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

Good evening, ladies and gentlemen, and welcome to 360 One Wam's Earnings Call for Q2 FY '27. [Operator Instructions] Please note, this conference is being recorded. On the call today, we have with us Mr. Karan Bhagat, MD and CEO; Mr. Yatin Shah, CEO of the Wealth business, Mr. Anshuman Maheshwary, CEO of 360 One Alternates and Mr. Sanjay Wadhwa, our CFO. I now hand it over to Mr. Sanjay Wadhwa to take this call forward.

Thank you, Anil. A very good evening to all the participants. Starting with the macros. Q2 was a quarter of two halves for Indian equities. Benchmark indices, stayed under pressure third quarter weighed down by persistent FPI selling global rate concerns and geopolitical uncertainty. At the same time, domestic flows and primary markets were remarkably resilient. Monthly SIP flows crushed a record of INR 32,500 crores in September and close to 70 companies raised INR 90,500 crores through IPOs during the quarter, including the landmark listing of NSC. We continue to believe that the long-term tailwinds clearly outweigh the near term concerns. Let me call out 4 of them. First, well creation in India. The UHNI segment continues to grow at 30% to 15% and monetization events such as IPOs, block deals, stake sales, keep releasing liquidity to promoters and families. Second, the financialization of savings. SIPs, the newly launched SIF category and democratization of EIF are steadily expanding the investable pool. Third, the shift to professional wealth management clients increasingly want transparent fee-based advice and a growing number of family offices want curated access to opportunities. And fourth, global connectivity. Rested in -- Indians want to invest globally, global institutions are refocusing on India and Gift City is opening new opportunities in asset management and broking. We remain mindful of the near-term challenges, including market volatility competition, evolving regulation and pressure on costs. Our response is to stay the course, give the right advice to our clients while running the business in our shareholders' interest. Now coming to our performance for the quarter. Total AUM stood at about INR 9 lakh crores, up 31% year-on-year. ARR/AUM stood at INR 353,000 crores, up 19.7% year-on-year and IRR net flows of INR 12,482 crores during the quarter compared to INR 10,815 crores in Q1. Clients with more than INR 10 crores of AUM are over 4,100 and account for 95% of our ex custody wealth AUM. Revenue from operations was INR 896 crores, up 17.5% year-on-year. ARR revenue grew 27.5% Y-o-Y to INR 706 crores. ARR now contributed 79% of operating revenues and ARR retention improved to 79 basis points from 74 basis points in Q1, driven by higher carry income for the quarter. Excluding carry income, the AR retentions remained stable at 67 basis points. During Q2, current interest from third-party funds contributed approximately INR 60 crores. Transaction and brokerage income was INR 190 crores, down 9.1% year-on-year. Other income was negative INR 44 crores this quarter, primarily on account of mark-to-market impact on our treasury investments. As a result, total revenue was INR 853 crores, up 4.8% year-on-year. Total costs were INR 462 crores, up 15.5% year-on-year. Employee costs were INR 342 crores up 19.9% and include a onetime impact of about INR 9 crores from restructuring of one of our businesses. Admin and other costs were INR 120 crores, up 4.6%. Our operating -- sorry, our cost to operating income ratio improved to 51.5% from 54.3% in Q1. Operating PBT grew 19.7% year-on-year to INR 434 crores. Given the lower other income, PBT was INR 391 crores and PAT was INR 302 crores against INR 316 crores in Q2 FY '26. Tangible ROE stood at 16.9%. The Board approved a second interim dividend of INR 7.5 per share. The Wealth business saw a strong quarter backed by strong flows and higher retentions. ARR AUM grew 4.3% Y-o-Y to INR 252,627 crores, 360 One plus our advisory platform has now crossed INR 1 lakh crores. The quarter saw net flows of INR 10,990 crores that were broad-based across engagement models, new client additions and wallet share with existing clients contributed towards the floor. ARR revenue grew 40.5% year-on-year to INR 503 crores. Retention improved to 79 basis points from 71 basis points in Q1. Operating PBT grew 30.2% year-on-year to INR 326 crores. The UHNI franchise remains [ to form ] anchor with unchanged priorities, grow share of wallet, widen our reach beyond the metros and be the first call for families after a liquidity event. That last point matters more than ever given record IPO and monetization activity over the last few years, more clients are moving to portfolio level advisory mandates, which make relationships deeper and stickier. The HNI business continues to scale as an actual extension of to UHNI. It now manages over INR 8,000 crores at healthy retentions for over 1,500 clients and about 60 relationship managers with productivity improving and a growing [indiscernible] pipeline into UHNI, we expect the business to break even on direct costs soon. With the business reset behind us, ET Money is now built for profitable growth. Its base of 5.5 lakh plus active users is being taken towards a full life cycle digital wealth platform. Clients will choose upfront between distribution and subscription-based advisory and AI-assisted advice will extend into affluent segments. The distribution segment of the business clocked ARR AUM of over INR 700 crores over the last 9 months. The expected synergies from 360 One capital are now visible, large IP mandates drove meaningful revenue accretion alongside an active block deal calendar. With strong ECM pipeline and expansion in research coverage, the franchise is gaining scale and building a more durable revenue base. Our collaboration with UBS continues to progress across bidirectional client reference, cross-platform product access and exchange of best practices. In the Asset Management segment, ARR AUM stood at a little over INR 100,000 crores, up 9.4% year-on-year. Net flows improved to INR 1,492 crores after the large SMA redemptions in Q1. ARR revenue was INR 203 crores with retentions of 79 basis points and operating PBT was INR 108 crores. In alternates, AIF AUM grew 27.9% year-on-year to INR 58,139 crores. We are amongst a leader in private equity and credit space in India. During the quarter, we launched and mobilized funds across categories, including multistage AI fund, Defense and Space fund, arise credit fund. The pipeline remains strong for the coming quarters. In public markets, when performance was strengthened and our AIF strategy has gained traction with Dyna SIF AUM crossing INR 1,000 crores. We won our first European institutional mandate and received a top-up from an existing global mandate. Looking ahead, our priorities remain clear in wealth, focused on adding new clients raising RM productivity and scaling reference across 360 One ecosystem. In asset management, we will keep sharpening our alternate offering, expand our institutional reach, diversify domestic distribution and build out the SIF platform and in 360 One capital, and the priority is converting the ECM pipeline, strengthening the team and expanding research coverage. All of this will be delivered with continued cost discipline with technology as a key lever. Compass, our proprietary and governed AI layer is live across wealth asset management and enterprise functions. It gives the RM a single integrated interface for research and product knowledge, market intelligence, prospecting and pitch preparation, a 360-degree view of each client's family, holdings and portfolio and service and business at risk alert with next best actions. Compass runs entirely within 360 One environment with strict access controls client data never leaves it -- never goes outside and no data is used to train external models. The aim is simple, more time with clients and a platform that scales efficiently. We do not judge compass on usage, but on definite outcomes, which is efficiency, commercial impact, quality and control. With that, I would like to invite the participants for Q&A.

Thank you, Sanjay. We will now [ go ] to the Q&A. To answer your queries, we have a panel comprising Mr. Karan Bhagat, Mr. Yatin Shah, Mr. Anshuman Maheshwary and Mr. Sanjay Wadhwa. [Operator Instructions] First in line, we have Prayesh Jain.

Thanks, Anil. Congrats on a good set of numbers. Just 2 or 3 questions here. Firstly, a financial question on what's this mark-to-market or fair value change that has come. And I see that on your prime it's a much larger impact. So how does it kind of related to get lesser impact on the overall consol P&L? That's point number one. Point number two, you mentioned that the UBS integration is carrying on well. But how do you see flows coming through on this business? Should we see second half flows coming through? Or how should we think about that? And thirdly, from a cost-to-income standpoint, are we on that path to kind of reach that 48% by end of fourth quarter? Are we on that path? Yes, I would -- those would be my questions.

So Sanjay, why don't you take the financial question and then I can take the remaining two.

Sure Karan. So on cost to income, I think we had guided for a 1%, 1.5% kind of overall improvement year-on-year. I think we are well on course to achieve that. You would have seen that the overall cost to operating income, which is actually a better measure to kind of look at -- as against the cost to income, which we used to disclose earlier, that has improved significantly during the quarter. And I think we are well on course to achieve that 100 to 150 basis points of improvement over the last year. In terms of the mark-to-market change, I think it's purely a result of the overall markets. Previous quarter, we had a positive in terms of the overall market gains in the secondaries market. This quarter has actually been negative. So it's purely a reflection of that movement in the secondaries market.

Before Karan, you kind of get into the UBS question, Sanjay, just a clarification. Is it related to NSC getting listed and getting that impacting the fair value change, would a large part of that would be...

Yes, that's right. That's right. So it's largely NSC. So round about fair value change on account of NSCs close to around about INR 110 crores, INR 120 crores which is largely invested through our funds. So that's the broad impact of the fair value change.

Got that. Yes, Karan, over to the UBS question.

Yes. So I'll take the UBS and the your second last question. I think broadly, I think from a UBS perspective, you're right. I think onboarding has got initiated. So in some senses, I think we've internally looked upon -- looked at a target of around about exchanging $600-odd million of flows for the current financial year. Not really kind of try to get into whether the flows move from us to UBS or UBS to us. But the idea is essentially to ensure that agreements get into place. And I think out of the $600 million, $650 million of flows, we are fairly confident we'll get there by March end. I think a little bit of flows have started from UBS to 236 also. I think our funds have got funds have just got a panel. I think we've got around about $15-odd million of flows from UBS as a start. And we've also additionally got a couple of client reference who have given us similar or slightly more maybe $20 million, $25 million, $30 million. On our side, we've got 3 or 4 of our clients had potentially -- not potentially, at another $250 million to $40 million of funds, which have kind of moved to the UBS system. So in all total, I think around about $300 million, $325 million kind of happened over the last 3 months. I think all things being equal, we would expect it to grow to the $600 million to $700-odd million number over the course of this year. On the cost to incur just to supplement what Sanjay said, I think pretty much in line. I think still we've got some productivity gains to achieve, especially on the employee cost side. I think we'll continue our journey and keep it going over the next 12 to 18 months. doesn't necessarily mean our stand-alone employee cost numbers will reduce, but we continue to try and make the firm as productive as possible. And as we build out our teams across all our businesses. We continue to hope that we'll make it more and more efficient and try and move the 48 towards the 46, 47 number.

Karan, just last one. Aashish Agarwal joining, how do you -- what's the kind of role and how kind of things change for the company overall?

Yes. So I think Ashish obviously joins in a senior leadership role and along with me, will be kind of sparing the business. I would look at it in multiple parts, honestly, I don't see a change on day 1. Obviously, our business is spread across 3 different lines of business, capital markets, wealth and asset. And Ashish has got deep financial services experience over the last 20, 25 years, right from research all the way to corporate finance to finally kind of working on the sell side. And in his recent role running Jefferies India office. So I think to be honest, over the first 6 to 8 months is really about getting into the business and kind of integrating spending time where his key strengths and key strengths are. At the same point of time, diving deep into the other parts of the business, including asset and wealth. I think honestly, I think it's a process. Pretty much all of us are here. Over the next 3 to 4 years, we'll build it out together. And it's a great addition to our leadership team. I think we've got we've got 10, 15 leaders from -- with us for the last 10 to 15 years. And I think potentially, Ashish and the 2 other people are joining with him add to that leadership strength. And from there on, we'll take it forward. We're not really spending time trying to define a single monolithic line of business or a line of activity for each of us.

Next in line, we have [indiscernible].

So I have 3 questions. So firstly, on the close part, we are seeing strong flows in the wealth vertical, but relatively weak flows in asset management. Can you please explain this divergence? So like on the AMC side, how much of the weakness reflects the large institutional redemption versus the softer underlying demand? Second, on the carry income, has there been any reversal of previously accrued carry linked to NSC exposure during the quarter? And thirdly, on the -- again, on the new leadership, with the recent additions to the leadership team, how should we think about the incremental cost impact and the revenue opportunities they bring. So that's my 3 questions.

So on the I think you're right. I think honestly, I think the well flows have been super strong. I think maybe potentially I think and I don't do it slightly later. But I think from a winning the mandate perspective, I think I have spoken about this a couple of quarters back. I think from a brand perspective for the ultra high net worth individual refining 360 One in a very wet suit position. And secondly, obviously, we've continued to expand the platform in a very comprehensive way. And without a [indiscernible] in a 360 manner where we are able to essentially ensure that plant is able to pretty much get all these needs serviced. That's honestly reflecting on the flows. So I think that's -- and on the mid-level client, which is effectively, let's say, INR 25 crores, INR 200 crores for us also. I think we're seeing a lot of traction. So I think one of the data points we're proud about, which is leading to the net flows is the number of new families. I think we've steadily grown that number from 1,800, 1,900, 5 years back to around about 4,200 families today. And I think that's the number which is really kind of spurring the net flows. And once the client comes in the platform is being exhausted will allow us to kind of creep in more and build our wallet share with the client. So those are the 2 factors which are kind of supplementing on the net flow side. On the asset management side, actually, the flows have been a little -- and quite good actually, to be honest, the gross flows have been exciting. I think could have been slightly better on the net flow side. I think we had an institutional redemption from one of the mandates, which part of it was in Q1 and 4 in quarter 2. But I think that's a little bit -- I think it's behind us, to be honest. I think towards the second half of the quarter, we saw us winning 2 institutional mandates. We're seeing a little bit of interest come back in India from a pure flows perspective. So we are quite positive. And on an asset class basis, I think outside of listed equity, we were able to compare kind of convert a couple of decent accounts, both on domestic as well as overseas institutions for our private credit and real assets business. So overall, I think asset management is well on track. I think flows will kind of come back and overall should be in a position to meet our to meet our targets for next year -- for the current year. I think in terms of cost, in terms of new hires, I think early days, I think, obviously, we will -- we've right now kind of looked at 3 people. So in that sense, it doesn't necessarily structurally change it. I think our desire to add people on the sales side in wealth if there are gaps on the investment side and alternates on the listed side as well as on the capital market side, we'll continue to be very, very hungry for talent. The good news is we're not recruiting at talent at the junior or mid level. We are really kind of -- really searching talent right of the top quartile, and we'll be able to attract. So I think, honestly, as long as the platform is there, which today is there, the flywheel is there, there will always be a time gap between talent coming in and breakeven happening. But for a firm like us, I think today, we feel comfortable that is the shortest on the wealth management side, slightly longer on the asset management side and maybe on the capital market side, it will be slightly longer. But overall, all 3 things put together. I think we should be able to kind of keep it within the 100, 200 basis points cost-to-income ratios as we build it out. Obviously, if you do a big build somewhere maximum our cost-to-income ratio might go up by 100, 150, 200 basis points, but are not going to be dramatically different.

So on the Qari, I can take the question. Karan?

Yes. Sorry, Qari, I'll answer. Yes. So Qari is largely -- I think it's a function of 2 things. One, obviously, there's a little bit of a Qari reversal on account of the Qari, which had already got recognized. But on the flip side, with the NSE listing, a couple of our funds have come into Qari. So it's -- the first one is more than offset by the second one.

If I could just put in one more question. So why are the yields low on the mutual fund asset management side? Or I can see a decline in the yields part -- can you just explain it?

I can take that, Karan. You want -- it was a onetime kind of admin fee accrual that had happened. It was purely on account of that. But if you see -- if you go back, I think it's fairly stable.

Next in line we have Aditya Das.

Yes, I have a couple of questions. Number one, looking at a competitive scenario in the industry. So over the past, let's say, 2, 3, 4 years, a lot of private equity venture capital-backed digital so-called digital [indiscernible] wealth space in the UHNI segment, HNI affluent segment, they have entered. So just wanted to understand the implications for the rising competitive intensity on your business on the economics of this business, right? Do you expect material impact, let's say, over the medium to long term? Any sort of impact that you see on margins of our belt or the AMC business? So that's my first question. Second, just wanted to get the split on new 2 existing clients on the net flows this quarter and probably H1. And how do you see the split going forward, right? Do you expect the new client addition to kind of power through the net flows? Or how do you see this mix going ahead? So that's my second question. And third was just a follow-up on a previous participants question on the mutual fund business. I think the business has been quite subdued for the last few quarters. So how do you see this business coming back over the remainder of this year, probably next year? And what are your broader aspirations for this business? So these are my questions.

Great, I take the first one, and I'll request Yatin and Anshuman to take the next two. So I think -- sorry, what was the first question.

Competition and power equity [indiscernible] a lot of new businesses have the economics of the business.

No. So I think on the first question, I think Obviously, it's a sector which has got a huge amount of tailwinds on the business side. So rightfully, it's such a sector which is attractive for new competition to get in. And I honestly don't see that changing and has been fairly similar to be honest, since 2013, '14. I think over the last 14, 15 years, I hope you've seen private equity put in -- private equity together with banks have been fairly active in the space. I think overall, I don't see a reason why that should change dramatically. But from a platform perspective, I think I can break it up into 3 parts. I think impact. And the way I'm saying it is it's obviously something which competition will add. But at the same point of time, it's also an opportunity for us because -- the real motive in the business is about getting the people and the product and the platform all 3 in a single room together and kind of really taking it to the client. And that takes a little bit of time to that to happen. And I think, to be honest, if I look back over the last 10, 12 years and even as we go forward, I think that's something which we have kind of very uniquely positioned. And all 3 have to come into place. Good thing is, I think if there are competitors out there who get all these 3 things together, I think there's a good reason and good chance to succeed. The even better thing is the size of the market is very large. And I think there will be there an opportunity for newer players and along with the new places for us to grow. In terms of margins, I'm not quite sure if there's a kind of dramatic impact on margins. And it's always a constant war for talent. But I think margins are quite well set up in the industry. And honestly, I think over the last 6, 7 years from 2020, '21 to '28 -- '26 now 27, we've been a state of hypercompetition both on talent and on AUM. I think the big, big reduction in big kind of reset in margins happened in 2021, '22. And I think it stayed there, and I don't really see that changing dramatically. I think we are very, very competitive from a margin perspective locally, domestically from a global perspective. So don't really see any new business getting differentiated on margin. if at all new players as well as existing players like us will get differentiated, it will get differentiated on some product of people, product and the platform coming together. So I think from our side, you to ensure these 3 things are right at the top. And I think if these 3 things happen, we'll maintain a more remain edge and therefore, we'll maintain our pricing power. On the net flows question, I'll let Yatin answer it.

I think particularly this quarter was good for new clients net flow. I think there's a lineup of a lot of IPOs and almost 6 IPOs we saw coming in this quarter pushed an IPO season. I think largely, we look at 1/3, 2/3 split, 1/3 from new clients and 2/3 from existing clients. If you look at the line segmentation, almost 1/3 of our clients are 0 to 3 years vintage. So there's a lot of runway for those relationships to mature. And particularly, if you look at our 5-year plus client vintages almost 60%, 65% of AUM come from our vintage clients. And then we have solid retention in terms of how these clients have stayed with us for a very long period of time. So largely, when we see 5, 7, 8 years of vintage happening with the like of a hockey stick growth, which comes in our existing clients consolidating their portfolios from other advisers or largely contributing new net flows to us with the way the relationship is shaping up. So if you see last quarter, the attrition less than 0.5% attrition of clients. And even so less than 0.25% attrition on the AUM side. It just talks about the platform and how clients are stickiness on 360 One. I don't know if you -- Sanjay, you want to -- on mutual funds questions, yes.

Yes. So just on...

Yes. So on the mutual fund side, obviously, I think we've traditionally been a little bit conservative in investing into that business. I think we've built the business, the public markets business more with the mindset of building out a fairly strong institutional practice with the segregated managed accounts. And we've conservatively invested in our sales teams across the board. I think for us now, obviously, the introduction of SIFs together with our state performance over the last 4 figures gives us much more confidence to maybe potentially kind of build out sales teams on the mutual fund side. Having said that, we'll kind of always run a relatively differentiated strategy on the mutual fund side as opposed to running a large-scale retail strategy. So on the mutual fund side, I think for us, I think it will be measured growth. going forward also. But coupled with that, obviously, I think the right retention numbers will be important for us and where we can get our unique positioning right in terms of product initiatives is also -- could not get reflected on the SIP side. So really, we don't look at our business in that sense as mutual funds, AIFs and PMS. We look at it more from a public markets and private markets perspective. And I think we would like to grow both on a steady basis and ensure that while we're building out these 2 businesses, both from a performance perspective as well as from a retention perspective, we are able to ensure the right quality of business.