Motilal Oswal Financial Services Limited (MOTILALOFS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Motilal Oswal Financial Services Q1 FY '22 Earnings Conference Call. We have with us on the call today Mr. Raamdeo Agrawal, Chairman; Mr. Motilal Oswal, Managing Director; Mr. Navin Agarwal, Director and AMC, CEO; Mr. Ajay Menon, CEO Broking; Mr. Arvind Hali, CEO, HFC; Mr. Shalibhadra Shah, Chief Financial Officer; and Mr. Rakesh Shinde, Investor Relations. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Agarwal to make his opening remarks. Thank you, and over to you, Mr. Agarwal.

Thank you. Good afternoon, everybody. It is my pleasure to welcome you once again to the Motilal Oswal's earnings call for the first quarter ending 30th June. We hope that all of you and your families are safe and in good health. For the first quarter, we've reported a PAT growth of 32% year-on-year to INR 2.2 billion. Our profit ex-gains on investments grew 25% year-on-year to INR 1.3 billion. Core business was robust with PAT and market business profit growth of 36% year-on-year. Asset & Wealth business profit growth of 83%, led by 48% growth in the profits of the AMC business and strong turnaround in the wealth management business performance. Our consolidated net worth touched an all-time high number of INR 46.1 billion. Our net debt is INR 38.4 billion. Excluding home finance debt, we are a net cash company net of our equity investment. Return on equity stood at 23%. We are happy -- okay. I'll now run you through the first quarter highlights. Our broking business continues to report strong growth of 49% year-on-year in revenues. Continued traction in client addition; 104% growth in average daily turnover, with mix in favor of high-yielding cash delivery. Our online volumes crossed the 70% mark. We witnessed strong growth in active clients and traction in our bank tie-up. We continue to make investments in augmenting our talent pool and distribution efforts, and also benefit from consolidation in the overall broking business. Our asset management business witnessed lifetime high markets and have lifted our AUM to their highest ever. Our mutual fund gross sales and SIPs gained traction. And AIFs are receiving encouraging response among HNIs. IREF V real estate IBEF III fund has achieved its second close at INR 8.1 billion. Home Finance business witnessed pickup in disbursement, traction in login and sanction pipeline, meaningful expansion in sales force since the fourth quarter of last year, so that we can ramp up our disbursements in the coming quarters. We've also expanded our footprint by adding 2 more states. Finally, we witnessed its sharp reduction in cost of funds that, in turn, grow margin expansion for the Home Finance business. Taking a deep dive into each of our businesses, starting with the Capital Markets businesses. This business comprises of retail broking, institutional equities and investment banking business. Revenues for the segment were at $5.1 billion, up 49% year-on-year. Capital Market businesses have contributed 53% of consolidated revenues. Profits were at INR 782 million, up 36% year-on-year and contributed 34% of consolidated profit. In Retail Broking & Distribution, we witnessed strong traction in new client additions driven by franchisee channels and the retail channels, total 215,000 clients got acquired in the first quarter, up by 147% year-on-year. The NSE active clients have also registered a 58% year-on-year growth at 650,000 as of June 2020. Our distribution AUM was at INR 140 billion, up by 37% year-on-year, with 14% of 2.2 million broking clients base tapped for a cross-sale, and we expect continued increase in AUM and fee income as the number of clients to whom we have cross-sold and the number of products per clients cross-sold rises. We received favorable arbitration award of INR 867.6 million from the Appellate tribunal of MCX in the Crude Oil Derivative case. We have written off this sum in the earlier quarter. In Institutional Broking, the team won big in the Asiamoney poll 2020 to the rank #1 best local brokerage house, best research team, best sales team, sales trading team and corporate access team. Strong improvement in domestic client rankings with top 3 rank retained across most clients were the highlights. This was a result of focus on differentiated research products and a coverage of 250-plus companies across 21 sectors. Investment banking business has built a pipeline of IPO mandates and as a result, we expect revenue traction in the coming quarters. Turning to the asset management business, the AUM of this business stood at INR 465 billion, up by 35% year-on-year. PAT for the quarter was at INR 356 million, up by 48% year-on-year. Equity AUM was INR 284 billion, 1.6% of the industry mutual fund equity AUM of INR 17 trillion. We've seen improvement in performance of several of our products. Our gross sales started improving and redemption declined on a sequential quarter basis. We witnessed favorable response towards alternate offering under AIF strategy and expect continued flows in AIF strategies, which are in the pipeline. Our share of alternate assets comprising of PMS and AIF at about 39% is the highest among AMCs. We added about 100,000 SIPs in the first quarter, up by 73% year-on-year. New SIP count market share stood at 2% in the first quarter. Our private equity business has committed AUM of INR 69 billion across 3 growth capital private equity funds and 5 real estate funds. In first quarter, revenue for this business stood at INR 257 million, profits at INR 52 million. The first growth fund, IBEF 1 delivered an XIRR of 26% plus. Exit from G R Infra from IBEF 1 and the resulting carry in gains would be booked in the second quarter of the financial year. Average IRR on the exited investments in the real estate funds stood at 21% while IREF V achieved its second close at INR 8.1 billion, and IBEF IV has been launched with a target AUM of INR 40 billion. Wealth management business AUM grew by 62% year-on-year at INR 288 billion in the first quarter. Revenues grew by 79% to INR 396 million, led by strong net sales of INR 10.6 billion. Yields stood at about 56 basis points. RM count stood at 127. Our sales revenues predominantly cover our fixed costs. Strong operating leverage is visible, led by improvement in RM productivity and we continue to invest in this business by adding relationship managers. Overall, Asset & Wealth business revenue stood at INR 2.03 billion, up 38% year-on-year with the 21% of our consolidated revenues and profit at INR 535 million, which is 23% of our consolidated profits. Turning to the Home Finance business, the business reported a profit of INR 85 million. NII grew by 8% year-on-year. NIM expanded by 66 basis points to 6.5%. Yield on advances stood at 13.8%. Cost of funds down 124 basis points at 8.6%. Spreads up 71 basis points year-on-year to 5.2%. We raised INR 1.8 billion in the quarter at an average cost of 6.25% versus our overall cost of funds of 8.6%. And we expect this number to trend lower in the coming quarters. Loan book stood at INR 34.7 billion as of first quarter. Disbursements during the quarter were at INR 910 million. We expect the business to grow in terms of disbursements led by sales force expansion that is currently underway. The COVID second wave and subsequent lockdown in states where we have a presence has impacted our business operations and collections in the month of April and May particularly. As a result, our collection efficiency was down to 90% in the first quarter. And our gross NPAs and net NPAs increased to 4.7% and 3.3%, respectively. We witnessed improvement in collection efficiency to about 92% in the month of June and about 94% in the month of July with improvement in resolution/rollbacks across buckets. During the quarter, we've onboarded our senior resource as Chief Collection Officer to strengthen our collection team. Strong support from the parent continues with a capital inclusion of INR 8.5 billion. Our net gearing stands at 2.6x. Our Tier 1 capital remains robust at 47%. Limited borrowing retained for the next 1 year, strong undrawn borrowing lines, cash of INR 3.7 billion on the balance sheet places us in a very comfortable liquidity position. Turning to our fund-based activities, which include commitment to our asset management products. This business has registered gains in the quarter of INR 913 million. Total quoted equity investment including unrealized gains was INR 22.4 billion at the end of the quarter. The cumulative XIRR of these investments is 18%-plus since inception. Total equity investments, including alternate funds, stood at INR 32 billion at the end of the quarter, and XIRR on our private equity and real estate investment till date have been 28%. To sum up, last financial year was a landmark year for us with highest ever revenues and profits. This year, too, we are seeing further traction building up in most of our businesses. Our retail broking Business, which is our cash cloud, has achieved new highs on global parameters benefiting from industry consolidation and our knowledge-driven digital offerings. Our institutional broking business has been ranked #1 on a local brokerage house in Asiamoney Poll 2020. Starting to invest business profits in our own funds, having yielding rich dividends resulting in network touching new highs. Moreover, our strategy to diversify our business model towards linear sources of earnings continue to deliver results. Our asset management business is likely to gain from process-driven investing in turnaround and performance, particularly on the alternate side. And the housing finance business is geared up for profitable growth, too. Each of our 7 businesses offer head room for growth. We'll now open for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Prashanth Sridhar from SBI Mutual Fund.

Just wanted to get some numbers on the housing finance company. Would it be the stage 2 and restructuring there?

Our stage 2 assets stands at 15%. And restructured number overall totally on the book is 4.9%. It includes 1.4% done in Q1 and 3.5% done in March.

Okay. Okay. And incrementally, what would be the business that they're doing in the housing finance? Because at 14% yield in the current rate environment, I guess would be kind of on the higher side, right?

Shali?

Yes. So basically, we haven't reviewed the rates on the book -- on the back book. And our balance transfer numbers also are below the industry averages given the segment that we are into, which has high bounce rate, but overall higher cost of operation. As of now, we've decided to repeat the rate at the same level. Our incremental yields, although are much lower at more like 12.5%.

So incrementally, we are lending at around 11.5% because incrementally, the cost of fund is also lower at 7.5%. We are maintaining 5% spread on the book.

Sure. Sir, just one more addition. This 5% of restructuring, would that be part of the stage 2 and 3?

No. So actually, the restructured book largely remains as a part of stage 1 only. So even the book which we had earlier restructured in March, that also largely remains as a part of stage 1. And one which we had restructured recently is also part of stage 1. However, provisioning we are doing on the restructured book as a part of Stage 2.

Okay. So how do we look at it, sir? Because there would be stage 2, 15% plus 5% restructuring plus 5% GNPA. That would be almost 25% on a home loan book, right? What -- how would we look at that outlook going forward?

Yes. So actually, we are seeing very good improvement in the collection efficiency month-on-month. So if you see what we reported our June number of collection efficiency was 92%. And in July, our number has improved to around 95%. And we are very confident to bring this number down by the end of quarter 2 because now we are seeing lockdowns have opened and field officers can do the collections. And our focus is on rollbacks as well. And where there is a cash flow impact, there, we would be restructuring. However, we see this to be coming down because even in last financial year, when the collection efficiencies were down to 60% , however, we had come back quarter 4 in terms of our pre-COVID level. So this time also, we are confident to bring...

The next question is from Sunesh Khanna from IIFL Asset Management.

On the broking business, just wanted to check, we have seen a very good traction on the client addition, especially on some of the online channel. So can you tell us what exactly are we doing there?

So we are building on the digital way, which is going on, and we have got a good team to acquire customers digitally. We have got a team of more than 700 people now acquiring clients digitally through the lead management process, which is completely digital. So that is -- overa and above the acquisition which we do to our branch model and our franchisee model. And surely in the last quarter with the IPOs and all coming in, there's a huge traction for new account openings.

Got it. And also our ADTOs this year has plunged down from 3.7% last quarter to 2.4% this quarter. So any color on that?

Yes. So the overall market share on the derivative side, there has been some impact on the margining part of it, which has impacted the expiry turnover on the index options. But at the same time, our cash yields are improving and the cash market share has gone up. So that is the high yielding, cash market share is going up quarter-on-quarter.

Okay. And sir, on the Home Finance, [ CRISIL ] has upgraded our outlook. So any traction that we have already going ahead also? Are we going to see on the cost of funds side?

Yes. We are seeing ... Arvind, are you on the call?

Yes. Yes. I am there.

Can you respond to this, Arvind?

Yes. I could not hear the second question.

So sir, I was saying CRISIL has upgraded our outlook. So probably some sort of a incremental traction on the funding side or any feedback from the bankers of that market? And how are we looking at the cost of funds going ahead for the Home Finance business?

So as we have seen that over a period of last year or so, there has been a significant improvement in terms of our cost of funds, which has considerably gone down and therefore, the margins and spreads have improved. And there is still quite -- given the benign nature of the interest rates in the market, we believe that this will continue and we will continue to get benefit from reduction in MCLR bank [MCLS]. And incrementally, while we have still a lot of cash on the balance sheet and last quarter also, we have raised money at around 6.25%. So we believe that given our improvement in [ these ratings ], we will continue to have a lower cost of funds and while the incremental disbursal, there will be some correction and incrementally, we are disbursing at around 12.75% to 12.9%, but overall margin will be maintained.

Got it. And sir, from a disbursement standpoint, I know last quarter was anyway subdued for the -- for everyone. But going ahead on the disbursement side, any color or any number if you can share [ about this year ]?

So just to take you back in time, and we have discussed it in the earlier calls also that after the first wave of COVID, we had seen significant improvement in our disbursals from -- in the last -- in the quarter 4 of the last financial year, touching almost INR [ 32 ] crores of retail disbursals in the month of March, almost disbursing about 400 files, and login had also significantly increased. We had also doubled our sales manpower in the quarter 4 of last financial year. We continue to build our sales engine competence by increasing the manpower. We are currently at about 550 people spread across 103, 104 branches. We have added 2 states. So now our sales engine is as well-oiled machinery as our collection engine is. And we are all geared for increasing the disbursals. And June and July month has been fairly encouraging. We have touched almost 1,000 files of login, which is more than actually March month login that we have already done in July. June was also good, but disbursal obviously follows with a certain lag, and we should be crossing the March disbursals numbers in the month of July. We still have a couple of days, I mean, today and tomorrow. So over a period of next 3 quarters, we believe that from a current average disbursal of about INR 30-odd crores, we should be able to move towards INR 100 crores disbursal by quarter 4. We still continue to hold that view because the capacity is there, manpower is there. Geographically, we are quite well spread out. Products, technology, everything is in place. We had moved in the right direction in the last quarter of last financial year. Unfortunately, April and May was a dampener, but we believe that we are all ready and without taking any significant risk going forward, we'll be achieving a number of INR 100 crores in last quarter should not be an issue in terms of capacity that we have.

Got it, sir. And just last question from me. I think it might be a bit early if you want to comment, you can comment. Just you have seen that the mortgage assets, there's a lot of interest in some of the IPOs are coming at a really good valuation. So any thoughts from our side? Are we looking to do an IPO for Home Finance business ? Or will we be open for any strategic partnership or a private equity to partner with? Any thoughts on that?

So the business, as we see that it's quite well capitalized. We -- our leverage is only 2.6x. And even if you look at the kind of growth that we have planned for the next couple of years, we don't expect leverage going beyond 5x and our internal approval from the Board is up to 6x. Our CAR is also comfortable at 47% as was mentioned earlier by Navin. So currently, there is no pressing need for going for either a private equity or an IPO. But it depends on how things move from here and once the business stabilizes and the growth is sustainable, I guess, all these are things that can be evaluated going forward progress in the end. We have the capability to do it in a very short span of time.

The next question is from the line of Shalini Vasanta from DSP Mutual Fund.

This is Vivek Ramakrishnan. My first question is on the book and you had mentioned growth plans, 45% of the book salary got cemented and the balance is the various categories of cash and self-employed. During the lockdown, how was the customer behavior across these various segments? Is there anything which is more affected than the other? And which segment will you be looking to grow given your experience over the next 1, 2 years?

So as far as our -- when we look at our book, we have not seen any significant difference in terms of behavior given that these customers are informal segments of the society in terms of income. So we are not seeing too much of a difference in terms of salaried and self-employed. Yes, cash salaried segment, we did some -- and also to some extent, non-documented self-employed segment, we did see some difference. And during the COVID period, we had obviously restricted certain profiles, which were largely impacted by COVID and though COVID 2 wave has been a little different than COVID 1 because in COVID 1, there was a lot of uncertainty and understanding was very limited. This time, we have seen that the cash flows are not so impacted as much as the unwillingness of the customer to part with their money because they want to sort of hold it for the rainy day kind of a situation given the deaths in the family and so on and so forth. But cash flow has not so much got impacted in wave 2 as much as it was impacted in the wave 1 because of very severe and very elongated lockdown that time around. We don't see -- we will continue with the percentages because we -- in terms of salaried and self-employed, about almost an equal proportion. I believe that -- we believe that more than segment, it is the underwriting philosophy in terms of what changes we have done in the organization. If you look at the performance of our new book, incremental book from March 2018 -- April 2018 onwards. So we have done certain changes in the policies, certain changes in the maker checker -- broadly maker-checker concepts, fraud control department, segregation of duties. Basic conventional risk management practices, which is very essential for any lending business. So we follow that, and we give due importance to the policies and products. And I -- we believe that our percentage would largely be 55% self-employed and 45% salaried over a period of time.

That is very useful. I just have one follow-up question. You have indicated the collection efficiency chart where you said it was 110%, including prepayments in June 2021. Are you seeing that your very interesting point that people's incomes are not affected, but there has been the part of the cash given the emerging situations that were there around the country. Are you seeing that those customers are even clearing past dues? In the sense, would you see stage 2 rolling back to stage 1, now that you seem to be in a better footing?

So surely, we actually had seen that happening from September 2020 to March 2021. We had witnessed that despite the fact if you go back to the COVID 1, we have seen that the collection efficiency was as bad as 60%. But this time, it has been around 85% in April 2021. So there is a huge difference. And we feel that while we took a longer time after the first wave for us to come back to a 97%, 96% collection efficiency, this time, we believe that April and May was bad, but we are back in 90s. And in the next 1 or 2 months, we should be back again at the pre-COVID collection efficiency levels. And customers are definitely where we can see that our normalization rollback and rates are showing improvements. And as the lockdown conditions become more and more -- ease out more and more, we are seeing that normalization and rollback numbers are doubling from 3% to 5%. We are going to 10% to 15% roll back, for example, in bucket 2. So we can see that improvement happening.

The next question is from the line of Saurabh Dhole from Trivantage Capital.

I have a couple of questions. So firstly, on the asset management side, what I see is that the revenue gains on the business have kind of shrunken if I look at it sequentially. And I think it is because of the AIF side. Could you talk a little bit about what's happened on that part of the business?

Yes. So you're right that the fourth quarter included carry gains on the AIF closure, which if you add to the overall yields will bump up the yield by almost 12 basis points compared to the adjusted for this number yield that you talk about. The second thing that we should keep in mind is that we've seen very rapid growth in the passive business with gross sales of almost INR 15 billion in that business during the current quarter. And the need there is much lower than the average yield of the business. So if you look at the like-to-like yield of the mutual fund business or the alternate business, those yields have been very steady. The marginal correction that you see is entirely because of the mix change.

Okay. Okay. Okay. And sir, coming to the housing finance business, I think you said that the overall of the back book yields are about 13% or 14%, right?

Yes. So average yield on the book is 13.8%.

Okay. And what would those yields be separately for salaried versus self-employed?

So basically incrementally, as we stated that we are offering at 11.5% to 15%. So that's our incremental yield.

Okay. So the salaried side would be more like an 11.5%, 12% and self-employed would be about 15%?

Yes.

Yes. So the range varies between 11.5% to 15%. 15%, we do some degree of non-home loan business in terms of loan against property. So that happens at around 15% to 16%. But on the home loan side, it is about 11.5% for customers with what we call are salaried or documented salaried customers. So cash salaries are more in line with self-employed kind of pricing.

Okay. Okay. Okay. And sir, lastly, on this NHB borrowing. What is the limit that you can touch on NHB borrowing?

NHB borrowings, actually, we can touch the limit of INR 1,500 crores, [ this is our account ] fund. Currently, we are just about INR 250 crores.

Okay. And what is the incremental borrowing rate here?

Incrementally, NHB has been lending to us at 6%.

The next question is from the line of Nishith Shah from Aequitas Investment. Please go ahead.

Sir, I wanted to understand our investment banking division. So a few years back, this segment -- this division was contributing significant to our overall profitability. Sir, I wanted to understand what has changed over a period of time because recently, we see too many IPOs coming, but our revenues and profitability has not changed much?

Yes, we have seen a change in leadership in that business, which had some impact in the last 2 quarters. But as we have highlighted in our results presentation and our press release as well, we have a pretty good signed, mandated kind of IPOs for the rest of the year. And you already saw the recent G R Infra IPO that got closed and -- so those revenues will also get booked in the second quarter of the year. But also the pipeline is good. So you should see some traction in the business performance in the coming quarters.

Gross profitability, are we looking in our private equity business and investment banking business, if you can share that number?

Sorry, can you repeat that question?

Sir, what kind of income and profitability are we looking to book from this G R Infra booking in the private equity and the investment banking division?

So as far as the private equity division is concerned, we will be booking a profit share of about between INR 80 crores to INR 85 crores of profit number, profit after tax. And as far as investment banking is concerned, there would be a fee on the IPO along with the other bankers as well. We won't break out the separate number as of now.

We have already won that INR 90 crore arbitration order, but we have not yet recognized in our P&L, right? So by when are we planning to recognize that?

So actually, once again, the client has gone into the higher appellate authorities for this. So as of now, we don't have any tangible collateral against that to recognize it. However, as the client has been forced by the court to earmark assets to that extent, so that order still continues. And if the client deposits -- is required to deposit the money with the court, then to that extent, we can try to accrue the income from that order.

The next question is from the line of Shubhranshu Mishra from Systematix.

So my first question is on the EBITDA margin and on the OpEx of the asset management company. When I look at the OpEx, it's fairly heavy versus the rest of the AMC businesses. It's roughly around 29, 30 bps of the AUM. And if I look at the EBITDA margin, it's around 36%. When I look at the other players in the AMC business, they're at around 60-odd percent. Some are at 70%. So that's the first question on the OpEx and the EBITDA margin. What's your aspiration number in OpEx as well as EBITDA margin? Second question is, when we look at the sourcing of the AUM, we have got direct. So this direct is directly from the customers or is it from RIA? What proportion is from RIA? And when you look at the sourcing from wealth management and banks, what proportion is from banks? Those are my questions.

Okay. So if you look at the yield of the asset management business, they compare very favorably compared to the peers because of the 39% share of the alternate, the yields are much higher. Secondly, the size of our mutual fund schemes are much smaller, which allow a higher yield to us compared to some of the peers. So the issue is not with the top line. The issue is that the size of the AUM here is a lot smaller at more like INR 46,000 crores compared to the AMCs that you're comparing with, which have AUMs ranging from INR 2 lakh crores to INR 5 lakh crores -- INR 2 lakh crores to 4 lakh crores, 5 lakh crores. And so the operating leverage that you get from a 10x to 15x in terms of your AUM without attendant or without a proportionate increase in costs gives you that quarter. So our cost in terms of bps is a big operating leverage that can play out over the coming years as the AUM grows while the yield is much higher than the peers. So that's the first point. In terms of the mix, our direct business is also partly higher because of the highest skill in the game that we have compared to many of our peers and all of that AUM in excess of INR 30 billion shows up within the direct sourcing. In terms of the breakdown, further, we don't share a very detailed breakdown of the contributors to this AUM across all the channels. We have put down some broad mix in our presentation, if you see 37% direct, 25% national distributors, 22% IFAs and 15% bank for the mutual fund business. And as far as the alternate business is concerned, that's much more loaded in favor of mutual fund and in favor of wealth management firms and banks. So that's at about 56% from wealth management channels and banks, 30% from national distributors and a smaller 9% from IFAs, very small 5% direct.

Right. If I can just squeeze in one more question. When you look at the difference of FY '21 and first quarter '22 of the mutual fund AUM, which is roughly around INR 2,6000 crores. How much of it is from MTM and how much is it from flows?

So we had -- so there are 3 things there. A lot of it is MTM. In our active side, we've had net redemptions. And on the passive side, we had very strong flows. So these are the 3 effects within the overall AMC AUM that you should keep in mind.

Right. So if you can quantify it, sir, it will be very helpful. Is that INR 2,600 crores, how much is MTM and how much is flows?

So compared to the same quarter last year, INR 33 billion, INR 34 billion is the impact of the mark-to-market within this. And the rest of it is the net flows.

The next question is from the line of Hitesh Gulati from Haitong.

I just wanted to check on our housing finance business. So how many branches would we have in Tier III and below cities in this segment?

Sorry, sorry, I was on the mute. Yes. So we will be adding about 50% of our branches would be Tier III.

Okay. And sir, just one more thing, sir. What percentage of our loans in this segment will be to people with like doctors or CAs who are actually like professionals, but not in the salaried or self-employed category? And has this segment been a big segment for us, sir, in the past?

Not really.

Not really. So we only have salaried who are like low tickets, not really high salaries and self-employed, that's our only segment that we have?

Yes, self-employed, nonprofessionals, yes, absolutely.

[Operator Instructions] The next question is from the line of [ Vinod Chandra Agarwal ], whose an individual investor.

I just want to understand our view on the housing finance...

Mr. Vinod, we can't hear you very well. Your voice is very low.

Okay. Yes, just a minute. Are you able to hear it now?

Yes, sir, please go ahead.

I just want to understand your view or the business plan on the housing finance business because I'm aware that our thought was to start this business to give some stability to our revenue for the each quarter, right? But right now, if you see from a long time, the business is generating return on equity just around 5%, which is below than the government bond yield, right? So what's your view on that, like how the future is going to be and what type of the return on equity from the housing finance business you want to achieve?

Yes. So we started this business about 5, 6 years back and there was certain challenges in the initial period in terms of the asset quality. The growth had been pretty fast, and that resulted in some degree of impact on the asset quality. And also, unfortunately, though we had put a lot of effort in the last 3 years in terms of reversing the decline of the asset quality and bringing about change in terms of technology and in terms of people, in terms of collection, building up collection infrastructure and people and also on the sales side and underwriting side and so on and so forth. But unfortunately, the COVID 1 and COVID 2 has slightly delayed our kind of plans and impacted the kind of growth that we had anticipated to come back in terms of from where we -- from the -- after making certain corrections. However, if there is no further kind of hurdles because of the pandemic, we believe that in terms of the equity, in terms of the capital, in terms of the promoter strength, in terms of our relationship on the liability side with the banks and in terms of the cost of funds, which we have significantly improved in the last 2 years. So while there were challenges in the market in terms of not able to grow the business, but on many other aspects, whether it is in terms of the risk management, in terms of the technology, whether it is in terms of the liquidity, we have done significant technology. We have done significant amount of investment in terms of time, effort and money so that we are ready to sort of grow. And now from a geographical expansion from a spread perspective in terms of our capability, we have about 1,400 employees. We have the sales engine. We have the collection capabilities. So if all goes well, we should be back on in terms of disbursal of about INR 100 crores in the quarter 4. And over the next 3 to 4 years, I guess, that delivering the 15% return on equity should not be a challenge.

Okay. That helps a lot. Another concern is about our broking business side. Like we don't have any discount broker kind of plan for our customers. The customers who are [ adoptive ], right? Similarly, how we launched for our passive fund and the mutual fund, whereas some of the customers who want to do for a passive, we try to capture that pool -- customer from that pool also. Similarly, can we not launch some kind of discount broking kind of plan to get some customers from that pool as well? Or what's your view on that in future about the discount [ of same ]?

So we have been expanding our reach in terms of customers through our brand channel and the digital mode along with our old age franchisee model. So we are very clear that we will be expanding this model to our research and advice base where we see that we want to add value to our customers in the business which we do. So as of now, there is no such plan to open any discount model in our overall broking model, and we are seeing very good traction in the business in the way we have been able to provide the research and advice as well as the distribution business, which is well aligned with our booking overall business model.

[Operator Instructions] The next question is from the line of Sahil Mittal from HDFC Securities.

Sir, firstly on the asset management business, when I see the overall revenues for the asset management business, there has been a significant dip on a sequential basis. So I understand that there were some one-offs in the last quarter. But is that the only reason why there has been a significant debt sequentially? And the second one is a bookkeeping question that if you could share the breakup -- net flows breakup between MF, PMS and AIF?

Yes. So you're right, absolutely, Sahil, that the entire drop in the revenue is attributable to the carry included in the top line in the fourth quarter that did not recur. These carriers are typically booked at the time of the closure of the AIF and that is the reason why you're not seeing that number coming through. In terms of our breakdown of the AUM, we have about INR 7,000 crores AUM in the passive business, about INR 18,000 crores in alternate assets and about INR 20,500 crores in the mutual fund business. If you total that up, that will add up to about INR 46,000 -- INR 46,500 crores of AUM.

Actually, I wanted the net flows breakup for the quarter?

Net flow breakup, okay?

Yes, so the net flow for the alternate business was -- actually, there was an outflow of INR 2 billion. And for the mutual fund business, there is a INR 7 billion positive net flow. So cumulatively, we put in INR 5 billion net inflow at any [ similar time ].

So when I look at your mutual fund AUM on a quarter-over-quarter basis, it has declined so -- despite the inflows.

Sorry?

No, there is a growth on quarter-on-quarter basis.

There is a growth quarterly.

Because we had interim benefit also, plus there is a INR 7 billion net inflow in mutual fund.

Yes.

We'll take that as the last question. I would now like to hand the conference back to Mr. Shalibhadra Shah for closing comments.

On behalf of Motilal Oswal Financial Services, I would like to thank every participant for attending the Q1 FY '22 con call. In case of any further queries, please do reach out to me or our Investor Relations desk. Thank you. Have a great day.

On behalf of Motilal Oswal Financial Services, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.