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Summary: One keeps the records for India's mutual funds. The other makes turbines that earn for decades after they are sold. Both are growing and both now trade at under half their peak P/E. It looks like an easy buy, until you ask what each business must deliver over the next decade for the bargain to pay.
Between 2021 and 2024, investors paid almost any price for a growth story. A company growing 20-25 per cent a year could trade at 70 or 90 times its earnings, and few people asked how long that growth would last.
That patience has run out. Many of those stocks have since fallen hard, and their price-to-earnings (P/E) ratios have halved or worse. A halved P/E looks like a bargain, but it isn’t one automatically. A lower multiple only means the stock asks less of the future. It still asks something. And if the P/E keeps drifting lower as the company matures, which is what usually happens, every rupee of return has to come from earnings growth.
So the useful question isn’t whether a stock is cheaper than before. It is whether the business can grow fast enough to reward a buyer even if its valuation keeps shrinking.
The test
We looked for companies where:
- The P/E has fallen more than 50 per cent from its highest level in the past three years
- Revenue and profit have grown at roughly 20-22 per cent a year over the past three years
- The stock has given a negative return over the past year
Two companies from that list are the subject of this story. For each, we asked one question. If the P/E keeps falling over the next decade, how fast must earnings grow to deliver 15 per cent a year, and can the business realistically do it?
1) KFin Technologies: a toll on India’s savings, at a falling rate
KFin is the record-keeper behind India’s mutual funds, logging who owns which units, processing SIPs and handling redemptions. Its position is hard to dislodge. It is one of two major registrars and transfer agents serving India’s mutual fund industry, and fund houses rarely switch, because moving millions of investor accounts is risky and disruptive. Its tailwind is equally clear: every new SIP and every first-time investor adds to the business it services.
Revenue has grown steadily, but profit has not kept pace. Last year, profit barely moved even as revenue rose by nearly a fifth. Part of the reason is that KFin earns less on every rupee it services: fund houses pay lower rates as they grow, so the assets it handles are rising much faster than its fees. Its recent push abroad, through the acquisition of global fund administrator Ascent, has added revenue but at far thinner margins than its core business.
KFin’s answer is to depend less on fund fees. Management aims to bring domestic mutual funds below half of revenue, through global fund administration, pensions and alternative funds, segments growing two to five times faster than its core. Non-fund revenue has risen to 38 per cent in the first quarter of FY 27, though much of that jump came from buying Ascent.
If you bought KFin at its current P/E of 43 times, its earnings must grow between 21 and 28 per cent for healthy long-term returns if its valuation compresses. That depends on fee rates stabilising and Ascent’s margins improving.
KFin Technologies’ required growth
From an entry P/E of 43 times for 15 per cent annual returns in 10 years
| If P/E compresses to | EPS growth required (%) |
|---|---|
| 25 | 21 |
| 20 | 24 |
| 15 | 28 |
2) Triveni Turbine: steady demand, uneven delivery
Triveni’s turbines help factories turn their own heat and waste into power, and each one keeps earning through decades of servicing. Demand for that kind of reliable, low-cost industrial power is rising worldwide, and Triveni has been quick to follow it abroad: exports now make up the bigger share of its sales, and high-margin aftermarket work is a growing part of its orders.
The business, though, does not move in a straight line. Orders are large, custom-built and priced upfront, so a delay in one big contract, or a rise in input costs during execution, shows up quickly in the numbers. Last year, revenue hit a record, but profit slipped. Wars and trade disputes held back orders, the share of high-margin aftermarket work in its sales fell, and a low-margin strategic project weighed on margins.
Triveni is looking beyond its core to sustain growth. Turbines for oil refineries, a key profit driver, are expected to recover as higher oil prices revive demand. It is also moving into geothermal power and technology that generates electricity from lower-temperature waste heat. Its most ambitious bet, a carbon dioxide-based energy storage plant for NTPC, was taken at near-zero margins to prove the technology and is yet to be commissioned.
So if you bought Triveni at its current P/E of 44 times, its earnings must grow between 22 and 28 per cent a year for healthy long-term returns as its valuation compresses.
Triveni Turbine’s required growth
From an entry P/E of 44 times for 15 per cent annual returns in 10 years
| If P/E compresses to | EPS growth required (%) |
|---|---|
| 25 | 22 |
| 20 | 24 |
| 15 | 28 |
The takeaway
Both are well-run businesses with real advantages: KFin in a two-player market with sticky clients, Triveni in a specialised niche with a large installed base that keeps earning for decades. Both have also become far cheaper. But the return test asks for 20 per cent-plus earnings growth for a decade, which few companies of any quality deliver. For KFin, that depends on fee rates stabilising and its newer businesses growing on their own. For Triveni, it depends on aftermarket share continuing to rise, delayed orders converting on time and its newer bets turning into steady business. Cheaper valuations help, but they don’t remove the need for growth.
Also read: This mid-cap fell 60% from peak. Yet, it's business as usual
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