KFin Technologies (NSE:KFINTECH) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to KFINTECH Technologies Limited Q2 and FY 'twenty seven 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Divesh Agarwal from IIFL Capital Services Limited. Thank you, and over to you, sir. Thank you, Shaurya. Good morning, everyone, and welcome to the Q2 FY 'twenty seven earnings call of KFINTECHOLOGIES Limited.

0:49 Today, from the company, we have with us Mr. Sikhan Nadella, MD and CEO Mr. Vivek Mathur, CFO and Mr. Ram Gattani, Head of Investor Relations. I will now hand over the call to Shikanth for his opening remarks and thereafter open the floor for Q and A session. Thank you and over to you, Shikanth. Thank you, Devesh. Very good morning and good evening if you're dialing in from outside of India, and a very warm welcome. Well, I'd like to bring to you yet another quarter of a certain sense of consistency. The same goes patience, consistency, and hard work. I think that's that's pretty much the, you know, the need of the hour.

1:34 That's pretty much what sets organizations that have a long term vision to stay targeted 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 our client wins, and steadfast focus on innovation, you know, driven productivity, 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 reasons over a period of time.

2:35 From a glance, you know, overall, if you see, you know, we're KFINTECH transfer date, 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, continuing to be the largest registered and transfer agent in India and among the largest in the world in terms of the number of, human beings, you know, we service, whether it's India or abroad between the capital markets, the securities market, the mutual funds, let's say, it is... It has now crossed over 12.5 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.

3:35 Whether it's our win rates in the form of new client mandates, whether it is mutual funds, whether it is issuer solutions, alternatives, 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 client aligned volumes than with some help of mark to market. Again, 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 eighteen months, even excluding geo platforms IPO, we know it is happening real time as we speak and we've completed the entire activity twelve hours ahead considering it's the world's largest IPO.

4:39 One, we are extremely honored and privileged to have been chosen as the RT and two, to have delivered significantly beyond much of the expectations in terms of the timelines and including the allotment statuses of the businesses are checking where the latency time has been less than forty milliseconds. Now that obviously is going to be for the upcoming quarter, but by and large, I know very happy with the progress we've made in terms of the wins in the case of Visual Solutions. Same is the case with our international. We have added 18 new clients, you know, which are in the transition, and they're expected to go live into the coming, you know, quarter two two depending upon the transition time lines, which will then go on to add, hopefully, additional year and consequent revenue soon after that. Our acquisition of Essent and its integration is one of the most strategically important initiatives that we've embarked on.

5:33 Happy to inform you that we continue to grow the business again against extremely challenging macro, especially given that 25% of our revenues come from Middle East for Ascent. And given the situation that one would have imagined, you know, maybe the group would have been different. But, thanks to some really wonderful work by the business development teams in each of the operating geographies. You know, continue to grow 30% plus on asset. And again, with a 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, and that of last year, we grew three x of the pace of the industry. Industry grew at about 12 k, and grew at 36.

6:20 This year, we've grown faster than that. I think 42% has against similar 12% to 13% growth of the industry. So again, it's a long haul when it comes to pensions. It tends to compound. But not only have you broken even about three quarters back, you know, growth continues to be significantly higher than the other industry. Now all of this gives us a a fairly well rounded, you know, growth across business lines. And, again, product transformation driven productivity gains and new feature new feature rollout 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%. I mean, as industry grew at 13%. So that's very happening. 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 industry.

7:17 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 years. Overall market share has grown in the last two quarters for KFINTECH in the form of overall moving beyond 33% and the equity inching close to 33% as well. Market share on the SRP, which I continue to believe is the bellwether in terms of where long term averages could be at, continues to be close to about 37%, which, you know, means that there is a 100 basis points of, you know, bridge that I expect to happen in order to build over the next three to five years as the SIP is a security book, and you would already intend to gravitate and press play towards the overall market share on the SIPs.

8:08 We have launched a couple of very important platforms in the mutual fund space. Aria.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 noncommercial 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 these 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 rollout 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 gains went through, you know, large scale RPA and AI native solutions.

9:27 These are in early stage in terms of implementation. There are several more as I've called up in the previous quarters too. Nearly every business line and the underlying platform in our organization is under a massive rework and a rebuild given many of these are, you know, a couple of decades old. So we will be live with the issue 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 significant 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 q four this fiscal year, we would have rolled out, you know, nearly all of the transformational platforms that we've been working on.

10:27 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. 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 should the prevailing market conditions improve should see a tangible progress from there. We have, you know, been at the forefront in terms of expansion in the gift city because it falls right in the alley of our international business. And, again, happy to inform you that our market share, there have been... You know, we we currently the single largest, you know, provider for solutions for the Citi funds in addition to several additional solutions that we've been working on.

11:17 I will just add a little bit of color in terms of our international pipeline. The pipeline itself currently stands at roughly $47,000,000, US million dollars that is. Now that used to be roughly around 20,000,000 about twelve 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 $5,000,000 in the total contract value. Some of them are in advanced stages. Some of them, you know, are progressing in that direction.

12:04 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 it down selected to the final between many of those. And in time to come, hopefully, know, there'll be a close on some of those. One of the earlier project, you know, in 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 been canceled. It is something that, you know, we are discussing with the, local, authorities in terms of the next steps, I'm still, you know, very confident that, you know, we should be able to turn that around, in 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 headcount 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 relation have been substantial, whether it is wealth or whether it's alternatives, whether it is pensions, so on and so forth, which are still, you know, subscale in order to, you know, from the standpoint of driving significant operating leverage.

13:18 We have, you know, from our pure transformation and AI led platform rollout into the coming weeks and month. We should be seeing an immediate rollout of the audio.ai, you know, 2.o. As I said, that's one of the most important ones, followed by our platform rollout of Kfinex, which is for mutual funds. And the GFS, that is the international business is something that's underway as well, something that we believe will add substantial margin 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 five year period, but I have to inform you that, you know, we're getting there in another three years.

14:28 We would also be working on, obviously, expanding the total price 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 the way the markets have been in the past, you know, ten 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 contraction conversions real quick, focus on productivity so that our margin commitments, you know, remain sacrosanct.

15:18 And so far, this quarter, you know, 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 downturn, you know, from here on as well. So we have enough buffers to to push in any kind of a blow like this, you know, tactical market correction over the last ten days. But of course, anything that poses significantly longer given the our market capital markets will impact. But at this point in time, we continue to stick with our estimates.

16:05 I will now request Vivek to cover the financials, and then we'll leave the floor open for us. Thank you, Shrikanth. On the financial performance, the revenue from operations has gone up sequentially, including Ascent by 30%. And excluding Ascent, it has gone up by 10%. Expenses were pretty much controlled in terms of the cost optimization initiatives. Sequentially, expenses had gone up only by 3% quarter on quarter, while the revenue quarter on quarter went up by about 13%. And 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 sequential basis about 18.7% against last year, same quarter, 32% growth.

17:04 Half year ended FY 'twenty seven, there's 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 it gets demonstrated from Q2 onwards. So there is integration of Ascent in Q2, but also the margins are maintained at the guidance level. PAT has touched INR 100 crores for the quarter and has gone up by 7.5% year on year, 33% as compared to the same quarter last year.

17:54 For the half year, it's a 2.43% growth year on year. PAT margins have improved in Q2, including Ascent at 25% and excluding Ascent at a little more than 30%. For H1 FY 'twenty seven, consolidated margins are at 23%, including Ascent. We maintain healthy cash and cash equivalent situation of about INR $5.50 crores after the dividend was paid out. And the diluted EPS at the end of H1 stands at INR $10.12. Happy to take questions now. Thank you very much. We will now begin with the question and answer session.

18:45 Session. The first question is from the line of Kartik Shalapa from Indus Capital Advisors Limited. Yeah. Hi. Thank you for the opportunity. Good morning, team. Am I audible? Yes. You're audible. Please go ahead. Okay. Excellent. Just three quick questions from my side. The first question is we have seen the domestic MFEs, this business stabilize and probably even grow a bit sequentially.

19:35 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 it's heartening to see that, Srikanth, you actually reiterated that, that is pretty much on track. You also mentioned you had some buffers in case of 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.

20:28 Thank you. Thanks, Kartik. Always good to hear from you. So I'll take the first one in terms of the yield and the it's in a marginal expansion roughly about 2% sequentially. As as I always say, you know, there are three important factors. If I were to put a weightage, know, the weightage may change depending upon, you know, quarters and times of the year. But, you know, roughly about half of the, you know, reason in terms of the instability or otherwise is owing to the pricing discipline And about 30 odd percent more than... Maybe even a little more than that towards, you know, which particular asset manager is growing.

21:14 And the third one, of course, is the asset mix itself. Depending upon, you know, which of these three levers, you know, work in favor against or neutralize each other is usually how the yield moves. The quarter that had gone by in some sense has had all of the three positive effects in the sense that, obviously, the pricing discipline was maintained as we've confirmed in the previous year. You know, those contracts are being closed and negotiated, and hence, there is a consistency on the pricing. But definitely, we had a positive tailwinds in the form of both asset mix as well as in the form of the AMC's growth as to, you know, which AMC has grown depending upon the size and scale. As we all know, there are differentiated rates.

22:00 So will it remain similar into the coming quarters? On the pricing front, yes. But, of course, on the asset class mix and the MC mix, as as we all know, it isn't... It is it is how the manufacturers grow as against, you know, what we grow. So given there is no substantive reason for anything to change at this point in time in the sense that we had a improvement in the form of metal ETFs may be getting way too active and was the reason why the asset class mix. And, you know, younger, faster growing aims is growing, continue to grow faster. It's out of the 10 fastest growing aims is our current with KFIN. And that obviously has been having a little bit of, you know, positive, you know, right now. It can even get better into the coming quarter if, you know, depending upon, you know, which aims is true. But I do believe that, you know, given we are already in near end of October and we have some visibility into the last forty days of the world that has gone by, I believe that yields will remain largely consistent.

23:02 On the issue of solutions, I think, you know, we we are looking at a 20% total year on year growth. And, again, with a little bit of luck from the market, you know, and depending upon, you know, how some of the other larger IPOs, you know, are also around the corner, including the geo one, of course. I believe that, you know, we should get to a 20% plus, you know, top end growth, which means that by and large, you know, we can assume that our current numbers can be, you know, accomplished in the coming quarters as well. And that then leaves us with the third question, which is in the form of the buffers. The buffers are... You know, these are basically, you know, a couple of items. One in terms of the discretionary versus the nondiscretionary spend.

23:55 As I've, you know, always maintained, there is a certain element of our expenditure, which is something that we will incur if and only if, you know, our financials permit. Now these are obviously for the future benefit. So transformational items, discretionary IT projects, discretionary automation, discretionary expansion of, you know, probably a particular geography which we have planned for so on and so forth, or even launch of certain products which cost, you know, certain amount of business development dollars. So if we see, you know, an ongoing, you know, market downturn, those are the things that, you know, from a leverage standpoint, we will pull so that it will release some amount of, you know, additional expenditure that we may have budgeted into the next five months, which we will not incur.

24:48 And that's what I'm referring to, Kartika. And, you know, should we get that far, then definitely we will probably withhold or at least prioritize the most important ones and still do it and probably defer some of those into the coming quarters. At which point in time, should the markets permit, we will then spend that. Excellent. Thank you for the detailed responses. Wish the team all the very best for the rest of the year. I'll come back in the queue for more questions, if any. Thank you. Bye bye. Thank you. The next question is from the line of Sunil from Diamond Asia Capital Limited. Congrats on a good set of numbers. I have two questions. So firstly, sir, if I look at your presentation, this quarter, we are seeing a good increase in your value added services revenue. So as a percentage also, it has increased.

25:42 Now how do we, you know, look at this? Is it seasonal or or is it... You know, what has driven this growth? And secondly, this value added services is majorly related to the mutual fund business, or where does this lie in the revenue breakdown? Can you give me some clarity of... About this revenue. Sure. So the reason for... Okay. So first, I think I should answer the second question first so that it's easier for the first one. So the vast is not just mutual fund alone. It's both issuer solutions and mutual funds. And q two, typically, you will see a rather large spike in the value added solutions because included in the vast for the issuer solutions is our entire platform based revenue solutioning around EAGMs, evo things, and any large corporate, you know, not not not the regular corporate actions like dividend regulations and buybacks, but, you know, there are other items where our platforms and solutions are used including inside trading platforms on and so forth. So q two typically is also a good quarter in terms of last. So that's what you have seen given the issue of solutions related many of these annual general meetings that are happening to the second quarter. That said, in spite and despite of it, it is also a good show in terms of the overall revenue pool itself.

27:07 It is now 7.5% of the total revenue of the organization. Again, I remember probably three or four quarters back talking about one of the other internal goals, sub goals we have is to get the value added solutions, you know, to double digit figure in the next two to four quarters. We are working in the direction. Again, you know, it's very important, you know, for us to look at such avenues of revenue because they do not depend on the vagaries of the market, but adds a certain amount of predictability and consistency in our revenue earnings and the quality as well. Okay. Thank you. That was helpful. So just circling back. So the the increase which we see on a quarter on quarter basis, so that major increase would be driven by the issuer solution at a quarter on quarter level.

27:56 That's right. Correct? I understand. Oh, okay. Yeah. That is helpful. That is helpful. And secondly, you know, if I look at your business, so as you know, in your opening remarks, you said there are a lot of headwinds in The Middle East where, you know, 25% of the revenue is coming. So if I, you look at the PPT disclosure this quarter, if you see there are no new client additions. So is it mainly because of the Middle East issue? And how are you tackling it? Because if this war continues for, let's say, next six months or a year, how are we looking at Ascent as a What are the strategies we have for this macro event? Yeah. So we we model in the worst case scenarios and, obviously, have calibrated and purposeful responses for each one of them. And one of that was obviously to look at geographies, you know, which are rather unforturbed by such events and, you know, drive growth in those areas. Not to say that, you know, we we should be pushing... You know, we should be putting some of the, you know, stress geographies on the sidelines. But but, obviously, you know, all we can do in in that scenario is just keep the client conversations live and warm and, you know, continue to solution, continue to engage.

29:10 And as and when things turn around, you know, it will... And had traditionally been, you know, positioning us in the right way then to go on to win deals. Now what have we done to combat given, you know, large presence in over 18 geographies? It is quite possible there are always some local events that happen, whether it is the market movements or local politics or, you know, anything at all. And and that offers the risk diversification. So if you saw the last quarter, especially US, you know, we have one, you know, pretty large number of deals. We run about, you know, five deals, and two of them are reasonably larger, up north of, you know, rather close to 500,000 plus. And and as the numbers... You know, as as the deal sizes of some of these funds increase, so will the intent of several medium and large fund managers as well.

30:00 So what you have seen is, in spite in spite of the challenging times, even in Middle East also, have seen growth, but we could have grown more if not for the situation. But it got largely overcompensated by, you know, much faster growth in The Americas as well as in Singapore. Okay. Yeah. That was it. But just lastly, why was the client addition, you know, way flat this quarter? Is... Was it any reason for that? I mean, are they in pipeline, or how do we look at that? So so it's... This is... That metric is not the number of deals we have already won, which are yet to launch. What's happening is that given a sense, you know, core business is largely on alternate investment funds. And in many of the geographies, you know, again, whether it's AI, trade, or a whole bunch of things, a lot of fund managers have held back in terms of launching their funds.

30:55 K? But we have, even today, a little around 80 plus funds, 80 or 90 funds, which have been already contracted, but the fund manager is yet to launch and or is expected to launch into the coming weeks or month or so. So that's that's pretty much it. There is nothing, you know, untoward. And if anything, you know, the repeat business from the same clients who are launching new funds or their referrals to many of their, you know, network in terms of the new fund managers who are coming, that had been on the steady rise. Our net retention rate had been higher than ever before. So by and large, you know, we're very satisfied with the growth. And typically, q three, q four tends to be a, you know... Or the h two tends to be a better season, you know, for ascent as you might have seen into the last couple of years as well. So we are waiting for probably better set of results in the coming few quarters.

31:51 Okay. Thank you, sir. It was very helpful. All the best for the outcome. Thank you. Thank you. Participants, in order to ensure that the management is able to address questions in the conference, please limit your questions to two per participant. The next question is from the line of Swarnabh Mukherjee from three sixty one Capital Market Private Limited. Please go ahead. Yeah. Hi, sir. Thank you for the opportunity, and congrats on a great set of number. So, sir, I have questions on business in terms of the cost. So when I look at our consolidated cost structure, I think even at a employee expense level, the delta is coming from.

32:37 Given that, I think the expectation was that should now gradually start to see ramp up in margin. Just wanted to understand why at the employee cost level, this cost is continuing to increase. And given that margin, at least from the data that we have in hand, that we have that margins have been reasonably flattish quarter on quarter. So how should we think about the trajectory of margin over the next two, three years? If you could give some color on. That is the first question. And secondly, I also wanted to understand, as you mentioned that you expected to... You you are expecting to maintain a similar run rate in the issuer solutions business in the subsequent quarters.

33:27 So if you could give some color on, you know, how... What would be the share of folio based revenue this particular quarter and corporate action driven revenue this quarter? Because if I understand correctly, I think there is a seasonality in corporate action revenue, and the revenue is dependent on the IPO pipeline and at what time it goes to. So just wanted to understand that, you know, how should we expect that, you know, there could be some visibility for third quarter, but then in the subsequent quarter, how should we expect this to come? This will be my. Sure. Thank you. Okay. So the so the two ways to look at Essent.

34:14 Right? One, it's a five year old organization. Okay? Founded by young entrepreneurs, you know, who also had a similar vision as KFINTECH does, which is to create a large global fund administrator and be in that $40,000,000 addressable market time space. And, you know, there are very few or no one who have done from this part of the world. Hope... And hence, you know, together we can join our hands to, you know, grow this business over a period of time into that space. Now they specialize on one specific asset class, which is largely private mandates. Okay? That includes AIS, PMSs, private equity, hedge funds, venture capital, digital currency funds, so on and so forth, which are largely nonpublic, like mutual funds and pensions and insurance, so on and so forth. Now the disposition of that business, by and large, as you have seen, even with KFINTECH's own AIS business, it is small mandates and several of them.

35:14 I have 13 mutual fund clients, and you could see the revenues are closer to $100,000,000. And we have seven hundred and fifty eight hundred alternate investment funds, and yet the revenues are very small. So that kind of a nature of work requires a certain amount of scale, which is more than what we have, by the way. It may look like, you know, having thousand odd clients for us and having another two two thousand odd clients. Overall, including S and T is a very large number, but you'll be surprised with the with the amount of despokness that exists in alternate investments in general. And for us to be able to draw synergies and drive operating leverage, we need to horizontalize the business processes. Otherwise, it tends to be one to one relationship that is client, you know, server kind of a relationship.

36:01 Now that does not render itself to significant operating leverage at a certain base. But as the scale increases, you know, the operating leverage tends to be much, much larger. And given much of what we also deal with our public market funds, and given there have been no mark to market gains at all in most of the operating geographies, the overall AUM, you know, continue to be a little tepid. And in that context, so combination of both operating leverage to be at a much larger scale to kick in, and the fact that there have been absolutely no AUM growth because of the mark to market is one of the reasons why what it is. But if you see the overall essence specific, you know, cost optimization and hence where the productivity stands, yes, the overall EBITDA margin had been, you know, similar to that of last quarter. Last quarter, it was around seven, seven and a half percent. This this quarter, it's around 8%.

36:54 But last year, this time, it was minus 12%. Right? And for us, we have to look at such optimizations, you know, in a purposeful manner where we have to drive in a methodical manner rather than just, you know, taking arbitrary decisions around it, which will be counterproductive for a fast growing company. For a fast growing company, what it needs is capital. What it needs is flexibility. What it needs is the G and A spend so that we capitalize on all the markets we have started having, you know, spent money and, you know, business at an amount of intangible assets sitting on the CapEx at this point in time. No point in building geographies and tying the local CEOs down without the necessary support, which is largely a CFSI to grow. So in spite and despite of that, you know, for us, this is nearly, you know, minus and minus 12% to plus 8% in about, you know, four quarters.

37:46 And as I've already given in my commentary, we are looking at getting into double digits as well sooner than expected. So this acquisition, again, by no means, you know, is going to get to KFIN margin levels in the next three or four quarters. It is a very different business, but a business that has significantly long term compounding gains. As per our base case, we will touch double digits, and we are looking at about 20% plus thereabouts into the next fiscal year. And the next two years after that, you know, we'll work towards getting it somewhere closer to KFINTECH overall margins. By which time, both the things would have fallen in place, hopefully, that is the scale and the transformation we are doing, which is largely around the replatforming of the current solution they have with KFINTECH proprietary platform, in addition to having horizontalize many of the business processes.

38:35 So that's that's broadly the Ascent story. So the overall... When you add the overall cost of, you know, Ascent, obviously, this is a full YTD, and hence, the first two quarters where, you know, there were, you know, loss making to that extent. Obviously, the cost addition was probably looking to be higher than the revenue addition. But even if you look at stand alone asset numbers, the overall EBITDA has gone positive. The overall gap turning cash positive is roughly about INR 3.5 crore to INR 4 crore, which isn't substantial and something that, you know, we should be able to turn EPS positive as well into the coming quarters. On the issuer solutions, what I had called out was that, you know, we should look at our overall y two, you know, year on year numbers growth about 20%.

39:22 Quarter, of course, the percentage was higher. But if you take a look at it again on a year on year basis, I'd like to believe that we should continue to grow. Corporate actions are predominantly a q two phenomenon with some spillover into q three. It won't be as large, but there will still be some. But given we have just done the largest IPO in the world and, you know, some more to come, and the full year expansion was largely also because of the net new IPOs that we have done in the last twelve months or so, will mean that there would be a year on year revenue growth both on the count of, you know, full year based revenue and some more on the form of corporate actions. Corporate actions of the net new IPO clients we have added, not just the old ones we have had. It is with that confidence that I'm saying that, you know, we should be able to still look at 20% year on year revenue growth.

40:12 Again, you know, in a year where there has been a reasonable exodus of retail investors from the existing companies. So our total folios grew, but that's because we won a lot more times, not because the shareholders of the existing clients actually grew. They actually have deep grown. Understood. This is very clear. Just one thing I additionally wanted to ask was on the... On our legacy international business. I mean, I think if I look at the revenue numbers for last three quarters, there seems to be some volatility that last quarter, it went down, and then this quarter, has bound... Bounced back. So just wanted to check if there was some kind of a one off in last quarter's number and and the thing for that, we will have to spend in actually a linear growth.

40:59 I'm sorry, Ahmed. The first part, was that for alternatives, your question, or mutual? No. No. So... Yeah. Our legacy international business. So it's a. Okay. That's that's again two important factors. One was the go live of some of the deals which were under transition. And second, we... Malaysian markets actually looked good in the last quarter compared to India, at least. So those those are factors, you know, basically, you know, successful transitioning and hence going live and hence the revenue kicking in in conjunction with the mark to market gains that we've gotten in Malaysia. Those are the two reasons why the numbers have gone up. And as I've called out, there are still 18 more transitions underway. And as they go live, there will be incremental revenue coming from that. And it should be organic AUM growth for the existing clients.

41:54 Yeah. That... That's very clear. Thank you so much. Thanks, and all the best for the rest of the year. Thank you. Thank you. The next question is from the line of Supratim Datta from Jeffrey... Jefferies Group. Please go ahead. My first question is again, with respect to the asset business. You indicated that asset has started winning large contracts. I wanted to understand that what has changed or what has changed in ADAS and that is allowing them now to win these large contracts? And how does the economics of these contracts differ with the smaller contracts in terms of yield or profitability? If you could give us some color there, that would be helpful. Secondly, on tax rate, the tax rate seems to be increasing the last two quarters. Wanted to understand that, is there anything that's there and how would the full year tax rate look like? And is there something that we need to take into consideration here?

42:57 So those are my two questions. Thank you, Hari. Thank you, Subrutan. On the... Okay. On the on the front, when I say large contracts, again, everything is relative, you know, relative to the size of the deals that, you know, that entity had been traditionally winning. Basically, in the last twelve months, you know, there were two deals which are worth a little over $1,000,000 each. And US market, you know, a single alternate investment deal giving you anywhere around 500,000, 2,000,000 is reasonably sizable. Otherwise, typically, the funds, as you know, are reasonably small. Even if you look at India, a 2,000 crore, 3,000 crore fund itself is considered reasonably large in the alternative side of it.

43:43 So in that context, you know, anything around a million dollars for a single deal is, you know, reasonably lucrative. And those are the deals we are winning. The economics, they work better for the very simple reason that the fund size does not necessarily dictate the underlying effort. There will be some variabilization, obviously, in the form of probably additional volumes, and hence, there's a little bit more effort given much of it is tech based solutions that we have. And, you know, obviously, large fund size comes with large risks. So there is a certain amount of risk premium that we have to bake in in the form of... Which translates in the form of additional quality control costs, so on and so forth. But all of them put together still does not necessarily mean the cost will go commensurate with the size of the deal. So I would like... I... You know, the large deals, you know, anything around a million dollar typically tends to give you nearly two times the margin profile of that of five different deals together basically having the similar revenue profile. I guess what I'm saying, Supram, is, you know, one deal, you know, with a million dollars versus, you know, five deals with $200,000 each, you know, both of them will translate to the exact same AUM, probably the same revenue, but the efforts would be, you know, nearly probably just about half of what it would be for five different deals otherwise.

45:04 So that's the that's that's the focus area in terms of winning large deals that's already impacting the bridge. On the tax rate part, I'd request Vivek to do, cover that in addition to one of the other things about our plan to move into Gift City, the entire international business, which has certain tax benefits associated. But Greg, would you want to cover the tax rate part? Basically, there are some new businesses like KFINTECH services, the Gift City entity and some of the like KFINTECH. So these entities are basically still not profitable. And therefore, we are not recognizing the deferred tax on these entities, which is resulting in a slightly higher tax rate than INR 25.64 for KFINTECH in India. AS and itself is currently loss making in Singapore.

45:53 And therefore, whatever they pay as tax in India, we can't take foreign tax credit. So as a result of that combined impact, you will look at the tax rate being slightly higher than normal. We are looking at moving ahead of time to the Gibbs City, which should give us the advantage of twenty year tax holiday. So it's a process that has been initiated, but it will take some time. So we can't give you guidance on when we will optimize in terms of the tax rates, but that's a strategy which is in the pipeline. But as of now, it is largely to do with loss making entities deferred tax not being accounted for. Understood. That's very clear. And just one follow-up on the asset business. So when you were acquiring this asset, you had indicated that certain roles from Singapore will be transitioned to India.

46:48 Wherein we in that process, has that been completed? Yes,. So the... So that is the rationalization topic that I spoke on, you know, two important accounts. One was the payroll level rationalization, which means basically do, you know, department to department mapping between both the independent entities and look for those departments which can be done by a singular unit. For example, you know, two separate finance functions, two separate HR functions, two separate tech functions, so on and so forth. As you could imagine, as you consolidate, would have certain amount of redundancy and that job has already been completed. For example, much of the finance function is managed by Amit Murarka, who sits in India.

47:42 And likewise, you know, aspects around tech and HR and even certain aspects on operations also given Essence also or has its operations in India, in Hyderabad, in Mumbai, so on and so forth, many of the locations that we are ever since organically be part of. So both in terms of movement into the same physical location and wherever there are roles that could easily be handled by a single person instead of two different people, that amount of rationalization has already been secured. Got it. Thank you. Thank you. The next question is from the line of Lalit Mohan Deo from Securities Private Limited. Please go ahead, sir. Congratulations to another good set of numbers. Mister, we are not able to hear you loudly.

48:30 Yeah. Hello? Yeah. Please proceed, sir. Yeah. Yeah. Hi, sir. Congratulations on a good set of numbers. Sir, there's two questions. One, one is clarification, sir. Like, when we have mentioned that the overall margins will be around 40% by FY 'twenty seven, so does it mean the exit quarter? Or like or should we assume 40% for the full year? And the second question is more on the Issuer Solutions business. So now could you just explain the unit economics over in terms of the... During the IPOs, like, what kind of a revenue which we make in terms of new whole operation or in terms of applications over there? Sure. On the... So on the IPO, so let just cover that first. The IPO itself as an, you know, event or an episode does not necessarily generate any significant revenue.

49:27 Much of... Again, it's it's largely the competitive dynamics. Many of these get, you know, tagged at just a few lakhs of rupees. But, of course, the larger ones, you probably would own a little bit more. But by and large, it's the annuity that we focus on. Right? So, you know, for example, if you would have, you know, any of the more retail focused stocks, you know, some of them can go have, you know, have as large as 30, 40, 50 lakh individual shareholders. And, you know, that's the broader new model. It isn't as much about the individual IPO itself. So I wouldn't factor more than, say, 2% of the total issue of solutions revenue in a year because of the IPOs. That is properties of the polyure maintenance, the corporate actions, and the value added solutions, you know, revenue that we drive. I'm sorry.

50:21 I think I missed your first question. What was that about? Yes. Yes. So that was on the clarification part on the EBITDA margins. So whether that 40% is Yeah. Yeah. Yeah. I'll cover that. Sure. So no. It's it's it's it's average. It's not the the it's not the run rate on q four. As you've seen this quarter itself, it's already at 40.6. Right? So what we have to do is expand these numbers into the coming quarters to basically compensate for the q one, you know, EBITDA, which was only 34%. So we are working towards basically having a full year average of 40% and not just the running quarter. Got it. Yeah.

51:06 Thanks, sir. Thank you. The next question is from the line of Deepanjan Ghosh from Goldman Sachs. Please go ahead. Hello? Am I audible? Yes. Are you audible? Yeah. Hi. Few questions from my side. First, in terms of your core ex Ascent international business or the legacy international business, Just wanted to get some sense of the client concentration in terms of revenues, top five, top 10, if you can give some color on that and how that would have changed, let's say, over the past few years? The second question is on your ex Ascent EBITDA margins.

51:51 Would it be possible to break it up between the mutual fund business and the Issuer Solutions business and maybe the rest, which would probably be a little bit subpar, for example, the pension business? And the third question is in terms of the mutual fund margin business. I mean, how much more scope do you see in terms of efficiency realization or cost rationalization in that portion of the business? Sure. The exact numbers, you know, I think it's it's probably better for Ram or Abhidh to get back to you separately one on one. But by and large, the numbers, you know, are there, you know, published for each of the businesses. And in terms of the the overall margin profile, I said, if you take a look at the mix of the revenues, 52% for mutual funds, 13% for issue solutions, 20% international, including ascent, 7% other businesses like alternatives, pensions, and so on and so forth. So that's been the the revenue mix, you know, it will... As I said, will be more skewed towards the remaining nonmutual funds business, which will grow...

53:10 Continue to grow faster than the mutual fund business, and hence, the overall revenue and the margin profile. You know, shake up will still be there. Our, you know, intent and commitment towards 18 to 20% top line growth and about 40 to 43% broad range of EBITDA numbers, you know, continue to hold good despite a a change in the mix in terms of, you know, which one give you more, operating leverage versus the other. The reason why the operating leverage or the margins for other businesses, you know, it's just transient simply because it's very important to understand the nature of, you know, those, revenues and margins. At the individual contract level, including the GFS, they are far more profitable than most of the Indian contracts we have.

53:58 However, you will see a consolidated margin percentage lower, however. It is for the very simple reason that they are... There are constantly transitions that are happening, and hence, there is always certain element of cost that is currently being incurred, the revenue for which will coming into the coming quarters. So so my my position that should we not win anything, for example, in a quarter or two, you will actually see the margins of the other businesses to be at par or even higher, you know, than our traditional core businesses, so to speak. So you will see this anomaly of a reported profits lower than that of the core businesses profit till that time, we continue to grow. But, obviously, as the scale increases, you know, that margin will, you know, reduce because the transition driven cost as a percentage of the revenue will continue to drop as the overall by itself, you know, expands. Right?

54:56 So that's the point. In terms of the core, the GFS, you know, businesses, largely, the concentration risk is substantially lower as compared to that of the domestic mutual funds. Our top five clients, you know, contribute around 23 to 24% in total, with the largest client, you know, probably around 5% thereabouts. Even in India, if you see there has been a substantive reduction in the overall concentration risk with the top client contributing to around 5.5 to 6%, and the second one probably around, you know, three and a half to four. I would expect these numbers to come down close to two to two and a half percent in the next eighteen to twenty four months latest. Got it. And just one question on the last question on the possible efficiencies in the core mutual fund business. How much do you think the margins can improve?

55:56 So margin, as you know, is a factor of both the price and the cost. I'll talk about the productivity and, you know, price. I mean, the unit price of the total itself is a factor of asset class, which AMC is growing and the pricing. So given there is a certain amount of noncontrollable item in it, we focus on the controllables, which is effectively the productivity, and hence, the cost account associated with that. I called out the planned planned rollout of KFINTECH, which is basically rebuilding the entire mutual funds platform bottom up based on the latest and greatest technologies that we have available at this point in time. And that is about roughly a third done and deployed. A certain bit of the gains associated with that productivity, you could see, you know, is part contributing to the basis point expansion.

56:49 I... We have the rest of the program to be concluded into the next six to seven months. At this point in time, I would like to see there's going to be a little bit more productivity gains that we will get. Of course, there had been compensatory offsetting because of, you know, cloud cost, and process. We all know the memory and the compute space and energy and all of these costs have doubled and tripled. So a good part of what we are doing, however, is also getting negated because of the market forces. Should they get benign, which means that, you know, with the AI trade, etcetera, if it slows down a bit and the memory compute costs come down a bit, we will see, you know, benefit at that point in time. Otherwise, a large part of what we are trying to accomplish is also getting offset because of the absolute uncontrollable items beyond our hand. But I believe that pound to pound, you know, the human element into our services is coming down, and it's getting more and more on the non payroll cost.

57:48 So you you got... I guess, what I'm trying say is that you will see headcount optimization because of the straight through that we are doing. However, a part of that is getting compensated by large scale cost increases in the case of cloud and non cloud computing costs. Got it. Thank you and all the best. Thank you. Thank you. The next question is from the line of Mohit Mangal from Centrum. Please go ahead. Yes. Good afternoon and thanks for the opportunity. I've got two questions. First is on the AIF and the wealth management business. So we've seen the number of funds, you know, they have kind of consistently increasing even though the revenue growth was good and the ease expanded. But if I look at the EM growth, it was kind of flattish to marginally negative on a sequential basis. So just wanted to know what are your views on this business growth and ease, you know, going forward. My second question is, basically, we have spoken about our new offices in the past couple of calls.

58:50 So just wanted to know when the expense will come into into the picture and what would be the quantum of it. Sure. I'll take the last question, and I'll request Vivek to cover that. Second question in terms of the depreciation effect. See, nearly nearly about 80% plus of all the funds that we manage are cat three funds. Okay? And, of course, by definition, they're all exposed to public markets. Now last quarter, mark to market gains, you know, obviously had been tepid. In the case of mutual funds too, it had been tepid, but it got offset by the net flows being slightly higher. Whereas in the case of alternatives, based on the commitments and, you know, that schedule, the net flows did not compensate for the loss of mark to market gain. So it was a very tactical, you know, blip on the radar, something that I won't read too much into it.

59:43 The fact that the number of clients, the yield, and the revenue has grown despite a dip in AUM, I think, actually all as well. As I said, because as the markets turn around, you will have a compounding effect of net new clients being there, their revenue coming as well as the organic growth of the individual new client themselves. Vivek, if you could address a point on the Sure. Yeah. On the new office, new Hyderabad office that is likely to become operational effective December 1 and we expect two kind of increases. One is in the increase in the rent, which will be about 80 lakhs per month. And on the operating lease for the asset build out, this will also start from December 1. This year for FY 'twenty seven, there will be an impact of about INR 7 crores.

1:00:34 Next full year, it will be about INR 18 crores. And then you can say every year, it will keep coming down by 7% because of the discounting. So starting this year, 7 crores next year, which is FY 'twenty eight, 18 crores and then you can reduce it by 7%. The total lease period is nine years. Okay. Just one follow-up on this. Basically, the 80 lakh per rent you said, so basically, for the next two to three years, at least we should expect the rent to be of INR 10 out crores for the entire year, right? This is INR 80 lakhs per month for the next fifteen years. That's the additional rent over and above what we are already paying for selenium because of the largest So space that we have that's the hit to the P and L for the rental lease impact, which you will see in the depreciation, amortization, lease, the part of it. And the CapEx build out, which is through operating lease is the other piece which I talked about.

1:01:34 Understood. That's very clear. Thanks and wish you all the best. Thank you. As there are no further questions from the participants, I now hand the conference over to Mr. Vivek Mathur for closing comments. Thank you. As you would have seen, the results have consistently been improving in Q2 over Q1, where we have regained the EBITDA margin of 40%, and we have been giving the guidance that we want to end the full year with 40% EBITDA margin. The growth in revenue will continue to be in the range of 18% to 20%, with EBITDA margins in the range of 40% to 45% and PAT margins in the range of 25% to 30%. We remain buoyant about the Indian market.

1:02:24 And as the market plays out in terms of mark to market and net inflows with the fundamentals being intact, corporate actions are back on track, and that is why you see Issuer Solutions business doing well. Q2 is typically a great quarter. Q3, Q4 comes down little bit on core production, but our overall guidance remains where we stand. Thank you very much for attending the call today. Thank you. On behalf of IIFL Capital Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.