KFin Tech shares: Ascent deal likely to be earnings dilutive; target price

The KFin Technologies deal to acquire 51 per cent stake in Ascent Fund Services for a total consideration of $34.7 million is likely to be earnings dilutive in the short term, even as the valuations look reasonable at FY25 EV/sales of 3.5 times, Nuvama Institutional Equities said today.  

The brokerage retained its 'Buy' rating on KFin Technologies with a target of Rs 1,230. The deal would be earnings dilutive in the short run, but value accretive over the longer term, Nuvama said.

The deal includes a primary capital infusion of $5 million and a secondary purchase worth $29.7 million, valuing Ascent at an enterprise value of $63 million – implying an EV/sales multiple of 3.5 times based on FY25 estimates. The remaining 49 per cent stake will be acquired over the next five years in three equal tranches of 16.33 per cent each, linked to the company’s Ebitda performance in 2028, 2029, and 2030.

Nuvama said Ascent is a rapidly growing global fund administrator with operations across 13 countries, including Singapore, India, UAE, the UK, and the US. The company has demonstrated strong financial performance, reporting $13.3 million in revenue for FY24, up 32 per cent YoY.

Ascent’s Assets Under Administration (AUA) stood at $24 billion across 576 funds, built over the past five years despite the challenges posed by Covid-19. The company's revenue has grown at a CAGR of 34 per cent from FY22 to FY24. The management highlighted that Ascent achieved Ebitda break-even in H1FY25 and expected a meaningful margin expansion over the next three to five years, targeting Ebitda margins of approximately 40 per cent.

The company’s operating revenue yield is approximately 7–8 basis points on its $24 billion AUA. While the management is optimistic about margin improvement, Nuvama said a meaningful expansion may take time, and in the near term, the acquisition is expected to be earnings dilutive.

"We believe the acquisition of Ascent gives KFin access to strong client relationships. We believe it will be key for KFin to retain Ascent promoters and key sales personnel. While KFin + Ascent will continue to be a multi-tenant, multi-platform service provider, the management wants to grow its own platforms (Hexagram and others) and gradually phase out third-party software," Nuvama noted.

With the acquisition, KFin Tech also gets access to Ascent’s regulatory licences across major geographies. Lastly, while there is an overlap in operating geographies of Ascent and KFin tech, Ascent adds additional geographies such as Cayman Islands, BVI, US, and UK, Nuvama said.