KFin Technologies Limited (KFINTECH) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to KFin Technologies Q1 FY '27 Earnings Conference Call hosted by IIFL Capital Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Devesh Agarwal. Thank you, and over to you, sir.

Thank you, Good morning, everyone, and welcome to the Q1 FY '27 Earnings Call of KFin Technologies Limited. Today, from the company, we have with us Mr. Sreekanth Nadella, MD and CEO; Mr. Vivek Mathur, CFO; and Ram Gattani, Head of Investor Relations. I will now hand over the call to Sreekanth for his opening remarks, and thereafter, we'll open the floor for Q&A. Thank you, and over to you, Sreekanth.

Thank you, Devesh. Very good month to one and all, and thank you so much for taking time out this morning for our conference. As we have published the results the Friday of the previous week, our narrative continues to be to double down on our strategy, which has been working exceedingly well, broadly to continue to grow the addressable market for the organization. And while doing it, diversify the risk that a similar asset class or a single geography or a similar business process As you could clearly see over the past 5 years, our revenue has increased manifold even as the geographical diversification, asset class diversification and the business process diversification has started to give the necessary yields and the resilience that is required in times like this with the markets not necessarily providing us the right kind of it that is required. In a quarter and a year that had gone by, where the mark-to-market gains have been negligible or negative, our performance confidence for us in terms of the future that lies ahead of us as the market will improve. As an organization, from a similar standpoint, we continue to be in the largest India in terms of the number of folios that we manage. Nearly every individual in India who has invested in a financial asset class has some connection with KFin technologies, whether you are in the drug securities market in the form of IPOs, whether you're in the secondary markets, whether in mutual funds, other investment funds, pensions, private retirement schemes, so on and so forth. Our win record across all these asset classes and geographies is a testimonial in terms of the execution of the strategy that we have set for ourselves. As you could see from the mutual fund standpoint, the quarter that had gone by, we have -- our funds, in fact, have performed better than the industry average in terms of the overall AUM and even on the equity side of it. Similarly is the case with the issuer solutions where nearly 80% by market cap of all the IPOs that have happened in the quarter that had gone by have all been by KFin technologies. Similarly, in terms of international fund solutions, both the revenue and the fund addition is with the overall revenue growing at over 30% year-on-year on international. Ascent acquisition that happened in the October of the previous year continues its stellar performance in terms of both new client addition as well as expansion of the AUM of the existing clients. notwithstanding the fact that the digital currencies have tapered down in terms of the overall mark-to-market in spite and despite of with the overall AUM and hence, the revenue corresponding to that has grown and that is largely on account of expansion of the net new asset management companies and more importantly, the wins of large fund managers. In fact, the organization had one new fund managers with a fund value of over $100 million, so to speak. In terms of pensions. As we have been over the past 4 years, we continue our outperformance vis-a-vis industry even as industry has grown at a certain percentage, we've grown nearly 3.5x of that particular growth, making us the second largest CRA in the country, in fact, allowing us newer business lines as we have orchestrated across the globe in terms of getting into the pension fund administration beyond just in India. The quarter that has gone by also on a qualitative aspect has significantly enhanced our ESG score to 63, which was 54 the preceding year, which means our performance is not just purely on the financial but also is in terms of the overall overarching what it takes, whether it's in terms of the environment, social and the governance aspects of it, not to mention all aspects pertaining to the technology and cybersecurity where we have been rated among the highest around 810 score. We continue our focus in terms of new product innovation and deployment nearly every quarter we try to develop and make innovative solutions, which not just in India, in fact, many parts of the world have not seen. I will call out 1 such thing in the mutual fund industry, which we have just launched. But before that, as you have already seen the headlines, our total revenue has grown over 30% year-on-year, consolidating Ascent, excluding Ascent also, we have grown nearly 10% thereabouts, EBITDA to about 7% plus and the PAT, there was a marginal decline to flattish performance, largely on account of the depreciation, amortization and several noncash items, which we have already explained in the past. What is also happening is to see the overall share of the nondomestic mutual fund business now stands over 40% or close to 40%, in fact. I think 4 years back when the strategy was unveiled, there was fair amount of skepticism in terms of if it's possible to orchestrate several such large businesses, but in a matter of 4 years, a near 40% of the revenue comes from businesses which are beyond. Now these are young, fast-growing businesses. At an individual contract level, they are profitable, margin accretive. But obviously, with a fast-growing business, it always comes the addition in terms of transition-related costs, where the costs are incurred at this point in time, with revenue will come in the future. And in is the case with the SG&A as well as the the commission structures that are required to grow faster geographies and the addressable markets where it is much larger. So clearly, even at a contract level if the margins are much higher, you will not necessarily see it in the consolidated business level simply because of the transition cost associated with that. But the diversification story continues. We do believe that the fast outperformance of each of these businesses would mean the dependency on a similar business will come down to below 50% into the coming 3 years and if not sooner. In terms of international business. Obviously, with the Ascent expansion, we have grown nearly 200% year-on-year. Even if you exclude just the organic business has grown over -- this ties back to our formal guidance, our confidence to continue to grow these businesses over a 30% clip. This also is not withstanding the fact that mark-to-market gains much of is at least we operate in the geographies we operate in, which unfortunately Mark-to-market gains have been tepid, which effectively means that the growth had been largely on account of several new client wins, which shows, if not anything else, the genuine value that we are able to add to the larger fund administration ecosystem and our right to win has been consolidating both in terms of the cost optimization, we are able to offer and render to the various asset managers, but also the value that we are able to bring forth in terms engineering capabilities and technological advances, which we are impacting currently in India, but we are also able to take it to the rest of the world. And honestly, the cross-pollination works the other way around as well. So we fund structures that get created and were beyond India, which have a lot of elements in India, and we are able to bring some of those solutions here, especially in Gift City. Issuer Solutions, we have added 670-odd clients into the previous quarter. Clearly, our intent of IPOs beyond the main board IPOs is a slight detour in terms of our strategy into the previous year where we wanted to drive for larger market share. Many of the SMEs today can become medium to large-cap companies at some point in life. So that strategy is working well in terms of adding several new logos as well as unlisted companies. It is also heartening, as I've already called out, in terms of the number of IPOs that have happened in the quarter gone by and that is to happen in the coming quarters, most of them are current KFin clients who would be going live. Our market share on the NSE finance company standard 50%. It was -- there's a slight reduction in terms of the market cap production for some of the clients that we currently manage. But of course, as the markets the number would go back to the numbers that we were seeing in the previous quarters, which were around 52%. We have also won the IPO management brand, and there are several others as well. Of course, we are awaiting the large IPOs into the coming quarters as well. The main board IPO is managed by in terms of market share by market cap on issue size is roughly about 80%. Moving on to the other businesses on the alternatives. Again, this is a line of business which we were very focused upon in the past 4 years, having created India's first fit-for-purpose alternative investment platform called Our total consolidated account of the funds today is roughly around 731, and it occupies a share of 37.3%. The wins that we have, which are yet to launch we add that, we believe that market share will be closing in on 40%. We continue to win from all the existing clients in addition to some transitions as well as winning of several mandates in the GIFT City continues to be our forte. If you also recollect into the previous year, we have forayed into the wealth management business on a very high conviction basis. We created arguably one of the best platforms we have in India today called for the wealth management industry. Very happy to inform you that we have won 3 mandates on this on the line of business, which are currently in the process of transition and deployment. In time to come, revenues will be recognized. And we should also be closing in one of the bank-based wealth management platform, which open doors for a large wealth management output, not just in India but across globe. I've already called out on the national pension system. In the previous quarter, we have broken even. We continue to consolidate in terms of driving the margins in this line of business. It is no longer a loss-making, but adds to about roughly 15%-plus in terms of EBITDA. And in times to come, it should get to be one of the highest margin generating business, largely in the context studies platform-based business that we have today without necessarily needing the headcount that a typical option process and mutual funds and other businesses occupied. Scale is critical. The current growth vector gives us confidence in the coming years as the consolidation in terms of the plans continue. Today, we manage a little over 2.5 million pensioners in our country. And as I already called out, we are taking this line of business elsewhere in the world, having won the PPI contract in Philippines in the previous year and also now pitching to large RFPs for pensions across the globe and not just within India. I'll just quickly spend a little bit of time in terms of the overall individual asset class performance into the previous quarter at an overall international level and a call out in terms of how we have performed. Fund continues to grow on a year-on-year basis, even though there was a slight moderation of growth into the previous quarter in terms of the NFOs and obviously, the mark-to-market gains have been as well. But the net flows in spite and despite of it are robust and something that gives us the confidence that as the market turns around, we should get back to very fast growth at the industry level well past 20%, which is what we have seen post COVID. For the Q1, the industry has grown a little around 15% on the overall AUM. Even as has room like 16%. So it's 100 basis points faster growth at the overall AUM level. Albeit on the equity AUM side, though there has been a reduction year-on-year, but for the quarter that has gone by our market share for the equity AUM is better by nearly 80 basis points compared to the overall industry In terms of the other asset classes, continued interest in terms of higher ticket asset classes such as BMS, alternatives is very, very welcoming. It is an area where we have consolidated significant position in terms of our capabilities. The recent circular that had come in the previous week, which many of you might have seen in terms of PMS expect it to be harming for a significant amount of close to the industry, very early days yet. But after yet another asset class that will drive both the financialization as well as movement of money into the structure, which is very, very lucrative should the investments be done public. A number of DMAT accounts continue to swell, albeit I have to admit in terms of a deceleration of the net new folios into the industry despite IPOs being there. That has marginally impacted solutions top line. We also know that Q1 is not a quarter where a lot of corporate actions happen. And in fact, I would even guide to slightly corporate action movement into at least the next quarter. As you may have seen that several top-tier IT services companies have decided not to declare dividends. And that might change obviously within a quarter as well. But at this point in time, the visibility we have is that the corporate actions could be a little tepid into into the Q2 based on the financial performance and the overall growth that many of the top IT services companies see. But that notwithstanding, many of the manufacturing auto others are back in the and we expect corporate actions to be strong on all other businesses outside of IT I will now spend a little bit of time on and throw color on the international business, one that's probably of more interest to a lot of you. The Ascent integration continues to be an ongoing activity. We have now thoroughly integrated at a function to function level, which is very, very critical in terms of improving the margins on a short-, medium-, long-term basis. What I mean by that is much of the finance functions, business development functions, et cetera, are orchestrated the joint cadence amongst both the entities, thereby driving the up-sell and cross-sell opportunities. To exemplify what I mean by that is, for example, as we is gain strength to strength on, say, pensions as a line of business, the that our subsidiary has across 18 countries is proving to be invaluable in terms of, one, securing RFPs; two, positioning ourselves and gaining the right kind of support needed to be able to submit and win the opportunities. And likewise, many of our public market funds who are present for us in Malaysia, Philippines, et cetera, also have private mandates, which we are able to expose to our subsidiary who are then able to go and win. Similarly, many of our value-added solutions and services, including the wealth management platform is a very important draw is a very important solution in the bouquet of offerings at Asanas in their geographies. Many of them are in discussions, some of them are in advanced negotiation stage. Hopefully, in a quick time, we'll be able to call out some of the wins that we are going to see in each of these. As I called out, what is probably the most hard forming performance is the win of 6 mandates or fund managers who are about $100 million. As I've 1 out, our strategy had been largely to scoop up many of the small boutique fund managers, but it is exceptionally important for our subsidiary to start looking at larger fund managers as that provides the the scale that is required on the efficiency, the efficiencies that drive the margin as against multiple fund managers contributing to $100 million 1 time giving $100 million kind of a fund obviously gives you high margin profile. So that is something that's going to start showing up into the margins in the coming quarters. In terms of the margin of the entity itself. It had already turned the corner into the previous quarter. As you heard from the Q4 of the previous year. This year too, it continues to be around 8.4% in terms of the EBITDA margin. And we believe that in quarters to come, we would expand that. We do believe that into the Q2, notwithstanding, we should hope -- we are hoping to hit -- we are working towards hoping to hit double-digit margin expansion by end of year. And subsequently, depending upon the pipeline that we have, continue to add at least 500 basis points every single year from there on and continue to get to the path of the profitability that KFin Tech currently enjoys at this moment in time. In terms of the total funds themselves, they are distributor abroad the geographies. You have the presentation with you, we have shared, it is well spread out geographical expansion, which gives us a hedge both at a currency level as well as at a market corrections level. 1/3 of the funds domiciled between Singapore and Hong Kong, 1/3 across Middle East and parts of Cayman Island and U.S. and U.K. U.S. proven to be a geography, which had given a significant attraction into the previous 2 quarters. Many of the new deals we have won are in the U.S. And as one would, obviously, hopefully know, U.S. alone is a $70 trillion alternatives and public market funds. Even if you spread it half, alternatives are roughly around $35 trillion, $40 trillion. We haven't even scratched the surface. As we grow strength to strength in terms of increasing the wins at a higher size and high-ticket size, so well the reputation and the opportunity for us to follow in bigger RFPs will come through. As is the case with the diversification geographically, it is the same in terms of the type of the funds as well. It is near equivalent split between hedge equity, venture and the digital asset funds. I called out already that the digital asset funds obviously has a direct bearing in terms of what happens in the crypto market. And as we all know, the crypto markets have taken a beating into the previous quarter and into this quarter as well. In spite and despite of it, this is the growth. As many of these asset classes tend to be cyclical and fluctuating. It is quite possible that digital assets also come back to think of health into the coming quarters, at which point in time, it will force multiplier, which means in addition to the wins that we've had and the expansion of the asset classes at a hedge fund level if the digital currency funds also grew by mark-to-market growth in terms of currency values. It will add a significant expansion of the overall revenue profile itself. The organization has -- we are to start our facility in Cayman Islands in terms of substance requirement and that has some through as part of the regulatory requirement, which means that we are going to be on Cayman Islands as well. Whilst that is obviously a near-term cost that we have already baked in, in terms of the formal setup, it is also true that it will help us to win a greater degree of funds having a presence physically in a geography, which has global fund transiting from there. I'll spend a little bit of time on the wealth management. I've already called out 3 distinct wins in the wealth management side. But on the overall AIF itself, we have won 15 new funds into the previous quarter. These are the newer funds. But of course, the existing funds, capital commitments and the drawdowns that continue to add to the AUM as well as the mark-to-market gains, should continue to add the revenue. This business over the past 4 years has compounded over 60%, and we believe that we have enough to continue to grow, if not at 60%, at least 40% for the foreseeable future and hopefully more than that. We have won on the technology side, as I said, our big focus has been to differentiate ourselves through our technology capabilities. In a market where volumes are going to expand manifold and bespokeness is the need of the ago, our solutions that we have created, especially on the big data solutions side, have yielded as an opportunity to bid and win a reasonably large investment management from a domestic-based entities, big data solutioning mandate, which is over INR 25 crore turnover order revenue to be booked into the next 18 months as the delivery will start. Likewise there are several such smaller INR 3 crores to INR 4 crores, INR 5 crores kind of a deal that we have signed into the quarter that has gone by. The previous year, given the uncertainty with the war that has started in the month of February, meant that many corporate has deferred their tax spend plans. And that's one of the reasons why the Q4 of the previous year, we did not see a spike in some of these tech revenues. What we have, however, seen is conversion of some of those deals into this quarter in terms of signing the contracts. The revenue of those, which will come into the coming quarters as the delivery will start and that still leaves a fair number of tech opportunities, which have been negotiated, waiting for client signatures and accepting the macro scenarios, we should be in a position to close out those deals and getting into the delivery mode rather quickly. And these are all the controllable revenue streams that we are We have called out our strategies also not just to diversify away from a similar asset class, but also to drive as much revenue as possible, which is controllable, right? For example, on the tech contracts that we signed have no bearing on what happens in the market. Some of the businesses in terms of wealth, et cetera, also do not have a bearing with the market. So it is with that intent to reduce the unpredictability of our financial results, both for ourselves as well as you as a community and for our shareholders to have that amount of deductibility. We wanted to get to at least 20%-plus of the total revenue to come from controllable items. VAS today stands at roughly 6% of the total book. And if you add the other nonmarket-related businesses that will add to another 5% to 6% broadly, so we have another 8% to fill, which is something we are working very hard in terms of creating additional tech solutions that many corporate client, whether it is in asset management space, wealth management space, direct corporate space, other NBFCs, including data lake solutions for banking, insurance, et cetera, are in works as well. which is effectively our auto management system, back office solution for fund accounting and administration has been continuing to add significant gravitas across the globe now being there in terms of 26 clients in India, 8 asset management companies, mutual funds, user particular platform, 8 pension fund managers use, which is nearly 60% of the total pension funds that exist in our country as well as on the insurance side as well. We have a good pipeline in Malaysia, Philippines, Thailand for Empower installations into the coming months, even as our team extensively spending time to conversion of the deals by physically present -- by being physically present there. Pensions I've already called out, nothing more to add, except that we've been in the front and center of the technological changes that are happening, whether it is the first 1 to have launched the platform for economy workers by onboarding Zomato, if you would recollect into the previous quarter. Similarly, with the health tie-up that we've had in terms of as well as many different initiatives that the PFRDA has launched. We have always been the first and foremost in terms of bearing the tech solution start would take forward India to be a pensionable society. This business has more than INR 3 crore turnover to nearly about INR 17 crores, a matter of 3.5 years. We believe that as the PL consolidates the revenue augmentation will be faster than what we have seen thus far, furthermore adding to the margin profile. So that's broadly the callout. Q1 in terms of meets our expectations in terms of top line despite a fairly benign market condition. In terms of the margins, we have taken certain initiatives into the Q4. Very little of that has on into the Q1. Having said that, we have several strategic initiatives in terms of cost optimizations, which we have initiated. Given there is a quarter delay in terms of fruition of those initiatives to show into the P&L, we expect Q2 onwards, there should be a sizable expansion on the margins. That's broadly the overall state of KFin Tech level, and I would urge Vivek to take you through broadly on the financial performance, and then we'll throw the floor open for questions.

Thank you, Sreekanth. On the overall financial performance, as Sreekanth mentioned, revenue from operations has grown 30% year-on-year and sequentially, it has grown at 9.6% for year-on-year for the same quarter last year versus this year. Sequentially, over last quarter, it has grown marginally about 1.6%, excluding Ascent and including Ascent about 2.7%. So if you look at the contribution of mutual fund revenue, it is -- fee-based revenue is just 55% of the total revenue, which used to be about almost 66% in Q1 of FY '26. So there is a shift in terms of dependency on market driven business to a large extent, which is fueled by the Ascent integration. VAS revenue has not grown as much as the mutual fund AUM growth and resultant fee has been because of lack of decision making and the clients stand in terms of geopolitical situation. Many of the clients also park their funds in liquid funds as compared to equity, which also resulted in an exchange. And therefore, the mark-to-market driven growth and net inflows was not as robust as you would have seen in the past. If you look at contribution of non-MF revenue, it has gone up to 38%, which was 24.5% in Q1 of FY '26. There is growth across various segments of businesses. While sequentially, you would have seen that Q4 is a little better as compared to Q1. So Q1 growth as seasonality for our kind of business because of lack of corporate actions in Issuer Solutions usually is tepid. But we have a robust pipeline of IPOs, as Sreekanth mentioned and up in terms of main road IPOs. If you look at EBITDA margins, EBITDA has gone up overall at 7.1% year-on-year and 5.1% quarter-on-quarter. And this is something which we continue to work upon where the margins have come down because of Ascent integration. But without Ascent integration, they are good at 39.4%. While with Ascent, it is 34.2%. Ascent is a relatively new business, where they have invested in resources and infrastructure, which are getting -- we are setting it out, where the growth in revenue, and therefore, the resultant margins will flow through in times to come. We have just completed 9 months of integration with Ascent. And as we mentioned, it will take us a couple of years to really go beyond double-digit margins. So you will see it becoming EBITDA accretive by the end of this year or early next year. But coming through EBITDA margin of KFin Tech level, it will take about 3 to 5 years. On the PAT margins, the overall growth year-on-year is 2.6% and quarter-on-quarter is 7.3%. PAT margins are 21% including Ascent and 26.6% excluding Ascent. So there is no fundamental change in the guidance, both on the revenue as well as EBITDA and PAT margin. So we continue to maintain that we have a robust pipeline of sales where revenue will continue to be in the range of 18% to 20% CAGR. EBITDA margins will be in the range of 40% to 45%. We will maintain 40% threshold, including Ascent by the end of this year, and there's a lot of action in terms of cost optimization that has been taken, which will be visible from Q2 onwards. We have a healthy cash and cash equivalents of INR 687 crores at the end of June. About INR 200-odd crores will get utilized towards payment of dividend, which has been declared by the Board. And we still remain a cash accretive business, where about 51% of the EBITDA gets converted into free cash flows. So that's pretty much about the financial performance. Happy to take questions now.

[Operator Instructions] The first question is from the line of Karthik from Indus Caital.

Two questions from my side. The first one is, if you look this quarter in the domestic mutual fund business, despite a single-digit revenue growth and some element of yield compression year-on-year, we have, by and large, held on to our EBIT margins from the segment results. So what would be some of the cost takeouts or cost savings that we managed to accomplish in this segment, which has actually helped us keep a better margin outcome? And secondly, if we were to stabilize at these levels sequentially, is there a case that margins in this segment have more or less bottomed out and there is a case for going to expand? That's the first question.

Thank you, Karthik. Right, so in terms of the non-MF -- I think the first question is in terms of the margin expansion because of certain cost initiatives beyond mutual funds. As we've always maintained, technology is the only scientific way we look to optimize our costs. We have never done irrational cost optimization. Doing knee-jerk reactions based on the margin expansion or contraction for multiple reasons. Our transformational initiatives, whether it is implementation for alternatives, whether it is upgrading our PRIMA platform for national pension system, et cetera, these were -- have scientifically proven to be the reasons for optimization at payroll level. We have given full scale increments to our entire staff into this fiscal year. We have not done any add-hoc interventions in terms of moving the cycles or anything like that. So it is a very scientific basis on which we have optimized the cost, whether it is on payroll on the nonpayroll items, including movement in terms of away from the enterprise tech into open source architectures. It's very important if you recollect, and I've always called out there are 3 important ways to optimize our costs. One is obviously automation straight through transformation-driven payroll cost optimization. Two, as the systems and platforms get better, with the latest and greatest technology, what it will also do is optimization of nondiscretionary IT personnel spend, which is something that we have also seen. Third thing it also does is effectively the non-payroll cost for IT, which is in the form of licensing, et cetera, which is where you end up paying top dollar to mini enterprise tech, whether it's on the data side or on the application or on the license on the software side of it. So we have seen optimization across all of those 3. But the bigger items are yet to come, right? In fact, if I call out your attention, just 10 days back, we have launched India's first and I would argue probably the world's first SIP to be done within 3 working days end-to-end, 99.7% of the transactions today, we are able to process within 3 working days, which until recent past is a 3-week affair. It used to take 21 days in the industry. And we intend to bring it down to a singular day as well, even though we have dependencies on external parties such as banks, for example, for mandate registration in the case of an SIP, right? So it is largely through very scientific advancements in terms of our platforms, which has yielded a certain amount of margin improvements in non-MF business, but that is still just a tiny sliver in terms of the overall optimization that is yet to happen, which, as out, we'll start to see into the coming quarters. Now the yield stabilization, of course, as we call out always -- the reason of misunderstanding in the industry that yield contracts or expands or contracts mostly only for discounts. That's not true. Yield is a factor of 3 distinct factors. One, of course, is definitely the pricing and that is on plays a role. Second is the asset mix. We have seen in Q4 because of silver and gold ETF expansion, it has contracted. In fact, if you see in Q1, while the metals have -- the shine has gone away from the metals, but because of the geopolitics, a lot of money moved into liquid funds and not so much into the equity funds, especially on the large ticket size institutional money. Now that also has obviously impacted certain amount of the yield. Third is which AMC growth is also just as important, right? Given the telescope pricing is how it is priced into this industry. So all these 3 factors tend to have an impact. I would probably argue that depending upon where the impact is higher, the contract -- and in fact, even expansion also is possible in some quarters as we have seen in the past. But that said, I do believe that the aspect around the pricing-driven stability is there and will be there from here on. That is something that we are very confident. The other 2 aspects in terms of which asset class grows and which asset manager grows is something that is obviously not in our hands. In this quarter, if you have seen, it is KFin Tech clients who have grown much faster than the overall industry and that's the reason why, even though the overall industry grew at 2.8% quarter-on-quarter, we grew 3.6%. That's a good 80 basis points over and above the industry. Now that wasn't the case in the Q4 or in the Q3, so to speak. So yield stabilization pertaining to the price, I do believe we will achieve rather soon. The other aspects, which are not in our control will continue to pay some amount of growth, sometimes to the positive side, sometimes to the negative side. And hence, the overall margin expansion will be possible in mutual funds. Again, that is also one which is on the aspect of what happens with our clients. What is controllable with us, obviously is, again, the transformation of the overall platform. The SIP automation that I spoke about is the first big AI-native launch that happened under as a transformation platform, which we have called out that we are doing in mutual funds. The next big launch in the case of mutual funds transformation as a part of will happen by end of this calendar, where we would have substantively automated at least 3 large processes, starting with noncommercial transactions, then moving into the purchase of a transaction basically. Now these 2 will yield not just in terms of a significantly improved way of transacting in this industry, first of its in the world as well as give us an opportunity to optimize cost healing the margins. I'm sorry, I gave you a longish answer, but I just wanted to make sure that I call out that the margin expansion is a fact of multiple things. And the price stability driven yield is just 1 aspect of it.

Got it. My second question is, if we were to look at our consolidated financials, excluding Ascent and including, the gap in the profit on an after-tax basis is about INR 47 million. So I'm just trying to see how much of this loss narrowing is going to come from cost takeouts versus, let's say, a revenue growth? And with respect to the cost takeout, over what period of time can we actually accomplish this?

Karthik, I mean the first bit, you're talking about at EBITDA level or at the PAT level?

No, at the PAT level, let's if I compare INR 799 million with about INR 732 million, the gap is about INR 47 million. So as this loss narrows, I'm just trying to see how much of it is going to come from cost takeouts or cost savings? And how much of it is just going to come from the business growing at a much faster pace?

I would say it's both, obviously. I mean, I can't necessarily attribute -- here's the deal. I mean, Ascent is currently at about 7% to 8% EBITDA levels, right? So clearly, a faster top line growth at a volume and a value level will mean in absolute numbers, it will definitely take away the pain that is there under the EBITDA level into the PAT is largely some noncash items in terms of amortization of goodwill put to the contracts and the payments that we have made and some amount of capitalization on account of a large platform build called 1 constellation. So obviously, the top line fast through expansion even at an 8% would mean that some of this will get negated. Cost optimization is very, very critical. And our cost optimization is what we are focusing more in KFin Tech, if I may. And at Ascent level, our focus continues to be to drive market share expansion and not and not necessarily to curtail the growth by putting constraints on the cost at this point in time. So we will do the heavy lifting from the holdco standpoint in terms of cost optimization because many of our initiatives have already been under play, and that is where much of the cost will be taken out. For Ascent, the focus will continue to be to drive market share when the market exists and when our brand value is taking off quite well, this is the time that we capitalize in terms of winning several new mandates because as we all know, as you win these mandates, you then to stay with you for life. So it is a combination of both, maybe a little bit more percentage weighted towards top line growth. On the cost optimization, it will be more lifted by KFin Tech.

Excellent. And if I have the opening remarks correctly, we are looking to go to double-digit margins for Accent in about 2 to 3 years, right? Did I hear that part correctly?

Yes.

The next question is from the line of Swarnabha Mukherjee from 360 ONE Capital.

Two, 3 questions. First of all, in terms of the yield, I mean, just wanted to understand, you highlighted that this is basically an outcome of the mix moving towards liquid is my understanding correct? Or would there be any other factor also because when I look at your your disclosure, it shows that the equity AUM mix has been relatively stable quarter-on-quarter. So if you can throw some more color on that, that how much of this could be due to telescopic pricing, any renegotiation and mix change that will be very helpful? We could break it down and that give us a sense that how should we think of it panning out over the remaining 3 quarters of the year because I think sequentially around 2% drop has happened already. So that's the first question. Second is, if I were to look at the international business, I just wanted to understand that ex of Ascent, there seems to be a sequential drop in revenue. So was 4Q something of a higher base or some one-off was there? Or I mean, I think this is relatively a steady state number we can think of. And related to Ascent, what you have mentioned in terms of the cost structure and the focus on the market share growth, just wanted to understand that this cost that has a cost structure, how it is evolving? When you had done the acquisition what you had in mind, is this cost structure evolving in same lines or is this beyond your anticipation, if you could throw some color on that? And then just 1 indication. I wanted from you that you have mentioned a lot of deal wins in your press release. So over, say, next 1 year, how much augmentation in revenue should we expect from this deal wins, basically, which are relatively bolt-on nature? Yes. That's that's from my end.

Certainly. So your first observation on the yield is absolutely spot on. You're right, the equity share in the overall mix has not materially changed. What has, however, changed is a material movement from debt to liquid. Please bear in mind that, that as a class gives nearly 2x to 2.5x the yields that a typical liquid fund gives us. So while there hasn't been equity movement into liquid or passives, there has been a substantive movement from debt into liquid and that has given a certain amount of correction. Also bear in mind that we have called out that 1 large contract is due for renewal this year. So we have made provisions for that even though we have not yet completed the negotiations. So that's the reason why there's a 2% yield correction that happened in the Q1, okay? So even though the asset even though the remains stable. In terms of the overall cost structures pertaining to Ascent, it is absolutely in line with our plan, okay? In fact, it is better than our plan because when we enter into this financials, our intent was, in fact, our plan was that the subsidiary would break even sometime later part of this year. Right now having -- we are working -- we've been working with them even for the contract for in in terms of various optimization structures, that permitted Ascent to actually break even in the previous quarter at about 8% EBITDA margin. And this quarter also, they continue to be around similar EBITDA margins. So to that extent, it is better than anticipated performance in terms of the cost management aspect of it. And if I were to call out what are those? I've already spoken in terms of rationalization of support function structures, whether it is finance, whether it is HR, whether it is business development, et cetera, where we are lending the support and so that additional costs are not to be incurred, that typically happens when you have subsidiaries where you collapse the siloed ways of functioning at the support structures. We have looked at several nonpayroll items, especially on the technology side, for example, the cost that -- or the license rates that a smaller entity would have vis-a-vis on the data partnerships with, say, someone like AWS or on software licensing, say, from Oracle or Microsoft standpoint, obviously, is -- it won't be as lucrative as it would be to work with a larger entity like KFin Tech. Now we have better rate structures with each of these partners, and hence, we managed to do a contract innovation on to our larger contracts, thereby helping optimize certain amount of costs. We have also optimized cost on the real estate. Our subsidiary also is present in similar geographies as we are, whether it's in India, whether it's in Malaysia, so on and so forth and we're able to consolidate offer space and thereby optimize costs. So there are -- there is a detailed breakdown item by item at every dollar level, which we are looking at and we have optimized some of it. And some of these will be optimized in time to come because the contract closures for each of these not necessarily will fall on fast of apron. Some contracts are due sometime in October, some in January coming years so on and so forth, as those contracts for Ascent would tend to expire, they would move into Carin's contract structures, thereby avoiding us even more optimization of cost saving, so to speak. Yes, so I think that's probably the item around the Ascent. And the third 1 in terms of how do we see the bolt-on contracts that we're talking about, how will that improve? Well, so it's a -- these are exotic in nature, right? I mean sometimes you end up signing a INR 20 crore deal in a single quarter and then if the quarter looks good, sometimes that's -- these are not annuity revenues, right? We are used to from a in the current asset management industry itself is a reasonably predictable number because it's all annuity revenue for everybody, whether it's asset manager, whether it's us so on and so forth. But having orchestrated a product-based pipeline, you will see a certain amount of vagaries, a certain amount of spike or no spike depending upon whether we won a particular deal or not. What I can tell you at this point in time is that we have -- in the previous quarter, have signed deals worth roughly about INR 40 crores in total top line, which some will be done in 3 months, some 6 months, some 15 months on and so forth. So the overall revenue allocation into the quarters, this is not a call that we'll be able to break down, but I'm sure my IR team will be able to help you for you to prepare baton that. I hope I answered you.

Yes, this is helpful. Just 2 other things that I wanted a clarification on 1 was that maybe 2% deal drop kind of has happened, we normally guide maybe 3-odd percent in a year. So should we expect another 1% drop to play out given that you have mentioned that you already provision for some, I think, contract changes that will play out? And the international business ex of Ascent that like I think 4Q, there was a INR 19-odd crore kind of a revenue print that is coming to around INR 17 crores for this quarter. So this -- although not very material, but just wanted to understand how should we think about, how should we model about this segment going forward?

So on the yield piece, it's -- I've already called out my apprehension in terms of guiding a number because that automatically construes and assumes that the yield is dependent only on the discount, which were the asset class moves and which asset manager grows and who does not grow has a material impact on the blended yield of the organization. So I guess probably conservatism would mean that maybe you can still [indiscernible] But it is quite possible that the movement away from debt to liquid may reverse itself, but in fact, the yield might even actually give you an upside surprise, right? So I will not be able to guide you on that, but I would let you model how we would agree now. We would want to model from our standpoint what is in control is definitely the pricing and the discount. The other 2 factors are well beyond our control. And they have an impact almost to the tune of 50% to 60% on the total yield itself. I have to admit, I didn't quite follow the second question. Vivek, if you have followed, do you mind expanding that, please?

Yes. Yes. I think in terms of the sequential growth in the international business. The sequential decline that you had talked about in the international business, I think that has more to do with the contracts that were in the pipeline, which will get materialized in the coming quarters. So this is not a fundamental change. This will continue to be in the range of a growth of about 25%. And that may be only a matter of time that you will see. This is just 1 quarter phenomenon, which will bounce back with the new deal wins that we have in the coming quarters.

[Operator Instructions] The next question is from the line of [indiscernible] from DSP Mutual Fund.

Just, I think, again, one more question on the yield front itself. So I think we mentioned a couple of different reasons why this yield has actually come off on a quarter-on-quarter basis. Possible to share like what was the mix between -- so I think the 2 key things which I read is 1 is the debt to liquid movement. Second was the renegotiation provisions in the sense like it's not yet affected, but we are already providing for it. So could possible for you to share like what is the mix of decline between the 2 of these?

Yes. So on the -- I think the debt to liquid is a substantive movement into the previous quarter. I think from a yield, the 2% impact that you have seen, about 30% of that impact is attributed to the movement from debt to liquid itself, okay, which then obviously means that it's about 1.7% is net of the asset class movement. Now what is that 1.1% constituting of? Obviously, the provisions we have made for the negotiations that are pending for this year. That is obviously a little bit a little bit more than 1.7% but it got offset because of some amount of correction positively in favor of equity having the ETFs movement into equity. So it's a plus or minus at both ends. And sorry, the second question was -- my miss on that.