Good evening, ladies and gentlemen, and welcome to the 360 ONE WAM earnings call for Q2 FY 2026. As a reminder, all participant lines will be in listen-only mode. In case you wish to ask any questions or require assistance during the conference, kindly signal the host by tapping on the raised hand icon. Please note, this conference is being recorded. On the call today, we have with us Mr. Karan Bhagat, MD and CEO, Mr. Yatin Shah, CEO of the Wealth Business, Mr. Anshuman Maheshwary, COO, and Mr. Sanjay Wadhwa, CFO. I now hand it over to Mr. Sanjay Wadhwa to take this conference ahead. Thank you.
Thank you, Anil. A very good evening to all the participants. Starting with the macros, broader Indian equity indices witnessed volatility in Q2 amidst geopolitical uncertainties and valuation-related sentiments. However, at the same time, we also witnessed 50+ IPOs in H1, signaling strong domestic appetite and comfort around liquidity events. While geopolitical events are expected to influence broader markets in the near term, structurally, we continue to remain bullish about India's long-term growth story, which will act as a tailwind for India's wealth and asset management sector. Coming to our business, our total ARR AUM increased to INR 2,95,000 crore, up 22% year-on-year, with wealth ARR AUM crossing INR 2,00,000 crore. This growth was supported by strong net flows at INR 32,132 crore for H1 FY 2026.
Q2 saw strong net flows from our core wealth and asset businesses at INR 8,734 crore, excluding UBS, highlighting a lower impact of attrition-related outflows in this quarter. With multiple senior high-quality teams having been added over the last few quarters, we expect strong flows on the wealth business to continue over H2 and beyond. On the asset management business, gross flows remain on track, with greater visibility around new fund launches in the AIF and SIF segments over the next few months. Coupled with our ongoing discussions on institutional mandates across strategies, we remain very positive on our overall flow outlook for the year. Our ARR revenue for the quarter grew 39.4% year-on-year at INR 554 crore, led by strong growth in assets across business segments. Our ARR revenue as a percentage of total revenue from operations stood at 73%.
The revenue from the institutional equities business, which is B&K, is being classified as TBR. With this business integration, the overall sustainability of our TBR revenues improved substantially and is expected to reduce the periodic volatilities that we have been witnessing in the past, thereby improving the overall quality of earnings. ARR retentions also remain strong at 76 basis points. Excluding carry, the retention is 67 basis points. Total revenues stood at INR 813 crore, an increase of 32% driven by strong growth in both wealth and asset verticals. Total costs rose by 13.9% to INR 400 crore as against Q1. The overall costs include full quarter expense related to B&K Securities and continued investments in technology in new businesses, that is HNI and ET Money. The corresponding cost-to-income ratio stands at 49.2%.
However, excluding the investments being made in the strategic initiatives, OPEX ratio for the core businesses, which is Ultra HNI Wealth and Asset Management, improved from 45.4% to 44%. We expect gradual improvement in this metric for the consolidated business over the coming quarters as we scale up and drive synergies from the new initiatives as well as from incoming teams in the wealth segment. We are happy to report that the company recorded its highest ever quarterly PAT at INR 316 crore, an increase of 28% year-on-year. The tangible ROE is at 20.6% in Q2. The ratio is expected to improve in the coming quarters as additional capital deployed in our lending and alternate business in FY 2025 begins to reflect in the overall earnings. I'm pleased to share that the board has approved a second interim dividend of INR 6 per share.
With that, I would like to hand over to Anshuman to cover the key business and strategic highlights.
Thanks, Sanjay. Good evening, everyone. Taking Sanjay's comments on the overall business numbers ahead, I would like to share updates on our strategic initiatives. Starting with UBS, with the two legs of UBS, subscription to Warrants and the UBS India business transfer being completed, the focus is now on rolling out the overall global collaboration framework over the next few months. This will allow us to unlock synergies in both wealth and asset management over the near to medium term and establish the robust global expressways that we had envisaged initially to foster strong international collaboration. The leadership at both firms remains committed to realizing the full potential of this strategic collaboration.
Additionally, the transfer of UBS India business to us brings in over INR 5,200 crore of relevant AUM from 80+ UHNI families, along with significant potential for scaling as they come onto our platform and get access to our product offerings. The ramp-up on our HNI business is shaping up well, with over 50 RMs and over 380 clients across 10 locations being onboarded in the first half of this year. We remain very excited about this segment and see it as a strong feeder for our core UHNI proposition. Our capital market expansion through the B&K acquisition is tracking very well, with the current quarter's financials fully reflecting its strong performance. While B&K continues to maintain its position in the institutional equities segment, we have already started to see synergies coming to life by integrating B&K's treasury and equities offerings with our existing client base and broader business lines.
On asset management, our gross flows at about INR 7,000 crore for H1 remain stable across both listed equity and alternates. As mentioned by Sanjay, our new product pipeline remains strong for the upcoming quarters. We continue to strengthen and add sub-strategies across listed, unlisted, credit, RE, and infra, with this fairly unique diversified asset class platform allowing us to navigate the market cycles and volatility with great resilience. The pipeline on institutional mandates, both on public markets as well as specific alternates strategies, also remains strong, though the timeline for conversion may be longer in the current global environment. On our core wealth business, in addition to the continuing client and AUM flows, I wanted to reiterate our strong position as the employer of choice. We are excited by the senior teams that we've onboarded over the last few quarters.
The quality of talent we are seeing across geographies is significantly higher than earlier and gives us great confidence in our business as well as the maturity of the overall wealth industry in the country. Lastly, technology continues to remain a significant investment area with a focus on both internal as well as client-facing developments. We've also initiated pilots on using AI in various internal-facing use cases and look to expand on the same for a rollout across the firm. To sum it up, over the last few years, we've been consolidating in a steadfast manner across business lines to become a full-stack player around segments of wealth management, public markets, alternates, the global business, and capital markets with B&K Group, with an aim to further strengthen our leadership position in these segments.
I would also like to take this opportunity to thank all our partners and stakeholders who have bestowed this trust and confidence in us through this fantastic journey. With that, I'd like to hand it over to Karan and Yatin for Q&A.
Thank you, Anshuman. In case you wish to ask any questions, please signal by tapping on the raised hand icon. First online, we have Mohit Mangal. Kindly unmute yourself and ask your question.
Yeah, thanks for the opportunity and congratulations on an excellent set of numbers. My first question is on net flows. I think last quarter we were a little affected by attrition, but I think this quarter, even if I exclude the one-off from UBS India, the numbers look very, very good. Will we be able to maintain the guidance of 12% - 15% of opening AUM for the entire year?
Thanks, Mohit. I think net flows continue to remain strong. Generally speaking, capital markets have been super strong and obviously both deal activity as well as primary market as well as secondary markets are fairly active. Our market share continues to be fairly strong in these segments. They've joined us over the last three to six months and they've started contributing in a meaningful way. A large number of teams still have just about joined and will contribute in a meaningful way over the next six to twelve months. Overall, I continue to believe the 10% - 12% number will flow through with a great degree of confidence. In quarter two, like you rightly said, outside of the UBS flows also, we've got nearly INR 8,000- INR 8,500 crores of flows. That's a number which hopefully we can improve over the next two quarters.
Understood. In terms of a cost-to-income ratio, I believe that our goal to have that 45%, 46% with the acquisition as well, I think this is a few quarters away. Do you see that cost-to-income actually improving meaningfully in, say, the next three to four quarters?
I think three to four quarters, fast forward to, let's say, a similar quarter next FY, let's say Q3, Q4, I would say 48%, 49% is more of a reality, and for the same quarter next to next year, maybe closer to 46%, 47%. I think there are two, three, two new businesses we are also going to be building out. In some senses, I think, you know, if I look at the standalone cost.
Apologies, we are facing a slight network issue. We'll have Karan back.
Sorry, you couldn't hear me?
Yeah.
Anil?
Yeah, yeah, we couldn't hear you.
Now it's better.
Yeah, on the network. Let me do it from the phone because I think the network is not working. One second.
Sure.
I can start speaking. Don't worry.
Yeah.
Just switch it on. Yeah. Who sent it to me? Akshay, right? I'll log in from my phone also. Anil, switch it on. Yeah.
Yes.
Hi. Sorry, Mohit. I think I have a slightly unstable connection. I'm moving.
No problem.
Just moving my location, but I'll keep my camera off for a minute till I log in from my phone. Sorry, I just forgot the question.
The cost-to-income we are speaking about.
Yeah, the cost-to-income. Yeah. Basically, I think Q3, Q4 of next year, I think we'll be closer to the 47%, 48% mark, 45%, 46% Q3, Q4 of the year after that. Obviously, if I just look at the standalone numbers on the core businesses, which is the ultra-high-net-worth business, the alternate business, and the listed businesses, there we'll definitely be at 45%, 46% standalone within the next couple of quarters itself.
Right. It makes sense. Makes sense. One question that we always get from the clients is basically, you know, we are facing stiff competition as well. We are hiring a lot of RMs. How long does it take to break even while we hire an RM, assuming that he's at a higher salary bracket?
It's a great question, I think, Mohit, but at the same point of time, let's also remember that it's just not a standalone break-even, right? Because we've got a lot of clients. In some senses, there's a net addition and there's a little bit of churn which we are replacing. In a sense, RMs are not necessarily walking into an absolutely fresh start. Obviously, at the levels at which they're coming, they're able to move 20%, 25% of their, or maybe 15% to 20% of their current book. We are able to kind of add at least 25%, 30% of their current book to them either through new references or through our corporate connections or potentially also from maybe some RM who's left and his book is handed over.
In a sense, if you kind of look at an RM absolutely, absolutely fresh in the system and he's kind of starting out, I think break-even would be somewhere between the two and a half to the third year. Obviously, fourth, fifth year he becomes profitable and after five years he becomes super profitable. In a system like ours where he's coming in with, where he's already got a little bit of a book to join and a book to kind of start with, I think I would say around about 18 to 24 months at senior levels is possible.
Understood. That's very helpful. My last question is a data keeping question. Can you spell the ESOP expense for the quarter?
Sanjay, can you come in there, please?
Currently, we've been disclosing overall variable expenses and separately, not really ESOP expenses. If you want, Mohit, we can separately share it with you.
Mohit, very, very approximately, it'll be approximately, you know, give or take around about 2/3, 1/3. Approximately 2/3 will be 60% - 65% will be your variable bonus component and 35%- 40% would be ESOPs.
Right. No, that's great. I'll join the queue and wishing you a happy Diwali.
Thank you, Anil. Thank you. Thank you, Mohit. Next in line, we have Lalit Dhiyo. Lalit, kindly unmute yourself and ask your question.
Yeah, hi, sir. Congratulations on a good set of numbers. I just have two, three questions. Firstly, in this quarter, we have seen another good quarter on the TBR income, excluding B&K's number. I just wanted to understand what would drive those numbers, and could you also give a rough split of the overall INR 280 crore between different segment line items? Secondly, on the HNI segment, we are seeing some pickup in the revenues while it's a small component. I just wanted to understand how should one see that overall book coming up in FY 2027 and FY 2028?
Anshuman, can you just take that question? I'm going to log on from another device here to make it easier. Yeah.
Sure. The first question on the TBR, I think the transaction activities remain strong. Of course, if I just break up and go back to what are the elements that go into TBR, we obviously have now the B&K business also sitting over there, which is the institutional equities broking. From our wealth standpoint, the first component is equities broking. That is getting a fill-up, early days, but getting a fill-up with the access to B&K research and the new proposition that is being taken to our clients. The second element is around unlisted transactions, unlisted equity transactions. Like we've shared earlier, it's been doing trades on NSE and similar ones. The third is debt syndication work that we do. The fourth is other brokerages that are done. The TBR for this quarter includes a combination of the two.
I think about 15% - 20% of it goes to the core equity broking and about 25% - 30% is the unlisted side.
We also had a lot on the REIT side.
Yeah, that's, I don't know, Lalit, if that answers the question on the TBR.
Yeah, sure, sir.
Yeah, Karan, you're back to speak on the HNI segment?
Yeah, yeah, I'm back. No, I think on the HNI segment, we've made some good early progress. We've now got around 35 relationship managers who've joined us from various platforms. The core part of the technology is being set up and it's launched. We'll continue to add different lines of products as we go along. We've grown the AUM to around INR 2,300 -INR 2,400 crore on the high-net-worth side. From a business perspective, we're looking for a shorter break-even window on the high-net-worth side. Our own ability to add different levels of products and segmental offerings, including loan syndication and so on and so forth, will be fairly quick there. From a platform perspective, we should be able to add most of the extended products over the next three to six months.
There's our own ability to reach out to all our promoter families who've been clients with us and get access to their network. Especially clients between [ 25 crore - 50 crore] will be fairly high. Our initial team of 35 to 40 people is kind of just getting set up. Of the 35 RMs, approximately 25 or 26 have already joined, and another 10 to 12 will join over the next 30 to 45 days. Overall, towards quarter three, quarter four of next year is when we'll see early signs of break-even. From a business perspective, the break-even is not going to be a very, very long curve because our ability to monetize these set of clients with our existing product lines should be fairly high.
In case you wish to ask any questions, kindly signal the host by tapping on the raised hand icon. Next in line, we have Prayesh Jain . Prayesh, kindly unmute yourself and ask your question.
Hi, Karan.
One question is on the retention bit, wherein if I look at the mutual fund, mutual fund business on the AMC side, we've seen a significant increase in the retentions, while on the distribution side, we've seen a sharp decline on the retentions. What's going between these segments to kind of understand the retentions?
Nothing really specific. I think asset management, obviously, the distributions, you know, kind of the retentions move a little bit up and down with the carry, but overall, trend remains the same. I think mutual fund distribution, obviously, you know, we have got a good mix of equity, fixed income, and hybrid schemes. Mutual funds typically for us remain in that 40, 50, 55 basis points. I think AIFs and PMSs remain in the region of 75, 80 basis points on the distribution. Managed accounts, obviously, again, between the 85 basis points - 90 basis points. No real secular trend change in that. Obviously, on the managed account side, continue to be between the 90 basis points - 110 basis points, depending on a little bit of carry accrual and so on and so forth. I think the core retentions are about 90 basis points.
Then, obviously, 10, 15 basis points can increase basis carry.
Okay, just on the mutual fund bit, you know, on the AMC side, we've seen a 58 basis points retention compared to 43 basis points in 1Q. That was the trend for most of the last year. From 43 to 58, and on the listed equity, we've jumped from 49 to 65 on the mutual fund side. There has to be some real change to see that kind of a bump up on the yields, right?
No, Karan, I can come in on the mutual fund on the asset management side. I think that is just more one of the trends will remain, you know, Prayesh, as you said, in what it was through the course of the year. I think last year also in one of the quarters, we saw a bit of a bump up because that is where the excess provision gets passed on from the schemes to the AMC. It provides a one-off lift. On an ongoing basis, we would expect the retentions to remain in that 45 basis points or close to the 50 basis points on the asset management side, mutual funds.
Got that. On the flows front, if you could give color between in the first half, how much of the flows have been coming from new customers acquired in this period versus, say, the existing customer base?
I think from a new flows perspective, obviously, I think the existing customer base is around about 30%-35%. I think on a gross basis, it'll be around about, you know, if I add both the quarters and look at some of the net flow redemptions from some of the older clients, I think our total flows will be around about INR 12,000, INR 12,500, INR 13,000 crores, of which obviously we've got INR 3,500, INR 4,000 crores of attrition and net flows outside. Overall, we've got INR 8,500, INR 9,000 crores of net flows. I'm excluding UBS. Off that, obviously, I think if I just look at, if I look at just a standalone number, close to 90% will be from new investors. At a gross number, which is the right way to look at it, because we've got new flows from existing clients, the number would be around about 65%-35%.
65% would come from new clients and 35% from older clients.
Got that. Yeah, that's helpful. I'll come back in the queue for more questions.
Thank you. Thank you, Prayesh.
Thanks, Prayesh. Next in line, we have Dipanjan Ghosh. Dipanjan, kindly unmute yourself and ask your question. Thank you.
Hi, Karan. Hope I'm audible.
Yes, absolutely. Hi.
Just a few questions from my side. In terms of the carry income, and not only on the AMC part, but also on the wealth business where you book carry on the distribution side, you've already clocked INR 100 crore for the year. I just wanted to understand in terms of the trajectory of, first of all, when you do your accounting for accruals of carry, how much buffer do you kind of tend to maintain on the current IRRs? How should one think of it incrementally going ahead? Second question would be more on the RM front. You've obviously onboarded a few teams on the ultra-HNI side. I just wanted to understand, are you, I mean, is it done or are there a few more teams, especially on the ultra-HNI side, which can be expected over the next, let's say, six months?
Third, and the last question would be in terms of the transactional revenues. This is the question you often get from investors. In terms of the bulkiness of the revenues out there, is there sufficient product pipeline, let's say, for the next two to three years? If you can give some granular color on that part.
No, fair enough. I think I'll start with the carry question and then I'll head to the remaining two. I think purely on the carry question, I think we follow a fairly, you know, published kind of conservative carry accrual process. We really don't look at carry for funds unless they are 18 months away from maturity. The first time we really look at funds is when they are only 18 months away from maturity. In some senses, that by itself is conservative because the funds have become pregnant with the mark-to-market gains for at least a long period of time. A large part of the gains may also be already realized by then. Part of it may also be unrealized, but part of it will be realized for sure. Even during the last 18 months, we start off by kind of accruing only 10%.
I think, Sanjay, please correct me if I get some of the percentages wrong. We start off by accruing 10%- 15% in quarter one, quarter two, and then kind of keep building it up towards the maturity of the scheme. Probability of a large reversal in carry is virtually impossible because we're kind of coming in with very, very small increments of carry recognition. The first time we really start is 18 months away from maturity. In this instance case, we've got a financial services fund of INR 1,000 crore, which we'd invested in 2021. The value of that's kind of moved to around about INR 3,500, INR 4,000 crore. It's only the first time over the last two quarters that the carry recognition has started in that fund because that fund is now 18 months away from maturity.
That's why there's a little bit of bulkiness in the carry in the last two quarters. Having said that, for example, subsequent to that, all the six funds we've launched and they're doing fairly well, the carry has not really started coming in because they all have substantially more than 18 months for maturity. Does that make sense?
Absolutely, Karan. I mean, thanks for the detailed explanation.
Yeah, thanks. In terms of recruitment, I think it's an ongoing process. I think we have a lot of exciting teams, hopefully joining us over the next three to six to nine months. I think the ultra-high-net-worth business itself is seeing huge spurts of growth. I think we would have today 4,000 families, 4,500 families engaged with us on a day-to-day basis. I would say we are really deep in wallet share and meaningfully engaged with 1,800 to 2,000 of those families. Today, as we add teams and build them out, I think it's fair to say that that 4,000 number itself can move to around 10,000 over the next three to four years. Your meaningful engagement will continue to remain with 35%- 40% of them. Hopefully, you can kind of keep creeping into the wallet share as time goes by.
If you ask me, honestly, I think maybe potentially three to five teams in each of the big locations like Delhi, Bombay, and Bangalore, and potentially a couple of teams in Chennai, Calcutta, and Ahmedabad is something which is good to go. I would be disappointed if we can't add seven to ten teams over the next 12 to 18 months, which effectively would mean around 60 RMs - 80 RMs. Honestly, I think if you were to kind of fast forward our growth and we look at managing 8,000 to 10,000 families over the next three to four years, we're potentially going to need around any right number between 280 RMs - 340 RMs to handle that. If I kind of look at maybe potentially 70 to 80 senior team leaders, for the lack of a better word, we potentially need another five to six RMs within each team.
Overall, in the next two to two and a half years, around 15 to 20 team leaders and potentially another 100 RMs - 120 RMs is something, all things being equal, we are excited about recruiting.
Got it, Karan. Maybe on the last part, on the transactional, in terms of the visibility.
Yeah, yeah. I think on the transaction side, I'll give a fairly detailed reply and I've given that reply in the last earnings call. Honestly, I think if I just fast forward, obviously, there are three objectives from a transaction income perspective. One obviously is to ensure that it's as less volatile as possible through all market cycles, which therefore means it is multi-asset class. It is primary market, secondary market. Thirdly, it is addressing multiple segments in terms of kinds of clients it's dealing with. All those three make it substantially more steady. To explain on the asset class, obviously, today, over the last 12 to 18 months, there is substantial excitement on REITs, for fixed income, private credit, a lot of the international products. You've got obviously listed equity, which has been slightly muted.
Private equity has been quite exciting in certain pockets, a little muted in certain pockets. You should be able to, then you've got a little bit of real estate, a little bit of, we hardly do insurance, but a little bit of insurance. All of these seven, eight things you have to merge together to be able to make it in all seasons transaction income. We are not really dependent on one specific category. Now, obviously, with the B&K acquisition, brokerage is something which is also, institutional brokerage in that sense doesn't grow that fast, but also at the same point of time, fall, doesn't become 100, 0. I think overall, if you see, if you look at our transaction income and we fast forward our thought process to 24, 36 months from today, we would at least want it to grow at the rate of 10%, 15% a year.
Today, let's say on a steady state basis, it's INR 750, INR 800 crores. We would like it to be in the INR 1,000 -INR 1,200 crore range. I think 50% of that really comes from, or 40% of that really comes from equity, equity brokerage on the secondary market side. I think today that number for us would be, give or take, around about INR 300, INR 320 crores, including the B&K numbers. That should steadily grow to INR 500, INR 550 over the next two and a half, three years. We need to remember that we are super underpenetrated on the ultra-high-net-worth side in terms of brokerage. Today, that number is only INR 70 crore. We pack in research along with our current segment of ultra-high-net-worth clients.
We're sure we'll be able to grow our brokerage income from INR 320, INR 330 crore today to around about INR 500 crore in two and a half, three years. The remaining INR 500 crore of transaction income really comes from the smaller parts, INR 100 crore of debt syndication, INR 100, INR 150 crore on the REIT side, INR 100, INR 150 crore on the unlisted side, INR 100-odd crore on real estate, and so on and so forth. I think overall, we want to ensure that the INR 900 to INR 1,200 crore remains our target goal. Not only just from a number of INR 900, INR 1,200 crore, but it should be multi-asset and, you know, in a sense, all seasons. I think that's really where we are.
We're kind of modeling a fairly modest growth of 8% - 12% on transaction and brokerage revenue, given the fact that we're coming off a high base, and also ensuring that, you know, our ARR revenue is kind of constituting 75%, 80% of our overall revenues.
Got it, Karan. Thanks for all the detailed explanations. Just one small theoretical question. In terms of the UBS journey, when you look at your, you know, let's say P&L three years out, do you kind of envisage any number in terms of the UBS strategic tie-ups contribution to your P&L?
Yeah, honestly, I should be in a better position to give you a broad range of a number, maybe six months from today. Too early to kind of guess a number. Having said that, obviously, I think a massive amount of synergies on multiple fronts on UBS being able to raise money for us, us being able to kind of use UBS's platform to raise money for our NRI and global clients, and additionally also see how best the LRS money can be utilized on the UBS platform. Lots of synergies, still not there to be able to quantify a number. As Anshuman had pointed out, we're just about signing the collaboration agreement.
I think starting mid-November, end November, we should be able to be in a position to start referrals both ways, as well as look at ways for us both to start looking at products coming on each other's platform. I think, honestly, six months from today, we will know what's feasible, what can be done fast, what can be done with a great degree of surety, but with a little bit of time. I want to get into a pure number-driven business plan around about five, six months from today.
Got it, Karan. Thanks and all the best to the team.
Thank you.
Thank you. In case you wish to ask a question, kindly tap on the raised hand icon. Next in line, we have Sanketh Godha. Sanketh, kindly unmute yourself and ask your question.
Thank you. Thank you for the opportunity. The first question is on a little data keeping. This INR 2,450-odd crores coming from UBS, where exactly is this sitting, whether it is in 360 ONE Assets or Distributed Assets or Lending? If you can give a breakup of that INR 2,450-odd crores, where exactly it is sitting in the wealth side? That's my first question. Maybe I will ask question by question if it's okay.
No, if you can ask all the questions, it'll be easier, Sanketh. Yeah.
Okay, perfect. The second thing which I wanted to check is that your lending yields or NIM, rather, has come down to 5.83, typically upwards of 6, given that we had a capital infusion benefit. Is it that we have lowered the rates on loan against shares or is it due to some other reason? Related to that, if on warrants of UBS, when they will convert into equity, how much bump up can you see in this yield to happen because of cost of funds coming down? Basically, just wanted to understand your wealth yields overall, which came by 3 bps for the quarter on quarter. I know it's here and there, but whether it can meaningfully improve because of either loan against shares going, interest rates going up, or warrants getting converted into equity. Just wanted to understand that.
Lastly, on distributed wealth assets, the yields are around 59 bps. Is it compared to 64 bps what you reported last quarter? Is it largely because the new RMs who came, the broker growth change, has still not contributed to revenue, but contributed to the AUM? Maybe one year down the line, it might contribute to yields. If that is the case, how much it could be potentially?
No, fair enough. I think all questions are relevant. So just from a UBS INR 2,450 million, obviously, right now, only the warrant amount of money has come in. At the point which it comes in, obviously, I think it'll get invested back and used in the business, both on the NBFC side as well as on the alternate asset side for sponsor capital. I think, again, maybe the right appropriation of the INR 2,450 million will kind of do once the warrants are close to conversion. For the moment, I think we ended up using around 55%-60% of the money towards the NBFC capital and 35%-40% towards the alternate assets business from both a QIP raise earlier, as well as the UBS warrants exercise, UBS warrants initial payment of 25%. In terms of the NBFC net interest margins, no real dramatic change.
Obviously, I think generally speaking, for our large high-value clients, we've done a 25-50 basis points reduction. The larger impact is on account of the fact that we transferred the UBS loan book towards the end of the quarter, towards the fag end of the quarter. There, the pricing is a little lower. More important than that, we took the full ECL provision for the entire book without actually earning interest for the entire quarter. That kind of gets normalized through the next quarter itself. Lastly, I think on the distribution assets retention, I think, again, broadly correct. There is around about a one basis point natural correction on the distribution piece. Otherwise, the remaining one to two basis points is just a function of some of the newer assets coming in, and it'll become kind of revenue accrual over the next six to nine months.
I got it, Karan. Lastly, the quarterly run rate of around INR 9,000 crore of net flow number, which you guided in the queue and you broadly achieved in the current quarter. You still remain confident that INR 9,000 crore of quarterly run rate kind of number to continue.
Yeah.
If you can give that breakup, probably how much might be from wealth and maybe AMC?
I have to be honest, all things being equal, see no reason why it shouldn't happen. Obviously, if something crazy happens in the world or something like that, it's a separate issue. I think fairly confident, just given our Relationship Manager's strength, our product innovation, the product platform, and our own reach, and our ability to kind of assess different asset classes in the market. I think our ability to be at that 8,000 to 10,000 or even maybe potentially some good quarters, slightly more in terms of net flows, really don't see a reason why that won't happen.
Likely breakup, you would see the flow predominantly will come from?
I think it'll be 75% 25%, 75% on the wealth side, 25% on the asset management side.
Perfect. Thanks, Karan.
Thank you.
Thank you.
Thank you. Next in line, we have Nidhesh Jain. Nidesh, kindly unmute yourself and ask your question.
Thanks for the opportunity. I just have one data keeping question. What is the B&K transactional revenue in Q1 and Q2 that we have shown in our P&L?
We've not kind of disclosed it separately, but I think it's broadly the same range as what it was, which we disclosed at the point of acquisition. It's approximately in the region of INR 15 - INR 16 crore a month, around INR 40 -INR 45 crore a quarter.
In Q1, we have reported only 15, and this quarter will be 45, right?
Yeah, approximately.
Okay, thank you. That's it for my section.
Thank you. In case you wish to ask a question, kindly tap on the raised hand icon. Next in line, we have Siddharth. Siddharth, kindly unmute yourself and ask your question.
Hi. Thanks for the opportunity and quite a resilient performance considering all the attrition and other stuff that had happened. In that context, I just wanted to understand the INR 9,000 crore of net flow. If we remove INR 5,000 crore that came from UBS and roughly about INR 2,500 crore that came from HNI, right, is it fair to say that the ultra-HNI business broadly got in about INR 1,500 crore of net flows this quarter?
No, no. Anshuman, can you just correct it?
Yeah, sure.
Happy to correct that. I think if you look at the INR 9,300-odd crores in wealth, the net flow that we've highlighted includes INR 2,400 from UBS. A net of UBS.
Sorry, yeah, sorry.
7,000-odd crores plus another INR 1,850 crores from AMC. Core business itself, excluding UBS India, is close to about INR 9,000 crores of net flows. HNI, of course, is included in this, but HNI, again, the INR 2,000-crore number that we mentioned is for H1, not just Q2. Part of it is coming in Q2, of course.
To answer your question, the core business net flows itself is around INR 8,500 to INR 9,000 crore for the second quarter.
Yeah.
Understood. Okay. That's both ARR, TBR, everything, right?
That's only ARR.
Only ARR.
Okay, because for some reason, if I look at the data book, right, ARR net flows total is INR 9,300 crore. I'm assuming that includes UBS everything, right?
No, just to highlight, that is INR 9,322 million is the wealth ARR net flows.
Right.
That includes 2,450 of UBS India.
Right.
Because the rest of UBS India is also transactional. It's a combination of transactional and active ARR assets. If you add the AMC flows into it, you'll get the core business flows.
Understood. In terms of how clients are investing, if we look at your yields on distribution assets in the mutual fund portfolio, those have dropped from, say, 45 bps, 46 bps all through last year to about 40 bps. Therefore, is that to do with asset allocation shifting more towards passives or debt from on the client side? I'm referring to distribution mutual fund yields.
No, I hear that. I think it's a combination of four things. One, obviously, I think you're rightly saying it's a bit of an asset allocation. If you see in the last six to eight months, I think generally speaking, ultra-high-net-worth allocation to listed equities being slightly lower. Obviously, SIPs and stuff like that continue, but generally, you know, people have found a little bit more investment into maybe in some cases alternatives, but a lot of investment has gone into yield and credit and also in arbitrage and debt. In some senses, yes, it reflects a little bit of change in asset allocation. Second, obviously, I think passives itself have also got some more money as compared to the actives. Third, you know, the broker quote change obviously has some impact with a continuous addition of RMs. A lot of the AUM is currently kind of not yielding.
Fourth, generally speaking, I think, you know, these schemes which we've kind of invested in are also fairly optimized in terms of cost. It'll be a combination of all those four, but the first two will be the larger reasons for it, and the bottom two will also kind of account for around about four to five basis points.
That's useful. Do you expect this asset allocation to continue for a little while? How are you perceiving this? Therefore, because that's the larger impact on yield, right? How are you seeing it?
I'm not too worried, to be honest, on beyond mutual fund distribution yield. I think mutual funds are one of the portions of the portfolio. I think it's going to have some impact here and there. I think generally speaking, mutual fund yields will be a combination of debt and equity for us. In my mind, it's safe to say that from an asset allocation perspective, it's going to be broadly a function of the market. There will be times when more money is going into equity. I think just given the way we operate, I think it's safe to assume a 45 basis points - 47 basis points as the long-term retention. I think the retention moves up a bit as we build out our mid-market business because there obviously it'll be slightly more mutual fund-focused and broker or regular quote-focused. That will improve the yields.
Outside of that, just given the fact that we already have a fairly large size and any addition of mutual funds will only have an incremental impact on retentions, I think that a broad region of 45 basis points is a fair number to look at.
Thank you. The last one that I had was more bookkeeping. You've seen an increase in the depreciation amortization. Is that towards any specific asset that we've started?
No, just the tech build-out on the high-net-worth business is being depreciated. Yeah, I think that's a relatively small amount. It gets depreciated over a period of time.
Yeah, thank you.
Thank you, Siddharth. Next in line, we have Sunil Desai. We have a few more people lined up for questions, so if you could restrict yourself to two questions. Thank you. Go ahead, Sunil.
Hello. Am I audible?
Yeah, Sunil, you're audible. Hi.
Yeah, okay. Yeah. My first question is regarding UBS. UBS, I think you reported some INR 2,500 crores of net flows. I think in the last quarter, it was said that total AUM was at a much higher level, something around INR 20,000 crores of it. Is it that there is also some TBR component to it? Is that the reason that the number is lower? Secondly, if you can just quantify what percentage of the AUM actually flowed through from UBS to your books and how much of it maybe went out, people who didn't come to your platform? That is the first question. Secondly, on the HNI segment, you have given a breakup where we have seen the revenue have increased significantly, but so has the loss has also increased.
Is it because of the new RMs you have hired more or what would be the reason for that?
Can you repeat the second question? Sorry.
In the PPT, there is the segmental breakup where you have given in the HNI segment. The revenue has seen a large bump up in Q2, but the PPT has also declined. Is that because you have a higher cost over there from more RMs being there or any reason for that?
Yeah. No, so I think the answer to the first question is I had corrected in the last investor, in the last quarter call. It was not INR 20,000 crores. We were expecting around about INR 8,500, INR 9,000 crores of relevant AUM. The rest was really custody assets. Of the INR 8,500, INR 9,000 crores, we had expected maybe around about, ideally speaking, INR 6,000, INR 6,500 should have moved in at around about INR 4,000 crores of ARR AUM and potentially INR 2,000 crores of other assets. Compared to the INR 4,000 crores, we've got in INR 2,500, INR 2,600 crores. And of the other relevant AUM, out of another INR 4,000, we've got around about INR 2,500. As compared to what we had expected to get around INR 8,000 or INR 1,000 crores, we've got around about INR 5,000 crores of AUM on the UBS side.
That's really on the UBS update. On the high-net-worth side, you know, obviously, the cost has kind of gone up because of the RM recruitment. I think that will continue to kind of reflect a similar trajectory for the next three to four quarters as we kind of beef up our recruitment there. Early shoots for the business are very encouraging for us because both in terms of product adoption, monetization, and also the digital interface in terms of ease and ease of account opening is quite high. We remain fairly excited about that business. We're unlikely to build an army of 4,500 people, but we've got some internal movements also happening. Quite excited about that. I think, as I said earlier, I think it will take around about three or four quarters to stabilize.
I would expect it to kind of be very fairly close to break even in Q3, Q4 of next financial year.
Okay. Thank you. Super actually. Congratulations on a good quarter.
Thank you. Thank you.
Thank you. Next in line, we have Abhijeet Sakhare. Abhijit, kindly unmute yourself.
Am I audible?
Yes, Abhijit. Hi.
Hey. Hi, Karan. Hi. Good evening. I have a couple of number questions. One is if you could tell me the number of RMs and team leaders as of the quarter end. Secondly, we had this data around the number of overall clients and clients with more than INR 10 crore of assets. Those two data keeping questions. Lastly, as a sort of a qualitative question, when we think about the ultra-HNI market, the general assumption so far for a very long time has been that it's largely a two-player market. Do you see that changing significantly over the next two to three years? That'll be all. Thank you.
Yeah, I'll just start with the second question. I'm hoping, Anshuman, you get the more accurate numbers for both the first data points. I can give an approximate range. I'll start with the second question. I think, you know, imagining it as a two-player market forever is a virtual impossibility. I think today the size of the market is very, very large. Just given what's happened in the industry over the last 6 to 18 months, just in terms of transactions, wealth creation, you know, wealth creation is happening from all sides. I think the middle segment is growing to the ultra-high-net-worth side. There's transactions on the unlisted side. There are at least eight or nine sectors which are very, very active at all points in time. IPOs have also been fairly thick and fast.
To be honest, for the two-player market, I think it's kind of, I would say, we are blessed in more ways than one. I think we've been able to retain a fairly decent market share. I think there's a huge space for a third, fourth, fifth, sixth players, at least for two or three more players. I would be really surprised, you know, I won't complain, but I'll be really surprised there's no strong third, fourth, fifth player which comes into the market here. That's really what my view is. I would like to believe we have around about 8% - 11% market share on the ultra-high-net-worth side. I think if we can maintain that and maybe potentially increase it by 200, 250 basis points and take it up to 10% - 12%, it would be great because it would be 10% - 12% of a much wider number.
Will it kind of phenomenally increase just purely from a market share perspective? I think that would happen in case there's a bit of a contraction in the market. Hopefully, the market keeps expanding like this for the next 10 years, in which case I think we'll definitely see two or three more players kind of emerge. It could be either boutiques, it could be brokers, it could be banks, it could be, you know, newer, you know, some maybe investment banks trying to make the change. It could be either four or five of them. You may see two or three of them emerge out, but definitely there will be a third, fourth, fifth player which will kind of come in. In terms of relationship managers, I'm quite sure of a broad range. If I'm a little off, I'll request Anshuman to correct it.
It's approximately, we would have around about now close to 100, 110 team leads and around about 240, 250 relationship managers.
Yeah, absolutely correct, Karan. Even on the families bit, we have about a little over 4,200-odd families and corporates, including the work that we're doing from a treasury standpoint.
Got it. Thank you so much.
Thank you, Abhijit.
Thank you. We'll just take one follow-up question from Prayesh. Prayesh, kindly unmute yourself and ask your question.
Yeah, thanks for the follow-up again. Karan, just on the AMC flows, we've seen a very strong AMC flow, and that's mainly coming from the alternate side, largely from the alternate side. This is probably the highest level of what we've seen in many, many quarters. What drove this and the sustainability of the same? Obviously, you mentioned that you have new product launches coming in, but what drove this and what could be the trend going ahead on this?
Prayesh, to be honest, we've had very, very good flows for the last six to seven quarters. It's just that it's not shown up as net flows because we had SOF 127, which in terms of pure market value was nearly INR 15,000 to 16,000 crore because we had collected INR 6,000 to INR 7,000 crore in 2019, and we were returning all of that money. All of that money has just got returned over the last six, seven quarters. We nearly returned close to $2 billion back to clients. Actually, part of the strong growth on the alternate side was getting kind of offset by the flows being returned to clients for our series of special opportunities one to seven. Otherwise, generally speaking, response to our alternate products has been very, very strong for the last eight-odd quarters, including the current quarter.
Our current quarter is also kind of, it's not very different from the last eight quarters. Obviously, if you just look at the pure net flow number, it's showing slightly higher because it's showing a very good number because the redemptions have stopped. Going forward, I think the situation remains the same. I think just in terms of pipeline, alternates, both in terms of strategies as well as in terms of asset classes, is very wide, right? You've got credit, you've got real assets, you've got different stages of private equity, you've got mid-stage, late stage, then you've got different, different, different kind of themes in terms of pipe, consumer, tech, healthcare. There's a huge assortment of things happening. Obviously, we've launched a couple of funds in the GIFT City also. Honestly, just in terms of levers on the broader alternate side of the business, it's fairly large.
Honestly, the limit will really be our own execution and our ability to do it in a good way. We've really invested strongly in building the investment team on the alternate side. Today, if I was to look at each of these strategies, we pretty much have one CIO and maybe four to five portfolio managers in each of these strategies. That's giving it a lot of strength. Honestly, I would hope for even better collections on the alternate side in the next 24 months.
Just a follow-up there.
Yeah.
Like we have about, you know, you mentioned about a fund getting closed in the next few months for which you are recognizing the carry. The outflows will start from probably a year down the road on that.
Next 18 months. We start our carry recognition from 18 months before the fund closes, of which the first quarter was the last quarter and the current quarter is the second quarter. That fund redemption time period starts around 12 to 14 months from today. The size of that fund is only around INR 3,800 crore at current value.
Okay. Similarly, you know, earlier you used to give the kind of carry schemes which would be kind of coming. It would be great if you could start giving that again because that helps us keep a track of which schemes would kind of come to reporting carry as well as kind of reporting redemptions.
I don't see a harm in putting out a schedule without the carry numbers itself. I'm happy to kind of try and put out a schedule. Yeah, we'll try and add it to the model data book.
Sure, thanks. Wish you all the best and a happy Diwali.
Thank you. Same to you.
Thank you. I think that's all we have time for. Wish you all a very happy Diwali.
Same to you, Anil. Happy Diwali, everybody. Thank you.