Nippon Life India Asset Management Limited (NAMINDIA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Nippon Life India Asset Management Limited Q1 FY '21 Earnings Conference Call hosted by Batlivala & Karani Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ajox Frederick Henry from B&K Securities. Thank you, and over to you, sir.

Thanks, Nirav. Good evening, everyone, and thanks for joining the call. On behalf of Batlivala & Karani Securities, we welcome you all to Nippon Life India Asset Management Limited 1Q FY '21 Post Results Conference Call. I would now request ED and CEO, Mr. Sundeep Sikka, to start the call with his opening remarks on the results, post which we can start the Q&A session. Over to you, sir.

Thanks a lot. Good evening, and welcome to our Q1 FY '21 earnings conference call. Hope all of you are safe and healthy. We have with us Prateek Jain, Chief Financial Officer; Saugata Chatterjee, Co-Chief Business Officer, Distribution; Aashwin Dugal, Co-Chief Business Officer, Institutional Business; Arpan Saha, Chief Digital Officer; and Fujikake-san, Nominee of Nippon Life, who's on the call presently from Tokyo. The first 6 months of the year have been unprecedented in a lot of ways. Equity markets were at an all-time high in January and February, and the economic outlook was strong. Since March, all of us have faced the great challenges arising out of COVID. The difficult times have led to unchartered opportunities. Human health is a paramount of importance. Business activities are fully digitalized, and home and virtual conferencing applications have become the new workplace. This transformation will continue to result in faster turnaround, higher productivity and, ultimately, better operating efficiencies. I'm happy to state, NAM India continues steadily on the recovery path. Since the transition in October 2019, we have gained more than 120 institutional investors per quarter. In addition, 75 new HNI and family offices and presently, 26 out of top 100 corporates of India have started to reinvest in Nippon India Mutual Fund. As on June 30, 2020, Nippon India Mutual Fund has one of the highest market share of unique mutual fund investors in the industry at 29%. Nippon India Mutual Fund improved its share marginally in this quarter, testament to the strong retail presence. In quarter 1, despite branch closure, we added more than 2,08,000 new retail folios. We continue to have one of the largest retail AUMs in the industry at INR 460 billion. And the contribution of retail AUM to total AUM is amongst the highest in the industry at 24% compared to 19% for the industry. Our aim is to increase our base of retail investors, especially from B30 locations. We continue to be amongst the leaders in beyond top 30 cities category. This category contributes an AUM of INR 329 billion. Over 17% of the total assets are sourced from these locations against an industry average of 15.4%. As on June 30, 2020, 72% of the individual assets have a vintage of more than 12 months against 68% on 31st of March 2020. Our SIP and STP folios increased to 3.4 million as on June 2020 in -- an addition of 2,44,000. The progress -- this progress highlights our retail execution capability during this challenging period. The analyzed systematic transaction book is at INR 84 billion. During the quarter, new digital SIPs -- SIP registrations grew by 116%. In a volatile market, these folios with lower ticket size have demonstrated longer vintage and better stickiness. In the new normal, online and digital sales have become our primary source of investor acquisition and communication. Digital platforms contribute to 56% of our new digital purchase transactions. Our early investments in digital ecosystem are yielding rich dividends and Nippon India Mutual Fund executed over 4,80,000 purchase transactions in quarter 1 through the digital assets, an increase of 43% against Q4 financial year '20. We have ongoing tie-ups with 20 prominent digital partners. In Q1, we launched Corporate Solutions Suite, a distant last full spectrum digital asset for institutional investor segment. As a part of our derisking strategy, we give specific focus to AIF, ETF and offshore business. We are the second largest ETF player with a market share in excess of 15%. In this segment, Nippon India Mutual Fund manages an AUM of INR 258 billion. Excluding the EPFO allocation, which goes to 2 PSU-owned mutual funds, we are the largest ETF player in the country. In Q1, our gold fund added assets of over INR 10 billion to cross INR 42 billion mark. Nippon Indian Mutual Fund has 36% share of investor folios in ETF. In Q1, we added over 1,17,000 folios against 97,000 ETF folios for the whole of financial year '19/'20. Nippon India Mutual Fund has 76% share in ETF volumes on MSE and BSE. Nippon India ETF average daily volumes across key funds are far higher than the rest of the industry. In our AIF business, we managed category 2 and category 3 AIFs across asset classes. Launched in 2009, Nippon India Digital Innovation Fund has committed $100 billion and has initiated investment activities. As on June 2020, Nippon India AIF has raised commitments of INR 34 billion across all funds. We continue to leverage Nippon Life's global network for our offshore businesses. Apart from various international tie-ups are 3 India-focused funds being distributed by 28 partners of Nikko Asset Management in Japan has been gaining traction. As on 2020, the assets under management and advisory rose to INR 95 billion. Nippon India Mutual Fund has a well-diversified and nimble distribution base. We added 650 IFAs in this quarter to take our IFA base in excess of 76,600. As on June 2020, we have over 77,000 distributors in panel with us. Direct channel contributed 52% of the mutual fund AUM. Of the distributed AUMs, the share of IFAs was 55% and 76% of the distributed assets have been contributed by individual investors. Now on our mutual fund assets under management. As on June 30, 2020, AUM grew by 15% to INR 1,881 billion over March 2020, in line with the industry. Owing to the COVID-19 crisis and the subsequent fall in the equity markets in the month of March, industry as well as Nippon Indian Mutual Fund began Q1 at a much lower base than the quarterly average of Q4 FY '19, primarily due to equity assets. The quarterly average assets under management was INR 1,801 billion as compared to INR 2,049 billion for the quarter ended March 2020. For the quarter ended June 30, 2020, the total income decreased 7% to INR 3.4 billion. Operating expenses decreased by 24% to INR 1.4 billion, driven by lower employee cost and other expenses, which reduced by 13% and 30%, respectively. We further expect to rationalize overall cost in the new normal. Other incomes rose to INR 1 billion, led by mark-to-market gains in our investment portfolio. Profit after tax increased by 25% to INR 1.6 billion. To sum up, I would like to state our business recovery continues as planned. Despite external hurdles, our business performance remains strong, driven by retail strength, superior digital ecosystem and control on cost. We will keep investing in our AIF, ETF and offshore businesses to diversify our revenue streams and benefit from the future growth opportunities. We are confident to continue our trend on profitable growth in the coming quarters. With this, I'm happy to take further questions. Thank you.

[Operator Instructions] First question is from the line of Amit Nanavati from Nomura.

Sir, just wanted to check on the OpEx line, right? So I'm trying to address -- I'm looking at more the overhead expenses and knocking off the brokerage line item, which is a trading line item, right? So if I look at that line, sequentially, INR 50 crores kind of overhead cost in 4Q has increased to around INR 55 crores, INR 56 crores. So just wanted to check on what levers you have, or what's the more sustainable fixed overhead trends that you can or one can expect in this year given the fall in the markets, wherever you need to kind of cut down on?

I'll request Prateek to take this question.

Yes, so, Amit, if you see, sequentially -- correspondingly -- on the corresponding quarter, the expenses are down by about 24%. And in terms of the other expenses also, the expenses are down from INR 62-odd crores to about INR 43-odd crores on the other expense side, while from an employee benefit cost, it is down from about INR 82-odd crores to INR 72-odd crores. However, sequentially, it is higher because what we have done is we have -- in the last quarter, we have -- on the PLI provision, we have onetime reversal and hence, the expenses are marginally higher because the current employee expenses are based on the run rate and does not include the onetime reversal as it was in the previous quarter.

No, employee expense, I fairly understand. I think it's more like a 5% lower run rate that you're looking at Y-o-Y basis on an average cost of INR 76 cores to INR 72 crores now? More so what I was focusing was on the overhead part where which areas you have more levers to cut down on given that post TER cuts, we had cut down on a fair bit of expenses across the board. So do you see further levers which you can use to kind of manage your EBITDA for the rest of the quarter?

Amit, again, I think the way we see, I think, during this almost now -- almost 4 months of lockdown, I think what we are seeing in the new normal, how we operate is changing. So the kind of travel, the events, a lot of other things that we used to do. Clearly, I think, I don't see those expenses coming back again in the short term. So I think -- and also, I think with the kind of increase in digital business that we are seeing, the cost of operating, the cost of movement of paper, everything comes down. So I think clearly, I think we will see some more operating leverage coming in. And again, while difficult to pinpoint in which area because all these things are evolving. But for sure, you will see -- I mean we have certain more cushion to reduce the cost.

Understood. And secondly, if you can just highlight also, you've kind of indicated towards new investors onboarding, institutional investor onboarding on a quarterly basis for the promoter transition, if you can just highlight in terms of -- so if I look at market share, clearly, after the -- all the market shares have stabilized, but on the other side, at least, it's not even showing that kind of improvement as well. So if you can just detail around what steps you are taking, what measures we are taking to kind of look at market share gains, at least, in the non-equity segment?

Again, if I was to -- again, very difficult to put a number to it at this point of time. But qualitatively, as we have mentioned, about 120 new institutional investors have been -- every quarter are getting added. And further, this is the first time we've disclosed, out of the BSE top 100, 26 investors who had stopped investing have started investing again. Now this quarter is not the right quarter to look at because this is a very -- I think this is not a normal -- a lot of things have changed. So similarly, I think a lot of family offices, which are -- which were not investing or stopped investing, the kind of traction that we have seen, I think we have not seen in the last 3 to 4 years. So I think that things seem to be positive. And I think I clearly expect -- I mean I remember the first call after the transition, I mentioned we expect the recovery to be first will be in Corporates, HNI, and I think it's going as per the plan.

Next question is from the line of Deepak Agrawal from Axis Asset Management.

Am I audible?

Yes, you are. Please go ahead.

Sir, I wanted to understand, if you have to look at a revenue line item, so a broad number in terms of what would be the yield on the equity debt and liquid portfolio, so to say, 100 basis, 50 and 15 basis. Is this the way to look at the revenue number?

I think while we have not been disclosing the exact realization, the overall realization remains the same, about 46 basis points as compared to 47 basis points last quarter. But you're right, the equity, generally, tend to be around 95 to 100 basis points. And in terms of debt, it all depends on the mix because what we have seen over a period of time, the high-yield category where we have propensity to charge more, we have seen -- from an industry perspective, we have seen AUMs going down, and that money is coming back in form of more of liquid and overnight funds, where our productivity charge is slightly lower. So it all depends on the mix in case of debt funds. But while in equity, you are right that the net revenue is about 100 to -- 90 to 100 basis points.

Got it. Got it. And so the new business in equity, so whatever we will be writing on the incremental basis. So there, how much would be the difference? I assume that's substantially lower than your existing book yield. So any broader numbers you can share, if it's 25% lower or 50% lower? How should we look at revenue number?

No. So rather than -- I'll just tell you that, look, what has been our philosophy. In terms of -- we have moved obviously, from an upfront to the trail regime. And what we pay -- share with our distributor is in the range of 50% to 70%. And of course, 50% being at the lower end of the IFA segment and at the higher end segment, especially to some of our key partners, including banks, et cetera, where we share about 70% of our total TER. So this is a broad range where we're working on. And Sundeep has always been mentioning about the fact that our focus is more not on getting market share on any -- what you call it -- it is more on a profitable growth and hence, our sharing percentage remains within these ranges.

But is it not that the new business, anything we write would be at lower than the book yield? Or it would be similar to the existing yields?

No, so you can deduce from the perspective that, look, it all depends what is the TER we are charging, which scheme. It is all defined by the SEBI as well as the competition. What we are saying is that, currently, we charge -- whatever we charge, we share 60 to -- 50% to 70% of that to the distributor. In the past, since we had given upfront brokerages and historically, trade rates were lower at that point of time.

And also it depends on the quality of distribution efforts. The fragmented distribution sales are no distributor for us is more than 5%, and I think it's spread in small cities and towns. That also, on a cumulative basis, adds a little bit to our profitability, or increases our share.

Okay. And sir, just last thing, do we share that equity products would contribute how much of our overall revenues, I believe one of your larger competitor does share that data. Do we share that?

Yes. So see, our high yielding assets account for about 70% to 75% of our fees.

70% to 75% of overall fees?

Yes.

[Operator Instructions] Next question is from the line of Shubhranshu Mishra from BOB Capital Markets.

Some of my questions have been answered. I just want to understand, taking the queue from Amit's question, are there any more levers which are remaining with us for OpEx rationalization?

No. See, we've continued to look at opportunities. And as Sundeep was mentioning, the COVID lockdown has given us new avenues to think in terms of expenses. Of course, this year, travel expenses -- the expenses related to the distribution events, et cetera, they are going to be significantly lower. Also, most of our expenses towards stationary -- and like, for example, new offices. Earlier, we had intended to open close to about 500-odd branches. Now from a new normal perspective, we can operate these branches from home itself. So obviously, these are a few things which are evolving and as things evolve, we will look at opportunities to improve our further operating efficiencies.

Right. So how do I model for expenses in terms -- for the entire year versus FY '20? If I could model for it, a ballpark number or a ballpark percentage would be very helpful.

So this is more of a representative numbers, if you look at it this quarter, and we can build in some kind of further efficiencies marginally. But on a long-term sustainable basis, obviously, we are looking at the new models which are evolving in terms of co-location, in terms of whether do we need 100% of our people to have a seat or we can work with 70% efficiencies in terms of office spaces, et cetera. So obviously, over a period of time, new expenses evolve. But at this point of time, you can take more or less, with marginal plus/minus, these are the representative expenses.

So we can -- so it would be a fair assumption to analyze the first quarter number. Is that correct assumption?

Yes.

Right. And in terms of AUM, we have had an increase of roughly INR 130 billion. So how much of this is from the flows? And how much of it is from the MTM?

Sorry, I could not get your question once again. Sorry, please?

Right. So we've had an increase in the end-of-period AUM of roughly INR 130 billion. So how much of it is from the MTM, mark-to-market? And how much is it from the flows?

1st of June, the industry flows itself was almost 4 months low. So obviously, predominantly, it is because of the mark-to-market impact.

Okay. Okay. And I've got one -- 2 more questions, sir. One is that why do we have such a low contribution from the banks in terms of our AUM, given the fact that most of our schemes have more than 3 years of vintage. So that is the prime criteria of the banks to have the mutual funds empanelled. And we are a fairly old brand, and why is it that they contribute only like 20%, 30% of our AUM distribution, while IFAs contribute such a high percentage? Or am I thinking that too much? If you can clarify.

So let me clarify. I think it's not the banks are low. It's the IFAs are high. And I think we take it the other way around. I think, today, to build up an IFA and charging small cities and towns gives us a very, very strong advantage. So at no point of time, it should be seen the banks are low because today every bank, public sector, private sector or foreign bank, I think we are empanelled and I think are selling our products. It's just on the -- because we're using percentage, the IFAs are much more than the banks for us. And I think as you -- you're aware, the IFA business model is much more difficult to replicate.

Got it. Right. That's true, sir. And has there been any SIP reclassification?

Yes, we have. If you see the numbers, I think they have been reclassified based on the new AMC thing. And if you see in our presentation, we have reclassified and also for the last 4 quarters, and I think I have presented the data.

Next question is from the line of Ashish Sharma from ENAM Asset Management.

First of all, congrats on a good set of numbers, sir. Sir, just one, on the other income part, is there an -- on the NPM we had taken on Q4, any investment adjustment of that? Or is it a normalized other income for Q1?

No. See, obviously, if you recollect that we have mentioned in the last call, we had almost about 12% of our financial assets into equity and ETFs as part of our seed capital and comfort capital into these investment class. We have not any additional allocation to these assets, but -- and to our own schemes. However, because market has rebound from the March low, if you see the last quarter, our total revenue was declined because of the same MTM impact. This year, the other income is higher because of the mark-to-market positive impact on these equity and ETF schemes.

Okay. So the net reversal on an MTM would -- how much would that be, sir, for this quarter?

No. So overall, if you see, we have booked about INR 99 crores of income as against INR 125 crores of loss last quarter.

Okay. Okay. But as you mentioned in the Q4 call that in that minus INR 125 crores, there was NPM impact of INR 152 crores. So should we assume that most of the MTM losses are already sort of existed in Q1 itself?

No. Actually, if you see -- this is actually -- as on date of June 30 -- so since June 30, also the markets have run up. So obviously, some part of it will -- they are now likely to come in the July quarter if the market remains at the same levels.

Okay. Fine. And just a second question would be on the equity yield. So given that we are seeing the higher share of digital transactions. So when we are talking about digital transition direct -- in terms of yield on profitability, I mean what sort of a difference the yields -- there is a difference in yields are -- when we are talking about digital direct transaction, [ does it help ] for distributor?

So if you see the net revenue of our AMC, whether the money comes in a direct or in a regular scheme, almost is the same except for the certain transaction costs which you save. So in our digital transaction because digital transactions, you don't incur those physical cost of processing those transactions, otherwise, the net revenue -- net TER charge as management fees is the same across both regular and direct process.

So effectively, while on one side, we will -- the realization for director distribution because the SEBI formula remains the same. But there's a big difference in operating cost. So let's take an example, as we have presented -- highlighted in the presentation, we are doing one digital transaction every 11 seconds. We are doing one new SIP every 22 seconds. Now just imagine now, if there was human intervention, people, branches, paper, everything involved, the cost is there. So effectively, these efficiencies come to play now.

So just for OpEx, it is beneficial?

Yes, that's right.

Next question is from the line of Madhukar Ladha from HDFC Securities.

Most of my questions have been answered. Just a couple left. Can you give me a break down of your closing assets, equity base liquid and the others?

If you look at the total assets, it was about INR 2,73,000-odd crores. Of this, mutual fund was INR 1,88,000 crores. And if I can just check that, please.

The mutual fund break up is what I require.

Sorry?

The mutual fund breakup is what I require.

Okay. Yes. One second just. So it is about 38% equity, and that overall liquid was about INR 35,000-odd crores. And debt was about INR 52,000-odd crores. ETF, overall, was INR 22,000 crore.

Okay. And can you -- so of the investments in mutual funds, it's about INR 1,934 crores as of June end. Can you tell me how much of it is in the credit risk scheme? And our equity exposure is a little bit high. So what's the philosophy behind this? Why don't we reduce our equity and sort of kind of see, really, other income as a line item for ourselves?

So Madhukar, as mentioned last time also, that, look, these investments were made over a period of last 8-odd years as form of our SIP contribution to some of the schemes. In terms of the ETF, it was more put as a seed and comfort capital for the institutional investors as an investor-to-investor philosophy. However, in terms of the volatility, Board as well as management is considering -- looking at the new revised investment framework. And if there is any change at any point of time, we'll definitely come back and inform to the shareholders as well as on the analyst call.

But for the changes on the same lines to avoid the...

Volatility.

Volatility that can come because of mark-to-market.

Right. And the other question, what -- how much of our debt book is in the credit risk fund, if you can share that information?

On the credit risk fund, we, I think, is not -- I think no scheme has more than 5%. But in terms of the exact credit risk fund, it should be -- it would not be more than about 13% of the total schemes, right? Yes, less than 12% to 13% of the total scheme assets.

That's about...

Across all, yes. Across schemes.

INR 190 crores, INR 200 crores of the debt? Or are you talking about the entire mutual fund book?

No, no, no. Sorry, come again?

When you say 12% to 13%, are you talking about only the debt book or the entire book?

No, no. The total financial assets, I'm talking about.

Total financial assets?

Yes.

Okay. So that is INR 2,600 crores. So that would make it about INR 320 crores, odd, plus. Okay.

Yes. But this is across the schemes, across the trade schemes, while most of the amount has been invested into the high-grade assets and the liquid assets.

No, but -- I understand that. So you have INR 1,600 crores in debt. Of that, you're saying about INR 320-odd crores is in the credit risk fund?

Yes, across all the funds, yes.

[Operator Instructions] Next question is from the line of Abhishek Saraf from Jefferies India.

Just -- I had just one question. So basically, we have seen that there have been some kind of dichotomy in this quarter that the mutual fund, actually, the flows have been rather [ tepid ]. But on the brokerage side between the direct or the retail, participation has been going very fast. The brokers have been reporting very good numbers. So just wanted to understand how are we internally, right now, viewing this trend, although I admit that this is right now still in a [ formation ] state, but how are we viewing this trend internally from our own strategy perspective? And what are we doing in this -- how you think that this thing will play out over the near to medium term?

If you were to look at the data, many times what happens when we all look at AUM data, and when we look at especially the July numbers of industry numbers, it showed that equity has come down, a lot of things, but this does not reflect the true picture. If you were to see, we have stated during the quarter, in this lockdown, we have added almost in excess of 2 lakh new investors. Now just take a scenario, the debt in the industry is actually increasing. A lot of redemptions that you saw came from savvy institutional or family offices. But the retail participation continues to increase. Similarly, as I mentioned earlier, in ETFs, the whole of last year, financial year, we added 97,000 new investors and in the first quarter itself, we have added 1,22,000 investors. What that tells you is you are seeing new investors coming in. You are seeing the debt getting increased. Especially for a player like us, which has very strong distribution across the country, I think we are able to reap advantage of that. This may not get reflected in the AUM because what happens is, as we know some of the bigger players, investors, they try to time the market. I mean, definitely, we have seen a lot of flows coming into ETF. Tactical calls, investors taking a tactical call, this money might go out in the next 3, 4, 5 months. But I would say, I think from our perspective, we remain very bullish. I think I'm very happy to see the new investors coming in during this quarter, I mean, which was something a very, very pleasant surprise.

Okay. And again, on credit funds, so if you can just give some color on how the flows have happened? How they stand out for credit funds as such?

I think from our perspective, I have mentioned in the last call also, I think our credit fund has been -- almost been -- I think we have -- it's flat for the last quarter after one certain industry events which happened. Because we had -- to be fair, we had lost a lot of AUMs in the preceding 12 months. So in the last 4 to 5 months, we've been almost flat. I think we have not seen neither much flows, neither further redemptions. The only thing I think I'd like to also add to it, I think, as mentioned in the last quarterly earnings call, as the -- last time the Board had taken a decision going forward as a company, we will -- as a mutual fund, we will not be investing in any security below AA. So that's something that will be a more conservative approach going forward.

Next question is from the line of Alpesh Mehta from Motilal Oswal.

Am I audible?

Yes. Okay. Go ahead.

The first question is on the yield part. When I look at the AUM mix on a sequential basis, I'm talking about the quarterly average AUM, the mix has obviously -- from -- it has moved more towards the low-ending assets. But when I -- when we compute the basis points in terms of yield, the drop has not been that sharp. Any specific reason? Have you changed some commission rates for the distributors, anything related to that?

If you see, obviously, the realization from that perspective, on the debt side, which has already happened in the last quarter itself, so predominantly. So while it may not be reflected completely in the average AUM, but it has already happened. And whether in terms of the other part is, you are right that somebody announced in the last year, we saw that in some cases, you've increased the broker percentages, et cetera. So those are tactical aspects. We keep working on that. In terms of our sharing percentage with the distributor, where we have -- where we believe that we need to push or support our sales team. I think that is what we can disclose at this point of time.

Okay. Just let me rephrase my question. Would the equity realization be better than the previous quarter?

So if you see that -- if your AUM goes down from a SEBI regulation perspective, also, your realization goes up. So that is also one of the reasons.

Secondly, on the offshore fund, the -- has there been any decrease into the managed assets within the offshore fund? Any specific mandates?

No, no, no. Mandate has not gone down. But because of this volatility, we have seen some reduction, both due to MTM as well as for some institutional investors would have redeemed.

Okay. And can you just help me out with this change in the definitions from the AMC side on the SIP book? And what would be the SIP book contribution to our overall AUM, if you have that number?

One second. So from flow perspective, it is -- in terms of June, it is close to about -- the annualized book works out to be about INR 84 billion.

Yes. But what has been the change from the AMC side because we have also restated the previous quarter numbers. So in the fourth quarter, our annual month -- March month number was INR 8.1 billion, which has come down to INR 7.2 billion. What has been the change from the AMC side?

I think earlier, it was fixed registered. I think now it's been -- I think it's more to do with the money hitting the bank account. So there's been a industry-wide reclassification which has happened. So that's why you see the numbers have been changed because there were a lot of SIPs which were there while they continued to be registered. But I think even if assuming the installment did not come in that month, it was still counted. So I think that this is actually money hitting the bank account.

So we have also given the pause facility -- we have given the pause facility on these things. And therefore, now what we are showing is the actual amount hitting into the bank accounts.

So effectively our SIP average ticket size is around INR 2,200, which used to be around INR 2,600 under the earlier reporting.

Yes.

Okay. And just the last data-keeping question. What would be the IFAs who are saying here? I didn't find it in the presentation.

So it is -- of the distributed asset, it is about 54%.

54%?

52% -- 53% is our direct AUM, 47% is your distributed asset. Out of 47%, 54% is IFA assets.

Got it. And the single distributor continues to be around 5% of AUM?

Yes.

So it's on the presentation, if you see Slide #35 and #36.

Next question is from the line of [ Aadesh Mehta ] from Motilal Oswal.

Sir, my questions have been answered. I wish you all the best.

Next participant is Gaurav Jani from Centrum Broking Limited.

Just a data keeping one. The other income that has seen a spike for the quarter, could you give a breakup between equity and debt? Because I see on Slide 44, the equity portion is much lower than the debt. So how should I look at it, please?

I could not give you this -- while you're saying the equity portion is over, I'm still unable to understand what is the second part...

So I assume the other income would have been largely driven by our own AMC AUM, right? And out there, I think the equity portion is lesser than the debt and the movement of -- the favorable movement in terms of debt is much higher than equity. So I just thought -- or how should I look at it?

Okay. So see, obviously, because here, the mark-to-market impact on a debt, you just accrue your income on an accrual basis. While equity also has an M2M impact and, therefore, the equity contribution to this gain is correspondingly higher. So of the total, if you see, we have other assets, which is a fixed deposit, et cetera, which had contributed. So overall, if you see the debt and the fixed deposits, et cetera, which would have contributed close to about 35%, 40% of the total other income and remaining is from the equity mark-to-market.

Sure. That's helpful. And secondly, just on this other income, again, how should we look at it from a sustainable basis? I mean, although, obviously, it's tough to predict, but just a sense as to how do we project that?

I think broadly, as we mentioned earlier, to Madhukar's question also. I think gradually, I think what we'll do is, I think, the Board and the team is working on, the new investment process of the AMC money so that there is no volatility. So we are working on the new process. And -- but over a period of time, you'll see these spikes and volatility will not be there.

[Operator Instructions] Next question is from the line of [ Rithvik Sheth ] from Oneup Financial.

Again, my question is on the other income. So we have approximately INR 2,500 crores of cash, north of that. So what is the kind of realized other income that we could do per annum? I think that is what everyone is trying to understand.

See, on a sustainable basis, the 12% to 13%, which we have in equity, okay, I'll leave it for your judgment. But on the rest of the assets, I think since the yields have come down and most of them are into high-grade assets, so it should be in the range of 6% to 7%, at best.

Okay, 6% to 7% for about 85% of the portfolio?

Even south of it because yields are coming down. So...

Right. Sure. Sure. And so going by your commentary just on the previous question, it seems that we are looking to sell out the equity portion and go -- move towards probably more of the fixed income to produce the volatility. Is that -- would that be a right understanding?

I think we like to avoid volatility, that's the key thing. So how we realign the portfolios is yet to be decided but I think what we'd like to do is we'll try to avoid. I mean while we can say this is one of the black swan events which happened in the last 2, 3 weeks of March. But I think we'll -- I think the learning from this is, we'll try to keep it, avoid any further volatility going forward.

Next participant is Sunil Shah from Turtle Star Portfolio Management.

Yes. Sir, I believe we have a representative from the parent also on the call. Is that the case?

Yes. We have Fujikake-san. He is in Tokyo right now.

Yes. I don't know if my English can be understood. But just, sir, a thought or a perspective which we would like to get is, sir, when and how do we leverage on the global platform of the parent to gather AUM for us because world is flush with funds and there is limited opportunities worldwide. So what are the parents' thought about the Indian investments which have been done? Could we get some understanding on that?

Sure. I'll request Fujikake-san to answer that. I think the only thing I can say as the process started, we had COVID hit us and the world came to a standstill. But there are plans for that. But I think, Fujikake-san, if you could please share that?

I answer to that question by the 2 parts. Half part is product import and export. So the Nippon Life has a global network. For example, we have 20 -- 26% holdings to the TCW, which is American asset management company based in L.A. And they -- also the stakeholder in DWS, which is Deutsche Bank's AMC fund. Other than that, we have a variety of the asset management network globally. So if we cooperate with those companies, we can import or export products -- Indian products to the overseas or global products to the Indians, that is the first half part. And the second part is also there are -- those kind of the global networks have global practices in a variety of the fields such as risk management or governance stuff. And so we're trying -- people are trying to import such good practice from the global standard into India to strengthen our capability.

Right. Sir, my question would be like because you just stated that some products were just started. And unfortunately, the COVID thing happened. Could you give us some more understanding about these products? And what was the kind of size of opportunity that the Indian company was looking at, if you could give us some sense on that?

So just to -- it was not product -- some of these initiatives and projects to work closely. So just what Fujikake-san just mentioned, I think working closely with a lot of companies where Nippon Life parent has a stake. So like Fujikake-san mentioned, whether it's TCW, where Nippon is a 26% shareholder. DWS, where Nippon is the second largest shareholder after Deutsche. A lot of these -- and MLC in Australia where Nippon is 80% shareholders. A lot of things -- discussions are on. So I think it's too premature for us to say. But one thing is very clear. A lot of this global money, which has the potential to come into India, which earlier we could not access. We will be leveraging the network and the shareholding of Nippon Life in various companies for that.

Sir, another question, which is in the call, you just mentioned that our average yield is 46 basis points. So from that, we still have to shell out to other IFAs and all those distributors. Is my understanding correct on that?

No, no. These are net realization at the AMC level. So this is because post the change in the regulation, all the IFA or distribution cost is paid at the scheme level itself from the TER. And what we mentioned about this is a net realization or rather at AMC level, this is the gross realization.

Okay. From which the expenses and all. So it's not the commission which is [ passed ] but other expenses which are deducted, right?

That's right. The administrative cost as well as the employee cost is only borne by -- out of these realizations.

Okay. Sir, just if I may add one point. Sir, if it is 46 bps, and if our average AUM for the quarter was INR 180,000-odd crores, sir, this 46 bps would translate into a huge number, which is actually not matching with our revenue. So...

No. You have to see it. You are looking at -- these are annualized numbers. So 46 basis is annualized number. You need to look at it on a quarter basis.

Next question is from the line of [ Utkarsh from Damos Capital ].

Sir, we are the [ pall-bearers ] (sic) [ flag-bearers ] of ETF in India going -- so if we see from the last 20 years, we were first to launch through benchmark. And now we see almost 90% of the large-cap --[ as you manage the ] large-cap funds underperform the index. So going forward, if more and more ETF investment -- investments come through ETF route, then our TER will decline, which will require -- which will further decline the revenue and profitability of our company. So what are the plans to diversify that?

I think broadly, the way we have to see is, I think we are -- as an asset management company, we will keep offering different products. I think we clearly -- while ETFs remain important for us, but we clearly believe both active and passive ETFs will coexist. They cater to different set of investors. There will be investors who will move towards ETF, but we have to also understand there is 2% of the population of India which is investing in capital market/mutual funds. So the market will keep increasing. New investors will come and active funds will come through SIPs. Some investors will go through -- go into ETFs. I think the -- as far as the revenue is concerned and realization, I think we -- as an AMC, we clearly believe AMC is a volume game. I think 2 things have to be important. One is to keep increasing the volume, that is to keep increasing the AUM and to keep the expense low. I think we are working on both the things. I think we don't see ourselves predicting that whether active large-cap ETFs will over -- become the substitute to active large-cap funds. I think from our point of view, what is critical is we have both the products ready. One thing is very clear. I think within the ETF, we believe we are in a very strong position in India because for ETFs, 2 things remain very important. One is the tracking error. Other one is the liquidity. I think on -- because if there is no liquidity, the impact cost takes away the entire advantage. And taking into account today almost 80% to 90% of the volume on the stocking is ours, we believe we have a strong -- we're in a strong position as the ETFs grow in India. Having said that, I think, like I said, I think I don't want to make up -- take a bet that whether ETFs will overtake active or will replace active. In my view, both will coexist. And I think we need to be ready with both.

Okay. And how much percentage of our direct equity inflows are through our own NAM India for that, sir?

16%.

[Operator Instructions] Next question is from the line of Nischint Chawathe from Kotak.

Sorry, I joined a little late. So just in case this is not a repetition. If I look at Slide 43 and look at the breakup of operating expenses, if you could just explain what fee and commission expenses are and what comprises other expenses?

Yes. So fee and commission expenses, basically, Nischint, is the brokerage amortization, which we have paid on upfront, and these are related to mostly close-ended funds. So over a period of time, it is going down. In terms of other expenses, these are all other administrative costs.

So I can expect this INR 9-odd crores going down to maybe 0 by next year. Is that the way to think about it?

No. So if you look stand-alone one -- sorry, if you look at the stand-alone one, it used to be about INR 19-odd crores. It has come down to INR 1.76 crores. But in terms of console, you will still have some line item because of the AIFs. So in AIF, we still pay some upfront and it's something to do with our offshore businesses where some part of the expenses, which have to do with upfront costs, which may fall into this classification. But those are not going to be very significant given the size of those operations versus our domestic mutual funds.

Okay. Now when I'm looking at quarter-on-quarter basis, INR 19 crores going to INR 9-odd crores, then that possibly means that the payout on the AIF side reduced drastically. Is that the way to think about it?

So when you look at INR 9 crores, then you have to compare with the INR 25 crores, so obviously, this quarter being an unprecedented one and obviously, on the -- what you call it, on the flow side, while mutual fund has seen the lowest flows, we have correspondingly lower flows on the AIF as well.

Okay, so it's basically INR 19 crore versus INR 9 crore. If I look at quarter-on-quarter, it's essentially the AIF flows because mutual fund, obviously, the number is negligible?

Yes.

And just second one was on the distribution mix. On Slide 35, you have direct and distributed. What would be this breakup for equity events?

Predominantly, as you said, the 16% of our business is direct. So 84% is from the distributed -- 84% consist of distributed assets. And as Sundeep mentioned, largely, IFAs are the one who contribute in excess of 55% of that assets.

Sure. So basically, what you're saying is that of the direct 80 would be -- sorry, 18% would be direct on equities and then the balance would be distributed -- sorry, 16% would be direct and the balance would be distributed?

That's right.

Sure. And what is corporate asset in distributed because I thought most of the corporate business would be direct, right, and it's mostly debt?

No. So like some of the corporates still comes through -- well, you, predominantly, are right, but many corporates do come through distributor models.

On the debt side -- on the liquid funds and debt side?

Yes. And because it is not just corporate, there are other body corporates and trust, et cetera, as well.

Next question is from the line of Shubhranshu Mishra from BOB Capital Markets.

I just wanted a data-keeping question. What was the net new money in FY '20? And what is our expectation in '21 and '22 for net new money?

I think we don't give future guidance. But I think for the quarter, as I mentioned earlier, we've added about 2,20,000 new investors, about more than 1,08,000 new ETF investors. I think equity, we have added about INR 1,000 crores of net number. I think future guidance, I think, will be difficult to give. As a policy, we don't give.

So what was that in FY '20?

FY '20, as for the ETF side of numbers, I'll give you that number. For FY '20 ETF, the whole of share was 97,000, and the first quarter is about 1,20,000. And the balance, I think, in the mutual fund investors, last year, for us, was a negative INR 2 lakh crores -- 2 lakhs folio. And this year, in the first quarter, we have added 2 lakhs. So I think as I stated earlier, the recovery part has started very well as per the plan.

So in terms of value, sir, I couldn't still figure the value for FY '20?

I don't have it right now. I think we can share with you off-line.

Sure, sure, sure. And in terms of the cash or debt used in first quarter for redemptions, what would that number be, sir?

For redemptions means? Just I was not clear.

We would have some amount of cash and have -- there could be some amount of bonds which could not -- which could have been illiquid. Did we use cash or did we borrow in order to -- for the redemptions?

So -- no, AMC -- from the AMC balance sheet, nothing -- no bond has been bought from -- no bond has been bought or the entire investment has been disclosed, number one. As far as the borrowing in the schemes are concerned, I think it's disclosed in the fact sheet. In one-off schemes that had total outstanding borrowing, if I remember correct on 30th of June, was less than about INR 200-odd crores.

Right. And would the -- can there be any negative surprise in the credit risk fund or that's largely sorted out?

I think you have the portfolio in front of you. I think I'll leave it to your judgment. I think we are very confident. I think there will not be any negative surprise.

Ladies and gentlemen, that will be the last question for today. On behalf of Batlivala & Karani Securities, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.