360 One Wam Limited (360ONE) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to 360 ONE WAM's Q3 FY '24 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. On the call today, we have with us Mr. Karan Bhagat, Managing Director and CEO; Mr. Anshuman Maheshwary, Chief Operating Officer; and Mr. Sanjay Wadhwa, Chief Financial Officer. I now hand it over to Mr. Sanjay to take this conference ahead. Thank you.

Thank you, Anil, and a very good afternoon to everyone on the call today. In the last 9 months, Indian equity markets have reached new heights, strengthened by better-than-expected GDP growth, positive momentum in manufacturing CapEx, strong corporate earnings and consumption trends. While the discussion around wage valuation continues, equities saw new highs as India remains poised to be the fastest-growing large economy in the world. The current momentum is driven by strong institutional flows, both foreign and domestic as well as robust retail participation. We continue to remain bullish about the India growth story in the long term while our business shows resiliency across phases. Before we deep dive into the financials, we would like to highlight that we have announced an interim dividend of INR 4.5 per share. This is our fourth interim dividend for this fiscal, taking the total dividend to INR 16.5 per share. Coming to the business and financial numbers. In line with our focus on ARR assets, total ARR AUM increased to INR 220,000 crores, up 32.6% year-on-year. This growth was driven by strong net flows at -- of INR 8,865 crores during the quarter. Further, the overall active ARR AUM increased by INR 14,000 crores during the quarter. Our wealth ARR AUM stood at INR 151,000 crores, up 41% Y-o-Y, while AMC ARR AUM stood at INR 69,154 crores, up 17% year-on-year. Our recurring revenues increased by 10.8% Y-o-Y at INR 338 crores and up 9.2% at INR 973 crores in 9 months FY '24, led by growth in asset across all business segments. 9-month recurring revenue comprises 76% of overall operating revenue. As noted in our previous calls, our focus remains to increase ARR assets and the resultant high-quality recurring revenues. Total revenue for Q3 FY '24 are up 14% Y-o-Y and 6% quarter-on-quarter at INR 467 crores and 13.4% Y-o-Y at INR 1,342 crores for 9 months FY '24. 9 months retention on ARR assets was 67 basis points, while wealth ARR retentions at 63 basis points and AMC retentions at 74 basis points. Excluding carry, the ARR retentions have remained relatively stable at 61 basis points. For the quarter, operating costs rose by 8% quarter-on-quarter and 24.3% Y-o-Y to INR 232 crores. The employment cost rose by 8.1% quarter-on-quarter on account of additional head count, including certain senior-level hires, which Anshuman will cover later during the call. Cost-to-income ratio stood at 49.6%. We have given an additional slide in our deck explaining the cost contributed by the new segments and on account of -- addition of some senior bankers in the ultra HNI segment, which is not supported by corresponding revenues at this stage. We expect this cost-to-income ratio to gradually settle down over the next few quarters as the new business initiatives and new teams start generating revenues. Q3 FY '24 PAT remained strong at INR 194 crores, up 7.7% Y-o-Y and 4.7% quarter-on-quarter and INR 561 crores for 9 months FY '24, an increase of 9.3%. Importantly, our tangible ROE was robust at 28.9% for the quarter. We are happy to announce that our maiden NCD public issue for the -- of our NBFC arm was oversubscribed on the very first day of issuance. Such a strong response is a testament to the trust and confidence by institutional and retail investors in the 360 ONE brand. This success reaffirms our leadership position in the wealth and asset management spheres and the significant growth opportunity that lie ahead of us. With that, I would like to now hand over the call to Anshuman to cover key business and strategic highlights.

Thanks, Sanjay. Good afternoon, everyone. As covered by Sanjay, it has been, once again, an exciting quarter in terms of market performance as well as our business. Overall, as you've seen through the last 3 quarters, growth remains strong across our business segments and asset classes. Our sharp focus on recurring revenue assets continues with ARR AUM now at over INR 220,000 crores and ARR revenues accounting for over 75% of our revenue from operations. Specifically on our wealth business, ARR net flows continues to be very strong at over INR 27,000 crores for the first 9 months. This is equivalent to our full business full year 2023 net flows. Additionally, specifically on wealth, this is already tracking at 22% higher than our full year FY '23 flows, showcasing the strong wealth creation continuing to be seen in the Indian economy as well as our leadership position in the UHNI wealth management space. Important to highlight that 80% plus of these flows are coming to our flagship advisory proposition 360 ONE Plus, with retentions on active ARR for this proposition gradually increasing and stand at 35 bps for the last quarter. I want to highlight 2 key underlying growth parameters that give us tremendous confidence on our ability to sustain our leadership position in wealth. Firstly, growth in our client base has been very healthy. In the first 9 months of this financial year, we have onboarded over 400 new clients with INR 5 crores plus of ARR AUM, while the number of clients having ARR AUM above INR 50 crores with us increased by over 100 for the same period. Clients having total AUM of INR 5 crores-plus stands at 3,750 and account for 97% of our wealth AUM, excluding custody assets. Secondly, we continue to be the employer of choice for senior wealth advisers in the country. During FY '24, at the partner and above level, we are seeing more than 35 new hires are being onboarded in the wealth sales team, allowing us to significantly expand our market coverage and penetration. Additionally, we continue to retain our high-quality talent. Average tenure with the firm at the senior level remains high at 8-plus years, and attrition has been less than 4.5% on an annualized basis. The lag between flows and conversion to steady-state retention does continue, specifically given the market conditions. However, we saw strong growth in the active ARR AUMs this quarter with improving retentions, and we expect this to continue over the next few quarters as well. On the asset management business, our asset management business witnessed planned outflows during the last 9 months due to maturity of some of our late-stage pre-IPO funds. For last quarter, I had shared the planned distribution, was upwards of INR 3,000 crores with an additional INR 1,200-odd crores being distributed this quarter. However, at the gross level, we continue to see strong traction, which supports our confidence in each of the strategies and our product offerings. The performance of our funds across the different strategies as well as vintages also remain top quartile. Our new product pipeline remains strong for the upcoming quarters. Additionally, the level of interest and engagement with global institutions across public and private market opportunities in India remains very high. We remain bullish on alternatives given its underpenetration in India's overall investment landscape. And with the India growth story holding strong, we expect the alternate space to continue growing at 20% plus CAGR. This puts us as market leaders in the alternate asset space in India with the proven track record and vintage in a very sweet spot. To augment our investment capabilities, we are also investing in deepening our channel presence in the domestic market, specifically through MFDs. On the new businesses, on our HNI proposition, we are on track to go live in quarter 1 of FY '25 with the business build-out progressing well. We have completed our extensive CUG and are undertaking an expanded pilot over the next couple of months. The build-out on the go-to-market and sales teams is also progressing well. This segment remains highly attractive and underpenetrated and opens an additional prospective client base of approximately 160,000 to 170,000 households in the domestic market. As we had shared in quarter 1, together with our current client segment, we see an addressable asset pool of $1 trillion growing at double-digit teens over the next few years in the wealth space. Given our investment in high opportunity in new business segments as well as our current wealth business with extensive senior hirings, our cost-to-income is trending at a higher level than originally projected. While the overall cost-to-income is at 48.9% for the first 9 months, we have provided a bridge in our analyst presentation, which separates the areas of investments, which are yet to start accruing revenues. Separating this out, it gets us to just over 45% cost-to-income for our existing business. We believe the cost-to-income levels will taper down over the next year as we see revenues coming through on the strategic investment areas. In addition, we continue to focus on driving further efficiencies in our existing business through digital and technology as well as operating model interventions. With that, I would like to open the session for Q&A and invite Karan to come on the call.

Thank you. We now open the lines for the interactive session. [Operator Instructions] First on line, we have Mohit.

Congratulations on a good set of numbers. So my first question is that I think -- I mean, you have pretty much said that your cost-to-income ratio has remained high, primarily because of business expansion. But just wanted to know your view that from financial year '25 onwards, how do you see that business contributing to the existing business? Any sort of color would be very helpful.

Thanks, Mohit. No, so I think -- to be honest, I think the last 6 to 9 months and maybe potentially the next 6 to 9 months is going to be a little bit of a period of an investment phase. I think we're building out both businesses, the global business as well as the mid-market business. And we've also had the opportunity to add 3 fairly largest teams on the wealth sales side. I think wealth sales teams typically mature over and break even quickly in our system over 15 to 18 months. So I think it's fair to say that, that cost-to-income ratio from those set of 35, 40 individuals will start showing itself towards the -- towards quarter 3, quarter 4 of FY '25. On the global business as well as the high net worth of the mid-market business, I think it's going to be a slightly longer tail in a sense. I think quarter 4 of FY '25 onwards is where we'll see the numbers coming through. But from a business construct perspective and opportunity, we stay super convinced to be investing that extra 2%, 3% cost-to-income through the next year.

It makes sense. Now coming to flows, I think we are now at around INR 27,500 crores, and I think you have guided for INR 40,000 crores. So just wanted to understand for financial year '25 and beyond, I mean, what kind of flows are we expecting?

Yes. So I think, Mohit, there are 2 points there. I think it's a great question. And I think one element of flows is obviously the quantum of flows and second obviously is the flows, which kind of start paying us a fee. So I think we'll want to achieve both. I think the INR 27,500 crores, we'll want it to be closer to the INR 35,000 crores, INR 40,000 crores level for the current year. And for next year, maybe potentially push at least 20%, 30% higher than that. But more importantly than that, we have to ensure instead of a ratio of maybe potentially 50% or 60% being active, we are able to push the active number closer to the 65% to 70% of the ARR flows. So to answer your question, in summary, I think if we can push the INR 40,000 crores to INR 50,000 crores, INR 55,000 crores and instead of 50%, 60% becoming active, look at 70%, 75% being active is really -- that's the way we would look at it there.

All right. So INR 50,000 crores would not include your global and HNI business, right?

Yes, that wouldn't. We can potentially add another INR 10,000-odd crores there.

All right, all right. So I mean, one question basically is in terms of, you've hired around 35-plus new hires for the existing business. Now assuming a partner looks at 100-plus families, so are we foreseeing adding that number of families that we have added, that kind of partners?

No, partners would not look at 100 families. A senior partner, basically managing partners with a team of 2 partners would look at around about 100 families. So those teams we would have approximately today after the addition of these 35 people, we would move to around about close to 85 to 90, potentially 100 teams. So theoretically, from a capacity perspective, we would be well set to be able to manage around about 8,000 to 9,000 families as compared to around about the 4,000 families we have above INR 5 crores. Now on the 4,000 families we have, obviously, we have a similar number or slightly lower number, which we are constantly engaged with on a day-to-day basis in terms of prospective clients. We personally believe the segment itself is close to the 30,000 to 50,000 families. So I think from a capacity perspective, these 100-odd teams should be good to manage 8,000 to 10,000 families there.

Right, perfect. My last question is in terms of the mutual fund business. I think we saw a great amount of flows this quarter. Now the size is around $1 billion. And I think we have been saying that we don't look actively in developing mutual fund, but now given the size and all, I think, should -- I mean, are we looking at any kind of a starting...

Yes, for sure. No, I think our asset management business will see a bit of a double effort with the expansion of the high net worth business. So I think the high net worth business will have a little bit incremental duplication with the asset management business as compared to the ultra-high net worth business. The ultra-high net worth business obviously is built on a very strong platform of open architecture, with a very strong awareness with all the relationship managers not to invest more than 10%, 15%, 20% into our own asset management products. But I think that number could be maybe double in case of the HNI build-out. So I think that's something which we should be able to also leverage and benefit a bit as we build out the mid-market business next year. And secondly, obviously, on a stand-alone basis, I think from a brand perspective and both from a performance perspective, I think we've come a long way in the last 12 to 15 months. And recognition between both national distributors and MFDs have substantially increased. We've obviously, Mohit, kind of let down our guard on retentions, and we've kept it very, very tight. We'd want to continue that. And within that constraint, going out and building it out with MFDs and national distributors together with the high net worth business, which will kind of complement a little bit on the asset management distribution also. I think we should see a better mutual fund outcome in the next 12 to 24 months.

Thank you, Mohit. Next on the line, we have [ Akash ].

Sir, wondering, your flows for this quarter has been good. But if you can just elaborate more on the larger part of the flows have come in the nondiscretionary...

Could you speak a little louder, please? Thank you.

Yes. I'm seeing the flows have been quite good in this quarter. But large part of the flows have come in the nondiscretionary space. So why it's not coming in the discretionary space? That's one. And secondly, in the nondiscretionary space, the yields aren't improving. So if you can just throw some light there.

Yes. So as I'd kind of indicated in the last quarter, we've kind of done a little bit of a rejig on the discretionary platform. And I think that you will see kind of do slightly better in the next quarter, but substantially better in the next year. We have kind of rejigged the platform a bit and reorganized the strategy. So that will still take another quarter to go, but I'm expecting the flows to kind of considerably start picking up from the next financial year. In terms of nondiscretionary, I think the flow, the yields have kind of stabilized at 29, 30-odd basis points on the active nondiscretionary assets. I see that moving towards the 35 basis points by Q2 of FY '25. So you'll see the 30 basis points move towards 35 with all the new mandates coming in closer to the 35, 40 basis points levels. And I think that's the broad yield will stay at. Potentially if we can add some smaller clients, may move towards 40 basis points and discretionary will be higher. So on a blended basis, we should be at 40, 45, including both discretionary and nondiscretionary. But nondiscretionary should move up by 5 basis points from the current 30 basis points number.

Okay. And the new flows of money that you elaborated on for next 2 years, so does it include the HNI as well? And if you can just elaborate a little bit more about your HNI strategy, how much of the ramp-up of platforms that you have done so far and how much flows of money you expect from that segment?

Yes. Our expectation for next financial year is quite moderate, to be honest. I think we expect an INR 40,000 crore number for the current financial year to move towards the INR 48,000 crore, INR 50,000 crore number from our core wealth management business. I think both on the high net worth business and the global business, we're expecting around about INR 10,000-odd crores combined next year. Maybe it will be a combination of 65%, 70% or 60% on the high net worth side and 40% on the global platform. I think our high net worth platform, as Anshuman pointed out, will be up and running from first week of April. I think the global platform may be potentially first week of July. So I think that's really where we are. I think too early to kind of look beyond the initial INR 10,000 crore numbers in both these businesses, which might happen in the first -- somewhere between 9 to 18 months. I think we will have a much, much better handle on our right to win in these 2 strategies by the end of the next financial year. And then really, we would be able to kind of have a much clearer picture of the ability to scale both in terms of size as well as in terms of pace of scaling. But we feel we have a right to win. And I think over the next financial year, we're fairly confident between the 2 businesses, we should be at the INR 10,000, INR 11,000 crore incremental net flow number.

Sir, just an add-on question on that. What kind of retention are we expecting on the flows of HNI and global segment?

Retentions there will be in the region of 75-ish -- 70, 75 basis points there.

On both of them?

On both of them, yes.

And sir, one more thing for me. From a strategy standpoint, do we see the HNI segment even growing in the next 3 to 5 years? And is it -- can potentially be equivalent to the current size of ultra HNI? I mean from a strategy standpoint, will it be -- or can become...

Sure, it can. Of course, it can. I think -- see, I think if you just look at the size of the market for a minute, I think if I was to -- and you know these numbers are dynamic because, obviously, the country is changing very fast. But I think if I was to just look at INR 5 crores plus purely as a number today of financial assets, our view is at least 40,000 to 50,000 families are there today. I think that number will change from INR 5 crores to INR 10 crores very soon. And if I just look at the INR 1 crore to the INR 10 crore or the INR 2 crores to the INR 10 crore number, I would like to believe there's at least 150,000, 160,000, 170,000 families out there. So in terms of our ability to scale up both, which is effectively take the number of families above INR 5 crores or INR 10 crores after 3 years from 4,000 to potentially 10,000 families and, obviously, the benefit of the consequent net flows on account of that as well as potentially have a double or triple number of that number on the high net worth business will result in a lot of flows. So I don't see any reason why on a steady mature basis, maybe 2.5, 3 years from today or maybe year 3 from today, where the early flows on the HNI business should not be 30%, 40%, 50% at least of the ultra-high net worth flows, and maybe potentially 4, 5 years from today may be equal to the entire flows of the ultra HNI business also.

Thank you. We'll move to the next caller. We have Swarnabha on line.

So my first question is on the capacity side. So with the 35 number of people in the team count increasing and you kind of mentioned, I think, the ability -- I mean, the capacity kind of more or less doubles. So what would be the time line for this to mature, if you could help me understand that? How -- what would be the different pit stops on the way? And how -- by when can we see kind of a reasonable amount of flows coming in from this added team?

I think, to be honest, flows start coming in quickly. I think over the next 3 to 4 months, you will see a decent number of flows from these people. But the flows need to convert into active, and things like -- small things like broker code change and so on and so forth doesn't really result in the brokerage being paid to us. So it takes a little bit of time for really the assets to start becoming productive assets in that sense. So our typical experience has been relationship managers and partners at senior levels end up breaking even by the 15th to the 18th month in a platform like ours. So I think the expression of these 35 team members will start showing itself towards quarter 4 of FY '25 in a fairly productive way. Having said that, obviously, there is a fair degree of growth potential even within the existing 70, 75 senior partners we already have. So I think there, too, I think we draw a lot of comfort from the fact that we've added close to around about 404- to 410-odd relationship managers, senior partners above INR 5 crores for the last financial year itself. But -- and that, if you just look at the number and stretch it to above INR 10 crores, the number is close to around about nearly 300-odd clients. And if you just size it up relative to our entire business for the last 15 years, where we added 2,300, 2,400 such clients, we nearly added 10% to 11% last year itself in the first 9 months. So I think the numbers may change quite a bit. You might see us even from here on with our focus and our platform, which has got built for the ultra-high net worth piece, we will have an ability to potentially add 25%, 30% of our entire stock of what we built in the last 15 years, every year for the next 3, 4 years.

Okay. Understood. Helpful. In the nondiscretionary side of 360 One Plus assets, given that the yields look significantly lower than what you should be, if you could tell me how much of the assets are not earning any yield so as to...

So I think out of a total of INR 226,000 crores...

INR 220,000 crores.

INR 220,000 crores, we've got INR 185,000 crores I think earning actively. So around about INR 34,000 crores is not earning any yield right now.

Okay. And any time line which you think when they will kind of -- retentions will start on that?

See, Swa, what we've seen is out of INR 34,000 crores, I think 40% to 45% may not immediately convert. It may take a longish period of time or potentially may not convert also because we've got around about of that INR 34,000 crores, let's say, 50%, 55%, INR 17,000 crores. Of that, around about INR 8,000 crores, INR 9,000 crores is treasury. So that's not going to change. The remaining INR 8,000 crores, INR 9,000 crores, the clients might end up using for tax, for payment of -- for buying houses or buying another business and so on and so forth. The remaining INR 17,000 crores will convert. Typically, it takes anywhere from quarter -- couple of quarters to 3 quarters typically. At stretch, may get extended to the fourth quarter, but it's not going to be binary. Every quarter, a portion of it will kind of keep getting converted. So I would expect it to get converted over the next 4 quarters.

Okay. Understood. A couple of more data points on which I wanted a little bit explanation. On the wealth side, what is our NIM compression on the lending book? And also on the TBR income, given that how the market conditions are buoyant but it has not increased, I mean, that's significantly what we are seeing for other players in the capital market. If you could highlight how to read that.

So NIM compression is next to really, really marginal. It's 579 to 575. So really nothing specific. I think largely a function of the incremental borrowing cost for the last 2 quarters has resulted in a 3 to 4 basis points reduction. So no real trend there. I think as a weighted average cost of borrowing, obviously, the borrowing down in the last 6, 12 months as replacement borrowing is slightly higher than what we had borrowed a couple of years back. So that's had a minor impact of 3, 4 basis points. On your second question, sorry, I forgot. What was the second question?

Sir, on the transaction income...

Yes, on the transaction income. Yes, so transaction income, our transaction income is not really in the nature of ECM capital markets and investment banking fees in that sense. So our transaction income is, to a certain extent, quite symmetrical. It ends up being in the region of INR 75 crores to INR 110 crores, INR 115 crores because it's a combination of, in some senses, sale of financial products but more in terms of direct stocks, bonds and unlisted ideas as compared to flows on capital markets or ECM side. So really, in that sense, though market activity is slightly higher both on ECM and capital market side, that really doesn't necessarily translate to a huge increase in our transaction and brokerage income for every quarter. And similarly, also doesn't -- in a slightly tougher quarter in terms of the markets, will also not result in a massive drop on the other side.

Understood, understood. Sir, if I could squeeze in a couple of quick questions on the AMC side. One is, on the cost to income of AMC, if I did my math correctly, I think I see a little bit of increase there also. So if you could highlight the reason for that? And also the sequential yield increase in the alternative investment side in, say, listed equities or private equity, what is driving that?

There's really no big yield increase on listed equity. I think it's more or less in the same range. Maybe just a small function of the change in mix for the quarter given the flows, not really a trend change in the -- not really a trend change in the yield. Then come on the AMC, it's also pretty much similar. I think cost-to-income on the AMC, honestly, is only going to improve as we go along because more or less all our investment teams are in place across all our strategies. And as we build out our AUM, I think, only on the private equity side, we need to add 2 or 3 investment professionals. Otherwise, our teams are well set and potentially have the ability to manage 2x the -- or maybe even 2.5x the AUM from where we are today.

Have we added anybody in the last, say, quarter?

On the asset management investment?

On the asset management, yes.

Not really, not anybody super senior. Normal recruitments have been going on.

Thank you. Next on line, we have Nidhesh Jain.

So on the cost-to-income side, you explained that because of the investments that we are doing, the cost-to-income has elevated in this quarter. But how do we see the trajectory of cost-to-income going into FY '25, '26?

So as I said earlier, I think FY '25 also can remain a little elevated. I think the investment in both the businesses would be going on. I think wealth sales, we are pretty much, I think, fairly well equipped in terms of capacity. So unlikely to add super large teams on the wealth sales side unless we get some really, really attractive talent. But on the global side and the high net worth business, we'll continue to invest. So I think 2.5%, 3% incremental cost-to-income for FY '25 can be assumed. And I think by that time -- by the time you kind of get operating leverage in those 2 businesses and start booking incremental revenues and have even an average INR 10,000 crore AUM for the year, it would become '25, '26 because for both the businesses, as we raise assets, it will come through '24, '25. So actually INR 10,000 crores of average AUM practically becomes INR 5,000 crores and the 70 basis points is on the INR 5,000 crore number. So I think from an investment perspective, I think next year will also be an investment year for both the businesses. So a 2%, 2.5% elevated cost-to-income ratio on account of those 2 businesses is likely to continue.

But the cost-to-income ratio should not increase from the current level, which we have reported in Q3? Or which...

No, no, no. It won't increase for sure. It won't increase for sure.

Secondly, what I understood is that the investment that we are doing, the benefit of that will be visible in FY '26. So FY '26 could be a significantly sharp jump year in terms of net flows.

Yes, we would -- net flows also and also cost-to-income. I would like to believe we'll be able to claw back to that 45%. So I think the 49% should hopefully come down Q4 or next year closer to the 47%, 47.5%. And FY '26, we should be able to claw back to the 45% number.

Sure. And how should we model carry income? Because I think we have changed the computation of carry and -- carry income, which should be -- my understanding is that going forward, it should be a quite smooth number. But still there is a volatility in AMC. I don't know what is the carry income for wealth management, but in AMC, there is an increase in carry...

Carry income, to be honest, whatever I have seen typically across our system ends up being around about 10 basis points approximately of the AUM we have. So effectively around about 15, 16 basis points of the nonlisted equity AUM. That's the good number to be focused on approximately annually. So today, our nonlisted AUM plus some listed carry AUM would be approximately 40, 45 -- INR 40,000 crores, so around about 15-odd basis points of that, INR 60 crores, INR 65 crores is the steady state number, which is around about INR 15 crores a quarter. And plus/minus INR 5 crores will happen every quarter depending on the realization. But typically, INR 15 crores a quarter should be the broad benchmark. So from a model perspective, I think 15 basis points of the carry AUM is broadly the right number to look at here.

And this carry income, you're talking about AMC only, right? Or AMC plus wealth management, both?

AMC. Wealth management is more periodic because wealth only is on certain side of products distributed for asset managers. And not with all asset managers, we don't share carry. With some, we do. But wealth will be slightly more episodic, but we'll definitely be around about INR 20 crores a year at least for the next 4, 5 years. So both put together approximately, the numbers will be between INR 15 crores to INR 20 crores a quarter.

Thank you. Next in line, we have Prayesh Jain.

Karan, so just firstly, on just extending the previous participant's question on the margin front. So how would you look at each of these new businesses in terms of margin profile as compared to what you have on the wealth management side? So if I recollect well, you had said that the steady state margins on the wealth management business should be around 45% -- sorry, the cost-to-income ratio should be around 45%. So would these be similar level segments? Or -- I would understand that the HNI segment would be relatively lower margin business. Or how would you stack each of these businesses?

Actually, to be honest, we're very similar. I don't see a reason why any of them should be phenomenally different. I think the variables are broadly the same. Obviously, there will be a little bit of function of operating leverage. But that, I'm hoping we will be able to manage because a lot of the functions, including products, investments, compliance, platform, all of that are already set up for our ultra-high net worth business. So we really don't need to reinvest back in those businesses. So unlike absolutely starting a new business, I think we should be able to get those benefits pretty much right off the cuff. So we should be around the 45%, 47% lines on cost-to-income. But typically, just to kind of take a step back, I think if you look at our wealth and asset management business, even today our wealth business might be slightly higher than 45%, and asset management business will be slightly lower than 45%, which blends out at 45%. So I think the core wealth business is closer to the 46%, 47% number, which is where I think the HNI global business will also end up being towards there.

Okay. Got that. And with respect to further RM count addition, how do you -- how would you say it should trend going ahead, say, in the next 2 or 3 years?

So as I said earlier, I personally feel, I think we are -- we're going to kind of get to know largely on account of how we kind of add clients. So personally, I feel on the wealth sales senior side, we are more or less 85%, 90% done in terms of capacity. Obviously, we're always, always open and looking for teams which are relatively senior and able to kind of move books. So that, we are always open to. But outside of that, we feel very comfortable with the team we have, and we feel we are well capitalized to garner market opportunities for the next 12 to 18 months. So I don't see massive surge in recruitments on the wealth sales side after these 35 people joined during -- through this year. So I think we feel happy with where we are. On the HNI space, like I pointed out on the call last time, I think there are also some -- as we add people there, there will be some people within the existing system with which -- with whom we'll be able to do at least a good part of the first year pilot. So I think, in some senses, the cost both on the high net worth and the global side will be there, but will be contained to that 1.5-odd percent from a cost-to-income perspective. It's not going to balloon up because we have a huge number of operating leverages and systems and platforms already built on the core wealth management business.

Yes. Last question from my side. In terms of the top 10 cities' contribution to AUM for you guys, what would be it today? What would have been, say, a couple of years back? And what would it be, say, 2 years down the line? And would you say the expansion into newer geographies, would it be at similar margin profile? Or how -- or are some experiences different in these geographies with regards to any...

Margin profile is very similar, not really different. I think we've got broadly 45, 50 cities in mind, I think, of which, half can be -- or maybe 40% can be done on a hub and spoke model and potentially 60% where we'll actually end up having small offices or large offices. So not really seeing any big difference in margin profile in these locations. Having said that, I don't have the exact numbers for our percentage of AUM and revenues between the top 10 cities for the last 4 years and now. But directionally, I think -- and I may be off by 1% or 2%. But I think 6% to 7% dispersion would be there over the last 2 years. So if the top 10 cities would be accounting for around about 88% to 91% of our business 2 years back, today, it would be closer to 80% to 83%.

And do you think that this will go further and you will have more diversified and, say, somewhere around 70-30?

For sure. For sure. I think it will be 70-30 over the next 3 to 4 years.

Thank you. Next on line, we have Abhijeet.

First question is on the ultra-HNI business. Like how should we look at the client-level profitability or yields? My guess is that I think that would be, let's say, around 50, 60 basis points. Now if the business is moving towards advisory a lot faster, does that level of yield is sustainable on those sort of client segments? Any color there?

So I think, Abhijeet, the pure advisory even today, it's at 40, 45. I think distribution, if you honestly see, we'll have to -- though we don't mix it and report it with our direct. But our distribution also is actually at 40, 45 because if you kind of merge both the broker plans and the direct plans, you end up at the same 40, 45 basis points, even maybe 35 basis points because today, if you see our mutual fund AUM, it's approximately INR 34,000 crores, INR 35,000 crores on the broker plan, and we'll have another INR 50,000 crores, INR 55,000 crores on the direct plan, part of which has already moved to advisory. So even the distribution business in some senses and even in PMS and so on and so forth, I think the distribution of stand-alone business also, if you just -- if you don't do advisory and just do distribution, you will end up clients doing a mix of broker and direct, resulting in a very similar 40, 45 basis points yield. So I think the yield is going to be around that level. I think the question is fair to the extent that some distribution products, especially alternates, will end up having a slightly higher yield. I think in the longer term, that will have 75, 80 basis points as opposed to the 45, 50 basis points of the mutual funds because the mutual funds will end up being a mix of broker and direct very easily. So I think that will have to -- if there is a big change in the mix between alternates and mutual funds and managed accounts, that may result in a bit of a drop in yield in distribution and, therefore, a drop in the yield in the overall mix of things. And finally, on the 70 basis points, obviously, you were a little bit of TBR to add. Together with that is obviously -- most importantly, is the asset management fees and another 10-odd basis points coming from lending here. So that's -- I think we'll remain around the 70 basis points, may go off to 67, 68 or potentially 71, 72, depending on this change of mix. But I don't see that changing dramatically different from where it is today.

Got it. That's useful. And the 10% to 20% share of wallet that could be your own internal products, that number doesn't change significantly, right, when the engagement moves towards advisory?

Not really, not really. While -- yes, the sales stays the same here.

Got it, got it. And just last one, I think just a little bit of clarification on the cost commitments for next year. The 250, 300 basis points that you mentioned, I mean, how are we looking at it? Because you also mentioned that the cost-to-income ratio is not changing for next year. So just trying to understand that better.

No, I wouldn't say the cost-to-income ratio might not change. It might change by 1% here or there, might go down by 1% or 1.5%. What I meant to say was the 1.25% cost, for example, let's say, this year, 1.25%, 1.5% on the INR 1,800 crore revenue number, which is, let's say, INR 25 crores to INR 30 crores spent on the mid-market team and so on and so forth and INR 25 crores, INR 30 crores spent on the global team, that's likely to continue without the large amount of corresponding revenue coming in. That's what I meant. So that extra 2.5%, 3% without a corresponding revenue of that extent -- of the incremental extent is likely to continue because those extra costs will be there and the full revenue will not be there. Some bit of operating leverage will obviously come in on the core wealth and the asset management businesses because the teams we've recruited this year will become partially productive. And our current team will also be more productive than what it is this year. So I think overall, what I was trying to say, if I see the extra 4%, 4.5% cost-to-income, I think the first 1.5%, which is the wealth sales, incremental cost recruitment gets digested as part of ordinary course of business through increase in productivity from our existing sales team as well as them. So that I expect to disappear. And that will be back to the normal 45% number. The 2.5% to 2.75%, 3% of the 2 new businesses, that's likely to continue.

Thank you. Next in line, we have Vivek Ramakrishnan.

Karan, I'm the fixed income guy, so I'll ask the traditional fixed income question. It is in terms of your gearing. I mean, most -- actually, most people in similar lines of businesses are seeing basically the gearing going up in terms of loans and borrowings. How do you see this going? And what is the peak levels that you'll maintain? And also, in one of the prior calls, you had mentioned that you don't have to invest as much as you did in the past in your various AIFs and so on, so -- and you're expecting some release. So when -- is there anything meaningful that we can expect? That's about it.

Yes. I think 3 parts there. I think one is the core loan book itself. It's kind of, in some ways, gets broken for us in 2 parts: the loan book and investments into our AIFs. So I think there should be, in the next 2 to 3 years, a constant move of around about INR 300 crores, INR 400 crores a year where it will get moved from investments to the loan book. So I think our current investments into our own AIFs will be close to around about INR 1,400 crores to INR 1,500 crores, which obviously will kind of keep getting released in the pace of around about INR 300 crores, INR 350 crores a year. Incrementally, we are putting in a much, much lower amount of capital into our AIFs. I think last year itself, maybe it was lesser than INR 150-odd crores of new capital. So in some senses, net, we should be able to get INR 300 crores, INR 350 crores out every year. And secondly, I think from a balance sheet perspective, we've done a little bit of MLDs last year for almost INR 700 crores, INR 750 crores against Government of India debenture, so G-Secs. So that brought the balance sheet a bit to the extent of INR 1,500 crores, INR 2,000 crores. So that will also kind of wind down over the next 12 months. So overall, I think eventually, what we would like to maintain out of INR 1,500 crore NBFC capital book around about gearing around about 4x is really what we would want to maintain here.

Thank you. Next in line, we have Dipanjan.

Sir, firstly, on the flow side on 360 ONE Plus, if you can give some color on whether the entirety of the flows is coming in from new clients? Or is there a mixture of wallet share gains at existing clients or more money coming in from existing clients? Or let's say, a shift from, as you said, some money -- maybe the private equity that is getting redeemed, maybe some of it is coming into advisory. If you can give some color on that. Second, on the AMC business, if you can kind of shed some light on the incremental product pipeline and what sort of flows would you anticipate maybe going in the next few quarters. And lastly, on the institutional mandates, what is the sort of color on that? Is there new flows coming in or if you can give some color on the trajectory incrementally? Sorry, one more question on the ESOP side. Is there any ESOP issuance plans or any strategy around that and whether you'd kind of tweak the variable payout based on how many ESOPs you're issuing? This is basically in conjunction with the fact that how do you really see the overall payouts in the industry? I mean are you in line? Or do you think that it is getting heated up a little bit or may get heated up a little bit in the, let's say, medium term?

So I'll try and quickly kind of cover all. I think on the advisory side, I think like earlier I've mentioned, I think it's broadly a 70-30 mix. I think 70-odd percent ends up coming from new clients. And I'm defining new clients here as, let's say, clients we've got from April, not necessarily clients we've got for the quarter, right, because that kind of gets very blurred with the active -- on active kind of flows. But broadly speaking, through the year, 70%, 75% ends up coming from new clients; 25%, 30% from existing clients. And I'm just kind of loosely saying a new client is any client who has at least not given us INR 5 crores before earlier. So I think that number is approximately 70-30. We've got -- seen a good kind of increase in wallet share also from our existing clients. On the asset management side, product pipeline, that's a great question. I think to compensate or rather complement the majority of our older SOF schemes, we have launched SOF -- or we are launching SOF 12 this week, and we will have the first close in the current quarter itself. So I expect a fairly decent response to that. And I think towards the end of this quarter and next quarter, we would expect the fund will at least end up being maybe potentially an INR 3,000 crore, INR 4,000 crore fund on the late-stage pre-IPO side. In addition to that, obviously, we are doing a lot of things on a regular basis. We've got a health care fund, which is already, I think, crossed INR 500-odd crores. That will head towards the INR 1,000 crores, INR 1,500 crores number. We'll launch our next credit fund over the next 10, 15 days, which would also be closer to the INR 2,000 crore, INR 2,500 crore number. So that's the pipeline on the asset management side. On the institutional mandates, we've got a lot of active discussions going. I think it's fair to say we've kind of built a very good platform there as well as a lot of recognition. We've got at least potentially 8 to 10 discussions going. And over the course of the next 12-odd months, we hope at least 20%, 25% of those kind of convert. So hopefully, 2 or 3 institutional mandates we should be able to add over the next 6- to 9-odd months. Lastly, on the ESOP side, we've obviously kind of gone out to our shareholders and taken an approval for ESOP. So we've kind of got a combination of both ESOPs as well as kind of an incentive plan for employees, which is largely based on 3 parameters. The smallest parameter is obviously the time period spent of the employee within the firm, and around about 15%, 20% of the options or incentives gets time-vested over the next 4, 5, 6 years. A large part of it is a function of the business plan achievement and performance, which is nearly 50% to 60%. And last 10% to 20% is a function of the performance of the firm. So I think through our ESOP policy, we've been able to get alignment of all our senior folks for the next 4, 5, 6, 7, 8 years along with the firm. And hopefully, like we've seen over the last 10, 12 years, it's a key component of each person's compensation, and it's well aligned with the objectives of both the shareholders as well as the organization as a whole.

Thank you. Next on line, we have [ Abhinav Yadav ].

Great set of results. Just had a quick question. In the wealth segment, what about would be the custody assets? I think a couple of quarters back, we said around INR 1 lakh crore is the number. Has that moved, not moved? Just to...

Not moved a lot. I think custody assets are around about INR 1.2 lakh crores, which is largely going to be the 1 lakh, 1.5 lakh would have moved on account of the mark-to-market by INR 15,000-odd crores.

Okay. INR 1.2 lakh crore. Okay.

Yes.

Yes. Thank you. Ladies and gentlemen, I think that's all we have time for today. Thank you for joining us, and we look forward to your participation in the next conference. Thank you once again.

Thank you. Thank you, everybody.

Thank you.