Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total ARR AUM increased to INR2,21,000 crores, up 34% year-on-year.
- Wealth ARR AUM stood at INR1,41,635 crores, up 39% year-on-year.
- Total Revenue from Operations up 48% YoY at INR600 crores for Q1 FY25.
- Operating profit grew by 71.8% YoY at INR335 crores.
- Highest ever quarterly PAT in Q1, with PAT rising by 34.2% to INR243 crores.
Negative Points
- Total Costs up 25.9% YoY, at INR265 crores in Q1 FY25.
- Employee costs rose by 27.2% YoY.
- Ongoing litigation in the UK resulted in an exceptional item cost of INR87.6 crores.
- Cost-to-income ratio, although improved, is expected to stabilize at a higher range of 44% to 46%.
- Yield compression observed in the lending book, with yields dropping from 5.75% to 4.86%.
Q & A Highlights
Q: The first question is on the transactional revenue. I believe like last quarter, this quarter also, the number looked pretty high. So was it on the block deals? Or, if you would give more colour on it?
A: The TBR continued to be fairly strong from the previous quarter. It's a combination of increased brokerage revenue and more activity on the unlisted side, as well as on the credit side. The TBR component continues to be fairly strong, but it may not be as high for the full year. The firm is targeting ARR retention at around 70-72 basis points, but this includes lending revenues and the mix between distribution and advisory assets.
Q: What is the trajectory on cost to income ratio? This quarter we have seen pretty low cost to income ratio. How should we think about cost to income ratio going forward? And second is, any guidance on the net flows for the full year?
A: The cost to income ratio is expected to stabilize around 46-47% for the year. The firm aims to bring it down to 45% next year and eventually to 43-45% over the next 2-4 years. For net flows, the guidance is 12-15% of the opening ARR AUM, which translates to INR25,000 crores to INR30,000 crores for the year. The firm is on track with INR6,000 crores net flows in the first quarter.
Q: On the Asset Management front, how do we look at performance of these funds in terms of top quartile, second quartile?
A: Performance is critical, and the firm has a strong track record. The pre-IPO funds are in the top decile, with repetitive rates of 70-73% from earlier investors. Sector-specific funds like financial services have given a CAGR of 38%, while tech and healthcare funds have also performed well. The listed strategies are consistently in the top three or four, and the credit side has an unblemished track record.
Q: How has the new team onboarded last year scaled up, and how much more productivity do you see coming in from the new teams?
A: The new teams are performing well, with 75-80% expected to break even within 18 months. The productivity of employees and clients increases significantly over time, becoming 5-10 times more productive by the end of year seven. The firm is encouraged by the addition of new clients and RMs, which will add substantial assets over the next 2-3 years.
Q: On the ET Money acquisition, how does it align with the firm's focus on Ultra-HNI and HNI segments?
A: ET Money has built a strong advisory model with 80,000 paying clients, generating $3 million in revenue. The acquisition aligns with the firm's strategy to democratize PMS and Alternates, and offers significant synergies. The firm plans to expand ET Money's model portfolios and leverage its digital capabilities to enhance the wealth management proposition.
Q: What is the impact of the recent tax changes on the Alternates business?
A: The tax changes are exciting for both unlisted and fixed income assets. The reduction of tax from 24% to 12.5% for unlisted assets improves net returns, while the long-term tax for individuals on listed bonds at 12.5% will spur market activity. The firm is also excited about the co-investment syndication portion and the accredited investor PMS framework.
Q: Can you provide more details on the global business strategy?
A: The firm aims to be the preferred advisor for India allocation for clients outside India. The strategy includes offering India products through Singapore or Gift City feeders and acting as a portfolio advisor for clients' global portfolios. The firm does not plan to build a full-fledged global wealth platform but will focus on India allocation and portfolio advisory roles.
Q: What is the outlook for the mid-market segment and the global business?
A: The mid-market segment is on track, with 75-80 relationship managers identified and the platform ready for launch. The firm expects to monetize this business by August. The global business is also progressing well, with key building blocks in place and a good pipeline of initial client discussions. The firm aims to go live with the global business by mid-September.
Q: How do you view the opportunity in the accredited investor PMS space and the fractionalization opportunity in ET Money?
A: The accredited investor PMS allows clients with a minimum of INR10 crores to buy unlisted assets, creating a significant opportunity. The firm already has INR500 crores in accredited investor PMS. The fractionalization opportunity in ET Money involves democratizing PMS and Alternates, similar to other online players, and offers a significant growth avenue.
Q: What is the impact of the budget on client portfolios and the firm's numbers?
A: The budget has a positive impact, especially with the reduction of tax on unlisted assets from 24% to 12.5% and the long-term tax on listed bonds at 12.5%. These changes are beneficial for clients and will spur market activity, particularly in fixed income and unlisted assets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
