Motilal Oswal Financial Services Limited (MOTILALOFS) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Motilal Oswal Financial Services Q1FY27 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Kayal. Thank you, and over to you, sir.

Thank you, Alvik. Good afternoon, everyone. I welcome all participants on behalf of Mozilla Losallel Financial Services Limited to take time out to attend our Q1-FI27 earnings conference call. We hope that you had an opportunity to go to our investor deck and press release uploaded on stock exchanges and on our website yesterday. We have also uploaded our Excel data book on our website that has all the operational and financial numbers. Please note that today's discussion may include some forward-looking statements. These forward-looking statements are based on our macro assessment and can vary. To represent the group, we have the senior leadership members on this call. We will start this call with an opening remark by Naveen, who is a group MD, and then we will have a Q&A session. Over to you, Naveen.

Thank you, Manish. Good afternoon, everyone, and a warm welcome once again to all of you to the earnings call for the quarter ended June 2026. I will first start by a context of how we ended the last year. Last year, our operating path reported was up by 16%. On that base, our operating profit after tax grew by 14% on a YOY basis in this quarter to 609 crores, led by asset and private health business, which grew by 44% year on year. These businesses, asset and private wealth businesses, now contribute 55% of the total operating profit of the group versus 50% in FY26 in the full year and versus 42% in the year before that. We have guided that the share of Asset and private wealth businesses will continue to rise because of the annuality nature of the business, and the low market share that we have in these businesses allows a lot of headroom for us to grow these businesses. The AUM of the asset management business, including MO Alternates, crossed 2 lakh crores milestone. This has witnessed us. CAGR, a compounded growth of 34% since March 2020, with strong market share gains. We have invested a lot in the past couple of years on all the fronts in the group, be it people, be it brand, or be it technology. We expect these to bear proofs in the coming years in terms of market share gains and profitability growth. Mutlal Uswal is the largest integrated capital market player with rising share of annuity revenues and each business offering a strong growth runway, leveraging the opportunities available in financialization of Indian savings. Annuity businesses now contribute over 66% of the group revenues. Please note I had highlighted that the asset and private wealth businesses contribute 55% of the operating pad during this quarter, but annuity businesses, including in the wealth management business, which has annuity revenues, now contribute collectively 66% of the group revenues and will continue to rise as we have transitioned from a transaction-led to an annuity-led business model, strengthening the quality of our earnings. Our operating businesses have delivered a decadal, a 10-year compounded operating profit growth of 33% and an average return on equity of 23%. This growth is supported by our investment book, which grew by 41% compounded since inception, led by strong IRRs and reinvestments of our operating profits after consistent dividend distributions and three buybacks since our listing. I also want to highlight that ever since our listing back in 2007, we have never diluted equity while consistently paying out dividends and buybacks. This has only been possible due to our unique twin-engine business model, where we have a strong backbone of our operating businesses and a large investment book that has continued to compound at nearly 20% per annum. This strategy has resulted in our rank in profit after tax for the last year, improving to 160th rank among all listed companies in India, and we are now among the top 200 companies in India by market cap. We see the next decade offering equally exciting prospects, which should drive further improvement in these rankings. Turning now to the segmental performance, our asset and private wealth business is comprised of the listed equities asset management business, the unlisted MO alternates business, and the private wealth management business. Asset management and private wealth businesses continue this momentum during the quarter with robust net flows of 10,325 crores. AUM at 4.5 lakh crores as on June 26 is up by 34% year-on-year. We continue to invest in talent, in distribution, reach, and in marketing. The operating leverage from rising AUM should be a strong driver to our profit growth going forward. Now, specifically talking about the asset management business comprising of mutual funds, PMS, and AIF, our AMC AUM grew by 34% compounded since March 2000 till June 2006 and is very close to another major milestone of $2,000,000 today. Led by our strong performance and differentiated product offering to our investors. Our unique PAN catered by our AMC is more than 1 crore as on June 26th versus 85 lakhs in June 25th, which shows strong confidence by retail investors in our franchise. This is around 16% share of all clients in the Indian mutual fund industry. The revival in Q1 has propelled our average AUM to grow from 1.67 lakh crores in 4QFI26 to 1.81 lakh crores in 1QFI27, reflecting the continued momentum in the business. And today, we are closer to another milestone of 2 lakh crores in this business. Our product bouquet is pretty young, as significant flows come only once products have crossed the three-year track record. We launched one new active mutual fund in the first quarter, increasing our presence now to represent 87% of the industry AUN. Importantly, only six of our funds have a vintage of over three years, and these categories contribute a mere 44%. We expect an additional three funds, eight funds, sorry, to cross three-year vintage by March 27 and a further 16 funds to cross the three-year vintage by March 28. This will improve our vintage fund participation, which is over three years vintage fund participation to 75% of the industry AUM from 44% now. Most of these are best-performing funds since inception in the mainstream categories, which should help in strong flows as well as diversification of the AUM over the next two years. This will also continue our trend of net mutual fund flows market share improvement, which stands now at 4.2% compared to 3.7% in the previous quarter. Our flow market share continues to be well above our AUM market share, which is 2.9%. In 1Q, our SIP flows were strong at 4,064 crores, up by 16% year-on-year, with a market share of 4.3%, resulting in an SIP AUM of 38,643 crores. We believe our AUM growth will be supported by The following factors, an annualized SIP run rate of around 16,000 floors, collections from proposed NFOs besides discretionary floors, more products crossing the three-year vintage, current AUM of nearly 1.9 lakh floors is over 15% higher than the F526, average AUM of 1.57 lakh floors, potential mark-to-market gains after two muted years. And finally, entry into multiple funds to the GIF city route, targeting both inbound as a southbound group. We believe that the strong growth of AMC, led by the above six factors, will be a key growth and ARR driver for the overall group. Turning now to MO Alternates, we have a strong franchise in growth capital and residential real estate, We are in the process of executing our final close of our maiden private credit fund of 3000 crores, where we have raised nearly 2500 crores in the second close. We will launch commercial real estate in second half of this financial year. And continue to offer a comprehensive suite of product offerings in alternates, which is seeing increasing allocation both among family offices as well as institutions. Alternate asset management business, too, will be a key growth driver and an ARR driver of the Mutlodosal Group on the back of larger fund size that we have raised in every subsequent series, entry into newer categories. And more funds entering the carry income recognition threshold, which will boost our carry income run rate. The asset management business now contributes to 40% of the group's operating profit after tax in one queue versus 26% in first quarter of last year. And is expected to increase based on all the pointers that I've highlighted. Turning to the private health business, the first quarter ARR Revenue for the private sales business grew by 42% YOY to 157 crores. However, overall revenues were flattish on lower TBR revenues. We have highlighted the quarter-on-quarter volatility in TBR revenues, while ARR revenues continue to steadily rise. Net flows grew by a strong 37% to nearly 4,000 crores, leading to AUM growth of 37%. On a YOY basis to 2.4 lakh crores. Our 441 RMs will also witness productivity improvement as 32% of them have a vintage of over 3 years. We continue to make sizable investments in senior leadership as well as relationship managers and will continue to do so in a calibrated manner going forward as well. Focus is now on growing ARR EM, which is currently at around 52,000 pros, through various initiatives including advisory solutions, strengthening leverage solutions as a value add for family offices, and exclusive co-investment leveraging group synergies. All this will help in revenue growth along with cost-to-income improvement, driving profitability. As we scale our ARR-led revenue mix in private wealth, the relative TBR revenue contribution will be volatile quarter-on-quarter IEP, while our overall earnings quality and predictability will continue to improve structurally. Turning now to the wealth management business comprising distribution, retail broking, and retail lending NII income, we continue to have a sharp focus on growing our ARR revenues, which includes distribution income and NII. This has led to the share of these businesses in wealth management segment revenue increasing from 33% in the year ending March 21 to 57% in the quarter ending June 27. The ARR revenues grew by 26% on a YOY basis this quarter to 304 crores. Distribution book grew by nearly 30% to over 45,000 crores. We are confident that our distribution book will grow meaningfully as we continue to harness the cross-sell potential of our client base, of our franchise, which stands at only 18% versus multiple times this number globally. Our loan book in this segment grows 33% year-on-year to over 7,000 crores. Our MPF market share is close to 6.5% and is expected to improve going forward. Our broking business continues to retain its leadership position as a full-service broker amongst non-bank players. We are the largest broker in the cash segment on revenue market share in non-bank segment. Our overall retail broking market share, including commodities, stood at 7.6% in the first quarter, led by market share gains in F&O premium segment from 7% last quarter to 7.6% in the current quarter. Our cash market share has been stable during this period. We expect our ADTO market share to improve as the global uncertainty subsides, as we have witnessed historically. The distribution and lending book will continue to drive growth and increase its share in the overall group's ARR revenue pile. Turning now to the capital markets business comprising of institutional equities and investment banking. Despite challenging market conditions, our investment banking business has successfully completed 11 deals during the quarter, raising over 10,000 crores. And our fee income delivered a strong 48% revenue cost quarter-on-quarter to 68 crores. We are now ranked number two in the capital markets league table for IPO and QIP. With a $5 trillion market cap of India and growing, there is a base level of IBE activity that the markets will see every year. And our IBE has built a strong franchise to benefit from this. In institutional equity business, we are continuously increasing the coverage. We released 20 initiations during the quarter, taking our coverage. To 384 stocks, our stated intent is to take this up to 500 numbers. We believe that our capital market franchise is strong and diversified with products including QIPs, IPOs, advisory business, and we have a few more legs to cover there. Our size per deal is materially higher than in the past, and with a strong pipeline, we are poised to benefit from any market revival. Turning to the housing finance business, our disbursements grew by 64% year-on-year to 646 crores. AUM grew by 23% to 6,164 crores. We expect housing finance business to continue to witness strong growth in the next two to three years. Business has a strong capital adequacy ratio, very low leverage, giving us enough growth levers without any need for further capital inclusion. Turn to our treasury book, it grew by 22% year-on-year to 10,482 crores. The longer-term compounded growth of this book has been 41%, led by strong IRRs and reinvestment of offering profits after paying dividends. To conclude, the rise in wealth to over 100 trillion combined with financialization of savings and powerful tailwinds in the rising rate of capital market sectors within the Indian market cap. This is an important tailwind for the group. In this space, MOFSL's decadal crack record of 33% operating profit growth and average ROE of 23% delivered entirely through internal accruals, no dilution, rising market share in multiple businesses, entering promising adjacencies in each of our businesses, rising share of annuity revenues to 66%. And importantly, improving quality and predictability of our overall profits driven by asset management and private wealth business, all augur well for us. The regulatory headwinds in the base, particularly for the wealth management business, given the regulatory changes, continued resilience shown by Indian investors, we believe, makes the future outlook promising. With this, I'll conclude my opening remarks and open the floor for Q&A.

Thank you. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Sagar Chetwani with Philip Capital PMS. Please go ahead.

Yeah, thanks for the opportunity and congratulations on a good show given the current environment. Your first question on the wealth management segment, your distribution assets and broking assets have increased by 13 and 7% respectively. On the other hand, distribution revenues have fallen by 50% YOY. So what went wrong here? Could you please explain?

So, as we've discussed, in the wealth management business, we had a high base of TBR last year, but in the first quarter particularly, we've highlighted that we have quarter-and-quarter volatility in this number. The subsequent three quarters will be far more muted as far as TBR is concerned there, and so you will see the distribution income tracking back to growth in line with the distribution assets. But a higher share of TBR led by unlisted revenues is what caused this decline. Part of the private wealth business decline in 1Q in TBR is also led by exactly the same factor, much as in both the businesses, the wealth management business and the private wealth business, we have had rather strong growth in the ARR revenues. Which I shared in my opening remarks.

Yeah, and in HFC business, the credit cost has seen a, you know, sharp increase on a quarter-on-quarter basis from 10% to 1% now. So, what led to that?

Yeah, see, credit cost overall for the year, you know, last year was 0.5%. And if you look at overall as… GMPA, NNPA, you know, why they are down, but sequentially in Q1, generally 1 plus, 30 plus, 90 plus numbers are marginally up, and that is the reason you will see Q1 numbers. Always the credit cost will be higher, but it course corrects during the course of the entire financial year. So, asset quality has been at the supreme because if you see quarter 1, last year's GNP was 1.4 and this year is at 1.1%. So, the delta is only because of the, you know, relative increase from quarter 4 to quarter 1 of this financial year.

And what sort of, you know, cost of borrowing reduction can we expect from the rating upgrade?

Yeah, so, overall, if you see, there are two forms of borrowings, you know, one is from the capital markets that we borrow, and one is on the bank side that we borrow. On the capital market side, you know, our spreads have come down, you know, relative to the AAA, and they were, you know, earlier at 75 basis. Now, relative to the AAA, we are at about 30-35 basis spreads. Even our bank borrowings cost has come down, if you look at, you know, last 12 months of our journey. So, with the overall, you know, the recent upgrade from Cressel, we further expect, you know, cost to rationalize by 15 to 20 basis points over the course of next 12 to 18 months, given, you know, our AA plus rating.

Yeah, thanks for that. And, you know, in the July month, the volatility has, you know, again increased. So, could you comment on how the treasury book performance is as we speak?

Actually, this month is still not over, and I mean, we've seen, there will be, a lot can change between, you know, the 24th of July today and the 30th of September, but I think I would like to reiterate that the long-term compounded growth of 40 percent. led 20% by IRR and the balance led by reinvestments of our opening pad. This has been going on since March 2014, all the way till June 2006. And you can slice and dice smaller time periods of five years, three years, etc., and you still get similar outcomes. So that is what I'd like to guide you for. However, on a month-to-month basis or a week-to-week basis, these things could be quite volatile.

Absolutely. And, you know, we have a strong IPO pipeline going ahead. So, how do we see the capital market segment performing?

Some thoughts on that for the rest of the year. Yeah, the pipeline is very, very strong. In fact, but also this whole vaccination scenario keeps, you know, changing and is quite volatile. So, you know, Are the signing mandates very substantial to show a strong growth on a year-on-year basis? The answer is yes. How many windows do we, and also the business is now reconciled to not having a one clean runway of the whole year, but having pockets of, you know, two months or three months, multiple times in a year, maybe two times, maybe three times in a year to be able to execute this signed mandate pipeline. So, again, I would like to guide you that pipeline is very strong. If there is a good window open in any quarter, then you will see a lot of execution and hence a very strong growth. We saw a decent growth in Bankyu also. However, if there's a quarter where there's no such window, then this business, for us and for the whole industry, would be quite volatile for that quarter. So, if you ask me, FY27 as a year as a whole, we'll see growth, but on a quarter-on-quarter basis, it really depends on whether executions happen on the back of the window, which is open or not.

And, you know, lastly, the AMC and PWM pair is up by 45% put together. Could you please give a split of both these segments? How much was the AMC pair at higher and PWM as well?

PWM is up by 2%, is flattish, is up by 2% on the back of the lower TBR as we've highlighted. And so all of the growth is led by the asset management businesses, which comprise of both the listed equities and the unlisted equities. I'd just like to double click on this. As you know, our average AUM last year was 1.57 lakh crores. We are tracking at nearly 2 lakh crores now. And so that is a base that is driving very strong growth coupled with operating leverage. I also highlighted that multiple funds are costing the three-year vintage and they're best performing in their category. So that's the tailwind that is available to us. The SIP book will continue to build up. So that's a tailwind. But importantly, as you may have seen from the third quarter of last year, The alternate business, unlisted, has also graduated now to having a lot of mature funds, and so the acute carry income has started to build up, and that is showing up in the, you know, in the numerator, but not in the denominator, because the income started kicking in only from the October, November, December 2025, which is a 3QFI26. Correct. So that income will be higher, you know, this year's quarters and quarter on quarter, it will be stable. But I think even the alternate business, AUM, has grown strongly and the food carry income has started kicking in. So you have basically four or five factors which are all contributing to this abnormally high growth, which at least for the current year, we are hoping will continue.

Yeah.

Thanks for answering all my questions. I'll call back in the queue if there are any further questions. Take care.

The next question comes from the line of Nidesh with Investec. Please go ahead.

Thanks for the opportunity, sir. The first question is on the wealth management business. So, there has been a regulatory change on top trading from 1st of July. So, how are we seeing the impact of that change on our wealth management revenue and trading volumes?

Yeah, so as of now, there is no much impact because of the prop changes, because that is mainly impacting the prop brokers. From a liquidity perspective, it's very early time to say that is it impacting liquidity in a big way because of the volatility in the markets. But as such, there is no impact for us on the overall business model, except for there is some change on the intraday funding part from the banks, which will have its minor impact. Otherwise, it's too early.

And what would be the share of prop traders in our investment business?

No, no. We don't know. We don't know. We don't know. We mean to say that prop traders have that larger impact, you know, because of the 1st July change from RBI. It's not the impact for us.

Our entire group is invested largely in our own funds and very small part in direct equity. Okay. And so we don't engage in the prop trading of this, the one which is impacted due to the regulatory changes. We have zero impact. Within our broking business, obviously, we have no revenues coming in from that. And so this is an impact for the overall market volume and hence for the exchanges, but not for broking players like Muthi Laloswal.

Sure, sure. And secondly, in the alternate business, there has been a soft net flows for this quarter. So what is the reason for that? Any fund closure that have happened this quarter, which has led to outflows? What is driving that and how should we build net flows in the alternate business for the whole year?

So, Alternate's business itself had a tough quarter, given the overall geopolitical scenario which existed in this quarter. So, you know, if we just put ourselves in the shoes of ultra-HNI and think about what is going on in the head. It has been a soft quarter. It's of, I think, one player who continued to do well on the trot. I think everybody else consolidated. Our gross inflows were amongst the highest in the street, but because of the AUM that has been collected, we are tracking 35,000 plus on the alternate side. Assume some amount of normal redemptions. So the net has been negative for the quarter. As we speak from this month, actually we are tracking net positive.

First is that the performance of the products are exceptionally good. So that is not an issue at all. But from a market perspective, as you may have also observed, there's a whole plethora of structured debt, private credit, real assets, special opportunity type of funds, and that has taken up a lot of the alternate allocation. By private banks, by family offices, by H&I clients. And so, I think that is what has also happened in this quarter, because of which, as Kati highlighted, barring one player, no other player has seen any significant influence. And in terms of the raw sales, they continue to be among the top players in the alternate space.

So, are there any funds, launch plans through the year, on the alternate business?

On alternate side, we have, so on the listed equities, we don't really believe in launch proliferation of products. I think the headroom in our existing products itself is very large, according to us. But as far as the overall market is concerned, I highlighted to you that a whole variety of products on the credit side are coming up. You are aware that this quarter also, if you look at the alternate business overall, we had a net 800 flow on account of our private credit fund, Nidesh, and that credit fund will continue to see the residual flows in this second quarter, and we already got the regulatory approval for our commercial. Real estate fund launch, and that should happen in the second half, as I did. So, basically, in market, there is flows in credit products. We are seeing strong flows in our own credit product in 1Q. That, we think, will continue in the residual nine months, and we are also hopeful of the listed equity side alternates seeing flows in the coming quarter.

And what is the, have you booked any carry income in AMC this quarter, and what is the expected quantum that we will likely to book through the year in terms of carry income in AMC?

We have not booked any carry income, which is meaningful. It might be some very rounding of error. We have carry income on our products. I think... In 2Q or 3Q, you may see us report some number there. It's not something that I'd like to call out because it's all a function of the markets also. Yeah.

Sure, sure, sure. And last question is on private wealth. There also ARR net flows have been a bit soft this quarter. I think on a quarter-on-quarter basis, there is a meaningful decline. YOY, I think the net flows are okay. On a quarter-on-quarter basis, there is a bit of a decline in the private wealth business.

Yeah, so if you look at the net flows, over a period of time, they've been quite strong. I mean, we've doubled the net flows over the last three years, I mean, from 10,000 crores to 20,000 crores. But quarter-on-quarter, the flows tend to be a bit more volatile because the preferences of clients in terms of allocation changes. So what we've seen is we've seen more flows into direct fixed income kind of assets this quarter, but these things tend to even out over the year, because if you see YOY, Q1 versus Q1, we have seen strong growth in net flows. But however, the allocations have gone more in fixed income in this quarter, and hence you will see the ARR flows being weak, but

these things tend to even out over the course of the year.

And I want to clarify once again on the carry income question. My carry income question that I answered was on listed equities. On unlisted equities, if that was your question, the number is 66 accrued carry income for this quarter, and this number will continue to recur at a similar level for the next three quarters and for the next year also. And going forward from here also, because there's a whole pipeline of products which will keep advancing and coming closer to maturity.

And just one last question on private wealth again. So there, actually, TBR has been a bit volatile. So, what we have seen, some of the peers have built our TBR, which is slightly more stable now, more granular. So, how are we planning to build a much less volatile TBR? And if you can give some color on TBR, what is the composition of TBR in terms of unlisted shares, listed shares, structured deal, etc.?

Led by transaction flows. And, again, like I mentioned, the preferences also keep changing in terms of asset class. So, last year, we had very strong sourcing in unlisted equity. However, what we are seeing this year is we are seeing very, very strong flows into fixed income as an asset class. So, over the course of the year, you will see this even out, and we see volumes also compensating for the high base that we had last year.

Thank you. That's it from my side.

So, Hidesh, from equities with PBR, you will see fixed income and equities balancing out, and that should lend more stability to this. But as you know that, you know, last few years, I've seen a very strong trend in understated paperback credit and equity. And so that is what is there in the base of the first quarter last year. And also... Strong growth in ARR revenues gives us the air cover, you know, whilst, you know, we build up the transaction flows. I mean, if you see the growth in ARR, it's almost 42% by OY and 46% in the net interest income as well. Yeah.

Thank you, sir. That's it from my side.

The next question comes from the line of Umang Shah with Kotak Mutual Fund. Please go ahead.

Yeah, hi. Thanks for taking my question, and congrats on a good quarter. My question is somewhat related to what Nidhesh was asking on the alternates business. In terms of the carry income booking, so I can see that there are a few funds, both on private equity and real estate side, which are likely to get exited in FY27. So, our carry income assumptions are contingent upon the fact that exits get completed in FI 27, or if at all, let's say, if there is any delay because of market conditions, then there could be a spillover in FI 28.

These assumptions among have been made on a conservative basis, factoring in delays, and so the run rate that I articulated, we booked 66 tours this quarter, we will likely have similar numbers for all of the quarters of this year and also for the next year.

Also, you know, only 70% of the fair value has been recognized. So already we are more conservative. 30% is recognized only on realization.

Oh, okay. Okay. Understood. And from a growth perspective as well, obviously, there are a few exits and there are a few funds in the pipeline as well. So, on a net basis, we should not see any lumpiness in terms of AUM, right? I mean, we should be able to still deliver reasonable net sales numbers for the year, or there is a likelihood that there could be some lumpiness for FI 2728.

Are you talking about the alternate unlisted net sales?

Yeah, I mean, overall, I mean, because I can see there are a couple of real estate funds which are also likely to exit this year.

So, because of a series of new products that we will launch, Human, The overall income of the unlisted alternate business on a year-on-year basis will continue to rise. Right? So whatever number you've seen last year, this year's number will be higher and the next year's. Because as you're aware, the private credit fund will see the final closure in the 2Q. The commercial credit fund will be launched after that. And then we have a series of products to be launched even after that. So, the AUMs keep rising, point number one. And point number two, for the same product, the subsequent series is always a higher AUM. So, if there's an outgoing AUM of the previous fund, there'll be an incoming AUM which is larger of the next fund. And unlike in listed alternates, in unlisted alternates, you book fees or you report fees. Only amount raised, not on mic-to-market. Right. So, we would like to guide that there should be a steady rise in both the fee income as well as the approved carry income for this business.

Understood. This is quite helpful. For the mutual fund business as well, I mean, last few years we have seen fair amount of additions in the team as well as on the product side. How does the product pipeline look over next 12 to 18 months in terms of new scheme launches? And also, are there any more additions to the team required or we are pretty much done with people hiring?

Okay, in terms of the mutual fund side, you should expect to see on the passive side, we would continue to populate our offerings. On the active side, there would be fewer, but still over the next 12 months, one should expect 4 to 5 new offers from our side. The big thing to focus on the AMC is that over the... December to Jan quarter, we have two large funds, two large positions, you know, the small and the large cap funds, which will complete three years, and as we know, you know, it comes into the tracking of more distributors, more wealth platforms after three years, which we believe should help flows. And after that, in three months, a multi-cap category, which is again a mainline category, will come into the focus. So, lots to look forward to from existing funds only over the next period, starting December, while we will continue to populate the active side also, but fewer. Like it was told in the initial comments, the coverage that we have today is 87% of the active funds, this thing, so the positions left are few.

Just to summarize, NFOs will be a far smaller contributor, but the vintage products which are performing well will be, we have a bigger hope of a large growth there. And in terms of team addition, yes, we keep adding, as we are launching more funds, we will need more hands. And so, there is no vacancy to fill, but... Opportunistically, as well as from a longer-term perspective, we are looking to strengthen both the fund manager base as well as the research team on the active side, as well as the passive side.

Understood. And my last question is on the SIP flows. Now, I do see that, I mean, there has been a fair amount of improvement in the net sales numbers. However, for SIP, our market shares have remained range-bound this quarter. In fact, not just for yourself, but for most of your peers as well, we have seen a little sort of a mixed performance on the SIP front. I just wanted to understand how has been your experience when it comes to investors? Is it some sort of a fatigue which is catching up, or going forward, will it be more driven by returns? And specifically for Motilal Oswal, I mean, is there a scope for market share improvement, especially on the SIP side?

So, we saw very strong market share improvement in SIPs. I mean, we tracked over 1450 crores at our peak. Today, we are 1450 plus crores a month. So, our market share on SIPs is significantly higher than our even market share. And it has been led by primarily one-and-a-half fund, I keep saying this, you know, mid-cap fund and to some extent LMC. And of course, assets also. Now, as our other category, you know, especially small cap, complete three years, we should, at least we expect SIP flows to pick up in that category also, taking up our overall market shares.

The fatigue in the industry is concerned. There are times when you see a spell of 6 to 12 months when there's strong growth, particularly when trading 12-month returns look very exciting. But times like this where the trading 12-month returns don't look that exciting, you do have stagnation. So, I would say, is there a long-term fatigue in this? The answer is no. But there are spells when you have strong growth and spells when you have... You know, flattish numbers. Good news is that we're not seeing any meaningful contraction as an industry in this number.

Right, right. Perfect. I think this is helpful. Thank you. Thank you so much and wish you all the best. Thank you. Thanks so much.

The next question comes from the line of Neeraj Toshniwal with UBS. Please go ahead.

Yeah, hi, team. Congrats on a good set. So my question first is on wealth management. I think on distribution assets, you've done a good job here, steadily increasing the distribution book. So how should one think about the yield? And the lending is obviously increasing across the board for the industry and as well for you guys. So how should one think about the distribution piece going forward? And what are we, you know, how the mix is changing with that and the yield is also improving?

Yeah, the focus on distribution has been there for the last few years, and we have got a dedicated team now in place, and at the same time, if you look at the overall penetration, it's still very low compared to the overall transaction-related client base that we have got. So, we have got a dedicated team across the channels who are working on the distribution across all our client network. So, we see that this will keep on building up from here across... The ARR products where you have the consistent trail review and there will be some amount of products on the other front side also.

As far as the yields are concerned on the trail yields, the yields are stable at around 70 basis points.

Okay, this is helpful. Second question is on capital markets. I think employee costs have been fairly low from the last two quarters. Is this stable on it, or we can assume that with the activity picking up, there could be some increase here because it has been fairly low?

Yeah, you know, because ads, you know, that is linked to the revenues, you know, quarter four, quarter one of this year, if you look at the overall revenue spike has been, you know, fairly, you know, a bit volatile. So, you know, the people cost, the variable component actually goes down because the fixed cost remains constant. That is one of the reasons you will see a bit of, you know, volatility in the people cost on account of the, you know, actual cost is because of the lower variable cost.

So, you would have understood the variable component in the employee cost in that business is higher, and so if you look at the cost to income ratio, that will probably be more stable, but if you look at the absolute number, it will vary depending on how much top line is coming through.

Got it. That is helpful. Then the other bit was, I think, already there's been debated in the call on the flow side, just wanting some more color and on the private and also on the AMC. At the AMC, we have kind of stabilized within the MSI. And as you're mentioning that, there's a couple of. So, how should we want to think about... Thumbs off.

This is a tough one, but... We have been tracking higher than our JUM market share in terms of net flows. And as our large new positions complete three years, that should increase, is what we think. Now, the second manner of thinking is, if the net flows in the industry are lower than SIT flows, Then it constrains a younger AMC like us. So, we have noticed if the net flows in the industry are more than SIP flows and, of course, if the performance looks competitive, the impact of net flows on us is more positive. So, it is quite a few variables which are there which need to interact for the net number to happen. Now, lastly, our digital flows continue to track stronger. So, there we continue to maintain or increase market share. Now, digital itself is increasing market share amongst all channels in the industry. So, in some sense, we believe chances of us sustaining a better than industry growth rate. Better than our AUM market share on net flows is a very good probability.

So, to quantify, do we have digital market share as of now and maybe a year back?

So, we would have increased by 60 bets over... So, the year before was very strong for us. Because that was our peak year. So from our peak, in our peak, we were getting double-digit market share. From there, we are today just about four percent. So our net flow market share versus our peak has declined. But versus our EUA market share has continued to be higher all through. In terms of what we do on a month, we are between 700 and 1200 crores net on access.

I'm wishing the team all the best.

The next question comes from the line of Neha with Abacus Investment Managers. Please go ahead.

Hi, thank you. Most of my questions have been answered. Just one question on the expenses side. So if you could please explain why the employee expenses have increased substantially this quarter. So quarter on quarter there's an increase of 16%. So is there any one-off that is coming?

See, quarter-on-quarter increase relates to, you know, the annual performance appraisal cycle, which has been closed, and the increment, which is actually effective from 1st of April of this financial year. So, most of the portion of the increase is on account of the cost increment on the people's side.

And on a year-on-year basis, it's headcount led.

Okay, and just specifically for the AMC business also, the number has increased almost 2x. So, is that because of the same reason?

So, in AMC quarter 4, you know, there was a reversal of an ESOP line item, and that is one of the reasons where because the cost... Of, you know, about 24 crore absolute amount was reversed. To that extent, the costs have been, you know, if you compare the current quarter reserve, normalized cost versus last quarter reversal. So, that is why sequentially, to that extent, also, it will look higher.

Okay. So, the number that we have seen in Q1 will be the normalized number going forward.

That's right. Not just for AMC, but also for the group.

Got it. Okay, okay. And so just lastly, on the PBT margins, so if you can just share some view on where do we see that going forward? So I think last year it was about 52.5%. So where do we see that? And if the incremental increase will come, which would be the segments that will drive the expansion going forward?

So, you know, if you look at historically our last few years of our, you know, margins, you know, margins have been, you know, around the range of, you know, 50 to 52 percent margins, right? One of this year is also around 52 percent. So, we expect, you know, historically the margins that are had to, you know, sustain over the course of the current financial year. Even, you know, bulk of our costs are variable, you know, just to give you an example, like, you know, in our wealth management business, you know, almost 70% of the costs are variable. To that extent, the ability to control our margins because of the variable cost is also strong.

Understood, sir. Okay, that's it for myself. Thank you.

Thank you. The next question comes from the line of Dipanjan Ghosh with Citigroup. Please go ahead.

Hi, good morning, everyone. First, two questions on the wealth management side, or at the overall wealth piece. I think in your presentation, you mentioned that the cross-sell ratio is around 18%. Now, there are two sub-parts to this question. One is, I wanted to understand, do you include, let's say, if a customer is doing broking and, let's say, MPF, utilizing MPF also, would you include another cross-fill, or is it like when the customer, you know, kind of purchases any distributed products or mutual funds or PMS, then you kind of consider it as cross-fill? I just wanted to understand the definition. And secondly, in terms of this 18%, let's say going to 20%, 30%, the other way to look at it is probably trying to understand the share of broken revenues from, let's say, the top 20% customers or the top 30% customers. I mean, if you can give some color on that so that we can understand how much this 18% can increase to. The second question is on the MTF book. I think, similar to the industry, you have also witnessed a strong increase in that book. Just in terms of adoption rates or hit rates amongst your existing customer base, can you give some color and how much, you know, this book can further grow in terms of adoption amongst existing customer base? So those are the two questions on the wealth side. Now, one question on the capital markets, if you can give the IB pipeline for the next 12 months.

If you can hold on to your question, let us answer so many, we will forget there are too many questions. So, let us first answer these.

So, on the first part, whether MTF is considered as part of the distribution, no, it is not So, the 18% is without considering MTF, we only consider asset products which are being sold as part of the distribution. Right. Your second question was regarding the MTF Book Pro, right? So that, as you understand, it's in the industry standards. We are growing, and the potential to grow for us is much higher because, as you always know, we have been always into this advisory and H&I business and high-quality clients, and ARPU has always been higher. So to that extent, the penetration, we see that there is a good scope to penetrate further in the MTF book at an overall level. So we see that this can be a good growth potential going forward.

Any, sorry, any small follow-up, any quantification on the current hit rate amongst your existing cache customer base from an MTF perspective?

Hit rate means in the case of integration?

Yes, I mean, let's say how much of your cache customers would be utilizing MTF as a product?

I will not have this number immediately, but we can share it. I think it will be around in the range of 15%. Got it.

Also on the MTF side, you know, we have very healthy yields and spreads, you know, because if you look at even our, you know, cost of fund trajectory and, you know, our overall low leverage, that also gives us, you know, more delta in the P&L. So while book has grown 54% YOY, you know, and the average book has also started catching up, which we decided, you know, delta on the growth, absolute growth, as well as on the improvement in the spreads in the book.

Got it. Fair enough. On the capital markets, any comment on the pipeline from IB revenues over the next 12 months, now that primary markets are kind of improving a little bit?

I answered that earlier, but I'll repeat. Basically, the fine mandate pipeline is quite strong. This quarter we reported a strong growth as well. Markets have been quite volatile because of the recession scenario. You know, if we get up. Like, a few windows of, you know, deals, like, happening, then I think our pregnant pipeline is quite substantial for us to be, you know, clocking revenues. So, there's a, I would guess that there's a high probability that we should show a reasonable growth in this business on a year-on-year basis. But obviously, yes, things go one way down. Deals are not happening. Then it's all contingent on execution. It's not contingent on pipeline. Pipeline is there.

Fair enough. Just two small questions on the private one business. One is if I look at your recurring assets on the private one business, it looks like the closing AEM is meaningfully higher than the average AEM. I mean... Compared to even the industry numbers for AUMs of mutual fund industry or something like that as a proxy. So is it like the flows were more back-ended, or is it a function of the asset mix in that particular distribution and recurring basket? Some color on that would be used, the divergence between closing AUM and average AUM on the recurring side. And second, in the private world, also loan book is growing quite fast. I mean, we don't get color on the book, whether it's MTF, LAS, ECO financing. So, yes, some color on that would also be helpful.

So, the private health business, as you can see, is a breakup of custody assets, ARR, as well as TBR assets. So, the ARR assets have been going up quite steadily.

What happens is sometimes, you know, when we get a transfer in our DP or some promoter assets, the overall AEM tends to get bumped up. But the ARR AEMs are more steady in nature. And if you see sequentially, they've been going up gradually.

So even on, you know, the question around the closing AM to average AM, so closing AM on the ARR side is up 40%, and the average AM is up 36%, so it's largely in line, so there's not much of back-ended thing.

But the absolute number itself is strong because the base is small still, we've added a lot of AMs, they are getting productive. So, I mean, we would like to see this number, you know, continuing to grow strongly at similar rates in the future also.

Share the loan book mix in the private with this.

I mean, this would be all related to MTF. Meaningfully, the non-MTF part, last book would be also included in that number. Again, very under-indexed if you compare ourselves with the other private welfareers. It's a very, very tiny book as of now, so the headroom to grow there, and hence NII. Forming a policy recurring revenue base to be greater is a lot, and I think that is something that we should see happening over the next two, three years' time, including March 27 and March 28.

Got it. Thank you, everyone, and all the rest. Thank you.

The next question comes from the line of Mohit Mangal with Centrum. Please go ahead.

Yeah, good afternoon, and thanks for the opportunity. My first question is specifically towards the private wealth management. I think we have seen, you know, steady growth in net flows. So two questions over there that, you know, first is basically have you seen any increase in the wallet size of existing clients? And second is if you can, you know, throw some color on basically the net flows of existing versus new clients, that would be helpful.

So, if you see, even the wallet size per customer is steadily moved up.

We are now closer to 25 crores, and even the AM per banker is now closer to 550 crores. So, that number is steadily moved up. Your second question was on?

Sorry, could you repeat your question? Second question.

Mohit, can you hear us?

Yeah, so typically the flows from the newer customers in any year would be around 20%, and 80% is basically deepening from existing customers.

Does that answer your question, Mohit? Yeah, yeah, yeah. Am I audible? Yes, you are now.

Now you are. Yeah, yeah. So my second question is towards the RN council. You have seen about 25% increase in the overall RM to 441. And you also said that the productivity is also improved for RNs. So are we going to go that aggressive on hiring RNs or are we going to slow down on that? No, so last year, obviously, there was a meaningful step up. This year, the composition of RM additions will be fewer in numbers, but much higher in cost, targeted at the family offices, and so the cost increase will continue to be dead, but headcount increase will be lesser in FY27 compared to FY26.

Understood.

My last question is basically on the break-even. So I just wanted to know, basically, a typical RM, how much time does it take to break-even, and do you also face any attrition issues in that aspect?

So, typically, bankers

at an aggregate level break even around two to three years. However, what we are seeing, which is quite encouraging, is some of the senior bankers that we are hiring are breaking even much faster. I guess that's also the function of the kind of platform that we have, because the platform enables the bankers to break even much faster than what normally happens. Understood. That's all from myself. Thanks, and wish you all the best.

Thank you.

The next question comes from the line of Saket Mehotra with Tusk Investments. Please go ahead.

Hi. Thanks for the opportunity. I have a question on your data book. See, for private wealth, this quarter, we are reporting 157 crores as ERR, and the distribution is 110. And last year, ARR was 111 and distribution was 166. I'm just trying to understand what is the bridge between the two would be very helpful to understand.

Yeah, the bridge between the two is actually the net interest income on, you know, the lending book is at 4,200 crore. And I earned on that as the bridge because I'm also part of the ARR.

Okay.

So, your net interest income this quarter was 91. So, you are thinking some part of that is ARR and some part is transactional?

So, the entire NII is ARR.

There is no transactional in NII. Okay. So, within distribution, there is some element of transactional? That's right. Yeah.

Okay. Okay.

The second question I have is in your AMC reporting, there's a line on variable additional returns. How does one lead into it? Is this the carried interest of your AIF investments? I'm sorry, I'm not aware of how this number should be read. Could you just help me understand that?

So this is not pertaining to the listed equities AIF. This is pertaining to the private equity, unlisted equities, RESI credit, going forward as the private credit. So this is a globally accepted practice, followed by Blackstone to everybody else. And as funds mature, you know, they start kicking in. It started kicking in for us from CQ of FY26. And if we gradually rise, as Shali explained earlier, that, you know, we consider only 50% of the fair value, 70% of the fair value while, you know, reporting this number. So there's a buffer. So we've reported 66 stores this quarter. We expect similar numbers for the next three quarters and a higher number for the next year. So this is a consistent table that you will see.

Okay, and this is a part of your ERA? Yes, that's a part of ERA. Okay. Thank you so much. Thank you.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Shalibhadra Shah for the closing remarks.

On behalf of Mutila Luswal Financial Services, I would like to thank every participant for attending the Q1FY27 conference call. In case if there are any further questions, please do get in touch with our invest situation desk. Thank you and have a good day.

Thank you, sir. Ladies and gentlemen on behalf of Motilal Oswal Financial Services, that concludes this conference call. Thank you for joining us and you may now disconnect your lines.