Q1 23/24

Jul 31, 2023

Ladies and gentlemen, good day and welcome to Q1 FY 2024 earnings conference call of KFin Technologies Limited also known as KFin Technologies Limited. As a reminder, all participant lines will be in listen only mode. There will be opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that the conference is being recorded. I will hand the conference over to Mr. Ajit Sakhre from Kotak Securities. Thank you and over to you. Yes, thanks a lot. Good morning, everyone. Welcome to earnings conference call of KFin Technologies Limited. To discuss the Q1 FY 2024 performance of the company and share industry and business updates. We have the senior management with us today represented by Sreekanth Nadella, the CEO, Vivek Mathur, CFO, and Mr. Amit Taneja, head investor relations. I would now like to hand over the call to Sreekanth for his opening comments, after which we will take Q&A. Over to you. Thank you so much, Ajit. Very good morning to one and all. As always, I will start the presentation with a quick overview in terms of the organization as several new shareholders have participated in our organization in terms of wealth creation. So welcome on board to one and all. We continue to be the single largest investment solution provider to vast majority of the asset classes within this country. In mutual funds, in the form of the maximum number of AMCs set up, 45 AMCs in the country today. So in terms of AIFs, about 56% of all the private equity solutions. Issuer solutions, where we manage nearly around 4,500 plus clients with market share of 37% cutting across the listed NIFTY 500. Together managing a folio count of close to 250 plus million this amongst the largest not just in India but among in the world itself. Quickly deep diving in terms of the mutual funds. Our win record is something that we have set in having won 16 out of 42 AMCs that have launched in the country. In this quarter, one of the country's largest financial services company, Bajaj Finserv, which has also launched its AMC behind the standard in the previous year has gone operational with the launch of four funds into this quarter. Our market share in terms of Equity AUM is close to 35%. Our complete use of monthly inflows into AMFI continuously is running at about 40% of the total inflows into different solution funds even as newer AMCs have launched and their market share continue to expand from hereon. In terms of issuer solutions, very interesting case as we have been the first registrar in the country having handled more than 60% of the IPOs within this space. We continue to handle majority of them on the main board even today. In terms of corporate actions, we have been chosen as partner for Jio Financial and a couple others which I will do a deep dive on. Our international and other investor solutions, these fastest-growing for the past three years as we have since become the only market licensed intermediary registrar and transfer agent who has presence beyond India. We are currently present in Malaysia, Philippines, Hong Kong, and Singapore in addition to being India. Apart from servicing clients in Canada and few other parts of the world. We have become the second central record-keeping agent for the administration of National Pension System. We have crossed the 1 million subscriber mark in basically six months putting us fastest-growing CRA, nearly twice the scale of the industry. In terms of the alternate investment funds, we had a market share of no more than 7% in 2020. Today it is about 37% market share amongst the fastest-growing CRA administrator in the country. Our innovation and the tech labs are at the forefront and we believe are the reason for the differentiated growth vis-à-vis the industry. We have launched several new products in addition to the 20 that have been launched this previous year. At least half of the new products are in the pipeline to be launched in the next four to six weeks. In terms of at scale transaction volume, it is also little over 1.5 million transactions every single day. Little over INR 1 trillion plus transits through our system inbound and outbound making us a critically important institution as testified by the country's regulator in the previous year. We have since then been ESG rated at level A putting us at the highest rating for any registrar, not just in India but within the world. We track to our security event the quantum and the gravity of the volume of the transactions which also shows the significance of capital market structure in terms of the security we track to the present standard of SecurityScorecard where we have 790 which we have just reached a good grade putting us amongst the best in the country as well. That is the snapshot about our organization. As I quickly deep dive into the highlights of the previous quarter. We had successfully orchestrated a diversified business model over the past five to six years. Diversification in what sense? In terms of asset classes not just dependent on mutual funds, but expanding to security markets, both equity and bond markets, alternate investment funds, pensions, private investments while credit not just any single geography success in terms of the capabilities to build this, ergo excellent geography. That is exactly the model we have orchestrated for ourselves for the past five years, even as our younger businesses have already taken near about 50% plus of the total share of revenue up as against merely four times again five to six years back. This provides a very good hedge for us as we have considered. In the quarter that had gone by, our revenue has grown approximately 8% year-on-year. EBITDA growth had been about 18% and the PAT had grown at 16% year-on-year, with PAT margin at 22%. Both PAT and EBITDA margins have seen near 200 basis points expansion year-on-year. Q1 traditionally being a lighter quarter for financial services, especially in the business that we are in. We are extremely happy to inform the investors that we have got revenue profile pretty much same as what we have for Q4 of the previous year, which effectively means as we move into Q2 and Q4, growth will accelerate and so will revenue and the margins. We have since then also carefully orchestrated certain value-added solutions which is something that is completely devoid of any market reference, which is largely on the technological solutions that we are working on, including around big data platforms such as. Our value-added solution revenue has grown 16% year-on-year, and we are confident that it could be about 20% as we move into the coming quarters. In terms of the mutual fund business itself, our average AUM has grown 18.5% year-on-year. We have a significant share of growth in the industry, which means we continue to have accelerated growth vis-à-vis the broader industry itself. We believe that in the coming quarters, hopefully we should see a greater traction when the quantum of, and of course, several of our clients have launched and are set to launch. In addition to the fact that the country's largest financial services company, Bajaj Finserv, a key client, has gone live in just the previous month and has captured the market share on the AUM front. We will continue to expand that. Our second largest line of business in terms of registrar solutions, we have added 163 clients in the previous quarter. We continue to add near about 10 to 15 clients every single day, either in the pre-person limited or unlisted or listed clients. The base obviously in terms of expansion of the retail investor access to our mutual funds as our folio-based revenue expands, even as we look forward into the coming three quarters for a significant boost to that business and revenue as well. Folio count has been stable. It hasn't seen a sharp rise, which is largely in the context of the Q4 of the previous year had seen a cheaper disorders of retail investors. But again, into the later part of the previous quarter, we have seen the numbers expand, which is again going rather well for us. We have in the previous quarter managed four out of the total seven main board IPOs, including that of Mankind Pharma. Several large IPOs are due to be launched in the coming quarter, in addition to further actions and value-added solutions. Our international investing solutions, we have expanded our clients count to about 48. We have one new client in Malaysia and Singapore, each in the previous quarter, and one of our existing clients in Philippines has added a substantive number of new funds into our overall solutions domain, which is something that would add, I would like to believe, sizable revenue and a material impact on investor solution revenue as we move into the quarters and the transition period. We have also since then won our maiden contract of fund administration in Thailand which is of that of one of the largest bank-based asset management company in Thailand. In due course, subject to the approvals from the regulators, we will be setting up our own office in Thailand. That notwithstanding, the current contract will be delivered in its current form out of our existing office in Thailand as well. So pretty very excited to start a brand new geography which is probably the largest in Asia after India and China. And there are several asset management companies and a very large scope for alternate investment funds including in GIFT City, our market share is at 60% more often than not. Every second and every 3 out of 5 funds are being. We have clearly emerged as a differentiating service partner who has full comprehension of the GIFT City rules and regulations and have the ability to handle both custody and fund administration solutions. By courtesy and by virtue of our acquisition of Hexagram, we are making the only RTA group that is able to have scaled solutions for all types of asset situation. We have a total number of funds are about 416 on AIF domestic, 37% close to market share. We have won several new funds, and we are very excited to onboard several private equity funds which has a much larger portion than AIF, and that is a new competency vertical that we are growing. As we move further, deeper into the East and hopefully our journey into that part of the world this year, Europe and America, would augur very well as we develop processes to manage hedge and the alternate hedge and the private equity funds. And where our AUM in this year year-on-year has grown by 42%, on the alternate investment front. In terms of the new contracts per Hexagram, it is one. 21 total clients in India at this point in time. I am taking out common only entity who can handle TA and FA at scale for mutual funds, for alternatives, for insurance companies and banks as well. I quickly summarize the National Pension System. We have crossed a million subscriber base into the month of July, though as of the quarter ending June, we were just a tad bit shy of a million subscriber base. We have grown nearly 2 times, that is 24.1% we have grown year-on-year. This is 12.7% the growth of the industry in the pensions, which is largely on the back of several technological innovations and solutions that we have orchestrated to drive growth in the intermediary-driven pension as well as in the governmental sector. We are very hopeful to have a strong government sign-up this quarter given the phase we are in at this point in time. Quickly move on in terms of broad brush of the mutual fund developments within India. The previous year had seen good growth of just shy of 11%. But the last quarter had seen sizable growth, moving the AUM from about INR 40.6 billion to INR 43.1 billion for the quarter ending June 2023. We all know and what is available in the public domain is that the mutual fund industry in India is expected to reach nearly about INR 100 trillion, that's 100 lakh crores into the next six to seven years, which means it is more than 2.5 times its current size. And given we are one of the two service providers in this industry with respect to wholesale and along with industry-wise providing several tech-enabled solutions many times over as competitors do. In terms of the AUM flow, which has been at the progress of the growth of the industry, it has been consistently clocking INR 20,000 plus crore monthly inflows in the last four to five months. The pipeline is expanding based on the number of NFOs that have been launched and we have in the horizon this quarter, we believe the number of whales continue to expand at a much faster rate. This is very important to just track with given it is the retail SIP flow which is the rock for the course. It is sticky. It is something that provides a resilience to the industry, especially when there are any macro headwinds that come where the institutional funds could be expanded relatively. The overall folio count has moved from about 90 million to 150 million in just a matter of three years. These are all the good performance metrics in terms of the mutual funds. And as I said, several new asset management companies, including ourselves are adjusting. Like Old Bridge, which is yet to launch, we'd like to believe will start to have an expanded market share even as we grow along with the industry. On the other asset classes such as alternative investments, the number of AIFs that are both registered, licensed, and have started their operations has been growing quite substantially. We have grown 23% year-on-year in terms of number of AIFs and 4% quarter-on-quarter, which also translates to 46% revenue. Even as I believe that several of these funds which have launched in this very recent quarter would add a faster growth revenue rate commensurate to the growth of the number of funds that we have added. The number of demat accounts that have grown in the previous quarter by 25% year-on-year as last year saw some amount of sales participants leave the broader market. So it's all is well in terms of the folio count revenue that we continue to see into these next three quarters. Even as the corporate actions we believe will strengthen given the corporate profitability of India is pretty high at this point in time. Moving on, in terms of market share, the overall AUM as we continue to expand year-on-year, we are at 31.3% on the overall AUM, XP AUM saw a marginal tick of 0.1%. This is in the context of some of the NFOs which haven't subscribed into the Q4 of the last year, which have been pen-had. Given we have a higher proportion of equity, which is about 56% of the total asset classes, the sub-market performance of Q4 meant there has been a very marginal erosion in terms of the market share even as the overall number, as I said, AUM has grown 3.5% compared to 4.2% of the industry. Moving on, in terms of our corporate clientele base, as I said, we have grown 12.2% year-on-year and 1.3% quarter-on-quarter. We have also orchestrated several transitions of client registrars into the previous year. That is including Union Bank of India, Paisalo, and so on and so forth. We have more in the pipeline even as we have IPOs that are yet to launch into the market. We have been appointed and as a matter of pride, we have been the longest partner of Reliance Group for the past 50 plus years. As Reliance has orchestrated Jio Financial Services, we have been identified as the RTA from a corporate registry standpoint. We have also heard recently the bit of news in terms of the partnership with Bank of Maharashtra in the asset management industry. Managed four out of the seven main board IPOs. As I have already called that out, an 82% market share out of the issue size in the main board IPOs for the quarter that has just gone by. It is not just the number of IPOs, but also the size of IPOs which matters a lot, especially in the context of the folio count, and this is where we have had 82% market share in the previous year. In investor solutions for international, Q1 of FY 2023 to Q1 of FY 2024 year-on-year, we have moved 93 to 448 clients. Part of that also in the context of having Hexagram winning several clients in terms of their administration in the Asian markets. Total TA, the RTA work which we have traditionally been doing is critical to account for the administration, which is the core of Hexagram, which now also the past 19. The overall AUM itself has seen a little bit of dip again, largely in the context of underperformance of the Asian markets in the previous year. We have seen a steady rise in the past two to three months and as a result of that, the expansion of 28 new funds of the largest AMC that we have in 13 is always well for us in the coming quarters. As we have seen, the volume has started to steadily rise and we have two AMCs who were under transition in the previous year have just gone live in the month of July, which means the revenue pertaining to those companies will start in Q2 onwards. The AUM for Alternative itself has expanded 41.4%, even as the number of funds have expanded close to 50% year-on-year, Q1. That in the context of several new funds which have been licensed and are ready to launch would only add further revenue profile. We continue to believe that alternative in the mid-term will have a very strong and outperforming growth compared to any other asset classes in mutual funds in the coming years. In addition to that, obviously, assets under NPS, which also has seen a stellar growth over the past few years. Administration platform which we have acquired in the form of mPower coming from Hexagram and several other platforms is a very critical cog in the journey line that it has to spread out, which is truly to aspirationally to be the first entity from India to be a global-friendly administrator. We cannot be one unless we have a very strong administration platform and services in addition to that of a transfer agency to these trans platforms. In the last four years, we believe we have gone strength to strength, both in terms of acquisitions as well as client addition and asset classes that we serve within this mutual funds to insurance companies, to banks, to private equity and hedge funds and across the geo group including Canada, Hong Kong, Singapore, Philippines and Malaysia. As on our sections already, we continue to expand our platform without much noise. Very steady growth in our system. As the base value increases, it steadily pushes us into from a negative EBITDA business. This is the only business line where it's a negative EBITDA, and that is largely a factor of the scale itself. As we are moving the scale, we believe our insta-share representation system will turn positive and as we move again to the further quarters, we will start seeing the contribution to our broader book coming from that as well. With that, at this point in time, hand over again to Vivek to proceed with the financial performance. Thank you, Sreekanth. On the financial performance, our revenue from operations went up by almost 8% year-on-year, largely due to almost 11% growth in domestic mutual fund revenue and about 15% growth in the international and other industry solutions. The issuer solutions revenue year-on-year came down by about 4%, largely because there were lesser corporate actions in the first quarter of this financial year as compared to last year's same period. On the global business services, there was a marginal dip of about 7 basis, which is affected on the RTA side. As the mortgage business continues to grow in terms of servicing, but overall about 8% growth on the revenue. EBITDA continues to grow at about 13% year-on-year, and the EBITDA margin has been growing as compared to last year, same quarter, which was 37%. This year, first quarter was 38.8%. Our guidance on a full year basis of 30%-45% EBITDA margin remains intact. We catch up during rest of the quarters as we see the growing revenue and the growing AUM and the increased market share across businesses. On the profit after tax, there is a growth of 16% year-on-year, and that is again a reflection of both the increase in revenue as well as cost management. Our expenses went up only by about 4.6% year-on-year as compared to same period last year. Overall PAT margin is healthy. It has grown to 23.9%, almost 24%, against 22% last year same period. As Sreekanth mentioned, there is a healthy increase both in revenue as well as tax margins, and as a result of that, the EPS has gone up from 2.22 to 2.51 year-on-year. We remain a cash surplus company with almost INR 320 crores of cash and cash equivalents and that money will be used in terms of the aspirations to go towards position on setting up businesses across Europe and U.S. besides the growth in Thailand, which we cannot talk about. That is really on the financials. Over to you, Abhijeet. Should we begin the question and answer session, sir? Yes. Yes, we are ready for Q&A. 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 telephone keypads. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use hands free to ask their question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Faisal Zubair Hawa from H G Hawa & Company. Please go ahead. Hello? We are unable to hear you. Please speak louder. Hello? Yes, go ahead please. Is there any way that this can be disrupted by a blockchain-based system also, which would cost much less? Are we also looking at that possibility? Very good morning. This is Sreekanth. I'll take that question. Thanks for asking that. I would answer it this way. Newer technologies are always implemented to bring the cost to serve down, as it is causing any up cost in millions of transactions a day and trillions of rupees worth of transactions each and every day. We have been steadily reducing the cost to serve within the industry over the past decade plus. Today, we believe that this industry is already the lowest anywhere in the world. I think that typical cost portfolio for an entire year is just about INR 20. You compare and contrast that to any other industry, including our demat accounts or bank accounts, where you'll be running to hundreds of rupees. The technologies that we have already embraced and adopted are cloud and native mobility solutions. Blockchain itself is a very complex solution, and it is not a software. I just want to clarify that. It is not something that KFinTech alone or any other entity alone can embrace and say that, "Look, now I have a better solution to it." Blockchain works on trust. Blockchain works on an integrated solution which requires not just the registrar, but also the stock exchanges, the depositories, the distribution network, the AMCs, the clearing corporations, everybody to be on the same platform for the blockchain to run. For the very simple reason that any transaction that we process today necessarily goes through all of these groups. For example, to buy one unit of a mutual fund, any fund manager will need a bank, will need a clearing corporation, will need payment aggregators, KRAs, registrars, all this and so on and so forth. Unless there is a solution which is top-down, which requires the entire industry to be elevated to a blockchain, we believe that it is not a software that can just be implemented to gain efficiencies. It is a working committee already constituted by the country's regulators, where we are part of this. There are discussions ongoing. In time to come, we will speak about blockchain broadly accepted by the entire infrastructure required in capital markets. Mr. Hawa, does that answer your question? Yes, it does. Thank you. Ladies and gentlemen, to ask a question, please press Star and one on your phone now. We have our next question on the line of Tejas Lakhani from Edify Capital. Please go ahead. Yeah, hi. Thanks for the opportunity. Sreekanth, first question is that, the issue solution business, if you were to look at it from a revenue portfolio, we used to earn about INR 8 to INR 9, which has tapered lower. Could you comment, is there anything there? Because the revenue per folio is much lower. Yeah, most certainly. See, the revenue per folio is currently we have 5,000 clients as I said earlier. The pricing, the unit pricing, that is the folio pricing for each of the entity is a negotiated rate. This is not a regulated rate, so to speak. Hence the total cumulative folio rate that you see in any quarter on any given day is a factor of where it has been more retail expansion in terms of clients. For example, if I were to have 10 clients where the unit price is INR 15 and another 10 clients where the unit price is averaging around INR 8. So the retail expansion can happen in any ways which I cannot pre-determine. For example, in the example that I just took, it has been a much broader retail expansion amongst the clients who have had a smaller unit folio as compared to that of the entity where I have a better pricing. So technically, it is possible that the overall average tends to come down for that specific period. Now, as we move into the next month or the next week or the next quarter, based on the results, if the other entities at that point in time have a broader retail expansion, the unit prices again go up. All I would say is that this is a point in time and this is a market-driven number. This is not a negotiated number. This is not discounts. If I were to clarify that event you have in your mind. This is a play in terms of the market dynamics which would move up and down into various time frames. Over to you. This is Vivek Mathur. I would just add to Sreekanth. The issuer solutions revenue comprises of three components. One is folio-based revenue, second is corporate actions, and third is the various value-added services that we offer like EOD and e-AGMs and all. In fact, our folio revenue based on the new clients has actually gone up. There is a reduction in the overall average revenue per folio because of lesser number of corporate actions in the first quarter as compared to the previous year's same quarter. That is the effect that you would have seen about 4.5% reduction on year-on-year quantification. Yes. Just adding more to this, Tejas. While Vivek was alluding that our specific folio revenue has gone up by 6% almost year-on-year basis in the first quarter. As you move into the subsequent quarters and all, these corporate actions which typically happens in the Q2 to Q3, which last year was a little different year, wherein we have seen preponed or several corporate actions in the first quarter of fiscal 2023, which we are not seeing, and this is more a normalized year compared to the last year and all. As we move along into the subsequent quarters and all, this thing would get normalized and you would see the average numbers would turn out similar to what we had last year numbers. Got it. This is helpful. On the international piece, could you speak a little bit about, you have had a few wins. When does the revenue traction start to build from that? I heard you mentioning it earlier, a few onwards. Could you just give some sense of the existing wins, how the revenue scale-up will take place there and other businesses that you are chasing in the region? Yeah, I will do that, Steven. Thank you. If you look at the international business or at most of, I guess, the kind of work that we do into three components. There is an existing client base which has already been transitioned and has been in steady-state delivery. That is the base revenue, the recurring annual revenue, annuity, however you would like to call it. The second component is the wins that we have typically take anywhere between 3 to 6 months, maybe sometimes some complex transitions can go up even 8 to 9 months of transition. I had called out that two such deals which we have won in the past, transitions have been completed in the month of July earlier this month, and hence that line of revenue will kick in immediately from this month onwards. When I say this month, I mean August onwards. Then we have deals which we have signed in the recent past, into the last 2 to 3 months, which need to be transitioned into KFinTech as the revenue recognition. That is a recurring revenue, even as there will be a certain one-time revenue for this transition itself, which effectively means there is a revenue stream that we will get even from those deals. Let me call out a sizable one. The deal that we have won in Thailand is that of a data administration work for the third of the largest bank-based asset management company in the world. This is our first slide. We have had conversations including that of demos. We had to re-platform our entire solution to meet the requirements of the Thai regulator and the Thai business ecosystem. For that, we took a substantial number of months and have proven to the satisfaction of the client that our solution works just as well in Thailand as well. Now the transition for that would start pretty much immediately, and we believe that it is a 4 to 5-month transition as I said, after which there is a one-time episode of revenue, post which there is a recurring annual revenue. As far as the three additional wins that we have won from the largest client that we have in Philippines, the transition has already begun for those clients. The additional revenue that we will get will be on top of the new flow that will happen into those clients from hereon, which means that is again pretty much immediate. Whereas there is a significant near about $15 billion worth of AUMs lined. These are the same teams, in the current context, which are ripe for transition. The moment that happens, that will also kick in as an additional revenue. So strong in a lot of cases, there is not a significant lag or a lead time for all our teams. Some of these revenue would be recurring revenue because they are the same transition. Some of the other deals, it will be the transition revenue because we just won and we are in the process of transition. Even as all the old and existing deals will continue to provide the recurring annual revenue. I hope this answers. Yeah. If I were to reiterate what you are saying is, you are saying old wins, where the months of transition are over will start now. The new wins which you have won, transition income will be there for the next few quarters before they move to recurring. Is that understanding correct? Absolutely correct. Yes. Perfect. Okay. A couple of other things on the employee cost side. I just want to understand that has there been increments in this quarter, and is this a new normalized employee cost base? I will take that question. This is Vivek. This is a nominal increase that we have given to retain certain talent and give for market corrections. The actual increments will take place from July. In fact, you will see in the next quarter, which will not be abnormally high, but there will be some impact. Okay. Vivek, a follow-up on that is that we. Remember that there were these necessary increases to retain talent that took place in the previous year because Yes. tech was going through its own employee upgrades from a pay perspective. Is it behind us or is some part of it still continuing? No, that is behind us because that is already behind us. That was an abnormal increase, as you know. It was almost in the range of for IT engineers, to retain them, that was in the range of almost 50% to 60%. It had a material impact on the one-time impact on the cost. Now it is running, so that is behind us. This is a nominal increase that we give in the range of 7% to 8% per annum to maintain the workforce that we have. So that impact will come in the next quarter. But nothing abnormal is going to happen like it happened last year. I will just add some more color to that, if I may. On the IT front, for example, even as there were average comp increases that were recorded because of the overall wage inflation that happened, not just for us but across the industry in India and abroad. We have since then rationalized the total headcount itself down by nearly 130 people, which is roughly a 15% rationalization of IT manpower headcount. So what you are really seeing is an increase in average comp, largely offset by productivity gains through either through automation or if it comes to technology through better use of some of the technology as we move into for example, we have, as Vivek spoke, expanded our operations in Bhubaneswar quite wisely. And Odisha has a very strong, resilient layer of committed workforce at lower price point and everybody overall impact on the payroll would be much less than that. So it is not just the increase of comp that you see in terms of the overall cost expansion that we may have, but also what are we doing to drive the productivity and take the headcount out, which to a large extent negates any impact of the payroll cost. Got it. No, that is very helpful, Shikhara. So what I understand is the annual increments will take place from quarter 2. This was more to retain a certain part of the IT and incrementally you are setting up centers in tier 2 locations like Bhubaneswar where the cost structure is lower. Is that understanding correct on the employment? Absolutely. And it is not our future activity. We have already completed that activity. So you have to hear about your headcount which we are doubling up, and hopefully soon start moving the operations, not just IT, into other locations as well. So the answer is yes, and it is already done, and we are continuing progress in that direction. Yeah. One more addition to that is the integration of WebileApps that we acquired. Their employee cost is also included in this quarter. Okay. That explains it. On the other expenses, you have been investing ahead of the curve in technology. How are we thinking about that line item for 2024? For 2024, our journey line for innovation is very, very interesting and substantive actually. While the overall quantum of such costs would stay similar, we are doing it materially differently from the past, largely driving through partnerships with the industry. For example, as Vivek spoke, we have created a strong partnership with AWS and with several other industry participants, whether it is on the data center side, whether it is on the application layer, whether it is on the data layer, and basically taking the burden of the cost and the innovation together at the same time taking it to the market together so that the power of compounding comes to play. We have a series of assets as early as starting 50 progress. For the Infinea's sake, we have launches lined up, which are several very cutting-edge products in the industry, not just in India but across the world, if I may. Excited to create our own little mark in terms of the financialization of the country. So we have created a hot site for our DR capabilities, significantly enhancing and creating the benchmark of standards if I may within the country as continually recognized by the regulators as well. In addition to just the hardware expansion, the technologies associated with it is truly the products, platforms and the data monetization that would at least drive the revenue pools into the coming years, even as the quantum of investment is quite significant. So we have about five new products or platforms into the alternative investment space. A couple of them in the corporate registry space especially with the regulation on InvIT, with the regulation on issuing, providing finance for core solutions that needed to be present in the country are created at this point in time. Likewise, in the case of the mutual funds too, where we believe the market share expansion is important, our client growth. In addition to just processing, we need to help them grow. That is where I guess a decent amount of our tech solutions spend also is going. Not to forget the important asset move into Thailand and need a platform that is built. The last six quarters, for example, an amount of has already been paid into building the platform for a country. At any given point in time, these solutions will have a long-lasting economic impact for the company as we have the ability to then extend the client base on the same platform. Got it. Could you just speak about the INR 130 crore payout that is due in, if I remember, October? Is it October? That is something which is subject to the board approval, which will come up in the next board meeting. Subject to the board deciding to approve that, we will repay INR 134 crore in October. Okay. Mr. Taneja, I request you to join us. Thank you, sir. All that. Yes. Thank you. We have our next question from the line of Revansh Negatia from SINTL. Please go ahead. Yeah. Thank you for the opportunity. I wanted to understand in case of number of folios, let's say if a company, for example, Reliance demerges the separate company, then how does that changes our revenues and number of folios come? It changes. It adds to a complete new revenue pool for us. For example, for the question that you asked, there is a one-time fee that we have agreed with the client for the demerger activities, which is quite complex and needs to be done in a time-bound fashion. Beyond the demerger activity fee itself, the folios that get created will have a new entity folio will yield revenue for every unit price. Does that mean that the folio income actually doubles in that case, except the transaction income? It will grow to commensurate to the number of new retail holders into a given entity. Yes. In terms of international, it is still not clear that the number of clients have increased significantly. How will it translate in terms of the revenue flowing in? Also, if you can share your outlook for next few years in terms of revenue growth, what are our aspiration in international business? Certainly. The international today is largely limited to Asia. Although we are calling it international, it is largely Malaysia, which is the largest geography for us, followed by the Philippines. We have one client each in Hong Kong and Singapore, and we just won one in Thailand as we spoke internationally. The first question in terms of the quantum of the number of clients may seem not commensurate with the revenue pool, especially when you extrapolate that in the Indian context. 25 Asset Management Companies in India giving about 60 odd INR crore of revenue, whereas that is not the same case in the case of other countries that we are working there. If we go back to the growth arc, if I may, right. As we start a new country, and especially when we started our journey just 4 and a half years back or 5 years back beyond India, we needed to have one created a platform which never existed to do so. Starting pretty much bottom up in countries where outsourcing was never done before. In all the parts of the world that I spoke about, the entire delivery was done in-house, continues to be done in-house. We have in fact orchestrated this model of how we do it in India in those parts of the world. As one would expect to build such complex models and a generational shift of doing probably is one of the most difficult things to get for any asset manager. The larger asset management companies did not initially participate. Though actually the number of client base is very large, many of them are smaller and medium-tiered clients. If you were to compare in India, for example, you are comparing with the top three, top four AMCs probably with the flag off the AMCs. You would understand how different is the AUM profile and therefore the revenue pools that are associated. That is one of the reasons why the revenue does not look commensurately as high as the quantum of clients. Second is the fact that initially when there is a transition revenue base, the run revenue will obviously higher as you might expect. So we have constantly been transitioning multiple clients at any given point in time, which means that basically we never had a full year revenue from the clients put together. What has started to change in the last 1 and a half, 2 years, especially after COVID, is the participation of the large AMCs in discussions with us in negotiations. One of our impact, as I said, has just been signed in Thailand, which is one of the largest asset management companies there where we have just signed the contract. The award was just about last week. Speaks about a transcendental shift in terms of larger AMCs now partaking the journey of the RTA model which we have orchestrated. So very simply put, the past 4 years, the growth from nil to where we are today marks this exponential growth which is on a zero base. From here on, the growth would largely come in the form of larger asset management entities who are now signing up, many of whom can easily give a revenue profile which can be not a percentage in multiples of the current revenue itself. As I said, you compare the country's largest AMC with that of probably the 30 odd or 35th, and you see that one such contract you win is going to multiply your revenues two or threefold and not point of percentage. So that is the way the international would expect. While that is on Asia side, as I clearly mentioned, our intent into this year is to move to West. We have made sizable progress both in terms of our understanding of the market, customization of the products and platforms, so on and so forth. And probably in the coming quarters, we will have something more clear to explain that. Broadly speaking, as I said earlier, our intent is to be probably a global admin administrator of records from India in this upcoming quarter. Okay. Thanks a lot. Thank you. We have our next question from the line of Pranav Shah from JP Morgan. Please go ahead. Hello. Hi, can you hear me? Yes. Yeah. Thank you for the presentation. First question, how was the attrition rate for your business in the second half of and in the first half of FY 2024? Sure. The H2 of FY 2023, the attrition had tapered down to close to 3%, leaving an overall yearly average of 22% for the year that had gone. Q1 of this year it was marginal at 4.6% year-over-year. Does that answer your question, Pranav Shah? I am sorry, his line has disconnected. We have our next question from the line of Abhijeet Sakhare from Kotak Securities. Please go ahead. Hey, thanks. First question is on the MF RTA business. We see a -2% decline QOQ in terms of the realizations. Is this decline sort of indicative of what is built into the slab-based pricing or has there been some form of renegotiations that have happened during the quarter? Obviously, it is a combination of all. One is if you see the growth profile of my clients for Q1. There was a good quantum of growth that got generated from the larger Asset Management Companies either with medium tier AMCs. As we know, the yield that we get from the larger AMCs by virtue of telescoping pricing kicking in will always be lower than that of an entity to smaller and medium tier AMCs. So where the growth comes, which is the overall growth that the AMC/AMC is giving growth is very important as such. As I said in Q1, the growth we have seen were largely coming from the larger AMCs and the yield that was associated with those clients. Got it. Should we expect a step change or a more drastic impact sometime during the year from any of the contract renewals or nothing this year? No, there is no question of any step change. As you are aware and we have already articulated earlier, every year even if there is a slab change or any renegotiation at contract level based on the revenue is largely under 1% or rather the revenue that you see every year, for example, probably shows under 1% revenue that had been pushed on because of those accounting dynamics. So there is no step change. There will be an impact as AMCs move from slab to slab and as the growth comes in. But all of that impact would be very, very marginal in the context of the growth that we have seen. Got it. Second one, just coming back to the international business. While I am sure pricing is not the only driving force, but it would help if you can give us a sense of where does your pricing come through versus the current incumbent, if at all? Or if you have any understanding of what is the overall cost of an in-source model and where does our value proposition come in terms of the cost reductions. Our yield from our international business at this point in time is slightly above 5 basis points, which marks near to 10% higher yield as compared to level Indian AMCs can have at this point in time. Point number one. Our growth, as you rightly said, is not just because of pricing, also the style of commercials. For example, we have minimum fee that we derive irrespective of growth of AMC within that crossover. These are some of the things which we have learned in terms of the mistakes of the past years, in terms of interacting over the last 6, 5 years, which helps us in terms of if there's a slowdown or extra, even our costs do not go away. There is a minimum certain amount of fee that we charge. Point number three, the yield coming from the international market, which believe will stay fine over time as our service have now started expanding into different angles. One, for the same client for whom we were only delivering transfer agent services, we are now also delivering fund accounting and administration work. Typically, it could be anywhere between 3 to 4 basis points when it comes to mutual funds. If I am drawing 3 basis points from a client X delivering only TA services and I go on to also deliver FA services, I may see anywhere between 7 to 8 or 9 basis points. The yield for client can grow as my overall service portfolio has increased with the same set of clients. Point number three, in terms of the asset classes itself, while the mutual funds give you a more rationalized basis because of the volume, the alternative slab clearly gives you a higher number. Globally, if you see fund administration it is anywhere between 7 to 15 basis points. That is, of course, for the larger entities such as JP Morgan and Bank of America, State Street, et cetera, what they charge to the asset managers. Whilst we aren't there, which believe that our journey is obviously to that direction. Hopefully that clarifies. Yes. Thanks a lot. Thank you. We have our next question from the line of Pranav Shah from JP Morgan. Please go ahead. Hello. Yes, sorry, my line got cut off. But since you already addressed the attrition question. I did. I will just quickly repeat it. I think the question was, what was the attrition in H2? H2, we were at 0.9% attrition. Q1 of this year it was much more stabilized and we are at 4.6% attrition as we have seen in Q1. Yeah. Thanks a lot for that, Sreekanth. If you were to look at it, your employee cost, obviously, you are explaining it earlier, why it is different. It should be the base, which should become zero, right? Over the head. Yeah. It is only through business development that we would do. There are areas that we want to grow significantly. It is not a mature business in the sense that we are not just running the same thing over and over again. We are in the sense of growing much faster. We are in the sense of expanding geographically and asset classes. In things like that, we continue to invest on digital competence, of product innovation and platforms to basically address the new market classes, et cetera. Second, in order to make sure that those reach their end market at the right amount of money on the business development activities. If we were to run our core business the way it is without any venture or intent to expand our profiles, then yes, our costs and fees will not even be the same way they are. They could even come down. We have been incurring several expenses for driving growth into the future. Broadly, like-to-like cost for the same set of operation, I would expect to see a 10% dip. As we have seen year after year, largely on account of the productivity that we drive, even accounting further, the payroll increases because of agent addition. However, our overall cost has seen slight increase, as you would see. That is largely on account of the business development, innovation, et cetera, and if you have new lines of business and products and services we create. Understood. Thank you. That is clear. Last one was on the international and the other AUM fees. I think you were talking about the yields earlier, that international is now on 5 basis point. If I see, if I count the total overall fees, I am getting it around 4.5 for international plus other AUM. Is it fair to say that the AIF fees, the pension fees in command a much lower yield as compared to the rest of the business? Very true. Pensions commercial model itself is very different. Pensions, we are not an RTA, we are a central recording agency, CRA, under, again, licensed by the Pension Fund Regulatory and Development Authority of India. The CRA has contracted rates with the regulators, which are pretty much sacrosanct. It is not negotiated by the clients, in the form of POP or the PFM, or at an investor level, so to speak. This is a flat fee. It probably averages to about INR 90 to INR 100, if I may, for every subscriber every year. The growth out there is only and only in the form of adding the number of subscribers. There is no discretion in terms of charging higher or lower fee. There is no discretion in the form of value-added solutions. When you calculate the yield, the yield, if it is divided by the AUM that we are managing from the pension side, then it is not even a direct correlation because we are not charging on AUM. It is charged per consumer. The decline in this quarter would be entirely on the basis of pension, not on the international and the AIF fees. Is that the correct understanding? That is correct. Yes. Great. That is about it from my side. Thank you. With that, I think that was the last question for today. I now hand the call to Mr. Abhijeet Sakhare for closing comments. Over to you. Thank you all for joining the call today. Have a good day. Thank you. Thank you. On behalf of Kotak Securities, that concludes this conference. Thank you for joining us. You may disconnect your lines.