Release Date: July 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Anand Rathi Wealth Ltd (BOM:543415, Financial) reported a 38% increase in consolidated total revenues for Q1 FY25, reaching INR245 crores compared to INR178 crores in Q1 FY24.
- The company's profit after tax (PAT) grew by 38% year-on-year to INR73 crores, with a PAT margin of 29.9%.
- Total assets under management (AUM) increased by 59% year-on-year to INR69,018 crores as of June 30, 2024.
- Net inflows in equity mutual funds surged by 462% to INR2,091 crores, indicating strong client trust and confidence.
- The number of active client families increased by 19% year-on-year, surpassing the milestone of 10,000 client families.
Negative Points
- The proportion of debt mutual funds in the AUM mix decreased from 11% to 7%, reflecting a lower focus on debt instruments.
- Despite the strong growth in equity mutual fund AUM, the corresponding revenue growth was not as significant on a sequential basis.
- The company's strategy to increase the allocation towards structured products may face challenges due to market conditions and interest rate fluctuations.
- The competitive landscape in the wealth management industry is intensifying, with both domestic and international players ramping up their efforts.
- The company's reliance on existing clients for a significant portion of net flows (70-80%) may limit the potential for new client acquisition.
Q & A Highlights
Q: Congratulations on the great set of numbers. Could you shed some light on the AUM mix, particularly the decrease in the debt MF mix from 11% last year to 7% this year?
A: Thank you, Bhavin. The decrease in the debt proportion is due to two main reasons. Firstly, we focus on long-term intergenerational wealth, which typically has a lower allocation to debt. Secondly, the mark-to-market differentials have impacted the proportions, with equity and structured products seeing more positive movements. We remain cautious on debt, even with potential interest rate reductions, as we don't foresee significant capital appreciation in the current yield curve environment.
Q: We have seen an increase in AUM and clients per RM. What has led to these productivity gains?
A: Several factors contribute to this. Firstly, we have zero RM attrition, which means our RMs have longer tenures and more experience. Secondly, being a listed company enhances our credibility, leading to more business. Lastly, our use of mathematics to demonstrate the value of our services has been instrumental in convincing clients to consolidate their assets with us.
Q: You mentioned the need for higher interest rates and certain levels of volatility for structured products to perform well. Could you elaborate on this?
A: Certainly. Structured products require higher interest rates and a certain degree of volatility to perform optimally. If these conditions change, we have pre-decided alternative product designs to adapt. For instance, if interest rates and volatility were to decrease significantly, we would shift to products that involve buying calls instead of selling puts.
Q: What was the primary and secondary MLD issuance during the quarter?
A: For Q1 FY25, the primary gross issuances were INR1,735 crores, and secondary issuances were around INR400 crores.
Q: How do you plan to manage the AUM mix between mutual funds and structured products going forward?
A: We plan to reallocate assets between equity mutual funds and structured products over the next nine months. This strategic reallocation aims to balance the portfolio and optimize returns. By the end of the year, you can expect a shift in proportions, with structured products potentially increasing to 28%-30%.
Q: Can you provide more color on the average AUM in mutual funds and its impact on revenues?
A: The average AUM is volatile due to market movements. However, our aspiration is to achieve a 50-50 mix between trail and upfront revenues. Despite market fluctuations, we aim to maintain consistent growth and achieve a significant market share in equity mutual funds.
Q: How does the flow of funds from existing clients compare to new clients?
A: Approximately 20%-25% of net flows come from new clients, while 75%-80% come from existing clients. This ratio has remained relatively stable over time, even across different market cycles.
Q: What is your client acquisition strategy, especially in a competitive landscape?
A: Our primary strategy is leveraging referrals from satisfied clients. We organize events and meetings through existing clients to reach new prospects. This approach has been more effective and less intrusive than cold calling.
Q: Can you provide the total employee count for the quarter and the previous quarter?
A: As of June 30, 2024, our total employee count was 1,093, compared to 1,016 in the previous quarter.
Q: What is your strategy regarding technology in wealth management?
A: We see technology as an augmentation tool for RMs, not a replacement. Technology helps increase RM productivity by facilitating virtual meetings and efficient client interactions. We also use technology for generating advice and improving risk-adjusted returns.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
