KFin Technologies Limited (KFINTECH) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to KFin Technologies Limited Q3 FY '24 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Devesh Agarwal from IIFL Securities Limited. Thank you, and over to you.

Thank you, Muskaan. Good morning, everyone, and welcome to the Q3 FY '24 Earnings Call of KFin Technologies Limited. From the company, we have Mr. Sreekanth Nadella, MD and CEO; Mr. Vivek Mathur, CFO; and Mr. Amit Murarka, Head, Investor Relations. I would now hand over the call to Mr. Sreekanth for his opening remarks, which will be followed up by a Q&A session. Thank you, and over to you, Sreekanth.

Thank you so much, Devesh. Very good morning to one and all. It's a great day, bright start to our new quarter. I thank my management team who are part of the call as well as everyone who's contributed to the continued growth of our organization. Over the next 20, 25 minutes, I would cover the broad business highlights. I would, at which point in time, I hand it over to Mr. Mathur to cover the financial aspects of it, and we'll then leave the floor open for questions. I believe the investor presentation could have been circulated, broadly, the results that were declared the previous week on Friday, we continue to deliver to our promise and commitment of meaningful growth, profitable growth, and a growth that is sustainable and one that is getting derisked with each passing day, risk here being the cyclicalities that a market brings, the cyclicalities that a particular asset class may bring, the cyclicalities that any particular geography or a country could bring. As I had explained back in the day, our strategy had been to be able to diversify into every financial asset class. You would recollect that we are the only entity in the country, who manage the capital markets from the standpoint of issuer services on the equity and the bond markets, mutual funds, alternate investment funds, national pension system, private retirement schemes. And we do this in India and in Malaysia, Philippines, Hong Kong, Singapore and now Thailand to start. Just a quick overview in terms of the financials that we have delivered thus far, the Q3 ending December 2023. Our revenue clocked growth of 16% year-on-year and an EBITDA growth at 21% and the margin percentage nearing 45% and a PAT growth of 25%. This is despite certain one-off episodical expenditure that we continue to incur in the context of our aspiration to deliver similar solutions and value proposition to many other countries beyond India. If you were to adjust it for the onetime such expansion, we believe our growth would have been higher than what it's currently clocked in. We are extremely satisfied with the growth of the controllable components of the income, especially the value-added solutions, which has grown near about 60% year-on-year, and today occupies near about 6% plus of the total revenue profile and one that is growing really fast. This is where a significant amount of the company's effort had been to be able to create differentiated solutions for our clients, especially in the form of data, cloud, the API infrastructure, the analytics associated with that and the entire CRM stack, so to speak. Our share of nondomestic mutual fund business, as I've called out in terms of the derisking strategy that we've adopted stands at 31% for the period ending 31st December and one that is continuing to grow faster than the more mature businesses of mutual funds and issue solutions. Mutual fund business itself had grown on the back of significant net flows into the industry, a massive spike in SIP, which is a very, very important parameter to judge the health of the financial asset class because that is a sticky retail investment book that has nearly doubled over the last 1.5 years or so. KFintech, on the other hand, continues to grow while the industry itself has been growing. We have been outpacing the industry in the context of having several more clients in the industry and also the faster growth profile of our clients. For example, 6 out of the 10 fastest-growing asset management companies are with KFintech. We have been playing our little role to help our clients grow faster than the industry. We are yet to clock revenue from some of the newer asset management companies, which have gone live in the recent past that includes Bajaj Mutual Fund and Old Bridge, which has just gone live in the preceding quarter. Our overall AUM grew at 22.7% vis-a-vis 22.2% for the overall industry. We have gained about 30 basis points of market share in the preceding quarter on the overall AUM standpoint. From a issuer solution standpoint, which is the other larger and the traditional and the vintage business that we have. We continue to expand our profile of the corporate clients, 170 new clients have been added in the preceding quarter, taking the number closer to 6,000. Our market share of the NSE finance companies by market cap stands about 46.5%, added near about 5 million folios. As we all know, our revenue profile for the issue solutions is a factor of a unit price on the number of folios. Hence, expansion of IPO market, expansion of retail investor participation into the company. All of that goes on to help our business to grow in a fairly secular manner. We have managed near about 46% of all the main board IPOs from the standpoint of the market share, which is a very critical parameter to be considered in terms of the revenue growth of any organization. We have managed 5 out of the top 10. We have also orchestrated several transitions from the industry into the organization even as we are hoping to hear some positiveness from several others in the coming quarter. Outside of these 2, it's the international expansion story that has been differentiating KFintech. The last we spoke, the total number of clients we had were 50. It has now been increased to 54. In the last meeting, I have spoken about 2 letter of intents received from 2 clients from Malaysia, one of which has been converted into a signed contract and transition has begun. One of the other has transitioned in the form of a letter of award for the contract, which should be signed into the coming weeks. Four of other transactions, which started in Q1 and Q2 are due to go live into February and March, which effectively means the revenue per 4 additional contracts will start to kick in into the Q1 of fiscal '24 onwards. We are hopeful to see a turnaround of the markets in Southeast Asia, which, as we all know, have been reasonably tepid with the mark-to-market gains, hopefully, to be received into the Q1 onwards. Our growth in the international market, hopefully will grow much faster than what it has been thus far. This particular entire segment of international and other financial asset classes that includes alternatives and pensions has grown near about 30% year-on-year as against 17% from mutual funds and about 20% plus for financial solutions for the same period year-on-year. We continue to win several alternate investment funds. We have added two new GIFT City clients in Q3, taking our total tally to about 16 and we continue to have land and expand the existing clientele, which helped us to win a new scope of work for an existing client in Malaysia and one in the Middle East as well. Our intent to grow the fastest growing asset class currently in India, which is alternate investment fund, had been paying us rich dividends. We today have 455 funds of which there are at least 100 plus funds, which are yet to draw on the capital, which is a critical trigger for our revenue, which effectively means that our revenue growth of nearly doubling from the previous year to now will only expand as many of the other funds who have already signed up with us start drawing the capital and investing from there on. We have won several new clients. Some of the names include additional funds coming from Nippon, MOPE, from the GIFT and ASK, so on and so forth. And I had been and I'm very excited to share with this news of an absolutely brand-new platform we have created called XAlt, which is the only at-scale cloud solutioning, alternative specific platform that has been created, which is a fully integrated transfer agency fund administration solution overlaid by digital CRM and analytics. We believe that this is a game-changer initiative and a platform that will help us to add significant value to our clientele and their investors and the entire distribution of fraternity along the way. And this platform is also multi-asset, multi-geography, multilingual as well and multicurrency, which effectively translates it to be a platform that is ready for the world and not just India but made in India nevertheless. The last of the asset class, we are looking to is the national pension system. We have been outpacing the industry by a factor of 2 for the past 3 years. We have grown 25.3% year-on-year, whereas the industry grew about 12% broadly. We have expanded our total market share close to 8%. We all must recognize that we started this line of business just about 4.5 years back and nothing at all today we are nearly 10% of the total pension subscriber base and most of it coming from the private sector, where it is not mandatory so to speak. We continue to double down our interest and investment into the national pension scheme as we believe it is one of the very important asset classes every Indian should invest in to take care of their retirement plans. Quickly moving on, on the overall India performance, it is not lost on anybody, so I would not dwell too much into it, except to tell you all that every asset class, whether it's equity, IPO markets, bond markets, mutual funds, alternatives, in every parameter points to an elevated interest levels, participation by the broader populace of the country. Expansion of FII, FBI investments into the country as well as certain demographic dividends that are helping us and will continue to help for a foreseeable future. For example, every single year about 75 lakh new invest or new Indian citizen turn major earlier being minor, which effectively translates to many of them wanting to invest in financial asset classes as a strong participant in the capital market ecosystem and somebody who's doing pioneering job in driving ease of doing business for new investors, onboarding them and providing the ease to transact. We believe that several new million -- millions of investors will come in to the industry as has been the case over the past 2 to 3 years. And a lot of that would flow in the form of SIPs, which is a very sticky retail book, and that, I think, is the harbinger of far greater growth for the entire industry and not just mutual funds but including for equities and the alternate investment fund as well. The registration of the new alternate investment funds with SEBI had also been seeing significant expansion. There's been 20% jump in the new funds that have registered year-on-year. And that's sizable, if you speak in the context of number of funds itself, and the amount of capital that they could draw down is obviously a factor of the value proposition each other fund manager has to offer. We are privileged in order to have some of the largest and the marquee asset managers of the country being both our clientele as well as investors in some form or shape. KFintech's growth very specific to mutual funds had grown about 22.7% as I already called out compared to 22.2% in the industry level. We continue to have even a sequential growth of 5.5% vis-a-vis industry at 4.7% on the overall AUM. There has been a slight reduction in the equity component of our market share. That is largely on the back of several of our clients, driving a paradigm shift in the form of assets to be a significant growth factor both for the client themselves and for the end investor, so to speak. So it is a very welcoming paradigm shift -- not a paradigm shift, but a shift that augurs very well for the industry as low-cost expense ratio products help the investors and the broader participation of them into the market from here on. We have managed here about 45% of all the NFOs and near about 50% of the fund mobilization that happened in the industry came to KFintech's service clients, which is obviously very good in the context that we manage, 32% of the total market share. Fund mobilization, however, is at 50% of all new funds that have happened in the industry into this quarter. I hope and I wish my client will have far greater number of NFOs and a successful one to get into the coming quarters. The transaction volume continue to expand at a faster pace as compared to the AUM, which is understandable. That just explains the nature of the business. And that is one of the critical reasons why we've been continually investing in technology infrastructure, cloud computing capabilities to be able to future-proof our business to make sure that our clients are best served in the industry, not just in India across the world. Today, we are happy to also tell you that 4 out of the top 10 asset management companies are with KFintech, just about 6 quarters back, we had just I think 2. Today, we have 4 of them. With this continued faster growth and the velocity of our clients, we hope to have a parity into the next 2 to 3 quarters, so to speak. MF Central a joint initiative created with CAMS and us has gained significant traction into the previous quarter. We had about 7 million, 6.5 million hits in Q3 and one that's been growing faster, and the value proposition together, what we're able to offer to the industry is expanding with each passing day, whether it is loan solution, business solutions such as loan against mutual funds to cash APIs to being able to provide investor the best-in-class services is what this initiative is all about to drive ease of doing business. And we believe we have a lot more to offer in times to come together. On the issuer solutions, just quickly going back, the market capitalization, as I've already called out, as of December 2023 is about 46.5% in the Nifty 500 clients. We continue to add both listed and unlisted companies and orchestrate transitions. We have recently transferred Usha Martin Limited group from one of the competitions nto KFintech, and we are in conversation with some more and hopefully they're fructified into the coming quarter. On the international business, as I've called out, we've added 4 new clientele. And with the market turning around in many parts of the Asia, I hope that we'll have a faster growth and traction. As we speak, there are close to $20 million worth of pipeline that is warm and has passed the technical and the functional round, meaning, they are into the commercial round. And should any of them fructify, there would be a step-up growth into the international business, which we hope to see in time to come. Our acquisition of the fund administration company called Hexagram has been helping us, direct growth into the organization as well as its significant impact of helping KFintech to be the only provider who can have -- who has a fully integrated made in India TA, FA and additional platform together offering absolutely and parallel solutions and services with a single point of contact and someone who can deliver all the services that are required for a fund manager. Alternatives, I have already covered that space. On the value-added solutions, I just want to take a minute and call out our growth of 60% year-on-year is something that I hope to maintain as a trajectory into the coming quarters and years. Happy to announce that in just the last 1 week to 10 days itself, we have signed 3 medium to large-sized contracts purely in the space of tech, that is the data lake creations for our and other clients as well. And we are expanding taking these offerings beyond the traditional asset management space into the broader BFSI sector, including on the capital companies as well. So that is a news that augurs well given the context of the number of companies which are into the lending are quite substantially larger than the number of companies who are in the asset management space. We are also nearly done with our wealth management platform, which we hope and aspire we will be the platinum standard for the wealth management industry in time to come. With this, I would hand it over to Vivek to cover the financial performance.

Thank you, Sreekanth. So the financial performance has been strong in this quarter and YTD ended December '23. We have seen an increase in revenue by 16.3%, while in the domestic mutual fund business the average AUM went up by more than 19%. The revenue went up by about 14%. So we had the telescopic pricing impact. Although the overall yield still remains range bound, it is about 3.8 bps. So, we operate in 3.5 to 3.9 bps sort of the segment. And this is something which continues to remain strong. And as Sreekanth mentioned, VAS revenue continues to grow. Overall, even on sequentially on quarter-on-quarter also there is a growth of 4.7%, and our business mix continues to remain similar as we have been mentioning about 66% from domestic mutual fund and then about 3.4% within mutual fund because of VAS services, so overall, about 69%. Issuer Solutions continues to be about 15% to 16%. International and Other Investor Solutions is about 10%, which was about 8.8% last year, same period of 9 months. Within that, we are seeing that the overall businesses in AIF and wealth continues to grow. It is about 5% as compared to about 3.8% within that 10%, and rest is about GFS and small businesses like NPS and Webile. And there is tremendous growth in terms of segment business, as AIF has outgrown all other businesses. It has grown up in terms of year-on-year growth by almost 86% as compared to rest of the businesses growing in mid-teens, a little higher as compared to the AIF business. We continue to remain focused on growing our international and other Industrial Solutions business. As Sreekanth mentioned, we are -- we have got new mandates in the current quarter, besides the last quarter even in the current quarter, which will actually get fructified in terms of contracts, and you will see exchange information being filed as and when we get the letter of mandate. So, we remain buoyant about the international business growth. Overall, expenses have also gone up, in terms of overall expenses, there is a growth, even on quarter-on-quarter, there is a growth, if you see. And we feel that the overall expense growth is more fueled by our people strategy of getting best of the talent and retaining them. Overall expenses have gone up by 7.4% year-on-year and 3.3% quarter-on-quarter. And that is something we have seen the retention bonus paid to the employees and attracting more employees in growing businesses like AIF and also because a number of transactions have gone up substantially, as Sreekanth earlier mentioned. We have strengthened our audit and surveillance team, and we hired more people there, besides hiring more people in AIF operations. So within the quarter, we would have hired almost more than 120 people in these businesses and support functions to make them stronger, which has resulted in slightly higher employee cost, but that is not something which will continue ever after. This is sufficient to take care of the growing volumes. As a result of that, the EBITDA has gone up and touched 43% versus 39.9% last year, same 9-months period. And it's almost in -- touching distance of 45% for the quarter. PAT has gone up by 23.7% year-on-year and about 9% sequentially quarter-on-quarter. And we are now at 28.2% PAT percentage and quarter ended with 30.6% PAT percentage. Diluted EPS has gone up to INR 10, which was INR 8.2 last year. Now we are sitting on cash and cash equivalents of more than INR 313 crores. This is after repayment or buyback of the RPS of INR 134 crores, which was paid out at the end of November 2023. So we have strong cash flow, strong balance sheet. Net worth has gone up to INR 1,062 crores, which was INR 870 crores last year. So it's an 18% growth on net worth, almost INR 200 crores up as compared to last year. DSO continues to be in the range of about 65, 66 days, and we are putting measures to improve it. Although overdue is just 26 days, but we are getting more rigorous because of the diversity of our business into not just domestic mutual fund, but corporate industry and AIF with new client wins. We are trying to reduce it further internally putting that discipline in. So this was more about the financials. Happy to take any questions now. The floor is open.

[Operator Instructions] First question is from the line of Abhijeet from Kotak Securities.

The first one is on the international/alternate business. So Sreekanth, if you could just again simplify for us and maybe break down the revenue pipeline in this part of the business. I think one number that you mentioned, $20 million seems like a strong growth runway from where we are today. So little more color here and numbers if possible?

Thank you, Abhijeet. Yes. So the international business, we -- so there are 2 important -- I mean 3 factors rather. So, winning the deals and obviously hitting the revenue has a certain lead time, as I had explained back in the day. The last 3, 4 quarters that we have been announcing about the new wins. 4 out of those wins are turning into revenue-generating accounts starting late this quarter into early into the coming quarter, and they are medium-sized asset management companies, which will add a decent amount of revenue growth into the coming year, point number one. Second, the deals that we have announced in the previous quarter, one of them have converted into the contract, which means that the transition has just started. And the other one, which is one of the largest integrated asset manager in the form of both private and public mandates in Malaysia. That contracting process is underway, which will be concluded hopefully in the next 2 to 3 weeks, and then we will go on to initiate the transition for that, which will be a small -- which will be a short burst activity so to speak. So that's the second. The third in terms of the pipeline, we have a sizable number of clients as is evident you know 54 clients. But obviously, the revenue profile in comparison to Indian clients isn't as substantial as is evident. That's largely a factor of the size of the asset management company, whom we have as clients today. Given we are relatively new in almost all of these geographies, are probably the longest vintage we have is about 4.5 years in Malaysia and some of the other countries is just 2 years. It is but I understood that the large asset management companies would want to see a certain amount of track record, continued performance as well as the work we are doing with the regulator for each of those local geography. And then is when they would start having serious conversations with us. Happy to say that the current pipeline and the clients we are talking to are mostly amongst the top 10 asset management clients in that -- in each of those geographies, so to speak. Although, a win in each of these client mandates would have a post multiplier effect. It will hopefully will drive multiples of revenue growth as against percentages of growth, right? So the $20 million is largely in that context. So, the last large contract we had won happened to be the third largest bank based asset management company in Thailand called Krungsri Asset Manager. The transition is underway and is expected to conclude by end of this fiscal. And given that we are managing one of the largest one out there, many of the top 10 are having very serious and engaging conversations with us to be able to render value-added solutions, both in terms of transfer agency and fund administration at a country level, right? So it is that pipeline that I was talking about. So it is not an early stage pipeline but mid-to-advanced conversations with the client. Sometimes the contracting process is a little protracted in that part of the world, but given now we have a track record of nearly 5 years, never lost a single client and have been adding at least 2 to 3 clients every single quarter, there had been a substantive interest in almost every single geography in that part of the world. In addition to starting operations in Thailand, we are going to start operations in Singapore, even as we have some clients there already. We are working with the regulatory process to be able to secure alignment to both to set up the office as well as start in-country operations in Singapore.

Just a follow-up here on the international side, like how do we look at the investments that are going into it in terms of lead lag? Because I think the margin number that you report, I'm not sure how reflective it is about the underlying operating numbers in this part of the business, but it was a decline sequentially there. So at what point of time this business starts to deliver somewhere close to 15%, 20% sort of margin numbers?

A great question. So the way to look at this, Abhijeet is at a client level, not at a geography level, we cannot compare the growth market to that of India scenario where we have 60% market share, many of the clients being there for the last decade to 2 and a new client addition takes certain amount of time, at least 3 to 4 to 5 years in India, for example, for them to make any meaningful corpus, for me to make any meaningful revenue out of it. Whereas in that part of the world or any new country for that matter, a client level margin is what we look at. And in almost all cases, we are tracking to anywhere in the range of 35% to 40%. But at an entity level, international may look a little less because of continued expansion into newer geographies, continued expansion of technological capabilities or platforming capabilities, the transition cost that we incur as we migrate a client from incumbent, including their own captive to KFintech. So those costs tend to vitiate what is otherwise a profit profile, which I think is pretty good. And I'll give you a leading indicator to that, for example, is the basis points. In India, our blended yield, as you have seen is roughly about 3.9, and had been fairly stable for us for the past x number of quarters. The same for my international business is 5.2 basis points, right? So pound to pound the yield is higher. The number of transactions one would expect will be substantially lower than when compared to India, right? Because these are high ticket size, low-volume countries such as Singapore, so on and so forth. And go at every client level, the margin is healthy. But when you aggregate at an overall entity level, it looks like lower because of continued investments into new geographic expansion.

And the second and last question is that in this context, I think the core business, the MF RTA as well as the Issuer Solutions business that they have been delivering very solid margin improvements. So just wanted to understand, what is the level of operating leverage that is available there. In the sense, can these businesses grow at mid- to high single-digit expense growth on a sustainable basis?

Just like in the case of international to in domestic side, Abhijeet, we are future proofing or endeavoring to future-proof our business for volume expansion. We've seen a volume expansion of north of 20%, 30%. And that volume expansion actually adds much higher amount of data storage type of security-related costs, the engineering environment, management, et cetera, that is required for our core operations. So it actually translates to a far higher quantum of engineering efforts and work and maybe even cost at our end as compared to the transaction volume that you see in the industry. The expense that you have been seeing that has slightly gone up in the last 2 quarters, which I would expect we will continue to invest. And as you know, we all expense all of it out, most of it at least. And ergo, these are not necessarily investments that are on the balance sheet, but already knocked into the P&L even at the -- at 45% or EBITDA numbers. This particular investments are required to future-proof our businesses, right? I mean the investments we made 3 to 4 years back, for example, have been continually driving the operating leverage, right, reducing the pure-play operations cost, the risk associated with that. And hence, the margin profile continue to stay put. The investments that we are making now are the ones that are going to help us into the next 5 to 7 years. Of course, what we are now doing is not incremental changes, but a complete re-architecting and step-up chart changes that we're making to the overall platform and solutions, which will have fast reaching consequences and driving operating leverage into the coming years. So XAlt is one such classic example, right? So we did not go on to make incremental changes for existing platform, but we built bottom-up in a manner that our ongoing operating cost will be low. Our dependency on the large enterprise solutions where the licensing costs tend to spiral out a lot of control very soon comes down over a period of time.

The next question is from the line of Supratim Datta from AMBIT Capital.

Starting with the international business, I wanted to understand what is the mix of FA and RTA business do you see in this business in the next 5 years? That's the first part. And the second part is on the XAlt business, this is a platform which has significant growth opportunity, not only in Southeast Asia, but in other international markets as well. However, this is a mature market with well-entrenched competitor in this business already. So what are the differentiators for your XAlt platform that you think will help differentiate and penetrate into clients, hedge funds or other asset managers? So if you could start with those 2 questions on the international side before I go to some other questions.

Thank you. The current mix of TA to FA in terms of the number of clients is about 31 clients are TA and 23 are in FA. FA, thus far broadly had been platform only so that is by virtue of our acquisition of Hexagram. The TA, however, broadly is a full service model like how we deliver it in India today to all our mutual fund houses whom we manage today. We -- in terms of the overall revenue mix as against the client mix, it would be around 80% would be TA revenue and about 20% would be a FA revenue. The differentiation or what is the value proposition we have to offer for FA, right? I mean I think the question I heard was that as a platform play, we are not looking at ourselves as a pure-play platform, right, for FA, which was the case with the acquisition that we made, Hexagram broadly was a platform-based company, not necessarily rendering a service layer on top. I could equate that in the case of TA, for example, to our platform, which is called KBOLT. And that platform also could be given out just as a platform too, right, probably not so much in India, but outside the country. But we also have our entire processes and people and the risk management, everything associated with it and the governance. And hence, we charge certain basis points and which translates to participation of the growth of the industry in itself. So we are replicating the same model in FA. So it is no longer just platform. So wherever we already have platform sale, we are upselling the service layer. All new clients, all new geographies, we are pitching for a full service model. It is still possible that the client could be interested only in the platform and not the service. And in some cases, it could only be the service and not even the platform. The value proposition we have to offer is manifold. First off, are you right, there are several entrenched players, especially in mature markets such as Singapore, for example, or in Europe and U.S. but probably not so much in other geographies such as emerging Malaysia, and Indonesia, Thailand, Philippines. Some of these markets do not have entrenched players. But let me drive the answer in both cases. Even in the case of mature markets, the value proposition we have to offer is that we offer both FA and TA and the entire digital stack, which most of those do not, point number one. Number two, we today are able to deliver at 5 to 6 basis points, all of the solutions and more as compared to our typical fund administrator who could be charging anywhere between 8 to 18 basis points depending upon which fund administrator and which AMC you're were talking about, which means that I have a value proposition to optimize the cost to serve of most fund managers by a minimum of 25% to 30%. So that is the second big value proposition. Third is in terms of our go-to market and speed to market rather. Given we are at heart, our tech company at this point in time, we are able to create solutions for our clients, which most of the fund administrators do not do because they are purely fund administrators, where we are a full-scale digital company, so to speak. For example, we have created the first of its kind a simple WhatsApp-based distributor empanelment, where you could onboard 30,000, 40,000 distributors in a single day. Now these are alien concepts to most of the other operating geographies beyond India, and we're able to take these solutions at scale and be able to provide value to those clients. Fourth, while the entrenched fund administrators are there, they are more focused on the large fund managers because the quantum of the AUM is quite substantial and ergo the return they derive out of that is quite high. Whereas we see a large market of several boutique, small to medium fund managers, who we believe are charged very, very high, anywhere to the tune of 15 basis points, if I may. And also are underserved because they are not the largest out there. And that offers a phenomenal amount of space for a player like us to start with small, medium-sized entities as we have already done in the case of mutual funds and then expand into the larger alternatives. I hope I answered your question.

That was very helpful and very elaborate answer. Thanks a lot for that. On the cost side, I wanted to understand, you have been making investments in this business to drive and rightly so, because it requires future proofing. However, I wanted to understand, given the focus on tech and the tech life cycle is getting shorter. Are these investments more recurring as compared to one-off and that is how we should think of it that it should continue at a similar level rather than, there being -- currently there being a step-up and going forward there being a step step-down in costs. So just if you could give your thoughts on this.

Certainly. So I think the answer is part of it is yes and part of it is no. The big ticket expenditure, which is onetime and not recurring. It may be refresh maybe once in a decade kind of scenario is effectively the brand-new platform creation, right? For example, the XAlt platform that I spoke about for alternatives, or the platform that we have now created for Malaysia, Philippines, Hong Kong, Singapore, Thailand. Now these are all one-time creation, or now the entire cloud strategy that we have implemented over the last 2 to 3 years, whereby we moved much of our data layer on to the cloud, much of our API infrastructure onto the cloud that is also onetime. And we are right now in the midst of the journey to take our mutual fund platform to be the most digitally advanced tier platform not just in India, honestly, anywhere in the world, that is a onetime expenditure, onetime investment, not a recurring one at it. Now these are big ticket items. These are generational ships, as an industry and as an organization, we are 35 years old into this. And what we've been able to do is add incremental enhancements into the platform. But we believe the time has now come at least in the context of the growth we have seen in the industry and what we expect in the future to completely reset it, right? And hence, it's a onetime, and it's a big picture item, no doubt, and we've already spent much of it and expense drop and some more to happen, whereas there are several other recurring items, which is a continued, as you rightly said, the tech life cycle has come down. So we create a lot of new features, product solutions. Some of these are revenue generating in their own, right. For example, today, 6% of my revenue is coming from value-added services. Those value-added services are on the back of those platforms and solutions we have created. So these are not just purely cost items, but they are recurring revenue-generating items for us, right? If I were to put a quantum to it, I'd like to believe that anywhere about 60% to -- 60% odd would be a one-time investment of the tech spend that we are doing currently, maybe 40% of what we've been incurring could be a repeat expenditure. But again, a lot of that would continue to drive revenue profile and not just a pure cost consumption for us.

I'll just add to what Sreekanth mentioned. This is Vivek Mathur. We continue to spend almost 19% to 20% of our revenue in terms of IT, OpEx and CapEx. CapEx is just 5% out of this 20%. The rest is all OpEx. And we believe that as a growing company, we have to invest in technology. And as you rightly asked the question that isn't it recurring? We feel that as the volume goes up in terms of revenue, the percentage will keep coming down, but we will continue to invest in technology. So this 15% to 20% of our revenue, we will continue to incur on IT.

Got it. And so 15% to 20% on the elevated revenue base or once the revenue base increase that proportion goes down?

Yes. So last year, for 9 months ended December '23, we spent almost 22% of our revenue. This year, we have spent 19% of our revenue. So as a percentage, it will keep coming down, but the quantum will also keep going up as the overall revenue goes up.

Understood. Understood. That's very clear. And my last question is on the MF RTA business and the AUM growth. So your overall AUM, you have been growing ahead of the industry. But when I look at the equity that has been growing slower than the industry, at least this quarter, it has been growing slower than the industry. So, any particular reason behind this? I understand this is driven by your retail fund partners, but just wanted to understand why is there a difference and could this gap be reduced going forward?

Sure. I can take that. No, there is no reason. This is just the cyclicality that I was talking about, right? In 2020, our market share of equity -- I'm sorry, in 2018, the market share of equity was 26%. In '23, it rose up to -- it rose up to 35%. So there is a nearly 800 to 900 basis point expansion that we saw in a matter of 3 years at that point in time, right? And now it is slightly less. Now that basically is a reflection of the fund performance, right? I mean you will have -- if you look up the fund performance itself of various schemes of various fund managers. In the quadrants, if you put Q1, Q2, Q3, Q4, you would realize there is a constant movement of certain funds from 1 quarter into the second to the third to the fourth based on the fund performance broadly. And that would obviously drive the inflows of the both SIPs as well as a lump sum in to that particular scheme, which obviously will then roll up into that particular client. So 26% to 35%, 35% now down to 33% odd, 33.5%, and in the next 2, 3 quarters, it could go up again. So there is no reason. I believe this is the cyclicality that we would see it is possible that in the next 8 quarters, it can easily go to 38% and 40%. I mean it's very hard to predict, there is no underlying reason accepting the fund performance of the clients. And sometimes the fund performance could favor some large asset managers, sometimes it could be for other asset managers. So we expect this to -- the cycle to continue, and hopefully, in the next 1 to 2 years, our market share would expand then reduce a little bit.

[Operator Instructions] The next question is from the line of Aejas Lakhani from Unifi Capital.

Yes. Congratulations to the team on the numbers, and thank you for the detailed explanations. Two questions, one on international and one on domestic. The international question Sreekanth, thanks for clarifying that the yield that your partners charge is 8 to 18 bps and you're charging 5 to 6, so we understand that scope and what I've understood from your previous calls and this one is that the mid- to boutiques are the ones that you're chasing directly, whereas the larger ones you are chasing through a custodian partner, et cetera. So I just wanted to understand that is there a specific conflict that arises because the custodian is like, okay, you're going direct? And will you come after my lunch? Is there any sort of a conflict in that? And also specifically, the international piece, AUM grew -- degrew this quarter for about 3% to 4%, whereas the AIF piece AUM grew 8%, but revenues declined 3% sequentially. So could you just explain that specific aspect as well? That's on the international.

Certainly. So I'll clarify the point on the custodians and on to begin with. We have partnered with 2 custodians in the Asian region, and the custody is there usually also provide fund accounting, right? And our partnership with them is largely for very specific mandates from the asset managers who want a single entity to provide transfer agency fund accounting custody altogether, right? And given we offer TA, and the custodies offer custody and FA, so this partnership is extremely limited for that very specific purpose of mandates where we need to have a joint go-to-market strategy, right? Outside of that, there is no conflict and there is no -- anybody stepping on somebody else's store. So we would as much as partner with a custody to bid for a particular deal. We could easily be competing with the same entity for the next deal where the fund manager does not necessarily insist on a single entity to provide all 3 solutions under the hood. So, to that extent, it has been an extremely harmonious relationship that we maintain with all of that, right? Now this is more for mutual funds. As we are very intentful of growing our alternative space quite substantively, especially, say, in the context of Singapore. In Malaysia, it is probably not very large, but in Singapore, it is quite large. There is a case in Thailand. There, the custody and all is not something that we need to work with because there, they look at TA and FA as one unified provider, which is where my point about large fund administrator came to picture, right. In all those -- in almost all those cases, it is the same administrator who provides both TA and FA custody is a completely different line of business. So depending upon which asset class you look at, we will -- our partnerships work for that particular purpose. But yes, in the case of a single bid, it is a partnership in the case of non-single bid where it is no expectation that in all these which has been rendered under one hood. We compete with them. And then the track record has been showing. We've been winning at least a couple of international mandates in every single quarter. And hopefully, large ones are going to happen this quarter. Now in terms of the growth itself, yes, the market there had been typically we all know, for example, the Hong Kong market wasn't the brightest and it was the case of Malaysia and others. So to that extent, there had been a little bit of AUM degrowth, but that had not necessarily resulted in any degrowth of revenue in the case of international business, which had grown about 7%. But the overall -- the line of alternatives and international and the pensions, there was a slight sequential degrowth. That was on the back of the previous quarter, alternate investment funds year-on-year had grown near 100%. This quarter, we had grown 86%, so to speak. So, a lot of fund mobilization in alternatives happened last quarter. A lot of new funds we won. The preceding quarters went live in the previous quarter, but probably a little less of that happened in the quarter 3. And that was the only reason why there was a slight sequential reduction, but the alternatives drawdown and the capital commitments are on the significant upswing into the later part of the quarter, and as we see into this quarter, we expect that trend to reverse very, very soon.

Got it. This is very clear. I think this is what you were alluding to when you said the controllable components of the income. This is clear. And the second is on the domestic business. Sreekanth, is -- how is the competitive landscape shaping up? Could you speak a little bit about that as competition in lieu of, the stance that you have taken and the investments you are making, has that landscape shifted changed your comments about it? And what in your opinion are the key risks to KFin's business today?

The competition landscape, one thing that we've always been proud of and we continue -- and we will ensure we will do that is set industry standards. We haven't traditionally been following as much as leading from the front, whether it's in terms of the business solutions that we offer, getting into the new asset classes, new business lines or the pure tech changes, whether it is cloud for strategies, whether it is driving at-scale generic capabilities, including on the big data components where in fact we even manage some of our competitors clients in that space. It's something that we'll continue to do so. I think a competition that it's in the space of Issuer Solutions or in the case of alternatives, pensions, mutual funds. I think it's a very healthy trend, if I may, right? I think it's great that each of us constantly innovate and bring to the market for the betterment of the investors, asset managers and the distributed ecosystem even the regulator for that matter. And that amount of healthy competition is driving down the cost. It is significantly improving the ease of doing business, onboarding financial inclusion by moving into every last city and location, creating digital solutions, which were to unthought of, for example, to onboard a client on alternate investment fund until about a year back was literally a 3-day process and about 145-page document that needs to be filled. We took it upon as a challenge ourselves, and then we created the country's first digital onboarding platform at scale where you could onboard anybody in 3 minutes. And not just HNI, ultra-HNI, but whether you're a trust or an endowment fund or any corporate for that matter, right. So the competition landscape, I think, is constantly evolving. We're all putting enough pressure on each other. And I think it's a very healthy friction for the betterment of the industry over a period of time. That was one. I'm sorry, there was another question that you asked us.

Just any key risks that you feel that the business may face?

Well, I think our business is riddled with risk. So, there is to that extent, I think there are several, and we continue to attract. And it is our duty, solemn duty to ensure that the risks are mitigated at every point in time. But let's say, continued focus on cybersecurity and data privacy is an exceptionally important item for us. We manage near about 8.5, 9 crores investors in the country, almost every -- near about 80% to 85% of the financial investors in India have something to do with our organization. So we -- that's an enormous responsibility. And then hence, all these investments and efforts and all of that we are continuing to do is to ensure that this is all protective, right? So that's definitely one thing that we will continue to double down and make sure that we create an absolute 0 trust model and absolute amount of cybersecurity resilience. Outside of that, while the cyclicalities from a business standpoint will always be there, we were fortunate we had a great year last year. It is possible every year it won't be like that, right? And that is exactly the reason why our risk diversification strategy of rendering solutions for every asset class and for as many countries as possible, will go onto play a big way. Hopefully, for example, if India were to have a subpar mark-to-market growth into this year or next year. It is strongly possible that the Asia could rebound at which point in time, what now seems like a little tepid -- relatively tepid growth of Asia compared to India, will probably go on to help KFintech the next year when those markets could be coming back after 2 years of relative underperformance. So it's all about risk diversification from a business standpoint outside of that purely technology standpoint, the data security and the infosec is something that we are tracking very, very closely, it is a very big topic for the regulator as much as it is for us. The DPDP Act is going to come into play sometime soon, the dates are yet to be announced. But we are keeping ourselves ready at the very earliest even before any instructions come from anywhere.

The next question is from the line of Dipanjan Ghosh from Citi.