Ladies and gentlemen, good day and welcome to Q4 FY 2023 Earnings Call Pro-Conference Call of HDFC Asset Management Company 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 this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. From the management team, we have with us Mr. Navneet Munot, Managing Director, Mr. Naozad Sirwalla, Chief Financial Officer, and Mr. Simal Kanuga, Chief Investor Relations Officer. I now hand the conference over to Mr. Simal Kanuga, who will give us a brief following which we will proceed with the Q&A session. Thank you, and over to you, sir.
Yeah. Thanks, Nirav, good evening, everyone. Let me start with data on the industry. QAAUM for the quarter ended March 23 was INR 40.5 trillion, a 6% growth on YoY basis. Our net flows during the year in equity-oriented funds added up to INR 1,801 billion, of which INR 1,618 billion was in actively managed equity-oriented funds and balance INR 184 billion in equity-oriented index funds. If one looks at net flows, index funds constituted approximately 10%. The number for gross flows, though, would be materially lower. One more data point on actively managed equity-oriented funds, which might be of interest, is flows via NFOs. During the year, industry collected approximately INR 342 billion via actively managed equity-oriented NFOs.
That is nearly 21% of the net flows into actively managed equity-oriented funds during the year. The corresponding number for FY 2022 was INR 748 billion, which was nearly 34% of the net flows into actively managed equity-oriented funds during the previous financial year. SIP flows continued their growth trajectory and came in at INR 143 billion for month of March 2023 versus INR 123 billion for March 2022. SIP flows for FY 2023 clocked INR 1.56 trillion, nearly 35% of industry's gross active equity flows. Comparable number in FY 2022 was INR 1.25 trillion and nearly 23% of industry's gross equity flows. In terms of QAAUM, actively managed equity-oriented funds stood at INR 19.38 trillion, and equity-oriented index funds stood at INR 0.52 trillion.
Let's move to debt. During the year, debt funds including debt index funds and debt ETFs saw outflow of INR 582 billion. If one eliminates flows into debt index funds and ETFs, the number is much higher, outflow of INR 1,569 billion. Liquid fund QAAUM grew by 8% YoY, adding INR 0.42 trillion. Net outflows in liquid funds during the year were to the tune of INR 510 billion. Others, which include ETFs, arbitrage, and FOF investing overseas, grew by 13% on a YoY basis. Industry recorded 37.7 million unique customers at the end of the fiscal year.
Individual investors' contribution came in at 58% of the monthly average AUM for March 2023, and folio count for individual investors increased to 145 million from 129 million a year ago. We now move to us. We closed the quarter- with- quarterly average AUM of INR 4,498 billion, a growth of 4% YoY. Our market share in quarterly average AUM was at 11.1%, and the same excluding ETF was at 12.5%. Our actively managed equity-oriented AUM market share based on quarterly average AUM is now at 12% and 11.9% on closing basis. We have seen some uptick in recent past. Our market share of quarterly average debt AUM, including debt index funds, was at 13.3%.
Quarterly average liquid fund AUM market share stood at 13.1%. Our asset mix further shifted towards equity and it now accounts for 54.4% of our QAAUM, relatively better than that of the industry. We recorded 6.6 million unique investors at the end of the quarter ended March 2023. For the quarter, that is January to March 2023, we processed 13.14 million systematic transactions totaling to INR 50.4 billion, compared to 12.02 million transactions totaling to INR 45.2 billion in the quarter ended December 2022. It is important to look at quarterly data here as February is a shorter month, and we tend to see some overflows from Feb to March.
For March of 2023, we processed 4.53 million transactions, adding up to INR 17.1 billion. The number for March 2022 was INR 12.3 billion. This month, March of 2023, we did process systematic transactions in terms of value of INR 17.1 billion. The comparable number for March of 2022 was INR 12.3 billion. In continuation of our commitment to expand product portfolio, we launched two equity-oriented thematic stroke sectoral funds, one long duration debt fund, which saw healthy interest, especially in the end of March, and range of passive strategies, both across equity and fixed income side during the year that went by. We announced first close of our HDFC AMC Select AIF FOF on March 31st, with commitments adding up to INR 400 crores.
The number is definitely encouraging, especially in current market conditions. We'll continue to raise further capital in this fund and have some healthy pipeline in place. Now we move to financials. We closed the quarter with profit after tax of INR 3,761 million, a YoY growth of 9%. Total revenue grew by 10% to INR 6,378 million, while operating revenue grew by 5%. We ended FY 2023 with profit after tax of INR 14,239 million, a YoY growth of 2%. Total revenues grew by 2%, while the operating revenues also increased by 2% YoY. On the employee cost front, it stood flat at INR 3,127 million as against INR 3,122 million in the previous year.
If we consider the number excluding non-cash charge on account of ESOP, it stood at INR 2,726 million as against INR 2,489 million in the previous year, a YoY increase of 9.5%. In terms of other expenses, we have seen an increase of 18% or in absolute terms INR 348 million. This can be principally attributed to expenses that we've incurred for our business promotion, travel, digital assets, IT infrastructure, amongst others. Our operating profit margin as a basis point of AUM stood at 35 basis points for the year ended March 31, 2023, with operating revenue margin at 49 basis points. The board earlier today has recommended a dividend of INR 48 per share against INR 42 per share, translating into a payout ratio of 72% as against 64% last year.
This is of course subject to shareholders approval. We would like to highlight, and you might have seen in our exchange release, that the Nomination & Remuneration Committee of the board has approved an ESOP plan whereby 1.05 million shares will be offered to eligible employees at closing price as of yesterday. Thank you very much for patient hearing. Navneet, Naozad and I are very much available for questions from here on. So Nirav, if you can kind of start building on the question queue, please.
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 their touchtone 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. Participants, you may press star and one to ask a question. The first question is from the line of Swarnabha Mukherjee from B&K Securities. Please go ahead.
Thank you for the opportunity, sirs. I have three questions. First on the yield for the quarter. The yield has gone down slightly on a sequential basis. There was.
Swarnabha, sorry to interrupt you. May I request you to speak through the handset, please?
Yeah. Is this better now?
Yes, slightly better.
Yeah. Sir, I have, my first question is regarding the yield. For the first nine months we were around 50 basis points plus in terms of the yield, and this time we see a slight compression in that. Just wanted to understand, would this be entirely a function of product mix or any kind of impact there of the debt mutual fund related tax regime change that has happened or anything else to read into this or maybe something like more incremental flows in the balanced advantage fund and whether there could be any impact of that? That is the first question. Secondly, in terms of the trade receivables. The trade receivable numbers have remained around INR 180 crores in first half and also now the balance sheet that has been released.
This number was about half of, close to half of that, in the previous year. How, what should I read into this? Why has this number increased? Thirdly, related to the ESOP plan that you have mentioned, sir, if you could give some guidance on what could be the charge on P&L over the next couple of years.
Thanks. The first question on the this quarter's margin. Firstly, this quarter was 90 days as against 92 days for the December quarter. Revenue per day of December quarter was INR 6.08 crores. Two less days this quarter would mean a loss in revenue of little over INR 12 crores. We have had some year-end adjustments setting for unabsorbed cost of B30, which was debited during the quarter at fund level. I think this explains the difference broadly. As you rightly mentioned, the also maybe the product mix, et cetera. Largely this explains.
Sir, if I, if I could follow up on that, you know, unabsorbed-
Sure, sure.
costs. If you could give a little bit more color on that related to the B30 that you mentioned.
Sir, you're talking about the cost or margin?
In the margins you said there is some impact from the B30 related assets, right? If you could just highlight on that.
That is one basis point, right? Overall. Is there any?
Right.
Yeah.
Right. Just wanted to understand whether, you know, say for example-
Swarnabha, it's an accounting thing. Basically whatever we have spent on B30, that needs to be absorbed within the year. Whatever kind of some bit of a year-end adjustment and over and above that, the INR 12 crores that Navneet mentioned kind of takes care of your question, I think.
Okay. Okay, got it. Fair to assume that next year, you know, with mix stabilizing, we can maybe go back to, you know, what we were seeing in the first nine months?
Yeah, I think guidance is something that we have stayed away from. Don't want to make any guess on what exactly the next year would look like. Having said that, maybe, Navneet, you would wanna expand on it?
On the overall margin side, we have discussed in past that the commission we pay on the book is lower than the commission on flows. New flows will result in some level of dilution. The pace of dilution was like quite rapid in the financial years of March 2022 because the gross flows as percentage of beginning of the year AUM was 55% approximately and in the current year the same is somewhere in early 20s. It also depends on the AUM of individual strategies. Growth in AUM also leads to some level of dilution. Finally the way I look at it is growth in AUM and change in assets mix over a period of time will determine profits of our business and that is our focus area.
Okay, sir. Got it. Got it. If you could also related to the trade receivables and ESOP costs.
Yeah, I'll take that. Trade receivables, there was just a change in the periodicity of payment. It is a payment cycle from the mutual fund, the fees we receive in the AMC. So this gets paid immediately after the month end. There is no, that was a one-time change. It'll sort of continue now going forward, but that's, it's subsequently earned, you receive that money, so that's not an issue. On your question on costing for the new stock option. Based on the Black-Scholes model, the estimated cost, either the non-cash charge which will be debited to the P&L account over the next three years due to this new ESOP program would be around between INR 55-60 crores.
Of this INR 55 crore-INR 60 crore, approximately 55% would be accounted for in this financial year. 30%, around 30% in the following financial year and the balance will be in the year thereafter. Over and above this, we will have a debit of around INR 18 crore from the existing ESOPs already issued, which were going through our P&L. Hope that answers the question.
Yeah. Yeah. Very clear, sir. Thank you very much. That's all from my side.
Thank you. The next question is from the line of Kunal Thanvi from Banyan Tree Advisors. Please go ahead.
Yeah. Hi, thank you for the opportunity. I had two questions. One was on SEBI, you know, chairman recently did a, you know, press conference and they kind of, you know, gave out a thought process of the regulator in terms of, you know, TER. The basic, you know, understanding is that the regulator wants to move from say scheme-based TER to asset class-based TER. Wanted to, you know, understand your thoughts on the same. You know, how does it impact AMCs and specifically large AMCs which have got, you know, very high equity book to start with and we being, you know, in the top three. That was my first question.
So Kunal, firstly, regulator has of course laid down their thought process. Having said that, through industry forum we are engaged and looking at all implications. We as an organization have decided to put on our thinking hats once the regulations are formally out. SEBI chairperson did give an overview of their thought process in the post SEBI board meeting press conference that you would have heard. She did mention that they will do the necessary in consultation with the industry. I'm sure you will agree that SEBI's overarching objective is investor protection and market regulations coupled with market development. I would say regulations are a given. As an organization, we need to make it sure that we do what is fair for our stakeholders.
Sure. Sure. Basically now like, when you know, if at all, that regulation was to come in, then that is the time when we will try to think how, you know, the things will work. The reason I ask this question is from a value chain perspective, you know, how does you know everything flows if, you know, those kind of regulations were to come up because it in a way disrupt the entire value chain, right?
As of now there is nothing beyond what I have already stated that I can expand on at this point in time.
Sure.
I hope you appreciate the same.
Sure, sure. Makes sense. Yeah. The second question was on, you know, the LTCG introduction for the, you know, long- term debt mutual funds. Can you help us understand, how does you know that impact the industry and HDFC AMC and what was our exposure to, you know, specific three year and above, you know, debt funds?
Yeah. The Finance Bill has proposed an amendment in the tax laws, effective April 1, 2023, whereby investments in a specified debt mutual funds where equity exposure is not more than 35% of total corpus in domestic equity shares, that will be treated as short-term capital asset. The proposed amendment will have the impact of when fresh investments made on or after April 1, 2023 will not get benefit of indexation and concessional long-term capital gain tax rates. Gains will be treated as short-term capital gains by default and taxed at the slab rate irrespective of the holding period. There will be no impact on investments that have been made up to March 31, 2023.
As much as we would have liked the tax advantage to continue, given the policymakers' view on the development of the debt market, particularly the corporate bond market, debt mutual funds still do have some inherent benefits which in my opinion will continue to make them a preferred alternative. One, that tax gets triggered only on redemption in case of debt mutual funds. Second, I mean, there's no prepayment penalty or liquidity-related challenges. I think debt funds offer good liquidity. Thirdly, the flexibility in terms of par redemption, moving across rate or credit curve. I think transparency on all of that and also the flexibility that you get off of the debt funds. You know, a diversified portfolio of securities with outstanding long-term track record at the industry level.
For all the news of securities going bad, the total equivalent of NPA from the debt MF industry has been negligible. We still think that there is scope for growth. I must repeat what I said earlier that as an industry, we would have liked the tax advantage to continue because I think we were contributing and we have tremendous potential to contribute to the development of the debt market, particularly the corporate bond market.
Sure, sure. In terms of, you know, the share of corporate and retail in the three years and above, what would be that mix for the industry or for us, if you can share that?
Kunal, there is no number which basically is like, in that form, right? We do have in our presentation the breakup between the corporate and retail investors or individual investors as we put them across. I think there are lots of corporates who stay long. There are lots of individuals who might use it for a shorter period. Like we do have corporates who do tend to stay for very long, even in ultra short and those kind of funds.
Sure. I understand. Thank you so much. I'll get back in touch with you. All the very best.
Thanks. Thanks, Kunal.
Thank you. The next question is from the line of Devesh Agarwal from IIFL Securities. Please go ahead.
Thank you, sir, for the opportunity. Firstly, wanted to ask, although we are seeing a good market share gains on the equity side as well as on the SIP side, but somewhere they are getting offset by the loss in the market share on the debt segment. Can you give me some sense as to why are we losing market share on the debt side? What are the challenges for us out there?
Our market share in debt on QA AUM basis for March 2023 stood at 13.3. If we look at market share excluding debt index funds, this will stand at 14.6% or so. I must mention we were little late to launch debt index funds as we were waiting for some clarity in regulations and got off the ground once that was clear. The delay in launching debt index fund did hurt us, though we were able to catch up to an extent. Other than debt index fund, in most of the other categories, market share would have been stable to better.
Understood. Okay. On a full- year basis, could you share the AMC yields and the gross TRs for the three key asset classes, that is equity, debt and liquid?
No, I think, Naozad, he just wants yields for equity, debt and...
Liquid. Yeah.
We give that, no?
Yeah.
70 basis, Devesh, is on equity side.
Is seven-
28 or 9.
27 or 8 basis on debt and around 12, 13 basis on liquid.
Yeah. Yeah.
Sorry, I missed for debt.
27 basis.
Right. Simal, what would be the TR numbers for the same segments?
I don't have-
Lender TRs.
TRs available offhand. I'll give it to you. We'll send it across to you.
Sure, sure. Lastly, if we see the OpEx for FY 2023, that's roughly 14 basis points. Do you see there is any scope for any improvement on the cost side? Especially given that now again on the ESOP expense there will be some almost INR 25 crore-INR 30 crore hit for FY 2024. Still, the growth that we saw on other expenses in FY 2023, you think those would be continue or there would be some moderation in that? On overall basis, this 14 basis points can come down to 13 or something?
Devesh, I think Naozad will expand on this, but just one point here. See, there will be no incremental INR 25 because if, what Naozad mentioned, right, the total cost is, INR 50 odd. Of that first year would be, whatever, 55 odd %, and then what we have from the previous one. In the current year, that is March of 2023, we had a non-cash expenditure of INR 40 crores anyway hitting the book. The delta would be much lower than the number that you are mentioning. Naozad can further expand on cost.
I think if we go through the cost, Devesh, on the employee cost side, if we take out the non-cash expenditure, i.e. stock cost, the employee costs for last three years CAGR is about 8%, and YoY was 9.5%. Come to other expenses, the CAGR for that over the past three years is around 6%. Let's try and look at it from absolute number point of view. Our other expenses are INR 1,954 million in March 2020, and for the current year they were INR 2,326 million. That's an absolute increase of INR 372 million over three years. We have spent INR 37 crores extra over March 2020, right? Over a three-year period.
Of the INR 37 crores that I'm referring to, INR 10 crores actually has gone up due to CSR expense. If we exclude CSR expense, we have spent INR 27 crores extra over the last three years, a CAGR of less than 5%. On a YoY basis, the increase in cost was attributable to business development, NFO spend, IT and digital infra spend and marketing. Needless to say, we have been and will be prudent when it comes to expenses, but at the same time, we are not absent from investing into the business' future. On your 14 basis point question, I think, some of the heavy lifting that we have done on the IT and digital side has gone through this year.
I think it's we normally don't give guidance on that, but we would believe that we should be able to at least maintain the 14 basis points for 2024 .
Understood. Okay. Thank you so much.
Thank you. The next question is from the line of Pujan Shah from Congruence Advisers. Please go ahead.
Hello. Am I audible?
Yeah.
Yeah. First question would be on the, let's suppose, if we compare YoY, the industry has grown overall of 6%. Overall our revenue is 1% or 2%. Now, as we have reached on every pin codes and almost every like we have penetrated all across India. What are the strategic initiatives we are taking to get a better trajectory growth coming years ahead for HDFC AMC and better revenue growth model for that?
You are saying the growth is lower?
Yeah. Like year-on-year revenue growth-
From the debt side, because of the debt index fund, I think our equity market share has been inching up, which is a heartening feature. Our SIP market share or the systematic transactions that we disclose, which includes SIP and STP, that market share has been inching up. As you rightly mentioned, I think we have a large platform presence across 228 our own branches and a large distribution network. Trying to make the most of it, our performance has improved. Product approvals from different distributors or all the advisors has been improving. We are trying to I mean, we have been investing in on our digital assets, on marketing, on various other initiatives and which have started paying fruits.
Oh, okay. Got it. Thank you, sir.
Thank you. The next question is from the line of Lalit Deo from Equirus Securities. Please go ahead.
Yeah. Good evening, sir. Thank you for the opportunity. Sir, I have two questions. Firstly on the improvement of the performances of major equity schemes. We are seeing like, in major in major schemes we are back to like quartile one and quartile two. Now in terms of flows, like how has the market share improved across different channels like be it direct channel or a distributor-led channel? Can you comment on the same qualitatively?
You're absolutely right. I think our performance across most of the categories is top tier. I think our investment team is being complimented for sticking to their belief despite living through periods of underperformance. I'm sure you appreciate that this is a risk that's been done. We have been working on increasing our systematic transaction book and have seen decent results, which I also spoke earlier. As you've asked that how it's been showing results in various numbers. I think if you look at our number of unique investors, that has grown to 6.6 million, and that's an increase from 6.3 million in previous quarter. Across the industry, the number of unique investors has increased to 37.7 million, up from 36.7.
During this quarter, nearly one third of new unique investors chose HDFC Mutual Fund. Systematic transactions, Simal talked about earlier, has increased from INR 12.3 billion in March 2022 to INR 17.1 billion in March 2023. Systematic, for us, I mean include both SIP and STP. Of course, we also had couple of new thematic funds, Business Cycle and MNC fund during the year itself. I think, our, most of our strategies which have a good long-term track record and of course, have shown very strong performance recently. They are clearly resulting in improved market share. It's across channels. I think your question was on channels.
I think whether you look at direct, you look at national distributors, you look at our MFDs, look at other banks, I think almost across all channel partners we are seeing improving trends.
Sure, sir. One more thing as well. At this point of time, since we are seeing some performance improvement also, and now with change in control of the promoter also like from HDFC Limited to HDFC Bank. Do we see that the share of those which is coming from HDFC Bank to HDFC AMC should increase over the period of time because of our performance improvement also? How do you see that cross-sell potential over the next FY 2024 and FY 2025?
I mentioned earlier, we are definitely excited about the opportunity and look forward to working closely with HDFC Bank on the distribution front. Given that we are top quality products across asset classes, we are confident of further wallet share from HDFC Bank.
Sure. Yeah. Yeah. Thank you, sir.
Thank you. The next question is from the line of Prayesh Jain from Motilal Oswal Financial Services. Please go ahead.
Yeah. Hi, good evening, everyone. firstly, do you think that there is a market for hybrids, between, you know, having 35%-65% equity that now that, you know, they have, they still continue to enjoy the indexation benefits?
I think funds will have to get sold on their merits. I don't think just because of the tax treatment there would be a certain category. As you would like to push. I think we have product for, as I keep repeating the same sentence, funds for all investors' needs. I'm sure different investors, depending on their needs, their time horizon, their liquidity preference, return expectations and the risk appetite, they would choose different products.
Okay. Sir, and secondly, on the cost front, if I look at sequentially from Q3 to Q4, there's a good decline in the other expenses or overheads. How should we read that? Is there anything specific that you would like to highlight out there? Whether this is sustainable run rate, what we've seen in Q4?
I think quarter- on- quarter is we should not be tracking quarter- on- quarter. Especially in the last quarter, we had lesser NFOs. Business development expenses were slightly lower. Certain CSR spend was in Q3 versus Q4. It's that's the primary reason for the drop from INR 66 crores to INR 58 crores.
Okay. Another question was.
year-over-year basis more of
Okay. Okay. Got that. You know, the other part of the SEBI's, you know, discussion was on the broking charges that the AMCs pay. Could you highlight as to what are the broking charges as a % of bits of equity AUM that we would have paid in FY 2023?
No, I don't think I can discuss that.
Okay. Okay. Whatever the commentary has been around it to be included in the in the TERs, do you think that would impact us, in what way?
ask me, Prayesh, you are us. On a more serious note, I mean, if brokerage is included in TER, it will definitely be a regime change.
Mm.
I think, yeah, all of us will have to deal with it accordingly. We will do what is in the best interest of our unit holders and other stakeholders. I think it will be prudent to strategize on the same once we know of exact regulation.
Interesting. Okay. Okay. Thanks. That's all from my side.
Thank you. Next question is from the line of Dipanjan Ghosh from Citi. Please go ahead.
Hi. Good evening. Just two questions from my side. One, you know, just going back to the yields, you mentioned it was a factor of some unabsorbed cost and accounting impact on B30. Second was, you know, barring that less pace, it was also some product mix change. If you can just, you know, kind of qualitatively give some understanding of the B30 impact and also, you know, what would be or if maybe quantify the impact of the product mix change during the quarter.
Second, you know, on the, on the expense part, again, going back, given that you're focusing on rolling out your non-mutual fund strategy, and also kind of spending on the tech side on, you know, how do you, how do you kind of, intend to maintain the current cost ratio? If you can give some color on that.
I think first point, as you understand, right, how the B30 accounting works. Basically the B30 spend is accounted for and then over a 12-month period it gets amortized. If we are not able to do it as per the SEBI formula, right? There is a formula saying that what % of sales is happening from B30, so on and so forth. The balance need to be absorbed in the TER. There was some adjustment in reference to that. That was the B30 thing that we refer to, Dipanjan.
Sure. On the expense side?
How's that? Okay. Expense, I think we've mentioned that some amount of spend has already gone through this year. Some of it will continue going forward. I don't know exactly what you're looking for because we don't necessarily give forward-looking guidance.
No, sure. I, you know, just wanted to understand, you know, what will be the incremental quantum of spends, on the non-mutual fund strategy, and if that, will be material to your overall P&L?
Dipanjan, that would just not count. It will be very, very minimal, I think most of that in terms of setting up of our AIF and the related costs in reference to legal, accounting, tax, all of it has already been taken care of. We don't anticipate anything material on that end for sure.
Sure. Just maybe one question, if I can slip in. Your product pipeline for FY 2024. I mean, just wanted to get some understanding. Will there be any NFO spends that, you know, kind of on the equity side that can come up?
We will be doing few NFOs, not many. I think if you kind of recall, right, I just kind of referred to that NFO as a percentage of the net sales number in FY 2023 has been at a pace lower than as compared to FY 2022. Most of the standard categories, we already tick the box. Even in terms of sectoral and thematic, we've been able to expand our product portfolio. On the passive side, we've kind of done a slew of products, both on the ETF as well as on the index platform. I don't, we don't expect many more NFOs to see the light of the day during the course in terms of high spending kind of NFOs. We would continue to expand our portfolio on the sectoral thematic side.
All right. Sure. Thank you and all the best.
All categories I think our product bouquet is almost full. I think we have mentioned earlier we had 8 NFOs in FY 2022. We had like 25 including lot of passive funds in FY 2023. Yeah, there would be few sector thematic funds here and there, but I think our product portfolio is almost full. We are absolutely best in class when it comes to active. Absolutely best in class when it comes to passive on the product side.
Got it. Got it. Thank you and all the best.
Thank you.
Thank you. Participants, you may press star and one to ask a question. The next question is from the line of Srinath V from Bellwether Capital. Please go ahead.
Hi. just wanted to find out, you know, what is the equity yield contraction year-on-year? 70 bps was the number for the current year, but what was the kind of equity yield contraction?
A year back from late seventies. No, I think, last seven-three years because of...
See, actually difficult to kind of look at it, and anyway it'll not tell you anything for future. That's what we can tell you. Because what happens is, whenever there is a contraction in yield due to increased AUMs, that tends to have a follow-on effect over a period of time, whereby that kind of neutralizes itself. I think last year-
No, no. More not from the future, but largely want to reconcile the current numbers. If you actually see the yields reported for the year have not changed much, but because of the mix change, you know, we're not able to see how yields are moving, to reconcile the gap between asset growth and revenue growth.
We'll get back to you on this number. Do we have it offhand here?
Mid-seventies and now we are earlier.
I think we have moved from mid-seventies to early seventies for the weighted average AUM of the year.
Okay. This for equity, right?
That's right.
Yeah.
Yeah. Perfect. Given the kind of gross flows you guys have had, especially because of the share gain in the last 12 months, would it be kind of fair to assume that large part of this repricing, where our back book had significantly lower payouts is kind of either, you know, we are like halfway done or we are largely done. How do you see this, you know, book repricing? If now like 70% of the assets we hold are assets that are like, you know, two, three years old, then the repricing should be largely done, right?
We have mentioned this earlier. This is dependent on multiple variables and difficult to predict. It depends on what part of AUM is going out, more recent high-cost AUM or the older AUM. We also have to factor in the mark-to-market impact. Mark-to-market impact versus the versus flows. Gross sales as % of outstanding AUM also guides the speed of dilution. We've been asked this many a times, but honestly we ourselves find it difficult to put a precise number. The endeavor is always to have better retention of the existing assets, at the same time continue to get higher share of the gross flows.
Got it. Got it. Now, Navneet, any views on stock buyback, given that we are now going to see an equity dilution, coming in a business like ours, which, you know, ideally needs no capital. wanted to understand what is your broad take on buybacks, as well as do we need any specific SEBI approval over and above what any other normal company would need to do a buyback?
I mean, I mentioned earlier on the overall payout ratio or the usage of capital, something that we keep discussing in the board. With time you would have seen, I think we have enhanced our payout ratio. Have we discussed specifically buyback? Not really. Yeah, I mean, all options are always open.
Okay. Okay. The last one is would it be possible to quantify the brokerage payout in value terms? Because, you know, as we try to assess what is the likely risk that, you know, we are gonna face. I'm not asking you what the law will be or how you will deal with. Would it be possible just to disclose the value number so that at least we can figure out what is the value at risk?
It is prudent to, I think over the same once we know of exact regulation. Yeah. There's no point speculating at this point in time.
Okay. Thank you.
Thank you. Next question is from the line of Kunal Thanvi from Banyan Tree Advisors. Please go ahead.
Yeah, thanks for the follow-up. Can you help me with, you know, what what is our, you know, yield for the new flows that we are getting? Did we see any improvement in the competitive intensity this, in this quarter? Are we seeing some improvement in the new, you know, yield for the new flows that we are getting? That is question number one. Second is, you know, from a longer term perspective, if you can help us understand the remuneration, you know, policy for the company, because we've seen like ESOP coming back. How does one, you know, kind of equate between the variable pay and ESOPs with ESOPs coming in, like, and also at what level will we know giving the ESOPs?
Will it be the company-wide and, you know, what would be the impact on the variable, you know, salaries that we see in one of the quarters during the, you know, financial week that, you know, kind of subside because of the ESOPs? How should one look at it?
Sure. Your first question on the commission payout trend, I think we've been saying for past couple of quarters that things are getting better. If you observe the direct plan TER of recently concluded NFOs, they are much healthier than, say, NFOs launched, say, a year back. Even non-NFO flows are coming in at better margins. In fact, actually, I mentioned this earlier that a low direct plan TER due to high commissions hurt distribution fraternity in medium to longer term more than anyone else, as customers may opt for direct plan if the difference is materially large. Most of the distribution partners do understand and appreciate the same. Your second question on the ESOP side. As Simal mentioned in the opening remarks, our NRC has approved grant of ten and half lakh ESOPs to the eligible employees.
You would appreciate NBFC group has been a strong believer in culture of shared ownership and aligned interest. By giving employees a stake in the company, they become more invested in the success and are further motivated to work towards achieving the shared goals. People are our biggest asset. This business is all about people. On the distribution and other thing that you asked for, we have engaged services of a Big Four firm for advising us on this. This is broad-based, covering more than 50% of our people. Dilution is less than 0.5% over a three-year vesting period. I think Naozad has already mentioned about the financial impact and accounting impact of this, right.
Sure. Sure. The reason I was asking this was, of course, our industry's people based, and, you know, once we issue ESOP to 50% and more of the, you know, employees, does it mean that there will be the variable payouts that we make because of the performance links, will that kind of smoothen up or that continue to be the way it has been over the period of time?
I mean, we consider all of that in the NRC and of course in the management team when we look at the fixed pay variable and then of course the ownership through the ESOP plans. I think Naozad mentioned earlier that if you look at a three-year CAGR, it's been like single- digits. Yeah.
Sure. Got it. last question, if I can squeeze in, is on, you know, Naozad mentioned that, you know, we strive to maintain 14 bits in the total cost that we have, right? now when we, when we look at, you know, our business and the way, you know, things have been moving, it is probably, you know, very, apparent that the yields would kind of come up, right? since it's an operating leverage, business, one would, you know, believe that the cost per AUM could kind of also come down and hence the, you know, falling yields could, you know, get subsided by that.
Now, can you throw some light on how do we think about our cost structure, not from a year perspective, like, you know, five-year perspective in terms of, you know, in relation with the AUM growth? Because given the fact that our PER will kind of come down with this increase in size, cost, you know, as a percentage of AUM will decide what kind of profit growth, you know, we as a company would achieve in next four, five, or maybe 10 years from now.
I think if you take it over a long-term period, and operating leverage, as you rightly said, is a focus for everyone. If you say that over a three, five, 10-year period, our ender would be that our costs grew at a slower pace than the AUM. By that mathematically the basis point should come down, right? That obviously is the endeavor for our business.
Okay. Sure. Thank you.
Thank you. The next question is from the line of Abhijit from Kotak Mahindra. Please go ahead.
Hey. Hi, good evening. First is a broad industry question. I think there was another guideline that SEBI put out around the responsibility of mutual fund trusts versus the AMC boards. Anything to read there? Because it seems like SEBI is probably wanting to give more strategic decisions to the trust rather than the AMC board. Does that change things in a material way in the way the business runs in terms of how performance is looked at, in terms of how fees are charged?
Of course, I think both the trustee board as well as the AMC board look at all of these things. The performance is closely tracked. The fund performance I'm talking about and all the other things related to risk management, compliance, variety of other things. Of course, as I mentioned earlier, SEBI's overarching objectives have been market regulation, investor protection, and they keep doing lots of things to ensure that the industry performs well and take care of the unit holders to the best of our ability over a period of time.
No. What I meant is generally in terms of being able to, let's say, make more day-to-day decisions around let's say what fees are to be charged.
Understood.
How to ensure better performance, if that requires any changes anywhere in the business, on all those aspects, do you see anything materially changing in the way the business is run today?
The way business is run, whether materially changes that? No.
Got it. Got it. Second one, again, on fees. Again, just a broad question. Amongst the industry, is there an industry view on whether the industry is sort of making more money than what is desirable or what is justified? I mean, of course, I may not have put that question in the right way, but is there a consensus in terms of, you know, what's the right level of profitability across different buckets of AUM sizes that the industry operates in today? How are you sort of putting it across to the regulator?
If I remember correctly, the combined PAT, the aggregate PAT of the industry was around INR 8,000 crores, and we are managing INR 40 lakh crores, so that's 20 basis points. That profit would also include other income. If you adjust for that, operating level would be around INR 6,500-6,700 odd crores for the industry out of INR 40 lakh crore. That's how much? 16, 17 points. Up to you. I mean, when you compare with, let's say, the business we run, whether 16, 17 basis points is too much to us, not really. I think-
Got it. Sorry, in terms of a follow-up, it's clearly like the larger guys, including HDFC, do have the benefit of the profitable back book. Would it be fair to assume that the regulator would not look at it in a very negative way compared to where the rest of the industry is? Because, I mean, just in terms of how the fees would be arrived at.
I mean, you would appreciate the hard work that would have been put over two decades to build that book and to get to this profitability. It's not easy to serve millions of investors, creating long-term, you know, wealth for them. Tens of thousands of distribution partners across the country and across 228 physical locations, serving like close to 98%, 99% of pin codes. Delivering the performance that we have delivered over two decades plus. I mean, if you look into that and all of that.
No, totally with you.
See the profit number in that context, yeah.
Got it. Got it. All right. Okay, thank you so much.
Thank you. Next question is from the line of Sahej Mittal from HDFC Securities. Please go ahead.
Hi, good evening, and thanks for the opportunity. First is on the net yield on non-new NFO, non-NFO business, the non-NFO flows which are coming to you. If in the current quarter you're getting, say for example, 60 basis points hypothetically on your equity AUM. What was this number for non-NFO equity flows for the last quarter versus year-over-year? That is first. And the second is that, given that the industry is going hard on the asset managers, so what is your view that, you know, are they also given the kind of commission payouts which are happening in the industry right now? Is the regulator even looking at these at the profitability of these distributors and the kind of back book which they have? Those are my two questions, sir.
On the commissions on the incremental flows, I think, we have answered that. I think, yeah, the environment is improving a bit, whether you look at the NFOs or the non-NFOs, in the industry. The second question was on.
Distributor. How is the regulator looking at the commission payouts for distributors?
Actually, the chairperson had kind of clearly stated, right, let the industry decide on how they want to manage that. I don't think, at least our understanding, limited understanding suggests that regulator will not kind of get to that level of discussion. At least that's what chairperson stated at the press conference.
Right. Sequentially on the non-NFO flows in the equity segment, there's no dip in net realizations. Is it fair to assume?
On commissions have gone down. See, net realization will be a different story because what happens is when my, what tends to happen is if the AUM crosses that 5,000 crore multiplier, you will see a dip in the, in the revenue. If you're looking at dip in commission over a period of last 12 months, as Navneet mentioned, we have seen numbers get marginally better from where they were.
Mm. Got it. Got it. Thanks.
Thank you. Next question is from the line of Prayesh Jain from Motilal Oswal. Please go ahead.
Yeah. Hi, thanks again. Just on the AIF thing, you know, you mentioned that you have raised INR 400 crores of commitment. What are the other plans with regards to, you know, new launches over the next one or two years?
Prayesh, this is our first one. I think as of now we are focused on this one. Maybe over a period of time we'll kind of further expand our product portfolio when it comes to AIF. I think as of now we want to focus on building this one to the level next.
Okay. Okay. You know, this is another question similar to one, you know, which was asked earlier possibly. You know, if I look at your ROEs, that have come down from 35%-36% range to now 25%. Do we look at this, you know, from the, from a profitability of a AMC, say, you know, say two years, three years down the line? Do we think that, you know, this could say trend upwards in some form going ahead in any way? It doesn't seem appears to be the way, the regulatory moves are kind of, you know, coming across. It doesn't seem that the profitability in terms of ROEs could really trend on the higher side.
ROE is driven by the base effect set for us, given that we have a large balance sheet. Of course, we, as we increase our payout, as we have been doing it structured in the last two, three years. The ROE impact will be there just because of the base effect largely for us.
Even because the margins have also gone down and, you know, that would have also played out. More, it was more from that perspective. I understand the balance sheet size has gone up. You know, it was more from a margin perspective. If you look at they have kind of come up, so you know from a longer term perspective, do we see that returning anytime soon?
Margins are on 35 basis points, so have been over the last several quarters, 35 basis points.
Actually, Prayesh, see, profits have grown. Basically if you're looking at ROE, means, we definitely appreciate your question on margins having gone down. Yes, that has been the case, right. Navneet did make a mention that our margins are kind of governed because of the book being at a different price and the flows being at a price higher than the cost of the book. Yes, margins are going down. That would not have any kind of direct impact. ROE is nothing else, right, but profit divided by the net worth.
Out there we are sitting on slight bit of an extra cash. The way we see it is we are a infinite ROE business, theoretically in sense.
Yes.
Today apart from what is required by regulation in terms of the skin in the game circular and the minimal net worth criteria of INR 50 crores, everything balance is sitting on our balance sheet. If that is not there, then our, of course, our ROE will look very, very different. Yeah, with you on the margin side, I think our business has undergone a bit of pressure on the margin side over the last few years. On the regulatory front, we honestly don't know what's gonna really play out. Having said that, if you remind yourselves to 2019, right? I think we did see a regulatory change. Post that we've been able to kind of tackle things as it is. I think let us see how this comes up, and we'll decide then after.
Sure. Thanks a lot.
Thank you. The next question is from the line of Atul Mehra from Motilal Oswal Asset Management. Please go ahead.
Yeah, thank you. Good evening, and thanks for the opportunity. Just one question in terms of, like, typically the way we see it is on the mutual fund business, the regulatory issues like we discussed on the call are generally increasing in terms of fee pressure and so on. While in terms of it might not contribute very much in the near term, would you want to from a medium to long-term perspective incubate a private equity venture capital business where the long-term value that we can derive is much higher? Although near term, obviously it will not move the needle given how large our public markets business is, the profitability and the scope there could be much larger when you look at it from a long-term perspective. Any thoughts on these two businesses?
You shouldn't look at a business from more regulated or less regulated. In fact, the regulation on alternatives, as you would be aware, is also changing. I mentioned earlier, I wouldn't comment much on the regulation side, we remain committed. Yeah. Over a period of time, there are tremendous opportunities in this business. Our mission is, I've repeated it several times, is to be the wealth creator for every Indian. That includes, I mean, an SIP of INR 100, INR 200, INR 500 per month. Somebody who's contributing that to serving the ultra HNIs and family offices and institutions who are looking at maybe other kinds of solutions within the asset management business. We are building capabilities across the board. We have been best in class, I mean, in terms of our product range on the active side.
We have significantly expanded on the passive side. As that market grows, we are absolutely ready to capture that. On the alternatives, as you mentioned, the first product on the fund of fund has been launched. So far I think we are pretty happy with what we have done on both sides, building capability on the investment side as well as our reach to the investors. I think over 200 investors have participated in our first close. I mean, that's very, very heartening. Over a period of time we would like to build that. We have launched two strategies on PMS and over a period of time there will be opportunities on that side.
Our subsidiary on the Gift City, I think another quarter or two, once that's fully set up, we will look at launching products both for global investors who want to invest in India and at a later stage even providing opportunities for domestic investors through the LRS route to invest globally. I mean, we want to capture every possible opportunity on the asset management side. I don't think the lens through which we will look at is like what is more regulated and what is less regulated. We really appreciate, I think, the way regulators have played their role in India. I think tremendous credit to them for the market development over the years.
I think Indian capital markets, I'm sure you would agree, are one of the most, I would say, robust. I think one of the most liquid and transparent markets. Over a period of time, transparency really helps in building trust among the investors, all kinds of investors. Whatever regulator does, I mentioned it earlier, even at the cost of repeating, apart from market regulation and investor protection, they also have an objective of market development. We are all hopeful, as an industry, we engage, we with the regulators, with other market participants on how do we grow together for the, I would say, betterment of investors and of course, for the growth of the economy over a period of time.
Right. Great, Sir. Thank you and all the best.
Thank you. The next question is from the line of Gaurav Jani from Prabhudas Lilladher. Please go ahead.
Thank you for taking my question. Just wanted to understand, from a mix perspective, you know, in terms of equity direct and indirect, are we materially different from the industry?
Our equity mix is better than the industry. I think on the closing AUM, the equity was 56% of the total assets. On average, it was 54% of total assets. Industry would be 49%. Yeah, 49%. It is better than the industry.
No. I meant actually, the direct contribution in equities versus the industry. That will be about 80/20, right? I mean, 20 direct and 80 indirect.
On the management fee is same in both direct as well as in the distribution plan. Yeah.
Understood. Thank you sir. That's it.
Thank you. Ladies and gentlemen, that was the last question. I will now hand the conference over to Mr. Navneet Munot for closing comments.
Thank you.
Thank you very much. On behalf of HDFC Asset Management Company Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.