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

Ladies and gentlemen, good day, and welcome to Prudent Corporate -- ladies and gentlemen, good day, and welcome to Prudent Corporate Advisory [indiscernible] Q1 FY '27 Earnings Conference Call hosted by Equirus Securities. [Operator Instructions] Please note that this conference is 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 the 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, Mr. Deo.

Yes. Good afternoon, everyone. Welcome to the 1Q FY '27 results con call of Prudent Corporate Advisory Services Limited. To give a brief update on the results and address investor questions, we have the management of Prudent Corporate Advisory Services Limited, represented by Mr. Sanjay Shah, Chairman and Managing Director; Mr. Shirish Patel, CEO and Wholetime Director; Mr. Chirag Shah, Non-Executive Director; Mr. Chirag Kothari, CFO; and Mr. Parith Parikh, Head of 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. Thank you, Lalit, and good afternoon, everyone. I extend a very warm welcome to all of you for joining the Prudent's Q1 FY '27 Earnings Call. Thank you for taking time to be with us today. I hope you have the investor presentation handy as we'll be referring to the investor presentation during the course of this discussion. So to start with, please move to Slide 49 which highlights the momentum in our AUM growth. So if you look at on the left-hand side of the slide, you'll see there are 2 bars. The first bar shows our daily average AUM for entire FY '26 while the second bar shows our current AUM. So in FY '26, we earn our revenue on an average AUM of around INR 1.21 lakh crore while today, our AUM stand at roughly about INR 1.4 lakh crore. So this represents a growth of nearly 16%. Since our current AUM is well above FY '26 average AUM, it provides a healthy revenue tailwind for the rest of FY '27. On the right-hand side of the slide, if you see, it provides a trend in our quarterly average AUM. In first quarter of FY '27, our average AUM stood at INR 1.33 lakh crores. This represents a sequential growth of 4% and a healthy year-on-year growth of 21%. Now please move to Slide 50. This slide shows the movement in our equity AUM on a both year-on-year and quarter-on-quarter basis. Now let us begin with year-on-year, train shown on the left-hand side of the slide. Our equity AUM grew by 18% from INR 1.14 lakh crores in June 2025 to INR 1.34 lakh crores in June 2026. This represents an increase of nearly INR 20,000 crores. Importantly, a significant part of this growth came from new money. This was supported by strong SIP flows and the acquisition of Indus. Another key takeaway is that despite a weak market environment, our equity AUM generated a positive mark-to-market of 2.9%, while during the same period, NIFTY 50 declined by 6.5% and NIFTY 500 declined by 2.6%. Major reason of our outperformance is due to consistent SIP flows, which helped investor benefit from market volatility, supported by thoughtful fund selection and portfolio construction by our distributors. Together, these factors demonstrate that our distributors are able to generate distributor alpha consistently. Now coming to quarter-on-quarter view on the right-hand side of the slide. Equity AUM by 16.4% during the quarter. A significant part of this growth came from recovering equity market, which resulted in a mark-to-market gain of INR 15,175 crores. At the same time, our net sales remained resilient at INR 3,790 crores, This represents a healthy 50% year-on-year growth. Now please move to Slide 51. This slide highlights our SIP performance. As on June 2026, our multi SIP book stood at INR 1,203 crores. The momentum has continued in July, our monthly SIP book has further increased to around INR 1,240 crores when I'm talking to you. This gives us confidence that SIP accretion remains on a healthy trajectory. Coming to SIP collection numbers, which we started reporting. In the March collection of INR 1,170 crores, it included INR 35 crores of SIP, which were originally due at the end of February. Since 20th February was on Saturday, all SIP scheduled on 28 to 31st of the month were processed on second March. So excluding this impact, our March collection would have been INR 1,135 crore against this adjusted base, our June SIP collection stood at INR 1,147 crores. This regulates stable and the healthy collection momentum. Now let me turn you to Slide 54, which talks about our consolidated financial numbers. So on a quarterly -- our quarterly average AUM on a Y-o-Y basis grew by 20.8%. However, mutual fund revenue grew at a slower pace of 17.9%. This is mainly due to regulatory changes, which has been implemented from April 2026. These changes had an impact of around 2.8 basis points on our gross yield. As a result, our gross yield has now settled at around 88 basis points. The yield on our new business is tad higher than our yield on the existing book. With the regulatory changes now behind us, we believe we are well poised to maintain our gross yield at around 88 basis points. Our insurance revenue grew by a healthy 20.6% on a year-on-year basis. Within the Life Insurance, our fresh premium grew by 73.4% year-on-year. This was led by strong growth in participating plants, which grew by 100% and unit category, which grew by 82%. Our general insurance, specifically health insurance business continued to perform well with total premium growing by 36.8% year-on-year. Now moving to our other financial and nonfinancial product revenue, which grew by 28.4% year-on-year. This growth was primarily driven by our PMS and bond distribution business. Average PMS AUM grew by 37% year-on-year, and now it stands at roughly about INR 1,900 crores. And our income from bond distribution business has more than doubled compared to the same quarter last year. So given the strong performance across all our businesses, our revenue from operations grew by 18.3% year-on-year. Coming to the most important part, which is commission fee expenses. So if you look at commission and fee expenses grew at a slower pace of 9.8%. This was primarily due to regulatory changes, which has been implemented from April 26, related to GST treatment and removal of 5 basis point of exit loans, which was part of the year earlier. Following these changes, commission rate across the industry are now structured exclusive of GST. That is it has moved from TR, which was inclusive of GST to BR, which is now exclusive of GST. Accordingly, we have aligned our accounting and payout framework with the revised regulatory structure. Let me just tell you, as of June 2026, that is the end of last -- this quarter, 60% of my AUM is mobilized by GST partners, and we continue to get the reimbursement of applicable GST based on the raising of the invoices. As a result of this regulatory reset together with pass-through of the TR changes on a proportionate basis on account of removal of 5 basis points of exit loan, commission fee expense growth was lower during the quarter. Please note, we viewed this as a onetime reset. With this transition now complete, the gross profit margin reported during the quarter reflects the economics of the business under the revised regulatory framework. Let me now address the employee costs. So if you look at the employee cost, it has gone up by 19% on a sequential basis. This reflects the impact of annual wage revision cycle with the wage bill for our existing employee increased by around 14%. The balance increase was primarily driven by our continued investment in expanding our branch network, which has led to an increase in the employee head count. As a result, we have also made a higher provision for variable employee expenses. We plan to add around 30 new branches during the year, of which almost more than 12 branches have already been operationalized during the quarter. However, if you look at on a full year basis, including ESOP expenses, we expect that on a full year basis, employee cost growth can be in the range of 22% to 24%. Driven by strong business performance, our operating profit grew by 32.4% year-on-year to INR 89.1 crores. Other income was higher during the quarter, primarily driven by gains from our treasury portfolio. As a result, profit after tax grew by 44.4% year-on-year to INR 74.8 crores. To conclude on the numbers, both our mutual fund and insurance business have started the year on a strong footing, and we expect this momentum to continue. The recent regulatory changes are also creating incremental opportunity for us from a distributional perspective. Non-GST registered distributors who are working directly with the AMC have seen a meaningful reduction in their net income under the new structure. Additionally, GST compliance requirements have increased significantly for the GST registered distributors as well. As a result, more distributors are looking to partner with perform that can support them with technology, compliance and operations. We have already seen this transition into the faster distribution addition. During the first quarter of current year, which is FY '27, we added around 600 partners per month compared to a monthly run rate of 430 in FY '26. In parallel, we continue to focus on scaling our SIF business of our MFD base 1,323 distributors are now SIF certified. We expect this number to increase at a much faster pace following the recent changes of certification framework, which has simplified the process by introducing single examination, covering both mutual fund, SIF distribution. And additionally, the major pain point was currency, which has been removed from the enter examination curriculum. Finally, with a treasury book of around INR 650 crores, we continue to evaluate value-accretive acquisition opportunities that can further strengthen our distribution platform. Overall, we believe business is very well poised with multiple growth drivers and the levers in place backed by healthy business momentum, a supportive regulatory environment and continued investment in the expansion of our distribution network, we remain very, very optimistic about the entire FY '27. With this, I think now I'll open the floor for questions.

[Operator Instructions] The first question is from the line of Swarnabha Mukherjee from 360 ONE Capital.

Congrats on a good set of numbers. Three questions from my side. First of all, I wanted to understand, you mentioned that on the gross margin in the mutual fund business, since I think even in our stand-alone businesses, there is -- there are other business apart from mutual fund business. So it is difficult to calculate if you could highlight what was the gross margin last quarter and how it has moved this quarter? And also, if you can tell us that how much should we estimate mutual fund business contributing at the stand-alone level, given that I think there is also strong broking and now corporate agency license of insurance there, so some color on that would be helpful. Second is the net flows number around, I think, INR 3,700-odd crores for the quarter. So sir, I think over the last 5, 6 quarters or maybe even maybe 17 quarters, this run rate has been broadly in and around this rate. I understand that the market cycle was also not very favorable at this standpoint and industry flows have also been in the range. But just wanted to understand that from a regular mode of distribution, how has closed moved in the industry and for us to take this to a higher level, what levers are we projecting. Yes, sir, if you could respond and then I'll maybe ask 1 smaller question.

So first all, let me address about the gross margin. I continue I already say that last quarter, my margin was about 91.2 basis points as far as mutual fund average AUM is concerned. And this quarter, I think the entire quarterly average is roughly about 88.4 basis points. So there's a reduction of about 2.8 basis points because of -- and this reduction came mainly because as you are aware that there is an exit rate of 5 basis points, which has been removed by SEBI from the TR of all AMC. So I think this is the average of impact which we have on account of entire book, which has been replaced from first of April.

Sorry to interrupt. I mean, I meant like if I were to calculate a gross profit, with a net yield, if you could it on that. After -- as you highlighted that there has been some benefit in fees and commission expense. So if you could -- so I just wanted to understand the gross profit margin or if we calculate the gross profit, netting of the fee and commission expense, how it has ranged as a basis point of average AUM.

Sorry, because we do not provide the segment reporting of the mutual fund margin and insurance margin. But however, I can tell you 1 thing, broadly. You can look at the operating profit margin, which we have currently, there is more represent. So you can probably assume that stick for you to go forward calculation. But definitely, the individual segment while profitability margin report [Foreign Language] so that would be difficult for me to give you the numbers.

Ballpark level, anything?

So I think the ballpark is probably in Walmart is probably you can no, that's difficult I think I'm not calculating the individual segment, [Foreign Language] everything is part of the business. [Foreign Language]. Now coming to your second question about the business, let me -- I think let Shirish address that because your question was since last -- since the in last couple of quarters, our sales is broadly in the range of INR 3,700 crores kind of a quarter. So what is the view on that? And is regulated plan is growing better than direct part or something like that. So that was the question.

Basically, what you said is absolutely right. I compare my nasal number for last 3, 4 quarters, it is in the range of around INR 34,000 crores or call. But historically, if you compare our net sales in the first -- and so here it is always subdued. If I simply compare my net sales versus last year's similar period, I think there is a significant jump in the net sales. That is point number one. So that says that I think productivity of the partners or the new expense also plays. Second point here, because of these market conditions, industry level also, if you see the net sales number are subdued in last probably 1 year, simply, when I compare how we are faring versus the industry, at least you can compare that our net sales percentage, I would say, in the industry or the net sales versus industry, I think that share is increasing if I compare with the last financial year total versus this quarter. So that means industry net sales numbers are also down. My net sales number are also down, but still we are doing better than the industry.

Right, sir. Understood. Just a couple of quick questions. One is on the other expenses side, I mean that has seen I think the substantial drop quarter-on-quarter versus I think historically, even 1Q versus 4Q always used to see an increase. So some color on that. And on the SIF partner side, so how much headroom do we have considering that the ticket sizes are substantial, so would we -- I mean, should we think that this INR 1,500-odd number -- I mean how much penetration within our own MFD base do we have in terms of INR 1500-odd as MFDs doing this.

So basically, if we talk about -- I think it is the last question first and I think if I take this question, first question. Now today, if I talk about our SIF AUM has already crossed around INR 500 crores. Now we already have INR 1,400 crores around kind of SIF partners. And secondly, as has already said, but now when the SIF examination has become a little easier, I think common examination, I think this will gather a pace. But focus-wise, definitely, I think, since the product was launched, we started focusing very, very actively and aggressively on the SIF product. If I look at my monthly trend business in SIF, it is increasing month-on-month. So that says that more and more distributors are participating. The interest on distribution as well as our team is also increasing. And I think while we're speaking, I think, more than INR 500 crores of AUM is already crossed on the SIF side, which is a percentage wise simply compared much higher than my share in the mutual fund. So that says that I think we are contributing more in the SIF side compared to mutual funds. Yes, Sanjay, first question.

Yes, Regarding the other expense, I think we have been all the time telling rating also the debt. There is 1 component of expenditure, which is somehow linked to the -- or not linked, but I think it is also based on the insurance mobilization because I think we would require to do certain marketing and then all the business follows what to us a [Foreign Language] So I think there is some seasonality impact in the other expenses, if you look at probably, I think that cannot be the -- so you cannot take it as a steady number. It will remain a little bit volatile compared to the businesses.

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

A few questions. Firstly, the gross realization for the quarter is post the adjustment from the -- for the full quarter? Or is there some adjustment which is -- because also partly cost, we can still see some drop in the coming quarters, as same question for the fees and commission expense also, is it -- the Q1 is a steady-state number that we can think about and we can forecast that. That would be my first question. Second is just recently, there is a new announcement on some on only bid management, the ticket size of -- do you think that should be a great avenue for us to kind of -- and third is under on the Altenex business, what is the size of AUM that we manage on AI and PMS and HIF today? And also if you can get back to hormone as or how many distributors of yours have been distributing these products compared to the total base.

Regarding the margin, I tell you, you can probably consider the current quarter as the reprint of margin. And by and large, almost all AMC has transferred what is supposed to be transferred. And we have also, whatever is purposely we are supposed to transfer to our distribution partner has already been done. So we are -- as you can probably take the current margin as -- margin you can factor in from the part of next 3 quarters, right, number one. Number two, I think about these new changes, which is where the consolidation paper is open about mutual fund only PMS for the first time because I think in the all commentary, we have been saying that we don't want to be a manufacturer and there will not be any backward integration. But after looking to this INR 25 lakh is of ticket size and mutual for only PMS I think we are also finding it very, very important thing in our system because it might be very, very helpful for us to provide this kind of service is over retail. I think 25 lakhs, it is a good threshold to reach out to them. So we are very, very positive and we are not disclosed at the board level. But internally, when we are talking about, we find a lot of merits as far as -- this particular case is concerned from a Prudent perspective. So we will be open for some acquisition of P&S also or probably we might take our own license. Some that we probably once the entire consolidation paper is over, we will probably take a call on our on own. Coming to alternatives, I think numbers is roughly about INR 1,900 crores, which we have as of now. So overall, mutual -- the PMs and what we are managing at the end of this quarter is INR 1950 crores. And we already said that, that number has gone up by 37% on a Y-o-Y basis. So yes. And I think about the number of clients and the number of distributors, I think that number, I don't have handy, but probably the IRT will provide the data on a one-on-one basis.

Also I think SIP INR 500-plus crores. So also I think we can put in that.

Okay. And I am asking what percentage of your customer base would have more than INR 25 lakh customer a AUM. [Foreign Language] So that number will not be handy.

Number exact, we don't track on that parameter. So it's -- definitely it is not handy. But simply, if we assume that I think all 136,000 distributors having, I think, even 4, 5 clients, I think they can cater easily. I think that number goes to a very, very big number. So that we have, I think the potential is huge. But yes, I think that what specifically you were asking, we are not tracking.

And just last question -- mentioned about other expenses being fluctuated. But in an annual basis, what is the kind of we should think about for the...

That's very difficult to tell because it's virtually not linked to business. It is always effort based, and we do a lot of marketing and even with the activity for generating the insurance revenue. So it's very difficult for me to quantify on a formula basis, then how can you project that?

The next question is from the line of Sanketh Godha from Avendus Spark.

Sir, my first question is the same question probably. I mean if I look at your standard P&L commission cost as a percentage of the total revenue in 1Q FY '26, it was some 62.7%. Now that number is INR 56.2. So given you passed on the GST impact to the MFDs, so this INR 56.2 what we see in stand-alone number is a steady state number to holder for subsequent quarters, just to understand the commission payout to the MFD guys.

Yes. Broadly, you can because it might depend on the composition between insurance and the mutual fund. But however, I think on a margin basis, probably you can consider this as a good number for your projection purpose?

So basically, the current quarter difference between gross and commission number, the spread broadly should hold up is the fair assumption to make, sir?

Yes, because whatever changes came because of the changes in the regulatory regime and which has been on the entire book, which has been adjusted. So I don't see any reason issue.

And this number has fallen largely because most -- because the GST thing, which was probably benefit you were not getting now you are getting the benefit, and that's why the net commission as a percentage of the revenue has come off.

Yes. So I think yes, it's implemented based on what changes done by the regulator and the AMC has been implemented by us, yes.

Y-o-Y reason is we acquired Indus in the month of September.

Understood. Even if I compare that from fourth quarter to 1Q because stand-alone numbers, I'm assuming it doesn't have insurance numbers. So that's why I was comparing stand-alone from 57.3 to 56.2. The difference is predominantly if I exclude interest impact also is largely because of the regulatory change and the spread has to be maintained, just clarifying again, sorry.

Yes. That is 1 -- again, the contribution from the insurance business. I that also to interest -- has to adjust. Last quarter of financial year, the insurance component was much higher than this quarter. So they're also in addition thing you can consider.

And sir, the payout difference between insurance and the mutual fund is how much means? I think if insurance is at 60, 65, then insurance is much lower than that?