One quarter, three brokerages and one common view.
KFin Technologies may have reported a mixed June quarter (Q1FY27), but analysts are looking well beyond the near-term headwinds. While lower mutual fund yields and a slowdown in Initial Public Offering (IPO) activity weighed on parts of its business, brokerages believe these are temporary challenges rather than structural concerns.
Motilal Oswal, Nuvama and Emkay have all reiterated their positive stance on the stock, with target prices implying an upside of up to 21% from current levels.
What is fuelling the bullish call on KFin Tech despite a soft quarter?
Mutual fund industry continues to be KFin Tech’s biggest growth driver
A key reason behind the bullish outlook is KFin Technologies’ strong positioning in India’s fast-growing mutual fund industry.
Motilal Oswal believes the long-term growth story remains intact, supported by rising financialisation, increasing retail participation and continued expansion of the domestic mutual fund industry.
Motilal Oswal has upgraded the stock to a ‘Buy’ with a target price of Rs 1,150 and expects the company to deliver a 22% compound annual growth rate (CAGR) in revenue and EBITDA, along with an 18% CAGR in Profit After Tax (PAT) between FY26 and FY28.
The domestic brokerage house sees an upside potential of upto 21% from the current market price
As per the Motilal Oswal report, continued momentum in the domestic mutual fund business, a strong pipeline in issuer solutions and improving profitability in international operations are expected to drive the next phase of growth.
It also believes KFin’s technology-led, asset-light business model and diversification into international markets, issuer solutions, pension and alternate investment services will support margin expansion over the coming years.
KFin Tech: Temporary headwinds, not structural concerns
The June quarter was not without challenges.
Revenue from the Mutual Fund Registrar and Transfer Agent (RTA) business was impacted by lower yields, while issuer services growth remained subdued due to fewer IPOs during the quarter.
However, analysts largely see these as temporary factors.
Nuvama noted that management expects IPO activity to improve over the coming quarters, which should support a recovery in issuer services. The brokerage has maintained its ‘Buy’ rating with a target price of Rs 1,120, implying an upside of nearly 18%.
One of the biggest positives from the quarter, according to Nuvama, was management’s decision to raise its FY27 earnings outlook despite the near-term weakness.
The company now expects EBITDA growth of 17-20% year-on-year and PAT growth of 12-15% in FY27, supported by cost optimisation initiatives, improving profitability at its international subsidiary Ascent and stronger revenue visibility from recently secured mandates.
International business becoming a bigger growth engine
Brokerages also see KFin’s international business as an important long-term opportunity.
While Ascent currently operates at relatively lower margins, Nuvama expects profitability to improve steadily as the business scales up and new clients are added.
This, along with continued diversification beyond the domestic mutual fund business, is expected to reduce earnings dependence on a single segment over time.
Margins continue to surprise positively
Emkay Global has also retained its ‘Buy’ recommendation on the stock with a target price of Rs 1,100, indicating an upside of around 16%.
The brokerage said the June quarter performance was broadly in line with expectations, while operating margins exceeded estimates due to continued cost optimisation.
It expects management’s focus on expanding the addressable market and diversifying revenue streams to support sustainable earnings growth.
Although Emkay has marginally lowered its revenue estimates for FY27-FY29, stronger margin assumptions have largely offset the impact, resulting in broadly unchanged earnings projections.
The brokerage also noted out the management’s confidence in achieving an EBITDA margin of around 40% during FY27.
KFin Tech: What all the brokerages agree on
Despite differences in target prices, all three brokerages broadly agree on the key drivers such as the –
-Continued growth in India’s mutual fund industry.
– Recovery in IPO activity, benefiting issuer services.
– Improving profitability of the international business.
– Cost optimisation supporting margin expansion.
– Diversification into new businesses, reducing dependence on the domestic mutual fund segment.
What investors should watch
The biggest monitorables over the next few quarters will be the revival in IPO activity, execution of newly won mandates, improvement in Ascent’s profitability and the company’s ability to sustain margin expansion.
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