Nuvama Wealth Management Limited (NUVAMA) Q1 2027 Earnings Call Transcript

Ladies and Chairman, good day, and welcome to the Nuama Wealth Management Ltd. Q1-FI27 Earnings Conference Call. As a reminder, all participant lines will remain 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 the conference call, please signal the operator by pressing star, then zero on your touch-tone telephone. Please note that this conference is being recorded. I will now have the conference over to Mr. Ashish Keha, MD and CEO, for opening remarks. Thank you, and over to you, sir.

Thank you. Thank you so much. Good afternoon, everyone, and a very warm welcome to all of you for joining us today. As always, it's a pleasure to connect with you all. Joining me today on the call is Bharat, our group CFO, along with our investor relations advisor, SGA. We'll begin with a brief overview of our performance for the quarter, and once I'm done, Bharat takes over, and once both of us are done, we can quickly jump to take your questions. Just a quick summary, I think it was a strong beginning for us this year, delivering record quarterly profits and healthy all-around performance across all our businesses. This was also reflected as a significant milestone for us this quarter. Client assets crossed 5 lakh crores. Our quarterly revenues crossed 900 crores and our quarterly PAT crossed 300 crores, an all-time high for us. ROE still stands near 30% and remains to be one of the best in the industry. Okay. Before I discuss our business performance, let me just share some quick observations on how the industry is evolving and how we see the opportunity ahead. I think I have said some of these before, so I will be brief. Some of you may find it repetitive, but I think nevertheless it merits a discussion. Firstly, I think the value of full platform models is becoming increasingly evident. Across the industry, you will witness that if someone is a standalone wealth manager or asset manager, they are trying to build capital market capabilities. While the traditional capital market broking investment banking firms are clearly seeking to strengthen their wealth franchise. So, I think that convergence is clearly visible across the market now, which we've been talking about for five, six years, that, you know, this is inevitable. This is going to happen. Second, I think independent wealth management as a cluster is becoming an emerging powerful force. A lot of new entrants are coming into this business, whether it's banks bringing focus back or private equity funded players. A lot of action you're seeing in this segment. Third, I think in addition to ultra-high networks, which of course has been mainstream for quite some time now, The affluent and HNI segment is also emerging as a very, very attractive opportunity. It's extremely large. It's growing. It's omnipresent across the country, and it remains structurally underserved, and it remains difficult to serve. It's not a very easy segment to crack. It takes time, but it is an attractive opportunity. And lastly, I think it merits to say that technology and more so generative AI is playing a very, very transformative role. I don't know how it is going to evolve in the next four or five years, but I think it is definitely going to bring in lots of efficiency for everybody. Some may be slightly ahead in the curve, like it happens in any technology, you know, innovation. Initially, it is always non-mainstream, a few people do it, and in two, three years, it becomes mainstream, it becomes par for course, it becomes hygiene. Most of the players have it. So I don't think people need to, you know, panic about it. We are investing around it, we are investing heavily, and I think it will benefit most of the industry, Because it will bring efficiency in every part of the value chain which we deal with. With that context, let me now quickly share a few highlights across our businesses. Starting with Nwama Wealth, I think we took a call long back that putting the power of choice in the hands of the client is a central differentiator to us. And this is what this business represents. Our MPIS model is a strong reflection of this philosophy. The platform empowers clients to define their objectives and access to investment solutions across the board. It's not narrow. It doesn't confine the clients to choose from only one or two categories. It keeps it open because we understand that every client is unique and their needs are unique and it can be fulfilled through the wide range of solutions available. Revenue from MPIs grew by about 20% year-on-year. Net new money, one of the highest quarters ever. We crossed 3,000 crores in this, and overall assets also increased by about 32% year-on-year, hitting 42,500 crores. I think one of the interesting observations which we are seeing that Tier 2 and beyond is expanding faster, I think now it has started contributing to more than 35% and growing even in the NPR segment. Second, I think the success in this model ultimately is driven by the quality of advice which gets delivered to the client. And to support this, we continue to invest in our talent ecosystem, which begins by hiring the right cohort, the right seniority. And as I mentioned last time, we are doing a seniorization of the entire team. We added 40 more net relationship managers in that cohort this quarter. Third, to continue my discussion on tech, we are deliberate and intentional in investing in technology and AI across the value chain. And this business, I think, will get the most of it. We've introduced concepts like Nuggets. This is an AI-based chatbot with services, RMs, and our external wealth managers. We have something called RMBuddy, which is a voice-enabled AI assistant for supervisors and RMs to manage their whole lifecycle, client book, and gives personalized insights to them as to how they can improve their performance. We have a customer profiler, which is now completely AI-based. We've done a POC with about 200 people, and we'll roll out to the full team very soon. I think all this has led to significant productivity jump across MPI's both revenue, net new money assets. We have seen more than 25% jump per RM year-on-year, and overall revenue jump up about 17% per RM year-on-year. And lastly, on lending, we continue to scale the book. We mentioned a few quarters back that the growth of the book will be in line with the overall business. The book has now crossed 5,000 crores, lending book, and NII growth was also about 12% queue on queue. It remains at about 20-22% of our overall revenues in the queue. Moving on to Nuwama Private, first and foremost RM edition. I think I mentioned last time that this segment is seeing some intense competition. It's not that it was not there earlier, but I think it's become more heightened now, and I shared my views around it last time. But I keep telling my colleagues that it's a good thing that, you know, we keep struggling for ARMs because it actually shows the hypothesis that the growth is intact in the industry. And we've made a bet long back, and I think it's playing out now. Against this backdrop, we are happy to state that we've added about 11% of our force in the last one year, and we've added about 6 to 8 ARMs in the last quarter. I think we offer one of the most comprehensive platforms for seasoned R&Ms in the industry across the entire solution spectrum to serve their clients in the best possible way and also gives immense opportunity to create wealth for themselves. During the quarter, we expanded our presence both in Tier 1 and emerging wealth markets, adding people across Mumbai, Chandigarh, Ahmedabad, and Chennai. Moving to recurring revenue assets, we continue to see decent momentum there. On a full-year basis, the ARR assets grew by about 20% to 58,000 crores, and net new money into managed accounts continued to remain strong at about 1,800 crores. Overall ARR flows this quarter was slightly soft on net basis at 1,000 crores because we are in the process of weeding out some extremely low-cost mandates which were acquired long, long back. In fact, these are historical mandates and we are in the process of cleaning them up, so I think that number is a reflection of post that cleanup. Still remains at 20-22% of the opening assets. We've launched an offering here for the Super Ultra HNI called Pinnacle. It's a very, very differentiated offering, bundling multiple things and delivering a lot of value proposition to the client. I think it will help us in garnering more ARR assets here. Talking a bit about offshore, our focus over the last 18 months has been to build the platform out and I think now we are seeing the delivery happen. We have two locations, Dubai and Singapore. Dubai, we've already broken even and Singapore will break even by the end of this year. Overall revenue contribution from offshore will remain between 5% to 7% at least in this year. We are now in the process of ramping up capacity there. It is a highly accretive ROE business because lending in this business doesn't sit on our books. Any offshore lending sits in the books of our partners. So, basically, there is no capital usage which happens. So, once you break even, everything is straight addition to return on equity. I think overall offshore, but also to deliver a holistic value proposition for clients in India, clients in this segment and even in the H&I segment are in some sense becoming globally integrated citizens and allocations are moving out to global assets, not rapidly, but I think slowly and steadily. And our view is that over a 3-4 year period, you will see maybe around 15-20% allocation sitting in a lot of client portfolios which have offshore assets. And if you have a presence overseas, your ability to serve them becomes better. So I don't think offshore any longer is a luxury. It's a necessity which every wealth manager will have to have. RM productivity here also continues to be strong. We've seen a jump of about 17% to 20% year on year. Asset management, let me start with commercial real estate. We successfully closed our first commercial real estate fund. It's branded as Prime, Prime Offices Fund. We closed at around 4,000 crores. We had initially launched with a target of 3,000. We've completed deployment of around 40% across 3 to 4 marquee assets Between Chennai, Delhi, Pune, we are on the verge of completing a few other transactions, and the target is to deploy about 70% of the AUM in the next maybe two, three months, so that by end of Q3, we can launch the second fund, which we want to have around 4,000 to 5,000 crores again. Slightly different strategy from the current one, but in the same space. And then, eventually, over the next 24 months, we are contemplating of looking at building a REIT platform, because many of these assets which we are acquiring are real marquee assets, and there is no point of setting it out completely. We can move into a REIT platform and have a source of permanent capital in this system. Moving to private equity. In the last call I had mentioned, we have done a change of leadership there. Under the new leadership, our objective, single sole objective remains to complete the deployment of the old funds and start returning money, which we are now doing. From first fund, we have returned about 30% of the capital. Second fund, we have returned about 15% of the capital. And we are in the process of raising our fourth fund. It's branded as crossover four. We've done about 300 crores to 350 crores. We are targeting anywhere between 700 to 1,000 crores there. Moving to private credit. Now the team build out is happening. I think it may take another two, two and a half months to have a basic level of team in place. And then again, middle to the launch of our first private credit fund. I think private credit is something across the client spectrum. Right now, we work with the external credit fund managers. In addition to that, we'll also start offering our own. Lastly, coming to public markets, I think there we've seen some amount of volatility given the performance and also due to the launch of SIFs, which are clearly a more superior tax vehicle. We've seen some redentions in our absolute return fund and our loans are in the process of getting the SIF license. And once our SIF is launched, hopefully we will be able to move the assets from this to that. On an overall P&L perspective on asset management, many of you have asked me in the past that when do you think, you know, making money. Private equity is also making money and public markets is also making money. But because we are investing into new categories, which has a drag of one to two years, and we've taken an MF license, which needs a separate sort of team from front to back. I think that part of the investment will get over this year. Right now, our cost run rate is between 30 to 33 crores a quarter. Our assessment is that it will peak at 35-36 crores a quarter. We start seeing the revenue inching up with the launches of new products. So this year, we will end up at a cumulative loss of around 35-40 crores, and subsequent to that, you will see the path to break-even start. With that, let me move to our next segment, Assets Services. Momentum was extremely strong this quarter. There was around 20% quarter. Average client assets have come back to Q1 level of last year when we had lost a very large client. And retention yields continue to be strong. Just one word of caution. We have seen extraordinary level of growth here. I think over the coming few quarters, we are not expecting a lot of moderation as new client acquisition has happened and a lot of collateral is right now sitting in cash, which will get converted between cash and GSEC. So we may see some level of moderation, but on a full year basis, we are confident that revenue growth will be more than 20-25% here. We are also investing and building the proposition on this business. You are aware that business is divided into two segments, international and domestic. On the international side, I think some significant initiatives are being planned right now, which will start yielding results. Specifically, three areas of opportunities have been identified. One, subsequent to this STT coming on futures and all, single-stock futures and gift have become a proposition where we are seeing few international players wanting to start activity and are asking us to support them, which we will start. Commodities is becoming important for clients, and you fundamentally can see, you know, right now, the collateral of client is being used on Tuesdays and Thursdays because these are the two expiries. If we are able to onboard commodities, then Monday, Wednesday, Friday opens up. So it gives significant amount of efficiency and improves the return on capital for our clients. So I think that is where we are working on. And the third area, which is also extremely important for us, is trying to work on a global custodian, local custodian arrangement, where we have a strategic partnership with a global custodian who doesn't have a presence in India, and we give them the India leg, which allows us to access client segments, which, let's say, most of the other global custodians which have a presence in India can access, which is long-only funds and hedge funds. It's a new segment that will open up for us big time. On the domestic side, I think I mentioned in the past, and we'll continue to progress on our RTA offering and trustee build-out. I think maybe another quarter or so, and we should roll that out. And that hopefully will lead to a further increase in our market share in that segment. Lastly, coming to capital markets, in the equity market environment remained broadly similar to what we witnessed in Q4. Primary market activity was very, very selective. The total number of IPOs which we saw in Q1 were 8 as compared to 15 in Q4 and maybe 14-15 last year. And even the total amount of fundraise fell by around 60-65%, both against Q4 and last year Q1. But now we are seeing that activity come back, and there is a lot of pent-up demand, a lot of documents have been filed. So I think the balance time months, hopefully we should see better activity there. On secondary markets, the volumes have been steady. I think cash volumes have actually seen an uptick, and derivatives have been rather flat. There is one key monitorable, which basically, on the new regulations which have come around derivatives, which is STT, and on intraday financing and bank guarantee collateral around these two. We've seen the numbers. We've ran through the numbers. At least, we don't feel that there's going to be a very, very significant impact, but we'll closely monitor on that. In the capital market side, I think one point which we wanted to highlight, which numbers are actually showing, are fixed income activities of phenomenal activity in this quarter. Most of the jump actually on the investment banking side has come from fixed income, and there was significant amount of FPI activity in this quarter, initially because they were selling as rupee was depreciating and there was hardening of yields, and towards the end of the quarter, they were buying as government made the capital gains on GSAC tax-free, and I think we participated wholehearted

Thank you, Ashish, and good afternoon, everyone, and a warm welcome to all of us. The participants on the call, Ashish and you have covered the headline number. Just to repeat a few headline numbers, we started this year on a strong note with quarterly profit of 300 crore plus. Just to put this number in perspective, in FI22 full year, we did a profit of around 292 crore rupees. And after four years, in quarter one, we have done a profit of around 300 crore. And that is also not coming from one or two business lines. It is across the business line. So I think that says it all in terms of that the platform strength and the multi-business model is working fine for us. Along with that, the crystal has also graded our rating from AA- to AA stable. So that has also been reflected because of the financial strength. Now coming back to the Q1 specific numbers, so we have actually crossed the 5 lakh crore mark on the client assets, and now the client assets should set around 5 lakh 36,000 crore. Obviously, it is led by the strong net new money as well as the mark-to-market during the quarter. There's another milestone which we have achieved. So if we look at wealth and private, we always talk about more on the MPI's asset for wealth and ARR assets for private. Both put together has also crossed the 1 lakh crore mark. Now, MPI's assets stands at around 43,000 crore and ARR assets stands around 58,000 crore. This is a strong growth of around 32% and 21% respectively for both wealth and private. In terms of the net new money, again, this has been a highest ever quarterly flows for us, crossing 3,000 crore for Noama wealth in the MPI SSH size. And even if you look at private, ARR, as Ashish was referring to, a low-earning advisory kind of an AEM, which we have actually let it go. Our overall net new money on an ARR has actually been 1,800 crore for Q1 for private, so that has been going fine. On the asset management side, we actually closed the prime fund at 4,000 crore. We actually initially launched it with a 3,000 crore target, but we actually ended up doing it at 4,000 crore. And we have got the SEBI mutual fund approval as well as we have applied for our SIF license. So, hopefully, starting quarter three, quarter four, we'll have a lot more strategies coming up in the market, and that will give that momentum to the asset management business. Coming to the overall revenue, our revenue was at 909 crore, which is an 18% growth, and within that, wealth management grew by 19%, which is almost like 50% of the revenue. Asset services, as we discussed, that has seen a very good number in quarter one of this year, around a 34% growth over previous era, 260 crore. But as Ashish also referred to this, this could be not that they continue to grow at this kind of a number going forward. This will moderate to some extent, but that's where we are. It's a base effect. In terms of the capital market, our number, overall revenue number is plattish versus quarter one and around 180 crore. But this is because the IE revenue is actually dropped compared to quarter one of last year because we had a large ES client which was sitting and helping in that business, which is not there in this case. Despite that, our total number is around 180 crore. And as we discussed that on the IB side, it is the fixed income business which has actually done very good in this quarter. Again, this was led to because of there was an opportunity on 7th of June when the government has actually made GSEC interest income as well as capital gain tax-free and including there is no withholding tax. So, that led to a little bit more market-led opportunities for the FIM market, and they obviously capitalized it because this was an opportunity. So, maybe some part of this revenue may not repeat in quarter two and all, but having said that, fixed income is genuinely doing a pretty good job for us in terms of year-on-year growth, in terms of actually expanding to new client segments, new revenue sources. So, I think that's a pretty steady business doing well for us. On the cost side, you will see that the quarter one cost has actually gone up by 19%, and within that, employee cost is increased by 17%, and OPEX is up by 24%. So if I come to the employee cost in the 17%, so we have actually added almost 5% net capacity, net people over the last one year, and we have actually replaced our low-cost wealth RM with more senior experience RMs. So that is playing in. Then there is an annual increment and as well as the variable cost, which is linked to the business. The data book captures in terms of the fixed cost and variable cost increase over the previous year and previous quarter. So that can give more insights to that. OPEX is actually up by 24%, but compared to Q4, it is down by 4%. So there are a few seasonal expenses which comes in this quarter. They'll be towards the marketing expenses, business promotion expenses. That will be around 10 to 12 crore rupees. If I remove that, the OPEX would have grown by around 14, 15% kind of a number, which we've always been maintaining. That will grow. Our OPEX to revenue has been steady at, say, 14, 15%. So to that extent, it is okay with us. If you look at the overall full-year OPEC, I would imagine it will still be in the range of 15% to 16% for the full-year. Two-thirds will go to the typical business-related, inflation-related expenses, and one-third will be towards the new initiatives. There's one more update on the OPEC side, which I would like to highlight, is that we are looking for a new office because our current lease is coming for renewal. And as you guys know that under NDS 116, when you do a lease accounting, there will always be some charge which comes up front. And then as the lease matures, it starts decreasing. As of now, we have not completely finalized anything, but we'll keep the investor updated on this development and we'll provide further details during our quarterly results. This cost will be over and above what I have mentioned in terms of the usual office growth for the firm. So this will be there. Having said that, on a consolidated basis, our cost income ratio is around 55% and maybe for the full year, this will remain around this level only. See, if you look at from a cost perspective, there are three things which will play in. One is the operating leverage, which is coming in wealth and private. You would have noticed that wealth CI has actually dropped by 160 basis point. So to that extent, these two businesses will start giving us operating leverage. Asset management, as Ashish was also saying, that we are in the process of actually this year could be a peaked out in terms of our cost for the year, and subsequent to that, this will start coming down as a cost-to-income ratio. And the third will be the capital market. Within that, asset services is pretty stable. I think within capital market, when you look at I and IB, I and IB, and within IB, it's mainly the ECM part. I think these two businesses are very much linked to the market activity. And hence, on a quarter-on-quarter basis, you may see a cost-to-income ratio goes up and down. But having said that, on a full-year basis, we still believe that it could be closer to 55%. Maybe a quarter can be a plus 1%, and a quarter may be a minus 1%. So we are okay with that. And finally, if you look at our operating FAD, this is at 306 crore, which is a 16% growth year-on-year. And our ROA is still close to 30%, which is a pretty, I would say, a good number to have. And that's where we are. Looking at the time, I will request the moderator to take the Q&A now.

Thank you. Ladies and gentlemen, we will now begin 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 their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from the line of Raesh Jain from Modilal Oswal, Financial Services Limited. Please go ahead.

Yeah, hi, everyone. Congrats on the good set of numbers. Firstly, on the private side, the cost to income is at 70%. You know, we have been discussing that the overall wealth cost to income should tend towards 60-62% in the medium term. When and how do you see this progressing, particularly on the private side? Because wealth definitely is progressing towards that mark. But on the private side, it's still kind of elevated. And what is the kind of RMA addition that you're looking forward from here as well?

So, Presh, Q1 actually should not form the basis. If you look at Q1 FI 26 also, it was 69. And Q1 FI 27 is 70. But overall, profit growth delivered is about 22%. Right? So, we also basically load the variable incentive in line with the revenue growth that happened. Full year basis last year was around 66. I think we will be lower than that this year. And RM addition, essentially our desire always is to basically keep adding 15-16% every year, provided the market allows us to do that at costs which are not upsetting to the overall business. Last 12 months, we've added about 11%, 15 RMs on a net basis, and even Q1, we've added around 6%. I think that will continue. That won't stop. And overall, as you rightly said, that 60-62% medium term, that target also remains over the next three years.

Got that. And on the wealth side, the retention seems to have fallen from about 90 bps to 85 bps. What was the reason for that?

So, typically Q4, Q1, the one biggest phenomena in that business is insurance. In insurance, Q4 numbers are normally higher. So, for a lower denominator, you get higher income. So, there is a few big subject that happens. And second, in that business, we report the total yield. So what happens that in a quarter when the equity market has high mark to market, positive mark to market, but your overall brokerage revenue doesn't go up, I mean, in tandem, then there is a downward movement of yield. And on the reverse, if there is a decline in Nifty and broader markets and your brokerage doesn't fall that much, there is the uptick in yield. So, that adjustment you will have to keep in mind in line with the mark-to-market data. Got that. Got that.

And, you know, on the AMCP, the yields have shot up significantly. Particularly, if I look at your, you know, yield on the private market side, what kind of things have changed, that kind of yield has gone up so much?

So, if you see, Praesh, last year, after Q1, I think Q1 end or Q2, I don't remember, we had mentioned in the call that we will give a pause to the fees that we are charging on our venture debt fund. Because there was a change in the market condition and the yields in the market had fallen significantly and the riskiness in the deal had gone up significantly. So we had slowed down the pace of deployment. So we said in order to not disadvantage the investors in the fund, we will forego our fees and we will start charging it next year. So three quarters we did not charge and Q1 we have restarted charging. So basically it's that difference only, nothing else.

So, this should sustain now?

Yeah, till the three assists. Unless we stop again, this will sustain.

Okay. And last question on the capital market side, the asset services. So, you mentioned that, you know, there should be some moderation and full year growth should be 25%, 20%, 25%. So, in that sense, you know, it is more, it would be more driven by ease and not by flows.

Yeah, that's right. So flows will continue, the yield will adjust, because some amount of collateral may shift from cash to GSEC.

Ajit, just last point here, the cost to incomes hasn't dropped in the segment. You know, probably looking at the revenue growth, it was in the previous quarter, it was 40%, it's now 39%. Any IE or IB, we just put in the pressure, otherwise, we would have expected much more significant improvement here. And what should we think about full year cost to income in that segment?

Similar range only, because we've also provided for the variable cost in line with the revenue growth. And investment banking, at least the ECM side and a bit of IE has been under pressure, which I think as it comes out, there will be an improvement. But I think overall full year basis, anywhere between 36% to 40% range is what will remain here.

Got that. Thank you and all the rest.

Thank you. We take the next question from the line of Dupain from Goldman Sachs. Please go ahead.

Hello.

They changed your name.

I think they changed my name. Dipanjan. Yes, Dipanjan. I'll just go ahead with the questions. First, in terms of Novama Private MPIS and Novama Wealth, basically the managed accounts and MPIS piece in both the businesses, I just wanted to get some color on the asset mix and the underlying product mix in these two segments and how that would have changed during this current geopolitical crisis, if there has been some change or if you can give some color on that. Second was, you know, I think in the domestic asset servicing business, I think you mentioned that you'll be going live with RTA and trust to ship business, which should kind of help gain market share. But if I were to think from a medium to long-term perspective, I think in your IB, IE, some of the other segments, you might be servicing some of the domestic mutual funds also. So, any plans, let's say, at a foreseeable future to kind of try to get into that large segment on the MS side in terms of cross-through opportunity through your RTA? The third question is, how should one think of the ESOP cost and dilution over the next two to three years? Yeah, those are my three questions.

So, asset mix, I don't think one or two quarters have significantly changed it, But it remains in the managed account and managed products and ARR segment between 30% to 35% would be equity and 65% will be equity. So, it's not fixed income. It will be fixed income plus alternatives like credit, real estate, infrastructure. So, products that could deliver clients' returns ranging from 7-8%, right up to 18-20%, but non-correlated with the equity market performance. People typically try to say that it's, you know, fixed income. It's not necessarily fixed income. It's yield, but the range is very wide, depending on the product the clients have chosen. I think now some amount of comeback to equities we are starting to see once there is some adjustment in the AI trade globally and some good, I think, discussion around India is happening. So maybe in the next two quarters, the proportion of equity may go up. On the RTA and trustee, both would be targeted towards the current client segments only, which is your PMS and AIF. I don't think right now we formed up to go behind mutual funds because their banks still continue to have, you know, a better right to win because you need some form of balance sheet if they need intraday financing to manage. Redemption flows and all. We would not be superior. However, for products which are like arbitrage funds or products which are SIS, which, let's say, which involve usage of derivatives or, let's say, categories where usage of derivative and efficiency of collateral becomes a more important paradigm for an AMC to improve the return delivery to their clients, we have a play. Categories which are vanilla, like long-only fixed income and equities, where intraday financing is the play, we are not the preferred choice. So, I think it will remain like that. I think ESOP cost, important question. Right now, it's gone to shareholders for approval. It's not actually ESOP, it's stock appreciation rights. So, ESOP, I'll just explain the difference because it has a significant impact on dilution. Most of the companies in India do an ESOP, which means if you do 1000 units and if you grant 1000 units and people exercise 1000 units, it's a dilution of 1000 units. Whereas in ESAR, what happens if you grant 1000 units, what finally the shares which are given to people who exercise is only to the extent of profit. So, now assume that if Nuwama price today is, say, hypothetically, 1,500 rupees or 1,800 rupees, and let's say average exercise of people is at, hypothetically, say, double at 3,600 rupees, your dilution will become half. If it is, say, 30% above the current price, your dilution will become even lower, whereas in ESOP the dilution is 1 to 1, the EPS loss to shareholders is significant. So, our calculation is very simple. If the stock price appreciates by 20% every year for the next five years, and people exercise one year after their vesting, against the 7.5% pool, our dilution will be 3%, so less than half. The cost to the company remains same as ESOP, the option premium, which will get recognized over the five-year vesting period. Obviously, it will be upfronted more. The profit to the employee will be same as ESOP. The dilution to the shareholders is less than half. So, it's like a win-win for everybody. Cost for us is typically the premium cost is around 20%. So, if we grant, let's say, if we end up granting options worth 1,500 crores or 2,000 crores, cost order of magnitude is 300 to 400 crores over a five-year period, slightly heavier upfront because that's how the India's costing structure flows down. But it's a non-cash cost. There is no cash outflow. And you end up saving tax of 25%. So actually, the cost is 75% of the premium cost. That's how it plays out. And there's some bit more technicality here. Whenever the exercise happens, there is a perquisite value on which an employee gets taxed. Actually, companies have started claiming that perquisite also has cost. And you end up saving. So, if you are able to do that, against a total cost of 400 rupees, our net cost will be 150 only over a five-year period. That's the sum and substance of our ESAR plan.

Got it. Thank you, sir, for the comprehensive answer. Just one small question on the wealth business. You have previously classified your Novama wealth AUM between relationship manager driven and external asset manager driven. But from a flow perspective in the ARR segment, since you categorically mentioned that a lot of flows are coming in from Tier 2 and Tier 3, is there any breakup that we could get maybe on a rolling basis between RM and EAM from an ARR flow perspective in the Novama Wealth segment?

We'll have a look at it, and if we can incorporate, we will add it. But it's broadly in a similar range as AUM right now.

Got it. Thank you, sir, and all the best.

Thank you. We take the next question from the line of Madhukar from J.P. Morgan. Please go ahead.

Hi, Ashish. Hi, Bharat. Thank you for taking my question. So you spoke about the external optionalities and the business that you want to create on that side. So, in particular, you spoke about the gift city option, and second was, you know, making that margin line with you on the asset services side available for other exchanges. So, specifically on the second option, can you elaborate a little bit as to, you know, what stage are we in this thinking process? Can this actually be done given, you know, certain restrictions on, you know, commodity exchanges? So where are we over here? And also, how large can the opportunity be on the gift city's derivatives trading business of theirs? So yeah, so any sort of guidance and additional Any color on this is what I would want to know. Thanks.

I think Madhukar, more clarity will evolve in the next two, three quarters, at least on the gift city, because as you know, it's right now premature because the tax, the cost structure in India has created this opportunity where there is no STT in gift city and there is an STT on the domestic exchange. But for any derivative market to thrive, there has to be volume. Right now, the volume is restricted to index. It's not in single stock. But there are large participants globally who have approached us that they want to, they obviously run swap books globally. And those swap books can be hedged using their, if they trade between themselves also. So I think that's how it will start. And right now, they want to work on a minimum commitment basis. So that's how it starts. And I think that we will see how that build out happens. It's a bit premature to talk about how the volume will evolve because we'll have to see how it goes. Commodities, on the other hand, the movement is faster. Whatever FPIs are allowed to do, some of our clients have already started doing. Specific numbers, we'll come back in the next quarter. But I think as a rough cut assessment, what we were seeing, it can become at least 15% to 20% of the equity market size for our relevant client segment. In that sense, the way it is evolving. And the third one which I mentioned, which actually can become very, very large, is the global custodian, local custodian tie-up. Because right now, we are precluded from targeting that client segment, where global long-onlys are investing into India. We are actually closely working with two, three large global custodians who have access to global long-only, but they lose out on their India mandates because they don't have any local presence, and that's what we want to fill up so that they can pitch using our services and we get access to a new client set.

Got it. Got it, sir. Thank you, and all the best.

Thank you. We take the next question from the line of Sanket Khoda from Evendus Park. Please go ahead.

Yeah, thank you for the opportunity. So, Ashish, is it fair to say that you're private, that is, ultra-SNI business? Because I just want to understand from you, from an industry point of view, that more and more people choosing advisory over trail-based revenue is becoming a prominent factor, which actually was there, but now you're feeling it to be happening more. And therefore, if you take a call of not doing the business at lower yield, is it fair to say that your heavy lifting of the incremental net flow numbers will be done more by mid-market or wealth segment and maybe ANC segment? Just need to understand at what point of time you would be okay to do advisory business even if yields are lower.

Sanket, this actually when we say lower yield, this is more like a corporate treasury type mandate, not a UHNI. UHNI, we are more than happy. And I think directionally, we are heading towards advisory. Like I spoke about our pinnacle proposition, and we have our infinity proposition. Maybe next three, four quarters, you will see the numbers separately coming from advisory. We are also now fundamentally clear that advisory in the current shape and form will start working, and on the overall book, the yield actually may go up, because if you look at the combined yield today for any ultra-HNI business, if you combine the transactional business and the ARR business and you take the full yield, it's not more than 30-35 bits, X of NII. So I think that is easily achievable even through an advisory business and gives far higher stickiness in the long run. And that progression has started internally in terms of creating value proposition, creating teams and all, and numbers will eventually start flowing. So I don't think we are going to, because that is the reality that is going to play and that I'm also seeing the regulatory infrastructure change because today advisory with an accredited investor, we can offer all distribution services also to them. Earlier, that was not the scenario. So clients were losing out, advisors were losing out. Right now, the package is becoming far more stronger. So I don't think you should take the statement of weeding out low advisory in that direction. This is more legacy account, typical corporate, treasury and all, which we may want to shift to transactional business kind of category. But ultra HNI, we will progress towards advisory.

So, Ashish, is it fair to say that today, last year, you were almost at 90 bps on private? In the quarter, you reported 82 bps on ARR, I mean, so basically, this number, because advisory going up, will keep on seeing a little trending downwards, assuming you don't get a consumerate NII business?

Not really. I think in the next two quarters, you will see the rates to be again. So, I've I always maintain, Sankir, that between 80 to 90 at this point in time is what we are able to see. It depends on the product mix of ARR, what gets done, or what proportion of product between AIF2, AIF3, MF, PMS becomes heavy in a quarter. Let's say we have a blockbuster product in Category 2 AIF in a particular quarter, it could cross 1% also. I don't think right now that impact of advisory will play out. Maybe next year we may see, but then the flows will become far larger once that happens. And of course, NII, as you rightly said, that tool remains with us.

Okay. So, Ashish, if you can give a color, out of that 58,500 cores of closing area, And what you have in ARR, how much is today advisory and how much is on trail?

13,000.

13,000. Okay, understood, understood. And second question which I wanted to check is that there was a SEBI consultation paper on PMS-MF. Do you think this is a material, big opportunity for us in mid-market segment or UHNI segment? And I don't know whether the 2.5% fees what you can charge will hold up or not, but any initial thoughts you have on this piece?

Not the PMSMF piece, because actually 50 has become 25, and we already had a product in our setup at 50, which was a PMSMF of direct plan. But I think the other measures which they have mentioned, that can have more impact for both our businesses, which is allowing for to be listed securities to be incorporated that makes PMS come at par with MF and EIF, allowing for overseas investments to be made as part of PMS. I think that will be helpful because it will allow us to give some amount of global diversification in the portfolios if clients are giving discretionary mandates on the wealth management side. I think these two measures will have a better impact than MF only. The MF only was already there because people were using it. I think it is to enable others who needed higher amount of capital and all to have a light-touch vehicle, not for established wealth managers.

Understood, understood. And, Asish, one more, just maybe a color on flows number, because last year we did around 20,000 crores of NetFlow if I include MPIS, Priority R and ANC. So, any color you want to shave, you will see that number to be in 27, and if you can split among the three segments, which I just mentioned, would be useful.

See, broadly, and these are obviously, you know, indicative numbers, but the way we are seeing it is that between wealth and private, both are 10,000 to 12,000, 10,000 to 12,000. So, range of 20,000 to 24,000, and AMC, we are seeing anywhere between 3,500 to 5,500.

Understood, understood, understood. And lastly, on this IE-ID business, largely it was driven by IE in the current quarter, and therefore, next year, if the IPO market or ECM markets become super active,

So first quarter was a combination of institutional equities plus the fixed income part of investment banking. Fixed income part of investment banking really hit it out of the park. So, let's say some bit of moderation happens there, and that will get covered up by the ECM ramp-up plus more. So, I think ECM, like you said, once it opens up, you will see better growth in that line from where we are, because fixed income on base level has been set, and IE continues to do well. Yes, ECM was very, very bad in Q1.

Okay, understood, understood. So, basically, 180 or crore kind of a run rate is more manageable number for next four quarters, three quarters. Yes. Okay. Okay. Thanks. Thanks. That's it from my side. Thank you.

Thank you. We take the next question, but before that, ladies and gentlemen, if you wish to ask a question, please press star and bar. The next question comes from the line of Lalit Mohan Deo from Experian Securities. Please go ahead.

Lalit, we can't hear you. We can't hear you, Lalit, at all.

Yes, sir. Is this better? Yeah. So, sir, just one question on this lending book. So, we are seeing a good growth on a sequential basis. But when we calculate the margins now, I understand this is based on the period and numbers. But in terms of margins, we are somewhere currently trading at around 3.7-3.8% on a period basis. So, like, what would be the steady state margins in our lending book? And going ahead, how should we see this overall lending book, both in private, as in wealth business?

So, about 30-40 bps higher than this because, like I've mentioned in few calls, you know, our cost of debt basically moves a bit up and down because of the hedging Gains and losses which comes on our MLD book. Our overall borrowing has about 25% which is MLD on which we keep hedging. On a full year basis, we are able to save around 50 basis of cost. In some quarters, you go slightly negative. In some quarters, you go slightly positive. So if you see Q4 of last year and Q1 of last year is where we saved about 60-70 basis and Q2, Q3, we were slightly negative. So this year, Q1 is like the Q2, Q3. So, basically blended, if you are asking me from the current level, you can add 40-50 basis points.

Sure, sir. Yeah, that's it. Thank you, sir.

Thank you. We take the next question from the line of Sandhya from Unicorn Assets. Please go ahead.

Hi, Sanit to this side. Hi, Sish. Very good caller in the opening remarks about the tech capabilities that are driving the sector right now. I would want to hear more upon how do you see in the health segment particularly as you see the largest retail focus broker in the sense or the other brokers as well which are basically platform or technology driven. They are focusing more on the mid to lower ticket size of clients in terms of health management like in the holistic sense mainly driven by the technological.

Actually, there is a category difference in the customers which we handle, and each of the segments are very, very large. So, segments which can be completely, well, I would not say completely, let me correct myself, that can be largely managed by technology as well. As the end delivery channel to a customer has to enable execution using very, very simple products. It can't be complex. It can't have, you know, multiple categories, unlisted, offshore, AIFs, PMS. It's very easy to say that I will enable all execution online, but for a customer to consume that much and take action on it is virtually impossible. So there have to be simple products, which means the ticket size or the disposable net worth which the customer has has to be significantly smaller so that they don't go beyond. So you're talking about 25 lakh, 50 lakh, 1 crore, 2 crore customers where their investable surplus is in that range. Maybe technology can end up doing the end-to-end execution in perhaps the next five years. Because you'll reduce the product complexity maybe to only MF or MF plus, maybe maximum one more category. Beyond that, it's difficult. Globally, we have not seen, it's not that technology can't do, so don't get me wrong. Technology can do everything, and if it happens, we will also offer. The customer is not in the position to consume that and to take that service using technology. That is the state and that I don't think is going to change. People who have 10, 15, 20 crores, they will have needs which will become significantly more complex and human interface on advisory will still remain.

Yeah, you were highlighting that we are trying to reach penetrating, penetrating deep and reaching to the clients which were not easily available earlier. Could you share more color on that?

So, we are going beyond tier 1, but we are not changing the segment in which we are operating. So, we are not going, so there is geographical distribution and there is affluence distribution. Affluence distribution, we are not diluting. We are not saying that we are going retail or we are not saying we are going down the value curve right now because the segments in which we operate are large enough and they are fairly well expanding. It's not that we have some dominant market share there. So, I think there is a lot of play available. There are segments which are below us, they are also large enough, and different types of players are suited to capture that. I think it will be difficult for people to cross each other. It's a different DNA, different customer set, different product set, everything is very, very different.

Do we think beyond tier 1, there is enough density for us to operate and be profitable on the large scale? Obviously, initially, it would be less, but then eventually, we think we can do that.

Yeah, absolutely, absolutely. We have no, I mean, that setup for us has worked out, and we've been now present in 65, 70 cities directly, and through our external wealth manager model, we are present in, you know, about 400, 450 pin codes.

I don't think that's a challenge Okay, and are we setting up physical offices there?

Not everywhere, but top 70, 80 places now we have physical offices.

And we are actively getting British managers in those places? Yes, yes. Cool, that explains. Under private business, is there anything to read except for the few quarter four versus quarter one differences in the revenue?

I don't think quarter numbers should be looked at so much. You should see it earlier, and if you have to look at a quarter number, you should compare with a relevant quarter in the previous year. There is nothing much to do with it. There is no structural change in the market space or in the margin or at a product level margin or customer behavior, nothing.

Okay, and on the commodity trading, whatever we were discussing, The department also asked, where do the revenues end up for that business? Is it largely the asset services in the capital market?

Both. I mean, if there is obviously on the wealth management side, also customers who do commodities, that would sit in wealth and private, but that's smaller. When I was talking at that point in time, I was talking more on the asset services business, our international clients, they are opening up to doing systematic quant trading on commodities in addition to what they do on derivatives, equity derivatives, and that is opening up. And the key point is that their collateral, which right now sits unused on, let's say, Monday, Wednesday, Friday, will start getting used if they build on commodities. So, it's just for them that return on capital today is, let's say, zero. Anything they get is superior. So, that improves the possibility of more capital flow coming into the country and also mitigates the negative impacts that could happen on derivative tightening or whatever.

Yeah, makes sense. And is it more linked towards now NSC also launching different commodities?

Yes, it does. It does. That also.

It really does help, right? Through GIFCity and NCI accessor?

Yes, it does help.

Great, great, great. Okay, good, good quarter. All the best for the next one. Have a good one.

Thank you. We take the next question from the line of Siddharth Negandhi from TWC. Please go ahead.

Hi, congrats on a good quarter. Just two questions. One, a clarification on whether I got that right. Did you mention that the ARR yield net of lending would be very similar to the 35-odd BIP on advisory?

No, no. What I said was that if you take the total revenue in private, which is transactional plus ARR, and divide by the total AUF, And from that, if you remove the lending, actually don't remove the lending, take the full yield, then advisory yield is actually similar. Right now, what people bifurcate is that transactional, you don't calculate yield. ARR is the only one where you calculate yield. But when you do advisory, there is nothing called transactional. For that client, everything you earn on the full asset. Right now, it's getting bifurcated into two streams. So, advisory in the end can actually become more rewarding for a wealth manager if played well.

Got it. And the second question was, given the strong growth on the transaction side in quarter one, do you see there being any one-offs there that again, like you mentioned on the fixed income side, may not come through in subsequent quarters?

Not really. Even in fixed income, I'm not saying it is one-off. It's a heightened level of activity, and you may see a compression of some 10-15 crores in the coming quarters. But private, as I mentioned, in our transactional income, about 70 to 80% is BAU, which is basically equity broking, fixed income, and MLD. About 70 to 80%. 20% is opportunistic trades, which can be unlisted shares, which can be credit deals, which can be secondary deals in AIF. So the only variation is 20. At some times, in some quarters, you may get opportunities which are more attractive. So it will be higher. In some quarters, it will be lower. But on a full year basis, let's say we ended up last year at around 300, 305 crores. This year, we should be anywhere between 350-360 costs.

Got it. Got it. That's useful. And I'm assuming some of the extra jump that we've seen this time is coming from that 20-30%, which is a little more variable.

Yeah.

Okay. Thank you. Thank you and all the best.

Thank you. We take the next question from the line of Shrenik Mehta from Indo-Alps Wealth. Please go ahead. Shrenik, please unmute your line and proceed with your question. Hi, can you hear me?

Yeah. So, I just wanted to ask you about the asset services in the capital markets. This you have combined in a single 269 crore PVT. Within that 269 crore PVT, what is the capital market's PVT in Q1 versus the Q1 of FY21?

That we don't share.

Okay. And what is the absolute decline that you are seeing in the capital markets? If you can share that, because your fixed income has grown to X. So, there will be some...

The capital market, the listed equity and the ECM piece between Q4 and Q1 is nearly flat to marginally positive.

Okay. Between Q4 and Q1. Also, positive growth in institutional equities and IB as well.

Marginally, yeah. Marginally. Okay. Fixed income was stronger. This was marginal.

All right. Thank you for this. All the best for your next coming quarter.

Thank you. We take the next question from the line of Abhijit from Kodak Securities. Please go ahead.

Hi, thank you. Good morning. Ashish, I had a very broad question. So, in terms of your entire, you know, scale of offerings, in terms of, like, how would you or where would you place yourself in terms of being able to, you know, capture the range of things that a client wants and the range of things that an issuer wants, right? So, basically, the wallet share both at the client side as well as at the corporate side in the range of things that you are able to offer today.

On the client side, I think wallet share is a different question, but in terms of solution capability, I think it's 100%. Wallet share, as I've always maintained that, at least in the ultra-high network segment, clients prefer to have at least two core advisors, and then they have a long tail of other players where they may like a single product of somebody. So, their order of magnitude, the share could be around 40-50%. But from a solution capability perspective, it will be 100%. On the issuer side, again, from a solution perspective, on their capital raise side, if we are restricting ourselves to, let's say, debt and equity, we possibly have all the solutions today. Yes, we don't have offshore fundraise capability. If somebody wants to raise a bond overseas or stuff like that, there we say that we have an offering, but I don't think we are a preferred choice partner for them. But for domestic debt capital markets or equity markets, the solution offering is today 100%.

Got it. And just one more question on the wealth business. In terms of like following up on your comment on the advisory business, in your experience, you know, what is that rough threshold after which you actually, you know, don't mind offering the advisory services and probably below which it still doesn't make sense from a financial point of view?

I think more from a client perspective, a visit is important because what we do should be aligned to what is right for the client. Any client who is actually below maybe 100, 200 crores, it doesn't really make sense for them to go for advisory. And anybody who is above 500 crores is a clear case. There is no doubt in my mind that they should move towards that because it gives them reasonable access. But many of them don't want to. The issue is many of them want to continue with this combo relationship because they want to have access to mutual funds completely free of cost. They want to have access to deals. They don't really want to shift. So I think it will never be a utopian world that, you know, all large clients are doing advisory. Neither will it be a world that everybody is on a combination of transaction plus distribution. Neither globally it has happened in any country. So, it will be a mix. Directionally, people or clients whose preferences shift towards, you know, letting go of control, maybe second generation, third generation, there the proliferation of advisory will increase.

Got it. And just last one in terms of the talent capability on the advisory side, any gaps in terms of like at the experience level or maybe geographically, whether like you don't want to ramp up north or south or any of those points that you can add?

The call advisory in that sense is slightly easier to deliver because if you look at it from a practical sense right now, one is what we look at is the revenue model, and second is the customer delivery. And typically, everybody ends up confusing between the two. Whether you are running a model of transaction plus distribution, the customer engagement is still advisory. Right? No customer, you go with a laundry list and say, okay, choose every relationship. At least the core job is to understand the customer, is to understand how his overall asset allocation is, and within that asset allocation, how the set product will fit in, what portfolio sizing of the set product has to be there. That all still happens. How you earn is different. Now, so in that sense, a transaction-come-distribution model is a fairly difficult model to execute because every advisor, every relationship manager is an advisor in his own right handling the client. The minute you shift a portfolio into an advisory model, there is a central team which also has an overlay, where the advice, recommendation, the generation, the actions to be taken can be done jointly between the relationship manager and the central team. So, in my view, it's more easier to develop than a transaction income distribution model at scale.

Got it.

That's very helpful. Thank you so much.

Thank you. Ladies and gentlemen, we take that as the last question and conclude the question and answer session. I now have the conference over to the management for their closing comments.

Thank you. Thank you once again for being here. We will look forward to meeting you again at the end of quarter two. Thank you.

Thank you. On behalf of Nuama Wealth Management Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.