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

Good morning, ladies and gentlemen. I am Janice, the moderator for this conference. Welcome to the Q3 FY '22 Earnings Conference Call of Motilal Oswal Financial Services Limited. We have with us today Mr. Raamdeo Agrawal, Chairman; Mr. Motilal Oswal, MD and CEO; Mr. Navin Agarwal, Director and AMC CEO; Mr. Ajay Menon, CEO, Broking and Distribution; Mr. Arvind Hali, CEO, Housing Finance; Mr. Shalibhadra Shah, Chief Financial Officer; Mr. Rakesh Shinde, investor relations. [Operator Instructions] Please note that this conference is being recorded. I would now invite Mr. Navin Agarwal to make his opening remarks. Thank you. And over to you, sir.

Good morning, everybody. It is my pleasure to welcome all of you once again to the Motilal Oswal Financial Services earnings call for the third quarter and the 9 months ended 31st of December 2021. I wish all of you a very happy new year, and we hope that each one of you and your families are safe and in good health. For the third quarter, we reported operating profit after-tax growth of 92% year-on-year at INR 2.33 billion. This is the highest ever quarterly operating profit for the firm. For 9 months, we reported a profit after tax-growth of 25% at INR 9.96 billion. And these profits, excluding gains on investments, grew by 58% year-on-year to INR 5.49 billion, which is the highest ever 9 months operating profit as well. Core business was robust, with capital market profit after tax up by 99% year-on-year and 22% quarter-on-quarter. Asset & Wealth business saw a 61% Y-o-Y growth led by 38% growth in the asset management profits, 186% growth in the wealth management profits and 46% growth in the private equity business profits. Consolidated net worth touched all-time high at INR 53.8 billion. Net debt is INR 46 billion, excluding home finance. We are a net cash company, net of our equity investments. Return on equity for the 9-month period stood at 31%. The Board declared highest-ever interim dividend of INR 7 per share. We are also happy to inform you that, during the quarter, we've onboarded a digital head, Mr. Vipul Nirwani, who's ex-Amazon and McKinsey, in the broking and distribution business. We've also onboarded Mr. PH Ravikumar, whose ex-Vastu, Utkarsh, ICICI bank, on our housing finance and our home finance Board. Turning to the key highlights business-wise. For our capital markets business, we continued to see strong growth of 69% Y-o-Y and 20% quarter-on-quarter in our revenues, led by strong traction in client addition, 92% growth in average daily turnover, the mix favoring high-yielding cash delivery volumes. We witnessed strong growth in active clients and traction in our distribution business as well. We continue to make investments in augmenting our talent pool and our distribution network and also continue to benefit from consolidation in the broking business. We've also started adding talent at -- on the digital side to revamp our digital journey. In asset management business, we witnessed lifetime-high markets, which have in turn lifted our AUM to our highest ever. Our mutual fund gross sales and SIPs also gained traction. And AIF continued to receive encouraging response among high-net-worth-individuals. IREF V, which is a real estate fund fifth series, has raised INR 10.9 billion. We've also launched our largest-ever private equity growth fund India Business Excellence Fund series 4 with a target size of [ INR 40 billion ]. We are happy to inform you that we've received a tremendous response to the launch of this fund and achieved first close of INR 27 billion. As far as the home finance business is concerned, we witnessed strong pickup in disbursements, traction in our log-ins and sanction pipeline and a meaningful expansion in sales force to ramp up our disbursements in the coming quarters. Finally, sharp reduction in cost of funds that we have been seeing for the last few quarters continue during the current quarter. And that was the big driver for our margin expansion in this business. Further, with a series of rating upgrades we've received, we believe that liability franchise both in terms of availability and cost of funds is only likely to get better. I will now deep dive into individual businesses, starting with the capital market franchise, comprising of the retail broking, institutional equities and investment banking business. Our revenues for the segment were at INR 7.26 billion, up by 19% quarter-on-quarter and 68% year-on-year. They were at INR 18.4 billion for the 9 months period, which is up by 54% year-on-year. Our capital markets business contributed to 55% of the consolidated revenues of the entire firm. Profits grew by 22% quarter-on-quarter, doubled on a year-on-year basis at INR 1.5 billion during the third quarter. And for the 9-month period, they were up 64% at INR 3.5 billion, led by healthy volume growth of 92% year-on-year. Within the Retail Broking & Distribution business, we witnessed strong traction in new client additions led by franchisees as well as our own brand channel. A total of 640,000 clients were acquired in the 9-month period, which is up by 62% year-on-year. NSE active clients have also registered a 59% year-on-year growth at 790,000 as of December of 2021. [Technical Difficulty]

Members of the management, this is the operator. Could you please confirm if you could hear me? Ladies and gentlemen, thank you for patiently holding the line. We have the management reconnected. Over to you all, sir. You may, please, go ahead.

I'm not sure where we got disconnected, but I'm still going to start with the deep dive into our individual businesses, starting with the capital market businesses.

[indiscernible]

[ No. This had 1 minute before the ]...

[indiscernible].

Yes. So starting with the capital markets business. It comprises of the retail broking, institutional equities and the investment banking business. Revenues for the capital market franchise went -- were at INR 7.26 billion, up by 20% year-on-year, up by 70% -- by 20% quarter-on-quarter and 70% year-on-year. And they were at INR 18.4 billion in the 9-month period, which is up by over 50% year-on-year. The capital market business has contributed to 55% of the consolidated revenues. In terms of profits, the number grew by 22% quarter-on-quarter, 92 -- 99% year-on-year at INR 1.5 billion. And for the 9-month period, we're at INR 3.46 billion, up by 64% year-on-year. In Retail Broking & Distribution, we witnessed strong traction in new client addition led by both the franchisee as well as captive branch channel. A total of 640,000 clients were acquired in the 9-month period, which is up by 62% year-on-year. Our NSE active clients have also registered a 59% year-on-year growth at 790,000 as of December '21. In terms of the distribution AUM just of the retail broking business ex the wealth business, it was up by 39% year-on-year at INR 166 billion as of December '21. This is with only 16% of the 2.6 million client base tapped. And we expect continued traction as we cross-sell to more clients and cross-sell more number of products per client. In institutional broking business, the team continues to win big in Asiamoney poll. Once again, like in 2020, even in 2021, we were ranked #1 best local brokerage house, best sales, best execution and best corporate access. Strong improvement in domestic rankings, with top 3 clients have been retained in most clients, which in turn drove our revenues and profits. This in turn has been a result of differentiated research products spanning 250 companies and over 20 sectors. In our investment banking business, we participated in 3 deals during the quarter, but importantly we have a strong pipeline of signed IPO mandates, which have started entering the market from the fourth quarter onwards, which in turn is expected to drive stronger traction in revenues and profitability in the coming quarters. Turning to the asset and wealth management business. Our asset management business AUM, spanning mutual funds, PMS and AIF, stood at INR 507 billion, up by 20% year-on-year. We witnessed a strong growth in PAT to INR 528 million, which is up by 27% quarter-on-quarter and up by 38% year-on-year. For the 9-month period, the asset management business profit stood at INR 1.3 billion, which is up by 43% on a year-on-year basis. Our equity mutual fund AUM stood at INR 310 billion, which is 1.5% of the industry mutual fund equity AUM of INR 21 trillion. We have seen improvement in performance of several products. Our gross sales and net sales have started improving. We've also witnessed favorable response towards our alternate asset offering, including AIFs, and expect continued flows in these strategies. Our share of alternate assets comprising of PMS and AIF stood at 37%. We've added 340,000 SIPs in the 9-month period, which is up by 57% year-on-year. Our new SIP market share stood at 1.7% in the 9-month period. Our private equity business has fee-earning AUM of [ INR 98 billion ] across 3 growth capital private equity funds and 4 real estate funds. In third quarter, revenues stood at INR 323 million, PAT at 100 million. Our first private equity growth fund delivered XIRR of 26% plus. Average IRR on exited investments in real estate funds stood at 21% plus. Our fifth series real estate fund has raised INR 10.9 billion. Our private equity fund launched -- our private equity business launched a fourth series of the growth capital fund with a target size of [ INR 40 billion ] and has already achieved the first close of INR 27 billion. Within the wealth management business, our AUMs were at INR 342 billion as of December '21, up by 50% year-on-year. Revenues were at INR 593 million for the quarter, up by 80% year-on-year, led by strong net sales of [ INR 18.4 billion ] in the third quarter. Our yield for this business stood at 73 basis points. Our RM count stood at 139. Our trail revenues predominantly cover our fixed costs. And strong operating leverage is visible, led by improvement in RM productivity. We continue to invest in this business by adding RMs. Overall asset and wealth management business revenues were at INR 2.59 billion, up by 37% year-on-year, and at INR 6.83 billion for the 9 months period. This business -- these businesses contributed to 20% of the consolidated revenues and 21% of the consolidated profits. Turning to the home finance business. We reported a profit of -- profit after tax of INR 188 million in the third quarter, which is up by 300% year-on-year. For the 9-month period, we reported a profit of INR 473 million, up by 121% year-on-year. Our NII grew by 10% year-on-year. NIMs expanded to 7.6% in the third quarter. Yield on advances stood at 14%; cost of funds at 8.1%, down by 85 basis points, resulting in an expansion in spread to 5.9%, up by 65 basis points. We've raised INR 6 billion in the 9-month period at an average cost of 7.06% versus our overall cost of funds of 8.3%. And this number is expected to trend lower in the coming quarters, led by the latest rating upgrade of the MO home finance company. Disbursements during the third quarter stood at INR 1.9 billion, up by 19% quarter-on-quarter. We believe that the business is geared up for stronger growth in disbursements with the sales force expansion currently underway. In the third quarter, our provisions were higher due to new NPA recognition norms by RBI, which led to rise in NPA -- GNPA by 120 basis points quarter-on-quarter to 3.4%. Excluding this new norm, GNPA would have been 1.3%. However, our collection efficiency in December has reached about 100%. Our net gearing still stands at just 2.4x, and Tier 1 capital adequacy remains robust at 47%. Finally turning to our fund-based activities, which include commitment to our asset management, private equity, real estate products. Our fund-based investments have registered gains of INR 61 million in the third quarter and INR 3.6 billion in the 9-month period. Total quoted equity investments, including unrealized gains, stood at INR 26.9 billion as of 9-month period. Our cumulative XIRR on these investments was about 18% since inception. Our total equity investments, including alternate funds, stood at INR 37.6 billion as of December '21. And the XIRR on our [ private equity and real estate ] investments have been a compounded 33% per annum. To sum up. Our last financial year was a landmark year for us with highest-ever revenues and profits. This year, ending March '22, we are continuing to witness similar trend as we deliver highest-ever quarterly profit as well as a 9-month operating profit. Our retail broking business, which is our cash cow, has achieved new highs on various parameters, benefiting from the industry consolidation. Our institutional business continues to be ranked #1 local brokerage house for the second year in a row. Our strategy to invest business profits in our own equity investment products led to highest-ever profits, and as a result, our net worth touched new highs as well. Moreover, our strategy to diversify our business model towards linear source of earnings continue to deliver results. Our asset management business is likely to gain from the process-driven investing and its niche offerings. Our wealth management business has delivered stellar performance in the 9-month period and is on its way to achieve scale in this business. Private equity business has delivered on both successful exits of its investments as well as fund raise of its largest-ever fund. And finally, our housing finance business is geared for profitable growth. Each of these 7 businesses offer adequate headroom to growth. We are now open for Q&A. Thank you.

[Operator Instructions] The first question is from the line of [ Kartik Sahani ] from [indiscernible] [ asset management ].

Two questions, sir. First of all, I would like to know the size of your MTF book. And secondly, considering the digital push, I would want to know, what is your target for the overall cost-to-income? Currently I think it is at around 51%.

Yes.

Yes. So actually MTF book, the total funding book in our retail broking business stands at 2,100 crores at the end of the quarter. And in terms of the cost-to-income, overall if you see, cost-to-income for us has been coming down because, if you see, there is a margin expansion which has happened during this quarter as well. So our EBITDA margins are at 41%. And certainly we are seeing the benefits of this operating leverage playing out because not only brokerage has risen, but even other revenues continue to contribute to the operating leverage, which is the distribution income, the advisory revenues and the interest revenues as well. So while we have invested also heavily last year as well as this year in the manpower and technology costs, we continue to do [indiscernible] profits. However, given the operating leverage improvement year-on-year, of course, definitely we would see the cost-to-income lowering every year.

And sir, is there any target figure for this?

[ As yet ], we don't have that target number, but we can assume [ safely ] 35% [ overall ] EBITDA margin, which we have been consistently having and improving over that as well.

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

Congratulations for a strong operating profit. Sir, I just wanted to know. On the broking business, you have had these change norms IPO -- related to IPO financing, so what has been the kind of impacts, positive impacts, that we have had in Q3 and maybe will have in Q4? If you could quantify that. And what will happen post Q4 about -- how do you see that kind of impacting your broking revenues and profits, [ please ]?

Yes, Hitesh. So basically what you are asking is about the IPO financing spreads that have been there in the profitability, right?

And so basically from what I understand is that, because of the new lending norms for NBFCs, some of the kind of IPOs [ are getting pre pulled ] in the earlier quarters, right? So we are seeing some -- we will have seen some benefit of [ that, right ]? So if you could just quantify that benefit and [ how you're seeing ] post-Q4 [ months ].

Yes...

So as far as the IPO spreads are concerned. So during the quarter, we had a spread of about 40 crores included in our profitability on account of the IPO financing that we have done. As far as the new regulatory norms that have come -- so suddenly it has an impact on the HNI piece because -- the HNI piece, where this is -- by doing a gross loss. So it will have some bit of impact, but I think market would regularize that over a period of time because, what you have seen, any new regulatory framework coming in will get [ settled ] in a span of 2 to 3 quarters. So maybe there could be some bit of impact on account of that from April 1. However, we will see that normalizing in due course because of the [ ability change ].

Sure, sir. [ So 146 crores ] broking profit, particularly IPO financing. Can we -- is my understanding correct, [ please ]?

I said that there is a PBT number of 40 crores included in the broking profits in Q3 of this quarter, as far as IPO financing activity is concerned.

Okay, sure, sir. And sir, just one question on cash ADTO. So if you look at Q1, it's almost flattish. So you -- can you read into that...

Sorry. You -- unable to hear your voice clearly. Could you repeat it?

Yes, sir. Sir, I am talking about cash ADTO.

Yes.

On cash ADTO, Q-o-Q, we are almost kind of flat. So is that understanding correct? [ Or is there ] any reason for that?

Yes, that's right. That understanding is correct. We are flattish on a sequential basis in terms of the cash ADTO is concerned, whereas for the F&O we have seen improvement in our market share by 20 basis points on a sequential basis.

So any reason for why it's kind of flat? Is that a market trend? Or I mean, in terms of market share, cash market share would be flat. Or is that we lost some market share there?

We have not lost any market share on the cash market, if you see that the volumes have been shifted towards [indiscernible] in a big way. So we have maintained our cash market share and increased our market share on the F&O.

The next question is from the line of Prakash Kapadia from Anived Portfolio Managers.

Yes. Could you comment on the kind of technology spends we've done this year because the entire operating environment has changed? Volumes have gone up. Work from home was going on. So what kind of technology spend have we seen this year?

Yes. In terms of the technology spends in our Retail Broking & Distribution business, we have a spend of -- averaging about 10 crores per quarter in the course of this financial year...

Yes, okay. And that should continue as we move forward.

Yes, it will continue. In fact, it has been enhancing year-on-year because -- and this also does not include the people costs. So [indiscernible] over and about this. So we can...

[indiscernible].

[indiscernible].

Yes.

[indiscernible].

[indiscernible].

So -- and we continue to add more talent even on the digital side of our business there, as we have been announcing every -- quarter-on-quarter. So this number [ would keep likely ].

All right. And at a system level, we are seeing incremental demat accounts opening. Demat accounts have doubled. NFOs are doing well, SIP flows. So all the constituents are firing together. Typically, based on our experience and cyclicality, what happens when the cycle turn? Which gets affected the most? Is it direct investment and incremental investors then NFOs, then SIPs? What happens when the cycle turns?

[indiscernible].

[indiscernible].

Yes. This is Raamdeo Agrawal here. So this is unprecedented cycle because -- the way I understand, let me tell you. And then we can take questions. One is that the demat accounts, which were -- for till about 2020 was 40 million, has doubled in next, say, 24 months. If I just -- the same, in -- of '21, [indiscernible] 80 million. And my sense [ is that -- for ] 200 million in next 2 to 3 years, 3 years. So this cycle of horizontal expansion of the market, particularly in retail, is going -- continuing at different paces from next 3 to 4 years. That's my sense. Okay, after that, once the market has expanded, then obviously the cycles will come. They will be much more shallower, but first market will expand by 2, 3x [ from here ]. And then of course [indiscernible] how steep is the correction. We have seen the corrections are there. Volumes [ will come down ] and brokerage will come down, but I think [indiscernible] [ much higher ] [indiscernible].

Yes, okay, okay...

And so [indiscernible] consolidation, the consolidation on both sides, [ but from ] broking side, you are seeing a consolidation of [ 20%, 15% ] market share of the [ top 3, 4 ]. Like that, even bigger consolidation will happen on the advisory side, advisory and execution side. That is where we belong. So there also there will be a lot of consolidation. And hence, the market in terms of volume [ might be, say ], 25% for the advisory. And 75% [ by sheer volume ] will be for the [ discount broking ], but in that 25% you will see a lot of emergence of consolidation. And so on expanded market, you will have consolidation. We have to really make sure that we are survivors of the consolidation rather than losers of the consolidation.

Right, right, right. So this is like what real estate went through in -- [ as you know, in earlier years of super ] cycle. I think 2004 to '12 or '13.

Yes. [indiscernible] real estate is a physical business. This is a digital business. You don't need more than 2, 3 players to cater to the whole country, so consolidation, kind of a winner takes it all is going to happen here.

Sure. That's helpful. And lastly, I think PMS AUM for us has been flat for almost 4 years now. A couple of quarters, we had highlighted there were some performance-related issues which had affected flows, so how has the performance been? And if you could comment market share changes, if any, at our end in this kind of period. Has there been a major loss, major shift? Are we more or less similar in terms of market share? If you could comment on that, it will be helpful.

Yes, yes, a couple of aspects here. First is that, because of up-fronting being banned on PMS, we've seen a takeoff in the last 1.5 years in AIFs. So AIF commitments this year are up by 50% compared to the previous. Secondly, as far as the PMS is concerned, our flagship Next Trillion Dollar Opportunity product, as of 31st of December, was among the best-performing product in the category. So in the first [ phase ], we've seen a sharp slowdown in redemption there. And we are hopeful that 2022 should see a very strong pickup in net sales, as far the PMS product is also concerned. So we are looking at continued strong traction in AIF sales. As I mentioned, they are up 50% year-on-year incrementally. And PMS, where the flagship product is performing in line with the best-performing products as of 31st December. And we expect strong traction in that in the calendar year 2022.

Understood. And lastly, on home finance, Maharashtra and Gujarat are 36% of disbursements, so where do we see them settling down? And Delhi and Haryana are 17% of disbursements. So is that a reclassification? Or you build that from scratch in the last few quarters.

[ Yes ]. So historically [indiscernible] Maharashtra and Gujarat have been the initial states where we started our business. And almost 50% of our current branches are in Maharashtra and Gujarat. So they have -- over a period of time, concentration has reduced, not in terms of the business that they generate but as a percentage of the overall business, because other states, we have started to densify. And we have started to increase our penetration in the states like Rajasthan, Tamil Nadu, Karnataka, Andhra Pradesh. Delhi, NCR and Haryana are states that we have just recently launched in the financial year '22. They have just been in operations for the last 8 months. And on an incremental basis, they have been doing pretty well. And then -- and therefore, at the overall percentage, they have shown significant contribution, but over a period of time, we expect that Maharashtra and Gujarat will continue to remain about 30% of the overall [indiscernible] [ but still ] on an incremental basis.

The next question is from the line of Madhukar Ladha from Elara Capital.

Congratulations on a good performance. And just a couple of questions from my side: First, what are the net sales in asset management for this quarter? Can you divide it in mutual funds, PMS, AIF?

Yes. Net sales are 12.7 billion for the quarter and which is comprising of 2.2 billion on alternates. And rest is on mutual funds, so -- yes.

Yes, but so if your -- the AUM is only going up from -- yes. Sorry. I understood that, yes. Sorry, my bad. And so this time, I see that there is an improvement in yields. And the profitability of the business has also improved, so there is a little bit of a margin improvement. And the tax rate is also lower, so can you explain what is actually happening? Because the growth in revenues Q-o-Q is much stronger than the growth in assets.

Yes. Basically if we look at the EBITDA margin of this business: It's really back to the peak margins that we have earned before because AUMs have gone up also. So typically whenever you will see the benefit of mark to market, the benefit of sales, cross-sales, coming in, there will be strong operating leverage. In fact -- so that is something that is the driver of improved profitability. As far as pricing across our products are concerned, we have never [ completed ] on pricing for any of our products, so really the only [ real drop ] that you will have seen for our products in the last few years are driven by 2 regulatory changes where, first, the direct TER [ was equated ] with the intermediated TER, which was a big hit for us. And the second was there was a size-linked AUM yield that was defined by the regulators. So these 2 regulatory changes were the only 2 drivers to yield corrections, right? The other important driver to yield correction has been a mix change in favor of [ taxes ]. So those will give you some color on the yield on a like-to-like basis for an active mutual fund or a PMS or an AIF or a passive fund. The yields are best in class and stable. And so as you see, gross sales and mark-to-market impact, costs are likely to be sticky; and hence you will see operating leverage [ coming through ].

Right, but what I meant was actually that your units have improved in this quarter, right, because the AUM has gone up only like 2% Q-o-Q, but your revenue was up 14% Q-o-Q. So is -- and actually PMS in the mix has not gone up. It's actually down on a closing basis, so is there something else that's happening in there? Am I missing something there?

Yes. I'd urge you to avoid focusing too much on quarter-on-quarter because, if you look at the yields, in the third quarter, it's 75 basis points for the AMC. In the same quarter last year, it was 78 basis points, so down by 3 basis points, but in the second quarter, it was 72 basis points. We will have on a quarter-on-quarter basis sometimes even adjustments that are being made to the mutual fund yield to account for some overflow of expenses, et cetera. So maybe that may lead to 2, 3 basis points up and down on a quarter-on-quarter basis.

Understood, understood. So it's more because of that, you would say, then, okay. Okay, got it.

Yes, yes.

The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.

I have a bunch of questions, only on the home finance business. There are about 4 to 5 questions. [ I guess I'll ask them ] sequentially, if that's okay. I mean I'll just ask them to go right ahead. Would that be okay?

Yes, yes, that's perfect [indiscernible].

Okay. So these refer to Slides 37 to 40. I can understand NPA increased due to the change in RBI norms, but it's not actually to see it's -- like-to-like comparison, it's actually decreased. Does the change in RBI norms actually mean that your customer segment delays are possible but eventually that the money comes back? So the credit losses will be very poor -- very low. That's question number one. In Slide 37, we see entry of securitization, so is the company exploring alternative models like [ co-division ] or loan sell-downs to ensure growth in the future given the fact that most of the loans seem to be [ private sector-driven ]? Third question is there is incredible diversity in terms of your customer mix, product mix, et cetera, so is there any segment where you feel that there is a particular risk where you need careful watching? Or is this the way that the company is going to be in the future, where -- is it going to be spread across various segments? Because yes, I've also noticed that the -- a subsequent slide is giving FOIR and LTV. Is that a very critical part of doing home finance business of your kind? And the last question is in the cost-to-income, which has been in the 35% to 40% range throughout. With increasing operating leverage, your debt-equity [ is sort of ] extremely low. Do you expect that this will come down sharply in the future to give better-quality pre-provision profits?

Yes. So to take your first question, on NPA and the impact of the regulation and the recent regulations of Reserve Bank of India. So the segment in which we operate which is economically weaker section and low-income group, naturally the income earning has been impacted because of the COVID as well as the fact that the customer segment earns over a period of the month. And then therefore -- earlier, the way the things were operating in terms of classification of NPA, we used to get a little more time to collect the money. Now on the day of the billing cycle itself, if the customer has crossed 90 DPD -- so therefore, you have to classify it as an NPA. However, we believe that, as the economy is improving and the external environment is showing resilience, and there are obviously improvements, the normalization of the sudden increase in the NPA will happen. And we have already seen that -- in the last 45 days that our collection efficiencies have been improving. And it's almost 1,300% now, so we believe that while there has been a spurt in terms of NPA because of the regulation which was sort of a sudden act from the regulators, now our -- we are focusing on these cases. And we believe that the problem is that we have to actually normalize them. It's not that 1 or 2 EMIs have to be collected as in case of the earlier regime whereby, collecting 1 or 2 EMIs, you could basically roll back the NPAs. Now you have to collect all the outstanding installments. So that makes it a little tough, but I think over a period of time, given the improvement in economy, we should be in a position to reduce the NPAs. As far as securitization and direct assignment is concerned, I think it is an integral part of our strategy in terms of diversification of our liabilities. And we will definitely evaluate securitization and direct assignment of the portfolio. And for any housing finance company, I think it is a very important liability strategy. As far as co-lending is concerned, we are evaluating it. At this point of time, we would like to build our book rather than to go for a co-lending opportunity because our cost of funds is very much -- is very good. And therefore, at this point of time, we would rather like to build our own books rather than to go for a co-lending kind of model, but at some stage, it might make sense for us to look into that. As far as diversification of the customer mix is concerned, I think that largely we have a very balanced mix between salaried and self-employed customers, which we are almost 55% salaried and 45% self-employed. Over a period of time, the mix may slightly reverse more in favor of the self-employed segment, but on an overall basis I think it will be a very marginal difference. FOIR and LTV are basically determinants of the risks that you are taking, one, on the underlying security; and second, on the cash flows of the customer. And it's very -- these are very critical parameters for any lending business, not just housing finance business as such. So if you look at our numbers: They are pretty much in -- they are very, very conservative; and pretty much in control, [ 48% ] of FOIR and, I think, [ 55% ] on the LTV. So I think we have enough customer equity in the loans. And we are not very aggressive in terms of over-leveraging the customer. As far as cost-income is concerned. There -- or because we are in the buildup phase, and we will see a kind of a increase -- in the near future, there might be a marginal increase, but over a period of time, we believe that it will come down, as there will be increase in the revenues and costs will stabilize. Most of our hiring -- most of our investment will obviously go in terms of hiring at the bottom of the pyramid, so while the number -- the -- will be large, but the [ per-person cost] will be relatively lower. And as they become more and more productive, we will see that cost-income ratio will reduce. 60% of the costs, anyway, is the manpower cost. We will also invest in technology, and we are already fairly well digitized. And there are various projects which we'll keep doing in order to improve the throughput and reduce costs and also manage the risks through technology intervention.

If I can just ask a follow-up question. And I know I have taken a lot of time. The question is in terms of the ticket sizes also. I mean, even there, there's a significant [ step ]. Would you go for a larger ticket size so that you can get better -- quicker AUM growth...

So we are largely focused -- I mean, while -- we cater to EWS and LIG, but large parts of -- a large part of our incremental business is completely focused on low income group, which is basically the customer segment between annual household income of 3 lakhs to 6 lakhs. And therefore, our average ticket size, which is currently at about 9 lakhs, would tend to increase marginally maybe to about 11 lakhs to 12 lakhs. We do source business with a maximum ticket size of 40 lakhs, but on an average basis -- in home loans, but on an average basis it will be a lot -- it would remain a range bound between 10 lakhs to 12 lakhs.

The next question is from the line of [ Shalin Tet from sales front fund management ].

Congratulation on this great set of numbers. My question is related to the market share we have in the equity segment. So we have been investing in the company since quite years. [ We've been there ] for the past 8-odd years now. And 2016 was the year probably [ where we marked ] 2% market share. And for the past 6, 7 years, we have stayed put with 2%, so what trend do we really understand this to be going? And I do understand [ there is cutthroat competition ], at the end, but what do we perceive for the next 5, 7 years, considering that we are actually dealing with the best [indiscernible] brokers now?

So if you see, in -- our cash market share has continued to risen, whereas [indiscernible] market share also, if we see, has been gradually improving. So it is also a function of market mix where, if the F&O volumes dominate, definitely the overall mix and overall market share would look [ the same ]. However, [ the ] cash market share continues to rise -- because we are at about 6.3% cash market share. And every year, this market share number, we are targeting to improve by between -- about 50 to 70 basis points, which has been the trend, if you see, over last 4 to 5 years as well for our market share.

Okay, right. So my second question will be on the wealth management business. Sir, there was a [ significant growth ] that we had [ in the business in the ] third quarter. I just wanted to understand. Is this because of -- is this transactional revenue? Or this is the annuity income that [ we perceive will grow ] forward.

It's predominantly led by the annuity revenue. There is no lumpy up-fronting or transactional revenues. Obviously broking business is also a part of the overall -- I mean broking for these clients is also a part of the overall revenues. And so basically you've seen [ bounce in ] the overall broking revenue as well. We have a slide that we put out, Slide #34, which shows you that, in the third quarter, the recurring revenues as a proportion of total revenues went up from 43% in the second quarter to 47% in the third quarter.

The next question is from the line of Rishikesh Oza from RoboCapital.

Sir, my first question is on home finance. What is the average loan tenor?

So as far as the maximum loan tenor is concerned, we go up to 25 years, but on -- as far as home loan is concerned, but on an average basis, typically what we have seen, that [ actuarial life ] will be about around 8 to 10 years.

Okay, okay. And sir, my second question is given we are doubling our head count in Aspire. So what disbursements are we targeting in next 2 years?

Sorry. I missed -- you. I -- can you repeat...

Sure. So sir, we are doubling our head count in Aspire, so what disbursements are we targeting for the next 2 years?

Sorry just to correct you. We -- our housing finance company is known as Motilal Oswal Home Finance. And just to come back to your question on disbursements: So yes, as we speak today, we have, as we mentioned, about 1.9 billion in -- INR 1.9 billion of disbursement in the last quarter and that it has been an improvement on a -- about 20% on a quarter-to-quarter basis and about 280% on year-to-year basis. We feel that, in next about 5 years, balance sheet from current 3,500 crores will double to about 7,000 crores to 8,000 crores. That's what -- and the idea is to increase our disbursements. We have added sales force. And also, by virtue of a slight improvement in the ticket size and by virtue of increasing the productivity of the incremental sales force, we should be able to reach about 100 crores of disbursements in the next financial year and then, from there on, keep on increasing. Some locations will also be added. Branches will be added. We have obviously a plan to reach [ upper-level ] balance sheet in the next 5 years.

Okay, okay. And sir, my last question: What will be credit cost guidance for next year?

About 1%...

1%...

Currently it is obviously elevated because of various impacts, but next year, we plan -- we want to keep it within 1%.

The next question is from the line of Vibha Batra from FairConnect.

My question is on the housing finance subsidiary. I mean, at what level of gearing would you like to run the business on a steady-state basis? And second is, would you be looking at an IPO for the company? And what would be the time frame or [ asset base ] at which you would like to get the IPO?

Well, as far as leverage is concerned: So currently the leverage is below 2.5x. And so between 5 to 6x -- we believe we can go up to that level, which is a very comfortable level given the strong [ parental ] support as well and the capital available with the group. And in terms of the -- of listing plans, as of now, we don't have any listing plan, but definitely at a longer date, once we have demonstrated next 3, 4 years of growth, definitely we would look, at that stage, how to go about the listing of this company.

Yes, yes. One more question. So next year, when the credit cost is around 1% and your asset base expands, your leverage will go up marginally. That should be in possibly double-digit [ ROE ] for the housing finance business.

Double-digit ROE.

Yes...

Yes, yes, it's already close to that. So that will translate into a double-digit ROE, yes, because you'll have a 2.5%-plus ROE, 2.5% to 3% ROE. That is also ex [ assignments ]. If you have [ assignment ], then that -- we'll have a higher ROE. So to answer: in 2 -- or 2-digit ROE in the next year.

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Shalibhadra Shah for his closing comments. Over to you, sir.

Hi, everyone. On behalf of Motilal Oswal Financial Services, I would like to thank every participant for attending the Q3 FY '22 con call. In case there's any further queries, please do get in touch with me or our investor relations desk. Thank you. And have a good day.

Thank you very much. On behalf of Motilal Oswal Financial Services, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.