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

Good evening, everyone. On behalf of Emkay Global, I would like to welcome the management of Nippon Life India Asset Management and thank them for giving us this opportunity. I shall now hand it over to Mr. Sundeep Sikka, ED and CEO of the company, for the opening remarks. Over to you, sir.

Thanks, Jignesh. Good evening, and welcome to our Q3 FY '21 Earnings Conference Call. We have with us our leadership team, Prateek Jain, CFO; Saugata Chatterjee, Co-Chief Business Officer, Distribution; Aashwin Dugal, Co-Business Officer, Institutional; Arpan Saha, Chief Digital Officer; and Fujikake-san, nominee of Nippon Life Japan. The industry assets have increased at a strong pace in the last 6 months and are first to grow further in the next 3 to 5 years. Our priority is to be future-ready and capture this long-term opportunity. We continue to focus on 4 pillars to execute a profitable growth strategy with the investor-first philosophy at its core. The focus areas include superior fund performance in active category, comprehensive product offering in passive category, business derisking through higher share of non-mutual fund segments and a robust digitech architecture that provides wide reach and best-in-class customer service. In Q3, Nippon India Mutual Fund added 233,000 SIPs and STP folios on a gross basis. Also measures taken in the past quarters have resulted in a positive impact on the short-term fund performance. We expect to improve the fund performance even more in future. We consolidated our passive product offering further through the launch of first of its kind Nifty CPSE Bond Plus SDL ETF and a Passive Flexicap fund of fund in Q3. NIMS garnered about 50,000 investors through both the NFOs. With the passive assets gradually gaining prominence, Nippon India Mutual Fund is ready with its ecosystem in this segment and far ahead of industry in terms of investor base and mindshare. Post consolidation, in the last few years, we expect to grow our existing funds and expand into further categories in AIF and PMS segments. From October 2020, NAM India has begun to manage post office life insurance as rural post office life insurance funds. With this mandate, we manage assets of over INR 1,200 billion on account of government mandates. The offshore business has assets of INR 102 billion under management and advisory. Leverage Nippon Life's Global Network, we expect to ramp up our international presence in coming years. Our continuous and consistent effort of a digital-ready environment and a robust environment enabled Nippon India Mutual Funds to weather away the turbulent times and come out of the COVID-19 crisis as a stronger and a tougher digital entity. Nippon India Mutual Fund has 3 proprietary applications and seamless integration with over 100 partners, including fintech players and traditional brokers, who use our APIs for investor onboarding and transactions. With IBM as our strategic technology partner, and tie-ups with other best-in-class providers, we have a strong digital ecosystem in place. As on December 2020, Nippon India Mutual Fund maintained its higher market share of unique MF investors in the industry at 29%. We onboarded 260 institutional investors in this fiscal. We continue to have one of the largest retail agents in the industry at INR 586 billion. The contribution of retail AUM, total AUM is among highest in the industry at 26% compared to the industry average of 21%. We continue to be amongst the leaders in beyond Top-30 City category. This category contributed an AUM of INR 388 billion. 18% of the assets are sourced from these locations as against an industry average of 16%. As on December 31, 2020, 69% of the individual assets have a vintage of more than 12 months as against 68% on March 31, 2020. The analyzed systematic transaction book is at INR 80 billion. During the quarter, new digital SIPs registration grew by 62%. In volatile markets, folios with lower ticket sizes have demonstrated longer vintage and better stickiness. As seen in our recent NFOs, online and digital assets have become a key source for investor acquisition and communication. In Q3, digital platforms contributed to 52% of our total new purchases. 4.1 lakh purchases were executed through digital assets and -- which is an increase of 39%. In ETF segment, we are one of the largest players with a market share in excess of 13%. In this segment, Nippon India manages an AUM of INR 312 billion. Excluding EPFO allocations, which goes to 2 PSU mutual funds, we are the larger ETF player in the country. The Gold ETF is the biggest fund in this category with having excess of INR 54 billion. Nippon India Mutual Fund has 31% share of industry ETF folios. On a YTD basis, we added 419,000 investors in this segment against only 97,000 in the entire previous year. In Q3 itself, we added 150,000 ETF folios. Nippon India ETF have 76% share of -- volume share on BSE and NSE. Nippon India ETF average daily volumes across key funds is far higher than the rest of the industry. In our AIF, we manage Category II and III AIFs across various asset classes. Launched in 2019, Nippon India Digital Innovation Fund has committed funds of USD 100 million and has initiated investment activities. As on December 2020, Nippon India AIF has raised commitments of INR 25 billion across all funds. Nippon India Mutual Fund has a very diversified and a nimble distribution base. As on December 2020, we have approximately 75,500 empaneled distributors. The MFD base also grows to over 77,100. Also, we are having ongoing tie-ups with over 20 prominent digital partners. Digital channels contribute 55% on of the MF AUM. Of the distributed assets, share of MFDs was 55%. 82% of the distributed assets are contributed by individual investors. Nippon India Mutual Fund has a wide presence through 290 branches across the country. We continue to review our existing branch operations and future expansion plans. Given the new normal, our marketing efforts are increasingly focused more on digital channels, which are more cost-effective as against offline. Now on our mutual fund assets under management. As on December 31, 2020, AUM was INR 2,207 billion, an increase of 35% against March 2020. The quarterly average assets was INR 2,130 billion as compared to INR 2,000 billion for the quarter ended September 30, 2020. For the quarter ended December 31, 2020, total income rose by 11% to INR 4 billion; profit after tax increased by 42% to INR 2.1 billion. In this quarter, overall operating expenses decreased by 22% to INR 1.3 billion. Consistent focus on cost optimization and rationalization over the last 6 to 8 quarters have resulted in reduction of various expenses. Operating expenses as a ratio of average assets under management reduced from 33 basis points to 24 basis points in Q3 FY '21. We continue to grow organically through our physical and online channels in active passive and non-mutual fund segments. Additionally, we remain open to evaluate investment for inorganic opportunities and acquisitions for our strategic growth and partnerships. On this backdrop, we will consider deployment of our IPO proceeds towards more value accretive and strategic initiatives. In today's Board meeting, an interim dividend of INR 3 per share has been declared. Nippon India Mutual Fund has initiated the process to become a signatory to PRI, world's largest voluntary corporate sustainability initiative, and adopt EST processes across investment funds and the company as a whole. As a responsible asset manager, we will continue to enhance our capability to carry out stewardship, responsibility and give voice to minority investors who participate in our mutual fund schemes. At NAM India, investor centricity remains a key theme. We strive to deliver a complete product suite customized to individual lead, superior fund performance and efficient client servicing based on comprehensive digitech ecosystem. We are confident to continue our trend of profitable growth in coming quarters. With these comments, we are happy to take any questions. Thank you.

[Operator Instructions] The first question is from the line of Shubhranshu Mishra from Systematix.

Sir, the first question is the AUM growth that we have in this particular quarter, how much is the net new money and how much is the MTM, sir?

Prateek? I'll request Prateek to take this question.

See the -- if you look at the overall basis, despite the overall equity change is about 8%, which predominantly can be attributed largely for the market appreciation. But the other thing, which is the debt, which has gone up by about -- close to about 10-odd percentage is purely because of the incremental assets which we have added.

Right, sir. And these incremental assets, if you can qualify them, are they more retail or are they more institutional?

See, predominantly, it is in the debt other categories. And I would say that those are more turned towards the institutional investors.

Right, sir. And sir, if I look at Slide #23, where we gave out the geographical derisking, where we are putting out the strategies, so if -- is it a correct assessment that our cost structure largely remains similar because we have to reach out to beyond 15 cities or beyond 30 cities and aim for higher penetration in those cities, so the cost structure remains this way? Or is there any digital intervention by which we can have some amount of restructuring in our OpEx as well, sir? How do we look at OpEx, given...

So if you see our OpEx -- compared to last year, if you see our OpEx is significantly down. We have almost 24% saving in terms of our expenses on a corresponding 9 months period. So we're clearly working towards improving our operating efficiencies. And in terms of the smaller cities and towns, if you see, we have -- we are not opening any new branches, and we are using, as Sundeep mentioned, our digitech ecosystem to reach out or to further enhance our penetration. So if you look at, obviously, there is no incremental cost associated to reach out to any new cities through a digitech medium.

Shubhranshu, also to add to it, I think while this is COVID period, a lot of physical interactions have not been very high. But clearly, we believe both digital and physical will coexist. The idea will be how do you leverage digital to reduce the cost of operations and transactions. We may not be -- we will not be opening any branches, but we strongly believe in smaller cities and towns. Physical presence also remains a very big strength.

Sure, sir. Sir, if I have to look at OpEx going forward, sir, is it a fair assumption that it will come back to the normalized levels pre-COVID?

No. See, if you look at the expenses, predominantly, these expenses are fixed in nature across the employee benefit expenses and other administrative expenses towards the rent and other utility expenses of the branches. Because most of the variable expenses was related to these schemes, now as per SEBI guidance, has to be part of the scheme expense only. So largely, these are fixed expenses, and we do not see any significant growth in these numbers even post opening up of the economy or the -- or post-COVID thereof.

Right. So OpEx remains at similar levels. This number could be annualized for FY '22. Is that a fair assumption, sir? That's what I am asking.

Yes. Marginally, it can go up with respect to the said travel cost or some bit of communication cost.

Got it, sir. And sir, on our distributed asset mix where we give out 55% is through mutual fund distributor, how much is actually coming from our digital partners, sir, like Paytm Money, ETMoney, Kuvera so on and so forth? So of this 55%, how much is actually coming from the digital partners today, sir?

We need to come back to you in terms of that particular statistics. We do not specifically disclose that. But let me check if we can do that.

[Operator Instructions] The next question is from the line of Haresh Kapoor from IIFL Asset Management.

Sir, a couple of questions here. One is, sir, on your Slide 47, where we're looking at the equity exposure, the investments that you have, I don't understand that large part is in your schemes. But is there anything outside of that, which we can reduce. So the backdrop is that compared to some of the other peers that you have, you have a meaningful exposure to equity in your investment book, which brings in a significant volatility to your other income line. So how are we thinking about that? And can we act on that immediately?

So Haresh, as we have mentioned in our last -- earlier calls also, these equity investments are predominantly or rather entirely into our own equity schemes as form part of the seed capital or comfort capital or what we've been investing over the period of years. And we have decided to systematically bring it down. In this year itself, we have almost brought it down by about INR 100-odd crores. So we'll keep working towards that. But again, to clarify, these are not any direct investment into equities. These are just investment into our own equity schemes.

Sure, sir. Sir, and your -- a bookkeeping question. Of these SIP numbers that you gave, INR 660 crores, that is -- is that a December number? Or is that the average for the quarter?

No, no, that is average for the quarter.

Average for the quarter.

Average for the quarter. Okay. Sir, and next thing in terms of -- you spoke about focus on AIF PMS business and even some focus there. So could you talk through in terms of how is the pipeline in terms of new schemes? Or maybe on the MF side or maybe on the AIF PMS side? And then what could probably be the expectation there?

I think while it will be little difficult to give exact details, I think, but the idea here will be to come out with unique product offerings. And for us, as I mentioned earlier, the focus will be over a period of next few years to reduce the mutual fund -- the percentage of mutual fund revenue and increase the non-mutual fund part. So for us, PMS, AIF and offshore comes under that category.

Okay. Sir, and last...

Haresh, this one -- this number on the slide is for the month of December, I stand correct.

SIP.

SIP number.

Sure, sir. And what would be the average if you had to give that? The reason I ask is -- sir, the reason I asked that question is, we have seen pretty bump-ups in the SIP number in terms of December compared to November. And that jump itself was like 15% or more even in the industry number. So I wanted to get some sense on that.

No, I think that number increase was happening because of the fact there were holidays. In the end of November and the first week of December, a lot of -- November data, actually, the transactions were booked in December. So I think I would -- the way I would like to see it, the 15% increase in the industry, you should not see that, it's almost flat.

Okay. So for you September to December, would kind of be flat on the SIP closing number at least?

Yes. So this is because of the AMFI data we've again. But the increase is not -- across the industry, it is because of the dates. The November were -- the last 3 days of November, 6 were booked in December. So next month, you'll, again, see we're getting normalized.

Sure, sir. Sir, last question in terms of acquisition. Now obviously, we run a full-fledged AMC, and then we also had some acquisition on the ETF front that we had done previously. So incrementally, you kind of mentioned that you look at that aspect. Now which segment are you looking at, if you can throw some color or kind of open to all opportunities, how to think about that, sir?

So from our perspective, the way we see, on one side, we have IPO proceeds and also the network that we have. I think, we remain open for any strategic acquisition, whether it's in the mutual fund space or AIF, PMS and also on investing in strategic fintechs, which can give us some of competitive advantage in times to come. So all these, as we talk today, there's nothing under consideration that they are serious that we need to discuss, but we remain open for that.

Sir, even of full-fledged up and running AMC other than just some products as such, but large MF you will also consider?

I would not like to get into the nitty-gritty of the whole thing. But from our perspective, it has to be a strategic importance, which is accretive to the shareholders. We will -- as we have mentioned in the earlier calls also, for us, between top line and bottom line, bottom line remains more important. So it has to add value to the minority shareholders.

Sure, sir. Sir, and last thing, sorry, if I can just squeeze in. I think you spoke about the flows and mark-to-market impact on the equity debt front. So sir, I just want to understand in terms of gross flows, right, how is the market share for us? If you want to answer that question at a product level, equity debt or an overall AMC level, so from a gross flow perspective, are we able to maintain a market share? Or is there still some work that is in progress and maybe going ahead if we kind of align?

So effectively, if I was to break in 3 segments: the fixed income, I think we have seen a lot of positivity. I think we have seen investors coming back and effectively, while the market share has not increased, but it remains -- now it has become stagnant. And I think so the downfall has been stopped. Now I think, so that is number one. ETFs, we continue to rise. Equity, we have seen us -- because the overall industry has been seeing huge outflows, and from our perspective also, I think we have lost a little market share there. But overall, at the AMC level, if you were to see, look at the various qualitative data, the type of investors have started coming in, many of them who had not invested for the last 3 to 5 years, I think, clearly, we see the trajectory will be positive in the next few quarters.

So sir, on the gross flow side, you're saying fixed income is more or less okay from your AMC level perspective, equity is a little lower and ETF is improving. Is that understanding right, sir?

Yes, you're right.

The next question is from the line of Madhukar Ladha from HDFC Securities.

First, can you comment on your market share...

Excuse me, this is the operator. Mr. Ladha, your voice is not clearly audible.

Sorry. Hello? Am I audible now?

Yes, yes.

Yes, sir, better.

Yes. So first on the market shares, both equity and debt, we've seen a reduction in the market shares. I wanted to understand, is it more to do with flows or is it more to do with performance? That's question number one. Second, the other income line item has shot up significantly. So maybe you could explain the components and what has resulted in such a sharp sort of increase, that would be helpful.

So I'll take the second question first that in terms of the other income, as I mentioned in the previous query that we have some investments into our own equity schemes. And last quarter was another quarter where we have seen market rising, and then corresponding mark-to-market impact has accrued to us as well. And so that accounts for the increase in the other income. So if you see the large...

Sir, only equity because I think there's probably a big component of debt also in that.

So what I'm saying is there are debt accrual. Of course, the debt accrual is there. But if you see the jump is predominantly due to the equity investments. So debt -- as you know, accrual is there. And because the movement in the rates was not so significant and so there was no significant increase in MTM for the debt, but the MTM increase is more towards the equity assets what we are holding in our own scheme and the ETF investments.

Okay. Understood, sir.

Yes. And in terms of the -- of course, this is actually -- it's both, performance as well as the flows. And as Sundeep was mentioning that there is some work to be done there, we are working towards it. The recent performance -- the short-term recent performance has been encouraging, and we'll continue to work towards improving our long-term performance.

One more question, if I can squeeze in. If I do some back-of-the-envelope calculation, it seems that the equity yields have dropped in this quarter. Am I correct? Do you have any comment towards that?

So I think the overall yield is around the same. As we had mentioned in the previous con calls as well that we are likely to see 2 to 3 basis point decline in the next 2 to 3 years. Every year, there will be a decline because of the old assets getting replaced by the new assets. And as you are aware, in the newer assets, it's a purely trail model. Therefore, the long-term rather realization will be impacted because earlier, there was an upfront plus a trail model. So we expect that every year, there will be a 2 to 3 basis point decline in the equity yields going forward.

I think that movement was a little bit sharper. I just wanted to see whether right, if you could sort of comment specifically on a quarter...

See, I'll tell you. Frankly speaking, it is at this point of time also that I would say that from the distribution, if we -- the newer assets, the new NFOs what we have been added or the new equity asset would have been added maybe slightly at a higher price, and that could have also resulted in slightly elevated gap.

The next question is from the line of Ajox Frederick from B&K Securities.

Sir, my question is sort of a continuation to the earlier one. So in addition to equities, have we taken any change to TERs for debt and balance as well versus settle -- that's again sort of signed off, tapered off because the mix has shifted towards the debt and away from liquid, so we are seeing negative compression so that's where it is coming from.

So last quarter -- I mean, over the last 2 quarters, I think within the debt also, there has been a certain change in the product mix. Industry-wide, I think you have seen some long-term funds, investors moving to shorter-term funds. But again, that's, I mean, more a seasonal risk that keeps changing, I mean, depending on the flavor. So I mean, it has more to do with the overall product mix changing due to being a little more in a risk -- investors in a risk of mood. But like I said, I think that trend can change very fast.

So as of now, you're still seeing customers being risk ours...

I would say, I mean, they are not as much as they were in the Q1, but I think they're getting better. But what you're seeing is a cumulative, that investments in debt, especially the investments for a little long term, especially the bond funds, it's not a liquid fund. So effectively, what you are seeing is the sigma of what happened in the last 3 quarters. So incremental basis, this trend will change.

I understood, sir. Sir, just a question on the SIP registrations. I couldn't get quite a number in your opening comments. So if you can say that?

So SIPs were about INR 660 crores was the amount actually collected. So we have started reporting the actual collection from the last quarter. So INR 660 crores were the actual collection for the month of December. What Sundeep was alluded to, it can be slightly elevated for the month because the last 2 days of the November was an holiday, and that number could have triggered in December. So September number was INR 620 crores, so -- and December number is INR 660 crores.

No, sir, I was referring to the new SIP registrations. I heard it went up by 60-odd percent. So I was just trying to understand with respect to which quarter of this year is that?

No, no. So that was more to do with the digital SIP registration.

Next question is from the line of Kunal Thanvi from Banyan Tree Advisors.

I had 2 questions. One was on your overall sense on the flows for the industry and for NAM. What we have seen in the history is that with markets touching all-time high, we tend to see outflows peaking out and then we see a reversal in the trend. So are we seeing any early signs there? That is point number one. The point number two is again on the yields. When we see the overall yields for this quarter vis-à-vis the last quarter itself, we're seeing a decline in the yields. Is it because of the reasons you mentioned or is there something that we should know?

So from the overall yield perspective, if you see -- if you look at this from a correspondingly year last year, our equity asset is down by about 15% from what we had last year. And the debt, the -- other than the liquid debt, it is down by 2%. So obviously, the higher yielding assets are down. And within the debt category also, the realization has come up sharply because within the debt also, the money has come towards the ultra short-term or a low duration kind of funds, so where our propensity to charge is lower. Also from an overall yield perspective from the debt product because given the liquidity is very, very low, and, therefore, the propensity to charge when a low-yielding asset remains to be slightly lower and which is predominantly causing this decline in yield versus for the equity, as I mentioned, that over a period of time, the equity yields will shrink for about 2 to 3 basis points over the next few years -- continue to shrink over the next few years.

I think on your earlier question, markets being at all-time high, I think we have always seen whenever markets go, I mean, we have seen profit booking. It always happens. It's a normal trend, human tendency. But I think the -- I would -- this time, it's been qualitatively, if you were to deep dive into the data, things are far better than in past. I think the stickiness that is coming from SIPs and small investors is much more than ever before. But now we have also seen market correcting in the month of January. So I mean, we can't predict which way the trend will go. But again, we are very -- we expect, again, the investors will keep coming back. I mean, ultimately, you can't be out of market for a very long time. And our focus will continue on retail and systematic investment plan because we have realized that is something that gives very strong stability, both from AUM and profitability point of view. So our focus will continue on that.

[Operator Instructions] The next question is from the line of Manoj Bahety from Carnelian Capital.

I have a couple of questions. First question is, Prateek, if you can comment on or if you can give us an update on our strategy to garner global funds to India and looking at like the current scenario where India is looking a perfect growth destination for overseas investors. So -- and your partner, Nippon Life, so if you can give us some update that what is happening on that side? And how do we see that portfolio coming to Nippon India?

No, I think a very valid question. I think last -- ever since the transaction has taken place, we've seen almost last 6 to 8 months because of COVID, various other things, there's been a lot of disruption across the world. Our endeavor, and as a primary shareholder, Nippon Life, continues to help and contribute to get better flows, global flows into India. Since these are more bindery, these are not like retail flows, some of these mandates can take time, so I think from our perspective, it will be difficult to put a number to it. But as a strategy, that strategy continues.

Okay. Any update on like, if you have to get the funds from overseas, like what are the steps you are taking? Or what kind of collaboration, which is happening between Nippon India and Nippon Global? So if you can give some update on that side.

Again, like I said, I think it's ultimately leveraging the network of Nippon Life. I mean, there's one -- there's no -- the strategy is very simple. Wherever Nippon Life is present, I mean, depending if those treasuries were to look at India and how do we get the allocation into India. So I think it's -- there's no rocket science in it. I think the idea is to access those markets and investors. I think we also have Fujikake-san from Japan on the call. Fujikake-san, if you could you know just add a few words on this point.

Okay. Yes. As Sundeep-san explained, of course, we have been doing collaboration. So one example is that we have Nippon has friendship company called Bank of Life so that they invested in certain money into the -- our India fund. Also the Nissay Asset Management, a subsidiary of Nippon Life, is heading the Indian equity fixed income product in Japan. So that kind of collaboration we continue to see going forward. And in addition, Nippon Life has 130 years experience. And then we have so many global networks like TCW in the States, and in Europe, so that we import their best practice or the -- import best practice into NAM India. One example is the ESG or the risk management practices to improve the fund performance or stabilized the fund performance, those things. So there are other areas all the way, we see further areas of collaboration.

Thanks, Fujikake-san. So Manoj, just to sum it up, I think the idea will be various companies in Nippon Life portfolio, and especially the ones who do not have presence in India, how do we work together to get money flow into India. That is the one line of the strategy that we're working on.

The next question is from the line of Prayesh Jain from Yes Securities.

Sir, firstly, just extending that point on the yields part again, sorry to come back again. Is there any impact of ETFs out there where the share of ETFs would have gone up and that could have impacted the...

Of course. So like see in terms of overall yield, if you look at the ETFs yields are lower compared in the overall scheme of things, and hence, definitely an increased ETF allocation would mean the realization goes down. But in terms of absolute profitability, they do contribute towards the absolute profitability.

Okay. Okay. And sir, my second question is on -- could you give some granularity on the employee cost reduction in terms of whether it's driven by number of employees or -- some granularity there?

See, again, we have been mentioning this and again, goes by what we have been stating that this year, we will be done with the entire cost absorption of the of the ESOP what we have been granted in 2017, '18 and '19. So everything will get absorbed in here. And like almost 80%, 85% will get absorbed by this financial year. So going forward, that kind of reduction will happen. And further, the amount which got absorbed last year, this year would be lower. As we mentioned that it works on a telescopic way, that initial years, that cost is higher, and as the year passes, it keeps coming down.

Okay. Okay. So going ahead, we can expect the routine costs to rise, routine trajectory?

No, no, no. So this is not going to rise. I'm saying that employee cost predominantly will remain the same, barring whatever increments are there. It will no longer have the impact of the ESOP, which was granted in '17, '18 and '19.

So effectively, see if was able -- to your question, I think at this point of time, in the mutual fund business, we are having an AUM of about INR 220,000 crores, which is lower than the peak which we were managing. So from our perspective, on one side, the entire vision for ESOPs, which was there has -- almost 85% has been taken care of. However, as the incremental AUM grows, there will not be any further cost in incremental cost rise in salaries, so that remains constant. So that's where the operating leverage can come.

Okay okay. And sir, my last question is on the strategy for growing faster in B30 towns. As you mentioned that you don't plan to have a lot of new branches coming across. So while digital is getting accepted, like are -- there's also a hindrance from the lower-tier towns of investing financially to the online route. Is there -- so what's the strategy there in terms of increasing market share in the B30 towns?

I think -- so I would -- with reference to my comment on we will not open new branches, I think this is more relevant as we talk today from next 6 to 12 months point of view. At this point of time, we have good coverage, which is one of the largest in the industry. And with 230 branches, also in our hub-and-spoke, we are covering more than 1,000 cities and towns. And so from our perspective, we may revisit this. But I think like I mentioned, the strategy to grow will be both a mix of digital and physical, and the key to this will be execution. So I don't think so there's a lot more than that. And we strongly believe we are in a very good position compared to the industry in smaller cities and towns.

The next question is from the line of Viraj Kacharia from Securities Investment Management.

I just had 3 questions. First is in the past, maybe a year back, we talked about us losing market share in institution HNI category. Now fast forward 1 year, 1.5 years now, how is that market share now moved up for us? So if you can just provide some color on that? And how is that split between, say, existing or new customers which we have added? So that's part one. And part two is, what is the communication we're now getting from those institutional or HNI customers? So if you can just provide some qualitative perspective of how things have been for us? That's one.

I think let me -- rather than getting into the individual -- the numbers, I think more first touch on the qualitative side. We -- post the brand change, we have seen a lot of family offices. And HNI has come back. This period has been a little volatile. So some are coming in fixed income, some are coming in ETF, but I think they are coming back to the AMC. Coming back to a lot of -- some -- out of the top 100 companies in India, we have seen almost 25 companies restart the relationship with us. Some of the largest software companies, IT companies in India, which have stopped, has started investing again. Some of the largest public sector banks have again started investing. And there are other lot of government companies. So I think we've seen qualitatively the -- both HNI and institutional investors coming back. And also a segment where I think we have now earlier, where we were not present, we are gaining market share is the MNC corporates in India. The other part is also going to be -- going forward, we will be having a special focus on the Japanese companies in India, I think which we will be working closely with Nippon Life, how to get -- work closely with them. So there are going to be a lot of these challenges. But overall, to your question, it's going to be HNI and corporate, the market share and qualitatively is getting better with every passing quarter.

Sir, just to get a little more perspective on the -- you said of the top 100, we've managed to restart 25 and also kind of getting back a lot of customers who left us in the past. So compared to the ideal wallet share, which we used to -- share, which we used to have in the past, where would we be in the journey? Is it still early days or we seeing now acceleration coming through us? How should we understand this? And what -- just coming back to the first part again, what is that communication we are getting from them in terms of comfort and is it all equity...

Like I mentioned, the comfort is -- one, whatever was the reason why they stopped investing, that is no more existing. So clearly, I think now once an institution starts, it will -- it is not that what the allocation that was not given for the last 2 years will be given on day 1. Gradually, it builds it up. So effectively, like I mentioned, a lot of new counters, corporates, HNI, the family offices have started again. Now how much time will it take to reach an ideal market share? Very difficult to predict. I think that depends on the market, various things, and their own investor philosophy. But I think from our -- the foot in the door, we are back in almost all the majority of the corporates and family offices, which were not investing with us.

Okay. Second question is, if we -- so based on our own channel check, what we realized is there's still a good sizable amount of wealth management institutional firms where we are not yet there. So how are we going about getting that part of the market back to us? And what will be the opportunity or the size of the market is still not catered to via us?

I mean, I will not be able to answer this because it's specific. But I think the endeavor is, I think, to be there in every well counter that you mentioned. I think the way I would see, it could also be a function of we've seen a little bit of slippage in our equity performance. That could be some of the reasons. But I think it would be -- I'm very confident, majority of the wealth outfits, everybody has been aggressively selling our fixed income offerings.

Okay. Last question, if I can. You talked about an annual impact of 2 to 3 basis points because of the new flows coming in equity. Now in the past also, we talked about us probably looking at close to 500 distribution centers. We are close to 300 right now. I know for the next 6 to 12 months, we're probably not looking to add anything. But if we were to look at the period beyond that, how should we understand the overall expansion and the investment behind it. And in that aspect, the cost elements?

So see, Prateek here. See, obviously, if you see because of our revamped digitech ecosystem, we do not see much need to have larger office setup in these smaller locations. But as Sundeep mentioned that having a physical presence surely helps in terms of getting -- garnering the higher percentage share of the wallet out there. So what we will do is we are revisiting the entire strategy. So we will have some physical presence, but not in the same manner what we used to have it. And also the cost of investments will not be so significant because maybe it will be kind of a satellite office, a 1-man or a 2-man kind of an office, which can be also operating out of a third-party location. So the cost of investments as well as the cost will not be significantly higher.

To put it, I think it is not a strict no that we will not open branches. We are not saying we'll go for 500. We'll evaluate the situation and, I think, go ahead with it. But the cost -- incremental cost of opening branches in very small cities is very low. So it will not have any major impact on the CapEx.

The next question is from the line of Madhu Gupta from Quantum Asset Management.

I have 2 questions. One is, how is the Nippon Life brand acceptability in the retail segment? That is the first question. Second question is, I think in the last con call, you had mentioned that you were taking steps to improve the fund performance in terms of realignment of the portfolio and hiring new portfolio managers. Could you give some more color and whether they've been yielding results or not? That is my second question.

First question was...

Brand acceptability.

Brand acceptability. So let me take that. So then -- so put it, we'll simply, as far as the brand is concerned, breaking down again the 3 categories. Institutional investors, the brand acceptance is very high and very strong. HNIs, again, very high and very strong. Retail investors, which have serviced through distributors, because it is the same management team, same relationship manager, it is good. And further, I think we have been -- as we mentioned earlier, we continue investing in building up the brand digitally because we don't want to, I mean, from a cost point of view, go very aggressive. I think it's gradual during this period with a COVID. So but overall, within retail also, it is positively accepted brand. So number one. Your number second question on fund performance, we -- clearly, there have been some steps, which have been taken. And if you were to look over the last 2 quarters, there has been good improvement in the fund performance. But again, it's too early to say, last 2 quarters the hurdlers -- you will keep seeing. As we have mentioned earlier, we continue expanding our investment teams. We have -- there will be 2 new fund managers, both -- one in fixed income, one in debt, who will be joining us shortly.

The next question is from the line of Sunil Shah from Turtle Star Portfolio Managers.

I think one of my questions is already answered. But just one point, on the offshore fund that in the course of the talk earlier was mentioned, it's about INR 10,200 crores. Sir, could you give us some understanding about how much of that would have been due to Nippon's contribution of the INR 10,000 crores offshore fund? Meaning, how much would have Nippon added to our AUM overseas?

Yes. Again, about 50% would be Nippon and 50% would be others. I'm just giving a very rough breakdown. But again, a lot of initiatives which have been taken with Nippon will show results in times to come.

The next question is from the line of Kunal Thanvi from Banyan Tree Advisors.

So my question was on the employee count. In last 2 years, have we seen any reduction in number of employees? Or do we see any scope for rationalization in terms of employees?

Yes. So overall number of employees have gone down. And as we mentioned in the past as well that we have done a lot of automation. And basis that there has been some redundancies. And so what we do is that wherever there is people who moved out or they leave, we do not get a replacement. But wherever these redundancies are created, we move those people and make them to work in these cities so wherever they are compatible. So obviously, we are not hiring whenever there is some kind of replacement is required. And there has been some natural attrition. So overall numbers have been marginally lower than previous 2 years.

And also -- we've also looked at the compensation structure where I think the variable part is very highly fixed on performance. So -- and with the ESOP coming in, so the variable portion reduces, I think because I think majority of the employees are covered through ESOPs.

Sure. And when we say ESOP, it will obviously get done by the end of this year, we mean FY '21 right, this March ending, right? That's where the 85% impact goes out?

That's right. By FY '21, the 80% to 85% impact of the ESOP given in the past, all will go out.

Sure. And on other expenses, any light like what kind of improvement we expect to see in next, say, 2 to 4 years because what I understand is, in this quarter and last 2 quarters, the improvement that we have seen in the overall cost is largely driven by the employee cost. So any color on the other cost item as well?

No. So, as we mentioned, like 2 quarters back also that incrementally, we do not see very significant reduction in the other expenses. Whatever we could achieve in the last 10 to 12 odd quarters, we have done that. We still are working hard towards getting further more operating efficiencies. But as Sundeep mentioned that now predominantly the -- in terms of basis point, it will get reduced once our top line improves or rather the AUM. When I say top line, the AUM increases.

And also, I think from our point of view, I think, while we are very conscious of cost, we don't want to cut cost, which can compromise -- which can impact our future growth. So I think we are maintaining the right balance.

The next question is from the line of Nikhil Chowdhary from Kriis PMS.

Sir, I'll just ask 2 questions. Sir, we have been speaking a lot about our digital initiatives and the digital -- digitech system that we have been building. So sir, just for the sake of simplicity, like you have attached the slide on -- Slide #16, can you just take us through like the initiatives in brief like what you have done, like for past 1 year what was the bottleneck that we tried to fill and what -- where we are now, like that would be helpful? And the second question -- yes, yes, sir.

Sorry, sorry, go head. Second question.

Sir, so second question was with respect to the number of SIP accounts that have terminated like in the past 1 year because they happened to be because of data, wherein the top 30 cities regular plan, the SIP accounts continuing for less than a year were 23%. So is there any data that we maintain with us, like to keep a track, like what is the termination rate in the SIP accounts? Is it in the same range or like we are better than the industry?

I think we may not be able to give immediately the data point. But I think, intuitively, I'll say, because our ticket size is much -- every ticket size is much smaller than the industry. And it's the small ticket size typically remains more sticky. It is whenever we have seen market volatility, any kind of a redemption, termination of SIPs is always the larger ticket size compared to the smaller. So I think that's the -- what I think what we'll do is we'll come back to you with the exact numbers, I think. So that is number one. I think, regarding your digital, I'll request my colleague, Arpan Saha, Chief Digital Officer, to just take you through this, some of the initiatives that we've been driving. Arpan?

Sure, sure. Thank you for the opportunity. So what we did is we tried to build an digital ecosystem for the future. And we focused on 3 main pillars for us. One was user growth where we used high-end analytics was and analytics [Technical Difficulty] and how do we keep them in the system. That was one. The second was our platform strategy, our platform ecosystem, we ensure that it was futuristic way and most important frictionless, so that any consumer comes, gets the cutting-edge experience and gets sticky to our platforms, thus enabling great service and repetitive business. And third was, of course, we went where the traffic goes. So we have had a great digital distribution strategy, which has spread from both the non-finance sector to the finance sector. So it has been the case how our entire digital ecosystem has got evolved with the right integrations and taking decisions before and the management supporting it in a big way.

Got it. Got it. And sir, just last thing, like, can you just throw like some light on the cross-sell and the upsell sentiment analysis that is shown in the Slide 16?

So again, that is -- I think we have a margin journey like we mentioned with getting IBM as our strategic partner and working with Adobe on it and CRM. So again, these things are evolving. I do not want to right now give a by -- because it's a journey which we embark. But the initial results have been positive. But maybe, I think, a few quarters from now, we'll start sharing that number also.

The next question is from the line of Jinal Sheth from Awriga.

Sir, I just have one question is that you mentioned that your yields are coming off around a couple of basis points because of the shift from the older assets to the newer assets. Would that also flow down to the bottom line in the margins? Or is there you can offset that with the operating leverage at play?

So like if you see, once the asset grows, the expenses are not going to grow in the same proportion, or rather largely they will not grow because predominantly they are fixed. So in terms of the overall margin, if you see, the expenses won't be there. And therefore, the entire amount what we collect on the incremental money will straight away flow into our profitability. Hence, the overall net profit realization will go up from here on even if there's a marginal decline in the equity realization.

Okay. Great. And secondly, your dividend policy last year, you paid out around 80% plus of your profit. Is that also broadly intact?

That remains the way it is.

The next question is from the line of Utkarsh Solapurwala from DAMOS Capital.

Sir, can you list down the steps that you are taking to include the equity performance apart from changing the fund managers or hiring the fund mangers?

No, I think, there are a lot of -- it's not about only changing or reallocation. There were a lot of -- I think I will not be able to get into the individual steps, but there have been a lot of new initiatives that have been implemented. And this is really when Nippon Life from Japan has been contributing a lot. So I think rather than getting into the nitty-gritty of these things, I think, I'll let the numbers talk for themselves, I think, in the next 2 or 3 quarters.

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Jignesh Shial for closing comments.

Thanks, everyone. Thanks to the Nippon Life India Asset Management Limited management for allowing us to host the call. And thanks, everyone, for participating. Thanks, everyone, and have a nice day.

Thank you very much, sir. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.