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

Good afternoon, ladies and gentlemen. And welcome to 360 ONE WAM's Q2 FY '25 Earnings Call. [Operator Instructions] Please note that 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 Wadhwa to take this conference ahead. Thank you.

Thank you, Anil, and a very good afternoon to everyone on the call today. Indian equities continue to remain buoyant in Q2 with benchmark indices hovering around all-time highs, supported by robust economic momentum, encouraging macro indicators and sustained domestic flows. Although geopolitical development induced some tensions and volatility, the broad outlook remains stable. We continue to believe in India's long-term growth story, which will act as a tailwind for India's wealth and asset management sector, supported by faster wealth creation outside traditional pockets and overall low penetration. Coming to business and financial numbers. In Q2, our total ARR AUM increased to INR 2,42,619 crores, up 41% year-on-year. This growth was supported by strong net flows at INR 9,786 crores. With this, our overall H1 FY '25 flows stood at INR 15,335 crores as against INR 4,323 crores in H1 FY '24. We saw very healthy gross flows in the Asset Management business, both on the institutional side and on new fund launches in private equity AIFs, which helped us counter the overall outflows of INR 3,600 crores in AIFs during the quarter. Our wealth ARR AUM stood at INR 1,56,849 crores, up 45% year-on-year, while AMC ARR AUM stood at INR 85,770 crores, up 33% year-on-year. Our ARR revenues for the quarter grew by 27.8% year-on-year at INR 397 crores led by growth in assets across business segments and healthy retentions. Our ARR revenues as a percentage of total revenues from operations stood at 67%. Total revenue from operations was up 38% year-on-year at INR 589 crores for Q2 FY '25. While ARR revenues stood strong, the quarter also witnessed higher transactional and brokerage income, mainly driven by opportunities in the private markets. Total revenues are up 40% year-on-year at INR 618 crores for Q2 FY '25. Total costs stood at INR 299 crores in Q2 FY '25. The employee costs were INR 224 crores, while other costs were INR 75 crores. The variable employment costs were high during the quarter as compared to the previous quarter on account of sales incentivization arising out of certain specific product offerings. The costs also included provisioning towards bonuses related to significant senior hires done recently. Directionally, we continue to move towards long-term incentivization in the form of ESOP, which allows for wealth creation for the employees. Our overall cost-to-income ratio stood at 48.4% for Q2 and for the first half, it stood at 42.9%. Our operating profit grew by 36% year-on-year at INR 289 crores. Once again, we are happy to report our highest ever quarterly PAT in Q2. PAT rose by 33.4% to INR 247 crores, with tangible ROE at 31.2%. With that, I would like to hand it over to Anshuman to cover the key business and strategic highlights.

Thanks, Sanjay, and good afternoon, everyone. Taking the queue from Sanjay's opening commentary on wealth and asset management industries structural growth story, I just want to highlight a few data points that helps hold our premise strong. As a country, India is still in its early stages with regard to financial investments as compared to developed countries. Only about 6% of our population can be categorized as unique investors investing in stocks versus 60-plus percent penetration in the U.S. Our MF AUM as a percentage of GDP is still as low as 15-odd percent versus global average of again 60-plus percent. Many data points that highlight the opportunity and journey ahead for us on the overall investment landscape despite the recent growth in asset classes and valuation concerns that may be there in the near term. Tying this up with our business, we strongly believe that our continued focus on our platform, product innovation, execution, and most importantly, client interest positions both our wealth and asset management business uniquely for these opportunities. Coming to quarter 2, Sanjay has covered the financial outcome. Let me share some of the highlights on our key input variables. The quarter saw very strong net flows at close to INR 10,000-odd crores with flows coming in both in wealth management at about INR 8,400 crores and asset management at about INR 1,400 crores. Our wealth management -- on wealth management, while our total client base has risen to more than 7,500 clients, importantly, we have successfully onboarded over 160 families with over INR 10 crores AUM and over 70 families with INR 50-plus crores AUM in the last quarter itself. The total number of families with more than INR 10 crores AUM now stands at about 3,160 and accounts for 94% of our wealth AUM. With over INR 13,000 crores of net flows in wealth for the first half of this year, we are already at about 80% of the FY '24 flows and most importantly at over 10% of our opening ARR AUM. These flows reflect our investments made over the recent past on expansion in our senior teams as well as in geographies. On the asset management side, our flows remain strong, both on listed equity and alternates. Our overall gross flows were over INR 7,000 crores paid down for the planned distributions made primarily in private equity. We are now in the last stage of completing the planned distributions from our first set of alternate funds raised as back as 2016, '17. Specifically, we have raised about INR 5,000 crores in commitments through our private equity and private credit funds this quarter. Also, in listed equities, very happy to share that we've been awarded our sixth institutional mandate, a $350 million mandate, from a marquee global investor. We are also witnessing rising levels of interest and engagement with global institutions for private market ideas in India. And again, with strong alternative investment capabilities in the sphere, we are well placed to benefit from such opportunities. Additionally, in our mutual fund offerings, we've seen ourselves grow on the back of strong fund performance as well as strengthened sales and distribution infrastructure. Our focused equity fund, which is the flagship MF, has crossed INR 8,500 crores in AUM and our Flexicap has crossed INR 1,000 crores, while our Quant Fund has crossed INR 500 crores. We continue to focus on deepening our channel presence on the domestic market, specifically through MFDs. Our new product pipeline remains strong in the upcoming quarters. We understand that the present market cycles can be quite volatile, but our diversified asset classes across listed, unlisted credit, RE and infra allow us to go through these cycles with a much higher resilience. On the new growth initiatives, the HNI segment is live with our initial set of bankers getting onboarded and select new-to-firm clients getting onboarded as well. The initial response to the platform and proposition has been positive with high appreciation for the tech build that has been done. We believe we are still in early stages, and we'll look for learnings and refinements of our offerings as we widen the client reach out over the next few months. The global business build has also been -- the first phase of the global business build has also been completed with the required platform and EAM agreements for our initial proposition in place. We already have new flows of about USD 160 million in this segment and remain confident of the planned ramp up over the next few quarters. Additionally, our investments in technology and digital continues with a sharp focus on both internal efficiency-related deployments as well as client-facing developments. Specifically, we are excited by the initial outputs from our work on data and analytics. We believe this could be a key differentiator for us in the coming future. With that, I would like to hand over to Karan for his opening remarks and then follow it up with Q&A.

Thank you. Thanks, Anshuman. Thanks for the -- thanks to everyone for joining in. So I just want to start off by making 2, 3 observations on the quarter very quickly, and then I'll quickly kind of hold for questions. Very, very quickly, I think from a business perspective, a fairly exciting quarter. From a flows perspective, I think the wealth management flows is reflecting a large part of the contribution from the teams which have joined in over the last 12 to 18 months, especially the 3 teams who joined us over the last 12, 18 months are coming up on their own. A large part of the -- some part of the contribution, which they've made over the last 12 to 15 months is reflected in the growth of AUM, but especially on the mutual fund side, most of them have come through broker code changes. So the revenue reflection would start 6 months post the change. But overall, we're quite excited about the ability to attract their set of older clients onto the platform. On the asset management side, again, we've had a good last 4, 5 months. We've been able to close 2 large funds; one on the -- one small one on the credit side, but a much larger one on the private equity side with a commitment of nearly INR 4,500 crores, INR 5,000 crores. Obviously, the gross sales on the asset management side is a much more encouraging number. The net sales is kind of a little tepid largely on account of the SOS Series 1 to 7, reaching its majority stage. We had raised around about INR 6,500 crores, INR 7,000 crores in the fund and returning around about INR 14,000 to INR 15,000 crores. Of that, nearly 90% is returned, the remaining 10% would get distributed over the next 6 to 12 months. On the listed equity side, again, been a fairly encouraging quarter for us where we were able to not only maintain our net flows, but also be able to win a couple of more mandates. So overall from a flows and a client's perspective, fairly exciting quarter. From a retention perspective, I think 1-odd basis points reduction largely on account of a couple of advisory accounts which have come in with a slightly larger weightage towards slightly lower retentions. Also a basis point reduction on largely the mutual fund assets coming through broker code change, which still doesn't give us income because it needs a 6 months cooling off period before we start getting brokerages. And another 1, 1.5 basis points reduction on account of lower carry income and around about a 1 basis point reduction on account of net interest margin. So slightly muted in terms of retention. I think a combination of these 3 or 4 factors. Of the 4 factors, most of them are kind of quarter-specific rather than being long-term trends. So we expect the retention to kind of come back up by 2 to 3 basis points. But systematically, I think from our input variables, both on the net retention -- both on net flow side as well as number of families. Both are encouraging for us from a last quarter perspective. From a new build business perspective, as Anshuman pointed out, I think early shoots, both on the high net worth side and the global side are encouraging. I think it's been slightly slower from a launch perspective, maybe we are a quarter delayed. But I think we've got the operating principles right. And over the next 6-odd months, I think we should be able to catch up on most of the numbers we had kind of thought through to achieve for the current financial year. On the cost side, I think we've added obviously a lot of resources, both on the ultra-high net worth side as well as on the investment team. A little bit of optimization needed on the existing task force. So I think we are going through a phase over the last year and in this current year where we'll continue to be towards the late 40s in terms of cost to income. But as we optimize the existing task force as well as add new together with the increase in revenues, we will end up seeing our cost to income at the 46%, 47%. So that is very well much on track. And I think towards the last quarter of the current year as well as the next whole financial year, we should be definitely closer to our cost-to-income ratios of 46% to 47%. So I think those are the broad headlines from a business perspective. So overall continue to be fairly buoyant on the broader trends in the market.

Thank you, Karen. We'll now open the floor for questions. [Operator Instructions] First on line, we have Mohit Mangal.

Congratulations on a good set of numbers. So I have got four questions. So first is that. I mean, considering that the strong flows we had this quarter. So your full year guidance of INR 250 billion to INR 300 billion? Or do you think that will be revised upwards? The second question is that now that we have added more clients, specifically in the [indiscernible] category. I would be a little curious to know how is the net flows from the existing versus the newer clients? So if you can give some color on that. Third is in terms of other income? So other income, if I look fell sequentially in Q2. So just wanted to know if it is purely employee movements or is there something else to it? And lastly, in respect of the QIP, I just wanted to know, so 2 sub-questions on that basically, any time line when it is expected to complete? And would you be tinkering with the dividend policy in that [indiscernible]?

Thanks, Mohit. I think we've covered a lot of questions for the -- sorry, your second question, I didn't get.

So net flows from the existing versus newer clients.

Okay. Got it. Okay. So I think from a flows perspective, obviously, I think the INR 25,000 crore to INR 30,000 crore flow number for the year is a fairly reasonable number. I think just given the flows in the second quarter, I think all things being equal, obviously, it can lead to a potentially INR 5,000 crores more for the entire year. But we should wait and see how the markets also kind of hold up for the next 6 months before I quickly increase the guidance. But I think all things being equal from a flow perspective and our attractiveness as a platform, for clients continues to be very high. And therefore, all things being equal, I don't see any reason why our net flows won't continue fairly strong. I wouldn't want to kind of just increase the guidance very, very quickly. I think there are a lot of parameters, which influence it. But I think, again, most importantly, relationship managers -- attractiveness of relationship managers to our platform, and attractiveness of our platform to our clients continues to be super high. On the existing versus the net flows, I think the numbers remain similar. I think probably, our existing clients are contributing to around about 25% to 40% of the net flows. And the new clients are contributing around about 55% to 65% of the net flows. I think that number broadly remains similar. Obviously, having said that, the new clients of 55% to 65% also have couple of kind of mixes in the blend. One is the type of a client, obviously, who's got a new liquidity event and the other type of client is a client who's kind of transferring some part of his AUM from another institution to us. So I think the further break of that would be around about 60% would be new liquidity and 40% would be a transfer of broker code changes and so on and so forth. So overall, I would say 35% to 40% is new liquidity events. 30-odd percent would be existing clients of the firm and the remaining 30% would be largely on account of relationship managers, who kind of joined the firm from other organizations. The other income is just a translation of mark-to-market. There's really no other component to it as such. Obviously, I think we have around about INR 1,800 crores odd exposure as sponsored, nonsponsored capital to our alternate funds. I think broadly speaking, around about approximately, don't hold me to that number, but approximately 10% to 12% of that INR 1,800 crores is effectively -- or maybe 9% of that is in NSE. And last quarter, that obviously saw a fairly large revision in price going up from I think 4,200 to 5,500. So that's kind of led to -- last quarter led to a bit of a jump in the mark-to-market. But on the other income side, that's largely the only component. There's really no other component to it. So it largely reflects the mark-to-market on our sponsor investments on the alternate side. Both, obviously, from a dividend policy perspective, I think in retrospect, I think just the dividends on coming out of the alternates business, the profits coming out of the alternate business as well as part of the profits coming out of the lending business of the wealth management piece. I think we want to be slightly more conservative in declaring dividends from those 2 components. The 2 components where we would want to kind of continue with a relatively more liberal dividend policy would be on the listed part of the asset management business as well as the wealth management business. The wealth management business and the listed part of the asset management business obviously are the 2 businesses which don't need too much of capital. The alternates business as well as the NBFC would continue to have some redeployment. So I think if you just kind of combine the mix of these 4, that's really what is going to dictate our dividend policy. So I think just broad ballpark, if you give 70% to 85% of our profits of the wealth management as well as the listed asset management business and 20% to 30% of the profits out of the alternates in the lending business. That's really going to be broadly the basic maths to decide our dividend policy going forward. And I think from a number perspective, it's broadly going to come to around about 30% to 40% of the -- or 30% to 50% of the overall profits of the firm. And obviously, a little bit of balancing to that number basis other opportunities available is what we are really going to look at. So I think to be -- to summarize, I think as opposed to a 65% to 80% dividend policy, we are going to be substantially relatively more conservative and kind of get it down closer to the 25% to 40% number for the year. Lastly, for the QIP obviously really can't indicate too much on the time lines apart from the fact that the shareholder approval from a shareholder perspective has been approved. So effectively, we can do a QIP anytime through the next year.

Understood. Just one follow-up. So you said the dividend policy would be -- I mean the change in dividend policy would only be for this year. So next year, we'll be again back to the 70% to 80%.

No, No, no. So our dividend policy is not only for this year. It's for -- I'm saying as a method of computation, the lending portion of profits attributable to the lending part of the wealth management business as well as the alternates business. Both of these require some degree of reinvestment back into the business. So those would be a substantially more conservative number of profits as dividends. The listed part of the asset management business as well as the wealth management business don't require too much of -- require very little capital to be reinvested apart from strategic reasons. So the profits accruing out of those 2 businesses will be largely paid out as dividend. The profits accruing out of the lending as well as the alternates business, very conservative amount of that profit should be paid out as dividend. On a weighted average basis, today, if I was to calculate it, we would end up doing 25% to 40% of profits as dividends on a constant currency basis.

Next in live, we have Sanketh.

Karan, I have one simple question given yesterday you have highlighted in the exchange that Anil Taparia, who is the co-CEO and co-Founder has chosen to move out. So just wanted to understand some numbers around him, how much AUM was under his management, whether it is the only person who has quit, or some people around his team have also moved out? And just if you can tell me, as a total percentage of the total wealth revenue, maybe his team contributed how much to our numbers. So just to understand and what is the succession planning for the region, what he was heading? And how you are planning to fill those big shoes in that sense? That's my first question. And the second question is with respect to your -- you said that there was a bit of a broker change MF flows. So just wanted to understand, out of the entire flows, what we had in managed/MF folios, how much came because of the broker change code?

Got it. So on the first one, Sanketh, very, very quickly. I think as an organization, we follow our policy where really I think every client has at least 4 points of contact. One is the relationship manager, the second is the managing partner or the managing director in this case. Third is obviously the entire advisory team and fourth is out of the 3, 4 of us, we are attached to every client. So I think from a continuation and a succession perspective, typically speaking, historically, impact of relationship manager change over a period of 3 to 5 years is typically impacted the book anywhere between 1% to 4% over a period of time. I think typically, in the first couple of years, it's relatively much lower. It's closer to 1% to 2%. And depending on the succession plan we put in place, the number can increase to 3% to 5% of the overall business. Having said that, obviously, we don't like change. We would love to have everybody at all points in time. But this specific change was largely culmination of a couple of things, including us more or less kind of appointing a single head for wealth management. So that's going to be announced in the due course to do a structural change, which was kind of necessitated also. In terms of the roles and responsibilities, I think it's fairly well covered by the team. We have a fairly large team on the wealth management side, nearly 140, 150 senior bankers. So in that said, succession is not going to be an issue. So business impact wise, I really wouldn't -- from wealth management revenues, I think it will be too -- it wouldn't be material enough to -- for me to estimate a percentage impact on the wealth management revenues itself. But having said that, I think the north and east as regions and largely, it was focused more on north. North as a region contributes around about -- of our wealth management revenue around about close to 12% to 13% of our -- 14% of our revenues. So I think relatively, even if I was to look at a short-term impact, assuming there is a consequential impact, it would not be more than 2% to 3% of our wealth management revenues. As we speak now, I think while we still don't have a large -- we don't have exactly -- I don't have a number to give you in terms of people who are looking to leave. But it's fair to say that it's a team, which has been working together for the last 15 to 20 years. So 2 or 3 people might be par for the course in that sense, but it's part of natural attrition. I think out of 130, 140 bankers, 2 to 3 bankers a year is par for the course. So from a business materiality impact perspective, I don't see it impacting much. Having said that, from a firm perspective, would love to have everybody all the time assuming things can fit into the structure and align and at the same point of time, kind of wish him the best in his future endeavors.

Got it. Karan, is it fair to assume that the incremental hiring, which you have done in 12 to 18 months will be more than sufficient if there is any immediate attrition at the North region in that sense?

No, no. I think we have enough capacity in North itself. We don't need to hire. So I think they have a fairly large, very mature team in North. We have around about all of our 3,200-odd clients above INR 10 crores, we would have around about -- I would not be way off, but we would have around about 12% to 14%, 15% of our clients coming from North. Of the 12% to 15%, 400, 450, we would have more than 30, 40 senior bankers in North. So we're very, very well covered. We don't have any capacity issues at all.

Got it. Perfect. And the second question on broker code change, if you can quantify that.

Yes, on the broker code change, I think I don't have the exact number, but I have a very good approximate. I think it will be in the region of around about 25% of the flows. So around about INR 2,800-odd crore is the entire change. Of the INR 2,800 crores, I think around about INR 1,900 crores to INR 2,000 crores is in mutual funds alone, INR 2,000 crores to INR 2,200 crores and INR 600 crores to INR 800 crores would be in managed accounts. In managed accounts, obviously, the trail will start faster. On the mutual funds side, the trail will only start 6 months after the change.

And lastly, on this broker code change, have you seen the maximum to come already in the second quarter? Do you think this flow can further continue going ahead?

No. I think hopefully it has a lot way to go because we have got really a very experienced team of a lot of nearly 30 senior bankers. So I think INR 3,000 crores is part of the exercise, not the exercise in itself.

Next in line, we have Abhijeet Sakhare.

First question was on OpEx. So how do we look at the OpEx growth over the next 12 months or so, specifically the challenges, how much of it is actually linked to TBR, which is where I think there is a little bit of an uncertainty how the next 12 months could look like?

No. So I think OpEx being linked to TBR, there's no direct correlation between TBR and OpEx as such, okay? I think obviously, our OpEx this quarter was maybe slightly higher for two large reasons. I think we've done a U.K. case settlement last quarter. By the time we paid it, there was a further ForEx currency translation cost of around about $1 million, which has kind of got added on to the admin and legal expenses. And we further had INR 4 crores or INR 5 crores of kind of legal cost on the same thing, which kind of got cascaded. So around about INR 10 crores of OpEx cost has kind of increased this quarter on account of the same thing. But outside of that, I think it's fairly standard. I think what used to be broadly a INR 60 crores, INR 65 crores OpEx cost a quarter is now more closer to the range of INR 68 crores to INR 75-odd crores. So that's really where it is. Don't expect too much of a massive variation in the OpEx cost coming out of any linkage to TBR. Having said that, TBR obviously has a fairly largest kind of impact on the variable cost of the firm. So the variable bonuses of the employees can kind of change quite a bit depending on the quantum of TBR. The ARR is obviously very well modeled both in terms of predictability as well as in terms of variable compensation to the relationship managers. But the TBR itself, while it doesn't impact the OpEx, it does impact the variable bonus portion in a fairly straight line pass-through way.

Got it. And second one was on the new commitments that you've raised. Any sense on how much of this is in-sourced and what's the realization range in these funds?

Well, in these funds, obviously, it's on our pre-IPO funds and Special Opportunities funds, we don't charge on the commitment. We charge on the drawdown. So while we've got commitments of nearly INR 6,000 crores, I think what shows up in the AUM is only INR 1,500 crores or INR 2,000 crores because that's the amount which is drawn down. And we are also charging fees only on the INR 1,500 crores, INR 2,000 crores. So I think the remaining INR 3,000 crore, INR 4,000 crores comes in automatically as net flows over the next potentially 12 to 18 months. So I think in that sense, only 30%, 35% of the flows and 30%, 35% of the fees is really captured potentially over the last 2 quarters. I think in our pre-IPO funds, our realizations are quite decent. I think just given the track record and the market leadership we have in those funds, we are able to kind of between the -- between our role as a manufacturer as well as a wealth manager and distributor, we are able to kind of capture around about 130, 140 basis points of retention. 80, 90 basis points as a manufacturer, potentially 50, 60 basis points as a distributor because we are kind of distributing 60% to 70% of the funds in-house.

Got it. One last one. What you've seen in the last couple of years is that the client base seems to be fairly active on the TBR side as well, given how the markets have been. Just to understand your client base better, when we move to markets which are relatively more sort of sideways moving or downward drifting, how do you expect the client base to behave? And do you see some of the AUMs shift to recurring revenues from TBR?

That's a great question. Actually, our market share improves dramatically in the flattish market actually, a market share. So because clients -- typically clients, relationship managers, everybody kind of typically comes back to basics. So they want to do the investment, policy statement again, they want to do the asset allocation again. They want to follow the discipline again. They want to have the right ratio between single instrument, single stocks, pool of funds and so on and so forth. And that's really when organized players like us who are slightly more focused on asset allocation at IPS typically see our market share go up. I think volume of activity for us also comes down like it would come down for everybody else. So I think the TBR numbers as well as the volume of activity will definitely come down. But overall, I think as you're rightly saying, I think our ability to attract new clients as well as increase our market share on a relative basis will be even better as compared to very, very active market on the TBR side. So I think on a steady-state basis, we feel comfortable. We've been comfortable with around about INR 100 crores to INR 125 crores of TBR a quarter historically. Obviously, the TBR numbers for the last 2 quarters have been -- or last 3 quarters have been substantially higher. And that, to a certain extent, is a reflection of the capital market activity across the country. But I think if the markets were to stay flat, drift down and stay slightly drifted down, I think we have a little advantage because we are very active across all asset classes, including fixed income, equities, commodities and so on and so forth and alternate. So I think we have a little bit of flex on the TBR side. But at the same point of time, would it remain the same numbers, I don't think so. I think it would kind of be some number between the 100 to 125 range as a steady-state basis, which it was a couple of quarters back. And I think in absolute stress scenarios, if you see the markets kind of go down by 15%, 20%, 25%. I think the TBR numbers come towards the lower end would be absolutely at the INR 75 crore, INR 80 crores range. So if you really stress test the business at 20%, 25% lower markets, I think it's fair to say with the combination of mark-to-market AUM as well as a little bit of TBR reduction, you potentially see a 10% to 15%, around about of 50% of the fall in the markets as reduction in profits. Obviously, which can be offset with the growth in MTM on the fixed income side as well as net new flows and net new clients at that point in time. So that's really the way I would look at it.

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

First question is on retention. How should we think about the ARR retention from a medium- to long-term perspective. If you look at last, I think, 2, 3 years, there has been slight gradual downward pressure on the retention on the ARR side. Sir, from a 3-year, 4-year perspective, how should we think about that?

1- to 2 year perspective, Nidhesh, back to the 70 to 72-ish kind of number, which we were at. I think from a 4- to 5-year perspective, I would say, closer to the 67, 68 basis points, largely not because the headline retention is going to change. I think the headline retention is going to be more or less remain the same. So on the -- our pure RIA advisory side, I would expect incremental business on an average of 34, 35 basis points. And as time was to go by, I would expect our retention on the advisory assets to be between 30% to 35%. I would expect the pure discretionary piece to be between 45 and 50 basis points. The listed piece, I think, is where the retention will come down a bit. I think we are currently closer to the 64, 65 that I expect it to be close to 55 and 60 basis points. Net interest margin would remain around the same. Alternates remains broadly around the same, including carry in the region of 85 to 90 basis points. So if you see the headline attention of each of the components, you don't really see too much of a reduction apart from listed equity. I think the change happens because of a little bit of -- sorry managed accounts distribution now, which is broken on both mutual funds and managed accounts. So there also I see a similar trend. I think mutual funds, we are today at 45, 50 basis points and managed accounts, we are in the region of 75, 80 basis points. So I think all of these retentions remain fairly similar, apart from listed equity. Even then, I think the headline weighted as retention drops a bit from 72-ish, 71%, 72% to around about 68% because of the change in the mix of the business. So three things will change from a change in the mix of the business. I think the first thing is the loan book obviously won't grow in same proportion of the AUM. Secondly, I think the second change will be the broad mix of distribution and advice will be slightly more in favor of advice as compared to distribution today. And these 2 things largely will result -- and obviously listed equity, there will be a little bit of reduction. So these 3 things result in a little bit of reduction on a weighted average basis. On a headline basis in each of the segments, I don't expect too much of median retention.

Sure. Secondly, on the transactional-based income. Historically, we have been guiding at around INR 100 crores of steady-state quarterly run rate on transactional income. But last 3 quarters, we're running around INR 200 crores. So still on a steady-state basis, do you believe that INR 100 crores is the right number or we should take that number up?

No, I would still say around about INR 100 crores to INR 125 crores is the right number to look at.

Okay. And in this quarter, how much of the transaction income is coming from NSE Block?

This quarter would not be much. It would be INR 25 crores, INR 30 crores, approximately. Might be INR 2 crores, INR 3 crores.

Okay, sure. So around INR 30 crores?

INR 30 crores. Yes.

Next in line, we have Himanshu Taluja.

Just a few questions, especially in terms of your transaction base revenues, which is very difficult to project because if you look at the last 3, 4 years, generally, broadly, we remain around INR 300 crores to INR 400 crores and last few quarters, where we have seen a very sharp. So can we really say probably 20% to 25% of your transaction-based AUM in a good environment get churned every year which gives you practically 80, 100 bps of the yield? And what are the other components in the transaction-based revenues? Lastly, thirdly, in this transaction, how much is last -- in last 3, 4 years, how much is the NSE shares contributing? So if you can help me understand how one should have a realistic projection around the transaction-based?

No. So I think, to be honest, your first way of calculating is approximately the best way to calculate. It's not necessarily the absolute scientific way. But I think from a TBR perspective, it's fair to say around about the transaction AUM kind of churns once in 5 or 6 years. And broadly gives a retention of 50 basis points to 100 basis points, which effectively results in that blended retention of 30 basis points on the entire transaction AUM. But is that a scientific way to look at it, I think from a reverse calculation perspective, that's the way it works out. But broadly, I think those 2 assumptions are right, 15% to 25% of the AUM churns once in 4 or 5 years and broadly gives you 80 to 100 basis points of retention leading to around about a 30 to 35 basis points retention on the TBR AUM. On the second portion on NSE, I think broadly speaking, last 3, 4 years, it would be in the broad component around about INR 60 crores, INR 70 crores, INR 80 crores approximately a year.

Okay. And what are the other components in your transaction-based revenues apart from these two?

So around about INR 100-odd crores comes from listed equity, INR 80 crores, INR 100 crores, around about INR 50 crores to INR 60 crores from fixed income brokerage, another around about INR 80 crores to INR 90 crores from NSE, which is around about INR 250-odd crores. Then you have other INR 50 crores to INR 100 crores in fixed income brokerage like NSE. So we've done a lot of fixed income transactions over the last year, 1.5 years, maybe last 3-odd years. So it's a combination of these 3 or 4 things and a little bit of INR 50 crores to INR 75 crores of upfront income on products distributed in the form of managed accounts and so on and so forth. And INR 40 crores to INR 50 crores of referrals from investment banking, M&A activities and so on and so forth.

Yes. Sir, second part of the question is around your basically lending book. You currently have a lending book of INR 6,008 crores, you are also looking in terms of the capital raise one of the primary reasons you want to scale this lending book as well. How do you -- how one should -- if you have to think from a 2 to 3 years' viewpoint, how do you expect this lending book to grow?

So I think from a lending book perspective, I think broadly, we see it around the 2%, 2.5% AUM on the wealth management side. So today, if you were to just look at our AUM on the wealth management side at around about give or take INR 4 lakh-odd crores, a loan book of around about INR 8,000 crores to INR 10,000 crores is a sustainable number. So I think purely from a loan book growth perspective, assuming the wealth management AUM can grow at around about 20%, 25% a year. I think, broadly speaking, the loan book will kind of grow at a number of around about 2.5% to 3% of that number. Today, obviously, we are slightly maybe INR 1,000 crores short. So effectively, at a full matured basis, INR 1,000 crores plus around about 2.5 -- 2% to 2.5% of the wealth management AUM growth is really the metric to grow the loan book.

Sir, just last one question is in terms of your active AUM ARR, advisory is one of the key in a way to go forward in terms of the growth, but when we look in terms of your retention yields over the last 8, 10 quarters, probably it has come down from 37 bps to 30. What is an ideal sustainable range in this basically retention yields? Because I believe the share of this 360 ONE assets in the overall active AUM will keep increasing.

It will be around about 35 basis points, like I pointed out slightly earlier. So I think the RIA fees will be in the region of 35. It can be towards 30 provided -- if we end up getting only large clients. But I think in the mix of large, small clients, I think it will be trending towards 35. Right now, it's got a lot of -- a little bit of maybe approximately out of the INR 40,000 crores, INR 45,000 crores, nearly 1/3 are accounts which we've onboarded prior to 18 months from today. And those accounts are onboarded at substantially lower fees, and that's kind of having a kind of a drawdown impact on the retentions. But with every new incremental AUM, that impact kind of is coming down. So I would expect the RIA to kind of move towards 30 to 35 basis points range. Hopefully, closer to the 35 basis points range depending on the weighted average AUM of the clients or the number of clients and discretionary in the region of 45 to 50 basis points. And assuming we can have a similar proportion or a 2/3 1/3 proportion in favor of advisory versus discretionary, I think the mix of both will give us around about a 40 basis points retention.

Sir, just last question. Since you have recently set up the team to cater the mid-market HNI segment as well. How do you plan to ramp up in the next like from -- in the next 12 months now from here? You've already set up the team and everything. How one should see it in terms of the flows and all?

So I think the big ramp-up only -- big ramp-up in recruitment starts from April next year. I think from our perspective right now, we're doing the following 3 things. I think we've got -- we've set up the entire platform, the tech is set up, the operating market leaders for the 4 regions. The key team members, 15, 20 members are in place. We're going to use what we call is the network effect for the top 3,500 families who we are already servicing on the ultra-high net worth side. I think each of those families has at least 3 or 4 people around the ecosystem, who are clients who fit into the INR 10 crores to INR 50 crore range. Our first port of call really is going to be those 10,000 families around our existing 3,500 families. And that's the benefit we have going a little bit from the top to the next level. And for the next 6 months, it's really about 25 to 30 relationship managers whom we've recruited. 20 to 25 relationship managers from our existing team, which we are transferring into the high net worth business. So first 6 months, it is really going to be about these 50, 60 people, and these 8,000, 10,000 families and figuring out our success parameters. Only in April is when we kind of go out and hire 150, 200 people and expand to 25, 30, 35 cities basis our own assessment of our own strengths and weaknesses. So I think over the next 6 months, you'll see us ramp up that business but in a fairly measured manner without disproportionately increasing the cost. And from April of '25, you'll really see us kind of give a much, much larger impetus in terms of growth and recruitment of the business.

Thank you. Next in line, we have the Dipanjan Ghosh.

So just a few questions. Karan, first, on the AMC side of the business, obviously, you've kind of concluded one of the institutional mandates. I just wanted to get some sense of are there more in the pipeline or how the team is shaping up on that front? Second, now that most -- quite a lot of your planned redemptions are done, as you said, 90% is almost complete. Over the next 3 to 18 months, how is the pipeline in terms of new product offerings stacking up on that side of the business? And what sort of gross sales do you really expect? My third question is more from an RM-based perspective. I mean, in this first half or specifically in second quarter, have you kind of onboarded new teams on the [indiscernible] Chennai side? And you also mentioned that 3 of the teams that you onboarded last year are kind of operating in steady state. So just wanting to get some color on the flows or revenue contribution that some of these teams probably have given in the last, let's say, 12 -- 6 to 12 months. And finally, on the new clients that you have been acquiring over the last 2 to 3 quarters, which have been quite strong, if you can give some color on are these like new-to-money customers or these are customers of existing -- who are existing relationships with other wealth managers and swapping to 360 or kind of testing new waters? Just want to get some sense of the clientele quality and what if there is a market drawdown? You mentioned that there can be market share accretion. But in terms of new money generation, how historically things shape up on that front?

Thank you, Dipanjan. I hope I remember all the orders and the questions in that order. I have tried to write it down. But otherwise, if I forget one, I'll come back to you. On the asset management side, I think on the gross sales, I think you're absolutely right. I think we had a large episodic contribution in 2018 of pre-IPO fund. Outside of that, I think all our funds are fairly well distributed on an even basis. So it's unlikely that any one redemption will have such a large impact. So as I said earlier, I think we're in the last 10%, which would -- may potentially get paid out over the 6 to 8 months. I think our overall strategy on the gross sales side continues to be fairly exciting. I mean we've got a lot of new products in the pipeline. So I think while our redemptions kind of ease off a bit, I think the gross sales will continue to kind of happen. And as I explained earlier, the gross sales will also be having a component of the drawdowns we've still not kind of called for because that really doesn't show up in our AUM as of now because we don't charge on a commitment basis, but we charge on a drawdown basis. So overall, I think on the alternates side, without ascribing a specific number, we definitely believe we'll be in a good position to be able to kind of grow our overall alternates AUM on a net basis by at least 10% to 12% a year, as we've kind of indicated earlier. Obviously, that would mean a slightly larger number on the gross side. But effectively, we feel fairly confident of being able to add those numbers over the next 18 to 20 months. On the asset management -- on the wealth management side in terms of the new team members, I would not jump to say that they are a steady state. I think they have settled in well. I think they're still fairly early days. It's less than 12 months as they've joined. So I think a large part of their clients have started kind of getting onboarded with us, but it will take full time for them to kind of fully scale up and get us to get a large wallet share from those clients. So I think early offshoots are very, very positive, very encouraging. I think a large portion of the onboarding started. Having said that, I think for the teams to fully settle in is any time period between 30 to 42 months, so we still have some time to go. And as I indicated earlier, I think purely from a numbers perspective, I think they have the potential to grow substantially larger than where they are today. From a new client perspective, I think, again, it's broadly a 1/3, a 1/3, a 1/3. I think 1/3 is old relationship of ours, which we've been prospecting for many years, scaling up over the period of last year. 1/3 is absolutely out of new liquidity events and 1/3 is market share gain from other competitors. So I think to your question, if the capital markets were to slow down and liquidity were to really come off, I think it has a little bit of impact on that last 35%. But the first 35%, we should be able to do equally well. So I think hopefully, even if the markets stay flat or slightly more towards the downside, our input variables, especially in terms of number of new clients, we keep kind of chugging along. And that doesn't really kind of fall that much in proportion with the market because that's something which firm like us should be able to do. I didn't forget the question in the middle. I'm not quite sure about it.

So just one follow-up. Karan, on one of the questions asked by earlier participant, which was on the exit of one of your senior members. If I heard correctly, you mentioned that historically, over a 3- to 5-year period because of any RM attrition, the book attrition is around 3% to 5%. Is that the correct understanding?

That's right.

And your North segment is currently 12% to 14% of your revenues. So if you were kind of to a triangulation map, it basically means that the overall impact should be capped at?

15%.

Yes, 15% of your revenue.

Wealth management revenues. Overall revenue is less than 7%, 8%.

So in that sense, the triangulation would suggest that any significant exit should not materially alter the P&L. Is that a fair assumption?

Honestly, I think RM exits at that level unless it's something which is systemic and kind of impacts the capacity of the firm or in some ways, led by an event which is kind of rather brand diluting in some ways. I think from a platform perspective today, both in terms of multiple engagements with clients as well as the power of the platform to kind of attract new people as well as offer the right set of products. I think it's not really purely, purely based on RM exits here. So the ability to do revenues, the ability to do charge fees, it's a very, very -- I won't call it a complex formula, but it's a very complete formula. So everything needs to be there. It's not really -- I think the RM is a very, very important component of that formula, but it's not the only component in the formula. So I think that's something which we have to be kind of cognizant of.

Karan, the question in the middle was on the institutional mandates. Any more lumpy mandates that you foresee?

Yes. No, no. So we continue to work on a lot of mandates, but these cycles are fairly long. I think whatever we started work on last year kind of converts after 9 to 15 months. So obviously, at all points of time, we have a good number of mandates. Any point of time you would have any number between 2 to 6 mandates, which are in different stages of hopefully [ fructified ].

I think we'll take one last question from [ Neeraj Toshniwal ].

Congrats on a [ great set ]. I just wanted to understand on the discretionary, nondiscretionary part of the flows, we have been seeing the nondiscretionary has been growing quite steadily, while discretionary flows have been actually quite muted. So is the trend going to continue? Because discretionary retentions have been a little better in history? And does these nondiscretionary clients move to discretionary at some point? Or it actually remains there?

No, I think you're absolutely right. I think left to -- from a behavior change perspective also, there is a little bit of transition from nondiscretionary to discretionary. I think the behavior change happens over a period of time, not only from a client's perspective but even from a relationship management perspective. I think -- and also you need a little bit of a track record in terms of performance, which we luckily have now. So I think overall, we would like the proportion to be closer to around about 2/3 to 1/3 with 2/3 coming in advisory and 1/3 coming to discretionary. Aspirationally, obviously, 50-50, but I think we are not -- from a market perspective, I don't think so we are that mature yet. But I think we're trying to move towards the 2/3 and 1/3 in terms of flows between discretionary and advisory, which is something which is going to be a good, good benchmark for us to follow. Having said that, I think as a wealth management firm, obviously, you need a good investment in terms of building out your investment teams, asset allocation specialists as well as a team which can kind of [ boost ] a fairly good track record across diversified allocations, both as multi -- both as fund -- practically as fund of fund managers as well as allocation to ETFs and so on and so forth. So I think we are early in the game. We've done well for the last 2.5, 3 years, the track record is really good. We are getting decent flows. We are not getting phenomenally high flows. But I think having said that, directionally, I think we should be in a position over the next 12-odd months, where 25% to 35% of our incremental flows start coming on the discretionary side.

I think that's all we have time for this afternoon. Thank you all for joining us. And on behalf of 360 ONE, I wish all of you a very happy festive season. Thank you once again.

Thank you.