Investec has issued a rather cautionary note on registrar and share transfer agencies (RTAs), highlighting the need for diversification within the segment.
The brokerage firm has maintained a 'buy' call on KFin Technologies Ltd. but lowered the target price from Rs 1,600 to Rs 1,300. Investec has cut the target price on CAMS too from Rs 4,100 to Rs 4,050 while maintaining a 'neutral' rating.
RTAs may operate as a duopoly in India, but they lack the pricing power, according to Investec.
In its latest note, the brokerage firm said it prefers KFin Technologies over CAMS, citing stronger earnings potential, driven by international expansion and revenue mix.
Investec adds that RTAs have faced yield deflation of 3-4% annually over the past five years. This is despite the fact that there has been a rising share of higher-yielding equity assets.
This has much to do with the concentrated structure of the mutual fund industry, with the top 10 asset managers accounting for 77% of the assets under management, which in turn, has curbed flexibility, Investec adds.
Investec Bullish On KFin Tech
Keeping that in mind, Investec says KFin Technologies is better placed in this segment, at least compared to its peer CAMS.
The mutual fund segment contributed to 71% of the company's revenue, compared to CAMS' 87%.
Following the acquisition of Ascent Fund Services and rising traction in international markets, Investec expects KFin's mutual fund revenue share to fall towards 60% in FY26.
“KFin is ahead in the diversification journey, with ~30% of revenue already from non-domestic mutual fund business,” the note said.
Investec further said that international diversification will be key, considering the fact that India's domestic mutual fund assets are only 1% of the global share.
KFin Tech is in a better position, as far as international expansion is concerned, with Ascent likely to add to 13-15% of consolidated revenues from FY26.
Investec forecasts an earnings Compound Annual Growth Rate of 17% for KFin over FY25-28 compared to CAMS' 8%.
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