KFin Tech IPO: Risk factors to consider before investing

KFin Technologies is all set to launch its initial public offering (IPO) on 19 December. The company aims to raise ₹1,500 crore for the issue. The public issue will be comprising of only an offer for sale, by promoter General Atlantic Singapore Fund Pte Ltd. The issue will close on 21 December.

However, there are certain risk factors that one has to consider before investing. There are cases against the promoters and the company, amongst others.

Here are the risk factors to consider before investing:

1) The company’s promoters are subject to ongoing investigations by enforcement agencies, including enforcement directorate (ED). The compnay had received a summons in September for MD and CEO Sreekanth Nadella. KFin Technologies received a freezing order where shareholders Compar Estates and Agencies Private Limited, C. Parthasarathy– HUF and Rajat Parthasarathy instructed not to alienate/ sell/ transfer/ create any lien/ liability in respect of the equity shares of the company

2) There are outstanding legal proceedings involving the company, its subsidiaries, group companies and certain directors. There are three criminal proceedings, eight tax proceedings and one statutory or regulatory action against the company.

3) In Fiscals 2020, 2021 and 2022 and six months ended September 30, 2021 and September 30, 2022, the company had derived 53.30%, 53.69%, 53.05%, 54.99% and 50.82%, respectively, of our revenue from operations from its top five customers and the loss of one or more such clients could adversely affect our business and prospects. Since the company is dependent on its limited number of customers for a significant portion of revenue. Any loss of one or more such clients could adversely affect our business and prospects.

4) The company’s current growth rates may not be indicative of its future growth and if the company doesn’t adapt to evolving market trends, manage our growth or execute strategies effectively, the firm’s business, financial condition and results of operations may be adversely affected.

Currently, significant majority of the revenues come from domestic mutual fund. The market share of the domestic mutual funds business based on number of clients as reported by CRISIL has remained the same at 59% in Fiscals 2020 and 2022 and six months ended September 30, 2022

5) Any disruptions to information technology systems or breaches of data security could adversely affect business and reputation. Though the company till now hasn’t faced any breaches in data security but any such breach could potentially harm the business and its reputation and challenge the firm’s ability to provide reliable services to our clients.