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

Good afternoon, ladies and gentlemen. I'm Nirav, the moderator for this conference. Welcome to the Third Quarter FY 2023 Earnings Conference Call for Motilal Oswal Financial Services Limited. We have with us today Mr. Motilal Oswal, Managing Director; Mr. Navin Agarwal, director and CEO, AMC; Mr. Ajay Menon, CEO, Broking and Distribution; Mr. Shalibhadra Shah, Chief Financial Officer; and Mr. Chetan Parmar, Head of Investor Relations. As a reminder, all participant lines will be in the listen-only mode [Operator Instructions] Please note, that this conference is being recorded. I now invite Mr. Navin Agarwal to make his opening remarks. Thank you, and over to you, sir.

Good afternoon, everybody. It is my pleasure to welcome you all once again to the Motilal Oswal Financial Services Earnings Call for the third quarter ending on December 2022. I'll take you through the key highlights of the operational and the financial performance. The operating profit after tax for the 9 months was at INR 619 crores, up by 12% year-on-year and was marginally lower for the quarter that we reported at INR 217 crores. Core businesses, starting with the Capital Markets business, we reported a profit after tax of INR 136 crores in the third quarter, up by 3% quarter-on-quarter. And for the 9-month period, reported a operating profit of INR 359 crores, which is up by 3% in terms of the 9-month period. The Asset and Wealth business reported a profit after tax of INR 669 million or INR 66.9 crores and which is flat quarter-on-quarter. And for the 9 months, reported a profit after tax of INR 1.92 billion, which is 7% lower than the same period last year. As far as the Home Finance business is concerned, we have seen strong traction there. We reported a profit after tax of INR 363 million, up by 9% quarter-on-quarter. And for the 9-month period, we reported a profit of just over INR 1 billion, which is more than 2x of the profit in the same time last year. Our consolidated net worth stood at INR 6,230 crores and net debt stood at INR 6,330 crores. Excluding Home Finance, our net debt stands at INR 3,850 crores. Our debt equity is 1.5x. And excluding the Home Finance business, the debt equity stands at 1x. We declared an interim dividend of INR 7 per share. I'll now take you through more details of individual businesses, starting with the Capital Markets business, which comprises of retail broking and distribution, institutional equities and investment banking business. Our revenues for this segment were at INR 349 crores, up by 5% quarter-on-quarter, and at INR 2,069 crores, up by 12% for the 9-month period. Our profit grew by 2% quarter-on-quarter to INR 136 crores during the quarter, led by strong volume growth of 32% quarter-on-quarter. The volumes are substantially up on a year-on-year basis. We also saw an improvement in our retail F&O market share by over 50 basis points compared to the sequentially previous quarter. In the same quarter last year, there was IPO funding net interest income of INR 46.7 crores. If you were to exclude that, the profit after tax would have grown by 20% year-on-year. For the 9 months period, our profit after tax for this INR 359 crores, which is up by 3% year-on-year. We acquired a total of 511,000 clients in the retail broking and distribution business in the 9-month period, led by traction in our online channel. Our NSE active clients have registered a 14% year-on-year growth at 900,000 as of December 2022, and we rank in the top 10, ranked 9 in terms of the active client on NSE. 60% of the brokerage in this business comes from clients, which are more than 2 years of vintage showcasing the stickiness of the clients. The average payback period of the digital channel, which used to be in excess of 12 months earlier, has now come down to less than 6 months. And this channel has also contributed more in terms of a new client addition in the 9-month period. The distribution AUM is a tad short of INR 20,000 crores falls at INR 19,370 crores as of December, up by 17% year-on-year. And the net sales for this business is at INR 780 crores in the 9-month period. We have a very strong 53 lakhs client base, which is also growing, and that provides a very strong funnel for cross-selling of [ AD ] financial products in the coming quarters and years. Our interest income for the quarter was at INR 211 crores, up by 27% quarter-on-quarter, led by a 14% growth in the margin trading book at INR 3,320 crores. Our currency market share stands at 15% up, meaningfully strong quarter. Commodities market share stands at a tad below 7%. During the quarter, we launched the option store pro for advanced traders with features to create customized strategies given the large predominantly, the options led market. We believe that this offering should further help us boost our market share. As far as the institutional equities team is concerned, they once again saw strong rankings in the Asiamoney Brokers Poll, 2022. And specifically, we are ranked #1 corporate access team and #2 sales team and execution team. The investment banking business completed 3 transactions of a raise of INR 2,330 crores during the 9-month period. And we are hopeful of traction in the fourth quarter as well as the coming year. Turning to the Asset & Wealth Management business, the total assets under management across the asset management, wealth management and the private equity business are a tad short of INR 1 lakh crores at INR 97,300 crores, and the net yield across these assets during the 9-month period averaged at 74 basis points. The asset management business, AUM was flat quarter-on-quarter at INR 46,500 crores. The mutual fund AUM grew by a smaller proportion in the quarter at INR 29,500 crores. We have witnessed improvement in the performance of several schemes. A lot of them are in the top quartile or the second quartile, and we believe that this in turn should reflect in terms of the traction. We've already seen the negative net sales numbers come down by 1/3 on a year-on-year basis from over INR 600 crores to around INR 2200 crores. And we think that this should hopefully turn positive in the coming quarters. The revenues for the third quarter for this business stood at INR 141 crores, and for the 9 months stood at INR 424 crores. We added 67,000 new SIPs in the third quarter with traction witnessing the active funds, which saw SIP count addition growth of almost 20% plus during the current quarter. Our private equity business has a fee earning AUM of INR 9,540 crores across our private equity and real estate funds in all 7 of them. In the third quarter, the revenues for this business stood at about INR 51 crores, which is a very strong 57% growth, and in the 9 months stood at INR 122 crores, which is a strong growth of 46%. The wealth management business AUM stood at INR 41,300 crores as of December, up by over 20% year-on-year. The wealth business revenues at INR 578 million in the third quarter was up by 13% quarter-on-quarter and 7% year-on-year grew to INR 156.3 crore. We garnered net sales of INR 4,560 crores during the 9 month. Our RM count increased as of December by 20% year-on-year from 139 to 166. And that in turn is responsible also for a meaningful increase in the employee cost and the operating expenditure of this business. In addition, we've also bolstered the leadership team, the senior management hiring, to stand in the ultra HNI offering and our advisory capability. All of this has led to lower operating profit margins for this business. Although we plan to continue to invest in this business by adding more relationship managers in the coming quarters and year. Overall, the Asset and Wealth Management business revenues stood at INR 250 crores, up by 7% quarter-on-quarter for the 9-month period stood at INR 72 crores, up by 3% compared to the same period last year. Profits were at INR 66.9 crores for the quarter and INR 191.6 crores for the 9-month period. Turning to the Home Finance business. The Home Finance business reported a profit after tax of INR 36.3 crores during the quarter and a INR 101.8 crores during the 9-month period, both very strong growth rates come back to the low base led by provisions in the last year. Our NII grew by 10% year-on-year. NIM expanded by 66 basis points Y-o-Y to reach 7.8% for the 9-month period. Our yield on advances in the 9-month period stood at 13.8%. Our cost of funds were down by 40 basis points because of the full benefit of the rating trade to 7.9%, resulting in an expansion of spreads to 5.9%, which is an increase of 34 basis points. Our RPLR increased by 50 basis points with effect from 1st of January 2023, and we expect impact of this to show up in the fourth quarter of the year. Our disbursement at INR 640 crores for the 9-month period are up by nearly 50% compared to the same period last year. Although this is still very tiny in the context of the [ prices ] that we've achieved in the past. And we believe that the business is geared for a very strong disbursement growth in the next year compared to the base of the current year. Our gross NPA stood at 2% as of December 2022. Collection efficiency was 100% during the quarter. We had guided that nearly 1/4 of our restructured book could slip, and that is the reason why the gross NPAs are at 2%, marginally higher in the current quarter. Our gearing stands at 2.2x. Our Tier 1 capital adequacy remains robust at 45%. And so from a capital perspective, the headroom to grow this AUM meaningfully in the next year and in the coming years exist. Turning to our fund-based businesses. This includes the sponsor commitments to our various funds in the public market asset management business, in our private equity funds and our real estate funds. The total investments, including unrealized gain as of December '22 stood at INR 4,720 crores. The investments, including alternate funds stand at INR 4,320 crores as of December '22 equity investments. And the XIRR on these investments stand at almost 20%, as far as the PE/RE business is concerned. The overall XIRR of all these investments that we made till date since inception stands at about 17%. To conclude, we have delivered a reasonable performance in the third quarter despite the market headwinds. Our retail broking business continues to improve its market share through digital initiatives and also is benefiting from meaningful market expansion and industry consolidation. Our asset management business, as I mentioned earlier, have seen improvement in performances of the various mutual fund products, which are in quartile 1 and 2 and is looking to improve market share and net sales in the coming quarters. Our home finance business has seen strong turnaround in profitability, and this should follow a meaningful growth in our disbursement and AUM in the coming year. All in all, we remain optimistic on the opportunities offered by all [ our ] businesses. Thank you very much, and we are now open to question and answers.

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Ansuman Deb from ICICI Securities.

So my question is on the broking business first. So we have gained a little bit of market share, which is quite good. I just wanted to understand the impact of the new ruling on the potential income, interest income that we have and also the strategy going ahead in terms of whether we'll focus more on market share or yields. And how will the overall revenue pan out considering that in this quarter, we have gained market share, but the yields have gone down. So that is my first question on the broking business.

Yes. So in terms of the market share, it's really a point about the F&O market becoming bigger and we wanted to participate in that. We have come out with specific products to align the growth strategy towards the futures and options. And we see that being built up in the times to come with more of digital strategies. Now as far as the yield is concerned, it has come down a bit. But I don't think in the overall scheme of things, we are -- our yields are still much, much better than what the industry average is. So in that way, we feel that the expansion can continue in the model which we are where we have the digital model of advisory along with the digital products. Coming to the point about the funds blocking, I think, which consideration paper come from SEBI. I think there are a lot of regulations which has come in the last few years. We have gone through it, and we have already seen overall impact being positive in the overall market. So going forward, we'll see the impact as it comes. But I think at the end of the day, there will surely be some impact when the funds are moving on the bank account of one of the customers. But in the overall scheme of things, it will only help in improving the overall market from an overall perspective.

Okay. Got it. And the second question is on wealth management in the sense that we have increased our RM and that can lead to the AUM growth and subsequent revenue growth, but the costs have also increased. So could you just let us kind of understand the profitability in this segment when it is expected to pick up?

Participants please stay connected, the line from the management dropped. [Technical Difficulty] Ladies and gentlemen, thank you for your patience. We have the line form the management reconnected. Sir, you may go ahead.

Yes, go ahead, Vishal -- Ansuman.

I can repeat the question. The question was on the wealth management. So there is a -- obviously, there will be an increase in revenue with AUM growth and RM growth and this is also cost incidence. The balance of which in terms of profits, when you see we can see our profitability improving gradually?

See, as you've seen, we've added to the leadership team meaningfully this year. That is not a recurring -- I mean that is not likely to recur in terms of increases once again next year. And we should get the benefit in the coming year. However, the RM additions count of 20% increase that you've seen to 166 numbers is something that we plan to continue to keep growing in the coming year as well. So to that extent, you will see those investments continuing. However, given the strong growth in the RM days that we see in the last 2, 3 years, you know that as the vintage of the RMs improve, they start contributing profits from the year 3. So at least the old RMs that we've added in the last 3 years should contribute to improve profitability. But as of now, the limited [indiscernible] that we would like to make is that we'd like to continue to increase this relationship manager base strongly, at least in the next 2 years. And -- and in turn grow the AUM of the business very strongly. So that will be the primary focus of this business.

Yes. So I just wanted to understand that at some point, the plus/minus would lead to a net addition in earnings, right? So what I'm trying to say that -- can that happen in next year?

I'm not very sure about that at this point. I would -- we would be focusing on continuing to grow the RM base even in the next 2, 3 quarters. So I don't see the benefit of that coming even in the next year. Possibly in the year after that, that we start seeing the operating leverage or the benefit of all of this.

Understand sir. I will get back in the queue for follow-up questions.

The next question is from the line of Suresh Mittal from HDFC Securities.

Good afternoon, everyone. Am I audible?

Yes, you're audible.

So firstly, can you quantify the ideal customer funds in the broking business for Q3 to understand the impact if [indiscernible] trade for secondary markets were to come.

Yes. So this number would be the tune of around INR 3,000 crores to INR 3,500 crores.

And we would be earning close to about 5.5% annualized [indiscernible] on this, right?

Yes. Yes.

Right. And so on this -- I mean on this [indiscernible] trade regulation paper, which is floating around. So what is your sense? What could be the potential implementation challenges firstly, for the industry and for the small brokers? Would it mean that they'll have to incur much additional cost to bring their take up to the market to have these kind of trades possible for their customers? Some color around that?

So there is surely going to be a lot of process requirements. And I think the associations like and me and others who are even talking to SEBI regarding the implementation challenges. And at the same time, as a consideration paper talks about it being optional to start off with. I also feel there is the UCI limitations of around 5 lakhs, up to 5 lakhs is the limit per customer. So again, the retail customer can be done, but what about the HNI and the bigger customers. So there will be challenges as we go by it. But I think it's going to be a slow process of how it gets implemented and how the industry take it from there.

Right. Sir, do you expect -- is this regulation [indiscernible], do you expect further consolidation in the industry from top 10 brokers gaining market share from the small brokers or given that it would be optional, we don't anticipate much of consolidation on this?

I think overall from the digital strategy, the way the business is going, it is always a time that the consolidation will happen. So all these changes which have happened the last 2, 3 years, there is a consolidation within seen in the industry, and this is only going to continue. So I surely see that the consolidation can happen between the smaller brokers getting marginalized. And at our end also in our franchisee business, which is one of the biggest business, we have been able to convert a lot of -- a few of the smaller brokers as our franchisees as a strategy.

The next question is from the line of Deepak [ Sohnaunay ] from [ Mithun ] Securities.

Yes. Hello, sir. Am I audible?

Yes, you are audible.

So I have a couple of questions. The first few are on Broking. So currently, we have around 7,690 franchisees, right, as of December '22. So just wanted to understand, out of our 33.6 lakh gross plan digital client base, how much percentage is contributed by the franchisees?

It's around 50% of the base.

50% of the base. And again, with an active client base of 9 lakh, would it be same?

Yes. It will be around the same.

Okay. Okay. Sir, on your introduction call, you mentioned that the payback period for rating, and the clients being acquired to digital channels has lowered significantly to 6 months as compared to 12 months a year back. So just wanted to understand, out of our broking revenue, that is core [indiscernible] of around INR 437 crores in Q3. What will be the contribution from the detail -- digital customers and acquired through digital channels?

Yes, that number will be around 15%.

15%. Okay. Okay. Okay. And my last question is on AMC side. So if you can provide us, I mean, gross and net sales for AMC in Q3 and against -- in 9 months as well on that will be in AMC.

Yes. For the third quarter, the gross sales is about INR 1,700 crores, and the net sales is a redemption of about INR 800 crores. For the 9-month period, my team will subsequently give you the handouts also.

The next question is from the line of Vishal from ICICI Securities.

I had 2, 3 questions...

Vishal, sorry to interrupt you. May I request you to speak a little louder, please?

Hello. Am I audible?

Yes, go ahead.

So I wanted to understand 2, 3 things in [ NSE ]. First, I wanted to understand the growth. So disbursements in this quarter have gone down and resulting in a very -- I mean, around 1% growth in AUM. Just wanted to understand the disbursement growth path and that resulting in AUM growth for the next year as well as the first thing that I wanted to understand in [ NSE ].

So as far as the disbursement quarter-on-quarter is concerned, it's because of the lower disbursement on the construction finance pool overall. So that is slightly lumpier, that is why we see some movement in the disbursement. But overall, the disbursement run rate is almost last full year's disbursement, we have achieved in the first 9 months of the current financial year, and we expect a stronger disbursement run rate in quarter 4 and the coming periods, as highlighted earlier in the call, -- in terms of the PMAY number Yes. So overall AUM was also reduced because of the PMAY subsidy, which has come up because we received almost 3% subsidy, which has reduced our overall assets under management.

Okay. Okay. Understood, sir. So should we expect like a good growth, AUM growth number for the next year? [indiscernible].

Yes. So as we are looking to hire more team on the sales side and enhance even the productivity of the existing team. We believe the disbursement run rate would result in a larger support of numbers on the retail disbursement front as well. Also, in addition, you will see us adding to the leadership team, including the CEO at the home finance company. So as we make those announcements over the next 3 months' time, we think that we are in a -- we should be in a good position to grow the disbursement as well as the AUM in the next year, we are ending March 2024 compared to the year that is underway right now. So we're looking at a strong buildup. I highlighted in my opening remarks that our gearing is at 2.2x, 2.3x. We have cost of funds which are very competitive. We had a rating upgrade last year benefit of which is coming through now. Spreads are very strong. The distribution network is over 100 branches already. We have about a tad under 500 feet on street, which we expect to take up meaningfully. So all of these initiatives, combined with the leadership being in place should provide us a very strong runway for growth over the next 2 to 3 years, including the next year ending March '24.

Understood. The next part in [ HFC ], just I wanted to understand that the GNPA has gone up quarter-on-quarter, but credit cost has declined. So I just wanted to understand the credit cost trajectory as well. And linked to the part that you said that you are looking to hire people sales. So how would -- should we think about the OpEx in [ HFC ] business?

On the GNPA front, the marginal slippage during the quarter is mainly on account of the restructure book. So initially, we had guided almost 25% of our restructured book could slip into the NPA. So out of that, partially, there has been slippage in the current quarter, which has happened. However, we have adequately provided for the restructured book at an average rate of almost 13%. So the PCR still remains on the NPA book at 49%, and standard provision continues to be higher at almost 1.32% on the book. So marginally, it has not reflected any further increase in the PCR. It has only been maintained [indiscernible].

Okay. And on the OpEx front?

On the OpEx front, would continue to be remain elevated because as we are further hiring as informed in the last question that we are further hiring at the senior level and even at the overall sales level. So OpEx will remain elevated overall, but because we have robust NIMs of almost 7.8% and our credit costs are now meaningfully lower in the business. We expect a good ROA moving forward in the business despite the limited OpEx, which would be in the next couple of years.

Understood. My next question, I wanted to understand about the fund-based business. So your revenue in fund-based business has fallen very sharply in this quarter, which is also resulting in consolidated [indiscernible] falling sharply. Just wanted to understand how should we think about it for the Q4?

Yes. This is actually on our investment that we have made largely into the equity assets, the book size of which is reported totally at INR 4,900 crores, out of which INR 4,300 crores is the equity asset base. In this book because this book is subject to mark-to-market accounting. So every quarter, basis the overall now of these funds, there will be a moment in the profitability, which we report separately under the mark-to-market line item. So it's a function of actually equity market performance. That's how this book number on the P&L would know.

And to add the -- we highlighted that the XIRR since inception cumulatively for this book stands at 17%. So without trying to look at it from a quarter-to-quarter basis, the management expectation is that we should be able to generate on this INR 4,900 crore book, some returns in that facility of what we've delivered over the last, I think, 6 or 7 years. This is a XIRR over a 6- to 7-year period. And it is, I think, a good indicator of what one should expect even in the future. I think that is our expectation from the capital that is allocated to this business.

Okay. Understood. Just last question I had regarding PE/RE business. Just wanted to understand our fee earning AUM has increased quite a lot quarter-on-quarter with -- despite no new fund launches. So I just wanted to understand that and also our yields have increased. So just wanted to understand that as well, why has that happened? And how should we think about it going forward? And lastly, employee expenses have also increased in PE/RE business. So just wanted to understand this also.

Yes. So on the PE/RE business, on the private equity side, we had actually the closing of our fourth equity growth fund. We closed the fund at INR 4,500 crores of commitments that closing had happened in quarter 3 of this year. And that is why you see a slightly bump up of the revenues because the final closing that happened would have an impact of higher revenues of 1 year of fees, which would be taken from all the investors who [ came at the last close ] to make them at parity with the other investors. So that is the reason you see higher revenues, which showed on account of the final closing. And also, we added the [indiscernible] entity, which we had created -- was created a few months back, and that was approved by [indiscernible] made our wholly owned subsidiary in quarter 3 of this financial year. So by virtue of that, the revenues from the [indiscernible] entity also came in, which were out of the earlier close in this current quarter. So overall, people cost provisioning has happened because of the added revenues as well. So from this quarter perspective, it would look higher because it has impact of the earlier quarter revenues also coming in the current quarter and associated people cost thereof. So that is the reason. Overall, however, in the business, the [indiscernible] cost to revenue ratio will be almost same as what in the last financial year.

Next question is from the line of Kajal Gandhi from ICICI Direct.

Sir, two, three questions. One is on everyone in the streets is seeing decline in active clients. So how are we think that we haven't seen too much because from September, October to now, it is marginally stable. So what are we looking there? Secondly, I wanted to ask where certain brokers have mentioned that Tier 2, 3, 4 like those levels also, the clients are giving equally good revenue in newly acquired plants. So what is your take there?

Okay. So regarding the first question regarding the active client, mainly it is because we have been adding clients based on quality parameters with margin. So the entry point has been very clearly aligned with the quality which we want to get in. So to that extent, the attrition of the client is comparatively lesser, and that is how we have been able to ensure the active client base even in the last quarter. Coming to the tier 2, tier 3 cities, surely, we are also getting clients from tier 2, tier 3 cities as in the overall scheme of things. But at the same time, I think for us we have got a good distribution network across our franchises and branches. So the mix might be much more towards the tier 1 and the metros to that extent. But acquisition is happening on tier 2, tier 3 as well.

Okay. Just what is the cost of acquisition? We are seeing any trend of floor because that is what right now is happening because most of them have stopped extra expenses on advertising and all?

Cost of [acquisition] for us is INR 2,500. Yes. And as you have highlighted that our [indiscernible] has also improved on the new incremental plans that we have currently acquired. So our breakeven is now less than 6 months on the newly acquired clients.

Okay. And sir, one more question. You have not yet shifted to the flat broker in any of the products. So what is the sense you're getting in your client? Because still you are able to see such a huge jump in your last two quarters' SNO volume. So what is the trend there? Like because even after flat brokerage, this surge is not seen across everywhere. So what is the fall there or sense there that you're getting?

So as you know, we have always been based our thing on research and advice. And where we have got a advisory support for each of our clientele. So the overall value proposition is based on the advisory and the research that we give. And we very clearly see that we will not be following the frac model. And as such, we have not seen much pressures on the yields [indiscernible] but it is still far better than the flat brokerage or the discount brokers, as you see. But the biggest value add is the research and advice. And along with that, the distribution network, which we see, which we have aligned for a customer, so that you get a holistic solution to us whether it is broking or third-party products through our advisers.

But sir, still when we see your cash brokerage versus SNO brokerage, the revenue has gone up from INR 2 lakh 18 to INR 2 lakh 89 in sequential quarter. But accordingly, then on being on ad valorem, the revenue from revenue brokerage has not surged that much.

Yes. So that is -- so one is, of course, on a higher volume, our market share is also growing higher. So there is definitely some marginal impact on the yields, which is there. So that is one of the reason where the [indiscernible] revenues definitely will be marginally lower in the mix. Actually have surely gone up on the revenue inside.

Okay. But yes, in all, there's decline in cash. So that has got impacted on your total group rate income?

Yes, that is that. But even in quarter 3, actually, the overall number of trading days are also less and cash volumes have also come down, if I look at [indiscernible].

Next question is from the line of Abhijit from Kotak Securities.

A few questions on the wealth. If you can give some breakup of the recurring revenues between, let's say, what would be advisory driven and what could be commission-driven as part of the recurring revenues.

We don't follow the advisory model at BG, so it's all distribution revenues.

Alright. And within the transaction business, just some major line items in terms of what drives revenues here on a recurring basis or on a quarter-to-quarter basis?

So the trail revenues really cover our entire cost is what we've been consistently indicating. Almost 80% of the operating expenditure that we reported this quarter is covered to the trail income.

No, I meant the transaction fees within the wealth revenues comprising 45%, which are the major items that drive those revenues.

So actually, alternate products are also driving the transaction revenues. So during the quarter, we had a good sales of our alternate revenue -- alternate products, which has resulted in the upfront revenues mix.

Understood. Understood. And just generally, on the wealth business, just broad thought process on what's the aspiration here from a 2-, 3-year point of view, what sort of scale are you looking to build here? Any crowd direction and size that you are aspiring for?

So this business is quite under-indexed for us in terms of total AUM compared to some of the leading players in the business. And so we are looking at improving our presence, including our relationship manager base. I mentioned in the opening remarks that it's up by 20% year-on-year, December-over-December last year. We would like to continue to grow this. I think over the next 2, 3 years, we would look at least doubling the RM base from the 166 odd number that we have right now. This is more indicative directional. So that's the part that we are on. And that's why we've guided for elevated OpEx and cost-to-income ratios for this business.

And the target market would be somewhat close to where you are today, like around 10, 15 odd crores over segment?

We have been present in that category already. I again mentioned in my opening remarks that we've also got the leadership for the Altra H&I segment. So we would look at the same segment growth as well as adding to the segments and regions that we are present in.

The next question is from the line of Shaleen Sen from Sears Fund Management.

Congratulations on the great numbers and a very detailed presentation. My question is regarding to the advisory that we hold. We have close to 2,000 advisers and the average revenue given is about 7.7 lakhs. Just wanted to have a number as to what's the cost per adviser here?

We will not be having [indiscernible] around 4.5 lakhs per adviser.

Okay. 4.5 lakhs. So this becomes a big amount in terms of our revenues, about 33-odd percent is coming from the advisers. So what exactly does this hold in terms of advice? Is it mutual fund distribution or brokerage?

It is mainly broking and but national, the mutual funds and distribution. But broking is a big piece of the overall advisory.

It's a big piece. So in terms of our sourcing model, 47% is online and 33% is about the advisers. So Motilal itself is the business, is sourced through advisers only mainly. Is that true?

Yes. So the client has got the option to trade online as well as talk to advisers. That is completely synced in, but whether he trades online or whether it does it to the advisers. So the customer has got the benefit of dealing the way he wants, whereas the advisory is aligned to each client. So he can always give the advice to the client and the client can decide the execution perspective.

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

I have a few questions. I just sequentially put them so it's easier to answer. Number one, on the yield on advances in your housing loan book, it remains at 13.8%, and you said there is a 50 bps rate increase that you've taken. So the question I wanted to know is whether the customers are in a comfortable position to absorb that and whether you will see the yield higher in the next quarter because even if you see year-on-year, I understand there'll be booked changes and all is pretty much flat. So that's question #1. Question #2, how much of the book is still in the restructured category and whether you're getting at least part payments, I can imagine this is slipping to NPA's, but whether you're getting part payments from the clients given the fact that the macro environment seems to be good. The third question is on the broking business. If I see the interest income growth versus interest expense growth quarter-on-quarter because year-on-year, again, there will be discussions due to the IPO. That you are seeing that the margins have compressed a lot. So are you essentially not passing on costs in a desire to gain market share? Or how does the dynamics work there?

Yes. Coming to the first question of restructured book. So overall, the restructured book stands at INR 251 crores on the total AUM of INR 3,650 crores. We have actually, on the in-place rate front, our overall yield is at 13.8%. This does not included any impact of the Atila increase of 50 basis. This effect has happened from 1st of January this financial year. And this overall the collections in last 12 months have been very stable. So if you look at this whole trend of collections -- and even in quarter 4 and the period to come, we expect that this Atila impact would be passed on to the customers without any material impact on the overdue book. And as far as the -- what are the third question, sorry. So broking interest yield -- sorry, is actually at 14% on the lending book that we are. So that book is average of INR 3,200 crores during the quarter on which we went almost 14% for as year.

Sir, my question was more in terms of ability to pass on the interest rate hikes because interest rates have gone up pretty sharply, especially in the CD and so on of the market. So whether that is going to compress the NIM temporarily until the cycle reverses again. Since is there any ability to hike your interest rate charges to the clients?

Yes. So actually, NIMs have already compressed over the last 2 quarters because -- so while there has been an increase of almost 175 basis in the overall cost of funds in the current financial year, out of which almost half of that increase has been passed on to the customers and half of that has been absorbed at this answer in our NIMs. So still will continue with a healthy aim of 5.8% on this overall book.

Next question is from the line of Deepak Amni from Haitong Securities.

So my first question is on HSC side. If you see that within our AUM mix, the construction finance continues around 13% as of December. But it was almost around 11% as of September. So with the growth in terms of AUM in this piece. But if you see that as your ticket size wise, about 2.5 million to site, it only contributes around 3%, right? And what you mentioned in note as well that you're lending to [indiscernible] builders, right? So there should be -- the very high [indiscernible], right? So am I missing any catch over here?

Sorry. So the current retail disbursements are running at a very low rate Deepak. And as I mentioned to you, we are looking at stepping this up. We've seen, I would say, a 2-year high monthly disbursement in the month of December, and you're looking to ramp this up in the month of -- in the March quarter. But from a quarter-to-quarter basis, the CF book, it is very small proportion may have lumpy disbursements between quarters, and it will not be as smooth as the buildup of the retail imbursement.

But what is the average ticket size for us in the CS business? I mean...

Average ticket size in the CS business is [indiscernible]. In the presentation, we have not put out that what we have put out is the only retail average ticket size.

Next question is from the line of Prakash Kapadia from Anived Portfolio.

A couple of questions. On the mutual fund side, how much is passive as percentage of our AUM. And recently, there have been opening of international funds. So how is the unitholders' interest. Are we seeing step up? Are we seeing lump-sum investments? Are we seeing new SIPs coming in? Because I think from January, we opened the investing for global funds.

Yes. So the passive AUM is about 20% of our overall AUM. And because of the reopening from January, we are seeing even some of the stock SIPs have also started renewing, those SIPs are investing once again. But it's in the early days. It's been a few weeks. We wait for how this quarter shapes up. Anyway, this is not an unlimited opening up. It is only to the tune of the redemptions that we fund has seen that you have the headroom. So I think the real growth in this is the offshore side will only happen Prakash once the overall limit is increased. Right now, even if we expect to grow, it will not be very sizable.

Okay. So it's -- okay. That amount was reduced only to that amount, it can come back -- once that comes back, again, the SIP as well as the lump sum would stop.

Yes.

Assuming there is no limit change.

Yes.

Secondly, on the FI side, what is the sense we are getting from our client interaction. There have been net sellers in India in CY '22. And given where we are seeing the debt returns as of now, do we think retail flows or new investors who just entered could stop SIPs or flows could get affected because markets have been challenging the last 12 to 15 months. Any sense broader you can...

Again, on a year-to-year basis, if you see last 20 years, most of the year [calls FIs] having investors -- net investors in India. -- they're holding over a longer period has gone up meaningfully. On a year-to-year basis, there are various factors that may be overall redemption in emerging markets. Now in the near term, it could be China opening up and a lot more money going there. So near term is very noisy and very volatile. But if you look at the growth of India versus the rest of the world, the earnings growth of India versus the rest of the world, the share of market cap of India and the rest of the world and the holdings of partners in their overall portfolio of India, we are quite underrepresented. So the possibility that the flows will continue to be positive, longer term is high. As far as the foreign indexes are concerned. As far as the domestic investors are concerned, again, we've seen lesser volatility than we've seen ever before in terms of volatile markets versus volatility in the domestic flows. I think the SIP book has been reasonably strong and steady, notwithstanding what is happening to the FI flows. And I said a good counterbalance at least in the last few years to the direction of the FI flows. So I think structurally, we see both of them actually, at some point, turning positive, although in the last year, we've seen the large selling offset by the large FI selling offset by the large domestic mine. So near term could be noisy. But longer term, we would expect both these stores to be positive for India.

Sure. That's helpful. And lastly, if I look at capital market-related revenues, they are approximately 2/3 for us on a run rate basis as of now. Any direction or aspiration over the next 2, 3 years, what would we want to have this as a percentage of our revenues.

I mean while growing the capital market side of the revenue, for sure, given that market is consolidating, we spoke about that because of compliances, visa, distribution, brand, a variety of reasons. We think that the capital markets business itself has a lot of headroom. But having said that, if we are investing -- building in the wealth management business, in the home finance business, I talked about the asset management business performance is picking up. We spoke about the INR 45 crores, INR 100 crores dietequity, 4 series that we closed. We are waiting studies approval for our next real estate fund launch, which will be INR 1,500 crores of AUM that will be mobilized. So we are really putting in all the building blocks in the rest of the businesses so that we can see faster growth in those businesses compared to the capital market business. As a first top, you can look at a 50-50 breakdown in the forseeable future.But obviously, given the annuity nature of these businesses, they have a lot of headroom or a lot of potential in our Q.

And in this era of consolidation, will pricing improve on the broking side or with some of these new edge brokers who have garnered more than 50%, 55% of active client share pricing could remain muted or upward pricing could be difficult?

I think with the Asda coming into picture, there might be some pressures in the discount brokers to look at the overall yields. But as far as we are concerned, we are still very much ahead of the [indiscernible] of the overall yield. So we don't see any pricing going up from our end, but not sure about the industry on an overall basis looking at the overall discount brokers in the overall view of things.

I now hand the conference over to Mr. Shalibhadra Shah for closing comments.

On behalf of Okinawa Financial Services, I would like to thank every investor participant I think the quarter 3 FY '23 I think if you have any further questions, please do get at with us. Thank you. Have a good day.

Thank you very much. On behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.

Thank you.