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

Ladies and gentlemen, good day, and welcome to Prudent Corporate Advisory Services Q2 FY '27 Earnings Conference Call, hosted by 360 ONE Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Swarnabha Mukherjee. Thank you, and over to you, Swarnabha.

Thank you. Good morning, everyone. Welcome to is FY '27 Results Conference of Prudent Corporate Advisory Services. To give a brief update on the results and address investor persond, we have the management of Prudent Corporate Advisory Services represented by Mr. Sanjay Shah, Chairman and Managing Director; Mr. Shirish Patel, Executive Officer; Mr. Chirag Shah, Non-Executive Director; Mr. Chirag Kothari, Chief Financial Officer; and Mr. Parth Parekh, Head of Investor Relations. Now I'd like to request the management to start with the opening comments, post which we can open the floor for questions. Thank you, and over to you, sir.

Thank you. Thank you, Swarnabha. So good morning, everyone. I extend a very warm welcome to all of you for joining our Q2 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 it to it during the course of a discussion. So now straight let us go to Slide 49, which highlights our AUM growth for the quarter. So if you look at on Slide 49, on the right-hand side, we have shown the trend in quarterly average. The [indiscernible] part of market correction has came in last week of October. So after the September quarter has ended. As a result, quarterly AUM of Q2 FY '27 remains strong at INR 1.43 lakh crores. This was up by 8% sequentially and 21% year-on-year. If you look at on the left-hand side, we have compared the average AUM for first half of FY '27, which were curren AUM. Historically, current AUM at this point in the year has been higher in the first half. These have usually provided a favorable base for growth in the second half. This year, [indiscernible] has brought our current AUM at par with the -- more or less at parity closing AUM of INR 1.37 lakh crores. So it is now slightly below our first half of average of INR 1.38 lakh crores. Now let us move to Slide 50 which shows the movement in our equity on a year-on-year basis and on a quarter-on-quarter basis. Now let me begin with the year-on-year trend on the left-hand side. Equity AUM has increased from INR 1.17 lakh crore in September 2025 to INR 1.37 lakh crore in September 2026. This is a growth of 16.2% or nearly INR 19,100 crores. Around 80% of this growth came from net sales supported by strong SIP flows. So despite the weak market environment and mark-to-market impact on our equity AUM was positive at 2.9%. Over the same period, Nifty50 has declined by 8.1% and Nifty500 has declined by 2.9%. Major reason of our outperformance is due to consistent SIP inflows which help investor benefit from the market volatility, supported by thoughtful fund selection and portfolio construction by our distributors. To whether these factors reflect the distributors alpha over in market by our network, which continues to deliver better for the investors. On the right-hand side, we saw the quarter-on-quarter movement despite a negative mark-to-market impact of INR 1,867 crores or equity AUM grew by 1.7% sequentially. We recorded net sales of INR 4,137 crores in the quarter. This is the highest quarter in net sales in our history. Now please move to Slide 51. It highlights our SIP performance. So as of September 2026, our monthly asset book stood at INR 1,272 crores, a growth of 17.2% over last 1 year. Our SIP collections are growing faster than the market. As a result, our share of SIP contribution has increased from 3.49% in September 2025 to 3.73% in September 2026. Our market -- AUM, excluding ETF, has also improved. It rose from 2.59% to 2.7% over the same period. This reflects strong net sales and the distributors alpha-generated or NFD. Now let us come to the most important part, which is the financial results. So let us move to Slide 54. It presents our consolidated financials. On the quarterly average AUM, as I already told you, our quarterly AUM grew by 7.9% sequentially. And mutual fund revenue grew faster at 9.4%. This faster revenue growth was primarily due to one additional revenue compared with the previous quarter. NFL otherwise has remained very, very stable at 88 or 89 basis points during the quarter. Our insurance revenue grew by a strong 35% sequentially. This was supported by fresh premium growth of 54% in General Insurance and 37% in Life Insurance. On a Y-o-Y basis, Life and GI fresh premium were up 45% and 62%, respectively. Now moving to our other financial and nonfinancial products, the revenue of which has grew by 14% sequentially. This growth was primarily driven by our PMS vertical. Our distribution of PMS product. Average PMS AUM grew by 37% year-on-year, and now it stands around INR 2,020 crores. Given this strong performance across all our businesses, our revenue from operations grew by 11.8% sequentially. Operating profit also grew at a much faster pace of 15.4% sequentially on account of operating leverage and operating margin, which has been expanded by 80 basis points to 26.4%. Other income has declined during the quarter. Higher bond yield created a mark-to-market drag on the debt portfolio. The hybrid portfolio also saw a reversal of earlier mark-to-market gain. As a result, other income fell by around 82% sequentially from INR 20.8 crores in previous quarter to [ INR 53.8 ] crores in the current quarter. And because of that, our reported profit after tax was at INR 71.7 crores, which was down by 4.1% compared to the previous quarter. I would ask you to separate that from the operating performance because they tell a very different story. If we set aside our other income, which is treasury line and not an operating one, profit before tax grew by 16% sequentially and 45% year-on-year. The operating business had its strongest quarter still. Taking the half year as a whole, revenue from operations grew by 20% to INR 736 crores. Operating profit grew by 37.6% to INR 192 crores with operating margin at 26.1% against 22.7% last year. So profit after tax for the half year grew 39.1% to INR 146.5 crores. Now as we highlighted in last quarter, the MF regulatory changes, which came in effect in April 2026 are prompting more distributor partner to join the Prudent platform that can support them with technology, compliance and operations. This is reflected in our onboarding numbers. We added around 3,541 new distributors on our platform in the first half. That is nearly 30% higher than the first half of last year. We are also very strongly focused on distributors across our MF [indiscernible] obtain a SIP certification and our SIP AUM, SIP AUM is nearly INR 900 crores. So let me address one of the very important point, which is ready to proposed regulatory changes in the institution distributions. Now if you look at the current consolidation paper, there's one change which I would like to just talk about that regulatory is looking at entire industry from a 2 segments. One is the independent distribution agents, which is IDA; and second is the independent distribution entity, which is IDE. All individual agents will fall under IDA while every other category whether it is corporate agent or insurance broker deal fall under IDA and Prudent falls under IDE. Now major change is related to commission as far as these 2 segment is concerned. Under the proposal, individual agent will earn more than organized distributor like IDE. Let me just give an example in health insurance renewal. Agent or IDA will earn 10% annual commission while IDE entities like Prudent will earn 5%. So IDE earn almost 50% lased than the Agent for exactly the same business. I believe industry has made a lot of representation on this, and we are getting the feedback. The regulatory is receptive to them. We have also sent our representation as well. What industry is asking is, at minimum, we should have a level playing field with the independent agents. We should be at par with them or somewhat higher. Let me explain why. At our end, we have invested significantly in claim support, technology and customer servicing. And we have a large team working in this department. And whatever we earn, we need to share out of debt earning with our POSP. So I think we all can understand, right, that if we do not turn, we cannot share. In the proposed format, where we earn 5% and an individual agent earn 10%, it will be very difficult for us to sustain this business. That said, based on the discussions and the feedback we are getting from various association, we do not expect -- we do definitely expect a workable middle part to emerge. That is still address the impact assuming the regulation came through exactly as proposed, which we believe is very unlikely, the current contribution of insurance business to our profit is roughly about 12%. So that is something which is probably might have the direct impact if the regulation comes and [indiscernible]. Now let us understand, even in this unlikely scenario, we see a potential offset an opportunity to accelerate our Mutual Funds business. If the proposal is implemented as drafted, it will affect the entire insurance distribution industry, including individual agents. With pressure on insurance income, many agents are likely to look for a second source of earnings. They can either grow their insurance volumes or add a complementary business. We believe Mutual Fund could become a significant part of that second income stream that creates an opportunity for Prudent. Agents who want to enter mutual-fund, distribution will need in technology and client servicing. Our pan-India branch network, tech platform and a team of around 700 sales employees give us the scale to support them. There is also an opportunity to raise our own productivity. Today, part of our management and the regional leadership team devotes their significant time for the insurance business. If that bandwidth is deployed to mutual funds, it can definitely support the stronger execution, higher productivity in a business where we already have scale. Now let me try and address another part, which is the recent regulatory changes by the regulator on the PMS front, as a manufacturer. Post regulatory changes, we are in the process of applying for a PMS license. As you all are aware that we have 100% subsidiary called Prutech, we have just got the approval from RSC, first change of name from Prutech to Prudent Asset Management Private Limited. And we are in the process of applying for the MF PMS. The MF PMS framework is expected to become -- become operational from April 2027. We believe we are well placed to have required license by them. Our focus for now is on the MF PMS. We see 2 opportunities in this space. First, we can provide PMS manager with the technology and back office support they need. This would be similar to the back what we have provided to mutual distributors. It would allow PMS managers to focus more on acquiring the clients. Second, there is an opportunity to serve HNI clients who want activity managed mutual fund portfolios. Our MF PMS offering can help address this need. So there is one part which I think we believe is going to be significantly large over a period of time. Second is we also see an opportunity in the bonds. We already hold an [indiscernible] license, here too, [indiscernible] has issued a consolidation paper on the clarity about this fixed income channel partner, which is just like your mutual funds distributors, they call it as FICP. So I think consolidation paper is in the process to define the FICP framework. And we are awaiting the final clarity on that before we launch it full fledged. Once the framework is announced, we can launch and use our MFD network to expand our online bond business. This opportunity gives us new ways to serve our partners and clients. They also allow us to build our existing network and capabilities. Over time, PMS and bonds can become additional growth driver for the Prudent. So with that, I would now like to open the floor for the questions.

[Operator Instructions] The first question comes from the line of Prayesh Jain from Motilal Oswal Financial Services Limited.

Just on the consultation paper again. There are -- one aspect where there is a difference between IDE and IDP where on the IDP side, they have clearly said that the individual agents will not have any options in the sense that if they are selling a health insurance product of a multiline player, they cannot sell another player, right? So if they have a -- while on the IDE side, they have optionalities, right? They can sell products of any insurance company, which probably you have tied up with or the broker would have tied up with. So I think there is one fundamental difference what the regulator is thinking between IDP and IDE. What are your thoughts there, whether the regulator would kind of concede to this that gives you -- we'll still have the option of multiple insurance companies and get a commission of IDP as well. That's the first one on the insurance side. And second is also on insurance where you said as it is, it is implemented, then you would have an impact. So do you think that this 12% contribution to earnings will be completely lost? Or do you think that the POSC model will not survive at all in this regulations per se? And third is, again, on the consolidation paper wherein if you think about the regulator is opening up all the other financial services, distribution to all the categories under the same license or you will have to apply for the license, but under the same entity, will be able to do it. Does that bring in more competition to your core business of mutual fund as well. Yes, those are my 3 questions.

So Shirish, you want to address all of these?

So of course, I would like to answer the last question, that is today, the brokers are not allowed to do multiple businesses except insurance. In consultation paper implemented, the insurance brokers also will be allowed to sell other products. Now I believe many of the brokers had the other group countries believing mutual \ funds or other deals earlier also. Now today, if we talk about Gennext or the insurance broker, Prudent was being the [indiscernible]. Similarly, there are a few a -- few big brokers in insurance and the group companies working in third-party products. Obviously, earlier also the people are working in another entity. Now they might work in the same entity. Of course, I do see more players may incur in the third-party distribution platform business. And for there are more and more people entering the platform users, obviously, the competition increase -- but at the same time, awareness for reforms also increased. Now last 3, 4 years, you already have seen many platforms entered in the Mutual Fund industry. Of course, it's a competition, but I believe that more and more people have started [indiscernible]. It's more the competition will increase. At the same time, more and more people we participate through the platform. Any feel offer a better competitive advantage to the individual seller or I think you will be able to attend that share. So that is my third question. Second point you talked about The revenue differential between IDA and IDT. See, there is a huge -- this is a revenue difference. Then probably the POSC will not be able -- POC business, but you have sorted won't be able to survive. Here, definitely a list on it and on where we handle both now -- is it better now?

Yes, sir, your voice is a bit tacky.

Is it better now?

It's better but still there is disturbance from your side actually.

Is it better?

It is better. Please, go ahead.

So coming to this probably like the revenue reduction is there between IDE and IDA, then why would they work with IDE. Now the opportunity part, I would say that today, an individual agent is allowed to work with one noninsurance company and one stand-alone health insurance company. So practically, what stand-alone health insurance continued there, many of the agents are working in the health insurance business with them, but in the same entity, they are working with 2 different companies, the new insurance and well as stand-alone hedge insurance. If the regulator or the consultant keep move as it is obviously they have to surrender one of these license for doing health insurance business, and that would be a deep opportunity for any IDE for that matter. Now tomorrow, IDA is only allowed to sell on health insurance. Now customers are definitely going to ask the multiple or multiple companies. [indiscernible] agent might have to go to any of the IDE. So yes, of course, by compromising the reset. But yes, I think that there is a huge difference in the payout between IDA and IDE, especially on a renewal side, it is going to be a big impact for platform like Prudent or the [indiscernible] in insurance, POS. But I believe volume might increase but of course, that might not [indiscernible] revenue. So that is the point two. Point one, I think I need that point one now.

One was [indiscernible] -- so what series is trying to communicate also that today, the -- this particular vertical contribute 12% of the profit our PB team. So I don't think that this entire revenue will disappear see overnight because still, let's say, for example, by end of this year, we'll have a book of, let's say, INR 300 crores of book in the head side or INR 10 crores here and there, it might be like a INR 290 crore or INR 300 crores. Now we worldwide people not have an option to move somewhere else because there are 2 things is happening on the IDA side, it has to decide and surrender one. So most of the guys are already working with 2 health insurance companies. So first thing has to be said that which one he has to surrender. And on another side, probably he has to decide which business we can move directly to his core. So I think this renewal business, probably my belief is that might continue. But overall, probably -- so there are 2 things, whether it will come as it is, then definitely gradually, it will have a huge impact. And you need to make sure that you are able to justify what you are doing probably [indiscernible] management, better technology, better servicing. So the point is every IDA need to -- so individual agent need to have the IDE because he cannot sell every product. [Foreign Language], I don't think it's good to -- how much is going to adjust who is going to do better? How are you going to probably come to a midway -- the out which will be desired over a period of time. And second important thing would be that most of the guys who are doing insurance business in our system are also having the background of mutual funds. and mutual fund is growing very rapidly. So probably, we believe that we'll definitely be able to use them productively in our existing business also. So I don't think entire 10% will disappear the overnight. I wouldn't comment, but very clear on that cost.

I understand question while competition accepting a competition is likely to increase, does that also mean that there could be a pressure in terms of the money that you would share with your mutual fund is, if you want to retain your distributors, you have to share higher with them on the mutual fund the compensation of insurance, some of it happens on the mutual fund side. And also because there's more competition in business said, there could be rather high with the distributors. So does that also in [indiscernible] car for you?

No, I'm just trying to say that when entered in this business, first of all, they'll try to convert their post network into distribution. -- they not target somebody else because for them, let's say, for when you look at one of the large players, they have always about INR 7 lakh kind of a post agent, they were recruited over a period of time. Now the first target is to create the second line of revenue for them as well as for the [indiscernible] platform. So my belief is they'll try to expand the market. And it may not be a direct competition to us, rather they definitely work on the expense of the market, Yes, Shirish?

Secondly, I think if I estate dividend obviously saving in higher commission, obviously, you might attract people for some time. But the higher commission payout long term is very, very difficult for anyone to survive. And obviously, I think we have the [indiscernible]. Now last 3, 4 years, what we have seen already, we have seen 5, 6 new entrant in this particular business with a higher payout [indiscernible]. I think still we have maintained our margins, our peer. We are able to grow. Obviously, now relet after 2, 3 years of higher paying strategy. Now the from the already started moderating their payouts in the market. So [indiscernible] can higher payout. Of course, it could be a distal for a few years, but not necessarily going to impact our margin to go and distributor, we believe that this is a very long-term service-oriented trail revenue efficient business. Obviously, they need that kind of confident that whatever the company is sharing right now to be able to continue consequently over a longer period of time and that kind of set a distributors and the industry has been prudent. So we don't see a challenge more people entering and impacting our margins.

[Operator Instructions] the next question come from the line of Dipanjan Ghosh from Goldman Sachs.

A few questions from my side. First, coming back to the consultation paper. I just made numerical data. If you can give the quantum of volumes generated in the POS business from the top, let's say, after your 100 POSPs versus others, that would be great. My second question is on the nature of the contract with this POSP piece. Now let's say, hypothetically, let's say, if all of them are to -- or some of them were to completely defocused selling insurance. What happens to the renewal revenues that you get from the manufacturers? I mean, are the renewal revenue pass through to the POSP renegotiated every year? Or how does that mechanism really work for you guys? My third question is that I think in response to the previous participant's question, you mentioned that most of the POS or the POSP might focus on increasing volumes or changing the product mix to better realize their top line. Could you give some color on the previous regime changes, either in mutual funds or in secondary market broking or in insurance over the last 2 decades, whenever there has been a cut-in expense ratio or realizations, how have the partners really responded and in terms of the volume offtake that you see or expect? Can you give some color on that? And last question is in your commentary, you mentioned that the regulator has kind of listened to the voice of the industry and there can be some middle ground that can be achieved. I just wanted to get a sense of how have the discussions really panned out? And what have been the hurdles from the regulatory spend that you perceived related to the POS channel?

Shirish, you can cover initial point, then I'll talk about the regulatory, lastly. Yes, Shiresh.

I don't completely. But the third point, what you talked about probably in the past, there were multiple under changes how the [indiscernible] during those people., I talk about for industry, but when the MP loans were abolished. Obviously, I think [indiscernible] regulatory change when we talk about distribution, that time any of the distributors who were dependent on the first year upfront. Obviously, they had a very, very big bang. Many of them have reduced and reduced their focus on the new centers and they enter in some other business in that time. After 3, 4, 5 years, when they realize that the industry has grown, many of them have come back in the industry. But those who continued focusing on the product wherein the commissions have reduced, I think they've grown substantially higher. After that, we have seen that in 2019, again, we saw that the TER cut has happened. Again, in 2020 April, we have seen that there is a regulatory changes and TER is impacted the commercial. Now during last 3, 4, 5 years, we have seen that every year, a few AMCs are continued the commissions on the historical book. In this again, we have seen that most of the agencies have cut on the historical book. So multiple rounds of regulatory interim has happened. Distributors have realized that there would be a cut in the commercial, but that is compensated by way of increasing the volume. So unlike that [indiscernible] unlike the time last 2 figures that multivariate there was a cut in commercial, we did not see any impact on our distribution base. these, I think now distributors are mentally prepaid that over a longer then there will be a cut in the commercial, but that will be compensated by way of increase the volume. In the insurance side, also, if you look at last 3 years, we have seen that every year, there was some kind of regulatory segments. Now one was the GST cut when the GE work got audience, the distributors income came down by down. Then we go about our surrender guidelines. Obviously, surrender guidelines also has impacted distributor agents or [indiscernible] commissions. Obviously, I think that also got impacted. But the focus on insurance continued by every agent. This time, probably the impact is much, much higher. But obviously, I think the impact is much, much higher. At the same time, other products [indiscernible], I think as also there. So stand-alone insurance agents we definitely get embedded more. But those who have been mailing business, obviously, the impact would be later.

Shirish, we lost you. Shirish?

This is the operator. I think his line has been disconnected. So let me just quickly connect him again. I would like you to continue answering this question.

Yes. So I think the bottom line is what you are just trying to communicate that historical evidence sees that all the regulatory changes has virtually brought the pain initially, but over a long period of time, every industry has grown. So I think that is the simple hypothesis, we believe that this change, it might be -- it may not be as hard as we have projected. We definitely assume that there will be a lot of changes which will happen. But finally, it will bring a lot of growth in the industry and who remain probably very, very focused to this with a lower margin, we'll get a disproportionate share out of this. That's a very important thing. Your second question was regarding the contractual understanding [indiscernible]

On the renewal book, sir.

On the renewal. So I think renewal also probably our remuneration will go down, I think that we'll also share less to them. So if, let's say, for example, you would have seen that your renewal rate would be x percentage. But if I do not earn x I cannot give x. So even though -- so I think there is a very -- every renewal is a contractual renewal and every renewal has a different rate. So probably I don't see any legal hurdle there, and we can definitely change our pricing structure to them based on whatever we are earning. Your first question was top 50 POSP contributor versus others. I don't have the data readily available because we never were other, but we can definitely provide you off and whenever you ask about that. But I think still my belief is that if you look at my MF concentration, I think it will not be significantly large because we have a good amount of people who participate in the insurance business. So I don't see a huge concentration is there also. Shirish, you are there?

I am there.

His question was about the contractor obligation with POSP and if there is a change, will our payout to POSP also change. So I just try to say that, yes, it's -- every contract is a renewal contract will be.

Every year newer contract. So where were our receivable changes on the renewal side, our payable collusion always on the renewal side. So from a onwards, assuming that there was real commission on the [indiscernible], we will be able to pass it on to even the end or that the margin will be impacted, but here, [indiscernible] able to pass it on the entire to the level.

Got it. And Sanjay sir, if you can give some color on the last question regarding the discussion with regulator?

So I think probably when we are talking to our friends in the industry, there are a lot of information, which we all have shared about the, let's say, persistency kind of activity, which do -- the kind of effort which we provide for the management kind of infrastructure, which we have created, I think the regulator is looking at very, very positively., for example, our 60-month persistence held is roughly about 85%, 86% -- sorry, in the life -- so which is a very, very positive number. So regulator has [indiscernible] only 48%, which is the headline number. We need that -- there are a lot of players who are probably doing things very, very constructively positively. So they are mindful of this set. My point is that when you talk to them, initial reaction was that they have probably have a very strong already decided, no, I think that's not the case. And they are receptive to these all the information. They are probably asking more and more data. So probably what we believe is that this time, we are talking about discussion with the data rather than an emotional [indiscernible] and if you are able to substantial I'm just trying to tell you that if I earn 5%, there is a cost of administration, claim management, technology team. After that, whatever is left, I can share with the POSP. Now I think that is a very strong message, which we need to give it to them with the data that out of INR 100, this is a cost which I'm already absorbing. And then I have to share. So I think this information has been very, very positive look by the regulator.

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