Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nippon Life India Asset Management Ltd (BOM:540767, Financial) achieved a profit after tax of INR3.32 billion and its highest-ever quarterly operating profit of INR3.08 billion in Q1 FY25.
- The company's mutual fund quarterly average AUM grew 12% quarter on quarter and 54% year on year to reach INR4.84 trillion.
- SIP contributions for the quarter increased to INR625 billion, up 45% year on year and 9% quarter on quarter, with monthly SIP flows in June '24 reaching an all-time high of INR213 billion.
- The company saw a market share increase of 24 basis points quarter on quarter and 93 basis points year on year to 8.20%, marking the fifth consecutive quarter of market share growth.
- Nippon Life India Asset Management Ltd (BOM:540767) continues to be one of the largest ETF players with an AUM of INR1.3 trillion and a market share of 17.8%, which increased by 108 basis points quarter on quarter.
Negative Points
- There was a noted compression in yield due to telescopic pricing as AUM grows, with a 1-basis-point contraction in the yield on a quarter-on-quarter basis.
- Employee costs increased significantly due to fresh ESOPs granted, higher increments, and increased provision for variable pay, leading to a notable rise in expenses.
- The company has opted to stay out of launching sectoral and thematic funds, which may limit its participation in current market trends where other AMCs are mobilizing funds.
- The company is facing pressure on yields due to the need to pass on lower distribution costs to customers as AUM grows.
- There is a potential risk associated with the new asset class mentioned in the consultation paper, and the company is cautious about launching products in this category.
Q & A Highlights
Q: Could you share your comments on the new consultation paper and how you are looking at the new asset class?
A: We are still evaluating the paper. While the opportunity could be significant, we must be cautious of the new risks associated with the asset class. We may launch products with higher entry levels than the minimum INR10 lakh to ensure investors understand the risks. More clarity will be provided in the next quarterly call. (Sundeep Sikka, CEO)
Q: What were the reasons for the compression on the yield side during the quarter?
A: The main reason is the telescopic pricing due to the growth in equity AUM, which leads to yield contraction. The yield on equity stands at around 60 basis points, debt at 25 basis points, liquid at 10-12 basis points, and ETF at 8-15 basis points. (Amol Bilagi, Interim CFO)
Q: Why has staff cost increased sharply, and what should we expect for the rest of the year?
A: The increase is due to fresh ESOPs granted, higher increments, and higher provision for variable pay. Excluding ESOP costs, overall employee costs will increase by around 12-13% for the full year. (Amol Bilagi, Interim CFO)
Q: What is your strategy regarding branch expansion and deepening your presence in the country?
A: We will continue to evaluate and possibly expand some branches, especially in B-30 locations, but we do not plan to add many new branches. We may add 5-10 branches per year. (Sundeep Sikka, CEO)
Q: Can you provide some color on the SIP flows and the segments where the majority of the flows are coming from?
A: Our SIP flows are well-distributed across small cap, large cap, midcap, and sectoral funds. We are also seeing significant inflows from B-30 markets, contributing to our higher market share in these areas. (Unidentified Company Representative)
Q: How do you plan to maintain stability in the industry given the larger schemes continue to see higher share of flows?
A: We are focusing on de-risking our SIP flows across various funds and capturing trends through SIPs rather than lump sum investments. This strategy helps in maintaining stability. (Unidentified Company Representative)
Q: What is your approach to commission payouts on SIP versus lump sum investments?
A: The commission structure is the same for both SIP and lump sum investments. We believe in the SIP route as it is better for investors and aligns with our strategy. (Amol Bilagi, Interim CFO)
Q: Can you explain the discrepancy between the PMS revenue in the consolidated and standalone financials?
A: The standalone financials include option advisory fees from our Singapore subsidiary, which are eliminated in the consolidated financials, leading to lower figures in the consolidated numbers. (Amol Bilagi, Interim CFO)
Q: What are your thoughts on the significant improvement in the corporate segment and direct flows?
A: The improvement is a result of long-term investments and strategies implemented over the past five to six years. We expect to continue benefiting from higher inflows and market share across all segments and asset classes. (Sundeep Sikka, CEO)
Q: What is your dividend policy, and can we expect ROEs to increase further?
A: The Board is committed to sharing profits with shareholders, and we will continue this trend. While we cannot predict future ROEs, the business has high operating leverage, which should benefit us as AUMs increase. (Sundeep Sikka, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
