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

Good evening, ladies and gentlemen, and welcome to 360 ONE WAM's Q3 FY '25 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. On the call 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 Sanjay to take this conference ahead. Thank you.

Thank you, Anil, and a very good evening to everybody on the call today. Starting with the macros, as we know, Indian equities, after outperforming for most of the calendar year '24, witnessed some volatility over the last couple of months. Even with expectations of our marginal slowdown in the near-term growth, the broad economic outlook remains stable and amongst the best within the developed and emerging economies. Looking through the short-term volatility, we continue to remain bullish about 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 the business and financial numbers. In Q3, our total ARR AUM increased to INR 248,000 crores, up 33% year-on-year. This growth was supported by strong net flows at INR 6,643 crores, up 12% year-on-year. With this, overall 9 months FY '25 flows more than doubled to INR 21,979 crores as against 9 months of FY '24. Our wealth ARR AUM stood at INR 162,749 crores, up 39% Y-o-Y, while the AMC ARR AUM stood at INR 85,250 crores, up 23% Y-o-Y. Wealth ARR net flows stood at INR 5,940 crores, up 24%, while AMC net flows were at INR 703 crores. However, the gross flows were at approximately INR 3,000 crores for the quarter. AMC AUM saw a marginal reduction on a Q-o-Q basis due to negative MTM, the impact was minimal as a diversified asset base and strong gross growth provided cushion against market correction. The negative MTM in listed equity was nearly offset by positive momentum in the PE and customized multi-asset segments. Our ARR revenues for the quarter grew by 26.2% Y-o-Y at INR 426 crores led by growth in assets across business segments and healthy retentions. Our ARR revenues as a percentage of total revenue from operations stood at 70.4%. As a strategy, we continue to focus on increasing the share of ARR revenue in the overall pie. Our overall ARR retentions stood at 70 basis points with wealth ARR retentions at 73 basis points and asset management retentions at 65 basis points. Total revenue from operations was up 38% year-on-year at INR 605 crores for Q3 FY '25. Total costs stood at INR 319 crores for the quarter. Employee costs were at INR 240 crores, while other costs were at INR 79 crores. Our cost-to-income ratio stood at 47.1% for the quarter and it's 44.3% for 9 months. Our operating profit grew by 37% year-on-year at INR 286 crores. Once again, we are happy to report our highest ever quarterly PAT in Q3, PAT rose by 41.7% to INR 275 crores with tangible ROE at 24.1%. We expect the ROE to improve as the fullness impact of the deployment of QIP proceedings start to flow over the next 3 to 4 quarters. With that, I would like to hand it over to Anshuman to cover the key business and strategic highlights.

Thanks, Sanjay, and good evening, everyone. At the outset, let me reiterate, we are extremely excited by the strong business performance of Q3 and 9 months FY '25. The last 4 to 5 quarters have been very interesting for the industry and for us, both in terms of business trends and equity markets. It's further reinforced the resilience of our business to market uncertainties and the benefit and the financial stability of having a very strong recurring revenue base. The growth in the industry continues at a rapid pace. I think the shift towards professional wealth management, particularly advisory services, continues, and it highlights our clients' increasing recognition of the benefits of professional portfolio management in mitigating biases and enhancing performance. Nearly 50% of our wealth ARR net flows in the 9 months FY '25 have been contributed by 360 ONE Plus, our advisory proposition. Additionally, alternates, spanning private equity, venture, credit, real assets continue to grow as a key avenue for portfolio diversification and superior returns. Again, a segment where we are sharply focused and are one of the market leaders. On the asset management side, we continue to see strong gross flows across strategies, the planned distributions on our early stage -- on our initial late-stage funds is nearly complete, should be completed in the next couple of quarters. And that will bring out the connectivity on gross flows and net flows. Our presence across diversified asset classes, again, on the asset management side, adds flexibility and strength to the client portfolios as well as our financial performance across market cycles. A quick update on our new strategic initiatives. Over the last quarter, we have strengthened our HNI platform. We are onboarding clients as a part of the soft launch that's been going on. The team build-out is very well underway, and we are on track for the full launch starting April. We are very excited by getting this out into the market in a big way. The global platform is also coming along well. Our EAM tie-ups are in place, and we continue to engage with clients on a selective basis, testing the overall proposition and making refinements to it based on client inputs and experiences. Finally, on ET Money, the regulatory approvals related to the transaction have been received. Over the last few months, as we were waiting to consummate the transaction, we've been thinking through the strategic agenda, going deep into areas of synergies, growth, monetization and we are excited to consummate the transaction over the next week to 10 days and take the business forward along with the ET Money leadership. 360 ONE's commitment to quality, innovation and a client-centric approach solidifies our position as a leader in the wealth management and alternate space, driving responsible and sustainable growth in this rapidly transforming market. Throughout our journey, we have consistently evaluated new opportunities, which can add strategic value to our stakeholders, which is clients and our shareholders. Our key endeavor has always been to cater to our clients first with the most comprehensive platform and the best possible proposition. In line with this vision, we are very excited to announce the proposed acquisition of B&K Securities and B&K Finserv. As a lot of you will know, B&K is one of the most established and leading mid-cap brokerage houses in the country with a legacy of over 100-odd years. It has a very strong business on the institutional equity side with a large cross-section of DIIs and FIIs being a part of their -- or being a part of its client portfolio. It also has a strong corporate treasuries business with more than 600 corporate clients and a 75% share of recurring revenues in that particular segment. The team is extremely strong. We have a team of about 275-plus people, 55 to 60 plus focused research analysts, very clearly a team that has been rated top quartile by its key clients and recognized for governance, culture and client centricity, values and elements that are very critical to us as 360 ONE. In addition to institutional equities and corporate treasury, these 2 set up the pillars for establishing and building out an equity capital markets business. So that's a recently launched business segment, offering merchant banking services to a select group of clients and the team expansion in B&K is underway to offer full-fledged ECM capabilities to domestic institutional clients as well as its treasury clients. We're extremely excited by the synergies that this business offers across both leveraging our current business to expand on the B&K business offerings as well as leverage the B&K relationships and specifically, the B&K research on the mid-cap and small-cap side for our clients and for our businesses. Karan will, of course, speak about the synergies and how he sees it even further. Two or three things to, I think, highlight about the transaction itself. We are very excited that the team and the leadership continues and will move into 360 ONE. The leadership and the team are committed and very excited by the potential that this offers and the transaction structure, if you all had a look at it, actually captures the optimism and the excitement on what can be created together over the next 5 to 7 years. Specifically, just sharing a little bit of detail on the transaction structure itself. It's a combination of upfront cash as well as stock issuance to the promoters. The deal consideration is INR 1,884 crores, which is inclusive of about INR 200 crores of cash or cash equivalents that is in the entities. The deal is structures such that there is a cash payout of INR 710 crores. And then there is 1 crore equity shares of 360 ONE WAM at INR 1,174 per share that will get issued. This share again has a lock-in of 5 years with 20% pro rata basis for each year. We have in place a long-term employment and retention plan as well for the leadership and team members, which again comprises both of ESOPs as well as cash payouts linked to financial targets. The plan and the retention plan is in place for a period of next 6 years. Again, clearly highlighting the long-term optimism that we have on what can be created. Basis the 9 months FY '25 earnings, we see the deal consideration at about 17 to 18x its trailing PE and about 13 to 15x the forward PE. Again, we are very excited that the transaction is EPS accretive from day 1 and over the next -- once the transaction consummates, over FY '26 and '27, specifically with synergies, we see significant EPS accretive opportunities coming from the transaction. Before I hand it over to Karan, just want to highlight 2 or 3 other things. One, on the ESG front, CRISIL has assigned a strong rating to 360 ONE. The score that we've got is one of the highest among wealth and asset managers in India, and it's reaffirming our strong commitment to the long-term ESG practices that we've been undertaking. And secondly, we are very proud to be recognized as the Best Private Bank India by Asian Private Banker's Awards for Distinction in 2024. We understand it's a marquee award and we've won it many times over the last few years, and we continue to be very proud recipients of this award. So with that, I'll open it up and request Karan to come in and share his thoughts on the business as well as on the transaction.

Thank you, Sanjay. Thank you, Anshuman. Good evening, everyone, and I'll take 2 or 3 minutes to just talk about the 2 businesses, wealth and asset management and potentially another couple of minutes on our acquisition of B&K Securities and then we'll open up the floor for question and answers. So I think over the last quarter, pretty much like we've seen over the last 6 to 9 months, I think the level of activity both on the wealth management business as well as the asset management business continued to be quite strong. Obviously, I think a little bit of tiredness with clients, especially on investing on the equity side. Generally, as a firm, we've been a little conservative on the -- on new incremental allocation to mid caps and single stock ideas. I think clients are today more or less sitting with a little bit of liquidity hoping and anticipating and having the ability to invest over the next 3 to 6 months. So overall, I think while we remain fairly optimistic about the market, I think most of our clients are extremely well set and have a fairly large inclination towards having a portion of the portfolio in fixed income and continuing to invest with the right sort of opportunities over the next 6 to 12 months. On the business structure side, on the wealth management side, I think the mantra for all large clients continues to be more on the advisory side. There's a whole breed of new clients who are focused on the orientation of building up a family office. But looking out for bespoke players like us to provide them the right set of advice and opportunities where they can transact and match their asset allocation together with their complex needs in terms of tax structuring as well as other ideas. In terms of geographical expansion, I think that effort continues. I think still a tough job to get the right talent matched in every location. But I think we've come a long way over the last 12 to 18 months. And today, we have the ability to identify 1 or 2 people in each of these locations who are able to carry the brand 360 ONE to clients in an effective manner. On the asset management side, our competitive positioning on the alternates continues to be fairly strong. We managed to close our -- we closed our new Special Opportunities Fund at a total of INR 5,000-odd crores, a very, very good number. Performance for all the last 5 funds has been stellar, SOF 9, 10, 11 and 12 all the last 4 versions are continuing to run at IRRs in excess of 25%, 30%, 40%. And I think our ability to attract clients on a repeat basis to these strategies continues to be strong. We've also started a sector-focused private equity funds, especially in the space of financial services, health care, tech, consumer and health care. These 4 is where we are starting out. Our financial services fund, the first one which we did 2 years back is running at an IRR of 40%, 45%. So very upbeat on that. And we've just launched our first health care fund, which will close at roundabout $100-odd million. So on the alternate side, I think the space on both on private equity as well as on yield assets continues to be fairly strong. We still continue to be largely financial investors as opposed to being operators on the alternate asset side. So while the net flows look a little muted, it's still a function of the INR 1,000 crores of net outflows, which we have from the earlier investments getting over. But overall, the gross flows continue to be fairly exciting. On the listed side of the business, we continue to maintain our -- maintain a fairly healthy mix in terms of retentions and the right set of clients. We are optimistic as time goes by, again, over this next 6-odd months, we're sure, out of the institutional mandates we've been covering, we'll definitely cover -- convert 1 or 2. And over a period of next 12 to 18 months, even though the sales cycle for some of these mandates are long, we continue to be very well engaged with some of these institutions to enable the right set of net flows to come in. On the supplement business, on the wealth management side, obviously, I think equity brokerage per se has been one of our -- one of the businesses where we've potentially not fired to the full extent. I think our equity brokerage revenue numbers have been roundabout INR 60 crores to INR 70-odd crores over the last 3 to 4 years coming largely from our ultra-high net worth and high net worth clients. While we don't plan to change that, most of these large clients of ours were trading maybe potentially with other brokers and competitors. And we really didn't have the right research product. So the first thing, really, this acquisition B&K Securities does for us for the existing business of 360 ONE is very, very strongly adds a research product to the entire platform. And most importantly, it creates a very, very powerful flywheel of offerings to deliver exceptional value for our clients. And like some of the large global private banks, especially for clients who are above $500 million, it ensures that we have the full flywheel of being able to cover all aspects of offering to our clients, whether it's on the lending side, whether it's on the equity side, banking side and most importantly, on the wealth management side. The corporate treasury business, again, a business which we've not kind of traditionally focused on, but a fairly sticky business. B&K has built it extremely well, more than close to roundabout INR 15,000-odd crores of AUM with a very steady flow of roundabout INR 40 crores to INR 50 crores of annual trail revenue on the mutual fund side. The strategic acquisition is kind of poised and we like it over -- for 4 or 5 primary reasons, and I'll kind of spend 2 or 3 quick minutes on it. The first and most important reason is it gives us expanded research leadership. The coverage of stocks ranges from 450 to 500 stocks with a specialized focus on DIIs. As Anshuman said, one of the top quartile rated analyst teams in the country. But most importantly for us, it's a very aligned culture and expertise. We've had the opportunity to spend a lot of time with the team and pretty much like us, they're very, very focused, spend a lot of time on ensuring that they deliver the right value to the client. And there's a 24/7 penchant on ensuring that all queries, all things concerning the client are addressed absolutely immediately. I think Saahil's built the business and transformed it over the last 4, 5 years. And most importantly, the transaction envisages him to continue over the next 5 years with a large part of this consideration invested back into the 360 ONE stock. Obviously, with the addition of a little bit of enhanced capital and balance sheet, our ability to attract and serve a wider institutional client base under the ages of 360 ONE will also get enhanced. For us at 360 ONE, obviously, it allows us to fill the missing gap with cutting-edge research and strong investment banking footprint. But most importantly, it also gives us much more deeper engagement with our promoter families and helps us serve them across the entire cap table. On the corporate treasury side, also the existing relationships as we supplement and add our wealth management platform and the fixed income desk to these set of clients, we believe we'll be able to monetize these clients substantially better as opposed to the INR 40 crores to INR 45 crores of treasury income, which is -- of treasury mutual fund income, which is currently being generated by these set of clients. For us, this acquisition marks a significant milestone and ensures that we will be able to create a flywheel of offerings to deliver exceptional value to our clients. So overall, a fairly robust quarter, while capital markets, obviously, over the last 15 to 20 days, have been slightly soft. Overall, for us, I think net flows have continued to be strong and both -- on both the businesses, wealth and asset management. We continue to be extremely excited over the next 12 to 18 months. With that, I'll open it up for your questions. Thank you.

Thank you, Karan. [Operator Instructions] First on the line, we have Mohit Mangal.

Yes, am I audible?

Yes, Mohit, you're audible.

Yes. Congratulations on a good set of numbers. So first on this acquisition, I mean, if I look at last 2 to 3 years, we have acquired ET Money, Mumbai Angles and now B&K. So just wanted to know, I mean, I understand that they supplement the wealth management business. But do your focus is building on a holistic financial services company? And maybe it would -- no surprise that you would continue with such big acquisitions?

So I think, as I said earlier, I think we have to complete the platform of offerings to the clients. And I think if I was to look back over the last 24 to 36 months, this was a missing link, especially both on the research and the capital markets side. I think if I was to look at our client offerings, we were potentially missing that gap. We were leaving a gap open for our competitors to get in. And in a lot of cases, some of the -- some of our competitors were able to use the -- use that to kind of enter into the relationship. At the same point of time, we have phenomenal promoter connects and not being able to take advantage of those connects and ensure that we're able to build a deeper relationship with the client. Because one of the best points to build a relationship with the client is obviously at the point of him kind of raising some capital. So I think that's something which we were missing. From a focus perspective, obviously, I think it's not something which we can -- today, just given the specialization on each business, it's not something which we can build absolutely ground up from day 0. And I think that would consume a lot of our own management time and bandwidth. So it's very important for us to be -- for any of these acquisitions to work, it's very important to find the right team on the ground, not only the right team, but also the right product in terms of research. And thirdly and most importantly, both in terms of culture alignment, retention and the ability to work together for the long term have to come through. And I think only if these 3 things can fall in place it can have a multiplier effect. So while acquisitions can or cannot work out, but I'm quite confident on this largely because of the amount of time we've been able to spend with each other and understand each other's business. So while 360 ONE remained super sharp, razor focused on the wealth and the asset management side, I think I can say the same thing for B&K on the equity side. And therefore, I think as long as there's a cultural fit, I think the sharp focus and the right time for management allocation between the 3 businesses will continue.

Understood. So do you have anything more in the pipeline currently?

No, not really.

Okay. Now coming to business, 3 major questions. So first is on other income. So markets were down, but if I look the number, that was up both sequentially as well as annually. So what could be the reason for that?

My other income for us to -- on the listed exposure is roundabout only -- if I'm not wrong, roundabout INR 260 crores, INR 280 crores. Our large exposure is to fixed income and unlisted equity. So a little bit of the -- a larger part of the uptick typically has happened on the unlisted equity side, and we have a couple of investments and yield instruments, which kind of got converted to kind of listed InvITs and listed REITs. So if you look at our alternates exposure of roundabout INR 1,800-odd crores, which forms the bulk of our other income. I think less than 14%, 15% is in listed equity. The remaining 80%, 85% is really in yield assets or late-stage private equity.

Understood. In terms of net flows, I think we were good at around INR 20,000 to INR 23,000-odd crores and maybe the guidance for INR 25,000 crores, INR 30,000 crores for the entire year would be met. So do you have any internal targets in terms of financial year '26?

Honestly, Mohit, I think we could have done slightly better on net flows to be honest, for the year. I think while our target was INR 25,000 crores, INR 30,000 crores, I think we should have been closer to INR 30,000 crores, INR 35,000 crores just given the kind of year it was. But I think, honestly, would want to keep that track of being able to have roundabout 10% to 12% of AUM added through net flows. So if you were to start the year -- next year, including the mark-to-market and stuff like that, the INR 25,000 crores, INR 30,000 crores would need to equate to roundabout the INR 30,000 crores to INR 36,000 crores, INR 35,000 crores to INR 40,000 crores number to be able to kind of match the 10%. Because to get to the 20%, 22%, 25% AUM growth, we need to do the 10% to 12% AUM growth on the new base. And obviously, 10-odd percent, 8% to 10% can happen through or maybe about 10-odd percent from mark-to-market over a period of time. So the only way to get to the 20%, 22%, 23% AUM growth is to ensure we get a 10% AUM growth on the opening base.

Right. No, makes sense. Lastly, in terms of attrition, RM or client, over the last 9 months, did you see anything unusual? Or was it business as usual?

No, we've seen a little bit of an incremental attrition in our north -- on the north side of our business on the wealth management side. So a couple of leadership changes we had to make -- which we had to make more driven out of our own business priorities. And that kind of resulted in 6 or 7 wealth managers moving out of our Delhi office. So that's the only place where we've seen incremental attrition but well under control. I think we obviously have 130, 140 senior bankers across the country. And in that sense, we have 4,500, 5,000 large families above INR 10 crores. So in terms of the ability to capacity to serve those clients is well established. So I think from a business perspective, I think Delhi itself might see a 3% to 4% or maybe 5% maximum reduction in revenue. But at the same point of time, we've attracted a whole host of people from other private banking platforms. And as we've kind of ended up adding new senior folks in our north market over the last 45 days, I think over a period, maybe by April, May, June, we'll be old team strength, plus 10% to 15%. So I think overall, I personally think north will end up at maybe from a revenue pool of roundabout INR 160-odd crores, it will end up at 40% to 50% higher over the next 2 to 2.5 years. So I think you will see a temporary blip of 5%, 6% there, but nothing beyond that. And from a client attrition perspective, we haven't seen any large trend yet. I think clients are pretty much still intact. Maybe 3 or 4 families, we'll see attrition. But largely, I think client-wise, it's pretty much there. I think for every team which moves out, it's a long process. And I think as they onboard and kind of set up everything, I think the first right to win the client still remains with us. So I think that's really where it is. Outside of that, we haven't really seen any crazy attrition. But please also remember for every relationship, we have at least 3 teams interacting with the client. We've got the investment advisory team, we've got the product team and we've got the relationship team. So as such, it's a fairly comprehensive tight setup. Even today, we've got a couple of really senior folks from Bombay who've relocated to Delhi. And we've got the entire residual RM team plus the new relationship team there. So in that sense, that's the only thing. Outside of that, across all businesses, it's just business as usual. I think that's the only geography where we've seen some bit of attrition.

Understood. And then lastly, in terms of RM hiring. So what are the plans for financial year '26, sir?

I think conservative. I don't see us hiring like crazy. I don't think so the business is any more about just adding relationship managers, I think it's about adding the right set of relationship managers. And I think the industry on the wealth management side, my personal view is will consolidate a lot over the next 12 to 18 months. And there is a -- there has been a little bit of competitive excess in the industry over the last 6 to 8 months. And that's kind of got set off a bit with a whole host of transaction income and selling of unlisted stocks and ideas. And that obviously can't continue perpetually. So I think just going out and building cost models, which need to be offset with that income or other income is not really going to kind of play out over the longer term. So I think -- as a firm, I think we'll grow steadily. I think, to be honest, roundabout 8 to 10 incremental hires in North. Outside of that, we'll still continue with the same pace of adding roundabout 15 to 25 bankers. So if you ask me, I think in total next year, we'll add roundabout 20 to 25 bankers, which is roundabout 7 to 8 more than what we would normally do, which is largely replacement hiring.

[Operator Instructions] Next in line, we have Prayesh Jain.

Karan, can you hear me?

Prayesh, how are you?

I'm good. Karan, just firstly on this acquisition, we've been talking about the ARR growth and the -- we would be kind of sticking to the high share of ARR revenues in our business model. But as I understand, both IE, IB have a very high transactional income in fact, they are transactional in nature completely. So that does change or alter the way we look at 360 ONE as a whole with respect to how the ARR versus TBR will kind of move going ahead? And just on that bit, again, if there is a possibility you can share us the revenue breakdown between IE, IB and the treasury of B&K Securities?

No, so I think I fully agree with you. I think we are very, very conscious of that split. But I think from a change in revenue mix, I really don't see too much changing just given the overall size of our ARR growth in ARR and the TBR mix. So just to put things in context, I think out of our overall revenues of approximately, give or take, INR 2,500 crores, INR 2,600 crores in a year. Today, roundabout INR 1,600 crores to INR 1,700 crores is on the ARR side, which is approximately 65% to 70%. And the transactional income, obviously, has been exceptional last year. It's been close to roundabout INR 700-odd crores. But like I've said many times, I don't think so that's possible to sustain. I think the INR 700 crores in most markets would be close to INR 450 crores, INR 500-odd crores, or INR 125 crores a quarter or INR 130 crores a quarter. So I think this year, we have INR 150 crores, INR 175 crores of transaction income extra. And I don't think so that sustains in every market. Obviously, last 9 months and the 12 months before that, the markets have been under there. So I think honestly, for me, this -- the brokerage revenue of B&K together with our transaction revenue more or less remains at the same amount for the next year. So the current revenue -- transaction revenue number of INR 700 crores, INR 750 crores, maybe potentially comes down to INR 500 crores, INR 550 crores, and we add now roundabout INR 200 crores, INR 250 crores of brokerage income from B&K next year. Whereas obviously, the ARR income continues to grow in a fairly steadied manner at that 12% to 18% every year. So overall, if you see just at INR 2,800 crores and you add another INR 200 crores, INR 250 crores of transaction revenue and reduce INR 150 crores of transaction revenue and add the ARR, I think our transaction revenue will continue to be in that subset of roundabout 20% to 25%. And I think all global benchmarks, broadly speaking, 2 things you would like to follow. We'd obviously like to grow our ARR revenue significantly. And the 2 numbers, I think we'll want to track is we'll want to ensure our TBR income is around the 20%, 22% range. Our net interest margin also is around the 20% range. And the rest of the income, which is your wealth management advisory income, your asset management fee income and the wealth management distribution income, that accounts for roundabout 60% of the income. So just from a block perspective in terms of quality, health of earnings and health of revenues, that's the mix we would like to see. So roundabout 60% coming from fees charged to the client plus the trail earned by the -- from the manufacturers, maximum of 20% coming from net interest margin and a maximum of 20% coming from TBR. So that's the long-term plan. Obviously, there will be years where this gets a little distorted. So for example, last year, just given the way the markets are, the TBR has increased a bit. But generally speaking, the 2 numbers which we'll want to ensure are not more than 20% in NIM and not more than 20% in TBR. On the mix of revenues from B&K perspective, out of roundabout -- revenue of roundabout INR 250 crores, INR 260 crores, nearly 80%, 85% is coming from institutional equities, only approximately 4% to 5% currently is from investment banking and approximately another 17%, 18% comes from mutual fund distribution. So actually, if you see the mix of revenue there also, obviously, the investment banking mandates can tend to be the most episodic and cyclical. That itself is less than 2%, 2.5%, 3% of their revenues. Institutional equities makes up the bulk of it, which is roundabout 75% of the revenues. Obviously, that can also have a direct linkage to the market, but it's not as cyclical and binary as the investment banking mandates. That's obviously a bit of a flow business, but they have a very, very strong client base, both in terms of domestic mutual funds, insurance companies as well as FIIs. And lastly, I think the corporate mutual fund distribution business is obviously fairly unique. They would be, I think, among the top 3 players in the country. And the mutual fund trail business of INR 40 crores to INR 45 crores is extremely sticky. So overall, I think if you look at the business, I think the institutional equity brokerage, I wouldn't put it in the same cyclical bucket as much as investment banking. And overall, if I look at the pool of our own revenues, I think we'd still be roundabout 60%, 65% ARR, 20-odd percent net interest margin and 20% transaction.

Got that, that's pretty helpful. Just on the core business front, how has the -- probably we've seen almost a month now in January? How has been the customer behavior and -- with respect to flows or anything that you can help us understand what's happening given the sharp market corrections we have seen?

No, Prayesh, I think very difficult to call it out. But I think generally speaking, clients are comfortable right now. I think generally speaking, everybody. And if you see our asset allocation committee notes and all the releases we've made over the last 6-odd months, we've advised clients to have anywhere from 10% to 30% cash. We've been underweight mid-caps for now, maybe more than what we should have been, maybe roundabout, I think, 9 months to 15 months, 9 months, more or less, actually 9 months to 12 months. So obviously, you can't get these things right. But I think generally speaking, our average client is having a lower weightage, lower allocation to mid-caps and potentially sitting on 10% to 30% cash. I think is there a frenzy and a hurry to invest that 10% to 30% cash? The answer is no, okay? So I think clients are still kind of looking out and waiting out for the right set of opportunities. Having said that, obviously, is there a concern on the flurry of activity continuing -- of becoming lower? I think the markets continue to kind of head one way, and there is a fair degree of volatility over the next 30 to 45, 60 days, you might see the level of activity come down a bit. But overall, I think most of our clients are in a fairly comfortable position. And I think I wouldn't say they feel that this is yet the best time to kind of come in with that 10% to 30%.

Got that. Just slipping in one more, Anil, if you -- Anil, permits. How do you look at cost to income with this acquisition, and whether there are any...?

No, no, nothing different at all. I think the new acquisition is also working around the same cost to income, I think in the 45% to 47% zip code. So I think there's really no change there. I think broadly on a INR 240 crores to INR 250 crore top line, roundabout INR 105 crores of profit after tax. So give or take a very, very similar very, very similar cost to income. And as I said earlier, a very, very similar way to do business. So I think from a cost-to-income perspective, we really don't see any change at all.

Thank you. Next in line, we have Nidhesh Jain. We'll move to the next caller, Jayant Kharote.

Congrats on the good set of numbers, Karan. Firstly, on the distribution flows this quarter, it's around INR 14-odd billion. I see last quarter we had a number here, but barring that one, it seems this is the sort of run rate we've been having. To sort of move next year's target of net new money north of INR 30,000 crores, this number needs to move up quite meaningfully. So what do you think is lacking and what can be done?

No, so I think this number will benefit a bit from our full HNI launch, to be honest. I think that's something which should spur up this number quite a bit because on the ultra-high net worth launch, obviously, I think -- on the ultra-high net worth side, the AUMs now, especially the net new flows is getting split in the -- very constructively in the first line instead of the second line. So I think the second line growth really comes from the HNI launch a little bit more than the first one. And I think also kind of comes in a little bit -- I personally feel it will come in a little bit more also from the alternate side eventually because right now, it's not showing up in the numbers because we've nearly, I think, INR 4,500 crores, INR 5,000 crores of net outflows on the alternates because of the redemption of the earlier funds this year. So I think those 2 things will help kind of grow the distribution assets earning trail fees. Pure, pure mutual funds from ultra-high net worths increasing the distribution assets is extremely unlikely. I think that line item is getting divided between the first line and the second line. So I think our HNI piece together with the continued focus on alternates will lead to the right growth in that line item.

Great. And just, again, second question following up on the alternates itself. Drawing into your experience here, how do you think this plays out let's say if this year, markets are sideways, Jan is sort of a trailer over there? How does the alternates market behave in this environment? Do you see that cash deployment first moving towards alternates or the mix doesn't change really?

No, honestly, I think the mix won't change. It will change within alternates. So maybe private equity allocation slightly lower, yield asset allocation is slightly more, operating assets is slightly more, real assets is slightly more. If interest rates remain stable and around the same levels, I think you'll see yield assets becoming quite interesting. So overall I think alternates will continue to be interesting. You might see the launch of the small mutual fund, in which case, the entire long-short strategy will come into place. So I think in general, alternates will continue to be interesting. I think the broader mix between private equity, credit, yield assets and listed equity will keep changing. But I think there are enough ideas and enough traction for different areas. For example, we are going to launch our next fund, but it's largely focused on multi-asset. So it's not only focused on private equity, but the first 3 transactions we've done are kind of more on the yield side as opposed to being on the equity side.

Sorry, just one follow-up on this one only, alternates. The gross flow number that you mentioned, is that stable Q-o-Q adjusted for the redemptions in the distribution assets in the alternates piece?

I think it's -- I think last 2 quarters have been better, but I think I would put it in the same sip code plus/minus 10%, 15%.

So once the redemption cycle gets over this number should start...

Yes, it automatically will start working, yes. We had exceptional redemptions this year, right? Because I think we started off with a INR 6,000 crore fund in 2017, '18, onetime fund. And we've returned, I think, close to around about INR 12,800-odd crores, if I'm not wrong, roundabout INR 13,000 crores, or slightly more, INR 13,500 crores, of which INR 12,200 crores of redemptions is already there, and we have another INR 1,000 crores, INR 1,300 crores to go.

Next in line, we have [ Sandeep Jain ].

Yes. Am I audible?

Yes, Sandeep, you're audible.

Yes. A couple of questions. First, on this convertible debenture -- convertible warrants which we will issue to the promoter of B&K. Is there any kind of time line when it will get converted into the equity? Or is there any time line kind of locking period and all?

It's just a normal warrant 18 months and this thing, at the prevailing market price, yes.

Okay. At the prevailing market price kind of thing. Okay. And second, the cash payout of INR 200 crores, which we are saying to link to achievement of financial target. It is a kind of equivalent with every year or something like it's a barbell kind of thing?

No, it's at the end of the fourth, fifth and sixth year.

At the Fourth, fifth and sixth year...

That's -- this is -- it is basis certain set of number of achievements and so on and so forth.

Got it. And 1 question in terms of acquisition strategy here, right? So if I look at the last 1 or 2 years like in the first question, it has been asked you acquired ET Money, you acquired this. Means, as a whole, where we are going, means, if I look at the B&K, 85%, 90% of the revenue comes from the -- largely in terms of the broking income, right? And in terms of -- we are saying the synergy in terms of acquire the corporate account or kind of treasuries and all those things. It doesn't match kind of thing when we are saying that -- yes.

So I think every business across the world effectively, if you just look at all the large private banks, there are 3 lines of businesses. There's the capital market business, there's the asset management business and the wealth management business. These are the 3 businesses. So I think these are 3 businesses. And all the acquisitions and everything we've done is either within this business or it's expanded the segment horizontally. So when we go to -- when you talk about ET Money or you talk about any of the acquisitions there, it's essentially a horizontal expansion of the segment, okay? So we could be moving down and up the segment within the same offering. Similarly, on the asset management side, obviously, you've got alternates and mutual funds, which are 2 different parts of the offering. And third, you've got the capital markets space. Within the capital markets space, obviously, you've got different segments to operate again. I think it happens to be institutions as well as high net worth individuals and family offices. I think high net worth individuals and family offices in a certain small way already existed in our wealth management business. The institutional piece didn't exist in our business. And I think together with B&K, we'll see how to build out the investment banking piece in the best possible way. And if you see globally also, if you see the bigger -- let's say, just for example, if you look at UBS, you look at Goldman, you look at all of these private banks, all of them would have these 3 businesses. They would have wealth, asset as well as the capital market business.

Okay. No, so the point which I'm trying to make here is that when we have kind of demerged from the erstwhile IIFL, right, it was supposed to be a pure-play wealth management game. So Karan, I'm just -- don't get me wrong, but what I'm trying to understand here is that in terms of getting the funnel, do we need this kind of acquisition more in terms of getting the client HNI and all these things? Because at that point of time, the -- maybe my perception was it will be a pure-play wealth management business and all this thing. So funnel is getting...

Yes. So I think I don't look at it that way, whether we want to be a pure manager -- the first question to answer is what does the client need? And how do we complete the client's platform actually. So I think for me, honestly, the first question to ask is, am I able to serve the client at a 360 basis? And where are we missing out from a client platform perspective? That's the most important perspective. And honestly, for me today to serve my clients, especially the client who is $500 million plus in net worth in terms of financial -- not necessarily in terms of financial assets, but even business assets. It's an important part of the offering. And for us, we honestly -- rest of the things, whether we are a pure play, how does -- everything else has to follow. The first thing obviously is the requirement of the client. And today, if I -- I just keep using the word flywheel, but when I look at the client proposition and what we need to deliver to the clients, I think that's a missing piece, which we would like to add.

Thank you. Next in line with Dipanjan Ghosh.

I hope I am audible?

Absolutely audible.

So just a few questions. First, if you can give some color on the variable payouts, excluding the acquisition, how do you think it to be shaping up for the next year? Obviously, you acquired a few teams last year. Some of them would have scaled up. TBR was quite strong this year, as you said, that ex of B&K, obviously, this run rate may not be sustainable. So I just want to get some color on how the entire scorecard-based model is working out and how do you see the overall variable payouts? And if you can just quantify what can we built in as ESOP expenses maybe a year out from now? And the second question is -- sir, yes, please.

No, no please, please, please carry on.

Yes. So just one more question, which is more on the -- obviously, it has got asked multiple times in the call. In terms of the client sentiment, what we see is that the number of high-quality client additions during the quarter was tad lower than the run rate we have been seeing for the last 2 quarters. I think 60 clients got added this quarter versus a little bit more maybe in the last 1 or 2 quarters. So incrementally, the markets were to remain the way they are. But on the other side, you have been expanding geographically, adding new teams, the existing teams scaling up, the HNI proposition kind of rolling forward from April onwards. How do you see the new client addition run rate maybe shaping up in the next year?

No, so I think both fair questions. I'll start with the -- sorry, yes. So the first question, I think from a variable and a bonus payout perspective, I think broadly, this is the way we look at it. I think the current year and current year has had a slightly larger tinge of variable because we've changed the method of payout. But largely speaking, I think approximately our current design plan for the next financial year would be approximately INR 150 crores of fixed cost per quarter, which will translate to roundabout INR 600-odd crores a year. You'd see roundabout 40% to 50% of that express itself through variable bonuses. Obviously, why I'm saying 40% to 50%, it's a bit of a function of the way the markets are. I think obviously, if things are absolutely not in the right direction, then the number can come off to 30%. But typically speaking, more often than not in the region of 40% to 50%. And then you've got an ESOP cost of approximately INR 100-odd crores across the P&L. So approximately, you see employee cost, say, it's in the region of at the very least, INR 950 crores or close to roundabout INR 1,050-odd crores. That's really the employee cost. Obviously, there are certain productive efficiencies, there will be a salary hike and stuff like that. So I think all absorbed put together, we see it between INR 950 crores to INR 1,050 crores. Again, obviously, if we add some crazy teams, maybe a INR 50 crore number extra. So I think absolutely south INR 950 crores, absolutely on the north side, roundabout INR 1,100-odd crores. So that's the salary cost. And I gave you the breakup of the 3, which is the fixed variable as well as the [Technical Difficulty] and I think this INR 1,100-odd crores or INR 950 crores to INR 1,100 crores broadly should represent approximately 34%, 35-odd percent of the overall revenues of the firm. There's a...

And on the client addition part...?

The client addition and net flows, I think, honestly, I think as I said earlier, I think slightly lower than what I would have liked. I think flows could have been between the INR 27,000 crores, INR 28,000 crores and INR 35,000 crores number as opposed to the INR 22,000 crores to INR 24,000 crores number. I think maybe 2 or 3 things there. I think one I think generally speaking, last couple of months, I think a little bit of longer time taken by clients to kind of come back into financial assets, especially equities. There's been a little bit of hesitation just given the market valuations. And secondly, I think from a business perspective, obviously, we are coming off from a fairly high base. So that's the only thing. But otherwise, I think most of our actions on both the high net worth piece together with expansion of the geographies should start playing out. And our initiatives on growing both of these will more than supplement, I think, a little bit of -- I won't call it lethargy, but a little bit of slowness in the market. So overall, I think as I said earlier, there will be a little bit of consolidation in wealth. But I think given the fact that we've kind of spent a lot of time building some of these things out over in the last 12 to 18 months, I think even in flattish markets, we may not be able to grow phenomenally. But even in flattish numbers, I think coming off a higher base, we'll still be able to maintain the high base even on things like number of new families and net flows and so on and so forth. I think the only metric which definitely kind of comes off a bit is the transaction and brokerage revenue that obviously, I think can't necessarily sustain at the same level.

Next in line, we have [ Devrath Mahuta ].

Firstly, congratulations on a good quarter. I just have one question. I mean, obviously, markets have been strong, barring the last kind of 3, 4 weeks, markets have been so strong. So is there -- I mean, is there a risk that you're buying B&K at kind of peak cycle? I mean for a brokering business, you're sort of on peak cycles. Is that -- why do you think that's not the case? Because I mean, obviously, your own transaction income has been super strong. So I presume B&K also would have had a similarly very strong earnings. And if for some reason, kind of markets come off, like is there a risk that you're probably -- optically valuations look cheap or reasonable on a trailing basis. But if you're on peak earnings, then it might end up being that you're shipping more than what it looks like on the earning base?

No absolutely, right. So I think there were 3 points there. I don't disagree with you. I think -- but we need to just kind of counterbalance it with 3 things. I think first, obviously, while transaction and brokerage income is a fairly wide term, I think the quality of income within the transaction and brokerage income is also something which we need to kind of measure. So obviously, there's one part of transaction income, which is a onetime income on selling some unlisted shares or doing a certain transaction. The other part of income within transaction and brokerage income is obviously a repetitive activity coming out of a relationship and out of a broking transaction being kind of conducted on a daily basis. I think even between the 2, there is a certain degree of difference in terms of variability. I think in B&K specific case, I think a large portion of the -- not a large portion, practically, 97 -- 95% to 96% of their revenues currently comes out of the second portion and not out of the first portion. So while it will be linked to the market cycle, I think the general variability between the 2 will be lesser compared to any other, let's say, capital market player focused on ECM. So that's the first thing. Second, I think, obviously, while doing the acquisition, a lot of things have to align together. I think not -- maybe possible that earnings come off by 10%, 15% in a very worst case. From our assessment, obviously, just factoring in all the 4 or 5 synergies which we have to, our business as well as the synergies we can add to the B&K business. We at least feel from a management case perspective, on a stressed basis, we should be able to add 30% to 40% to the earnings. So honestly, I think from our perspective, the way we are looking at it synergistically, I think we should be able to make the multiple even substantially more attractive than what we've kind of acquired it for from a trailing basis. And thirdly, I think, obviously, we'll need to kind of -- some of these things to acquire need a lot of stars to align in terms of both culture, in terms of the likeliness to do business together, in terms of being maybe positioned as in a leadership position for both the businesses. And most importantly, the will and willingness to kind of build this together for the long period of time. So I think overall -- and that obviously kind of plays into the synergies and really expresses itself extremely well over the next 24, 36, 48 months. So potentially, it's possible at the very, very worst case, if the markets really go into a total tailspin that we ended up paying a little bit more. But just given the synergies and where we are, I would be really surprised. I think in most probability, the answer would be no. And if at all that happens, over a period of 24 to 36 months, I think both the businesses have from a culture perspective and synergies perspective to add so much that it will end up being in a very, very good position. That's really what we feel.

Thank you. Next in line, we have Abhijeet Sakhare. Next, we have Sanketh Godha.

Yes. Karan, means on a fully diluted basis after warrants get converted into common equity. So the dilution comes closer to 3.3-odd percentage. That's a fair math?

Yes, approximately.

Yes. Okay. And I just wanted to ask second question and it's out of INR 2,250 crores of QIP what you raised, probably you will end up using INR 700 crores over a period of time to consume this acquisition. So is it fair to assume that the NIM, which we was expecting to improve because of QIP might not play out to that extent? And second, just -- and maybe I forgot to ask, but how much time you will take to consume this acquisition from a regulatory point of view, whether it will get reflected fully in '26 or somewhere in '27?

No. So I think it will take roundabout 4 to 6 months to kind of consume in terms of transaction. I think just given our historical experience, 4 months is the right time line to plan for but sometimes it can take a month or 2 more. So I think at the very least, I would say, 3 months at the outside, I would say, 6 months. I think from a business perspective, the way we've kind of set out the transaction is, I think all the accumulated earnings outside of INR 200 crores within the B&K profit and loss account till 31st March stays out of the transaction post 31st March kind of comes into the 360 ONE kind of -- so it just adds to the net worth and reduces the consideration value. So from that perspective, may not fully reflect into the financials in '26. But definitely, from a valuation perspective, that's the way it will kind of get reflected.

And on the NIM part, does it impact...

So NIM, I don't think the NIM gets impacted much, but I think the INR 700 crores, obviously, we've got a design and plan to kind of reduce our allocation on the alternate side. And I think as we build it out over the next 12 to 18 months, I think our sponsor commitment remains more or less flattish and comes down towards the INR 1,400 crores, INR 1,500 crores. So I think it reduces the other income by roundabout 8% to 9% of the INR 700 crores. So in that sense, it will have a PBT impact of INR 50 crores to INR 60 crores and a PAT impact of INR 45 crores to INR 50 crores.

Got it. Perfect. And just your flows numbers, which are INR 5,900-odd crores in the current quarter. Just want to understand, do it still have any component coming from HNI or global? Or it is predominantly pure, pure wealth HNI -- ultra HNI I mean to say.

Right now, predominantly ultra HNI. I think the flow of high net worth and global would be both put together roundabout INR 700 crores, INR 800-odd crores. So it's 0. It's roundabout 10% of the flows, but a large 10%, 15% of the flows, but a large portion of the flows continues to be on ultra-high net worth. I think, honestly, you'll see the -- we definitely expect the high net worth and global flows to show up fully in FY '26 and definitely from quarter 1 of next year.

So the INR 700 crores, INR 800 crores for the full year, potentially would be like a guess estimate 3x, 4x in next year? Means what you intend that number to be?

Should be at least 3x, yes.

Okay. And last one, see last quarter, we highlighted that some broker code change, regulatory change helped a bit in flows to improve for us. So given the flows numbers compared to last quarter, it is relatively weak. So has it played out largely in Q2? Or do you expect this to flow out in subsequent quarters?

No. So it continues to help every quarter a little bit. I think what we were also talking about last quarter were not only the flows, but also the -- well, there's a little bit of improvement, which we'll see sequentially on the ARR side and -- on the mutual fund because after broker code change after 6 months, the new broker starts getting the mutual fund commission. So even though the AUM starts reflecting, the trail commission doesn't really increase for 6 months. So that's something which will reflect over -- a little bit over the period of time. The AUM shift after the first 6 months becomes pretty much business as usual because the clients have kind of moved in the first 6 months itself. But the revenue to come in kind of takes a little bit longer.

Okay. But have you seen -- given the rules have been changed for almost 9, 10 months now. So in third quarter, did we have any revenue accretion because of broker code change? Do you have a number in your mind, if you remember it?

No, I think it's roundabout 0.5 bp to 1 bp overall increase in the ARR. Total increase in ARR is 2 basis points and a small bit comes from this.

So 25%, 30% contribution came because of this delta improvement in the ARR.

Yes.

Thank you. We'll take a question from Abhijeet Sakhare. I request [ Bhuvnesh Garg ] to kindly ask your question.

Yes. Am I audible?

Yes, [ Bhuvnesh ].

Sir, 2, 3 questions from my side. Firstly, on B&K acquisition. So I just want to understand the thought process behind it. Was there any other player that you were considering during the acquisition? And since you are saying that one of the objective for acquisition is that clients were getting foothold on capital raising side. I mean, since you didn't have the capital raising proposition for your clients, now you are having it. But since the B&K has only 5% of its revenue from capital raising part of it, IB part of it. So just if you can just share your thoughts on this and what was the thought process on this?

No, I think nothing really different to add, [ Bhuvnesh ], I've already kind of spent some time on it. But largely, I think 3 portions. One obviously is ensuring that we are able to complete the flywheel with the client. Second, on the banking side. And obviously, while banking, we've still not built out a team within B&K, but research is a critical part or it's an input to the product. So without having the strongest part of any franchise would need all 3 to come in. It would need research as a product. It would need the promoter relationships. And thirdly, it would need access to both domestic as well as foreign institutions. I think between the 2 of us, we get all 3 on the table. And secondly, I think, obviously, as I said earlier, it complements our high net worth brokerage offering also very well. And that's been a bit of an area of improvement for us for a long time. And without having the right research product, it's tough to kind of take it to the market. So I see some good amount of ability for us to be able to increase our equity brokerage on the wealth management side. And thirdly, on the corporate treasury side, so I think we should be able to add a lot of value and be able to monetize those corporate accounts better. And fourth, I think a little bit of addition of balance sheet to the brokerage business, so B&K will allow them to kind of even leverage their current research team better and be able to serve some larger clients on fairly different -- on different platforms and different products. So these are the 4 immediate synergies I can think of.

Okay. Understood. Second thing on the interest income side. So you mentioned that you want it to be 20% of the revenue. So is it only driven by the contribution of revenue? Or is there any other parameter to drive your loan book? For example, next year, your transaction income, say, would be lower. In that case, would your interest book also be stable? Or are you looking it to grow further?

No, it's not like that. We can't really plan it that way. It's not -- I think this is an output. It's not really an input. I think -- so for example, if you see our loan book typically tracks our wealth management AUM. So our loan book typically tends to be 2.5%, 3% of the wealth management AUM. And we typically have a 3% to 4% NIM there. So effectively, if you do a reverse calculation on the overall fee revenue, you end up at roundabout 15% to 20% of the revenue pool on the net interest margin side. So that broadly see that -- when I say it suggests a good quality of mix of revenues, what I mean to say is that's healthy growth because as your AUM is growing, your loan book is also growing in the right proportion. That's really what I meant by saying net interest margin book should be around the 18% to 20% mark.

Okay. Understood. Understood. And thirdly, on your inflow side. So if you can share some data, what would be our market share in inflows in 9-month FY '25 or versus FY '24, if you can just share some data on that...?

It's really tough to calculate market share, but I think our guess estimate basis what we see with clients, I think our stock of market share would be around 9% to 10% across all active wealth managers. And I think if I was to look at incremental market share, maybe we are slightly higher. We're in the 14% to 15% range. But honestly, this is just -- this is the feeling we have versus what we see on the ground in terms of competition. On the wealth management side, really tough to calculate market share on the day to day...

Yes, yes, that I understood. So incrementally means 9 month FY '25 over FY '24...?

Yes.

Okay. Okay. Understood. And thirdly, any data on any revenue -- any revenue you are getting from ET Money side? And what's the plan there with ET Money?

No. As I said earlier, we've not -- we've just got approvals for ET Money like yesterday. So we've not really kind of consolidated yet. But broadly speaking, I think ET Money's financials have improved a lot over the last year. I think -- broadly speaking, I think revenues have increased a bit, thanks to a little bit of change in regulations as well as a little bit of change in advisory revenues. Cost has come down. So I think the overall burn stands at half of what it was last year. And as we take it over, over the next week or so, we hope to kind of drive it even in a more optimized way.

So any plans from a 3 year to 5 year perspective on ET Money?

No. I think like all our other businesses, we hope to grow it by -- from a revenue perspective by 25% to 35% and maybe since ET Money comes off a slightly smaller base, then grow the profits also at 30% to 50%.

Thank you, Karan. Apologies, that's all we have time for this evening. Thank you for taking time to log on to our call. Have a nice evening.

Thank you, everybody. Thanks for joining in.