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

Ladies and gentlemen, good day, and welcome to Prudent Corporate Advisory Services 2Q FY '24 Earnings Conference Call hosted by Equirus Securities. [Operator Instructions] Please note that this conference is being recorded. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand over the conference call over to Lalit Deo from Equirus Securities. Thank you, and over to you.

So good afternoon, everyone, and thanks for joining the call. So to give a brief update on the 2Q FY '24 results and address investor questions, we have with us from the management of Prudent Corporate Advisory Services Limited 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, CFO; and Mr. Parth Parekh from Investor Relations. Now we would request the management to start with the opening comments, post which we can open the floor for Q&A. Thank you, and over to you, sir.

Thank you, Lalit. Thank you very much, and -- if I welcome all of you to this second quarter of FY '24 earnings call of Prudent Corporate Advisory Services Limited. I thank you for sparing your valuable time to join us today. I hope you all have got an access to the investor presentation, which we have uploaded on the website yesterday because when I will be talking about the initial commentary, I'll be giving a lot of reference to the slide which is already provided. So before I move to the financial and the KPI numbers, let me cover a couple of new slides,which we have added in this presentation. So kindly move to Slide #23. So it's a slide where we have provided the data on how Prudent has performed vis-a-vis all the major peers in last decade, that is from FY 2013 to FY 2023, in terms of commission earned as well as on account of average AUM. And these are the data based on the information provided by [ MC ] in their yearly commission disclosure. So if you look at, I think in last decade, Prudent has moved from -- if you look at FY '13, we are somewhere closer to about 20th on earning numbers. We moved to a fourth rank in commission income in last financial year. So that was important data, thought we'd just cover that. So can we now move to Slide #29. There is also the another data which we try to capture. So it's an important slide which explains that mutual fund distributors, which is the core business for us, a lot of distributors who work with us, and that's a core segment of our business. So for us, the mutual fund distributor becomes mature in our system. And once they cross certain threshold of AUM, let us say, for example, INR 10 crore, then productivity of those distributors on all accounts, like whether you talk about the gross sells or the average AUM per client or the average SIP amount, they fare much better compared to others. So this is the very vital and the important information which we have provided. And if I tell you about the numbers. As on September 2023, Prudent had 1,265 mutual fund distributors whose AUM was more than INR 10 crore. And if I tell you about the same number before, let's say, 4 years, that's in 2019, that number was only about 340. So just wanted to highlight that these are the people who are going to be more and more productive. So it's a very important landmark for the distributors in the carrier. Once they go past certain numbers, they become very, very productive. So among all, I think the 1,265 distributors will be very, very core from the productivity is concerned. So there are 2 new data which we added. Now I'll take you through my routine business numbers and the KPIs. So let us say we go to Slide #44. If you look at the Slide 44, we have shared the details of our quarterly average AUM and the closing AUM. So if you see the chart on the right-hand side, our quarterly average AUM has grown by almost 29% on a year-on-year basis and 13% on a sequential basis to almost INR 66,590 crores. On standalone operations, we are starting our Q3 of current year with a very good tailwind because as you see on the chart, on the left-hand side, our closing AUM as on 30th September is almost 4% higher when compared to the quarterly average AUM of second quarter 2024. Now move to Slide 45. So this slide talks about how we have shared this data where we have said that how equity AUM has moved on a year-on-year basis on the -- [ and on a ] sequential basis. So as seen on the left-hand side chart, equity AUM has moved higher by 32% on year-on-year to around INR 65,600 crores, wherein almost 70%-plus movement in the AUM has been contributed by mark-to-market gains. Same way, if you look at on the sequential basis, our AUM has moved higher by about 11%, when in close to about 8.4% has accrued because of mark-to-market gain. However, if you look at net sales numbers, which is provided for the quarter-on-quarter basis, so net sales has picked up sharply in the second quarter. As seen in the chart, we have ended Q2 with an equity net sales of INR 1,400 crore, which is almost double than the first quarter of current year, which is April, May, June, which -- so if you look at the current quarter, it has been led by a good growth in gross sell as well as lower redemptions. So I think just we talk about the KPI. Now look at our Slide 46, which is a very important slide from the point of view of SIP. So on Slide 46, if you look at the bottom left, we have given the data for our monthly SIP flow and our market share in the SIP. Currently, our monthly SIP flow has surpassed INR 600 crore when I'm talking to you. At September end, our monthly SIP flow has grown by almost 30% year-on-year to INR 595 crore. And we added almost INR 140 crore of -- we added over INR 140 crore in our SIP book in the last 1 year. Our market share in our overall SIP flows stood at 3.7% as on September end. However, if you look at -- we assume that approximately 25% of current SIP book is coming from direct plan. So if I adjust and look at the -- our market share in the regular plan, then we are touching almost 5% in the regular segment, which shows that our focus continuously remain very, very strong on driving the SIP for the growth of company. Another important point I want to highlight was the average value of new SIPs in the September quarter which is almost INR 3,400, which has outpaced our existing average of INR 2,700, which suggests the rising confidence of our investors by allocating more and more towards SIP. In the sense, I'm saying that the new SIP ticket size is also increasing rapidly. So despite we being strong in the SIP, we believe there is a significant legroom for us to grow because if you look at one of the slides which we have provided in the presentation, well, still 50% of Prudent investors are here to start the SIP or they do not have a live SIP. So looking to this, we feel that there are -- still there is a huge scope for us to grow SIP in our segment. So that untapped segment holds substantial promise for our expansion. By March '26, as we aim to achieve the AUM of INR 1 lakh crore, we also foresee that our monthly SIP book will be crossing the landmark number of INR 1,000 crores. So now let me turn to the current financials. So before I address the consolidated financials number, let me address this standalone number first. So please move to Slide #49, which is the last slide of my presentation, which talks about the standalone number. Now important point why I'm moving to standalone, because let me first of all address the mutual fund, which is a significant business for us on the revenue side distribution business. So look at the revenue from operations in this segment, which has grown by almost 24% on a year-on-year basis. And this is mainly because of the robust growth of our average AUM by about 29%. Now I wanted to highlight one important point, which is, here, if you look at and you observe that our revenue has grown by a slightly lower than the average AUM growth of 29%, resulting in the drop in our overall book yield. Now I just wanted to explain the rationale for our yield, which has -- came down. So I'm sure a lot of guys would be aware about the SEBI's decision in last March 2023, wherein they have kept the incentives which they used to give for the business mobilized from B30 cities, Beyond 30 cities, so SEBI has put that entire revenue structure advanced. So this decision of SEBI to keep B30 revenue structure advanced from 1st March has impacted our revenue. I will give you the number also. If you look at my last year FY '23 number, Prudent has earned close to INR 501 crore from mutual fund distribution business, wherein almost INR 40 crore has came because of B30 businesses. So that INR 40 crore, almost 8% of my revenue. And from 1st March 2023, gradually, that amount has becoming lower and lower because whatever business which we have booked till March '23, I think from March '23 to next 12 months, we'll accrue the revenue of B30, but any business which has been booked new after that particular month, we will not get the B30. So actually, B30 revenue will totally vanish from our books by March 2024. That is what I just wanted to highlight. Now if you look at the impact of this in the basis point. So last year, on the total revenue front, Prudent's revenue was roughly in the range of 95 basis points, wherein the 8 basis point was because of B30 businesses. Now let's say I'll tell you the current quarter, which is the July, August, September quarter. In this quarter, if we remove the B30 addition incentive, our yield on regular trail on the entire book has been at 87 basis points. Same was the case of last year also. Last year, my entire book was at 95 basis points, wherein 8 basis point was because of B30s. So last year yield was 87 basis points. Current year, whatever small amount which have received because of B30, if I remove that, then again, my yield comes to 87 basis points. So I just wanted to highlight that my trail income, which is a regular income linked to my entire book, that is very, very constant. So now let us look at other way around is in this quarter, so in this quarter 2x of B30 incentive are [ regularly removed to make ] 87 basis points. So let's say, last year, my yield was 8 basis points, which came down and it has dropped to 33 basis points in the current quarter. So in the first 6 months, we came down from 8 basis points to 3 basis points. Now let us assume that if the B30 revenue would have continued as it is, then our revenue would have been higher by INR 7.5 crore in the Q2 alone, which is almost about 5% of my top line. So that's why now I'm just trying to give you the explanation. Even though my average AUM has grown by 29%, my revenue grew at only 24%, right? If I add in B30 of another 5%, then I'm able to justify that the growth and the revenue would have been in line. So that is the reason. I'm just trying to explain the prime reason behind the lag you are seeing between the revenue and the quarterly revenue growth. Also, please note that this 3 basis points of B30 incentive which we have on in this quarter, which is going to be lower in coming 2 quarters and it will be completely removed from March 2024. So in FY '25, assuming everything constant, our regular yield will be in the range of [ 84 ] to 88 basis points, which means in current year, we will absorb an impact of 8% of total revenue due to B30 changes. So try and understand, this is a big change, right? Because [Foreign Language] so this change would have been glaringly visible, but the AUM growth was reasonably better. This 8% drop in revenue yield is not visible in the absolute numbers. So probably next year will be very, very critical because in the current year, still, we are getting gradual revenue but come March 2024 or April '24, there will be a net revenue full year next year. So next year -- in the current year, so if you look at out of 8 basis points, 5 basis point impact is already absorbed by us in first 6 months, which is almost 60%, 70%. And in next 6 months, we are going to still observe another 3 basis points. So that was the one point I wanted to highlight as far as financials are concerned. Another important one I want to talk about, if you look at the expenses on the commission and fee expenses, I think the overall commission fee expense on a percentage terms has also gone up. So if you look at in percentage terms, my expenses on the commission and fee is almost about 62%, which is higher by about 1.59% on a year-on-year basis. Now this is mainly because of our change in the indirect/direct mix. So in last 1 year from -- I'm telling about January, JAS, July, August, September 2022 to July, August, September 2023, the share of indirect total AUM has gone up by 2.7 percentage or 270 basis points. As you all are aware that in case of indirect business, we share roughly in the range of 65% of our revenue with our mutual fund distributor partners. So as our share in the total AUM from indirect has gone up by 2.7%, roughly, I think the 1.5%, 1.6% cost has increased on the commission and brokerage side. So that is also another important point I wanted to highlight, that this is a new normal now. If our expenditure was 61% of our top line, there's a brokerage expenditure we are now getting settled at 62%, and this is going to be a new normal because the share of indirect has settled at 2.7% higher. So that was the second point I addressed. There is another point also on the other expenses front as far as standalone balance sheet is concerned. So I don't know -- I think you must be aware, all of you must have been aware about the one event which we do every year call Prudent Loyalty Coin Program or Prudent Loyalty Club, wherein we select our valued partners based on their business performance of every year. In the current year, management has decided to make this program broad-based and get the more participation from the -- our mutual fund distributors, and we started giving some weightage to the existing AUM also. So based on this change, we assume the selection of partners, and the cost on account of Prudent Loyalty Coin Program will almost double in the current year. So if I'll tell you about the cost on the balance sheet of -- or the P&L of Prudent last year, was roughly in the range of INR 5.5 crore to INR 6 crore. This year, we are assuming that these costs might go to INR 11 crore, INR 12 crore. So that is the reason, if you look at on the standalone balance sheet, my provisioning because of PLC has gone up by almost INR 3.5 crore, INR 4 crore. That's the reason I think the cost on the other expenditure is also significantly higher. So I think there are a lot of changes which has happened in the balance sheet on the P&L in the current year. So just wanted to highlight that in spite of there being a lot of headwinds which came from withdrawal of B30, increased share of indirect in the overall AUM and increase in other expenses, our operating profit has grown by about 14.7% on a year-on-year basis. Our standalone profit has grew by 26% year-on-year basis, led by a higher income -- higher the income because of our treasury book, which has also started now growing because as you're aware that before 1.5, 2 years, when we acquired Karvy, our treasury book went to 0. And now again, we have got a very strong grade now. So this is all about the standalone number. So I thought let me address the standard number first, then I'll take you now to our consol number. So now please move to our Slide #48, which is, I think, previous slide, which talks about the consol number. So on the standalone number, I addressed the mutual fund-related matters which are required to address. Now on the insurance also, let me address something which is very, very critical because as you all are aware, that in the insurance, specifically in the light, one of our main products, which we always consolidated is the nonparticipating saving products. So given the bump of expectance -- bump of sales of the non-par savings product in last year of Q4 due to the taxes and changes, we are witnessing a consolidation in this business in the current year and which I think I've been trying -- I think maintaining this stand from first quarter itself that with the year of consolidation when it comes to our insurance is concerned. So the trail premium in Q2 in the LI has gone up by 68% of sequential business. However, it is down by almost 21% on a year-on-year basis. Please keep in mind that industry as a whole on the nonparticipating also, I think, being the business lower than the last year because they are also probably -- I don't have the exact number, but that number is not positive. They are also probably having the downward pressure on the business. So that is one part on the business front. Same way on the revenue side, I wanted to highlight that also regulatory changes on the AUM front and the insurance industry is still trying to adjust and absorb these changes. So regarding revenue for the insurance vertical, in absence of absolute clarity, revenue is provided by us in our books only when there is an absolute clarity and confirmation from the insurance companies. So these are the other point I wanted to highlight as far as your insurance vertical is concerned. On the general insurance front, we have been doing significantly better. As you all are aware that in the GI, they predominantly focus on the health insurance business and their business has been picking up very well for us. And we grew by almost 61% quarter-on-quarter in the [ fresh ] premium and 44% on a year-on-year basis. On the GI front, our total book now has crossed INR 100 crores, which is a very, very positive number for us because, as you all are aware that health, even though it grows slowly and steadily, but it's a very strong renewal premium business for us and INR 100 crore book is a very, very landmark number which we have achieved in the current quarter. So overall, if I just tell about the revenue from insurance, we grew almost about 79% year-on-year basis. Now coming to the broking segment also, while broking as a business has done fairly well for us and its revenue has grown by 30% Y-o-Y basis, consequently, our consolidated revenue has gone up by 29% on a year-on-year basis. Now coming to the other expenses on the consolidated level too, you might have noticed that it is on a higher side, mainly because of one factor related to payments which I explained you because it was a management call to revise the PLC. Same way, in case of insurance, in the current year, management has taken a call to spend a lot of money on branding, awareness for the insurance vertical and that's going to be a perpetual cost on our P&L. So that's the reason I think you might somewhat elevated level expenses number -- expense number on the other expenses side. So finally, coming to the overall numbers, in the case of the insurance broking also, there was one of the items which was -- there is an impairment of -- last year [Foreign Language] which was because of recovery of -- or the reversal of impairment on account of IL&FS [Foreign Language]. So if I assume that their income would not have been there last year, then overall, I think on the consolidated basis, our profit has gone up by 28% on a half yearly basis and 11.6% on quarter-on-quarter basis. Lastly, I think I'll just conclude my discussion on the financials saying that we are getting closer to INR lakh crore AUM by March 2026, and target -- as targeted by us, and we briefly touched INR 70,000 crore AUM during this month. We have generated a consolidated cash flow from operations of almost about INR 72 crore in first half of FY '24, which is helping us to build strong treasury book for the inorganic acquisitions. Despite multiple adverse issues in the quarter, we are able to maintain our profitability growth and could be able to generate a first half growth of almost about 24%, and we expect to build and continue to build on this momentum [indiscernible]. So thank you, and with this, I'll open this floor for Q&A. Thank you.

[Operator Instructions] The first question is from the line of [ Dhaval ] from [ DSP ].

I just had 2 questions. One was -- so you explained about the direct/indirect impact on the commission expense. So post the adjustment for B30 and this direct/indirect impact, is it safe to assume that the net yields for the standalone business should be around the 32, 32.5 bps kind of level on a steady-state basis? So that's the first question. And second is this Prudent Loyalty Club provision. I remember last quarter also this -- there is some increase. So overall, what's the sort of rationale of doing it? Is it related to just better engagement or competitive pressure, et cetera? Or -- and do you see this to be a recurring event every time? So yes, those are 2 questions.

So thank you, [ Dhaval ]. I think there about the margin, you can see that now we assume that trail income would settle in the range of 87, 88 basis points when the B30 is out of the picture. And I think the overall brokerage expenditure should settle at 62% on the book. So probably you can say that 38% of 88 basis points would be the new norm on the margin is concerned. So that is what I think we assume, that roughly about 38% of 88 basis points [indiscernible].

33.4 of that? Roughly, if you take 87, it's about 33-odd bps, 33, 33.4.

So that is what is in the new normal, [ Dhaval ]. So I think probably because I don't see a significant uptick as far as the mutual fund dealing is concerned, without assuming any what was the repricing of [indiscernible], let me assume that it doesn't happen, then the current deal of 87, 88 bps should be steady. And I think the indirect/direct mix is now probably -- I believe that there will not be a significant incremental change. One or 1.5 basis points here and there would be okay. So I think you can see that 62% would be the normal expenditure now. That was one part. On the PLC deposit, as you knew that PLC has become a really very well sought out event for our mutual fund distributor partners, and that brings a lot of energy in them. So we thought that to activate the entire system, we should make it a little bit broad-based. And to make it broad-based, we started giving some points to the existing area. And because of that, we assume that the current year cost will go up. And once you change this, probably it has to be perpetual in nature. So we assume that [Foreign Language]. So these both things are both the things. I think the 62% of partner total brokerage expenses and INR 10 crore to INR 12 crore because of PLC, I think that has to be considered as the regular expenses.

Understood. And therefore, the margin that we see in the current quarter for the standalone business, by and large, that should be assumed as a steady state margin. Would that be fair?

Yes, yes. Because I think the only thing would be that in this 4, 6 months we have here, I think because now B30 impact is also, to a large extent, absorbed. So the new margin system will be the same. Yes. On the standalone, I assume that it will be at steady now.

Understood. Understood. And just last question on the insurance bid. So Sanjay, if you could just explain on a steady-state basis, what kind of margin that this business should operate? I mean so this -- like you explained, there is some slowdown that we've seen in the first half of the momentum. Just overall, what's your expectation on a steady-state margin from the insurance business?

[ Dhaval ], it's very difficult to answer that question because a lot of clarity which is required from the manufacturers, and they are also trying to absorb the AUM. But you can say that -- very difficult to say about the margin because actually, if you look at the brokerage cost on account of POS, which at the GP level is very less. So I think my cost on [ POS ] is hardly about INR 3.5 crore and we're required to spend a lot of money for business expansion purposes on the e-mail business expansion, business support activity, everything. So margin would be very, very difficult to say. On the business front, overall, I think we have done a reasonably well from Q1 to Q2. I think you might see some slow down only because of exceptional business which is happening last year. Otherwise, I think growth [indiscernible] and GI is doing very well. As I told you, we have crossed INR 100 crore mark on the GI book, which is a very, very healthy sign for us. I guess Shirish, if you want to add something here, I think related to insurance business, Shirish or Chiragkumar?

Yes. Basically, I would say that the percentage payout is continued the same the way we were doing last year. Beginning of the year only we anticipated that there would be a drop in the life insurance business because last year, especially because of the taxation, we got bump of business in the last quarter. So comparatively, last year, this year, beginning of the year, the activity of the business was less. And third point, I would say that because of the AUM, the clarity not come till the month of, I would say, August, September. So final [indiscernible] coming in the month of August and September. So that is the reason. Assuming the exact percentage payout margin, whether it will continue or not? As of now, it will be difficult, but we are hoping that by this quarter, that is October to December quarter, the complete clarity on the AUM would be there. So hopefully, we'll be able to give you a better idea. And then fourth point, I would say that incrementally, you would have seen that the business done by the POS is also increasing. Though it's a small business currently, if you compare the last quarter and this quarter, in the absolute term, the POS business is a small number, but the growth from the business of POS is increasing drastically. As and when more and more business comes from the POS, I think you might see the changes in the percentage EBITDA margin also. So these are the points I would like to add.

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

Yes. Congratulation, Sanjay Bhai, on good numbers. Just a few questions from my side. Firstly, on the insurance business, you had mentioned earlier that you have seen an increase in commission rates. Now we're seeing that there's some clarity yet to be expected. Do we see that these rates that you have reported in the first half are not sustainable, or how should we think about it?

No, it's other way around. Rather, that's why I say that whatever we have provided in the books is absolutely after getting the clear clarity from the insurance companies. So I'm not saying that in the coming quarters, whatever the yield which we have reported would drop. I think the yield would -- probably remains steady, what would be, rather there is a possibility of it getting improved. So I think we [Foreign Language] clearly there is related clarity also from the insurance and [Foreign Language]

Okay. Got that. Got that. Secondly, on the SIP business, we see that your market share is very steady at around 3.7%. Any strategies or that you are implementing with your partners to increase the thrust on the SIPs doing specific things on a sustained basis? Something specific that you want to highlight that you would be pushing to increase the SIP shares?

Shirish?

Yes. So first of all, I would say that the focus for the SIP business is there imprudent for last many years. Last 1.5, 2 years, the increased focus for the SIP is there. But the ground level dedicated focus is given to the SIP, that is one. Second, I think this is also related to the PLC cost escalation question also. So if you see I think the major weightage also in the PLC qualification is also towards the SIP addition. If you look at our SIP addition in the last 6, 6.5 months, I would say that almost 80% of what we added last year. But it's also that in first 6.5 months, we have added almost 80% of our SIP net addition to what we did in the entire year. That itself says that the focus for SIP has increased and indirectly, obviously, in the PLC cost because of that also increased a little.

Shirish Bhai, what was the cost of PLC in Q -- in the first half?

Ultimately, it's a total proportion to the assumed cost. So I think basically, if you look at normally we provide the cost based on the business expectations. So there are 2 parameters which has done very, very well in this quarter. One is, if you look at our net sales number compared to last quarter, this quarter it has increased. That is one. Second, even if you look at the SIP flows compared to last quarter, it has increased drastically in the second quarter. That also has increased the PLC cost in this quarter. Third, as Sanjay Bhai said, that we started adding -- making it broad-based. We have gone a little aggressive because we wanted to get the focus on a multiple product. So that also has accelerated the PLC costs. So that is the reason there is some hike in the cost in this quarter.

Lastly, if I look at your other financial and nonfinancial products, which is now at a quarterly run rate of around INR 5.7 crores, has been flattish on a sequential basis. We've been adding more products. I think loan has also got activated, right? Loan distribution, AIF, PMS industry has been growing at an exponential pace. So why is that so flattish in this quarter on a sequential basis, and what are your thoughts as to whether the stock broking and other financial products together, what kind of share you will have from these products, say, 3 years down the line?

Yes, Shirish.

Yes. So if you look at stock broking business, it's a conscious focus to move from that Prudent Broking, which is a subsidiary business to the Prudent corporate, to FundzBazar platform. So basically from January 2023, when we launched stock broking on our FundzBazar platform, since then, we are pushing very, very aggressively stock broking business on the FundzBazar platform. So as of now, we are in the mode of account opening. So as you know that earlier, Prudent you had to do the business at a subsidiary Prudent Broking, a traditional way of doing the business. Now the entire focus is on getting all those clients on the FundzBazar,wherein they are doing the mutual fund and other product [ tangents ] since we ask them to open the accounts for stock broking. So there is a clearcut focus for stock broking. We are very, very confident that over a period of time, the broking revenue growth definitely would be far, far, far better compared to what we are seeing right now on the Prudent side. Coming to the other products, I think we deal in multiple products. As you said that it is flattish compared to the last quarter, basically, certain business like HDFC fixed deposit, which used to contribute some revenue to us in the first quarter, which is not there now, that could be one reason. Secondly is the property business, again revenue realization, it's very, very small revenues. But yes, I think the revenue realization in this quarter is a little lesser, but the 2 main contributors or 3 main contributor to the other product revenue, all the 3 products are growing very, very fast. I would say PMC, which is one of the bigger contributor to the other product revenue, which is growing very fast. The liquiloan, that is a P2P platform, that also has grown significantly. And third business, I would say that the secondary bond. These are the 3 main products which contribute the other products, and all the 3 businesses are doing great.

What is the PMS AUM today? And how many clients would have subscribed to it?

We have recently crossed around INR 600 crores of AUM, and number of clients would be around 800.

[Operator Instructions] The next question is from the line of Pallavi Deshpande from Sameeksha Capital.

Just wanted to understand, on the POSP addition, what is the plan going forward? How many do we plan to add? And also, I think you mentioned certain that the marketing costs will be, on the insurance side, that will be a perpetual cost. So why is it suddenly become more necessary with the competitive pressure?

Yes, Shirish.

First part, I could not understand. If you can please clarify the first part.

Yes, the POSP addition plans for next year, how...

What addition?

POSP.

POSP. So basically, if you look at our constant focus is there to add the POSP numbers and also to increase their productivity. Out of our 27,000, 28,000 ARN holders, if you see currently almost 9,000-odd people are converted to the POSP. So the number is increasing drastically. If you see over last year's number and this year, you would see the growth of almost 35%, 40% in first 6 months. So right now, the clearcut focus is getting them certified for the POSP. Simultaneously, we are focusing to activate them. And today, if you look at the activation ratio of the POSP number, is very, very less. I think even if you look at the industry number, also the POSP number [indiscernible] industry also, there as a participation that ratio is less. So constant efforts are there to increase the POSP participation or the activation make them active and to get more and more POSP. Yes, that is the reason we keep on spending on the marketing side. You say that with the competition pressure, I definitely will say that, yes, I think we have got the scale, the way we have got the ranking in the mutual fund business. Obviously, we aspire to get similar kind of volume or similar kind of ranking in the insurance industry as well. Obviously, our primary focus always will remain to get more and more POSP and to get more and more business from them. So yes, I think to get that aspiration, we have...

So the addition will continue at the same pace, 30% to 40% year-on-year growth on...

Definitely would continue. But as I said, this year, you will see a drop in the life insurance business because of the extra bump of business, what we had last year in the LI business. That adjustment would be there. Otherwise, if you look at our health insurance business, that has got significant growth in this year, and that definitely is going to continue. Life insurance this year, there could be a consolidation, but otherwise, I think the growth of that 30%, 40%, that is always...

Yes, sir. And the marketing, that perpetual cost now are booked...

For the foreseeable future, you can see, at least, as I said, we want to focus on POSP recruitment and the activation and creating the brand of [ world and connect ]. So I think, at least for the foreseeable future, we are seeing it. We'll see, we'll revise the strategy. As of now, this is the strategy. I think we may review this after a year or so, let's see.

Yes, sir. And how much will that cost be? INR 3 crores for the marketing?

So the percentage, I think it is not going to increase drastically from here, whatever we have spent in this particular quarter. I think [Foreign Language] it might continue little bit. That again depends on the volume we are able to generate. So we'll see. As I said, as of now this is the plan.

And sir, how much was spent this year, the marketing spend this quarter or this first half?

It's already given in the other expenses. I think that because on the marketing cost, which is already a part of that.

[Operator Instructions] The next question is from [ Rohan ], who is an individual investor.

Rohan here from Equirus. Yes, I would just like to check one. Sir, on the direct/indirect mix that you indicated on the mutual fund side, can you quantify that, how it has moved in last 1 year? And also secondly was on the POSP contribution on the insurance business. How is it tracking around right now?

So the first part, I'll just tell you about the direct/indirect mix, so actually part -- sorry, Rohan, indirect share -- now when I'm talking of indirect, what we have done is, there, for the sake of understanding, in case of Karvy, there are 2 sets of businesses. One is Karvy partner business, which we already transferred to. Once somebody has become a Prudent partner, we transfer business under [indiscernible]. We are already mapping in the regular segment. That is number one. Number two, there are still almost about INR 4,000 crore of AUM of Karvy, which is kept as a lead for partners where we are not paying anything, which I may consider as a part of my direct business. But it is not a direct business. It is going to virtually go to a partner. So if you look at the -- I'll just give the January -- July, August, September FY '23 [Foreign Language] Last year, the indirect -- pure to indirect was 84%. The Karvy was roughly about INR 4,200 crores, so it was 8.2%. And pure direct, which is my RM business, was about INR 4,000 crores or 7.87%. Now this 83.92% is now at 86.63%. And that's the reason I explained that my share of indirect, ex Karvy, ex direct has moved to 86.63%, which is 2.7% uptick. And 65% of that is roughly about 1.7% impact should be there on the payout, right? And that is actually about 1.5%, 1.6%. So I think you got the point properly?

Yes, sir. Yes, sir.

Yes. Okay. Now second question, that I think Shirish [ had good ], what is the percentage of business which comes from POSP? So one number which would indicate that POSP cost is roughly about INR 3.5 crore of last quarter as a commission payout, and the revenue of last quarter was roughly about [Foreign Language] insurance revenue? So roughly about 13%, 14% of the [indiscernible] business would be there. But Shirish, any -- you can -- if you say something on this number, or Chirag?

The next question is from the line of Nilesh Jethani from BOI MF.

My first question was on the insurance piece. I wanted to understand the [indiscernible] insurance.

Sir, I'm sorry to interrupt you, Mr. Jethani, but your voice is very low. Could you speak a bit closer to your headset?

Am I audible now?

A little better, but still it sounds like you're speaking from a distance.

Yes. No, not audible now. Operator, unable to listen.

I think he has dropped the line. The next question is from the line of Alisha Mahawla from Envision Capital.

Just wanted a clarification. In the other expenses for this quarter, how much of that was due to the increased marketing expense for insurance?

INR 8 crore is the additional cost on account of marketing in the insurance segment for this quarterly consol, right?

Yes, INR 8 crore.

And since the insurance business is relatively more seasonal when we see a pickup happening in H2, especially in Q4, do we expect the number also to start ballooning in H2?

Yes. So I think as I explained in the first quarter, basically, if you spend money, business will increase. And -- so it's not that you spend because of business, you spend, that's the reason business happens. So I think this is going to be a part of -- yes, it has to increase upon this. So probably, I think for that, you need to look at a couple of commentary which has been given by the insurance companies also. So last year, the insurance company used to spend money for marketing and branding. Now the responsibility has transferred to us. So probably that will be sufficient for me to give you the explanation that, yes, because if you don't spend, you won't generate the branding and you won't generate the business.

So when we say reason spending on branding, we are supposed to run marketing activities for the insurance company on ground?

Pardon?

I'm asking that -- hello?

Yes, yes.

Yes. Just wanted to understand that the insurance company is asking us to spend on marketing. So are we supposed to have the ongoing activity to create awareness? And we'll be doing this specifically for different insurance companies?

No, no, it's for our Policyworld. It's for people to become POSP holders for the different segment of insurance like term plan, a savings plan. So it may not be for the particular insurance companies, but the general awareness about the insurance as a segment and for the Prudent Gennext as a subsidiary, Policyworld is now a platform.

The next question is from the line of Ajox Frederick from Sundaram Mutual Fund.

Sir, just a repetition of the earlier question. You were telling the indirect mix proportion. Can you please repeat that for this quarter, last quarter?

So the last quarter number, I haven't kept ready, but I'm talking about the Y-o-Y. So if you look at January -- so under the Y-o-Y, second quarter FY '23 indirect was 83.92% in total AUM, which is now 86.63%. So the share of indirect has gone up by 2.7%. Now I think previously, whenever we discuss with the people, we say that indirect was already above 90%. So the number has been -- there is some distortion when I'm talking about the number. The reason is now I'm -- so when I'm talking about the indirect, I'm excluding Karvy, which is not yet given to my partners. Otherwise that business is for a partner. So actually, if you look at the -- so you look -- I'm talking about the -- the indirect ex Karvy, ex direct. And that's the reason that share has gone from 83.92% to 86.63% in last quarter. This will be daily average I'm talking about. And that's the reason the brokerage cost pressure came at [indiscernible] I think now probably we might feel that this might gradually get settled in this range.

So sir, I mean if there is a 1% increase in indirect the hit will be like 0.65 percentage on revenue, right, or the delta which is being paid to [indiscernible]

Sorry, sorry, sorry...

No, if the mix shifts by 1%, then the commission payout would increase by 0.65% of revenue.

Perfect. Perfect. Perfect.

Okay. So if that is the case, it is like about 1.6 into 2, right, like 1.3, 1.5 percentage of the current revenue is the impact. Is that right?

Yes, you can say to that extent. Yes, because roughly about -- so the revenue would have gone up by say 2.7% into 85 basis point, which is my earning, right? So roughly, I would have earned more -- so 1.59 is the impact, actually. I'm just saying the 1.59% extra payout on account of brokerage expenditure is happening this quarter versus last year's Y-o-Y.

1.5% of revenues, right?

Yes, yes, 1.5% of revenue, perfect. If my revenue was INR 150 crore, my expenditure has gone up by INR 2.25 crore.

The next question is from the line of Nilesh Jethani from BOI Mutual Funds.

I hope I'm audible now?

Yes, yes, Nilesh. Yes.

Okay. Sir, my first question was on the insurance piece. Say, if INR 100 is our take rate in percentage terms, what typically we pass out to the partners and what we retain?

So basically, if you look at our pass-out on the business like mutual fund and insurance, I think almost 2/3, 1/3 is a normal ratio, you can say.

Okay. So we keep 1/3 and 66%...

Yes, this is the normal ratio in both the quarter.

Okay. Got it. And I just wanted to understand, from the distribution income, when I see on the mutual fund side, earlier we were keeping 65% and now the number seems to be 67%, 68%. So wanted to understand directionally what impact was because of B30 and what is the other impact beyond this? This percentage of 65% of giving out is increased to 68% now.

No the payout ratio still remains the same. As I said then, if you look at our previous quarter, also, it would be 60, 2/3, 1/3, the same ratio continues. So there is no change in the percentage payout to our distributors. As Sanjay Bhai has explained earlier, there is a drop of around 2.25% to 2.5% share in the direct and indirect composition. When I say direct, means B2C. Now the composition in our total AUM mix is now more skewed towards our retail, that is a B2B business. It is up by around 2.25% to 2.5%. So earlier on this 2% share -- or 2.4% to 2.5% AUM share, the payout was 0. Obviously, as the share of indirect or the B2C or B2B business has increased, that is where you are seeing that the percentage payout has increased. But technically, there is no change in the percentage cost paid to the distributor. I hope this gives you an answer.

Got it. Got it. And one last question on the other expenses which you highlighted that we want to broaden this, and now INR 10 crores to INR 11 crores is going to be estimated expense. Just wanted to understand, so from an annual perspective going ahead, what is the kind of number we are intending to look at? Or any percentage of revenue or something or this INR 11 crores can increase going forward, if you plan to adopt more and more people into this program, so how should one look into this piece?

So PLC cost is the output of the business. Normally, I'm not saying 100% is linked to the business done in the year. But yes, I think you can generate some kind of estimation based on the business number done during the year. There are multiple parameters. As Sanjay Bhai said that one component is the AUM, so as and when the AUM increases, some cost towards that AUM increase also adds the cost to the PLC. Additionally, as I said that if you look at our SIP numbers, the addition -- net SIP addition numbers, obviously, we have added almost 75%, 80% just in the first 6 months. So obviously, we are comparing the annual cost of last year, the SIP composition cost. The PLC also has one component of SIP addition. As I said, I think 75%, 80% of the SIP business is done in the last 6 months. So obviously, that also has added the cost. Third point, I would say that the multi-product, earlier, the focus on the multiple other products was not there this year to promote new products launched by Prudent. We also have given the weighted in the qualification criteria. Because of that also, some cost has escalated. So multi would be, giving the understanding, yes, I think that is linked to the business, but not 100%, as some part is also linked to the AUM. To get the guidance for the multi, I think the growth in the cost would be similar to the business growth.

Got it. And from a very broader perspective on the partners business, I wanted to understand, today, say we have x number of [ ISS while ] linked to us for mutual fund distribution. Out of which, what number would be also doing insurance? And on the insurance piece and the POSP piece, so wanted to understand, whom are we targeting going ahead? Is this people who are involved with other insurance are trying to target them? Or is this more and more people who tell MF you want to target them to start selling insurance. What's the thought process on that?

70%, 80% of our distributors who are registered with us for mutual funds do sell insurance, whether with Prudent or somewhere else because originally, they came from the LIC, or life insurance company, and then they started doing mutual funds. So technically, I would say that 70%, 80% of these distributors of Prudent are doing insurance. Now our main target instead of going out [indiscernible] our distributors. So if you look at around 9,000-plus POSP we have already out of this or 27,000 distributors, activation is hardly 3,500, 4,000. So in a year around 4,000 the POSPs are activated as of now. So instead of me going out in the market and getting new POSP, our primary focus is adding POSP from our existing mutual fund distributor and making them active. These are the main targets, as of now at least.

So just a follow-up. So out of, say, you said 70% to 80% of mutual fund distributors with you guys are also doing insurance, these people are contributing what percentage to the overall premium or overall commissions?

They don't do business with us. As I said that most of these guys were doing life insurance business earlier, like today also they would be doing LIC business. Our business model is that attracting people from insurance industry to mutual fund industry. The guy continue doing business with LIC. But at the same time, since we have taught him mutual fund, he does mutual fund business with us. He's not doing LIC business today with us. All these 70%, 80% guys are not doing insurance business with us. So that is what our goal is, making them work for insurance with us.

So what is the percentage of people who do both for us and they actively contribute to the commissions of the premium?

That's what I said, 3,500 to 4,000 POSPs are active as of now out of these 9,000.

The next question is from the line of Prateek Poddar from Nippon India Mutual Fund.

Sir, just one small question. Maybe you can clarify or help me understand that this year, which is FY '24, sliding scale for the B30 revenues being booked. Why is that, sir?

Pardon, Prateek, you said that B30 revenue for the current year is?

You're booking it on a sliding basis, right, sir? In July, you booked to Q3 and Q4. [indiscernible] as you said, it would be minimalistic. So I'm just trying to understand why is that, sir?

So if you look at B30 was the trail revenue up to 2% for the business, which would book from Beyond 30 cities. So regulatory [Foreign Language] from 1st of March 2023. [Foreign Language] in form of trial until you complete first year. That's the reason I'm saying you that all the businesses which have done in last, for example, March [Foreign Language] that way. That's the reason I think gradually amount is reducing and virtually it will be 0 in March 2024.

[indiscernible]

Prateek, you are saying something?

I was just asking you that this 8 basis point has been entirely passed on to the industry for the MFD side?

Yes. I think to a large extent, not entirely, not entirely. So our earning in B30 was not as high as our regular business, whereas as Shirish said, we shared 2/3, 1/3. Here, sharing was a bit on the higher side, but the impact on top line was visible, right? On the bottom line, where I'm talking about the cost, I'm just considering the indirect mix change. So -- but you are right, [Foreign Language] not 35%, but mostly in the range of 20%, 25%.

Okay. Okay. And hence, we have seeing a [indiscernible]?

Pardon?

Sir, your net yields, right, the net yields which you make.

So net yield which I make would be now -- that's why I'm thinking if I'm earning INR 100, my payout would now settle at 62%. So I'll continue to at 38%. So now probably you need to consider only 87, 88 basis points on the trail revenue. [ Also got 38% market activity ]. So B30 is now out. [Foreign Language] say, actually, the B30 impact on a Y-o-Y business will be very profound on next year -- next quarter compared to Y-o-Y. Because first quarter I earned let's say, about INR 0.06, in second quarter I earned about INR 0.03, in third quarter it was hardly about INR 0.015 and fourth quarter it will be 0. But in the last year Y-o-Y, I used to earn INR 0.08 full. So when I go to next quarter, [Foreign Language] there will be a profound impact, which will be Y-o-Y, not on a quarter-on-quarter.

But sir, your net yields are not changing, right? That is the question now because the payouts are as a percentage of the 87, 88 basis points. So essentially, your net yields don't change a lot relative to your top line.

Yes, you're right. [indiscernible] obviously 8% receivables your brokerage received was B30, that will become 0. So practically, if you look at the revenue, revenue drop in the last quarter would be 8%. At the same time, the majority of that receipt was passed on to the distributor so that on a kind of margin percentage, margin impact, it would be very, very minimal.

The next question is from the line of Ajox Frederick from Sundaram Mutual Fund.

Sorry, sir, just a follow-up. You mentioned that this payout is higher in B30, what we passed to the distributors. Is it 75% or 80%? Can you quantify that number? Like normally, we will pass 65%. In B30, that is, what, 75%, 80%?

There are 2 component...

B30 margin have been 20%, 25%, I'm just saying roughly. Yes, okay. Yes, Shirish.

In total payouts, the March -- there were 2 components. One is the normal commission, which is a perpetual tail or the long-term tail. And second was the B30. And the B30 payout was only restricted to 1 year. So whatever business you do, the B30 tail receivable used to be only for 1 year. Now both the components were different. So what historically we have been telling you, that 2/3, 1/3 is the perpetual or the long-term tail and that is what our sharing ratio on the book level or the B2B business level. When it comes to the B30 payouts, historically, we normally used to keep a very, very close track on what the AMCs are paying to the distributors in the smaller locations. And that is where we said that the retention was around 20%, 25% in the B30 business. But that was not stable because that's also dependent on the AMC strategy on the IFA level. But having said that now, I think in this financial year from every new business from first of March 2023, that revenue on the new business has become in general whatever business we did [ critically throughout ] 2023. On a residual period, I think total payout will be for 12 months for the residual period, it would be available. So that revenue pool will keep on shrinking pre February 2028, and 1st of March, it will become 0. So the net revenue generated in this quarter from B30 business would be hardly anything, and next quarter, it will become practically end up 0. Payout range is higher on the B30 business because of that strategy used to be linked with the AMC strategy.

Got it, sir. Very helpful. And this delta of the yield drop is purely because of mix of plan [indiscernible] nothing else, sir, only these 2 parameters?

As [indiscernible] already communicated, one is the biggest thing is AUM mix between B2C and B2B business. 2.5% is towards the retail, that is B2B business, obviously, because that business should pay out. So one major reason is that. And second, you can say about [indiscernible].

We will take this as the last question. I would now like to hand the conference over to Mr. Sanjay Shah for the closing comments.

Sorry, you're taking last question, right, then?

No, it is done.

That was the last question. I would like to hand over the conference over to Mr. Sanjay Shah for the closing comments.

Thank you. Thank you, everybody, for patiently listening to our commentary. So if you have any query further, I think part of the management is available to clarify on any of the matters which you require to be. Thank you very much. Thank you.

On behalf of Equirus Securities Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.