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

Ladies and gentlemen, good day, and welcome to Prudent Corporate Advisory Services Q1 FY '25 Earnings Conference Call hosted by Equirus Securities. [Operator Instructions] Please note that this conference is being recorded. This conference 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 the conference over to Mr. Lalit Deo from Equirus Securities. Thank you, and over to you, sir.

Yes. Thank you, Sumit. So good morning, everyone, and thanks for joining the call. To give a brief update on the 1Q FY '25 results and address investor questions, we have the management of Prudent Corporate Advisory 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, and good morning to everyone. I warmly welcome all of you to Prudent's first quarter earnings call. Thank you all for taking time to join us today. I trust you have the investor presentation, which we uploaded on the exchanges yesterday, as we'll be referring to it during discussions. So before diving into the quarterly numbers, I am thrilled to share a significant milestone, which we achieved at the end of July. Our AUM has crossed INR 1 lakh crores on 26th of July 2024, nearly 1.5 years ahead of our guidance. This remarkable achievement was primarily driven by substantial mark-to-market moments. To put this in perspective, it took us almost 18 years to build an AUM of INR 20,000 crores and last INR 20,000 crores were added in just 6 months. This milestone also underscore the immense value, which is on distributors find in partnering with Prudent, thanks to advanced technology offerings and the robust physical on-ground support. Definitely our next target is to reach the SIP book of INR 1,000 crores by March 2025, and we are confident in our trajectory. So now I'll move to a number. So please refer to Slide 41. The chart on -- the left-hand side of the chart shows the strong tailwind for our growth in the mutual fund business in FY '25 which we mentioned in our last con call also. In FY '24, our revenue were based on a yearly average AUM of INR 69,950 crores. We began the current fiscal with an aim of INR 83,400 crores, making a 19.2% increase over FY '24. This sets a solid fundamental and the foundations for the current financial year. Our current year is even higher than the INR 83,400 crores due to strong mark-to-market gains and the net sales, indicating robust growth for FY '25. For this quarter, our quarterly average AUM in June grew by 52% year-on-year and 10% sequentially to INR 89,300 crores. Please move to Slide 42. Here, we have provided the details of movement in our equity AUM, both year-on-year and quarter-on-quarter. As seen in the left-hand chart, our closing equity AUM has increased by 57% Y-o-Y to around INR 93,150 crores with nearly 3/4 of this growth driven by mark-to-market gains. The mark-to-market gains for the trailing 12 months stood at a strong INR 26,000 crores. On the right-hand side, which shows the movement in equity sequentially, our equity AUM grew by 16%, our net equity sales of INR 2,500 crores for this quarter were very, very robust, and it is accounting for almost 40% of our total net equity sales in FY '24. Now let us move to Slide 43 where we discussed our market share in overall equity AUM and the SIP data. Our market share in equity AUM excluding ETF improved from 2.46% in June 2023 to 2.52% in June 2024. In the bottom left, you will see data on monthly SIP flows and our market share in SIPs. At the end of the month, our monthly SIP book reached INR 7.8 billion. We added INR 238 crores to our SIP book over the past 12 months and are on track to reach INR 1,000 crores by March '25. From last few quarters, we have also been providing you the data on our systematic transfer plan numbers. In June 2024, we collected INR 98 crores through STP reported on an actual realized basis. The average value of STP is [ INR 6,650, ], which is much higher compared to the SIPs. And please note that the STP value of INR 98 crores is not included in the SIP number which I talked about. Now let us move to Slide 46, which is about the current financials and vis-a-vis data on a standalone basis. So before I start the explanation on the Slide 46, let me just tell you, we received the approval for merger of Prudent Broking Services, which is our wholly-owned subsidiary, which Prudent Corporate Advisory Services from RDs, regional directors of ROC. Hence, our standalone numbers are combined for mutual fund and the broking businesses and it has been restated for all the reported periods. So wherever you look at the stand-alone numbers, please note that the stand-alone number has been revised, and we have added the broking revenue also because the merger has been becoming effective from 1st April 2023. Now coming to the numbers. This quarter has been extremely satisfying with revenue and profit both are growing by 50% and 57%, respectively. You may have noticed that our revenue [indiscernible] on distributing the mutual fund product has improved by almost 2 basis points sequentially to 92 basis points. This improvement is due to the release of the withheld brokerage following the relaxation of KYC norms. Please note, we have received the INR 4.41 crores of withheld brokerage, which was for the period of FY '23-'24. So that means itself it would belonging to the previous year period. Let me just give you the explanation also. Since July '23, brokerage was withheld if permanent account number and the Aadhaar of an investor is not linked by them. Additionally, circular was issued by regulatory in October 2023, requiring the verification of both contact details, email and mobile, if KYC of an investor is done using the Aadhaar. If it is not done in either of the things, then your brokerage will go in the withheld situation. This entire book, the circular has been relaxed in May 2024 in the current year, leading to receipt of withheld brokerage of about INR 4.41 crore which is approximately 2 basis points. So if you exclude this, then again, our yield comes back to about 89 to 90 basis points, which is flat compared to our last full year revenue, excluding the B-30 revenue. So if you adjust this additional revenue which we have received or adjusted revenue in the current quarter grew by 10.3%, while our quarterly average AUM grew by 10.4%, that explains the top line growth in AUM. Now coming to another important parameters related to payout ratio. If you look at our payout ratio, has also increased sequentially by 0.6% to 62.2%. It is mainly due to change in the indirect mix in our total AUM. The AUM of indirect channel, which is the business contributed by our channel partner has increased by 0.8% to 88.8%. Balance 11.2% comes from our direct channel and the Karvy assets, which we acquired, which has not been assigned to any channel partners. So that 11.2% which where we do not have the payout cost. Now you assume the pass out of around 65%, then 65% of 0.8% change explains our change in the payout ratio. Let me also address one another important point related to employee cost. You'll notice that employee cost has increased by 16.2% sequentially, mainly due to increment of 15.6%, as mentioned by us in the last call coupled with opening of 60 new branches in the first quarter of this year between April, May and June. The net addition of employees during the current quarter is about 78 people primarily due to our branch expansion. Since most of our new employees have been hired in June, the current quarter employee costs do not fully reflect the actual increase in expenses. So if you look at the full year, we expect that the costs which we have been seeing at 16.2% growth, we assume full year rise will be in the range of 17.5% to 18.5%. After considering all these things, if you look at our profit after tax grew by 10.1% 6 monthly and 57% year-on-year to INR 38 crores, which has been a very, very healthy and robust numbers. Now let me take you through the consolidated numbers. So now in case of consolidated numbers, as you all are aware that typically Q4 is very strong for us in the insurance business. So normally, it is not appropriate for us to compare the consolidated numbers of Q4 versus Q1, mainly because of significant changes, which you normally see in the insurance business. Hence, on the insurance front, if you look at -- our insurance revenue grew by 60% year-on-year to INR 26 crores. And in the general insurance front, predominantly health insurance business for us. [indiscernible] business also grew by significantly 45%, taking our total book to about INR 105 crores, which is significantly renewal revenue in nature for us. So when I'm talking about the consolidated numbers, I'm talking about the Y-o-Y only for the sake of comparison properly. So if you look at the consolidated numbers, our operating profit -- our operating expenditures growth was in line with revenue growth and operating profit increased by about 51% Y-o-Y. Consolidated profit also grew by 57% Y-o-Y to INR 44 crores. In summary, FY '25 looks very, very promising as both mutual funds and insurance segments are set for the robust growth. Let me touch upon our treasury book. So additionally, our treasury book currently has reached INR 300 crores, providing us the substantial [indiscernible] to consume inorganic growth opportunity. So to conclude, in this phase of Amrit Kaal, the mutual fund industry is poised for the robust growth. We anticipate a significant increase in per capita income during this period, which will definitely drive greater investments in mutual funds. The favorable economic conditions and supportive regulatory environment will provide substantial growth opportunities. With this, I would like to thank everyone for your kind attention, and I'll open the floor for Q&A.

[Operator Instructions] The first question is from the line of Swarnabha Mukherjee from B&K Securities.

Congrats on good set of numbers. I have 3, 4 questions. Sir, first, I wanted to ask that you have given the explanation about the realization increase, but adjusting for that also since we are around 90 basis points and you have placed your guidance around 88, 89 basis points. So how should we think about this going forward, given that our share of equity assets in the mix is also improving specifically. So 90 be a number that we should work with going ahead? And also, if you could give some color on how should we think about the debt category because that their assets have seen some big growth from. So would it remain in this range? Or should we also expect some kind of traction there? That is the first one. Secondly, sir, I wanted to understand that while we are doing SIP book fairly strongly, it seems there our lump-sum net flow seems to be stuck in a range. So just wanted to -- while it has -- for the industry, it has seen some significant improvement with NFOs, et cetera coming in. So just wanted -- our incentivization towards the sales force now primarily for SIPs and we should only see SIP-driven growth? Or should we expect that the lump-sum flows should also start seeing some traction there? And also I would highlight what is [indiscernible] that has been happening at a fairly -- the pace has kind of reduced [indiscernible] is kind of reduced. So we see on the mutual fund distribution business. And a quick one on the life insurance side, if you could tell me, given that despite a base benefit your growth [indiscernible] on life insurance business in terms of premium growth. So which products are you selling right now? It's still on par continues? Or are we picking up few big products as well? Those will be my questions, sir.

Thank you Swarnabha. So let me just probably -- I'll address 1 or 2 questions and then I'll call Shirish also to join in. So you are talking about the guidance on the margin. So as you are rightly seeing that 2 basis points which we have received were belonging to the previous year. So if you take out that 2 basis point, I think we are fairly confident that in the full year, you can definitely consider the top line revenue in the range of 89 basis points, 89, 89.5 basis points. That's something which is a reasonable fair guidance I can give you keeping the current situation in mind, that is number one. Number two is, I think the Prudent has been very, very strong on the equity side since long. So if you look at my debt AUM in total, it is hardly about 3%, 3.5%. And if you look at the number which we have given our equity and equity-related products, which is the full fee products, our AUM share is about 93.3%. So I think for us, because we do not represent significantly debt component, I think some amount of redemptions or money moving out or even if there is a good momentum of money coming in, I think we are neither beneficiary nor the loser, as far as your non-equity segment is concerned. So that is your first question. I think second question, which we are talking about is the lump sum versus SIP money in our gross flows. So actually, if you look at this particular year, especially I am talking about April, May, June, our lump sum is 62.5% or 62% of my gross flow, which is ever highest. So probably, I can tell you, I think the number on all fronts. I think the gross flow is much, much better, supported by the new money or the lump sum money which we have collected. Definitely in the April, May, June, NFO has also supported us and the industry. So if you look at our collection from all NFOs in first quarter, it's also about some odd INR 550 crores. So I think -- but -- might be that industry might have been reasonably better on the gross flow normally because you'll see traction of NFO is normally better, participants becomes healthier from all the ground, but probably we do continuously a good work on the regular business also. So I'm just trying to address these 2 questions. I think I'll just now hand over to, Shirish. Yes.

I mean when I asked about lump sum, sir, my intent was basically on the net sales side. So if I remove from your overall net sales the SIP flow that has come through, that number I was trying to understand -- the gross side, we have seen flows coming in, then are we seeing [Technical Difficulty]

Swarnabha, I am not getting you. A lot of -- your voice is getting broken.

Yes. Can you hear me? Is it better?

We're not able to understand your question. Can you just tell him?

Yes. Are you able to hear me?

[Foreign Language]

Okay. Okay, sure, sir. I'll -- maybe I'll come to a better network area, maybe if you can give us an answer on the life insurance part.

I'll just -- I think there are other 2 questions related to the life. Shirish, if you come in picture about the LI business and what are our strategy on the ground in the sales also.

So basically, if you look at the life insurance business, of course, the industry is seeing some growth in the premium. I want to say that we are flat in the life insurance business mainly because we are historically not selling the ULIP products in the life insurance. The industry has seen decent flows in the life insurance front, ULIP products. Product categories, what currently we are selling from October onwards, everything might change. But until now, I think we are continuing focusing on the products which we [indiscernible] to sell [indiscernible] sold very, very aggressively [indiscernible] and annuity. That is the product we have been selling for the last 4, 5 years and still we continue selling. At least in September, October onwards, I think since the life insurance industry is getting changed in terms of various products -- at time that what we need to look at it. Secondly, in addition to that, I can tell you that last few months, we already started looking at ULIPs in our system, though aggressive selling has not started happening. But ULIP is a product category, which started accepting in our system in last few months. So I think the business is not that great in last few months. Yes. [indiscernible] ULIP also might contribute to the life insurance business in our total premium. I hope I addressed your question for life insurance.

Yes, yes, yes, sir. Yes, very clear, sir. And on the customer acquisition fees, if you can give some color. And also, sir, a follow-up on the life insurance part. Have you received any communication...

Voice is not clear. I don't understand why it is very disturbed?

So I was saying, sir, that in the life insurance business, have you received -- I mean do you have any clarity on how the commission payouts are going to happen in the second half? Have you received any communication or conversations going on? If you can give some color what you [indiscernible] built-in going forward? And yes, and also the remaining question on the on-ground, how is the customer acquisition strategy?

Basically, the clarity about the life insurance we have from October onwards has not emerged among distribution communities, most of the insurance companies have not yet communicated it officially. Obviously, I think certain plans, I think guarantee plans might see some kind of revision in the payouts, even the traditional and non-guarantee plans also might see some kind of cut in the payouts. Exact clarity about how and how much can be back-ended or not fully, but all this clarity has not come out. I don't feel that I think it will come out even in this month as well. My guess is that mid-September almost we'll start getting some clarity about the payouts of October. And obviously, I think most of the companies would like to see what others are doing, they are not opening their cards as well. So full clarity, I think which we can communicate to you. That kind of clarity is not there yet in business. Coming to the client acquisition side. Obviously, anything in mutual funds, mainly our client acquisition happens through the mutual funds business. And month-on-month, if you look [indiscernible] but if you look at new client acquisition on that particular part, I think that essentially the new client acquisition momentum is very, very strong in Prudent as well as in the industry. I will give you the number from last year, I think the number of SIP reported already would be there. But last year, I think similar time first quarter, we had around 1.55 lakh in SIPs and the similar time this quarter, we're almost 2.5 lakh plus, at least you can see addition of almost [indiscernible] addition in the SIP value and SIP number [indiscernible] the new client acquisition is very, very strong.

Ladies and gentleman, as the line of Shirish sir is not live, we'll reconnect them. Please stay connected.

I'm able to -- I think, line of Swarnabha was not clear.

[Operator Instructions] The next question is from the line of Darshan Shah from Multi-Act Equity Consultancy Private Limited.

My question was related to the commissions that we are getting from the asset management company. So a couple of quarters back, one of the AMCs cut down their commission, passed on to all the distributors in one of the schemes. And right now, we are hearing that a couple of large AMCs are talking about the same that they want to reduce the commissions because of the telescopic pricing because of it they are facing the yield pressure. So are we hearing any such discussions? And what are your thoughts on the same?

Yes. what you are referring the AMC, which cut in -- one scheme last year. I think this month, again, the same AMC, same scheme cut the historical commissions. What you're talking about a few more other bigger AMCs have also started discussing about the TER cut on the historical assets because they have a yield pressure. And that's true because if you look at last few years, market has delivered very, very great returns and mainly because of the mark-to-market gain, the lead on the business in what AMC would be having, I think is the -- under the pressure. Obviously, I think it started by through AMCs and many other AMCs might follow in future as well. And as in the AUM becomes bigger for any schemes, this now become a practice incrementally. But for us, I think as you know that our 90% business is the B2B business. Whenever AMCs would cut the commission for distributors, we also cut for the MFDs. We've also been the primarily the MFD-focused company. As I said, 90% of our business comes through the MFD. So we are also able to pass it on the major chunk of our cut. So as we know that almost 2/3, 1/3 is the kind of ratio we normally we follow. So obviously, I think bare minimum, you always can expect that whatever would be the cut. I think in the similar ratio, it always can be passed on. So the impact on us primarily definitely would be much, much lesser because we are the B2B platforms. But yes, what you are saying that you might -- a few other AMCs also might follow this.

And this is more on the book AUM and not on the incremental flows, is that correct?

Incremental flows is always adjusted in the new payouts. Every month, AMCs hedges their payout based on the latest [indiscernible] year. That gets adjusted full year. Therefore, it is the routine practice. Now what you are referring is on book, historical trail, which the incidents are very, very less in the industry in the last 4, 5 years. Now last year, few -- 1 or 2 AMCs have cut and, yes, right now also, few AMCs have cut...

Okay. And on the incremental flows, like how has been the trend in last 6 to 9 months? Is the commission payout even on the incremental flows gradually coming down or they have remained same?

Again, that depends on many things. I think one definitely becomes the important thing is that [indiscernible] schemes are getting the [indiscernible]. Within new flows also, there are schemes which with a higher AUM and with the schemes which have lower AUM. Obviously, I think when the business comes with a higher AUM scheme, the yield is lesser; with the smaller AUM scheme, the yield is higher. Even NFOs also try to improve some yield on the gross yield side. To give our experience, in probably last 1 year, our yield on the new business is probably down by hardly around up to 1 basis point, we could be able to maintain our yield on the new flows.

[Operator Instructions] The next question is from the line of Sanketh Godha from Avendus Spark.

Sir, we always guided that our SIP equity flow should be broadly in line or better than the net equity flows. But if you look at the data for the last 2 quarters, at least for 4Q FY '24 and 1Q FY '24, it has been 10%, 12% lower in that sense. So is it more to do that the demand for lump sum has increased because of the market value and that number has just got off track in the last 2 quarters? And how do we see this playing out going ahead? That's my first question. And the second question is, sir, with respect to that regulation, which came in the month of April, that your ARN codes can change with the -- and you can study the trail with -- after 6 months cooling period. Just wanted to understand any porting that is happening and you as a company is meaningfully benefiting out of it, especially bank RNs moving to you? Any color if you can give on that thing will be useful.

Giving the answer for the first question, you are saying that the net sales is lesser than in terms of percentage of the sales. Our net sales is lower by 10, 12 basis points. Yes, one reason you can attribute to the higher lump sum flows as well. But we historically have said that in the medium to long term, we believe that our net sales would be equivalent to the SIP sales. Yes, it could be higher; few years, it could be lower, but I think that is what our historical experience of 10 years is that net sales is equal to the SIP sales. And I believe, I think in the current year, the experience is rather positive, I would say that the net sales is little higher than SIP sales -- so until, of course, I think sometimes the gross flows increases, sometimes gross flows comes down because of the sentiment and everything. But as of now, we are not seeing any trend wherein we can see that the net sales is going down rather [indiscernible] much higher than the last year's net sales. So I think the number is something different compared to what you are saying. Second point, what you said that, yes, I think last -- after a change of ARN, I think 6 months onwards, we started getting the commission. Of course, I think we always started getting a few interest from the wealth RMs or the banking RMs. We also have acquired a few of them. But any major movement -- in movement, as of now, we have not seen the great movement. But we are very, very -- believe that I think these trends will become stronger and stronger over a period of time. So getting more and more AUM by these guys joining Prudent kind of platforms, I strongly believe that we will become [indiscernible].

Okay. But do you have any strategy in place to take the advantage of this regulation?

We have a dedicated focus, but we don't incentivize anybody to join us and we'll pay you extra or something like that because that is what historically we have been believing that we'll not incur a loss on the business -- any business. But yes, I think our focus on this segment has increased drastically compared to what it used to be.

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

Sir, firstly, on the employee side, probably I might have missed it. Your employee expenses have gone up sequentially while your other expenses has gone down. Could you explain both the trajectories? And how should we think about both these factors from a full year perspective?

Yes. So employee expenses, we already gave you the explanation that the major costs rise came due to the salary revision which has happened at the end of last year, so which is almost about 15%, 16%. And over and above that, we assume that in the full year, we might see additional 2%, 2.5% of incremental cost because of new branches, which we've opened as well as we'll add the manpower in the current branches. So all in all, you can say that about 18%, 18.5% is likely to be the overall full year cost impact. I think on the -- I can tell you this is the industry which is driven by manpower. So you do not expect that the normal growth would be tad higher than the average, right? So I assume that if it is a good year, you might see some amount of hike in the employee. So on an average, you look at last 3, 4 years, our employee cost has -- yearly, yearly costs on the revision has been in the range about 10% to 12%, so which probably I believe that will continue in the same way, about 12%, 12.5%.

Sir, the other expenses?

Prayesh, the main reason originally we were talking about, it might increase a little more in the year because we have opened 16 more branches in last 1 quarter. I think the second strategy for us was to add more manpower in the existing branches -- we have added in this year.

Got that. Got that. And the fall in other expenses?

And to your second question about the dip in the -- improvement in the margin is -- so dip in other expenses is mainly on account of lower insurance business in the first quarter.

Okay. But even if you look at and compare it with the previous quarter as well, the run rate is lesser than even those. So for example, even if you compare it with, say, Q3, it's still lower. So is there some cost savings that we have done or what kind of trajectory we could assume there?

No, no. I think this is in line with our expectations. So I think that -- I think probably -- you just look at the other expenditures on an annualized way. So probably, if you look at the expenditure which we have provided, there are a couple of provisions also would be done on other expenses. So you just make it as an annualized cost. So insurance is something which is to an extent, volatile. If you see the good business, you'll spend more. Otherwise, mutual fund would remain very, very static.

Got that. Sir, and what's the kind of trajectory we have seen on your alternate business, PMS and AIF? What is the kind of size we've achieved there?

Shirish?

Prayesh, I think you know that I think we started this business 2.5 years back, and I think last month only, we crossed INR 1,000 crores AUM in alternate. So what we are reporting INR 1 lakh crore mutual fund AUM in July end, that doesn't include the alternate assets income. So INR 1 lakh crore is a pure mutual funds, and we just have crossed INR 1,000 crores in alternate assets.

And what is the kind of revenues you would have earned on those INR 1,000 crores in this quarter?

You always to understand, I think 15%, 20% higher than mutual funds.

The realization is 15%, 20% higher than mutual funds. Hello?

That maybe 15%, 20% higher than mutual funds.

Got that. Got that. And sir, lastly, on the broking business, you have kind of merged it yourself now. What are the plans there? Do you want to get big in there? And what is the kind of investment plan there?

So if you look at specifically the main reason for merger of broking is because if you look at -- initially broking was a stand-alone separate business and Prudent Corporate never used to -- was not in the business of broking. But once we had the strong technology platform, there is a strong need for us to make it an all-product platform. And we started getting all the exchanges. So we became a broker with NSE, BSE, [indiscernible]. So there is no point of maintaining 2 separate entities. So major reason is the operating convenience for us to merge both under single arm, that was the main reason. I think the strategy for broking will continue to be, I think, providing the strong robust execution platform so the customer and my partner should not go somewhere else for the broking business. Otherwise, I think as an organization, we continuously believe that, I think, mutual fund is going to be this significant wealth enhancer for the retail investors. But I think we will continue to concentrate on the broking from the point of view of providing the strong execution capability. So if somebody wanted to do any kind of activity, whether you want to trade on -- whether you want to do F&O -- or if you look at, we have been trying to do a lot of fundamental things by providing with -- long on the call. We have tied with a couple of small cases. We have been talking about providing the stock asset. So I think we cultivated the culture more towards cash segment rather than F&O.

Got that. What is the contribution of broking today in terms of overall revenues?

I think about 3.5%. 3.5% is the -- so I think broking has been more or less stagnant for us. But post merger, and I believe it should see some traction, positive traction.

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

So the first question is on the commission cuts from the AMC side. If you could talk about what -- how do you think about what's the new parity in terms of the right balance? I'm not asking for specific numbers, but how would you kind of balance the interest of the AMCs with your own during such negotiations? And the second question, sir, is on the recent RIA guidelines, how do you think about that channel going forward? And would you want to kind of tap into it or philosophically, you have a thought process around remaining operating in a commission-oriented environment?

So let me tell you about the second question about the RIA. We already have RIA license in one of our company called Prudent Financial Services, which is a 100% subsidiary of Prudent Corporate. However, we continue to believe that collection of fees from the retail is a very, very difficult process and will continue to be, I think, distribution house only -- or may be a driver of collecting the [indiscernible] distributing the regular products. Regarding the negotiation and the right balance, I think, let Shirish come in. Shirish?

Yes. So regarding the commission cut on the book side, mainly because AMCs [indiscernible] in the mark-to-market, and that is becoming a reality. Maintaining the balance in this particular thing always, I think, on the new business, it is adjusted. So we always have a very, very strong and good relationship which is proper balancing between AMC and us. It is always maintained with everyone. When this kind of cut comes on the book side, obviously, AMCs also tried to see the balance between their margin and their distribution impact. Here, I think the bargaining power of distributor is always a little lesser compared to the new businesses. Obviously, because when the pressures are under -- their margins are under pressure, AMCs will take a call. But we always believe that whenever AMC cuts the commission, they cut for the majority of every distributors. And that is where, again, we would reiterate that we've been primarily 90-plus percent business from B2B. Whatever could be the cut from the AMC side, since AMCs also will cut for the mutual fund distributors, we also are able to pass it on in a similar fashion. Obviously, you might not be able to pass on full, but major component of that, we are able to pass it on. So that is why the yield margin impact in our business would not be that big. If we would have been a B2C platform, obviously, the margin impact would have been much higher.

Sorry, 1 follow-up on the RIA question. I think in the recent speech by the SEBI Director, I think there was a reference around creating some sort of a body or an association. That would -- looks like the intention is to aggregate the RIAs as well on 1 platform. So my question really was that at some point of time, do you think that also starts to become a meaningful channel and sort of a source of disruption for our business?

So historically also, if you see RIA platforms were very blur. iFAST used to go -- also play as RIA platform earlier. As of now, we have thought off. But yes, in case if the requirement comes and if we believe that I think this business also makes sense, obviously, we might think that time. But as of now, as Sanjay bhai said that, we are not looking at launching the platform in RIA.

[Operator Instructions] The next question is from the line of [ Aravind ] from Sundaram Alternates.

Can you give some color on the aspirations in the insurance distribution business for us -- like in the sense like, either in terms of growth or in terms of market share or like anything like that in 3 years, 5 years, sir?

Shirish?

We are not giving any kind of, I would say, numbers to the public. But yes, I think unlike mutual funds, we don't even trade the market share on a insurance basis because we are yet smaller on that particular side. But internally, yes, we always believe that I think this segment, this business is going to become bigger and bigger. This business is growing faster than the mutual funds and obviously, it should grow faster because the base effect is less. Penetration of the insurance industry or in insurance product is still very, very less in the country. This industry has to grow. We have a network of more than 30,000 distributors currently, around 11,000-plus distributors are converted to the POS. So within Prudent system, also, we have got huge universe where we can tap for distributing insurance builders. So we strongly believe that the insurance pie in Prudent is going to grow. But yes, I think we are reluctant to give any kind of numbers about this business. Within insurance, our focus is more on health insurance or rather, I would say, all retail products first. And within retail products, mainly we focus on health insurance and the life insurance. We might launch the insurance transactions on FundzBazar platform in next few months. Once we launch insurance on FundzBazar platform, other product categories also will come in like motor and personal accident and travel and everything. So yes, I think we are very, very serious for the insurance business, but that is a specific guidance for that.

Understood. And just 1 more question, maybe if you can address it. Like is there any reluctance or -- like how would the transition the distributors in terms of selling mutual funds to selling insurance? Obviously, we must be having some training and programs and all. But like is there any significant road block in terms of behavioral thing or any other thing there, how are we addressing that?

Basically, 60%, 70% of our distributors are traditionally insurance agents, like insurance, LIC agents, traditionally. Obviously, I think these guys are not selling insurance. Yes, I think that 30%, 40% of the guys are not selling insurance. So for us, there are 2 set of problems, I would say: convincing those guys who are not selling insurance to start the insurance business. And second is convincing those guys who were doing insurance business directly with the LIC or other insurance companies to work with us. So yes, over a period of time every year, you might have seen that the number of people, number of participants in insurance segment is increasing. Nowadays, the trend has also become for distributors to do multiple products at a single umbrella. Obviously, the realization of the acceptance of multiple products in a single platform also is increasing, and that is also helping. As I said that in next few months, hoping to launch insurance business on FundzBazar platform, that also could be the figure for many other partners who are not selling insurance business till now. Since on the same platform, insurance is available, they might look at selling insurance with us. So I think you got my point.

The next question is from the line of Dipanjan Ghosh from Citi Bank.

Just a few questions from my side. First, if you can kind of again elaborate on the commission regime in terms of manufacturers passing on some of the hit to you guys. Just wanted to understand, are these like legacy assets which have been there in the system for like, let's say, with vintage of more than 5 years, they would be on assets, which let's have been originated post the regime change on the expense ratio side? Or this would be like on fresh assets? So just if you can broadly elaborate on what the AMCs are kind of negotiating with you guys on the discussion table? Second would be more on the insurance business and especially the general insurance business. It seems that your renewal ratio has kind of increased quite a bit, the ratio, basically the renewal premiums for this year to the overall premiums of the base year. Just wanted to understand, is this reflecting the price hike on health business that has been taken by the underlying manufacturers on the back book? And lastly, in terms of, if I were to look at your net sales on the mutual fund business, can you break it down between lump sum and non-lump sum portion?

Shirish?

Yes. So first point, we already addressed your question that new business payouts are adjusted every month. So every month, AMCs gives us the commission structure based on their latest TER. All our -- or majority of our assets are -- whenever the business was done, it was based on the latest TER. But yes, mainly because of last few years of growth in the market, obviously, the AMC margins have come under pressure and that is where few of the AMCs -- And I'm sure that all AMCs might not be able to do or will not do, mainly because those AMCs wherein the flows are very, very high. And the historical AUM was very, very strong and mainly because of the mark-to-market, that scheme has gone up drastically. These -- few of these AMCs might cut on the historical trail. Again, I would say that the sales cut would be all across the distribution community, so we are not affected. But again, new businesses are adjusted on a regular basis and hence, the sale cut would not be there. So that is what I would say on the first part. Second part, you said that our renewal ratio has gone up. Historically, we have been focusing on the quality of the business. So we are not here to look at the growth of the business and compromising the quality. [indiscernible] probably we would be one of the best in the country in terms of persistency ratio and the quality of the business. And we are striving to achieve or maintain that kind of number. On the renewal side, our constant efforts are always there to renew the policies, that also helps us to improve our renewal numbers. Third part, what you asked that the split between lump sum and non-lump sum in terms of net sales. I think it is very, very difficult, and I don't think that anybody should and would be cross checking the net sales based on whether the SIP is getting redeemed or the SIP flows are getting redeemed or the lump sum is getting redeemed. For us -- the simple formula for us makes sense is gross sales with SIP or [indiscernible] gross sales minus all redemptions is the net sales. Because I think today, if the INR 1,000 SIPs after 10 years becomes very, very big and if the client redeems -- after his goal is achieved and when he redeems, the redemption would definitely be used. That time, we can't say that the money redeemed is the SIP money. So redemption is redemption for us. So net sales, we don't bifurcate between lump sum and SIP. For SIP net sales, we always track that what is the net addition in the SIP book versus the addition of the gross SIP book. So for example, my opening SIP book is INR 100, and we added, say, for example, INR 30 in this year, and we [ earned ] at around INR 120. So obviously, we look at that INR 30 SIP we have added and INR 10 SIP got terminated. So that is how we track the SIP numbers, but not in the net sales. I hope I cleared all your points.

The next question is from the line of Alisha from Envision Capital.

Sir, 2 questions. One is on the MFD side. While you have been highlighting that the indirect mix has been going up and hence, the payout ratio has also been increasing, but we've also been saying that we were expecting it to settle around 62%. And this quarter, it has inched up even higher. Where do we expect this to settle? And will it probably normalize to 62% for balance of the year?

So this year, it might not change. 62% on the total book because around 10%, 11% of the book, wherein we are not paying the commission. If you do the back of that calculation, annual calculations, obviously, you get that number around 67%, 68%. This year, this number, we are not expecting to change drastically. Obviously, I think these kind of numbers might change, but over time, it might change because as and when the commission cut comes down, you can't maintain the absolute basis point margin, but percentage terms we believe that we should be able to maintain a similar kind of margin over the years. It won't change in the near future drastically.

So what I'm understanding is what we have paid out in Q1, that should be a more sustainable number because now the mix is 88% and 11%.

Over time the mix changes, and obviously, this ratio might -- today, we are around 89%, 90% in the B2B side because after a few years, this ratio becomes 95%, 5%. Obviously this number might change. Second could be, as I said, as and when the AMC size becomes bigger and bigger and bigger, and the TER cut comes down. Obviously, that also might impact either positively or negatively on the percentage sharing. And third, again, on the book side, how AMCs cut to the distribution community and how we are able to pass it on to the distribution community, that also might impact this particular ratio. But as I said, that this year, we don't see the ratio changing.

So these 32, 33 bps that we used to do net yield, will we be able to maintain that over the medium term or that can also be impacted because of the reasons that we've just been discussing?

So the immediate future, as I think, yes, actually, if you are talking after 1 year, this might go down by 1 basis point, but it is not going to get impacted drastically.

Okay. Understood. And my second question is these other expenses in the stand-alone business have increased quite substantially on a Y-o-Y basis. If you can just share what would this pertain to?

I think we have not provided the Prudent Learning Conclave expenditures, which happened at the end of the year. So I think last year, we started providing only after second quarter onwards. That's the only reason. So what we did is, it is basically a Prudent training and recognition program where we'll select the distributor based on internal parameters. And the cost has been projected and which has been provided in the current quarter also, which was not in the first quarter of last year. That's the reason we see more number. So that is a one thing and another thing would be if you see administrative costs also going up because of additional branches. There are 2 reasons which -- and probably the -- I think the another costs will be or what you call the CSR cost has gone up. There are a couple of things which is contributing because I think we are looking at electricity also is 1 factor because of the branches have increased.

Understood. And [indiscernible] can we expect the AUM mix to again change in favor of direct versus indirect?

AUM mix improving in favor of direct is not likely because I think the direct, we are not growing on that particular front. So what Shirish was saying, and I'm also trying to communicate that at all, if you look at directionally, today, 88.8% is the mix of indirect in the 100% of my AUM. Gradually, that has to go towards 90% rather than 85% because the business and the SIP book comes from the channel partner significantly. So gradually, you will see that tilting toward the 90% rather than 80%, same. So I'm just trying to communicate direct piece can never go because we are not trying to concentrate on growing on that particular piece.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to the management for the closing remarks.

Thank you. Thank you very much, and I hope we could be able to address all the queries. However, there was some turbulence when hearing the questions. So anybody who could not get proper clarification, Parth is all the time available, so probably you can reach out to us for any information which you require additionally. Thank you very much to everybody. 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.