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

Good afternoon, ladies and gentlemen. Welcome to the Q4 FY '23 Earnings Conference Call for Motilal Oswal Financial Services Limited. We have with us today Mr. Raam Agrawal, Chairman; Mr. Motilal Oswal, Managing Director; Navin Agarwal, Director and CEO, AMC; Mr. Ajay Menon, CEO, Broking; Mr. Aashish Shankar, CEO, Wealth Management; Shalibhadra Shah, Chief Financial Officer; Mr. Chetan Parmar, Head of Investor Relations. [Operator Instructions] Please note that this conference is being recorded. I would now like to invite Mr. Navin Agarwal to make his opening remarks. Thank you, and over to you, sir.

Good afternoon, everybody. It's my pleasure to welcome all of you once again to the Motilal Financial Services [ con ] call for the year ending March 2023. I'll start by highlighting a few achievements for the year. During the year, we had the highest ever profit after tax for our capital markets business at INR 505 crores. The asset under management for our asset management, wealth management, private businesses collectively crossed a INR 1 lakh crore mark. Within that, the wealth business had the highest ever net sales at about INR 5,810 crores. In the housing finance business, once again, after quite a few years, cost and disbursement mark of INR 1,000 crores during the financial year. Let me now take you through some of the highlights of operation and financial performance. So our operating profit after tax for the year, March 23, grew by 6% to INR 879 crores, and for the quarter was at INR 233 crores. This comprised of a capital market business profit of INR 505 crores for the year and INR 135 crores for the fourth quarter. Asset and Wealth businesses earned INR 258 crores tax for the year and INR 66 crores for the fourth quarter. While the housing finance business depot a profit after tax of INR 133 crores for the year and INR 31.5 crores for the fourth quarter. As a result, the consolidated net worth of the group stood at INR 6,250 crores. Net debt was at INR 6,650 crores. Our gross debt equity stood at 1.6x. And excluding the home finance business, the debt equity stood at 1.2x. We declared a final dividend of INR 3 per share and including the final dividend, the total dividend for the year stands at INR 10 per share. Effectively, our dividend payout policy, including the buyback for the last couple of years stands at about 28%. [indiscernible] individual businesses, starting with the capital market business. This business reported revenues of INR 745 crores for the fourth quarter, which is up by 8% and INR 2,833 crores for the full year, which is up 11%. Profit stood at INR 135 crores in the fourth quarter, led by healthy volume growth of 10% quarter-on-quarter and almost 2.6x on a year-on-year basis. An improvement in retail F&O market share was about 1.16%, 116 basis points on a year-on-year basis. The retail booking business acquired 6.5 lakh clients during the year ending March 2023, following traction in online channels. The NSE active clients stood at INR 8.1 lakh as of the end of the year, and we now have an improved rank #8 in terms of active clients. Our distribution AUM grew to INR 21,300 crores, up by 17% year-on-year. The distribution part of the retail booking business for net sales of INR 1,280 crores. And given the 55-lakh line base of this business, we see improved room or headroom for cross-sell. Insurance premium was an area of focus. This business deposed INR 120 crore premium income, which is up by 120% year-on-year. The currency business market share improved by 700 bps year-on-year and another 360-bps quarter-on-quarter to 18.5%. We added over 1,100 franchisees during the year, taking our total franchisee count to a third over 8,000. The institutional equities team continues to report leading ranks in the Asia Money broker old 2022 as well with #1 brands in corporate access and #2 rank in sales and execution. Turning to the Asset and Wealth businesses. I highlighted that we crossed the 1 mitral mark across these businesses. The net yield for these businesses stood at 75 bps on this 1-lakh-plus AGM. The asset management business reported revenues of INR 131 crores for the fourth quarter and INR 555 crores for the full year. The mutual fund AUM stood at just a tad under 30,000 ports. We've seen turnaround in the active mutual fund scheme performances. There are 5 out of the 7 schemes are ranked in top quartile. This has led to an improvement in cross-sell and a decline in redemptions. We added 91,000 new SIP as in the fourth quarter, up by nearly 40% quarter-on-quarter. The SIP close market share improved by 30 basis points quarter-on-quarter. Our share of ordinate assets comprising of the [indiscernible] stands at about 25%. As far as the private equity business is concerned, the fee earning AUM crossed INR 10,000 crores. In fourth quarter, the revenues grew by 18% year-on-year to INR 55 crores and grew by 36% year-on-year for the full year to INR 177 crores. The wealth management business, AUM grew by 51% year-on-year to INR 52,000 crores. We had strong net sales of INR 5,800 crores, up by 8% year-on-year. Our revenues grew by 37% year-on-year to INR 65.7 crores for the fourth quarter and by 14% year-on-year for the full year to INR 223. We had a gross relationship manager addition of 63% in the last 12 months, taking the total count to 182 RM we'll continue to invest in this business by further RM additions. The overall asset and wealth business revenues stood at INR 52 crores in the fourth quarter and INR 955 crores for the full year. Our profit stood at INR 66 crores for the fourth quarter and INR 28 crores for the full year. Turning to the housing finance business. We reported a full year profit of INR 133 crores, up by 44% year-on-year and a fourth quarter profit of INR 31.5 crores. Our NII grew by 9% year-on-year. NIM expanded by 37 bps to 7.7%. Disbursements grew by 57% year-on-year to a little over INR 1,000 crores. We believe that the runway for growth in disbursements in this business is meaningful. Our yield on advances stood at 13.9% for the full year. Cost of funds were down 24 basis points to 8%. And as a result, the spread expanded by 21% to 5.9%. Our collection efficiency continued to see improvement, coupled with declining bounce rates. Our gross NPAs at the end of the year stood at 1.1%, led by 101% collection efficiency in the fourth quarter. We increased our rate by 50 basis points effective 1st of April 2023 and have cumulatively raised our rates by 100 bps till date. The net gearing for the business still is quite low at 2.2x and our Tier 1 capital adequacy for this business remains robust. Turning to our fund-based activities. We have total investments, including unrealized gains of INR 4,630 crores as of the end of the year. Within this, the total equity investments, including alternate funds is at INR 4,280 crores and the cumulative ex IRR since we started making these investments stand at above 15%. To sum up, we have delivered a reasonable performance in the year ending March 2020 despite market headwinds. The retail booking business continued to consolidate its market position by adding 1,100 plus franchise and improving its market share through the digital initiatives and also benefiting from market expansion, particularly on the ethanol side and industry consolidation that is underway. We continue to focus on our strategy to diversify our businesses towards more linear sources of revenues at the Indian Businesses across our [indiscernible] management business saw improvement in performance. Our Wealth Management business saw strong relationship manager addition, private equity business or the largest ever fundraise housing business saw improvement in disbursements and profitability. And we believe that each of these businesses are meaningful headroom to grow in the coming years. Thank you, and we are now open to Q&A.

[Operator Instructions] Our first question comes from the line of Yash Nerurkar from PPFAS Mutual Fund.

So firstly, generally, the trends of what's happening in the broking business, I mean we have seen a year of doing rapid acquisitions in the number of accounts which are opened. So going forward, what do you think it would be because, are the actual numbers looking a bit lower or what would be the criteria for us?

Yash, we are not able to hear you. Are you using the speaker?

Management members, the line of Yash has dropped from the question queue. We move on to our next question which is from the line of Vivek Ramakrishnan from DSP Mutual Fund.

On the broking business, which is the large business in margin funding business, are you seeing margin pressures because we've seen that interest income has grown far lower than the interest expense? And would you think that this business, given the fact that there was some volatility in the markets, will find at least the lending book will be difficult to grow? So that's question number one. And question number 2, I'm just trying to reconcile in the housing finance business, the AUM doesn't seem to have grown so much though the disbursements seem to have grown. Is it more back ended? Are higher interest rates causing any slowdown in growth? And how do you see this business going forward? That's it from my side. Thanks.

So on your first question on the broking business, the overall margin funding book, actually if you see Y-o-Y, this book has grown almost 50% for us. So one is the book size has grown much faster. And secondly, in terms of the overall NIM's, the borrowings are dependent on short-term sources in case of margin funding, given the very nature of this lending. So the interest rates have got repriced, but if we see, the impact of that is almost 100 basis on the NIM's in the current financial year, but you have seen more growth in this year to compensate for that. So overall, net to net, the NII is up 25% on this book. And on the housing finance side, if you see the overall disbursements for this year, we had INR 1,000 crores of disbursements. We crossed this mark this financial year and overall, there is a prepayment rate of about 18% to 19% of the AUM and that is also because of one of the major reason also the CLSS subsidy, which came to us in this financial year. Bulk of the subsidy came to us which has resulted in impact reduction. And quarter 4 has been a strong disbursement growth quarter, we did almost INR 360 crores of disbursements in Q4. And that is how you see the overall interest income getting amortized.

Mr. Ramakrishnan, do you have any more questions? Ladies and gentlemen, since there is no response, we move on to our next question. Our next question comes from the line of Vinod Chandra Agarwal, [indiscernible] investor.

And I have a few questions about brokerage business and a couple of questions on the PE/RE acquisition. So on the brokerage side, first, I just want to understand like in the last con-call, we said like our cost of acquisition of client is around INR 2,500 per client and I think we have added around 6.5 lakhs clients. So just want to understand the breakup of like how this [Technical Difficulty] around INR 160 crores stand. So how do we like stand on, example like, reversal or something kind of-- so where do we find out in the Annual Report [indiscernible]. Like under which line item we can [Technical Difficulty]?

So you're talking about the acquisition cost, which is incurred? So that line item comes under the other expenses under marketing and brand promotion costs in the Annual Report.

Will you be able to provide any rough bifurcation or estimate bifurcation of like how much you spend on a brokerage reversal or some like direct acquisition cost kind of?

So whatever we - the cost for lead generations are fully classified under that head along with the other marketing costs. So overall run rate of this cost has been to the tune of around INR 4 crores a month in this financial year.

And now another question is like, we have around, let's say, 8 lakh clients as active clients. And we acquired around 6.5 lakhs clients in the current year itself and last year, we acquired 8.8 lakhs clients. So generally, as an individual, what I feel is that, generally whenever a person opens an account, at least he will trade from one or 2 trade to repay because that's why he goes all to open the account and trade. So if I-- let's say, something like around 8 lakhs, so is it something like only 2 lakhs clients were from the last year or the previous year, which were active and only like some amounts of - can you give like how much of these clients are active from the current year and how much clients are active from the previous year?

So the current year activation ratio has been 26% on the new clients that we have acquired and the overall activation ratio stands around 23% less. Yes, overall acquisition ratio has actually been in line with how industry has performed. Lot of actually active clients have reduced across this [indiscernible] And if you look at our numbers, relatively, we have been better in terms of the overall reduction.

[Operator Instructions] We move on to our next question that is from Pujan Shah from Congruence Advisers.

The first question would be on the home finance. So as we are saying that we are diversifying, the borrowing profile has been reduced the cost by 20 bps. So what are the steps we are coming on to the - for the future planning so that-- like what are the estimation of the reduction of the cost in coming for FY '24 specifically, because the yield are becoming stable and now the --I think the interest rate will be start also declining as per the -- what the market is estimating? So are we estimating the spread to widen up due to the cost of reduction or reduction of cost or we will have some improvement in yield as well?

Yes, as far as the overall cost of funds for FY '23 is concerned, the cost is lower because on account of 2 reasons, one is we have improvement in the NHB borrowing base in our overall source of funds. And secondly, the overall impact of the MCLR repricing has also averaged out and bulk of that would also come in-- in the current financial year. So to that extent, so on an 8% cost of fund base, currently, the cost of funds stands at 8 quarter [indiscernible] as far as the opening cost of funds is concerned for FY '23, 24 and we expect the cost of fund to marginally rise from here for the balance MCLR impacts. However, we have also improved our lending rates by 100 basis points in 2 tranches, starting January 1 of this year and April 1 of the current financial year. So we believe we will be able to maintain the overall NIM's and trends in the business.

Sir, to the rate question, so if we are increasing the yield in the home finance side, just wanted to know what are the competitive advantages where the customer are driving to, especially when the yield are so high on the home finance? And I wanted to also ask that, what is the average ticket size we are providing loan to the people?

The average ticket size is INR 9 lakhs for us in this business. As far as the competitive advantages are concerned, we have - so one is certainly our rates are very competitive in the market, given that our ability to raise low-cost resources. And secondly, in terms of TAT, we have a very fast TAT of disbursements as far as the customer is concerned and third is our brand as well, given our brand presence across so many cities as a Group. We have that edge where our brand and strong across pan India customers in this segment as well.

And last question would be how will be the cost-to-income trajectory for FY '24 and FY '25, because there is some bit of increase being seen from like for the FY '23? So what are you eyeing on for that?

Cost-to-income would marginally be higher, given that we are actually investing in talent in this business. Even in the current financial year, we added employees and this would continue over next couple of years where we would keep investing in the talent in this business. So to that extent, cost to revenue growth. However, given the overall improvement in the growth, the NIM's will continue to be stable.

Our next question comes from the line of Vivek Ramakrishnan from DSP Mutual Fund.

Vivek again, our line got cut when you were answering my question on home loan growth. I'm really sorry, could you answer that again? And on the broking business, do you see - I mean where will the growth come from? I asked about the net interest margin, but you've grown your book significantly, the margins you said have come down, but how does the scale-up happen from here on? Thank you.

Well, as far as the housing finance business is concerned, so on the disbursements, the overall disbursement was INR 1,000 crores for this year. However, we had repayments and prepayments of almost 19% of our opening assets. That is also on account of the CLSS subsidy that we have received from the government businesses [indiscernible], because bulk of the subsidy came in this financial year for us, and the growth in quarter 4 was very strong where we did INR 360 crores of disbursements. So that is one of the reason where you will see the overall improvement in the interest income is lower because in line with our average loan book growth. On the broking business side, the overall NII, I explained that is up 24% and with the overall merits in this business where apart from brokerage, we are also strengthening the overall other revenue pie in the business in terms of the distribution of revenues as well, so we see a meaningful improvement in our distribution revenues, our lending book revenues and advisory-related revenues in this business apart from the overall brokerage growth. Brokerage-wise also, derivative volumes have been growing very strong if you see year-on-year. And even year-on-year, we are able to improve our derivative market share by almost 100 bases in this business. So we see that it is showing traction despite the market cycles being down or up. We see a good amount of derivative pie getting more linear in terms of our revenue growth.

[Operator Instructions] Our next question comes from the line of Kajal From ICICI Securities.

So I just wanted to first note that we have seen such a sharp surge even Q-o-Q basis on the F&O volume but the overall brokerage revenue has been sequentially lower. So is it the cash substitution which F&O has done or what will be broad breakup of cash and F&O in this brokerage revenue? That's one. Second, I wanted to understand if you can give more clarity on this MTM total debt has come, which is from which asset class has been, how much? And third, if we can also get - like if we have seen, [indiscernible] has given some very good disclosures in this quarter which are like they are giving how much a customer, when he comes first in the first 12 months of his trade, what is the kind of revenue he will give. So if he gives 100 in year one, what is the year 2 revenue of that customer? Like, is it 60%, 80%? Maybe something like that, if we can get. Those are the 3 questions.

Ajay, you want to take the first question? Ajay, you're there? Yes, I think line is - coming to the first question on the cash and for us, market volumes were down almost 17% on the cash side of our business and that is also one of the reason where the overall brokerage revenues were down almost 6% on a quarter-on-quarter basis. Secondly, even though there's lot of focus on - in quarter 4 on the distribution business and on the lending business and that is also one of the reason where we've seen, in fact, the other revenue pie also growing in quarter 4 of this year. Coming to the mark-to-market question, mark-to-market, actually, if you take a look on our opening investment book where overall return is almost 3%. So while the Q was flat, still our book has delivered opening 3% mark-to-market again. And what you see is also blend of expenses on account of our real estate investments that we have done of interest cost in that mark-to-market book and that is the reason where you see the net income of that book at INR 50 crore. If you could just repeat your third question?

Third question was more of a disclosure kind of thing. That was like, if suppose a customer comes to you - is becoming a customer in year one, what is the kind of revenue he may be giving? So suppose it is100, so what do we see the trend in year 2, year 3 of that customer? So 100, then next year it becomes 60%, 80% or 120%? What will be the trend in year 2? What will be the year 3 of that same customer? So they have made cohorts of customers and that was a disclosure.

Yes, so there are multiple channels in our business and definitely we can separately put out that data, if you require that detail, yes.

Sir, I did not get clarity on the first question, like brokerage, when we are saying F&O cash has declined, I understand. But then how much of the overall brokerage share will be cash and F&O broadly?

So overall, the brokerage, if you look at it, the share from the cash market will be around 45% and F&O will be around 55% of the overall data. And to that extent, about overall - if you look at overall market itself in this last quarter, it was comparatively down and the overall volumes itself in the cash market is down. We are trying to see to it that we are able to maintain the revenue to the extent possible from the F&O side comparatively to on the cash side. And to that extent, we have been able to make [indiscernible] with around 4%, 5%, downside. That's the whole thing for the quarter. At the same time, the distribution revenues have gone up comparatively very well in the quarter - last quarter in - across different products, including insurance.

Sir, for the second question, which is that what are these expenses that you said was [Technical Difficulty].

Actually, that includes mainly the interest costs on the real estate developer, NCDs that we actually bear out on our balance sheet and then gradually down-sell it to our wealth clients. So what you see is while we have the interest costs on that, but bulk of the gains comes when these NCDs are actually realized as redemption premium. So to that extent, you'll see a bump-up of the interest costs which will come in our-- the treasury book.

[Operator Instructions] Our next question comes from the line of Yash Nerurkar from PPFAS Mutual Funds.

So firstly, I wanted to ask about the broking business. I mean in the past 2 years, we have seen the kind of activity which has happened. I mean the account grew at a rapid rate and we saw that shareholder [indiscernible] of the brokers increase. So going-forward, we have seen some slowdown in [Technical Difficulty]

Management members, the line of Yash Nerurkar has just dropped from the question queue. We move on to our next question that is from Ansuman Deb from ICICI Securities.

My question was regarding outlook on broking share. Like we did a good improvement in this year, but quarter 4, I think - what has been the trend in quarter 4, especially, and what is the outlook in terms of broking share? And secondly, there is a dip in the MF AUM in the wealth management. So if you can you give some clarity on that.

So I'll take the first one. As far as the broking business is concerned, as you must have seen the last year, overall, across brokers, the active clients have come down in a big way. As far as we are concerned, we are very clearly focusing on the quality client acquisition and that is the benefit for us in the overall market share growth in the F&O. And we see that this trend can improve even going further, although the focus is on quality accounts and the overall ARPU of the customers. So our focus will be on getting quality acquisitions in terms of cash as well as F&O. At the same time, the MTF book is increasing in a good way and we can build the overall AUM based on the MTF book also. Parallelly, the distribution side of the business, there's huge scope to grow the business there. And last year, again, we had some good traction on the distribution business. So all in all, the - overall on the business side, we feel that we will be able to build traction. But as you all know, the market scenarios can always have [indiscernible]. So to that extent, we'll be always careful on how to build the business going forward.

Yes, and one follow-up on that, in the sense that when the markets are not doing so well, I'm saying that the distribution and the lending, are you seeing relatively better traction, which can lead to a stable performance irrespective of cycle? So has there been a dichotomy between how the broking revenues have spanned out and how this distribution and lending streams have performed?

So as far as the market dynamics are concerned, the good thing is that because of the options market growing in such a big way, there is some amount of stability in the business numbers when it comes to the market being negative or sideways because options are increasing. To that extend, the brokerage is relatively stable even in a downturn market. In the margin funding book, we surely see lot of scope because of the regulation, we're seeing that the things are becoming easier to fund on the MTF side and where there is opportunity, because we see that the [indiscernible] and volumes should come back and there is opportunity for MTF will increase for us. And distribution, anyhow, penetration has been comparatively lower and we see the potential to grow the distribution book independent of the broking. So that, anyway, year-on-year, we are bringing the growth there. And we see no reason why the growth cannot improve --keep on improving at least over the next 2, there years.

Yes, so if you look at the AUM for wealth in PMS and AIF, because we count both together, it's gone up from INR 8,400 crores to INR 8,600 crores. Also, if you see the alternative space, the AUM has gone up from INR 3,700 crores to INR 4,400 crores. So overall, the AUM has grown in the 3 categories.

So the choice of products keeps changing depending on the client preferences. So AIF AUM has gone up, but PMS sales have been flat to down.

Our next question comes from the line of Sahej Mittal from HDFC Securities.

Sir, so first is on the broking business. So what's your outlook for FY '24 now, given that the cash volumes are already down 20% versus the kind of growth which we had in the derivatives segment? So do you think that in FY '24, there'll be some respite in the cash segment and what is your outlook for the derivative segment? That is one.

This is Raamdeo Agrawal. The way markets are - with my experience, the cash volume is typically for much smaller companies, medium and small cap. And that is also a function of when those companies will start doing well, then the economy is in second or third year of expansion. So now this year, '23-'24 is the second year of expansion. My sense is that, as head-on effect, all the medium and small-cap companies will start seeing the benefit of the recovery of the economy and hence nominal [indiscernible] earnings profile build up 25%, 30% for those smaller companies. I'm hearing some of the companies, 100% to 200% kind of earning growth. Lot of ideas are coming on the debt. I think now the mood will be there to do a lot of cash trading, because these companies will not be typically listed in the options and futures. My sense is that in second half or this year itself, the cash volume should pick up, definitely led by medium and small cap.

And sustainability of derivative volumes?

Yes, that is sustained. So see, overall F&O volumes and despite this large financial year also, the market has actually grown and in fact doubled in terms of the volumes, because more the volatility, more the actual growth in the F&O volumes. That's what is the case. So first half of the year, we are projecting more likely that F&O volume will still continue to keep growing. And once we see the cash volume as well so we'll see the impact of both of these coming in.

Second is, in the asset management business, if you could split out the net loss across segments, mutual funds, PMS and AIF?

You're talking of the quarter 4 of this year, right?

Yes, yes, quarter 4, yes.

So quarter 4-wise, so net sales in mutual fund was INR 5.2 billion positive. And overall, [indiscernible] it was INR 2.2 billion of outflows.

And within INR 2.2 billion, the split between-- AIF was positive, so PMS would be more than INR 2.2 billion.

Yes, that's right.

And the outlook on the wealth management business, given that we've been investing quite heavily in the wealth management business. So what's the [indiscernible] for the next 2 years maybe?

Yes, so the size of opportunity is large for wealth management and we continue to invest in 3 areas. Basically, we continue to invest in hiring good wealth managers. We continue to invest in growing our client franchise. And thirdly, we continue to invest in the products and platforms. So these are the 3 basic growth drivers. We believe that, in the last 3 years, the growth can continue into the future as well.

Right. And any targeted operating margins for this business?

So currently, we continue to invest in this business so margins could be probably at the same level going, and then they would improve because as the mix of the vintage of RM's improve because as we continue to invest in talent, the RM's in the zero to one category tend to go up and as the RM vintage matures, you will start seeing margins improvement.

To our next question comes from the line of [ Druvesh Pujara from Premji Invest ].

So I have 2 questions, first on the NSE client base which gone down to 8 lakh from 9 lakh sequentially. I'm not sure whether you already touched upon it, I joined the call late. So what explains that? And how do you see this in the next 2 years in terms of additions in the broking side? And the second question is on the float income. So I think the -- if I understand it correctly, the FY '22 float income was INR 129 crore. So what that number would be in FY '23 and how do you see that number moving forward with the observing regulations coming in place? And also if you can qualitatively explain the moving parts of the float income pie. So yes, those are my 2 questions and thanks.

Yes. Ajay, you'll take the first question?

Yes. So as far as the active client is concerned, surely you have seen across the industry, there is a fall in the active client base in a very big way. Compared to that, the fall at our end is comparatively lower. But to that extent, we are only looking at hiring more and more quality account. So we feel that this active client ratio will only improve in our case as we look forward to hiring more and more clients which are from a higher-margin base. So actually, we have seen in the last 2, 3 years the client base has increased in a very big way across the industry. So there can be consolidation in this number, if you see the trend in the market and the overall market scenario. But we are very clearly focused on the quality accounts which we see that it will be keep on -- which we can keep on improving.

Yes, on the second question, the float income for FY '23 is approximately INR 150 crores number. And in terms of the new regulation, so one is, of course, we are talking of the ESMA [indiscernible] regulation. So at this juncture the ESMA mechanism is actually optional in nature and it will be difficult to comment on the broad contours at this juncture. So - but given that we have larger amount of our customers in mass affluent segment, the impact of that would be minimal on us and even the UPI [indiscernible] block size - ticket size is pretty less at INR 5 lakh. So the mass affluent clients typically don't much get fit into this account. Secondly, in terms of the circular which had come on 29 March and even on 25 April, as far as the overall upstreaming of the client funds, so there would be a marginal impact of approximately INR 5 crores per annum on the up, because upstreaming of the bank guarantees is not permitted. So while we have a very strong capitalized balance sheet and overall, we see this impact to be very minimal on us at this juncture.

So do we expect this like INR 150 crores broadly to stay as it is in FY '24 apart from the INR 5 crore which you mentioned or do you see that marginally going down, if not going up?

It may marginally go up somewhere because the overall - the current overall - the rates are going up and the overall creditors are also financed [indiscernible] in the system.

Our next question comes from the line of Deepak Sonawane from Haitong Securities.

I mean, I have only one question that is with broking industry. Especially for us, if you see that over the last 4, 5 quarters or even if you compare FY '23 versus FY '22, we have seen a very sharp drop in our gross sale, right, for core broking grossing. I understand that -- I mean, within that, cash segment at least has been holding up really well. But for F&O, we have seen a very sharp drop in gross sales. I mean, that could be materially impacted by very high growth in volumes. But I just wanted to understand whether there is a voluntary drop in yields, I mean, just because of pressure from-- I mean competitive pressure or else retaining those plans within the MOFS--I mean boundary. So can you just comment on this?

So on the yields actually if you see, the drop is only on the options side of the business. So for us, the other segments have not seen any drop in the yields over many quarters. And options is again, for us, we are one of the highest actives in the industry. So we've seen some bit of reduction because one is market volumes are growing and not only -- apart from that, we are also improving our market share. So you are having that double positive earning, so there is moderation in the overall option yields which has happened. It's more across the industry, given the low rates which is there. But still, we are one of the highest revenues for orders in the industry.

Sir, but just, if you could comment-- I mean this moderation in option is -- I mean any number that you could comment. I mean in BPAs, how it could have been deeper, I mean dropped for us, I mean voluntarily over the last one year.

Overall, there would be moderation of almost I think one-third. In the overall yields, which could be the number. I can't specifically call-out that number, but that's the broad number.

Our next question comes from the line of Kajal G from ICICI Securities.

Sir, my question is related to upstreaming. It's already answered. Thank you.

Our next question comes from the line of [ Vinod Chandra Agarwal ], an individual investor.

Last time my line was disconnected, I was not able to hear. So I will continue with the question. My question was, I was trying to understand over client activation. So in that regard, sir, you said like we have 55 lakhs of clients, [indiscernible] 35 lakhs clients. So can you just try to like help me understand that where is this gap of 20 lakhs clients?

Yes, so those 20 lakh customers that actually are customers of our asset management business predominantly on our mutual funds and alternate assets.

Okay.

And [indiscernible] like active clients sits within the 35 lakhs clients, right, not from that?

And if you do the distribution business as well, so this brokerage is only considered in the activation or the distribution is also considered as an active client? I mean, [indiscernible] the capital market directly, but they might be doing the investment in the mutual funds and other distribution products. So if we consider using the distribution product also, what could be the like approach towards our client activation ratio out of 35 lakh clients?

So this 8 lakh number is actually the NSE active clients, it only pertains to the brokerage business. On the distribution business, the overall penetration is 16% cross-sell. So on this 35 lakh client base, we have actually cross-sold to 16% of the total customers, at least, one distribution product.

So does it mean like an overall, if we consider mix both of them and consider, what could be the number? I mean, 15% if we take, then only, it takes like around 4 lakh, 5 lakh clients additionally? Is that the right number?

There'll be an overlap on those customers who are doing-- broking customers will also be doing the distribution business. So it will not be exactly the additional customers to that extent. It'd be some 10% that might be separate who have not done broking.

Yes, and like the broking business, if the customer does not trade in a year it is inactive, right? In the wealth management business or in the asset management business, if you're earning trail income or annuity income, they don't have to trade. So actually 100% of AMC clients and 100% of wealth clients and 100% of private equity clients and real-estate clients and all those distribution clients are active, because the firm's earning revenues every single day. So I think all the clients in all the other businesses are-- I mean there is no concept of active ratios only prevalent in the broking business, because there's a possibility that you may earn your revenues if there is no trade by that client in the year. So I mean, you have the actual broking numbers, all other clients of all of those businesses are actually active clients.

So after that inactive client, can you give us some sense like what you understand, like, how an advisor would have talked to them who are inactive other than like - like totally inactive, I would say, not on the distribution side and not on the capital market side, both the side they're not doing anything? Whatever advisor [indiscernible] even though [indiscernible] they're not interested or they are finding somewhere else in a lower advisory or fees or something, kind of-- what is our sense on that part? I mean I'm just trying to understand the effectiveness of our advisors. That's what I'm just trying to understand.

It could be a combination of all that you mentioned, and it could be to do with the circumstances of the client themselves. So really it could be due to competition. So we don't have really a breakdown of the various reasons why a client is inactive. All I can tell you is that, both physical as well as digital channels within the Group are active to try and improve the activity ratio. So I mean, there is a budget and an expense and resource allocation to improve the activation of the client across all the businesses and to increase the cross-sell as well. But really the attribution of various reasons is not very clear.

And on the-- our MTF book size, I feel like it's in a [indiscernible] for the broking industry itself from the--moving from the brokerage industry it will be-- this lending book. [indiscernible]. So that looks like a good basis and just give your understanding or your reason to-- that MTF book size. You can just like tell us like how many number of clients are currently using MTF and what is their medium ticket size, like lending ticket size.

As far as the total client size, there's almost 8,000 customers in this MTF book.

And average or a medium ticket size to them?

Almost, it will be INR 50 lakh to INR 1 crore.

So that seems like an HNI client, right, most of them? And one more on this real estate fund side. So I think we were about to launch this fund. So when will we see that next fund is going to come?

Can you just repeat the question?

Yes, on the real estate fund side, I think the fixed funds, we were supposed to launch like this year or this quarter. So is it on track to launch in this [indiscernible]?

Yes, we will be launching this fixed fund in the course of this financial year. It is-- we've already got the SEBI permissions to float this fund and the team is working on the broad contours of that.

And this real estate fund is mostly like a debt product or it is equity product?

It is investment in the developers as far as funding the landscape transactions or finance transactions that we do in our real estate fund management business.

Thank you. Ladies and gentlemen, as there are no further questions from participants, I now hand the conference over to Mr. Shalibhadra Shah for closing comments.

On behalf of Motilal Oswal Financial Services, I would like to thank every investor participant to attend this conference call for Q4 FY '23. In case of any further queries, please do get in touch with me or our Investors Relations. Thank you and have a good day.

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