Nuvama Wealth Management Limited (NUVAMA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Nuvama Wealth Management Limited Q4 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Kehair, MD and CEO, Nuvama Wealth Management. Thank you, and over to you, sir.

Thank you Michelle. Good morning. A very warm welcome to each one of you. It is always a pleasure to connect with you all. Thank you for joining us today for our -- call for the fourth quarter and the full fiscal year '24. Joining me today on the call are Mihir, our group CFO; Manish, Head of Investor Relations; and we also have SGA, our Investor Relations advisers. Before we proceed into discussing the business and updates, I just wanted to share an important announcement with all of you. Mihir, who's our Group CFO, will be leaving us and wants to transition into a more advisory and maintaining role, helping many other countries with his decades of experience. I want to thank him on behalf of the entire Nuvama family for the contributions he has made though this important period of transition for us. He came about 6, 7 months before we started our demerger process, hand-held us through the entire process of demerger listing. And has built a very, very strong foundation of the finance function and of the Investor Relations function for us to built it from here. On behalf of the directors, on behalf of the entire Nuvama family, I want to wish Mihir all the best as he begins his new chapter of his life. His resignation will be with effect from the 14th of May, which is tomorrow. I would also simultaneously like to welcome Bharat Kalsi, who has joined us and will take over from Mihir. Bharat is an MBA in Finance, Chartered Financial Analyst and a CPA with more than 2 decades of experience across multiple domains like finance, strategy, planning, Investor Relations and Treasury. We look forward to leveraging his experience with some of the scale and reputed financial services companies in India. He is being with Max Group, Tata AIA Life. And in the previous role, he worked as the CFO and Head of Products and Secretarial function at Bajaj Allianz Life Insurance. Bharat's appointment as CFO -- Group CFO and Head of Strategy for the company comes into effect from 15th of May '24. Coming now to results. We've actually shared our results presentation data book like always. Hope you guys got a chance to look through it over the weekend. We've added some more slides to give more color around our business. I'll briefly summarize on the business outlook and share the progress we've made, some in quarter 4 and some full year and then hand over to Mihir, he will take you through the numbers, and then we can jump into the Q&A. Overall, I think the strong business momentum continues. Our integrated and diversified business model, which we consciously choose to deploy, serves us well. It basically helps us deliver the comprehensive set of solutions to clients and also deliver superior results to our shareholders. And growth trajectory actually continues across both the Wealth Management segments, the UHNI and mid-market. Our revenues there grew by about 17% Y-o-Y. This I'm talking full year. And profits by about 24%. This was after absorbing the material impact of AIF revenue shifting to trail due to the changes in regulations and scaling up capacity significantly in both the segments. I mean -- both segments, I think growth cost as per our calculations is more than 100, 150 basis points. Despite that, I think businesses have delivered this growth, which makes us extremely satisfied. We also benefited, I think, from the significant activity which happened both in primary markets and in secondary markets, which gave a fillip to the capital markets business. And overall revenues for Nuvama grew by about 31%. And with the operating leverage kicking in, the profits came to about 62% full year. This was also a very, very important year for us, some other milestones which happened. We changed our brand identity in April. We demerged from Edelweiss in May. And in September, we got listed. All 3 big milestones, I think, happens once in the lifetime of any company. I'll now quickly get into each of the businesses. Wealth Management, -- both Q4 and full year saw growth. You may see that the PBT number in Q4 is flat Q-on-Q. That is because of the variable cost catch-up. If you normalize that, both segments have seen growth of around 7% to 15% Q-o-Q. The assets have now grown to about INR 2.5 lakh crores. They grew by 36% year-on-year. And traction, as I said, is there in both the segments, which, in our view, basically mirrors the entire wealth management story of India. Coming to Nuvama Wealth, I think the demand there continues to grow. In our view, the mid-market continues to present an interesting opportunity because it's growing leaps and bounds, not only in Tier 1, but across the entire country. And I think it is the most underserved segment by the incumbents. So it's a combination of both. I think it can absorb a number of more players and still continue to grow. We've added about 200 RMs in quarter 3 and quarter 4. And now our strength is about 1,100. We will continue to expand capacity next year, and I'll talk about it later. As we scale, because we are getting people now from banks, we've actually invested intensively in our learning and development programs, because most of the people who come in now come from a background where they are trained well on selling traditional products, which is, you can say, deposits, mutual funds, loans, insurance. We want to make them far more skilled in doing multiproducts because client portfolio requires many -- much more than all this. So they continue to do what they do, and they need to get trained on a larger product basket, which is why -- and because we are adding in large numbers and we don't want the productivity to go down, I think investment in L&D is extremely essential. In addition to that, I think we've also leveraged significantly on technology. We -- I mentioned in the last quarter that we've launched something called as a one platform, which can be useful to clients, our relationship people and external wealth managers. We are now going to launch a portfolio tool because of our whole philosophy of moving the entire relationship team from selling products to offering portfolio solutions to clients. So we've built a very -- I think it would be an industry first, leveraging AI and all, built a first portfolio analyzer and recommendation tool, which will be available to RMs across their mobile apps and their desktops and everything. We've leveraged our -- we had acquired a tech company called Pickright about a year back. We've leveraged that entire platform to build the solution. This will be rolled out in a beta version now. I think this will achieve 3 things: one, the ability of the relationship person to holistically engage with the client, uniformity of advice, which is a big challenge for the entire industry. And also parallelly, I think it will help increase productivity of people. On the product side, like we've been saying, MPIS or Managed Products and Investment Solution continues to remain a focus area. In Q4, our MPIS net flows was actually more than our total net new money in this segment, by about 10%. And full year MPIS constitutes 86% of our net new money. It grew by 12% year-on-year, and it was 30% of the opening assets of MPI. So about 1/3 of our opening assets, we've been able to add this year. Moving on to the Ultra-High Net Worth segment or Nuvama Private. I think the general buoyancy continues. Capital markets doing well, companies doing well, real estate doing well. I think all these become ingredients for ultra-high net worth to be -- continue to grow their wealth. And like -- I think Nuvama Wealth, where -- mid-market where there is no ambiguity that it is across India, now we can see even in the ultra-high net worth, the concentration is growing beyond top tier cities. We've been able to expand into 6 cities beyond Tier 1. And I think it's our -- I don't think there's a demand problem. It is the ability of service providers to reach there -- to find the right talent to reach there. The market is out there to be tapped. Capacity, I spoke, we've added about 20% here, and we'll continue to add. The key challenge here, obviously remains that the -- how you keep attracting the relationship people. And I think what we realized long back and we continue to invest in improving our platform -- product platform because the stronger the platform is, your ability to attract clients, relationship people continues. And that is the key differentiator that we will continue to invest in. In terms of clients, we've added about 170 new families in this quarter. And on the product side here, our focus remains ARR -- ARR revenues. It's not that we don't like transactional revenues. I think it is a key component and not only in India globally, because it serves certain components of client portfolio. And the income accounting is unfortunately the way it is, so you can't convert it into ARR. So you have to look at the client wallet and then make your product proposition. On the ARR side, net flows were much faster than overall net flows for fiscal '24. Our overall net flows were about 12% and ARR net flows were about 21% -- no, sorry, overall was about 9% and ARR net flows was about 21%. Q4, you will see a dip in the NNM, but actually, the ARR net flows is about INR 2,400 crores. So what we lost was some transactional assets, but out of that major component was of a client who became a custody client. So what we lost from here went into our custody clearing business. If you look at the full year net new money, it's order of magnitude, INR 11,300 crores. About 60% of that comes from ARR assets, which is 26% of the opening ARR AUM. So about 1/4 of the opening AUM we've been able to add this year. We've mentioned about building offshore. I'm happy to update that we've been able to get a license in principle approval in DIFC. So Dubai or DIFC will be our first go-to-market, not Singapore right now because I think the economics and the market potential there and our product platform suitability, I think all of them come together. It's faster to break even. It's easier to attract talent. And so all in all, I think it's more synergistic with our Indian setup. And we are also looking at offshore not only as a geography for the purpose of tapping clients. I think as I keep saying, it's also a skill or a very big addition in the platform to serve the domestic clients because very soon, if you don't have offshore as a proposition, at least in the ultra-high net worth segment, it will become a handicap for service providers. So I think it's a necessity which we are building and investing. Moving on to asset management. Our AUM has now reached about INR 7,000 crores. Over the last 3, 4 months, we continue to stay put on our priorities. Deployment in private markets has been a key priority, and we focused on that. We did not initiate a fundraise in the last full year. We will now start a fundraise in crossover, which is our private equity strategy, both in offshore and in onshore. We are working with a placement agent in the offshore market, which works with the family offices in Middle East. So you will see some activity going in the next 2, 3 quarters. Public markets, our AUM now stands at about INR 2,100 crores. It grew by 155% over the last 1 year. In the last quarter also about net new money of INR 500 crores in asset management, out of which 70% came into public markets. And commercial real estate is now launched. We will scale it in the next 3 to 4 quarters and take it to the desired level, which we initially said. Asset Services and core capital markets, which is institutional and equities and investment bank, continues to see exceptional performance. Q4 stabilized though, I would say. But on a full year basis, I think we saw a massive expansion. I think the fee pool in investment banking and institutional equities, in our view, expanded by about 40% to 50% this year. And we also saw a jump of our market share, especially in institutional equities by about 20%. Asset Services, I have mentioned previously that we have 2 client segments of our choice, one FPIs in which we deal with systematic quant funds and HFTs. And in domestic, we work with PMSs and AIFs. In both these chosen client segments, our market share last year was about 20%. I think that's it from my side in terms of an update of what happened briefly in the last quarter and full year. I would now request Mihir to give you an overview of the specific numbers across each business, and then we can go into the question-and-answer section. Thank you.

Thank you, Ashish, and warm welcome to all the participants on this call. At the outset, I want to thank Ashish, Nuvama, my senior leadership team at Nuvama and my team and colleagues at Nuvama for this opportunity and Ashish, especially to you for your words of appreciation on this call. I also want to thank you all for the insightful interactions that we have had on these calls and also on one-on-one meets that we have had over time. I wish you all the very, very best. With this, I come to the specifics of our performance for quarter 4 and FY '24. For us, the FY '24 was a buoyant year at Nuvama. We saw a well-rounded performance and healthy growth in operating and financial parameters across all the 3 businesses. Coming to our businesses and AUM first, our aggregate client assets stood at INR 3,45,957 crores as at end of FY '24, which then grew by 50% year-on-year. Of this, client assets under wealth management business, constituting Nuvama Wealth and Nuvama Private stood at INR 2,47,835 crores and grew by 36% year-on-year. Nuvama Wealth client assets stood at INR 77,930 crores as at end of FY '24 and grew by 48% year-on-year. MPIS assets stood at INR 23,018 crores as at the end of FY '24 and grew by 39% year-on-year. In Nuvama Private, our client assets stood at INR 1,69,904 crores at FY '24 end and grew by 31% year-on-year. Our ARR assets within this Nuvama Private grew at 31% year-on-year to INR 33,421 crores as of FY '24 end. AUM of our asset management business stood at INR 6,967 crores at the end of FY '24 and grew by 25% year-on-year. We witnessed strong flows in public market strategies in FY '24. Our closing AUM stood at INR 2,070 crores in this category at the end of FY '24, and this grew by 155% year-on-year basis. Client assets under custodian clearing assets stood at INR 91,156 crores at FY '24 end and reported a growth of 109% year-on-year. On our revenues, aggregate revenues for Q4 '25 (sic) [ Q4 '24 ] were INR 596 crores and grew by 35% year-on-year. Our full year aggregate revenues for FY '24 grew by 31% year-on-year to INR 2,063 crores. Of this, total revenues from Wealth Management business grew by 16% year-on-year to INR 330 crores in Q4 FY '24 and by 17% to INR 1,188 crores during FY '24. Within Wealth Management, Nuvama Wealth clocked revenues of INR 183 crores for Q4 FY '24, a Y-o-Y growth of 6%. Revenues for FY '24 were INR 669 crores and grew by 16% year-on-year, driven by our focus on MPIS. Overall retentions were approximately 1% per annum, in line with the previous quarters. Nuvama Private recorded revenue of INR 147 crores for Q4 FY '24, a Y-o-Y growth of 32%. And revenues for FY '24 were INR 519 crores, grew by 18% year-on-year. Of this, ARR revenues for FY '24 were INR 297 crores and grew by 23% Y-o-Y. This constituted 57% of total revenue in FY '24. Our asset management revenues ex-carry stood at INR 12 crores in Q4 and grew by 27% year-on-year and INR 49 crores in FY '24, which grew by 34% year-on-year. Our capital markets revenue stood at INR 248 crores in Q4 and grew by 71%. Our revenues for FY '24 in Capital Markets segment were INR 805 crores and grew by 64% year-on-year. This reflected the strength of our franchise amidst strong capital market activities. Now on to costs. Our total costs for Q4 FY '24 stood at INR 358 crores and grew by 25% year-on-year. For FY '24, our aggregate costs were INR 1,279 crores and grew by 18% year-on-year. Of this, staff cost stood at INR 252 crores in Q4 and grew by 23% year-on-year. And staff costs for FY '24 INR 906 crores for the full year of FY '24, a growth of 19% year-on-year. Our operating expenses stood at INR 106 crores in Q4 and grew by 31% year-on-year and INR 373 crores in FY '24, which grew by 14% year-on-year. Our overall cost-to-income ratio stood at 62% for full FY '24, down approximately 700 bps on a year-on-year basis. On to profitability. Our operating PAT for Q4 stood at INR 181 crores and grew by 57% year-on-year. Our operating PAT for FY '24 was INR 597 crores, which grew by 62% over FY '23. Our ROE for FY '24 stood at 23.6%, up by 5.8% over FY '23. With this, I now hand over to the moderator for Q&A session.

[Operator Instructions] The first question is from the line of Prayesh Jain from Motilal Oswal.

Firstly congratulations on decent set of numbers. Firstly, on -- if you look at your cost-to-income ratio, particularly if I look at in Nuvama Wealth, it has kind of -- while for the full year, it's down to 65%. But if I look at the last couple of quarters, it's been higher at 66% and 68%. How should we think about this from FY '25 perspective? And what is your -- in terms of RM count addition, what are your plans for Nuvama Wealth in particular, with respect to RM addition, what you would have done for FY '24 as well as what are the plans for FY '25? That would be my first question. So...

If you look at the cost income for Nuvama Wealth for Q3, Q4 and if you look at our hiring, most of our hiring is actually back-ended this year. In fact, till September, the number of RMs were either flat or net negative. Most of our hiring has happened in Q3, and so the full impact of the cost comes in Q4. That is number one. And there is -- when I was giving my opening remarks, I made a mention of the variable cost. The -- we've still not perfected our variable cost estimation and Q4 was still again a catch-up. If you see our Q4 revenue is almost about 32% for the -- sorry, 27% for the year, but our variable cost was 32%. So if I take that impact out, then actually the cost income for Q4 falls back to 65%. And maybe Q1, Q2 will inch up slightly higher. Now next year, see, for this business, what will now happen is that what you've hired now will start producing maybe from 3, 4 months from now. So their cost actually came now, but the revenues will start coming later. In this business, now the whole game of cost income is based on how much you will hire in a year and whether it will be front-ended or back-ended. This year, it was back-ended in about 220 RMs. Next year, if we stick to the same, the cost income should actually fall by 100 basis points. However, if we choose to hire more and if we front-end the hiring, the cost income may actually remain here or may slightly go up. But then year after and the year after, we plan to hire lesser. So I will be more comfortable in giving you a 3-year trajectory. From a 3-year perspective, we want to add about 800 people, 3-year perspective. Now the spreading could either be equal or slightly more in FY '25, depending on how the markets are. But at the end of 3 years, our target is 60%, and that is on track.

Perfect. Second is on the new money, whether we talk about from an overall perspective, how do you see new money flowing into the next year? For Nuvama Wealth, it is from INR 5,400-odd crores we've gone to INR 5,800-odd crores. And even in terms of Nuvama Private, we've seen kind of a -- moderate kind of a growth from INR 10,000-odd crores in ARR and transaction assets to INR 11,000-odd crores. How do you see net new money? And what are the kind of drivers we should look at from FY '24? One is obviously the RM count addition that adds to it. But from a 2- to 3-year perspective, how do you see the net new money kind of flowing?

So, broadly, if I look at historically, and I have seen this year-over-year, and if you do this computation, typically, your net new money which comes in is about anywhere between 10% to 12% of your opening assets, given the combination of assets. And then you add the compounding which happens on the assets, which is why I keep saying that 18% to 20% AUM growth is what you can aspire. Some years will be more, some years will be lesser, like last year was lesser because of the mark-to-market was lesser, this year, the mark-to-market is higher, so the growth is higher. Having said that, in both these, if you look at the growth in, let's say, net new money, the way we are targeting MPIS as a focus area, that has grown by more than -- I think, more than 30% of the opening AUA. And in Nuvama Private, ARR has grown by more than 26% of the opening AUA of that asset class. So blended basis, 10% to 12%, but focus areas should be 20, 25 percent plus.

Got that. Got that. I have just 2 more questions. One is retention on average ARR earning assets has been down in Nuvama Private. Is this because of product mix or anything particular that we have to look at?

No. This is basically product mix. In Q4, our focus was more on building PMS type assets. See, the products basically are essentially PMS, AIF, Cat III, Cat II, there is a minor difference. MF, these are largely the products which will generate ARR. Except Cat II AIF, everything else is actually equal because everything you just annualize the revenue and you earn. Cat II is the only one where about 25%, 30% of your lifetime commission comes in the quarter of sale. So in any quarter where the product mix will change slightly up or down, you may see a 5, 6 basis points up and down happening.

Okay. And my last question is on Nuvama Asset, where you have an M2M negative in this quarter. What is that pertaining to? And also in terms of costs, it's jumped sequentially substantially just because of variable pay? Or is there any [indiscernible]?

Yes, I'll answer the cost question first. There was a one-off cost of INR 10 crores, which was on our JV setup and all. So if you remove that, actually, the quarter cost is about INR 16 crores. And if you normalize the variable, then it should be INR 18 crores and quarter 3 should about INR 17 crores. So INR 17 crores, INR 18 crores is the run rate. It will remain at that level. The increase of salary -- basically the regular increase of salary and manpower addition, whatever happens next year, that will be the jump. Otherwise, there is no BAU cost jump that has happened. The M2M impact is in our crossover funds. There were a couple of assets, which were digital assets where we have done a revaluation and marked them down.

[Operator Instructions] The next question is from the line of Abhijeet Sakhare from Kotak Securities.

First one is a data question. For both the Wealth and Private division, could you give us a split of asset mix across equity, listed, unlisted and fixed income?

I think direct equity will be around 40% and fixed income, maybe another 15%, 20% and balance will be managed products, almost for both similar.

The mix is similar across both divisions?

Almost similar. not too much difference. Yes, I think this is what I remember offhand, correct.

And second is, if you could just mention 2, 3 action points to improve productivity and operating leverage over the next 1 or 2 years?

So operating leverage, clearly, like in the past 4, 5 years, what is happening now is that the major cost addition is happening only in the sales capacity because your platform, your infrastructure, technology, everything is almost there, the delta cost will be negligible. And when you add sales capacity, typically, you reach the desired -- the productivity keeps increasing year-on-year for the new sales capacity and you reach a desired level of productivity. Nuvama Wealth is slightly faster. Nuvama Private, maybe slightly longer. But you take about 2 to 3 years, if they reach 4x, then every 1x of cost addition, you add about 3x of additional revenue or profitability without a commensurate increase in cost. And that is the key driver. Productivity improvement, multiple things are happening, and I think technology is playing a huge role. In Nuvama Wealth, we are basically rolling out a lot of enabling -- support enabling technology solutions for RMs, which will help them increase their throughput. Traditionally, what used to happen, I mean, people will go and sell a single product. Now you've given them a portfolio analyzer tool, which can then help them address the entire assets of the client, even if they are not with you, they will be able to recommend stuff. So throughput of the RM per interaction keeps going up. And I think technology is the main solution which you have to embed and some amount of playing of the product mix. These 2 will basically lead. And the fact that your other costs are not going to increase substantially because your broadly infrastructure and platform is set, that will lead to your operating leverage.

The next question is from the line of Lalit Deo from Equirus Securities.

I have 2 questions. So firstly, we have seen some compression in the net interest margins during the quarter, like it fell down to about [ 470 ] basis points. So I just wanted your outlook on the same for the next 1 year in the same.

So our -- typically, what happens quarter may not be a right reflection. There are 3 things which happen in a business which does loan against shares or loan against ESOP funding and all, typically loan against ESOP funding. You earn interest from the client, you earn processing fees. And depending on the book, you have to provision for expected credit loss or ECL. Now the behavior of ECL and processing fees is actually opposite to each other. What happens is that when you book a loan, you amortize the processing fees over the period of the loan. And because these are not standard loans like home loan, car loan, personal loans, these are very market-linked, so people can repay much faster. Now let's say, you charge a processing fees of 0.5% for 6 months and somebody repays after 2 months, that entire processing fees gets upfronted. So your NIM will suddenly start looking higher. And once that loan gets repaid, you reverse the expected credit loss provision which you had made. So it could happen that average book in a quarter is high, but end of period, somebody repays, your NIM looks higher. So if you look at quarter-to-quarter, it will be difficult to predict. But on a full year basis, 5% to 5.2% is where we land up.

Sure, sure. And sir, lastly, on the -- so we have a decent healthy cash as of March '24. So going ahead, what are our plans for effective utilization of the cash?

I couldn't get your question. Can you repeat?

So like last quarter, we highlighted that we would be thinking on giving a dividend -- announcing a dividend...

Okay. So we are very close to formalizing our dividend policy. I think maybe another month, 1.5 months. And then by next quarter, we will be completely able to disclose. I keep saying that our bent is towards paying dividend, and we will soon close that, and we shall proceed with it. And I think in the next call, we'll be able to articulate our dividend policy.

The next question is from the line of Jayant Kharote from Jefferies.

Congrats on the great set of numbers. Sir, on the Nuvama Wealth piece, the retention on client assets is -- slightly its down to 94 bps this quarter it seems has been moving down from 100, 104 bps...

So that is only because of the MTM of the brokerage assets. Actually, the yield on our MPIS assets is either steady or it's higher in Q4 because in Q4, insurance numbers go up. But the MTM of brokerage assets, if that expands because of the market phenomena, your denominator expands. That is the only reason.

Sir, if you could also give out your MPIS assets outstanding. I think 2 quarters back, you mentioned it was 35% of your AUM. So if you can give us that number, it helps us to track this.

I think MPIS assets would be around 30%. Yes.

It would have come down over the last 2 quarters?

It ranges between 30% to 35%. The problem is that the brokerage assets typically has higher MTM because they are directly linked to market. So the way you have to look at the business is you don't control MTM, right? And MTM is given by the market. What you control is the net new flows. Now net new flows of about INR 5,700 crores came into this business in full year. Out of that, 86% came in MPIS and which constitutes 30% of the opening balance. So that will give you a sense of how we are driving. Now let's say, tomorrow, if [ what billing ] market doubles, I mean the percentage of assets will come down, but that's because of MTM.

Okay. Sir, INR 5,000 crores was 30% of your flows...

INR 5,800 crores -- INR 5,700 crores was the total net new money. Out of this 86% -- yes, INR 5,000 crores was MPIS. That's right.

Yes. So how should this trend, sir, now that you're adding new sales force, how should this trend over the next 2 to 3 years? And then how has this trended over the past -- how has this scaled up because you've gone from 600 to 1,000. I know its very recent addition. But if you could give some color how has this scaled up and how does this number move from the next 2 to 3 years?

So I think anywhere between 25% to 30% growth on this is what we will target. This has actually over the past -- if I see number of years, it has grown substantially. I mean, INR 7,000 has gone to order of magnitude INR 25,000, INR 30,000. And every year, it has grown at that kind of a pace. So I think that will only continue to grow with more number of RMs coming in and more from, let's say, the banking fraternity where their understanding of these type of products is more. I think 25% to 30% is a bare minimum we will look.

Great. And the yield should be stable on this one?

Ideally, yes. We are increasing the proportion of business of mutual funds and PMSs in this business. In fact, in this year, September onwards, we've increased the focus because now our RM mix is also changing. About 30%, 40% of the RMs have now come from banks, and they're extremely comfortable. And those assets typically, I'm talking MF equity and PMS, typically yield more than 1%. So I don't foresee the yields coming down in this space.

Sir, just one last question, more from a long-term perspective, given that next few years numbers will be very much influenced by the RM addition, so it may not give us a clear picture. But on a steady-state basis, how does this -- I mean, at what AUM do you see the RM profitability moving, below, let's say, cost to income of 50%, 65%. And how many years or how much -- what is the period of breakeven? If you could just give us some indication from a steady-state perspective, not from next [ 2 to 3 years ].

If we stop hiring RMs, let's say, today, in the next 2 years, we should hit 60%. With the addition of RMs, we are saying maybe 3 years, we are targeting 60%. And at any point in time, if you stop hiring RMs, over the next 2, 3 years, you can reduce 150, 200 basis points and reach 50%, 55%. I don't think it will go below 50%, 55% ever because there will be a churn of RMs also, new RMs will keep coming in and going out. But 50%, 55% is a very, very steady-state basis. But in India, for the next 5, 10 years, I don't think you'll reach a situation where -- maybe, yes, there will be a year of catastrophe when you will say no hiring, nothing. But the space offers too much growth right now that you will say that it will -- you'll stop hiring people and all that. And we are still very, very small, Jayant, in terms of size and scale, very small.

The next question is from the line of Nidhesh from Investec.

The first question is on Asset Services. This segment has shown very strong growth in this year. So how do you see this segment panning out? And what is the revenue model in this segment?

So this is classic custody and clearing business. Basically, we serve 2 client segments. One is FPI. FPI is also -- we don't typically go after long only because I think there, the revenue model is more related to FX and lending and multi-country custody clearing, which is offered by the global banks. We are typically targeting systematic quant funds and hedge funds where the technology solutions and agility required is far higher. So in that segment, our market share is reasonably large. But given the derivative volumes in India right now, I think immense amount of interest is increasing from these kind of funds, which operate in other markets. We are seeing activity from funds in Australia, funds in Israel, U.K., U.S., Hong Kong, Singapore, obviously was there. But other markets are also opening up. So it will be a function of the number of clients coming in. Last year, we had about 20% market share of all the new clients that came in. And on the domestic side, which to my mind is more structural and more long term because these are all PMSs and AIFs, which is tapping into the Indian financial savings. I think that growth is happening, as you can see in front of us. Total assets, both PMS and AIF put together now, I think, is now about some INR 16 lakh crores, which was the size of the mutual fund industry in 2017, and they are growing by 20%, 30% every year with new players coming in. So I think we'll just keep focusing on these 2 segments. And the earning model is divided into 2, 3 elements. There is fund accounting, there is custody charges, clearing charges and there is some float income, which you make on the cash balances that remain, either as way of margin or as by way of bank balances, which these PMSs and AIFs leave in terms of the cash holding in the portfolios.

Sure. Secondly is on Nuvama Private. How do you see retention yield on ARR assets going forward? At 100 basis points, it is quite higher than the other listed peers. So over medium to longer term, how do you see this yield panning out? And if I also compare this number versus, let's say, global peer, this number is on the higher side?

So I would say between 90 to 100 is what visibility right now we have. And maybe with the expansion of assets and all that, if it comes down later -- we are not seeing that visibility right now. Maybe 85 to 100 is the range depending on the product mix because practically, most of the products which go into that typically have that kind of an yield, except -- because fixed income -- mutual funds is not something which clients in that segment buy through you. They typically go for direct plans. Whatever fixed income they do, they will do in transactional assets through direct bonds or NCDs or credit products or structured credit products, which all sit in the transactional asset class. So it's typically either alternative funds or it will be equity-related funds, where the yields will not be lower than maybe 70, 80 basis points at the lower end and on the higher side, maybe 1.2%, 1.3%. Yes, if -- I mean, absolute return products, which mimic fixed income, that is the only category which at a product level will yield slightly lower, but that also is not below 50, 60 basis points. So it depends on the product mix. But between 85, 90 to maybe 1%, 1.05% is the range over a period of time is what is visible right now.

The next question is from the line of Karan Sanwal from Niveshaay.

[indiscernible] am I audible?

Sir, your voice is muffled. May I request you to kindly use your handset, please?

Yes. Is it better now?

Yes sir. Please continue.

Congratulations for the good set of numbers. Just wanted to understand like the impairment of asset that we have recorded in this quarter, if you could talk about it, like it was towards some ongoing dispute involving [ Wealth Investment Limited ], our subsidiary. If you could talk about it in greater detail.

Sorry, sorry, sorry, I didn't understand.

So there was an impairment of asset that we have recorded in the books.

That was a case which was going on. We had been providing for it. It's actually a custody client, which was doing brokerage through NWIL. So that impairment will get cross charged to the asset services business.

Okay. And also when we see the financial results and when we see the presentation, there's a bridge to financial statement in the form of Annexure 1. So I wanted to understand like what would be a better number to look at on a steady-state basis going forward? Like how long do we expect that bridge to financial statement to occur in our books?

So that bridge will always be there because of certain accounting treatments. For example, when we earn, let's say, brokerage, now you have to -- in financial statements, it gets reported as gross and then all the statutory charges and payouts, they come in the OpEx, which actually is incorrect. Ideally, the income should be net income. So that adjustment is one adjustment. And similarly, let's say, when we do a fixed income product, typically in fixed income, how it happens is it passes through your books, right? You buy and then you downsell. So what gets recorded in financial statements is fair value changes and all that stuff, but it's actually distribution income. So unfortunately, the way the accounting standards are, this will continue, in my view, permanently.

So would the adjusted numbers be a better number to look at?

Yes. Yes. Because otherwise, you will not be able to comprehend the numbers. If you look at the financial statements, given the way accounting standards are, you will not be able to correlate it back to the actual business line numbers.

Okay. Understood. Understood. And one last question. So this -- you have talked about the OpEx cost. But on a consolidated basis, I just wanted to understand like the -- how are the OpEx costs expected to behave with respect to earnings? Like are these margins that we are doing for the last 2 quarters sustainable on a full year basis? Or do we expect -- if you could give us a range of margin that we could do on a full year basis?

I think what we have seen for last 2 quarters will only get impacted if there is a severe downturn in, let's say, the capital market business, where if, let's say, primary and secondary activity goes down. On our analysis on, let's say, variability, even if capital markets business -- for Nuvama Wealth, Nuvama Private, I don't think the margins are going to compress if the market environment remains normal. I'm not saying euphoric and let's say, catastrophic, if it remains normal, our margins will remain the way are -- the way they are and operating leverage will continue to keep adding to the margins. Asset Management is still in an investment phase. Next year, maybe our cost income will be in a similar range or slightly higher. The year after that onwards, you will see a consistent improvement. Capital markets is the only one where you've seen significant margin expansion. Even if there is a 10% fall of revenue, the way our cost structure is in that business, about INR 300 crores to INR 310 crores is fixed cost. The revenues was about INR 805 crores and balance is variable cost. And variable cost is between 10% to 15% of revenue. So if you have a 10% fall, our cost income there goes up from full year basis, 53% to maybe 56%, 57% and that is a 100 basis points impact on our overall business. So broadly, unless there is extremely something drastic, which happens, I don't think you will see a margin compression from where we are.

We'll take the next question from the line of Yash from Stallion Asset Managers.

Am I audible?

Sir, may I request you to kindly use your handset, please because there is a disturbance on the line.

Let me know if I'm audible now?

Sir, the voice is airy. I mean there is a disturbance on the line when you're speaking. I would request you to use your handset.

Hello?

Yes, sir. This is much better. Please continue.

So I just wanted to understand that we have taken an impairment of INR 24 crores on a consol basis this quarter. And I think that has impacted the profitability on Y-on-Y basis. So going forward for next year, do you have any sort of idea on how this number would behave?

No, there is no such impairment next year.

Okay. Okay. So there's no impairment on that. Okay. And just one more thing. Just the previous participant had asked on the capital markets. I just wanted to understand the margin commentary that you had made. So you're saying that going forward -- if you can just elaborate, please, again on your comments, I wasn't able to get it.

So if you see capital markets, right now, our cost-to-income ratio is broadly 53% for the full year. Now if, let's say, we are able to grow, I'm saying modestly by, let's say, 10%, there will be an improvement in the cost income, which you are seeing. If we are flat, it will remain the same. If our revenues fall by 10% from where we are instead of, let's say, INR 800 crores, we end up INR 720 crores, the cost income there will go up from 53% to about 56%, 57%. And that will have an overall impact on the full business by 100 basis points. That's what I meant.

The next question is from the line of Rahul Agarwal from Himalaya Investment Advisors.

My question was also on the capital markets business. There, how different is the margin profile for the Asset Services business that we have and for the capital markets, which is institutional equities and IB business?

So I think the asset services business has the highest margin because that is a business that requires some amount of capital licensing, technology, everything. The lowest would be investment banking because it requires zero capital. Everything is done by people. So whatever you earn is 100% ROE and institutional equities will be somewhere in between.

Understand. Can you put an absolute range to where would it be on a ballpark basis?

Each of them?

Yes, for asset services specifically?

Maybe the cost income would be around in a good year, 35%, in a bad year, 50%.

Got it. Got it. And there, sir, you said that you are focused on FPI clients, which are more into algo trading, hedge funds and so on. Can you talk a bit about what sort of yields do you -- what sort of revenues come from the FPI segment there versus the domestic segment? And what is the yield?

The yield is [Foreign Language] similar because the earning is same -- the underlying earning is same, and we don't turn on activity. There is no -- earning on activity happens in broking. In custody and clearing business, you don't turn on activity. It's a services business. So you basically earn float, fund accounting charges, clearing charges, custody charges, which are broadly similar. So yields will be similar. The sizes will be different, but domestic is growing at a faster pace.

Understand. And FPI would be north of 50% for that business currently in terms of revenue contribution?

Yes.

Got it. Got it. And you also mentioned that in a good year, the cost-to-income can be 35%. In a bad year, it can be 50%. I would imagine Asset Services should be very, very stable in terms of margins. Can you talk a bit about why would it move so much?

Maybe you're right. I'm talking from a historical context perspective as to how our profit margins have expanded over the last 3, 4 years, but that is not reflective of the business in general because we shut down 2, 3 lines of businesses over the last 2, 3 years, which were not very accretive and high risk. So in those years, our cost-to-income was slightly higher because you still had the cost and you shut down the revenue. And as and when you reduce those costs, it fell down to 35%, 36%. So broadly, I think that should be the range. It should not be -- in a normalized year of business, it should be within a 10%, 15% range and not more than that.

Understood. So more like a 35%, 40% cost-to-income. So net-net, it's a 60% PBT business in a way for the Asset Services?

Yes, yes.

Got it. And one last question on that. What is the revenue contribution of FPI? You were saying something that I could not understand that.

So right now, about 60% comes from FPI and about 40% would come from domestic.

The next question is from the line of Gurpreet Narang, an individual investor.

Congratulations on a decent set of numbers. My question pertains to your asset management business, sir, which I feel has a lot of untapped potential. Can you throw more light on it? How do you plan to scale it up?

So basically, there are right now 3 strategies or 3 broad buckets in which we operate. One is private markets where we have -- we have a crossover fund and a venture debt fund. We plan to keep expanding on the crossover fund as a strategy because we have track record, we have size and scale. And going forward, we will also maybe at late stage. So that is one element where we keep expanding the size of the funds in that strategy, and we are expanding distribution right now. In the initial years, we started only with our internal wealth management distribution. We have now added about 6 other wealth management outfits and banks. And we have gone out and added a placement agent in Middle East. So that's how we will expand distribution there. On the public market side, -- we now have 3, 4 funds. One is a long-short, which is -- over cycles, it's supposed to beat large cap -- standard large cap funds. We have absolute return fund, which is a fixed income replacement. We have a mid and small cap. We will soon be launching a Flexi Cap, which will be an all-weather equity product. And -- so in public markets, the idea is to just keep expanding across these strategies, both internal and external distribution. And then we have a real estate fund, which is commercial real estate. There are other areas which we are still thinking about like private credit, which is now growing very fast. Most of the people have a fund around that. But we are still not clear whether we want to launch and when we want to launch because there is some amount of overcrowding there. The question is only when and not whether we will do. But right now, we are waiting for this. I think across these 3, 4, clearly, I mean, next year, we should be able to add INR 3,000 crores to INR 4,000 crores of assets, which will take us to INR 10,000 crores. And once we cross INR 20,000 crores is when the -- I mean, full-fledged operating leverage starts kicking in because most of your investment teams, operations team, distribution team, everything will be in place. And as you expand the asset size, it keeps adding to your margins. So that's how we are looking at the overall asset management.

Ladies and gentlemen, due to time constraint, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Thank you. Thank you, Michelle. Thank you, everybody, for joining us today. Hope to see you again in the next quarter. Thank you.

Thank you, members of the management. On behalf of Nuvama Wealth Management, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.