Aditya Birla Sun Life AMC Limited (ABSLAMC) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Aditya Birla Sun Life Asset Management Company Limited Q4 FY '23 Earnings Conference Call, hosted by InCred Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jignesh Shial from InCred Equities. Thank you, and over to you, sir.

Yes. Thank you, [ Nirav ], and good afternoon, everyone. On behalf of Incred Equities, I welcome all to Aditya Birla Sun Life Asset Management Company Limited conference call to discuss the financial results of Q4 of FY '23. We have along with us Mr. A. Balasubramanian, Managing Director and CEO; Mr. Parag Joglekar, Chief Financial Officer; and Mr. Prakash Bhogale, Head of Investor Relations. On behalf of Incred Equities, we are thankful to the management for allowing us this opportunity. I would now like to hand it over to Mr. A. Balasubramanian, Managing Director and CEO of Aditya Birla Sun Life Asset Management Company Limited. Over to you, sir.

Yes. Thank you for the introduction. Good evening to everyone. I hope you all had the opportunity to go through the earnings presentation, which is available on the [ stock exchange and ] on our website. Let me quickly begin giving the outlook on economy and the mutual fund industry and then give an update on our ABSLAMC performance for the quarter ending Q4. The global economy, and our own belief is continues to remain uncertain and the recent developments in the financial markets of advanced economies has not helped to ease the sentiment. High inflation, financial tightening, hawkish monetary policy we expect to limit the global growth. Central banks worldwide, led by the Federal Reserve, have shifted away from the ways to accommodate the monetary policy and they've raised interest rates to [ calm ] inflation level. And this move has prompted investors and businesses and markets to reevaluate and adjust their expectations accordingly. The collapse of a couple of banks has led to a turmoil in the banking systems, and also, in [ advanced economies ], fears of financial contagion, but the effective measures by respective policymakers have largely helped containing its impact. The Indian economy, as you know, has remained resilient, [ subverting ] global uncertainty and headwinds. India's real GDP is expected to grow about 7%. And India is a growth impulse have also been supportive by way of easing of supply chain and rebound economic activities. Easing inflationary pressures in March '23 is a positive sign as driven by the softening of food and goods inflation, which fell to a 16-month low. India's financial system has remained strong, led by robust banking industry, adding further stability to the domestic economy. We've also seen robust tax collections in the GST, [ taking ] about [indiscernible] crore. As a result of that, the annual collection for the full year, including direct tax collections, [indiscernible] 60%. Definitely, of course, putting India's tax collections at robust levels. As a result of the higher tax collection, the government of India borrowing program is also being held going by the next year borrowing program which has been already announced, and well within those [ guide ] limits and putting less pressure on the interest rates further momentum. RBI Forex reserves have gradually started increasing. Now it's back to about [ $578 billion ] as of March 31, 2023, is again a good sign and current account deficits have also narrowed to 2.2% from 3.7% in Q2 on account of lower merchandise rate and deficit and robust growth in service and exports, all positive developments. The development factors such as the oil prices, global financial uncertainty and Indian monsoon season need to be considered to ascertain the future trajectory of the domestic economy as we speak. Economy is interestingly better placed mainly because of its reliance on domestic demand drivers. The consumer sentiment index points to a continued recovery. And going ahead, [ decreased ] 3 growth drivers are likely to be continuously uptick on consumer sentiment and green shoots in rural recovery and commodity prices relaxing off their previous highs. In the meantime, we believe that most of the risks are priced in, and there is not as much downside in the markets as expected. With valuation having got normalized, the market now should start tracking the earnings growth as we move forward. With respect to the major fund industry, during the quarter, the Indian major industry witnessed flattish growth, with the quarterly average assets under management staying close to about INR 40.4 lakh crores as of March 31, 2023. In FY '23, the mutual fund industry witnessed major growth with inflows across various equity and index schemes. The industry has [indiscernible] grew from [indiscernible] crores as of March 2022 to [indiscernible] crores in March '23, indicating growth of about 16%. And during the year, the total at end of the quarter -- [indiscernible] launched and raising a total of about [ INR 600 ] crores between the fixed income and equity in [indiscernible]. As of March 31, 2023, the total number of [indiscernible] stood at [ INR 14.75 crores ], an increase of 12% year-on-year compared to [ INR 7.12 crores ] crores as of March 31, 2022. And the industry national witnessed net equity sales of [ INR 410 ] crores in Q4 '23, through new fund offerings and existing funds. And within the existing funds, broadly the inflows are being seen in 3 major categories: smaller mid cap and mid-cap or large cap categories, a little bit on the larger mid-cap categories that have seen inflows during the quarter. The increase in number of retail investors is also reflected in higher digital average AUM, which grew about 12% in year-on-year, contribute 40% total monthly average of AUM. The mutual fund average AUM for March 2023 from B-30 cities also accounted for [indiscernible] remain again constant. At the same time, 40% contribution coming from individuals and retail need to be taken into account. They fall in the institutional AUM throughout the same period. The new asset registrations were around INR 65 lakh in Q4 FY '23. And the total number of SIP accounts as of March 31, 2023, was to INR 6.36 crores. Over the past few months, the tax amendment and income schemes and the anticipated regulatory changes don't impact on the mutual fund industry. And despite this, we believe that this asset class, [indiscernible] income asset class, will continue to remain relevant as owners alternate to a [indiscernible] for most of the investors who are looking for asset allocation between equity and fixed income, and that we believe -- that will remain even going forward. And coming to Aditya Birla AMC performance, our total average assets under management, including alternate assets, for Q4 FY '23 stood at INR 2.86 lakh crores. For the quarter ending March 2023, our mutual fund AUM was at [ INR 2.75 ] lakh crores, remaining flattish compared to Q3 of INR 2.8 lakh crores [ size ]. The equity mutual fund AUM remained more flat about INR 1 lakh 600 crores for the quarter ending March '23, with the overall equity mix at about 42%. As part of the strategy for customer attraction, we added about [ 6.7 ] lakh folios in FY '23, [indiscernible] the overall folio count, increasing to about INR 80.3 lakh folios as of March 2023. Throughout the year, we launched several initiatives aimed at increasing the size of our SIP book and including turbo STP, through portfolio investing and purchase SIP, targeting midsized corporate employees. And these efforts have resulted in a marginal improvement in making our SIP book to cross INR 1,000 crores, which again was a little short of our own expectations. However, it has crossed the milestone of INR 1,000 crores. Our multichannel market initiatives aimed at deepening our presence have really led to positive results, actual relations manager model has activated over 2,000 [ additional ] distributors and to compare our distributors onboarding initiatives empaneled close to about 9,000 distributors in the period. Regarding the overall asset mix between retail and institutional customers, retail investors' assets today account for abut 52% of our assets as of March 2023. As part of our overall strategy, we are also focusing on building the retail portion in both retail and B-30 market with increased contribution coming from B-30 which today stands at 17%. Our passive product offering grew by about 3x to about [ INR 28 ] crores as on March '23. Our existing passive [ bucket ] has also grown to over 41 products, and we have around 7 products in the pipeline. And overall customer base has got added in the passive category is close to about 4 lakhs 96,000 thousand folios we added to the passive category, which we believe can be used for the purpose of cross-selling of the other products as well. On the PMS and AIF front, we have raised the commitment to the INR 7.34 crores is the first ever AIF that we launched in the equity space in India under the name of India Equity Service Fund under Category 3, leveraging our multi-channel distribution footprint, we currently about INR 7.34 crores, again beginning of our building AIF success story. We also received a semi clearance for another 3 more schemes which we hope to launch in the current financial year. Regarding our offshore business, though the overall asset management and offshore remained flat, we also received in-principal approval from the International Financial Services Centres Authority, which is GIFT city, for launching India ESG Engagement Fund domiciled in GIFT city. Additionally, we are also currently in the process of launching 2 of the global funds in the GIFT City for getting money -- for raising money in India domestic and global market as well as we moved some of our overseas assets [indiscernible] soon in order to cut our cost and offer some financial response fund management services from the GIFT city itself. On the real estate front, we have successfully deployed the first investment for the Aditya Birla Real Estate Credit Opportunities Fund. And we are the process of doing modules of more such deals. And initial focus now has been more to create performance factor [ cards ] [indiscernible] in order to raise more funds in the coming years. Now just quickly move on to the financial numbers before opening up for Q&A session. Q4 FY '23 revenue from operations is at INR 2,97 crores versus INR 314 crores in the year -- Q3 of FY '23. Q4 FY '23 operating profit before tax stood at INR 149 crores versus INR 174 crores in Q3 of FY '23. For the year ending March 2023, revenue from operations is at [ INR 1,227 ] crores as compared to INR 1,290 crores. Our operating profit before tax in FY '23 is at [ INR 607 crores ] as compared to around [indiscernible] crores in FY '22. We're also happy to announce that the Board has proposed INR 5.25 crores per share dividend as a final dividend for FY '23. With this, total dividends declared this year per share is about INR 10.25 per share. And with this, I'd like to conclude and open the floor for any questions that you may have.

[Operator Instructions] The first question is from the line of Devesh Agarwal from IIFL Securities.

Good afternoon, sir. Thank you for the opportunity. My first question is, sir, in the equity segment, although you did say multiple things that you're doing to get the market share an increase AUM. But still, we've been losing market share. So if you can give us some sense, which are the segments or particularly which investor category are we losing market share?

Devesh, thanks for this question. As far the equity is concerned, of course, our endeavor has been to, one, to stop the leakages, at the same time, improve the overall momentum in the equity in terms of improving the market share. You see, we have collected close to INR 1,500 crores in the quarter of last quarter through the launch of multi asset allocation fund, but again, reflects the ability to actually raise funds and improve overall market share. And second is SIP is another route through which we continuously put effort to increase the overall market share in equity. But the segment in which -- where we have seen the somewhat lower participation is in the S&I category. We have seen a lower participation in the last 1 or 2 years, especially equity sales, which we believe that we need to catch up. Second is the category in which we are losing assets are those assets where we have seen the performance-related issues, which we have witnessed in the last 1.5, 2 years in 2, 3 categories, which is real assets and few other categories in the equity sales, where we have seen somewhat of outflow. With the change of primary responsibility in the last 6 months to 1 year, we are seeing those funds now getting stabilized and coming back in terms of coming closer to the benchmark as well as coming closer to the peer group on the near-term basis. As we see that improvement coming in, we should see those asset classes which remain relevant, and we should see the flows coming back. But as I speak today, more than losing, I think the lack of participation in the -- whatever the growth that is coming in in the industry, which I think that sales for the whole year would have been somewhere in the range about [ INR 79 crores to INR 89 ] crores. Then with the participations being the same is the one which is leading to the market share less rather than other redemptions coming actually losing market share.

Understood, sir. And sir, if you see on the distribution side -- again, I'm talking about the equity assets -- we see that the share of banking channel has been going down, and in last 1 year, it has come down by 200 basis points. So is this a decline that we are seeing across bank or there are selected banks where our sales have slowed down?

In the case of banking channels, because we have all the banking channels, whether it is the lead bank, leading banks, the private sector banks, whether HDFC, Axis, we have only seen a marginal improvement in terms of the participations, especially channels like Axis. We have seen increased participation coming in SIP's, including HDFC Bank. And these assets, largely in the -- some of these foreign banks used to get significant market share, such as Citibank, with the general reduction in the mutual fund flows, and we used to enjoy very high market share, sometimes anywhere between 14%, 16% in our market share. We have seen a marginal give back. Again, I don't see a big [ challenge ]. Of course, some of the banking channels go by product recommendations. In fact, some of our products which are not part of the recommendations temporarily would have seen a lesser participation coming from that channel compared to the other one selling would have happened. To the extent, I would say, the shareholder [indiscernible] [ buckets ], historically, our market share is about 48% to 50% from IFAs, roughly about 20% from banking channels and roughly about 24% to 25% coming on [indiscernible]. And direct channel is another channel where general flows are also coming in where we have seen a flat growth in the direct channel as well. I think these are the combination of things I would say is the dynamics, rather than single channel not giving inflows or something.

Okay. And lastly, sir, if we see that over the last 2 years, although the share of equity has gone up in the overall mix, our yields have remained under pressure. Now there would be some generic reasons for those. But other than that, specifically, I wanted to understand how has the distributors payout intensity changed for you between, say, FY '21 and '23?

I have Parag to answer that once again.

Yes. So Devesh, the distributor payout on an overall basis, as a general principle remains that we shared, in the range of around 65% of our overall DTR. That continues. But as we -- as you know and we have been mentioning earlier also, whenever there are NFOs, generally in the first year of NFO, the payout is slightly higher than the 65%. There are 2 reasons. One is that there is a B-30 brokerage which is there, and there are some additional payouts which happen in the first year, which has had the impact of a slightly higher sharing than the normal thing. So that is the only change. Otherwise, some of the NFOs which have happened have just elevated the cost a little bit. But otherwise, on the normal BAU sales, it remains in the range of around 65%.

[Operator Instructions] The next question is from the line of Lalit Deo from Equirus Securities.

So the first question is, again, on the market share. So we have seen some improvement in our market share against the [indiscernible] despite that in the [indiscernible]...

Lalit, sorry to interrupt you, but your audio is not very clear. May I request to speak through the handset?

Yes. Is this audible?

Yes, it is audible, but the voice is not clear.

Wait a second. Hello?

Go ahead.

Yes. And sir, sir, my question was on the market share. So like in terms of -- in the quarter, we have seen some improvement in our SIP market share, but in terms of AUM market share, that has not been [indiscernible] and we have been losing market share. So I just wanted to understand, in the lump-sum flows, we have seen some major dip. So what could be the reasons for the [ sale take ] as you alluded to that part? And also, given that we have been done -- we are looking to launch funds in the PMS and AIF categories, for in FY '24, so like how does the OpEx trajectory look for us in the coming 2 years?

The market share loss is largely on account of 1 or 2 categories in which flows have come, is what I mentioned in my speech as well, which is essentially smaller mid-cap sales and AIF category and large and mid-cap, I said that. These are the 3 spaces predominantly big flows have come for the industry. In fact, our flows in these 3 categories, except we have got money in the small and mid-cap fund, in the same period, whereas other schemes do not get as much as flows which we normally get every year. So to the extent our market share loss was on account of flows coming in, we saw an outflow in a few of those schemes. And whatever the flows that came in the big categories like small cap, our flow was relatively lower than the industry. These are the primary reasons, but these flows in the industry also come through the combination of lump-sum and SIPs. And then SIP flows in these smaller mid-caps also literally hasn't what we historically have seen. Therefore to that extent, our deserving participations were less than, which again, I would attribute to the reason I just mentioned earlier, which is what currently we have already reversing it, which I think should help us in the next few quarters to kind of get back on track. As far as AFI thing concerns, the current things, one, we have planned lining up of a [indiscernible] product is one which are just -- we'll be closing it in the month of April. We already planned two more AIFs this financial year, both in equity and fixed income. In terms of the team strength that we already have to add 1%, we will add one with the long [ shot ] kind of capability. As the equity is concerned, we may add 1% on the credit side for launch of other credit funds. Otherwise, we don't see a significant addition in terms of adding people. That's the only main part that we have. And as to the OpEx with respect to the AIF, it would not be anything significant, except people may have to just go for a travel to promote and protect that, which I call it as a business as usual.

Sure, sir. And sir, on the yield side, could you highlight the difference between the stock -- yields on a stock basis, and the flows which we are getting, like on an overall segment what you think, particularly in equities?

Basically, as you know, the stock is a little lower on the sharing basis and the new money which comes, that's slightly higher, which is in the range of around 65%. So the yield on the stock is higher than the yield on the new flows which is coming. I don't have a handy number on the differentiation, but that is the case. And over maybe in the next couple of years, that will get merged. The differentiation between both of them is not very significantly higher. There will be some differentiation, but that will merge over maybe next 2, 3 years period in time.

Sure, sir. And sir, last, just one data-keeping question. Can you share the SIP AUM book as of March '23? The overall SIP AUM.

51,203.

[Operator Instructions] The next question is from the line of Prayesh Jain from Motilal Oswal.

Just a few questions from my side. Firstly, could you give us the yield of what you would have made in FY '23 on equity and debt, liquid and ETF's. Some ballpark [indiscernible]?

Yes. I'll have Parag to [indiscernible].

So equity, more or less, is in the range of around 74-odd basis, absolute, I think. On debt, debt is in the range of around 25 to 26 basis, 25-odd basis. And on liquidity is in the range of around 12 basis.

Okay. That's helpful. Apart from that, if I look at your expenses in this quarter, other expenses in particular, they were higher both on a sequential basis as well on a Y-o-Y basis. What were the reasons for that?

So the main reason which has contributed to the higher expenses for this quarter is under MFO which we launched in the current quarter, the multi-asset allocation fund, which is actually we spent some of the amount on marketing and sales promotion of that MFO, which has contributed mainly for that. Other than that, there are some of the other infrastructure expenses, like we opened some of the new branches and all. So that has slightly gone up. Other than that, there are normal regular expenses generally in the last quarter are slightly higher than the other quarters on traveling, business promotion or any other spend on marketing. So that is the expenses which has come up.

And how should we think about the expenses from next year's perspective? Like what kind of growth do you envisage in expenses, both on employees and product costs and other expenses. Also, you could throw some light as to about how much of the cost of staff trend was on the ESOP line, and how do you see it in FY '24?

Generally, we are looking at expenses to be in line, growing below the overall AUM growth which we will have in next year, that is the intention. Generally, it will be in the range of the inflation plus some uptake on employee cost, which we will look at it. Even on the administration side, similarly on the rentals or any other expenses which we may have. If there are any depreciation on rupee dollar that may have an impact on the escalation, especially on the technology side, that may have a little bit impact on the overall expenses because we are highly dependent on these technology platforms and technology service providers. So that is on the expense side we are looking at.

Employee cost, sir?

So it's our plan, the employees generally, it is going down because it's 40, 30, 20, 10, that is the general [ hit ] to which we get on the ESOPs plan. Currently, this year, it was around INR 30-odd crores. So we can see some drop in the next year on the ESOPs side.

The further employee things have -- while we have more or less fully in place with a stricter [indiscernible]. A few additions only could come in terms of employee addition, more to strengthening the team, especially on the expenses side as well as on the sales and alternate investment side, which again, I guess that there will be, of course, some composition will also come in the form of realigning the [ response ] of the people and so on and so forth. But I don't see a significant increase as far as the employees cost is concerned. But of course, annual increment that will normally count anywhere in an around 7% to 8% to that extent one can expect that.

Okay. Okay. And Bala, sir, like while there are more regulations that are out there at some point of time, JB is going to give some clarity on what the [ BRs ] are going to be, what quarters which are going to be in the [ BRs ]. What are your thoughts in the sense of how are you guys preparing for this? And what will be kind of sharing mechanism this time around that would kind of -- and also on this, in case the broking is kind of subsumed into the [ BRs ], what could be the strategy of [indiscernible], how would that kind of play out?

The way is on, it is still under discussion stage with SBI. While most of the expected announcements have already been appearing in the newspapers in some form or other, I presume 40%, 50% of that -- those expectations would come. And from a business point of view, our overall vision to be scale players, that remains, is not going to be taken away as a result of this. And second is ensuring our product positioning, investment performance is a key for us. While we are seeing improvement, but we're still more work to do, which we are currently driving that. And third is in order to increase our retail penetration, while we have been predominantly working with the B2B model, at the same time we are stepping up our engagement in terms of direct customer connect, both through the sales as well as RVs. And that's something we are putting in place to ensure that direct customers connecting in with the top 10 markets improved quite significantly, therefore, helps in building our AUMs. And fourth, we also identified a few more areas which could support the retail sales, which we call it as a [ viara ] model. So, far the other model used to be used only for the activation of IFAs. We are moving away from activation to the converting into sales. So very active IFAs are activated, IFAs contribute to the success. That's something we are -- we basically are going granular in order to ensure that we build up the overall contribution to IFA. And emerging markets, where we are seeing a significant inflow [indiscernible] credit for us about 2, 3 years back, once again, we are stepping up our focus in terms of increasing the penetration on the [indiscernible] footprint. As far as the distributions led the economic model, I'm sure that will evolve depending upon how the NPLs at the new [ TR ] factor is going to evolve. Again, I would assume the way we currently have a 65/35 kind of model that we have I would assume we'll have to stick to the similar kind of model to ensure when we are able to maintain some discipline. At the same time, ensure growth comes at the same time we're able to maintain the profitability. It may not be necessarily in terms of absolute number, at least on the basis points level. That's something we will work on it. But again, Prayesh, we have to play it as it comes. It's too early to, at this point of time, [ adjust for them ]. At the same time, since we broadly know that what I think would come unless we start preparing ourselves, as I just mentioned, including, for example, we have been a very good active player on the MA side. So that give us an experience to be prepared for some portion of the trades could go through the market. At the same time, we also believe that intermediation cannot be completely removed, even from a [indiscernible] point of view. Therefore, we have to do a look at the mix and mix up both the models there. But that's something we will play it as we come closer.

[Operator Instructions] As there are no further questions, I will now hand the conference over to the management for closing comments.

Thank you. Thank you very much, ladies and gentlemen, for tuning in. At this we conclude our Q4 FY '23 earnings call. And do feel free to reach out to Prakash Bhogale for any inquiries you may have. And all of you have nice long weekend, and thank you.

Thank you very much. On behalf of Incred Equities, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.