Ladies and gentlemen, good day, good afternoon, and welcome to the fourth quarter FY25 earnings conference call of Edelweiss Financial Services Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, please signal an operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Priyadeep Chopra, President, Edelweiss Financial Services Limited. Thank you, and over to you, ma'am.
Thank you, Rico. Good afternoon, everyone, and a very warm welcome to our earnings call for the year ended March 2025. Today, we have on the call with us Mr. Rashesh Shah, Chairman of Edelweiss, Ms. Ananya Sundaram, the Chief Financial Officer for Edelweiss Financial Services. As you all know, we have also filed a business update for our mutual fund business, and we have on the call with us Ms. Radhika Gupta, MD and CEO of Edelweiss Asset Management Limited.
We hope you have all had a chance to review the investor presentation that we have just filed, as well as the business update on our mutual fund business. During the discussion today, we will be making references to it. Please do take a moment to review the safe harbor statements in our presentation. We will be making some forward-looking statements today, and hence, these may involve certain risks and uncertainties. With that, I will hand over the call to Rashesh to take us through the proceedings for the quarter. Thank you, and over to you, Rashesh.
Thank you, Priya, and good afternoon to all of you, and a very warm welcome for this call, as well as a thank you to all of you for taking the time out to join us. We know the markets are still on, but given that our results are out, we are very happy all of you have joined, and I'm truly happy to share the results with you. I'm so glad we are doing this call in the middle of May and not in the middle of April because the world, what we call the VUCA world, that is most VUCA in the month of April. We have come out of that. Things look very steady, even in the last week with all the geopolitical tension, India, Pakistan, as well as the aftereffects of tariffs and all that.
A lot of them seem to be settling down, and markets are a bit calmer. So happy that we are doing this call in slightly calmer circumstances. India's growth still seems to be expected to be strong. Yesterday, the inflation numbers came down pretty well. Confidence in RBI cutting rates is there. So overall, I think India has actually looked a lot more steady and stable in the last few weeks also. The world has been completely upside down in the last few months because of all the changes that are happening. But in that change, also, relatively speaking, India did come across as a much more stable and a safer place. So that gives us a lot of confidence. India will be driven by our own local savings, local investment, local consumption. And in that sense, we are a story by ourselves.
We'll have our own ups and downs, but I think India has truly shown that our growth outlook remains positive. There is a lot of resilience in India, India's story, and the local drivers are very robust. For Edelweiss, for the full year ended March 2025, hopefully, you have had a chance to look at the investor presentation and the results. But it's been a good year. Our Board of Directors have recommended an INR 1.5 dividend per share for the year. For the year, we saw an 83% increase in PBT. But our profit after tax was almost flatted because of the tax element that crept in this year. Last year, we didn't have that. So our ex-insurance PAT after the minority interest is at INR 545 crore, and our consolidated PAT after minority interest is INR 399 crore.
The good news has been the strong profitability in ENN mutual fund, along with the reduction in the losses in both the insurance business. We have been also able to reduce our overall consolidated debt, as well as to reduce the wholesale book. Before we delve into our full year performance, I just want to take a little bit of time to reflect on our journey from a last three-year perspective because our focus three years ago, we said, was scaling businesses and streamlining the balance sheet.
Over the last three years, we have changed our architecture. We have pivoted to becoming more an investment company. Instead of a conglomerate, we now have very robust underlying standalone independent businesses that we have been able to scale up and build. Our first priority was always last three years' growth and value creation in the underlying business.
Priority number two was to reduce the overall debt. Third was to reduce the wholesale book, which, as you know, we exited the wholesale trade business, but the legacy book was there, which we have been wanting to scale down, and we have made considerable progress on that. In a way, we have grown where it was important for us to grow, and we have degrown where we wanted to degrow. For example, since FY 2022, EAA ARR AUM has grown at a clip of 19% CAGR, while the PAT of EAA has grown at 67% CAGR over the last three years. EAA, which is about a 13-year-old business for us, is now coming of age.
In a similar vein, our mutual fund equity AUM has grown at 34% CAGR in the last three years, and the profit after tax on mutual fund business has grown at 38% CAGR over the same period. ARC business has shown a 15% growth in PAT over the last three years. Zuno has been one of the fastest-growing general insurance companies in the industry, and their GWP has grown at 41% CAGR over the last three years. The losses have almost halved in the last three years. Similarly, in the life insurance business, ELI, Edelweiss Life Insurance, our gross premiums have grown at 13% CAGR over the last three years, and the losses have been reduced by 40%.
Three years ago, wherever we had set our objectives and communicated to all of you on what we were going to do on growth, as well as getting insurance business to reduce the loss to get to breakeven, we have made significant progress on that. Along with that, we are also committed to deleverage the balance sheet and to reduce exposure on the wholesale book.
From FY 2022, our consolidated debt has come down by 40%, which, I mean, to give you a longer-term perspective, what was INR 40,000 crore in FY 2019 has now become INR 11,200 crore. Significant, almost INR 30,000 crore reduction in the overall debt we have achieved in the last five, six years. In our strategy to go towards an asset-like model, NBFC debt has also come down. NBFC debt has come down by 70%, INR 6,300 crore reduction in three years.
The loan book has declined by INR 8,000 crore, which is a reduction of 75%. The last three years has been grow the right businesses, degrow the wholesale book and debt, and we focused on that. Now, before we go into the individual businesses for this year, I just want to take a couple of minutes on two strategic updates which we achieved in this quarter.
One was in ECLF, the wholesale book, which is now a stressed book, mainly consisting of security receipts. We have taken a markdown on that by using a very conservative formula of the lowest of NPV or book value or IRAC or NAV on an asset-by-asset basis, which is a very conservative approach, but we have taken that in consultation with RBI. This reduction of the book was actually preceded by increase in the net worth of ECL Finance.
In the last one year, we had debentures in that business that we converted almost of INR 1,000 crore. That added equity in that business. We are also merging one other Edelweiss Retail Finance business into this. And ERFL, Edelweiss Retail Finance, has another approximately INR 500 crore of equity, which is also getting added. We preceded the markdown with about INR 1,500 crore of effective equity into ECL Finance, and then we have taken INR 1,100 crore of markdown with a very conservative.
The good news on this is, even after this markdown, the capital adequacy of the NBFC stands at more than 30%. We are closer to 32.6% capital adequacy in the NBFC. Along with that, there is no deterioration of asset quality. We have only taken the markdown by taking a very conservative lowest of the four parameters in each asset and just added it up.
The cash flow expected from this book remains the same. No change in assumptions on cash flow. No asset quality has deteriorated. We have taken a markdown, and we preceded the markdown by adding equity of almost INR 1,500 crore in ECL Finance. Even after this, they have a capital adequacy of 32.6%. Along with that, we are also very happy to announce that we have hired a new Managing Director, Mr. Ajay Khurana, who was earlier Executive Director of Bank of Baroda and has more than 40 years' experience in banking. The last part of the banking career has been focused on MSME credit business. He has joined from April 1 as the new Managing Director of ECL Finance, and he is going to lead the pivot towards MSME credit.
By marking down the wholesale book, by strengthening the balance sheet, we have hopefully now drawn the line in the sand on the legacy wholesale book, which did cause a lot of stress, as all of you are aware. I hope we have drawn the line in the sand, and with the joining of Ajay Khurana, we are now getting ready to really pivot NBFC to becoming an MSME credit-oriented business. We will continue to be asset-light. We continue to focus on MSME only. Along with that, our focus is to invest on really a differentiated MSME offering. As Ajay Khurana settles down, we will also communicate to you how that strategy is getting implemented. The wind down of the wholesale book is almost complete, and we are towards the end of that, and that does end that part of the story.
As you all know, it has been a painful story, but we were hit by poor credit affairs and COVID and all the other changes that happened. I think now we still, a lot of our collateral in that book, though the assets are stressed, and we have taken NPAs and called them stressed assets, a lot of those assets, underlying collateral continues to be real estate. Since the real estate industry is doing well, our expectation on recoveries on that stressed assets are still pretty strong. As I said, the markdown has not affected asset quality and the expectation of the cash flow. The equity in ECL Finance, as you would have seen in the investor presentation also, is still closer to INR 2,100 crore. We still have INR 2,115 crore of equity in the NBFC business. The other strategic update is about EAA listing.
We had filed the original DRHP. We got it back from SEBI with comments in March. Largely, the comment was on reclassifying some of the earning items and changing the classification. It does not change the overall income and profit for the business. What was being called, some items which were being called as income from operations, SEBI felt we should call it other income.
That reclassification is being taken. After reclassification of that, we expect to file the DRHP again with SEBI. There is no impact on profitability or the total revenue of the EAA. Only the reclassification has changed because SEBI wanted us to call only the management fee as operating revenue. Everything else, they wanted to be called other income.
Since we are the first alternate asset management company which has been planning to go IPO, there is a lot of, I think, ambiguity on how to classify what is income from operations and other income. Currently, SEBI has asked us to classify it conservatively. We have been happy to do it. We are reclassifying it. Without any change in profit numbers or the revenue numbers, we will refile the DRHP soon.
The last part, performance for this year, FY2025, again, steady growth in profitability, healthy growth on the key metrics. The balance sheet and liquidity continues to be strong. We have added 3 million customers for the year. Our customer reach is now 10 million customers across all our businesses. The customer asset that we manage is about INR 2.2 trillion, INR 220,000 crore.
I will not go update on the business by business because they're in the presentation. Just a few highlights. EAA, profitability growth of 31%, and we had INR 2.3 billion of PAT in EAA for this year. Mutual Fund has shown a 40% growth in profit. ARC, the PAT has grown by 8% for the year, but ARC had a good recovery year. They recovered INR 57 billion in their AUM this year.
NBFC, we have reduced the wholesale book by 40%, and the total borrowing of the NBFC is also below INR 3 billion. NIDO has been a steady year. We are now planning to pivot that and grow that. The asset quality remains healthy with GNP at 2.2%. Zuno continues to grow, and the losses declined by 61%. The life insurance, the loss has come down by 20%.
More importantly, the life insurance business was profitable in the fourth quarter. For the first time, we had a quarterly profitability. They made about INR 230 million tax for the quarter, which has been very impressive. All the businesses, they are executing well on the priorities that we have articulated in the past. We are pretty confident that we will continue to remain the same.
In a way, in a very exciting and news-filled world, I think our story remains the same. It was three years ago, what is now. We continue to grow our asset management business profitability. We will get the insurance businesses to break even in the next 18-24 months. We are pivoting both our credit business, which both have a reasonable amount of equity.
Between our NBFC and HFC, we have almost INR 3,000 crore of equity, which we need to now sweat it and get some return on equity on that. With our focus on MSME and NBFC and the affordable housing in NIDO, I'm confident we will get there. Hopefully, the next few quarters will show a clear trend on that. On ARC, we remain steady. We keep on focusing on recoveries.
New asset acquisition is slow for obvious reasons. There are no NPAs of scale in the banking industry. We continue to focus on recoveries out there. Along with that, I think I've covered most of the highlights. As usually, the most important part of the meeting is the interaction and the questions from you. I'll end it here now and hand it back to the moderator to give you an opportunity to ask your questions. Thank you very much once again.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from the line of Maulik Hithendra Singh Chaudhari from Monarch Network Capital Limited. Please go ahead.
Hello sir, am I audible?
Yes, sir, please go ahead. Yes, hi.
Yes, so sir, thank you for giving me the opportunity. I have a couple of questions regarding our EAA business. So firstly, what is the expected profitability of fixing the deadline strength to selling the IPO? Second, what is the ballpark valuation the management is expecting?
I think you have asked the most important question. I think the first one is easy to answer. We expect to dilute about 15%. As you know, we own 100% of EAA. We will dilute about, expecting to dilute about 15%. It could be a combination of pre-IPO, IPO, whichever combo we prefer to go with. It will be about 15%. On the valuation, you can, it is a business which is growing at 20% a year. We met INR 2.3 billion of PAT in the last year. We have more than INR 450 billion of ARR AUM. I think you all, as investors, will decide what is the valuation of that. We are pretty okay with that, what the bankers and all are indicating, the ranges which are there. As you know, the market is volatile.
It goes up and down. I think we are comfortable that it will be appropriately valued. Okay, sir. Sir, my last question would be, with the recent ups and downs in the market caused by tariffs and tension with our neighboring countries, how do you see the Indian economy and financial sector performing in the near future? Also, how do you think that this could mean for our own business? As I think last few months of our story, India is relatively stable. When the U.S. dollar was getting stronger, the rupee also fell against the dollar, but not so much. When the U.S. dollar fell, the rupee appreciated, but also not so much. The same thing about our stock market. I think we're in a very big volatile days in the market as such. The last part of India's story is India-related.
Even when we look at the Kargil war and all, as long as it's not a full-scale war where anyway, I don't think any of us have an experience of what happens. Unlikely, even in that, India has shown that we are a very responsible and grown-up economy, which is very balanced. I think India's stability and resilience has got highlighted. We obviously are comfortable making our point of view, taking action where required, but we are not irresponsible. All these are the good messages on that. I think on the medium to long term, my India story, our India story remains the same. I think financial services should grow at approximately 15% a year, give or take. Now, different parts of financial services will go at slightly different rates.
Our idea is that most of our businesses, if we can manage a 20-25%, closer to 25% growth in value creation for the next 10 years, that is what we are focused on. Can we grow our value, underlying value of the business by about 20-25% a year in the coming years? We are very focused on that. I think India will continue to give us opportunity on that. There is no doubt in that. If things change in the short term, one quarter here and there will always happen. Over the next 40 quarters, I think we are pretty confident of the story in India. Financial services, 15%. We want to grow at between 20 and 25%.
Great, sir. Thank you. Thank you for answering all my questions.
Thank you. The next question comes from Aakash from Drone Capital. Please go ahead.
Hello, am I audible?
Yes, sir. May I request you to use your handsets and please go ahead with your question?
Yes. So my first question is regarding the EAA fund. It has grown at a figure of 20% and PAT at a figure of 67% over the last three years. What are your five-year expectations? And what would be the strategic roadmap going forward?
As you know, our EAA business is fairly unique. In alternative business, there are mainly two categories. One is what we call growth investment strategies, which are mainly equity, private equity-led and all that. The other are what are called income and yield strategies, which are mainly private credit and real asset. Because as you know, all investors, we want to either invest in growth or we want to invest in income and yield.
In the past, I think equity markets, capital markets in India gave you only growth opportunities. We do think now, starting from REIT and InvIT to private credit funds to real asset funds and all of that, now you have a reasonable chance of making 14%-15% kind of return via AIF in income and yield strategy. There are a lot of other absolute return funds and all in the market, which try to give some kind of yield and income strategies to investors.
Our entire alternative business is largely built on yield and income. We are not in private equity because there are a lot of other good funds out there, and competition is very heavy. Competition is very heavy in the income and yield segment also, I must say. We have been pioneers in that, and we have built a fairly large business on that.
I think the first distinction I would make is that we will continue to focus on that. We are fairly well entrenched, and we do think that giving different strategies of different returns, but about anything around 15%-16% on a yield-oriented strategy has a lot of appetite, has a lot of investor demand in India. There are a lot of investment opportunities also in that. We want to continue to focus on that.
This yield and income private credit real asset has grown in the U.S. from 2008 onwards, and we have seen how it has grown in other markets. We do think this will grow in India. We are hoping if we can grow, as I said, between 20%-25% a year. Last three years have been very good because now all the hard work of the last 13 years came together.
We have truly taken off in terms of profit. I would not expect the same CAGR of profit of the last three years to continue. I think if we can grow our business at about 20%-25% a year over the next 5-10 years, it will be a market-leading franchise in alternative investing. It already is one of the leaders in the market in alternative asset management. We think the next 10 years does present a lot of opportunity. That will be our ambition. That will be our aspiration.
My next question is regarding the HFC business. The PAT for the HFC business has been flattish over the past few years. Are we facing any challenges in terms of scaling up the business? What's your outlook towards disbursements and growth?
Yeah. Actually, in the housing business, we have pivoted, A, from an owned balance sheet to a co-lending model. We have pivoted from what we used to call prime home loan to an affordable home loan segment. For the last three or four years, there is a lot of work that has gone in pivoting it. While post-ILFS, we were also re-changing our architecture.
We were very, very focused on getting this pivot right. That did come at the cost of growth, and we did not grow the balance sheet in the old model as aggressively as we were earlier doing. Along with that, we are building a very strong infrastructure track backend as well as partnership with banks like State Bank of India. Given all of that, it has been very flattish kind of for the business from a profit point of view.
From the pivot point of view, I think we almost completed the pivot. I would truly hope to see growth coming back in that segment. Last year was slightly more muted also because post-RBI order on our NBFC and ECL Finance, though it did not affect NIDO in a direct way, we did become conservative and held enough liquidity so that if there is any aftermath or any collateral damage, we were more equipped. Last year, our disbursement still went from INR 1,100 crore the earlier year to INR 1,500 crore last year. We could have grown more because now the platform is in place. The pivot has happened. Our affordable housing products, our affordable housing loan products have stabilized. We should hopefully start being able to grow in that.
That would be all from my side. Thank you for answering my question.
Thank you. Our next question comes from the line of Aman from Dolat Capital. Please go ahead.
Yeah, I have a couple of questions. First is, there has been a notable decline in consolidated net worth. Could you explain the reason behind this? Second, with the exit from wholesale lending, what is the guidance for the MSME lending business? While growth has been muted recently, where can we expect to see momentum? What are the growth projections for this business? Thirdly, life insurance has posted good profit numbers in Q4 of the year. Can we expect this momentum to continue? And are we on track to achieve breakeven by FY 2027? Thanks. Yeah.
Yeah. On the last question, we do expect that the insurance, the reduction in the loss and the improvement in the profit and loss account will continue. I think that trend is underway. We do expect in two years to get to a breakeven. If the IFRS rules are implemented, it might be earlier because IFRS rules will help with accounting profitability. Even if IFRS rules do not come, we are on track for that. This quarterly trend will continue to showcase that. That is the last one on the insurance business.
On the first question you asked about the reduction in the overall net worth, this has been largely because of the strategic markdown we have taken in the wholesale book in NBFC. NBFC would have had an equity base of INR 3,000 crore. They are at about INR 2,100 crore because of the markdown they have taken. After that, also, they are still with an equity of INR 2,100 crore. Their borrowing is about INR 2,800 crore. They are geared only about at 1.2 something or so.
They have a very high capital adequacy. They have a 32% capital adequacy. They are fairly well geared in terms of available equity for growth. We have used this opportunity of taking the excess capital and using it to reduce the wholesale book by marking it down. Because the NBFC marked it down, the consolidated net worth has also come down. NBFC net worth is down by about INR 1,000 crore.
Our net worth is also down by about INR 1,000 crore. All the other parts of ALY, including the holding company, there has not been any change. The ECL Finance NBFC equity has gone down from, say, INR 3,100 crore to INR 2,100 crore.
Okay. Thank you, sir.
Thank you. Our next question comes from the line of Siddharth Shah, who is an investor. Please go ahead.
Yeah. Hi. Thank you for taking my question. Just on EAA, I think AUM has grown 6%. But the revenue saw a much bigger jump of about 34%. Now, is that due to kind of a change in product mix where we're getting more yield on certain products? Or is it due to more like one-time carry income or something like that that we are seeing? Two, maybe I didn't follow, but I think in ECLF, we had a INR 1,000 crore kind of debt-to-equity conversion. Shouldn't the equity have then stayed the same post this INR 1,000 crore write-off in that broadly INR 3,200 crore range that was there about last year?
That INR 3,200 crore was actually convertible debenture. They were counted as equity last year also because they were convertible debenture. From a tier one, from capital adequacy point of view, it was not counted as full equity. In what we were showcasing, it was counted as equity. We converted those debentures to build up the capital adequacy. We are merging Edelweiss Retail Finance into ECL Finance to add another INR 500 crore of equity in ECL Finance.
We are using that for the strategic markdown so that ECL Finance still ends up as a fairly good capital adequacy of 32%. That was how it was done. Last year, the INR 3,200 crore equity you would have seen included the convertible debenture in equity calculation, though it was not tier one capital. Got it. On Edelweiss Asset Management Limited, what happens is AUM is usually an end-of-period number. We closed a lot of funds in the last quarter because various product approvals from SEBI and other things. Our last quarter in this year saw a lot of funds getting closed. That did increase our AUM revenue.
Because as you know, in private credit and yield strategies, as you are also exiting, you are paying out money. Money is coming in and money is going out. The first three quarters, we had some very good exits, as you know, because Indian markets and liquidity was robust. Until October, November, there were a lot of good exits happening. We got a lot of exits, which actually would have fallen the ARR revenue.
The irony of any alternative fund is when you have a good exit, which is good news, your actually ARR, AUM falls because you have now got the profit. You have made your investment return, but your ARR, AUM falls. We had very good exits in the first three quarters, and we added a lot of funds in the fourth quarter. The ARR, AUM has only grown by that.
The overall revenue has grown because of the exits. It's not just the carry income. We also deployed quite a bit of the dry powder we had in the first three quarters. When you deploy in a lot of our credit funds, we get paid on deployment. Fee income goes up when you deploy. ARR goes up when you raise money, and your ARR goes down when you exit the investment. It's a very complicated triangle that goes on.
There is not always a one-to-one correlation between ARR, end of the quarter, and the revenue growth. This year, as you would have seen in the investor presentation, we had some very good exits, fundraising, as well as investments. I think on all three counts, it was a good year.
It's just that a few things happened in the first three quarters, and others happened in the last quarter onwards. Understood. Maybe just one last question is on that INR 670 crore top line in EAA, is it possible to give a broad split of what would be the management income and what would be maybe carry income from the funds that you've exited or investment you've realized?
If you see the last quarter, we had given an addendum along with that. If you broadly, I think, see the P&L of that particular business, you can actually calculate that. We make about INR 670 crore of income on our ARR, AUM about INR 45,000 crore. Average is about both fee and carry put together post distribution fee because we also pay distribution cost. We deduct that.
Post all of that, you end up making about 1.2-1.3% of your AUM as your top line. This business currently operates at about 55-60% cost-income ratio. The best way to look at it is that. Quarter on quarter, it may change a little bit. Like if you see the fourth quarter, our actually total revenue was only INR 150 crore, which if you annualize, comes to INR 600 crore.
Out of this year's income, about 80% was management fee, 20% would be carry incentive income. Our cost income also has both the ongoing annual cost and the variable cost. On that basis, we do think about anybody who wants to look at the alternative business and understand that getting about 1.2-1.3% of ARR revenue as a top line is a good outcome.
Operating at a 50-60% cost-income ratio is a good outcome. On that basis, your PBT, if it is about 50-60 basis points of AUM, and your PAT is about 40 basis points of AUM, is where this industry will end up as compared to the mutual fund industry, which operates at about 10-15 basis points of AUM as PAT. The profitability of an alternate business should be about three times the profitability of a mutual fund business on average if you compare industry to industry.
Understood. Thank you so much for clarifying that.
Thank you. Our next question comes from the line of Shobhit Sharma from HDFC Securities Limited. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity. Am I audible?
Yes, sir. Please go ahead.
Yes. Yes.
Sir, I have the questions on your mutual fund business and your general insurance business. Firstly, on your mutual fund business, sir, we have seen a good growth in equity AUM. Can you help us understand what are the key factors which are driving this and what are expectations on this? Secondly, what are the major distribution channels who are helping us to grow in this business? Lastly, some of the large AMCs have rationalized their payouts to the distributors. How much is this impacting our businesses? I will come again on the general insurance questions.
Yeah. Actually, we have Radhika Gupta, who is the Managing Director of Edelweiss Asset Management Limited. Radhika, will you answer this?
Yes. Good afternoon. Thank you for the question. I will just take the three questions order by order. I think in terms of equity AUM, it has been a journey. If you were to ask me, the key drivers are two. One is across the board, our funds have demonstrated consistent performance, consistent quartile one and quartile two performance, and not over a one-year period. Now, over a one, three, five-year period, in fact, we were just awarded Best Asset Manager by Morningstar this year.
Increasingly, our distribution partners and investors are taking note of the consistency in product performance across all our equity products, and that is contributing. Secondly, over the last few years, we have worked very hard to grow our distribution reach, both our reach in unorganized counters like MLB channels and also increased market shares in counters like NJ Prudent and also banks. Rising distribution reach, consistent product performance.
Third, as we talked about on past earnings calls, we've been expanding the scope of geography. From about 20 locations five years ago, we are now closer to 60 locations. We are seeing presence and uptick for the brand in many of these locations. The second question was in terms of channel reach. If you look at our channel, about 75% of the assets come from either MFD, which is mutual fund distribution, or your aggregators of mutual funds, which are people like NJ and Prudent.
Essentially, this is all mutual fund distribution. About 10-12% comes from banks, and the balance comes from direct. We have seen an uptick in our direct mix, but distribution remains the core. As I said, in key distributions like NJ, Prudent, and also MFDs, we are seeing an uptick in our distribution reach.
We expect that to continue. If I were to look at equity AUM, I would hope that equity and fee-earning AUM will grow at 20%-25%. That, of course, will lead to commensurate growth on the revenue and PAT side. On yields and brokerage to the question, I think each AMC at a different point in its evolution takes different decisions. For us, it is a fine and important balance between finding and continuing to sustain our equity growth and build a book, and also managing yield.
We want to be sensible in terms of the kind of brokerages and yields that we want to pay out, but we also want to grow our distribution and grow our book. It is a fine balance, and we are trying to strike that balance going forward.
Okay. Thanks for the elaborate response. Sir, I have two questions on the GIA side. Firstly, sir, large players on the GIA side have been guiding that the competition on the motor lines of business has increased. For Zuno, we have seen we have grown quite rapidly as compared to the industry growth. What has been our strategy for growth on that side? If you can help me with the combined issuance claims ratio for Zuno, that would be helpful for further.
Yeah. I think on the first one, our strategy for growth has been actually, first and foremost, very focused on innovation because we do think that there is a lot of product innovation that is inherent and possible in the business. We do focus a lot on product innovation. We also focus a lot on customer experience management.
If you look at our policies, they're very simple, easy to understand. Our call centers, we have no interactive voice response system in our call center. We have no real targets for agents on our call center on completing a call fast. We do get a lot of good feedback on that from all the customers that we have in that particular business. I think we have focused on customer experience, product differentiation, and that is what allows us to grow. We are also very careful about the cost and there is a lot of competition out there in the market, which is putting a lot of pressure out there on everybody. In terms of our critical ratios, in our combined ratio, we average between 122%-123%.
It comes down because there is a part of combined ratio cost, which is your overhead cost, which comes down as you keep on growing. As you know, a good company in India has a combined ratio of about 105%. We want to go towards that. We have increased, improved that every year for the last few years. We used to be 135%. Now we are at 120%. We want to get to 114%-115% in this year, come down, and then get to 105% when we get to breakeven. At about 107%-108% is very breakeven in the business. If you look at our trend over the last few years, we are on that path. We are focusing a lot on cost and productivity and all, and keeping the overheads and all as much on the constraint as possible.
We also peak our distribution cost and try and achieve as much efficiency as we can in that. The third is obviously the loss ratios and all that. We have a good portfolio mix between third-party motor, motor, OD. We are very good in auto insurance, but especially a lot in car insurance. Car insurance is our forte. We have really some strong advantages in product differentiation and in customer experience in that. We do capitalize on that as we go along.
Okay, sir. Thanks for the elaborate response, and all the best.
Thank you. Our next question comes from Pradyumna Chaudhary from JM Financial Family Office. Please go ahead.
Hi, sir. Thank you for the opportunity. My first question is, so if you look at the mutual fund business, the AUM seems to have grown very well, but somehow that's not translated into the revenue growth from a quarterly perspective as well as from an annual perspective also. What's the reason for the same? Also, if you look at OpEx, also it seems to be much lower than same quarter last year. Could you just explain this?
Can you handle that, Radhika?
Yes. Yes. If I can just one second . I think there's an echo. Now the echo is not there. Thank you for the question. If I just look at mutual fund revenue growth over a set of quarter and quarter, maybe a five-year period, equity AUM growth has been 55% over the last five years. This is in the annexure also that we provided.
Can you hear me, sir? Yes. Okay. This is in the annexure that we provided. In the same period, revenue growth has been about 40% here. So equity AUM growth is translating into revenue growth. Obviously, when there is growth in equity AUM in the early days, when it became growth from, I would say, INR 500 crore to INR 2,000-3,000 crore, there is very sharp fall in PER slash both from 2.25 to something like 1.75.
So some of the hit comes on revenue. But net net, we've seen a 40% revenue CAGR over the last five years. I think on a going forward basis also, as I said in another question, it would be fair to expect 20%-25% equity AUM and also equivalent revenue growth on a going forward basis. In terms of OpEx, I'm just looking at the numbers.
Actually, if you look at our OpEx ratio as a percentage of AUM, it's typically in the 10-11 basis points range. It's commensurate to what some of the scaled AMCs are. While we always work hard to keep improving OpEx AMC efficiencies, on a standalone OpEx basis, even compared to scaled AMCs, actually, we've grown fairly efficiently. We do not have as many branches. We rely far more on digital infrastructure. Our teams tend to be a lot leaner. OpEx to AUM actually shows that we are reasonably efficient.
Actually, my question was quite specific to this quarter. If I look at revenue, it's actually declined compared to Q4 FY2024 and same for OpEx. I was trying to understand from that perspective. The revenue in the current quarter was INR 58 crore versus INR 78 crore in the base quarter.
Okay. We had, yeah. Specific to that quarter, we had a small public market alternative business within the AMC business. There were some funds that were transitioned out. The revenue for those would have shown up in March quarter last year, and the OpEx for that would have shown up in March quarter last year. It is a one-time hit.
All right. Yeah. That clarifies it. The second question was on the life insurance. We have already turned profitable as of Q4 in the quarter which just went by. Do we expect this profitability to sustain, or do we expect that there could be some here and there in terms of profitability before we actually go towards sustaining these numbers in life insurance?
Yeah, I do not think we will be profitable in the coming year because we still incur some losses. The Q4, as you know, almost about 35% to 40% of the business happens in fourth quarter. Last year, fourth quarter, we broke even. This year, fourth quarter, we made an INR 23 crore profit.
Overall, on an average, on last four quarter basis, the trend is coming down of how much is the loss every quarter. It is coming down. We will still take another eight quarters to get to breakeven. If you want annual breakeven, we are two years away. In these two years, there will be some quarters we will break even. On an annual basis, we are still two years away.
All right. For last question on.
And the quantum. No, I was just adding, and the quantum will keep on coming down. There is a clear downward trend in what is the average loss per quarter. Yeah, please. Go ahead.
Understood. My last question was on EAA. The growth for FY2025 was around 9%, the AUM growth. How should we really understand this? Any particular reason why it was slow for FY2025?
If you see the slide on the presentation, FY2025, we had quite a few realizations also. I do not know if you have the investor presentation in front of you. To give you an idea, in FY2025, we did about INR 3,700 crore got deployed. When the deployment goes up, our fee income goes up. Our asset management fee income goes up. We also had INR 2,100 crore realization in this quarter. On that basis, a lot of your ARR AUM growth is like a stock item, but some ARR AUM is already earning fee because it is deployed.
Some is going to earn fee because it will be deployed in the next quarter. In this year, our focus in the last quarter, we did a lot of deployment in the last quarter. If you see, the income has grown. At the same time, we also had a lot of realizations, and we raised a lot of money in this quarter. Overall, they do not move in sync on a quarter-on-quarter basis. You have to see the longer-term trend. Internally, we look at an average of the last five to six quarters as the trend. The real trend, because if you close a fund in one quarter and you do not close another fund for two quarters, then your ARR AUM will not show the same steady growth rate that has been there.
The idea is to, because there is some episodicity and idiosyncrasy in the alternative asset management business. The idea is to look at it as a trend line. As I said, the broad parameters are whatever is your ARR revenue, about 1.2-1.3% is a good income from that. If you can operate at a 50-60% cost-income ratio, it is a good efficient business.
This year, we have come down in our cost-income below 60%, which is a good thing. We used to be at 85% cost-income ratio three years ago. As scale is coming up, costs are coming down, your cost-income ratio is improving. If you study other companies like Nuvama, which was earlier a real-world wealth management, in that also, you will see a steady coming down of the cost-income ratio.
Usually, most of our this kind of businesses, we do first try and get scale. Once we get scale, then we focus on bringing down the cost-income ratio and improving profitability. In fact, in the mutual fund business also, if you put the same framework, you will see a clear improvement.
All right. Understood. Thank you, and all the best.
Thank you. Our next question comes from the line of Amit Jain from Axis Capital. Please go ahead.
Yeah. Hi. Thanks for the opportunity. Am I audible?
Yes, sir. Yes, sir. Yes, sir. Please go ahead.
Yeah. I had two small queries. First is that on your general insurance business. We see that you have done a good job in reducing the losses from INR 123 crore in FY 2024 to INR 48 crore in FY 2025. Do you still envisage that this can become profitable in FY 2026, or it is again going to take two years on an annualized basis to break even on this business? That is number one. Number two is in terms of your corporate business. We see that this tends to remain very volatile. In last year, there was a profit of INR 700 million.
In this year, there was a loss of INR 310 million. How should we integrate this business in the overall scheme of things? Number three is on the overall profitability. If you see that overall, if you see the profit from FY 2024 to 2025 has seen a marginal decline. So while I understand that a large part of this would be driven by the NBFC business, but how should we look at over the next say one or two years, where should this number be coming? Yeah, that would be all from my side.
I'll try and remember the questions you have asked, but if I forget, please remind me. No, no. First is on the general insurance business. It's been a great improvement that we have seen this year. We're very happy with that. I think growth is happening, and there is an improvement in the PAT number. I think we are about five to six quarters away from breakeven. FY2026 may not be a breakeven. Maybe hopefully fourth quarter, we might end up seeing a positive number.
Overall, if you see, we are about five to six quarters away from breakeven in the general insurance business and eight quarters away from the NIDO business. That we have maintained, and we are on track for that. We are hoping that we keep on pushing the envelope and getting that done. That is one. On the corporate side, there is volatility because the corporate has actually two or three things.
One is obviously the holding company expenses, which is a very steady number. It also has interest cost on the corporate borrowing that we have. The third we have is we get capital gains. When we do a stake sale or any of the underlying companies, and we have some other asset investment portfolio also, sometimes when we exit, we do get some gains in that.
The corporate profitability will be volatile because of this because the third item is very episodic. The corporate OpEx will stay steady, and the corporate interest cost will keep on coming down as we repay the debt. As you can currently also see, we have INR 6,000 crore on debt. Corporate debt itself will be about INR 600 crore burden on the corporate account every year.
Again, we have some income. We get some capital gain. We have some investment income. All of that comes and goes. On a quarter-to-quarter basis, the corporate number will stay volatile. Our current focus on that is to reduce the debt. If we bring down the debt, as our plan is, and as you have seen, we have brought down debt by a couple of thousand crore every year on the corporate side.
If we continue on that, then that couple of thousand crores should save you about INR 200-250 crore a year in terms of the P&Ls. That will be the biggest change for the corporate account. The last question was what? Sorry, you had a third question.
No, just on the overall profitability. We have seen a marginal decline on our overall PAT basis. How do you see this in FY 2026 or 2027 maybe? Can we see a marginal growth from the current levels, or do you think we will be impacted? Some thoughts around that.
First of all, primary focus is on individual businesses, to be honest with you, because that for us is the main driver of our profitability. If you look at the numbers and in our investor PPT, if you look at slide number 19 and 20, this year consolidated PBT was up 83% if you look at the PBT. PAT was more or less flat or slight decline because there was a tax element that came in.
The first thing is to see our business profit where EAA went up from INR 175 crore to INR 230 crore. A mutual fund went from INR 38 crore to INR 53 crore. ARC went from INR 355 crore to INR 385 crore. NBFC was the one where there was a fall because of the RBI order last year. NIDO was flat. Zuno improved from minus INR 123 crore to minus INR 48 crore, and life insurance improved from minus INR 157 crore to minus INR 127 crore. However, corporate went from plus INR 70 crore to minus INR 30 crore.
I would keep corporate out of it and just look at the improvement in each of the individual businesses at the first stage. As I said, corporate will always be slightly volatile. Given the capital gains and other taxes and how they apply, there will be some swing on PBT to PAT also. All this should normalize in the next one, one and a half years as insurance gets to breakeven, as we repay some of the corporate debt, and as our stake sales also stabilize, then a lot of that volatility will go away.
The first one I see is the individual profit growth of the businesses: EAA, mutual fund, ARC, NBFC. Except NBFC, which had a fall this year, and NIDO, which was flat, all the other businesses have shown significant improvement in their PAT numbers.
That's helpful. Thank you.
Thank you. Our next question comes from the line of Karthikeya Mohata with Motilal Oswal Financial Services Limited. Please go ahead.
Yeah. Hi. Thanks for inviting me. I have two questions on the mutual fund.
Sorry to interrupt, sir. Before you go ahead, may I request you to use your handset, sir? Your audio is slightly low, sir.
Yeah. Is it working now?
Can you go ahead, sir?
Yeah. I have two questions on the mutual fund business. The first was with the rising competition in the industry with new entrants coming in. What is the differentiating factor for our AMC business that will make us increase the market share that we have? Second is the new product that the regulator has given approval for, the SIF. We have seen a lot of new, a lot of companies asking for approval for that product. Are we going to ask for any approval for sales for that product?
Yeah. Radhika, will you take this?
I think the mutual fund industry has always been competitive, and I do foresee an increase in the number of mutual fund players that are out there in the market. I think it has always been a competitive play. In terms of our differentiators, I would say three very, very clear ones.
One, we as an AMC have been very focused on product innovation, bringing first-of-its-kind products to the market. That has really worked in helping us build a hook with distributors and investors. If you look at Harald Bond or the whole Target Maturity Suite of ETFs, one of the first and largest teams to do factor-based investing, one of the first AMCs to be large in the space of international funds.
I think product innovation in each category continues to be a differentiator. The second is the platform that we have. Unlike most asset managers, where there is an equity and fixed income platform, we have a three-pronged platform: traditional loan-only investing, factor-based investing, which now other asset managers are investing in, but we have been doing for the last 10, 12 years, and fixed income.
Across all three, unlike many boutique AMCs which focus on one niche, we actually have products and track record across all these three capabilities. The third is the engagement that we focus on with distribution. One of the reasons our distribution reach has grown is the amount of ground effort and ground engagement that we do with each of our channel partners in terms of training, education, content, continuing on social media.
I think these are the things that give us continued competitive strength and opportunity to increase market share in this business. As far as the second question, the new product with steady as Christian Specialized Investment Fund or SIF, we're certainly very, very excited about that product.
We hope to be one of the first AMCs to have a product out there in the market. I would hope subject to regulatory approval, we should have a product out in the next three to six months. One of the benefits of a platform like ours is that we already have the talent to launch funds in the seven SIF categories. We do not need to build out a new team. We can leverage the existing manufacturing and asset management capability to just launch products on a different kind of platform. Hopefully, we'll see that in the next three to six months.
Okay. Thank you. That was very helpful. Thanks.
Thank you. Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference back to Ms. Priyadeep Chopra for closing comments.
Thank you, Rico. And thank you all for your time today. Please do write to us at Edelweiss Investor Relations for any questions or additional information that you may need. Signing off from our side today, I'm sure Rashesh and Radhika would want to say bye too. Thank you all for joining us. Thank you, folks. It was lovely talking to all of you.
Yeah. Again, thank you to all of you for taking the time out and really enjoyed all the interaction. Bye-bye.
Thank you very much. Ladies and gentlemen, on behalf of Edelweiss Financial Services, that concludes this conference call. Thank you for joining us, and you may now disconnect. You are line.