% odd drop has happened already. So that's the first question. Second is if I were to look at the international business, I just wanted to understand that ex of Ascent, there seems to be a sequential drop in revenue. So was 4Q something of a higher base or some one off was there? Or I mean, I think this is relatively a steady state number we can think of.

41:43 And related to KFINTECH, what do you have mentioned in terms of the cost cost structure and focus on the market share growth? Just wanted to understand that this cost that has cost structure, how it is evolving when you had done the acquisition? What you had in mind, is this cost structure evolving in same lines? Or is this beyond your anticipation? If you could throw some color on that. Yeah. And then just one indication I wanted from you that you have mentioned a lot of deal wins in in your press release. So over, say, a next one year, how much augmentation in revenue should we expect from this deal wins? Basically, we are relatively bolt on in nature. Yeah. Thanks. That's my... That's my main.

42:32 Certainly. I... So your first observation on the yield is absolutely spot on. You're right. The equity share in the overall mix has not materially changed. What has, however, changed is a material movement from debt to liquid. Now please bear in mind that debt as a class gives nearly two to two and a half times the yield that a typical liquid fund gives gives us. So while there hasn't been equity movement into liquid or passive, there has been a substantive movement from debt into liquid, and that has given certain amount of correction. Also bear in mind that we have called out that one large contract is due for renewal this year. So we have made provisions for that even though we have not yet completed the negotiations. So that is the reason why there is a 2% yield correction that happened in the Q1, okay, so even though the asset or even though the equity asset class remains stable.

43:23 In terms of the overall, you know, cost structures pertaining to asset, it is absolutely in line with our plan. Okay? In fact, it is better than our plan because when we enter into this, you know, financials, our intent was... In fact, our plan was that the subsidiary would breakeven sometime later part of this year. Right now, having... We are working... You know, we've been working with them even for the contract work side in terms of various optimization structures. That permitted Essent to actually breakeven in the previous quarter, you know, at about 8% EBITDA margin. And this quarter, also, they continue to be around, you know, similar EBITDA margin. So so to that extent, it is better than anticipated performance in terms of the cost management aspects of it. And if I were to call out what are those, I have already spoken in terms of rationalization of support function structures, whether it is finance, whether it is HR, whether it is business development, etcetera, where we are lending the support and so that additional costs are not to be incurred. That typically happens when you have subsidiaries where you collapse the silo based of functioning at a support structures. We have looked at several nonpayroll items, especially on the technology side. For example, the cost that... Or the license rates that a smaller entity would have vis a vis on the data partnerships with, say, someone like AWS or on software licensing, say, from Oracle or Microsoft standpoint, obviously, is... You know, won't be as lucrative as it would be, you know, to work with a larger entity like KFINTECH. Now we have better rate structures with each of these partners, and hence, we managed to do a contract innovation on to

44:54 our larger contracts, thereby helping optimize certain amount of costs. We have also optimized costs on the real estate. Our subsidiary also is present in similar geographies as we are, whether it's in India, whether it's in Malaysia, so on and so forth. And we're able to consolidate office space and thereby optimize cost. So there are a there is a detailed breakdown item by item at every rupee, every dollar level, which we are looking at. And we have optimized some of it. And some of these will be optimized in time to come because the contract closures for each of these not necessarily will fall on April 1. Some contracts are due sometime in October, some in January coming years, on and so forth. As those contracts, for instance, would tend to, you know, expire, they would move into KFIN's contract, you know, structures thereby, you know, affording us even more optimization of cost savings, so to speak.

45:40 Yeah. So I I think that's that's probably the item around the asset. And the third one, in terms of, how do we see the bolt on contracts that we're talking about, how will that improve? Well, see, these are episodic in nature. Right? I mean, sometimes you end up signing a 20 crore deal in the single quarter and then if the quarter looks good, sometimes no. That does. These are not annuity revenues, right? We are used to from a KFINTECH or an asset management industry itself is a reasonably predictable number because it's all annuity revenue for everybody, whether it's asset manager, whether it's us, so on and so forth. But having orchestrated a product based pipeline, you will see certain amount of vagaries and certain amount of spike or no spike depending upon whether we won the particular deal or not. What I can tell you at this point in time is that we have, in the previous quarter, have signed deals worth roughly about 40 crores in total top line, which, you know, some will be done in three months, some six months, some fifteen months, so on and so forth. So the overall revenue allocation into the quarters, this is not the call that we'll be able to break down, but I'm sure my team will be able to help you for you to prepare better on that.

46:49 I hope I'm Sure, Rajiv. Yeah. Yeah. This is helpful. Just two other things that I wanted clarification on. One was that maybe, you know, 2% in drop kind of has happened. We normally guide around, you know, maybe three or 4% in a year. So should we expect another 1% drop to play out given that you have mentioned that you already provisioned for some, I think, contract changes that will play out. The international business ex of ASIN to that, like, I think 4Q, there was a INR 19 odd crores kind of a revenue print that is coming to around INR 17 crore this quarter. So this, although not very material, but just wanted to understand how how should we think about it, how should we model about this segment going forward?

47:37 So on the yield piece, it's... I've I've already called out my apprehension in terms of guiding a number because that automatically comes through and assumes that the yield is dependent only on the discount. You know, which way the asset class moves and which asset manager grows and who does not grow has a material impact on the blended yield of the organization. So I guess probably conservatism would mean that maybe you can still stick to 3%, but it is quite possible that, you know, the movement away from debt to liquid may reverse itself, and in fact, the yield might even actually give you an upside surprise. Right? So I will not be able to guide you on that, but I would let you model how you would agree now. We would want to model from our standpoint. What is in control is definitely the pricing and the discount. The other two factors are well beyond our control. And they have an impact almost to the tune of 50% to 60% on the total yield itself.

48:31 Understood. I have to admit, I didn't quite follow the second question. Vivek, if you have followed, would you mind explaining that, please? Yes. I think in terms of the sequential growth in the international business, the sequential decline that you talked about in the international business. I think that is more to do with the contracts that were in the pipeline, which will get materialized in the coming quarters. So this is not a fundamental change. This will continue to be in the range of a growth of about 25%. And that may be only a matter of time that you will see. This is just one quarter phenomena, which will bounce back with the new deal wins that we have in the coming quarters.

49:21 Understood, sir. This is very helpful. Thank you so much and all the best. Thank Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. The next question is from the line of Arjun Bhagav from DSP Mutual Fund. Please go ahead. Yes. Hi, sir. Thanks a lot for the opportunity. Just I think, again, one more question on the yield front itself. Also, I think we mentioned a couple of different reasons why this yield has actually come off on a quarter on quarter basis. Possible to share like what was the mix between like so I think the two key things which I read is, one is the step to liquid movement. Second was the renegotiation provisions in the sense, like, it's not yet effective, but we are already providing for it.

50:06 So could... Possible for you to share, like, what is the mix of decline between the two of these? Yeah. So on the... I think the debt to liquid is a is a substantive movement into the previous quarter. I think from a yield, the 2% impact that you have seen, about 30% of that impact is attributed to the movement from debt to liquid itself, okay, which then obviously means that it's about 1.7% is net of the asset class movement. Now what is that 1.1% constituting of? Obviously, the provisions we have made for the negotiations that are pending for this year. That is obviously a little bit more than two a little bit more than 1.7%, but it got offset because of some amount of correction positively in favor of equity having the ETFs movement into equity. So it's a plus or minus at both ends.

51:06 And sorry, the second question was... I missed on that. No, just that. And second question, so did I hear it correctly that Ascent, we are expecting margins, which was, I think, closer to 6% this time to be in double digit next quarter? And what was the reason for this decline, this Q4 to Q1 decline? No, no, not next quarter. I think we said double digits, will accomplish in the next twelve months. It can happen anytime in these twelve months, probably not necessarily in the upcoming quarter. As I said, the digital currency funds have seen a certain amount of write downs, markdowns because of the crypto value coming down quite a bit as you might have tried to it. And obviously, that impacts the AUM and hence the overall revenue that you would get.

51:55 And that got offset largely because of several new wins that the organization has seen and the launch of the funds because in the case of alternatives, you know, winning a mandate itself does not, you know, assure you of any revenue. The fund has to launch. The capital has to be drawn. It's only then that you would actually start billing your clients. So there's always a lag between win to the actual start of the fund. The start of the fund is entirely an eminent domain of the fund manager himself or So broadly, we are not looking so we're not looking at a double digit expansion into the next quarter, but it's into the next twelve months, hopefully sooner than later. And the correct is largely on account of the AUM markdowns because of the digital currency funds not performing very Sure. That's all from my side. Yes. This is Vivek, Madhu. I just want to add to what Shrikanth mentioned in terms of you asked the question about client discount provision.

52:49 See, we are now trying to balance in terms of high amount of cost being incurred on the infrastructure in terms of servers, routers, laptop, all of us know how the prices have gone up. So we are trying to balance that. That provision was made assuming that we will have to offer something if the client grows and that we make and then we if we don't offer discount, then we release it at the end of the year. But given that there is high cost pressure in terms of infrastructure to support our clients, will be hard in terms of discount negotiations. Just wanted to lay that out. Sure, sir. That's helpful. Thank you. Thank you. The next question is from the line of Abhijit from Covet Securities. Please go ahead.

53:39 My first question was on Ascent. If you could highlight how many 100 clients we would have by now? And given that there was a similar comment last quarterly results as well about six new funds being added in that 100 plus million category? And second, related question, in terms of these client wins, if it's possible to kind of give some color whether these are totally new clients for us and these deal wins are kind of in a way, they're expecting some shift away from the existing incumbents that these clients were dealing with? And last question on Ascent, if there is any particular skewness in terms of product level breakup, like you mentioned about digital assets. So while the contribution to AUM is 15%, is it the case that the revenue contribution is substantially higher?

54:31 And second question was on the deal that you highlighted. You mentioned about 125 plus on the data lake side and probably there are a few more in the pipeline. So if it's possible to quantify like a total contract value that you can see being visible in the next twelve months or so? Sure, Abhijit. So will... So let me answer the last question first. So the 25 crore, you know, that's a single deal. It's got... I mean, or rather, it's a deal... It's it's a deal with a single client, and it has two separate contracts within that. One of it is large scale data normalization rationalization. One of it is wealth, both for the single entity. The total implement... It's an implementation. It's a a PaaS platform implementation product, basically. And that overall duration, we believe, is roughly about eighteen months.

55:23 And the implementation basically has already started into the previous month in terms of requirement gathering, what have you. And it is a milestone based payments. Obviously, as we hit various milestones, the payments for those will be recognized at that point in time. But suffice us to say that over the full eighteen month period, we should be able to recognize the full revenue associated with that. Okay? Terms of the win name, of course, you know, we're happy to publish on a separate call. My team will explain to you in terms of, you know, some of what we spoke about the previous quarter was about one constellation, which is, an onboarding platform, which basically and it's not necessarily in India. It's currently the contract is deployed in Hong Kong and as a partnership for StandChart. And StandChart, in turn, basically does onboarding solutions for multiple other fund managers, including BlackRock.

56:14 And it is that contract that is that's about INR 67 crore contract. And these INR 100,000,000 plus contracts that we are talking about, they're spread across the geographies. One of that is in The U. S, a few in Cayman side, so on and so forth. While the name of the contract itself is not very relevant, it suffices to say that these are transitions because no new fund manager starts at $100,000,000 It's an accumulated corpus. So the corpus is an actually a a transition away from incumbent into us, and the transition takes anywhere between three to five months depending upon which fund manager you deal with. Alright. So just last bit, you know, last quarter, there was not a guidance per se, but like an indication of high single, double digit sort of an earnings growth for this year. If you can kind of reflect that number for us?

57:03 So we have moved a couple of notches from there. And whilst, as you know, we do not necessarily give formal guidance, we have visibility for EBITDA growth closer to 20%, anywhere between 17% to 20%, and our PAT numbers anywhere between 12% to 15%. So we are actually confident to deliver better results than what we had initially forecasted and guided. The next question is from the line of Madhu Kar from JPMorgan. First, sir, on Ascent, what is the dollar million revenue on a q o q last quarter versus this quarter? Because while the rupee growth is pretty strong, but I would, you know... Given that the rupee also depreciated quite a bit, I just wanted to know what the dollar revenue is and what the base currency is that you should be looking at.

58:14 Also, can you comment on the yield that you're making on the Ascent business? Second, also for the Southeast Asia business, I think this was discussed earlier. Q o q, there has been a decline in revenues, and my calculated yield works out to be about 5.3 bills. So is that a fair number to look at? Is that the way we should be building this? Yes, those would be my two questions. Sure. Shreedhar, I'll take this. Ascend revenue increased on a dollar basis from $5,700,000 in Q4 to $5,900,000 and that was, as Shigar mentioned, more driven by the increase in corporate solutions and some new client wins that they have.

59:07 There is a growth of 32% year on year. In Q1 FY 'twenty six, while we did not consolidate, they were at USD 4,400,000 and now they are at Q1 FY 'twenty seven, they were at 5,900,000. So that gives you visibility in terms of absolute dollar growth as well. In terms of bits on the GFS, while your assumptions are right, but there was growth in AUM in the Southeast Asia business, which we have not seen in the past that has actually held us in improving the margins in the bps. And we hope that this trajectory continues and we are able to maintain those kind of margins in future as well.

59:56 Understood, sir. Thank you. Thank you. The next question is from the line of Prajeet from Motilalos Wealth Financial Services Limited. Please go ahead. Yes. Hi, everyone. Firstly, if you could throw some light on the contract that we had recently announced on Philippines government. When does that start flowing into your P and L? And what kind of profitability could be there on business? Second would be on your issuer solutions. Do we... If we... If we... The kind of IPOs, large IPOs that are coming in, one of them already kind of closed in for you and a few large IPOs in the pipeline.

1:00:48 Do you think that this business could be growing at a faster pace than the overall company level? Third would be if you could give some indication on profitability of, say, mutual fund business, issuer solutions, and others, then it would be great. And last piece, on the wealth management side, you know, how does this kind of unit economics work in this business, whether it is AUM linked or whether it is fixed contract? Yeah. So those are my questions. Thanks. Sure. Okay. So the first one is about the Philippines contract. No, we have not announced any win. We have I mean, there was a media leak in terms of us being identified as the highest bidder in terms of both technical and commercials.

1:01:43 So to that extent, that was that is where it is right now. So it is still under discussions with the client. The client has not awarded the contract to anyone. Hopefully, in time to come, we'll have some news for you on that topic. On the issuer solutions, of course, the IPO that had OnePipe, have several in the pipeline, PhonePe, Zevto, Jio, Manipal Health, Razorpay. Many of these are very, very large marquee IPOs around the corner. We definitely, obviously, do hope that the IPOs happen sooner than later, and then it brings the energy back into the markets. How will it impact the overall business? Obviously, the top line is expected to grow as these do happen. But at this point in time, as I've already called out the risk, which is slightly tepid corporate actions by the issuers.

1:02:29 If the corporate actions now corporate actions, just so we know, is roughly about 30% of the total revenue that we get on the issuer solutions side. If there is a material corporate action slowdown across corporate India, it will definitely impact our business. It may not help us to grow how we have projected to grow. At this point in time, accepting the IT services industry, others have not shown any intent of slowing down on the corporate action. So to that extent, maybe there'll be a tepid impact. But the broader recovery of retail investors coming back to the investment horizon is still not happening. While the markets have seen some improvement, a large part of that is still institutional investments and not necessarily the retail investors coming back to the markets. Now given our revenue model is that we charge certain unit price on the number of portfolios, it is quite obvious that more number of retail investor participation is what's going to drive the growth of this business in addition to the corporate actions. So to that extent, on both these accounts, at this point in time, it is rather tepid.

1:03:29 Now it can turn around. The indication of the IPOs and the success of each of these IPOs gives us confidence that both the retail investors will come back. And, hopefully, the corporate actions as well, you know, kind of come to add to the certain amount of growth for our business. That's the second one. And my apologies. I think I missed the last one that you asked. I asked two questions. One was on the profitability of each of the segments, the mutual fund, issuer solutions and others. And second was on wealth management unit economics as to how do you kind of on the... In the wealth management economics, and I think on the segmental profitability, it's good to connect with my IR team, and they'll give you the necessary details.

1:04:16 In terms of the wealth management platform per se, there are two types of submissions we have. One, so we wanted to orchestrate effectively what we render as a solution and a service to the asset management industry, but for the wealth management industry. Right? As the influence of individuals in India grows, anyone's ability to manage their own funds all by themselves comes down as a quantum and the corpus grows. When that happens, typically, individuals reach out to professional wealth managers to drive the alpha for them. And that explains the growth of, you know, some of the market wealth management outfits in our country. Some of them are listed as you already know, and many of them are starting on a day to day basis. Now we provide not just the wealth man...

1:05:01 Currently, the de facto model in the practice is that wealth management platform as a technology solution is offered on a licensed model to any wealth manager by the incumbents. Whereas KFINTECH differentiates itself by not just offering platform, but also rendering full service associated with that much like how it is in asset management industry. And hence, we are able to orchestrate a different commercial model. In the first commercial model, it will largely be a fixed fee contract. It's almost a platform implementation followed by the AMC, which can be 20%, 25, 35% of the contract value depending upon the complexity. In the second model, we charge basis points on the assets under management, much like how we charged in the case of mutual funds today. Right? So those are the only two models we have. Got it. Thank you.

1:05:49 Thank you. Ladies and gentlemen, due to time constraints, we will take that as the last question of the day. And I would now like to hand the conference over to Mr. Devesh Agarwal for closing comments. On behalf of IFC Capital, I thank the KFINTECH management for giving us an opportunity to host the call today. Before we conclude, Devesh, would you like to add any closing remarks? Yes. Thanks, Devesh. I think the crux of the call today is that we continue to maintain the trajectory of growth on the revenue in the range of 18% to 20%. We will protect margins to the extent of 40% EBITDA margins. While growth impact, the guidance, has given that it is it will be better than what we had given in the past quarter, given that we have been able to show better growth in revenue, and we are we have worked really hard in terms of cost optimization. The results will be visible from Q2 onwards.

1:06:43 And we remain bullish about growth in our international business, more through global fund administration and also through the platform business, whether it is pension or wealth management, which will maintain the trajectory of growth and profitability in coming quarters. Thank you very much for joining the call today. Thank you. Thank you, everyone, for joining in today. Abhirud, you may now conclude the call. Thank you. On behalf of KFINTECHLOGIES Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.