Prudent Corporate Advisory Services Limited (PRUDENT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Q4 FY '23 Earnings Conference Call of Prudent Corporate Advisory Services Limited, hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ansuman Deb from ICICI Securities. Thank you. And over to you, sir.

Thanks, Vishal. Good morning, ladies and gentlemen. On behalf of ICICI Securities, we welcome you all to Q4 and FY '23 Results Call of Prudent Corporate Advisory Services. The company is represented by Mr. Sanjay Shah, Chairman and Managing Director; Mr. Shirish Patel, CEO and whole-time director; Mr. Chirag Shah, whole-time director; Mr. Chirag Kothari, Chief Financial Officer; and Mr. Parth Parekh, investor relations. I will now hand over the call to Mr. Sanjay Shah for his opening remarks, post which we will open the floor for Q&A. Over to you, sir.

Thank you, [ Deb ]. Thank you very much. And I thank you all who have joined the call today and for sparing their valuable time. And then I hope you all have gotten access to the investor presentation which has been uploaded by -- on the exchanges. And I wish it is handy with you because, during the discussions, I might give reference to various slides. So now if I'll start the -- if I'll start talking about the fiscal year which has been ended. We crossed very key important milestones in FY '23. Number one is our mutual fund vertical revenue has crossed INR 500 crores for the first time. Then our cash flow from operations has exceeded INR 100 crore. And actually it ended at crore. And insurance, which is a very important business for us, has crossed 10% in our overall consolidated revenue. So for the stellar performance, I would like to extend my warm thanks and gratitude to our [ current ] partners, who are our key pillars to the strength in helping us to achieve these milestones. As you're aware, that in case of Prudent, we continue to drive the mutual fund business through our granular systematic investment plan. And our SIP flow in the month of March 2023 stood at INR 522 crore, which was 27% higher than a year ago, so despite we being a very strong player on the SIP front, we believe there is much more ground for us to cover. And for that matter, I would like to take you to Slide #31. So if you look at this slide. Of our investor base of 15.3 lakh clients, 50% of our investor base has not even started an SIP yet as of March '23, so there's a huge base for -- out of our active investors who have not -- who have just done lump sum, but they have not done any SIP. Or they're not [ heavy on doing ] SIP. And I would like to just tell you that, if I look at -- there is one research which is from CAMS -- and CAMS says that CAMS service about 2.4 crore-plus investors. And in the CAMS data also, 51% of investors of CAMS has not started SIP, so these data of Prudent also coincide with the CAMS number. So there is a good scope for us to grow our SIP base. Not only this: If you look at, out of 7.5 lakh investors who have started SIP, 50% of that, so roughly 3.2 lakh investors -- only one SIP. So there also we feel there is a good scope for us to increase number of SIPs of these investors. In the same slide, I would like to highlight to look at another data point, which is about number of years experience of investors which they had with Prudent. So when I'm talking about number of experience, what we did is -- the first transaction which they did with Prudent, from that date till date, they're considering as relationship they have been -- enjoyed with Prudent. So look at the chart on the right-hand side, which says that, out of our total AUM, 68% of the AUM is -- these are [ good ] investors who have done their first transactions before March 2020. And these are investors who have seen at least one down cycle in their life span. And this is data point which gives us confidence to increase our wallet share from the existing customers. So as stated, we ended March '23 with a monthly SIP flow of INR 520 crore, which is almost -- with almost a second rupee in our gross interest coming from SIP. Now I would like you to take a look at the Slide #23. And if you look at the movement in AUM between March '18 to March '23: 52% of our AUM have been contributed by net sales, while the balance 48% is from the marked-to-market gain. So [ bearing it over these years ], our net sales number has been equal to or higher than our gross flow from SIP, so we can fairly assume that our net sales will be closely -- we can closely track our net sales to our gross SIP number. In the same context, if you annualize [ my ] monthly SIP flow of INR 522 crore in the month of March, we expect that our gross flow from SIP will be 6,200 crore in FY '24, which is approximately 11% of our FY '23 closing AUM. So we are confident of generating 10% to 11% growth from net sales. And we expect that balance 10% can easily accrue from marked to market, enabling us to grow at an annualized rate of 20% over the longer run. And we believe that we can reach the 1 trillion [ AUM ] mark in the next 2 -- 3, 4 years. Add to these, as you are aware, that we have been exploring inorganic opportunity in the industry because of significant cash surplus which we have currently, about 142 crore. And we continuously generate the healthy cash every year, so probably, if we are able to identify good acquisitions, then this landmark of 1 lakh crore can be achievement earlier also. We continue to be aggressive on diversing our -- diversifying our revenue stream. And on the revenue front, from -- revenue from other products, which has -- grew by 114% year-on-year during FY '23. And this year, in the distribution basket, we also added liquiloan, which is a P2P product. And we also started distributing the small case product on our [ fund budget ]. Insurance as a vertical has performed exceptionally well in FY '23. With revenue almost doubling, it is now close to about 11% of our overall revenue. Our total premium grew by [ 78% ] in FY '23. And commission grew at much faster pace due to higher share of [ remunerative ] life insurance policies in the fresh premium. We have around 7,750 mutual fund distributors or their family members working as a point of sales in insurance segment. Insurance, as you all are aware -- [ that Jan, Feb, March ] was a robust and exceptional [ year ] because of taxes and related changes. Now I'll take you to Slide #46, which talks about our stand-alone results. So in FY '23, our quarterly average AUM grew by about 33%, led by strong SIP flow. And as you all know, that in -- last year, we acquired Karvy by about October, November. So the full year average of Karvy came in current year, and that's the reason. Because Karvy was not there in last year's base [ by about ] 9, 10 months. So because of that, our overall AUM has grown by about 33% on average. Consequently, revenue also grew by 33% because as -- average AUM grew by 33%. Revenue also grew by 33%. And our net revenue yield has remained stable at 95 basis point. Operating profit grew at a faster pace than the revenue growth, at 38%, mainly aided by benefit of operating leverage. And margin has expanded by 95 basis point to 22.8%. Our profit after tax grew by 26%, a tad lower than operating profit mainly because the amount which we paid for acquiring Karvy has been now amortized. And this year, we are fully amortizing that scheme, so [ depreciation ] has reduced our profit after tax up -- a tad lower. Our cash flow from operations has been very, very steady and very, very healthy. And from our stand-alone operation of Prudent Corporate itself, we reached the 100 crore mark -- we reached closer to 100 crore. So we ended the year with a 94 crore of cash flow from mutual fund distribution operations. If you look at Slide #41. The good part in the stand-alone operation is that our opening AUM for FY '24 is at INR 56,189 crore, which is almost 6.4% higher than full year average of last year, which is -- which was FY '23 full year average of INR 52,864. And as you all are aware, that it's revenue which is linked to average assets [ and the trail ]. And you can easily look at that because we are just starting with 6.5%, the [ higher ] in the opening AUM. We also had a good head start not only on the average AUM, but also, if I'll just tell you about the current number, we already said [ about ] 60,000 crore a year, which is about 13% or 14% higher than last year's full year average. So overall I just wanted to communicate that mutual fund vertical has a good head start for FY '24. Now look at the Slide #45, which provides our consolidated results. Our consolidated revenue from operation in FY '23 grew by 35.6%, led by healthy growth in mutual fund vertical as well as excellent performance of our insurance vertical. Operating profit grew by 51% year-on-year to INR 173 crore, led by benefit of operating leverage coupled with a large share of insurance in the overall revenue composition. Consequently, our profit after tax grew by 45% to INR 117 crore. Cash flow from operations during the year stood at 122 crore. And our cash flow from operation-to-net income stood at 104%, indicating a healthy cash conversion. So this is all about the FY '23. If I sum up FY '23, it was really a very great year for us. And we expect that this momentum will continue in FY '24 also. There are some headwinds going into FY '24, mainly led by SEBI consultations paper on the review of TER, which has been for the public comment currently. However, we are in the business of volume. And we believe that volume will compensate for the margin [ comparison ] in absolute basis points, which we may witness going forward given that we are growing almost 2x than the industry on the equity AUM front. So this is all about Prudent's performance and the data. I'll now [ place the floor ] open for questions and -- Q&A. Thank you.

[Operator Instructions] The first question is from the line of Rohan Mandora from Equirus Securities.

Congrats on good set of numbers. Sir, I just want to understand currently within the SIP book how you split between, say, pure equity, hybrid and solution-oriented funds. And similarly, on the AUM, [ I was wondering if we can share similar stats ] on the equity AUM.

Rohan, you can move to next question. I'll just get the data; and I can pass it over, the information. [indiscernible] con call only. If you can move to another question [indiscernible].

Okay. Sir, second was that there are certain schemes which are of SIP plus SWP nature and where the SIP flows is for a relatively long period of time, so as a distributor, how do you see, and as well investors, how do they see, this kind of a product? And are they more inclined to do these kind of products because we get a longer [ tenor ] of flows on them? I just want to understand your views on this.

So yes. I think there are SIP-SWP combo product, which is like, say, ICICI has [indiscernible]. So we do provide those product on our [ fund budgets ]. We have already onboarded them. And definitely I think it's the focus, as far as -- because we -- you are absolutely right because that gives you not only the longer-duration money, but I think it takes care of the retirement requirement of the investors. It definitely is a very good product for us to focus on that, yes.

Sure. And sir, here also what will be the share in the SIP book [ for ] this product, if you can share along with that data? Third was, sir, in terms of what will be your view on the recent decision paper that has come out from SEBI. How do you read that and the whole impact on Prudent?

So Rohan, I think it's very premature for us to say anything as of now because, if you look at the consultation paper which is open for the public debate -- and I think everybody would give their suggestion and finally what is going to be the actual change which will come from the regulator. So [ frankly ], there a lot of floating points. For example, SEBI has said that the TER should include not only the brokerage but incidental costs like STT also; and which is probably very difficult for somebody to [ approach it ], right, because I don't know which particular fund and what kind of [ journey ]. So I think -- so that cost is very, very floating. And there is one point which is probably keeping everybody [indiscernible], that -- how should they come to a conclusion of what is the actual impact because of revised TER. So there are important point. I just wanted to communicate that, the standalone, if you do not look at the inclusion of probably brokerage and GST in the revised TER, is reasonably compensating the overall structure of the AMCs at an individual level, but what is hurting is probably inclusion of brokerage and STT and definitely GST also. And so overall probably I think how industry will react, how much they'll pass on to everybody in the entire value chain. What are their views on passing to a [ retail as ] well as to us? There are just a lot of things which will remain floating for us to come to a real conclusion there what's going to be the impact, but I can tell you the positive part of this will be that, as the industry become more and more competitive, the need for people to align their interests with a larger platform, quality platform, would become very, very important. And that's we feel that it's going to be an important thing for us over a period of time.

Sure, sir.

And Rohan, in the SIP book, we have 93% in equity, and 6% in hybrid.

Yes.

[ Right, sir. I understand ]. 93% is equity and 7% is hybrid.

Yes, 7% is hybrid, yes -- 6% is hybrid. 1% -- less than 1% is probably [ debt- ] or solution-oriented funds kind of a thing.

Okay. And sir, what was the [indiscernible] SIP [indiscernible]?

Mr. Mandora, I would request you kindly repeat because we did not understand [ what you just ]...

Yes. Sorry. Sir, on that, [ if I think of ] SWP -- how much that will be within the SIP book.

SIP, SWP, that -- I think separate number [indiscernible]. I will -- probably we can get this number and we will communicate to you. [indiscernible].

Sure, sure, sure, okay.

Normally [ this is a vanilla product which is sold ] very, very significantly, but it's a good product for us to do. And we have been doing a lot of efforts, but if you look at the number -- I think that number is not handy as of now.

We have the next question from the line of Ashwani Kumar Agarwalla from Edelweiss Mutual Fund.

Sir, as you said, that the margins may take a hit because of the new TER regulations, so you must be in talks with various mutual funds. So what is the glide path that mutual funds have given to you in terms of the brokerage revenue -- or the commission revenue which you get, in terms of percentage?

[ So I want ] Shirish to address it. Shirish?

Yes. So basically we've already spoken to multiple AMCs. As of now, we believe that most of the AMCs actually have -- actually calculating the total impact on the various schemes. None of the AMCs have yet decided. Or other AMCs, they have done -- they are not yet clear that -- what will be the exact impact on every scheme and what would be the pass-on to the distribution and to the other stakeholder. So you've been from one of the AMC as well, I think. And you spoke to your audience also, and we could not give a definite answer. We believe that still it will take some more time to get clarity from the AMC what [indiscernible] that -- what will be the cut share between various stakeholders. It's very, very early for us to comment.

Okay. We have seen the TER cut in the last 2 instances in 2014 and 2018. So how much of that TER cut was passed on to us. And across base, mutual funds, do larger mutual funds pass on more? Or smaller mutual funds pass on more. Or where we have bargaining power.

If you looked at, if you look at the last 2, 3 years' cuts, majority of the AMCs [ have pass-on tools ]. Specifically, the bigger ones, they pass on the full TER [indiscernible] distributors. Smaller AMCs, yes, I think they can't pass on 100%, but if we look at in totality, probably they'll pass on [ almost ] 95%. This year, the -- this time, the situation will be a little different. I think, taking the reference from the past, that -- history, AMCs passed on 100% to the distributor. Will they be able to pass on 100% this time? I think only time will say, but it is a questionable thing right now because the impact from the TER is not [ all year only ] because of the SEBI's new TER structures because now the broker [indiscernible] GST [ may be partial included ]. So frankly, it's too early for us to tell, but yes, we've seen that historically, I think, more than 95% of the TER was passed on to distributor. But historically, we believe [indiscernible].

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

Congratulations on a good set of numbers. So sir, like, first question was on the data which you have provided on the AUM...

Sorry. Mr. Deo, we would request you to kindly use your handset, please. Your voice is muffled, sir.

[ Is this better ]?

Please continue.

Yes. So I was asking, sir, like, in this AUM bucketing which we have given. So like the -- so that data shows that like about 40% of the AUM comes from -- comes before April 2017. So is it like the AUM? Or is it just the investors who are -- who have been associated with Prudent prior to April 2017?

So yes. So what we're giving there is the -- your AUM might be recent, but we will look at whether -- what was the relations of the customer with Prudent, so you are right. Let us assume for example I would have invested -- out of my 1 crore portfolio, [ 90 lakhs ] would have been invested in the probably last 2 years, but I -- my first [indiscernible] probably 2015, 2016. So we just wanted to communicate that, 67% of the AUM which we have today, these are these people who started relationship with Prudent before COVID period. And they would have seen at least 1 or 2 cycles, so [ they're really ] mature investors. We just wanted to communicate that 67% of the AUM belong to those people who are reasonably mature and they have seen the volatility. That was the message.

Sure, sure, yes. And sir, secondly, on the insurance please -- insurance piece. So right now, like this quarter, we have seen a strong growth, so like currently, like, what will be the mix between the origination between the in-house employees and the POSPs model? And how do we see it increasing over the next 2 or 3 years?

Shirish? Chirag Kumar? Anybody want to [ address ]?

If we look at historically, the majority of the business which we -- come from 3 channels of ours. That is online or the wealth channel and other direct channel. POSP, as we said in the prior calls also, that POSP was a new channel [ we increasing for a few ] years. I mean eventually the contribution that's coming from the POSP channel is very, very high. So if you look at every quarter, the contribution of the POSP channel is increasing. In the last year, whatever growth we have seen, of course, one is because of the taxation change in the industry, but at the same time, the POSP contribution to our total overall usage is also increasing [ as a base ]. As [ even ] stated correctly, those 7,500-plus POSPs are now registered with us. And more and more people are -- more and more POSPs are getting active in our base, so definitely, if you can see, last year, the business contributed by POSP is almost 50% in the -- last quarter [indiscernible].

So just wanted to say, sir, a large -- like the number which you quoted was [indiscernible].

Sorry. I couldn't hear you...

So sir, I -- sorry, sir. Your voice got muffled in the last part of the answer, so could you repeat that, please?

I said that the POSP contribution in the insurance business is increasing quarter-and-quarter. And specifically, last quarter, when we did [indiscernible] contribution was mainly because of the -- 2 parts. One is the taxation changes. And secondly, the POSP contribution in the last quarter has increased. So in the insurance business, last quarter, POSP's contribution towards the business would be around [ 50% ].

Sure, sure, sir. And sir, just -- and the last question was on this TER regulation. So like hypothetically if there is some passing also [ which is done to us ] and all the other distributors, so -- like then what will be our intent in passing on these TER cuts to our channel partners? So like how do we see in -- this whole scenario panning out for us in terms of net yields?

So if you look at the -- historically, I think 2 TER cuts, we could pass on majority -- or rather, I will say, that almost everything what was cut by AMCs [indiscernible]. Because there are 2 parts that were very, very important for us to decide and -- how much we will be able to pass it on to the -- our distributors. One is, of course, how much AMCs [ are continuing to us ]. And second, very important parameter is that how much AMCs [ attribute to their IFAs ] because we also -- I think you can -- have seen that [ we also ] catered to the [ IFA ] segment of the industry. So 2 important variables will decide and -- how much we will be able to pass it on for these forthcoming TER cuts, but historical reference, if you want to look at, I think I will say that we could pass on with -- almost everything what was cut by [ the AMC piece ].

The next question is from the line of Prayesh Jain from Motilal Oswal.

Congrats on great set of numbers. Firstly, just continuing on this new TER regulations. Whatever the calculations we've done suggest that the smaller AMCs are actually benefiting out of this move. And they might have some room to kind of distribute better -- or give better commissions to distributors. So in that kind of a scenario where the larger ones will market kind of they are the lowest-cost ones, on the other hand, you will have distributors kind of willing, wanting to sell more of the smaller ones where commissions will be better. How would this kind of eventually -- in your sense, how will this kind of play out for the industry?

Yes, Shirish?

So maybe also if you look at the [ real depth ] [indiscernible] TER, I will say that these are schemes' or these are AMCs' TER, other than the smaller AMCs' TER -- or schemes' TER, I will say. If TER cut or TER is only, I will say, information which businesses are looking at, there is a probability there is not -- would not be any [ buyer ] for the smaller schemes. Maybe if you see last few years, the smaller AMCs' market share incrementally is increasing in the industry. Now obviously there are multiple factors affecting why smaller AMCs' market share is increasing in the industry, but one definitely is the performance consistency. Obviously, I think, you have -- the AMCs have shown their performance track record now. Secondly, also [ always ] I think I would say that mutual fund, to a certain extent, [indiscernible] distributors. There are very, very critical rulings [ they think of first ]. So we think, because of that also, you will have seen that smaller AMCs' market share is increasing. Let me say that these are AMCs -- we try to communicate that their expenses is lower. And the smaller AMCs, we do have -- try to go to the distributor, saying that you have -- the commissions are higher. Distributors also don't go only by way of commissions. So previously I think there is a merit in the smaller schemes or smaller AMCs and so there will be a merit in the bigger AMCs or bigger schemes also. So as a distributor, we are just trying to give the balancing [ to approach to the ] client. Based on the client's requirement, definitely we will offer the products to the client. [ Simply, we will not go hit ] the lower-TER or the higher-commission schemes. Obviously the way distributors [indiscernible] now. I'm sure -- I think this is [indiscernible].

Okay. And so do you think that -- this move that has -- which may eventually turn out to be in the regulations, will that expedite your conversion of existing distributors to insurance distributors as well and scale up the non-MF business at a much faster pace within the -- within your set of partners?

First question, I could not understand, the first part of your question.

So basically what I'm asking is will -- this move that turns out into the regulation later. Will it help you to kind of expedite or [ fasten ] the process of converting your just-MF distributors into more insurance distributors and also some other products that can help you scale up the non-MF distribution business?

Yes. I think [indiscernible] for the existing distributor [indiscernible] -- because of the TER cut, would help to penetrate more into the non-mutual fund products. I think, whenever the revenue is reduced in any product, [ we should look at my concurrent ] other products more seriously to compensate the loss in one particular product. The same rule applied to us also, [ yes ], I think, because of the revenue cut to the distributors going forward. We -- always we try to find out additional product when -- we can compare to so that we can increase the wallet share of that line. So to certain aspects, yes, there could be some we can shift from MF to the other products. I will say that, whether the focus for mutual funds distribution business will go down from current distribution [ levels ], I think probably the answer would definitely be no, but yes, the market share or the share of revenue from other products would definitely increase. But still I would like to add one more point here. Because of the TER cut, eventually the [indiscernible] for revenue for our distributors will come down, so the distributor community who are not associated currently with the platforms like us obviously would like to go to the platforms to get the multiple product at a single place, as well as they would like to reduce their operating costs. Those distributors or those IFAs or MFDs still currently not dealing with the platforms might look at platforms to compensate the shortfall in the revenues, so I think that's the way we believe that more and more of MFDs will move to the platforms for multiple products. That is a point I would say...

[indiscernible].

We have the next question from the line of Srinath V. from Bellwether Capital.

Sir, I wanted to understand. So the top 3 asset management companies with over 10% market share, they put out their disclosures on payouts. And if you see, the payouts for all of them have -- are far exceeding equity asset growth. For one of the asset management companies, it's significantly higher than equity asset growth, so is it fair to assume that the front book or the new flows or, like, the payouts have drastically gone up? Could you, in our book, kind of tell us, for the new assets we originated this year, what would be a payout? Or what would be revenue versus what it was last year from a yield perspective? Because we'll be getting a blended yield, but if you can disaggregate it and help us understand -- I also want to understand what drove. Is it platforms like us who have been able to aggregate and bargain and get that significantly higher payouts from these large asset management companies?

So giving an answer to your first question. The last few years, you have seen that the share of commission in the AMCs is much higher than the equity growth. One main reason, I would say that historically when -- the target is of -- or any targets of distributors is to get trade commissions. The trade commissions were lower. Last few years, specifically after 2019, everything has moved to the trade. So obviously when the investments or the [ conditions ] are moving on the trade, the trade commissions are higher. So in the AUM mix of any distributor or any AMC, for that matter, whether assets of -- the prior assets of 2019 which -- where [indiscernible] which were at a lower trade, of 2019 and 2023, [ so full years ], much of these assets would have been [ churned ]. If you look at the industry, the average life of any equity is around 3, 3.5 years. It is definitely we can assume that -- majority of the assets below to 2019, I would say that, by now, it would have been [ churned ], so incrementally we don't see there will be a huge difference between the equity -- the AUM growth and the commission payout growth for the AMCs, so -- which is the first point. Second point, I will say that these are the bargaining points here. So I think [ already it happens that, higher the business ], the bargaining power grows, but in past, also we have already communicated that now going forward, I think, we don't see a great improvement in the bargaining power with the AMCs because we believe that we have such that particular ceiling. So incrementally, bargaining power from the AMCs, probably they might not be able to enjoy, to be able to maintain currently [indiscernible], but again I would say that, as you said, AMCs' commission share is increasing compared to the equity-AUM growth. I believe that, going forward, that should not be the case.

So for us, I wanted to understand. Would the assets originated in the current financial year have a higher yield than assets originated in the last financial year? Is that a fair assumption to make? Or after 2019 or this year, last year will all have similar payouts. Only the prior book has that kind of lower payout.

So it is meeting -- you're asking or comparing the average yield on the [ transactions of ] FY '22, '23 or '21, '22...

Yes, yes...

Everyone, including, every distributor -- I will say that '22, '23 transactions will have faced lower yields compared to '21, '22, everyone, because, when the AMC -- I think, as you understand, the TER [ in place ], current TER [ in place ] of AMC. When the AUM increases, by default, the commission payout decreases. So today, AMCs are maintaining whatever percentage share to the various [indiscernible]. The percentage remains stable, so when the TER goes down for the AMC, obviously the net yield or the gross yield to the distributors also comes down. So if you are simply comparing '21, '22 and '22, '23: So '22, '23, again, would be lower than '21, '22.

But that's -- I'm very confused because, if you looked, like I said, a couple of AMCs and you look at the numbers, they're actually at payout growth of 40% Y-o-Y. And asset growth will be 15%, 16%, 17%...

That's why I'm saying, because of -- that is the reason I am saying, because of the historical assets, it's [ turning ], but when you're asking [ the new times in terms of ] '21, '22 and '22, '23, this will be right, [ your answer ].

Got it, got it. And in the backdrop of last 2 years of commission payouts growing -- and especially this year growing significantly faster than asset growth, do you see the larger AMCs coming down and saying that, "We want the full pass-through of whatever cuts we are taking," given that we have had very enhanced payouts over the last 18 months? In that context, do you feel it will be very difficult for us to push back, saying, "You guys have to take 30%, 40% of the rate. We'll take 60%?" How is this whole thing going to transpire, especially in the context that they've all had 40%, 50% payout with those for the -- FY '22?

[indiscernible] completely different towards FY '18. And historically, 2018 and 2019, both [ the TER cuts ], majority of the AMCs have [ cut ] 100% of the TER to the industry -- almost 100%, I will say. This time, as I said sometime back, I think the scenario may be different. AMCs might not be able to pass on the 100% cut to the distributors. I -- as I said, I think it's too early for us to comment on because none of the AMCs [ have made their strategy here ]. It will take a little more time for us to understand what AMCs are thinking.

Okay. And whatever cuts, we will pass on 100% of that down. Or we will be taking some proportion of it on our unit economics. How will it work for us now as a platform?

I think that depends on what AMCs are doing for the MFDs, [ at least anyone ] doing business with them directly. If the AMCs is treating everyone the same, obviously we also have to treat our distributors the same. So as I said, it is not a stand-alone decision right now. That again depends on how AMCs are cutting the TER -- or passing on the TER cuts to their MFDs too. That only -- we can also comment only and only when we know AMC stance for their distributors or their MFDs and us, so as of now, it's -- for us, I think -- giving any indicative number that -- what percentage we will be able to pass it on, I think it's too early for us.

[Operator Instructions] The next question is from the line of [ Washok Shah from Envision Capital ].

If we see the commissioning fee or expanse as percentage of revenue. That has fallen significant in this year, like almost 3 percentage points. Has there been any change in our sharing with MFDs? Or is it -- while the mix changed, like, are we selling more direct from our own employees?

Sorry. I think, probably for the purpose of commission, you should look at the stand-alone number of mutual fund distribution business, wherein the growth in commissions payout and the growth in top line is more or less in line with that. So giving an answer to your question: Is there any change in payout metrics? No. It doesn't. It stayed absolutely rock steady. I think the profitability mix would have improved mainly because of insurance vertical, where a lot of business comes from [ P2Ps ] and the direct business where profitability has been very, very strong.

The next question is from the line of Ashutosh Garud from Ambit PMS.

Am I audible? Yes. So...

I'm sorry, sir. Your voice is breaking. Can you please use your handset?

Yes. I'm on the handset. Am I audible now?

Just a bit -- your audio is not clear. It's breaking.

Yes. Is it better?

Yes, sir.

Yes. So in the initial [ parts ], you mentioned about the contributions from Karvy acquisition for this particular quarter. Can you quantify what kind of a top line and bottom line got contributed from that particular business in this quarter compared to the previous one?

So Karvy, we do not report the separate number because, virtually if you look at the asset of Karvy as partners -- who became Prudent partners, so assets also got merged with their existing unit with Prudent, as well as their AUM which came from Karvy. However, in the first 3 months when we acquired, we analyzed the earning from Karvy, which was close to about 2 crore, 2.5 crore a month. And if I look at last 12 months, there has not been any slippage from the Karvy assets, so I believe -- I think Karvy would have contributed close to about 20 crore, 25 crore in our -- 25 crore, 30 crore kind of bottom line profit before tax would have been contributed by them, or at the gross profit level. So I think, when we acquired, when we did the calculation of payback period which was close to about 5 years, I think, probably I, we in the -- it remained the same.

Got it. And would we have...

Pardon...

Mr. Garud, I would request you kindly repeat your question, as your audio is breaking, sir.

[indiscernible]...

I'm sorry, sir. We are not able to hear you. I would request you to kindly rejoin the queue. The next question is from the line of Ajox Frederick from Sundaram Mutual Fund.

Sir, congrats on a good set of numbers. Sir, my question is on the insurance side, where we did see a strong inflow for the quarter. So what proportion of this is because of the onetime tax benefit [indiscernible] out of this [ 101.5 crores ] business.

Shirish?

I could not hear question completely, but to -- I understand that -- what percent [ is of -- the business ] is contributing because of -- contributed because of the onetime gain of the taxation.

[indiscernible].

If that is the -- yes. [indiscernible] life insurance business. Almost you can see around 18% to 20% kind of business where you contributed because of that onetime gain of the taxation. So there was a prepayment [indiscernible] of the buying business, so you can -- [ the fee, you can say ] 18% to 20% kind of numbers would have been contributed because of this taxation change.

Okay. That is helpful, sir. The second question is on the distribution, again insurance. 50% is coming from POSP, right, so what is our take rate? So how does the model work in POSP?

[ So we've seen ] incrementally, month-on-month, quarter-on-quarter, the share of POSP is increasing. And we have -- and we communicated in earlier calls that we believe that next growth of our business also should start coming in from the POSP. So to reiterate: I think the percentage [ sharing ] again depends on the product to product for -- but on average you can see around a similar basis what we do in the mutual fund side. 2/3, 1/3 is the kind of [indiscernible] normally do [indiscernible].

Or I'm just trying to understand. Is it very much different from the other distribution channels, like a bank or an online channel, through POSP?

Banks, definitely without -- I mean, again, you are talking about the sharing with the POSP [indiscernible], right?

Yes, yes, correct.

So banks would not be doing any kind of sharing with [ the end ] POSP because banks is in a B2C model. We are a B2B model, so obviously we have to pass it on to [indiscernible].

We have the next question from the line of Nilesh Jethani from BOI Mutual Fund.

Congrats for a great set of number. My first question will be can you help me understand. What would be our share of AUM from top 5 mutual funds?

Shirish?

So of the top 5 mutual funds [ in this basically ] currently, I will share the number. You can tell most -- I don't have the exact number right now to -- number could be [ a little bit -- or ] different, but yes, most -- you can see 55% kind of numbers will be top 5 AMCs contribution. But -- this is not exactly the number, but I don't have that number handy.

No problem...

Shirish, it's 50%, 5-0, Shirish. Top 5 AMC contribute 50% of the AUM, yes.

Yes, got it. My second question would be on the redemptions. So for last 2 quarters, can you help me understand, how has redemptions trend going up? Because in Q4, it seems like we were able to arrest it. And net flows seem to be a little better, so can you help me understand? How are the redemptions currently for Prudent? And how you expect this trajectory going forward.

So if we look at the Q4's redemptions. They are definitely lower than what it was in Q3. Currently, if we look at [ our run rate that we ] talk about, which is somewhere in between of Q3 to Q4, so -- but we won't say that it's similar, like Q4, but we won't say that it is as bad as Q3. So you can say somewhere in between a Q3 and Q4 kind of sentiment [ or the rhythm seen from the target ].

Got it, got it. And the third piece of the question was on the SIP. So today with 510 crore or 520-odd crore monthly SIP book, I just wanted to understand. If I see one interesting slide which you have given, on Page 32 (sic) [ 31 ], where -- no live SIP for approximately 50% of your investors -- so I wanted to understand. From the current bucket of investors we have at Prudent, can we improve this number? And what growth do you anticipate in this SIP book per month inching up to over the course of FY '24?

[indiscernible]...

So as far as the number is concerned -- yes. Shirish, please continue, yes.

Yes, Sanjay? Please.

You can continue, Shirish. I just wanted to say that the number which we took is about there are 50% people who has no SIP. That number, I can explain. I just wanted to explain you that these are the numbers in line with industry number also. So just wanted to say that we really represent [ truly retail ] of the industry. So CAMS' number also say that 57% out of the 2.4 crore investor has no SIP, same in the case of Prudent also. Out of 15.5 lakh customers, almost 50% has no SIP, so definitely there is a scope for us to improve. And that's the reason we have given you this data. Another 50% who has already SIP with us: Out of that, 50% of people has only one SIP, so there also we can definitely do a lot of efforts. So now I'll probably just tell Shirish to take it forward.

Yes. So if you look at the what kind of number we are looking at [ placed, they're healthy ] numbers, if you see over last 2, 3 years the trajectory. I think, all -- in average, we are adding around 100 crores to 120 crores of net SIP improvement. That is the addition in last few years. I will say that net addition is always sentiment-driven. I think, for good years, the addition is higher. For bad years, additions will be lower also. Before, [ you as the ] industry used to be like [indiscernible] net addition. Currently, if you look at the kind of run rate, what you, we are seeing -- what is the trend we have seen in last couple of months, I think there is no reason to believe that we should all do better than what we did in the previous [ net addition ] in terms of additions. Rather, I think the kind of acceptability; what we are seeing for SIP; the kind of interest, what the investors say of -- for SIP; and kind of media campaign, what we have as an industry, everybody, is doing. We believe that incrementally SIP flow should increase. So definitely we would like to add much, much higher than what we did in last few years, but yes, as I said, finally, it is still a sentiment-driven number.

Got it. Sir, I ask this question because, when I see your MFD addition -- that slightly slowed down in FY '23 versus what a hyper growth we saw in FY '22. So it was always a thought process that Prudent with higher MFD growth will drive a higher SIP book number, so any color on that? Where are you seeing MFD? And also what are number of active MFD today versus this 23,000-odd number of total MFDs?

So as you said, that '22, '23, we have added [indiscernible] MFDs compared to '21, '22. One reason is Karvy acquisition. So [ almost 1,200 ] [indiscernible] distributors, we added, because of the Karvy's merger in '21, '22. So that is [ onetime thing ] what we had in '21, '22. Second is MFD additions also. I will say, when the market returns are better, more and more people will be interested to join the industry, but new MFDs coming to the industry also depends on the historical returns of the mutual fund, so yes. I think [ you can ] slow down in the financial year that is '22, '23. The point what you said, that SIP growth should be linked to the new MFD addition at Prudent. And I think probably I do not fully agree on this particular part. The SIP additions may be contributed by multiple factors, one being the new addition of distributors, but additionally I will say that Prudent has added almost 50% of the MFDs in last [ 2.5 years ]. So obviously, as you would agree, that -- when any person starts a business, initially his growth rate might not be that much. Once he settles down; once he understands the product, systems and everything, [ he'll see ] the growth rate actually comes. So here we will definitely say, I will say that our growth should come from 3 people -- 3 set of distributors, I will say. Whatever we have recruited [ or those who are dealing ] [indiscernible] last 3, 4, 5 years or more than that. I think now they are rock stable. I think [ they improved their ] contribution and the productivity is increasing solidly. The much growth definitely would come from those people whom we recruited in last 2, 2.5 years. So that growth is also enormous. And our focus for adding new distributors is not less. So definitely we are out in the market very, very aggressively to add more and more distributors, so obviously our growth should come from that add as well. [indiscernible] has shown you the numbers in our -- a number of the slides; that our share, Prudent's share, [indiscernible] number. It is increasing year-on-year, and definitely we would like to see that we'll keep on increasing our share on the [indiscernible].

Okay. And then last question from my side: You've said, [ you passed an ] initial comment where you said that, as of now, there has been 14% growth in AUM versus the FY '23 average. Out of this 14%, what you will attribute to M2M, and what to the net flows.

So the current year's, if you look at the growth which has came, I think net sales has been reasonably okay. Nothing has changed significantly. However, marked-to-market gain has been significant. So as you are aware, that we ended the year at 56,700 crore roughly in March. And today, we have crossed 60,000 crore, so that additional -- the marked-to-market growth has been very, very robust in these 2 months. So just wanted to communicate that [indiscernible] we are already having a positive opening balance of -- so we -- our opening balance is INR 106 versus last full year average of INR 100. So that was already built into the opening balance. And then from opening to current, we are again up by about roughly -- about 7%, 8%, 10%. So I think, that put together, we are saying that the mutual fund is starting with a healthy base of about 14% positive.

[Operator Instructions] Ladies and gentlemen, as there are no further questions from the participants, I would now like to hand the conference over to Mr. Sanjay Shah, Managing Director, Prudent Corporate Advisory Services Limited, for closing comments. Over to you, sir.

Thank you. Thank you, everybody, for joining this call. And we wish that FY '23, '24 also turns out to be a very good year for us, based on the strong tailwind. And thank you, everybody, for joining. Thank you.

Thank you very much, sir. On behalf of ICICI Securities: That concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.