Q3 22/23

Feb 13, 2023

Ladies and gentlemen, good day. Welcome to the Q3 FY23 earnings conference call of KFin Technologies hosted by Kotak Securities Limited. As a reminder, all participant lines will be in the listen-only mode. There will be an 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijeet Sakhare from Kotak Securities Limited. Thank you. Over to you, Mr. Sakhare. Thank you, Michelle. Good morning, everyone. Welcome to the earnings conference call of KFin Technologies Limited to discuss the Q3 FY23 performance of the company and share industry and business update. We have the senior management with us, represented by Mr. Sreekanth Nadella, CEO, Mr. Vivek Mathur, CFO, and Mr. Amit Murarka from Investor Relations. I would now like to hand over the call to Srikanth for his opening comments and he will take questions. Over to you, Srikanth. Thank you, Abhijeet. A very good afternoon to one and all. This is Srikanth, leader of the organization as the chief executive, and thank you so much for giving your precious time this evening. Over the next half an hour, we would walk you through in terms of our performance for the quarter, as well as for the nine months ending December 31st. I would leave the floor open for questions for the later half of the call. I am going to start with, given this is our very first earnings call, I would like to take this opportunity to walk everyone all through a little bit about our journey so far. Some of you might have heard about it, but we believe it is important to set some context. As an organization, KFin Tech has been in existence since 1985, so long years in the making. We started our business with rendering issuer solutions, which is essentially what you call share transfer registry in today's world. Slightly late entrance into the mutual fund started in 1995, and ever since managed to claw back some amount of lost time by winning quite a significant number of mandates. Sometime around 2010, as the asset classes started expanding beyond the traditional asset classes of equity, debt and into mutual funds. The alternatives have started to expand and KFin Tech as an organization which is largely a technology and a platform-driven solutions provider, has expanded its solutions into all other asset classes as well, starting 2010. We also took extreme pride in starting probably the first international foray for an organization of this style based in India, by starting our business in Southeast Asia. We filed in Kuala Lumpur in Malaysia and thus started our international expansion, especially from Southeast Asia standpoint. Around 2017, we have secured the license to become the second Central Recordkeeping Agencies for national pension system. Over a period of time, we have expanded our footprint to a respectable 7% of the total market share over the last four years. I will explain more in terms of what has been the separate change and the growth associated with that in time to come. 2018 marked a very important year for us in terms of Redland makes a controlling stake buyout which spawned three definitive transformational items. One of that was technology transformation. Second was creation of an independent board and a fit-for-purpose management. The third being a large acquisitive by nature, by outlook which has resulted in KFin Tech buying out the Sundaram BNP Paribas RTA business back in 2020. Last year, we have acquired Hexagram, which is a fund accounting administration platform, which gives us a very unique ability to be one of the only RTAs in the country who can handle both the asset side as well as the liability side of the book of a fund manager. 2021 also was an important year for us with Kotak Mahindra Bank acquiring a 17% stake in us. Of course, the December of 2019 of the previous year, a momentous day for KFin Tech when the company got successfully listed on the National Stock Exchange and the BSE. That's largely our journey so far. To sum it all up. Investor solutions, broad business which covers the domestic mutual funds, international solutions in Southeast Asia and beyond. Alternatives and the wealth management associated platforms and the national pension system. Issuer solutions is a share transfer registry piece of work and the global business services, which is more an outsourcing sort of work that we do for specific clients in the market space and some amount of F&A outsourcing as well as general accounting outsourcing, particularly in banks. Simply moving on, just in terms of what is this organization at a very high-level glance. We are the largest investor solution provider to the Indian mutual funds in the form of the number of Asset Management Companies we serve. 26 out of 46 Asset Management Companies are KFin Tech's clients. Of these, 41 are operational at this point in time. Of the 41, 24 are KFin Tech's clients. We manage a total AUM of INR 12.7 trillion, and one that is expanding fast year after year. Our win rate had been 15 out of 22 in the past X number of years. It's implying growth that is constituted not just by the client's growth, but as well as new clients getting added and ergo -driving the expansion of our overall AUM as equity AUM. Our overall market share for the equity is 35%. In terms of SIP monthly inflow, which is the Bellwether and the sticky retail book, which tends to compound over a period of time, stands at 41.6% for the period ending December 2023. The overall number of folios, if you add up between investor solutions and issuer solutions, KFin Tech has close to 225 million folios, which makes KFin Tech amongst the largest registrars in this world. Issuer solutions, we have a 49% market share when you count the market cap of the 6,500 companies that KFin Tech services. Even by count, KFin Tech has literally around 23% market share on the total number of corporates listed on the Nifty 500. Overall, our base is about 5,100 clients, and we add literally around 150 odd corporates every single quarter, be it listed or unlisted together. Whilst investor solutions and domestic funds and issuer solutions really are traditional businesses, KFin Tech has had expansions into international and other investor solutions, which have been faster-growing businesses. Today, we manage 53 international clientele between Southeast Asia and beyond. In the case of Central Recordkeeping Agencies, we are one of the three CRAs, and we manage close to 0.1 million subscribers, which accounts for 7% of the total market share. On the alternate investment funds, we have about 348 AIFs secured, marks about a third of the total AIFs which has a composition of a full-scale model of TA plus FA plus value-added solutions. Some of these are purely for regulatory and compliance requirements and duty, what have you. Overall, beyond the statistics, we have been an extremely innovative company at the core. Launched over 20 products. Many of these are monetized directly or indirectly contributing to the growth of our clients. In terms of volumes of transactions, KFin Tech manages as many transactions as the industry, nearly as much as the industry does at this point in time. In terms of ESG rating, we are rated as the second-best corporate in the country, rated A, and we pride in tracking to our internal security scores of our infrastructure, which stands at a very healthy 774 as of December. Our growth largely has been on the back of very simple, keep it simple, but then execute it well. Effectively by maintaining a market leadership through excellent delivery, through relationship with our clients. That we believe we can do only and only through very effective technology investment and process innovation. We continue to expand internationally, organically as well as inorganically in the form of acquisitions. None of this is truly possible without retaining strong talent, as you would see that KFin Tech continues to invest in talent, both in terms of additional new count as well as in terms of retention of key personnel. We have also significantly enhanced our sales capability, our products and transformation innovation capability over the past 12 months. Broadly, in terms of our highlights for Q3 FY23, and the nine months ending December, we continue to maintain our good trajectory with a combination of growth on the traditional businesses as well as faster expansion of the younger businesses. Overall, our Q3 revenues grew by 12% year-on-year. EBITDA grew by 9%. Margins for the Q3 stands at 42.9%. Our PAT has grown 79% year-on-year, and margins stand at 28.4%, PAT margin at 28.4% for the Q3. For the period ending nine months, our revenue grew 17%, EBITDA growth was at 5% year-on-year, and margins stand at 39.9% for the cumulative period of nine months, even as the PAT has grown by 42% and margins standing at 25.2%. As I said, our business is broadly composed of domestic mutual funds which has a total share of close to 68%, and the rest of the business on the issuer international alternatives, et cetera, constitute the remaining 30%+. Our mutual fund business, overall AUM continues to expand faster than the industry. For example, our AUM has expanded by 8.5% year-on-year as against an industry growth of 5.4%. Our AUM market share, on the other hand, has expanded by a full 100 basis points from the previous year, which now stands at 31.7%. So a substantial market share gain in 12-month period, even as the market has expanded. Our equity AUM market share is at 35%. Through this period, we have also won a new mandate of Old Bridge Capital, even as one of our erstwhile clients, Abby, has chosen to partner with Protos in terms of the new management intending to align on a broader corporate relationships. Issuer solutions, which is one of our faster-growing businesses, has grown over 40% year-on-year as well as quarter-on-quarter broadly. We have added 128 clients, making our total client base 5,000+. Close to 0.8 million investor folios have been added, making it one of the largest, if not the largest registrar in the country. Even as the market share in terms of Nifty 500 companies stands at 49% for Q3 versus what was a 43% Q3 for FY 2022. Our international investor solutions, we have added 23 clients. We have totally 23 clients at this point in time, which stood at 22 for the previous nine months ending December 2022. We have won our first client outside of India and Asia into Canada for providing full-scale fund administration services. For two funds of this client, we believe this would be a good segue for us to expand into the western part of the world, where fund accounting administration is a fairly large addressable market with a $6 billion asset size. We started our operations in GIFT City in February, and we have already onboarded six funds in there, four being GIFT City domicile and two international funds. On the alternatives, one of the asset classes we are very excited about in terms of the growth prospects, as well as the value that we can offer to the asset managers and to the distribution network and to investors. 47 funds have been added in Q3 alone, taking the total number of funds to 348 for the period ending December 2022. Our market share stands at 33% versus what was 30% in the previous year, and our AUM correspondingly has grown 28% year-on-year and 3% quarter-on-quarter. Our system of services for alternatives also has grown beyond the traditional transfer agency work with the acquisition of Hexagram, where now we render end-to-end solutions of transfer agency, fund accounting administration, entire stack of digital onboarding, and all the other value-added solutions. National pension system, we continue to add sizable numbers with each passing day. Our market share stands, as are already called out. We look at expanding not just the market share, but also creating the market quite substantially. We have launched a corporate-specific product called FUTU₹. We have been adding a little around 100-odd corporates every single quarter, even as we intend to transition from the eNPS model into the corporate model through very specifically targeted solutions, which we believe will help the corporate employees to subscribe to national pension system through that particular platform. Overall, mutual funds itself from India performance standpoint, as one can easily read from the public domain, has been seeing sizable growth. This year for the period ending 2023, 5% year-on-year, 3% quarter-on-quarter, little subdued compared to the past three years broadly. As I have already explained, in comparison to 5.4% of industry growth, KFin Tech had grown over 8.4%, which effectively marks much higher net flows into KFin Tech service funds. Equity AUM stands at 35% for KFin Tech, even as the overall growth has been 12% year-on-year. KFin Tech's growth also had been similar, slightly higher than 12.4%, landing at 12.8%. SIP inflows, I have already called that out. KFin Tech's number in overall share of the wallet is around 42%, even though overall equity AUM stands at 35% and the overall AUM stands at 31. The retail book, which is usually sticky and compounding, is something that we believe will over time help KFin Tech's overall AUM share to increase beyond where it currently stands today. In terms of the number of folios and number of transactions, however, we have near parity in the industry in terms of the total number of transactions we process, as well as the total number of folios we manage, both in terms of overall AUM as well as on the equity side of things. Effectively, it speaks about, again, a lot of retail book. In terms of the other asset classes, even as the overall AIFs registered continue to expand, our win rate doesn't necessarily justify the revenue. It should be higher, as we believe many of the AIFs will go on to launch their funds into the coming months this quarter, which effectively should drive the revenue higher up from where we are today. Given we operate at every asset class in a decentralized manner, number of demat account expansion is very important to us as that impacts our revenue for issuer solutions, which has grown over 40% as I have already called out. So increase in the number of clients as well as the much broader retail participation helps issuer solutions grow, even as technology-enabled products and the platforms we created for the corporates at large has been helping us to drive our value-added solutions as well. International mutual funds, specifically on the Southeast Asian side. We see the opportunity size if you add up the geographies of Singapore, Hong Kong, Malaysia, Philippines, Indonesia, and Thailand to be around $1.3 trillion, which is a little over two times the size of India. KFin Tech renders both transfer agency and fund accounting administration services in this part of the world. It's very a young nascent business, one that has been growing quite rapidly. Notwithstanding the fact that last year the Southeast Asian markets, mark to market, has come down by over 5%. But our win rates and a pretty significant pipeline, hopefully will augur well in terms of growth that is potentially possible into the coming quarters in this line of business. Our own business highlights. Overall AUM, as I said, has increased by a full 100 basis points compared to 9 months of the previous year, from 3.7 to 31.7. Overall equity AUM market share, on the other hand, is stable at 35%. For the quarter ending December, we stand at 31.7, 35 on equity, and overall mix of equity to our AUM stands at 56%, which has been expanded by little around 240 basis points from the previous year. In terms of the SIP, overall inflows, both in terms of the folios and in terms of the value, we stand close to 32%. Folios itself has been growing much faster than the value, which I'd like to believe over a period of time will catch up with the total value itself. In terms of our transaction volume, we have seen a significant rise in the overall volumes by a little over 15% in mutual funds. If I aggregate all the businesses together, it is a 28% increase in volumes across our lines of businesses. This, if you read in the context of our overall operations and the productivity we drove with a net headcount reduction during this period, it's largely on account of the technological transformation we're able to describe. Partnering with Samsung, the MF Central, we have launched CAS API together as partners in this journey, and in times to come, all commercial and non-commercial transaction APIs will also be expanded and extended to all the digital and the central ecosystem in the country, which we believe will add a certain amount of revenue base for both organizations. Issuer solutions has moved. As I said, we've added about 12% year-on-year and about 20.5% quarter-on-quarter. Folio expansion has been at over 13% in terms of the number of clients itself. On Nifty 500, from December 2021 when the market share was 35%, today it stands close to 40%. In terms of number of folios too, has expanded from 37% to 43%. Market cap of the Nifty 500 has moved from 42.9% to 49%, speaking volumes about the quality of the clientele and the wins we've had through this period, even as the revenues have seen close to 20% growth during this period. We have seen an expansion of our international clientele from 22 to 33. This is largely on the back of our acquisition of Hexagram, which has added international clients as well as organic growth of making its own all clients. Overall, AUM itself has seen a slight dip that's largely in the context of the mark-to-market reduction, most of the operating geographies in that part of the world. But we believe that is sporadic and probably a one-time dip in the radar what the future benefits can climb again, even as the transaction volumes during this period has increased fourfold from 0.9 million to 4 million between FY 2020 and December FY 2023. In terms of other solutions, broadly alternatives our revenues have grown, AIF little around 42%, and our AUM also has expanded in terms of the operating AUM has expanded around 48% year-on-year. Fund administration has moved from 23 to 22 during this period, from March to December that is, which also has 8 international clients, between Southeast Asia and Canada, so to speak. In terms of pensions, we have gone live with the state of Madhya Pradesh the previous year. We have nearly doubled our subscriber count from 0.35 to close to 0.9. Sorry, 0.45 to 0.9, nearly doubled both the folio, the subscriber count as well as our revenues during this period on the national pension system, even as we have added a sizable number of corporates and POPs during this period of time. That is broadly the business highlights. I would request Mr. Vivek Mathur to walk you through on the financials. Thanks, Srikanth. On the financials, if you look at quarter ended FY 2023 and nine months ended December 31, 2022, the revenue has gone up by 17.1% year-on-year, and quarter-on-quarter it has gone up by 12.1%, in terms of last nine months versus this period nine months. If you look at Q2 to Q3 within the same financial year, it has gone up by 5%. It is largely backed by the increase in domestic mutual fund business by about 5% quarter-on-quarter. Issuer solutions has gone up by 6% quarter-on-quarter. International and other investor solutions has gone up by about 11.5%. If you look at year-on-year, the domestic mutual fund has gone up by 11%, issuer solutions about 39%, international and other investor solutions by about 36%, which includes the integration with Hexagram. Besides other businesses of AIF and pension and Southeast Asia business. Overall growth is 46% year-on-year. On the global business services, there is a growth of 7.7% for the year, while there is slight dip in the quarter-on-quarter of 5%. That is more because of the FX gain that we have that we see the year-on-year increase, while the number of seats that we have been operating with for the multi-selling business still remain the same. If you look at the EBITDA, the EBITDA has gone up by about 5%. If you see quarter-on-quarter, it has gone up by 13.6%. On the year-on-year basis, if you see same period of nine months and same period of nine months last year, that growth of 5% is there, but if you see year-on-year it is 9%. Same quarter of last year versus same quarter this year. However, our EBITDA margin continued to be in the range of 40%-45% as we maintained. It is 39.9% for nine months ended December 2022. For the quarter, it is 42.9%. Typically Q1 and Q2 see the stress of increments and expenses coming in. As business grows and revenue grows in Q2 and Q3, it catches up and that is how Q3 FY 2023 sees a EBITDA margin of 42.9%. That has touched 42% growth year-on-year. In terms of quarter-on-quarter, it is 11.4% as compared to last year, same period, same quarter, it is 78.6%. PAT margins have touched 25.8%, while quarter it is 28.4%. We maintain healthy cash flows of about INR 229 crores. And therefore the EPS on a diluted basis has gone up by 29% from INR 3.15 for this quarter, and 9 months is INR 8.20. That's just the high level summary of the financials. We are happy to take questions now. Ajeesh, over to you. Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on your telephone phone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment for the question to assemble. We have the first question from the line of Aejas Lakhani from Unifi Capital. Please go ahead. Yeah. Hi. Congratulations on the numbers and thanks for the meeting call summary that you gave regarding the business. Srikanth, couple of questions. First is, if you could talk about Navi. I suppose that was a recent mandate. So what made them go with the competition, that's one. On telescopic pricing, what we understand is that prices, because of the telescopic nature, there's no scope for further reduction. But the regulator comes out and could make some statements. So your thoughts on pricing that. Is there any scope for pricing to still come down? Vivek, one question to you is, Hexagram, what was the revenue number this quarter? Because it was on there last year this time, so could you call the Hexagram number separately? Thanks. Thank you, Aejas. Navi is not a new client. Navi took over HSL. HSL was a client back in the day. With the change in the management of the organization, KFin Tech manages the fund accounting administration side of the business for Navi. It is possibly due to segregation views only, 15 or 16 Indian mutual fund industry, we don't do PNFP. So it's possibly that reason. So it's not a new client. Second, in terms of the yield compression. See, telescopic pricing is what it is. To that extent, as the value code also increases, clearly there is an expected certain amount of compression that is seen. In terms of the regulators' commentary. If you see, I think the request or the council's thought on the consultation paper, it was largely with a view to stop or at least to manage misselling, if I may, in terms of investors' money being moved from one fund to the another with a view to secure higher TER, if I may. The very specific purpose as stated was that. It has no bearing on the registrar's operations. Our operations and the costs and et cetera continue to be disengaged with on the selling side of the fund, so to speak. We believe that beyond the telescopic pricing, we may not see any additional yield compression. On the question, this is Vivek. On the question related to Hexagram revenue, it was INR 8.8 crores for the nine months ended December 2022. Got it. Thanks. Srikanth, just a follow-up on that. In re-negotiations that you would have had with recent clients, has there been any pressure on yields when you've been having these conversations? Just on the international piece, you had mentioned earlier that you won some geographies. Sorry, some new clients in different geographies. When do those go live? Should we expect something in the next quarter or will it be in the 2024 year? Thanks. I'll answer the second question first. We have already gone live with our client in Canada. In the last meeting we've had earlier in the previous year, it was still under negotiation and early parts of transition. We have successfully gone live as of January for two funds for the client based in Canada. In addition to that, I think in the Southeast Asian side, of course, we continue to look to expand our operations into Thailand subject to necessary regulatory approvals, which is yet to happen. In terms of the contract renegotiations, our contracts are largely Now, this question is very specific to domestic mutual funds. It doesn't apply to any other business. In fact, most of the businesses, the price actually goes up. So contract negotiation itself is a factor of the contracting terms, which is anywhere between 3 to 5 years, depending upon which client you speak with. Depending upon any amount of significantly higher growth or maybe even lower growth for that matter, we take certain steps to partner with our client so as to enable their growth path. So short answer, can yield compression be possible as a form of contract negotiation? The answer is yes. But by and large it would be minimal in comparison to the telescopic pricing related compression. Got it. Thanks, Srikanth. I will follow back with you. A reminder for all participants, anyone who wishes to ask a question may please press star and one now. We have the next question from the line of Devansh Chen from Simplex. Please go ahead. Thanks for the opportunity. Sir, in case of employee cost, can you share the headcount as on March 2022 and March 2021 and December 2022? Yeah. Just give us a moment, please. The dates you are looking, March 2022, last year beginning, we were at 5,440. December, first period ending the previous month, we were at 5,300. Sorry, what was the other period that you asked for? March 2021. March 2021 was 4,900. Okay. So over here, what is the annual appraisal cycle for us? Generally, it is April, like any other Indian corporations. Okay. Because if I exclude the employee cost, if I look at ex ESOP, so there has been a significant increase. Can you help us understand where it's coming from? This is Vivek. In terms of employee cost is vastly related to a reset for the IT employees that we have. There is interpolation of Hexagram that has an additional cost of all the employees, employee cost coming in, and the regular increments that we give. We have also seen increase in replacement cost during the year based on the demand-supply situation that we experienced. So we have seen an average cost going up of upwards of 20% in terms of replacement cost. This is all beside the ESOP cost, which is exceptionally different this year in the IPO year and the vesting happening this year. These are the main reasons for increase in employee cost. Okay. But let's say if I look at, if I look at standalone and if I exclude the ESOP cost, it was INR 52 crores in December 2022 and December 2021 was INR 36. With no change in employee cost, the cost increase, ESOP is actually 50%. 34%, sorry. So 42% if I exclude the- Yeah. Out of 44%, if you take about 9% to 10% increase is the average increment that was there for- that was given in April. And then you look at the reset of employee cost for IT folks was across the industry, almost doubled in some cases. And in cases where you really need skilled employee in a domain which is heavily into technology, we need to retain talent and therefore, we had to increase the salaries for those employees. Although we have taken some corrective actions in terms of resetting the engagement with external resources, the consultants that we used to hire. So we have brought down cost on that front while retaining the talented employees and therefore the increase in cost. We believe this is not recurring in nature. This was one-time reset that was necessary given the market demand and supply situation in this area. And this is something which we will see is already easing out. Now we see in the last quarter the cost is actually stabilized. It is not going any further. And we do expect that in the coming financial year, we will not see something like this happening. But even if I look at QOQ, what we heard is that now there has been lot of firing that has been happening globally and if I look at our QOQ employee cost, ex ESOP, even that has increased 20% QOQ. So I am just a bit confused. I am sorry. QOQ, the employee cost has come down. Ex ESOP. Excluding ESOP cost. ESOP cost is INR 16 crores for this quarter and INR 30 crores for the last quarter. That is the impact of the reset that we have done. Whether it is last year, if you see, last year there was no reset of IT cost. This year there is a reset of IT cost. So it will have the impact until financial year ends. So you will continue to see this impact on quarter on quarter because of the one-time reset that was done. So it is not that it will have only one quarter impact. It is a reset of the entire cost. Amit, you want to add anything? Yeah. I think you are referring, not really sure in terms of the numbers. On the employee cost, in the course of quarter, we had INR 72.5 crores versus INR 76 crores in the last quarter. That's a 5% decline. If I reset the number based on excluding the ESOP cost, then basically still my cost is down by 3% because my ESOP cost was INR 1.6 crores for the quarter and last quarter it was INR 3.1 crores. Excluding the ESOP cost also, the overall employee cost has been down on a quarter-on-quarter basis as well. So like what Srikanth and Vivek was mentioning that there were several reasons why on a YOY basis for the full nine months, why the cost has gone up for several reasons in terms of the reset in the IT salary, the addition of the Hexagram team as part of the core team. Then the investment that the company did in terms of setting up the whole six organizations in terms of specifically beefing up my AIF and the fund administration team in India, and then also adding up people in terms of for the Southeast Asian business as well. Some of these elements have added up to the cost on a YOY basis. Against which the matching revenue we are yet to see. We are already seeing a lot of traction in terms of building up the pipeline for the international market, as well as the number of mandates that we have been able to add in the AIF business. That is all because the last one and a half years, the way the team has been built and the organization that we have set up in some of the new and the younger businesses, that is something that is adding up to the cost. But we'll see the corresponding revenue in the subsequent period as we go along. The next question is from the line of Ajok Frederick from Sundaram Mutual Fund. Please go ahead. Sir, my question is on the international service solutions. I noticed that the AUM has come down, but still we were able to do very well on the year-on-year numbers. What is the revenue model here? How are we pricing this brand? Is it on AUM or transactions that are really good? Yeah. Please read that as international and other investor solutions. That also includes the revenue pool coming from AIF business as well and national pensions as well. Okay. International business itself, yes, the AUM has come down because of mark-to-market reduction in most of the operating geographies there. Yet, there has been overall revenue increase close to 45% in the overall international piece. Alternate investment funds have contributed to 42% plus growth. Wealth management pensions. Pensions have grown nearly about twice as fast in the previous quarter. International mutual fund solutions itself has had 5% growth despite the mark-to-market reduction in the AUM. Which means that the yield has gone up for that international MF-based solution? That's correct. Broadly, our asset mix and our yield is roughly about 5 basis points in international operations. Overall asset quality has improved more towards fixed income. Also some of the clients who have been transitioned into later part of the year, now we have full year's revenue coming in. Got it, sir. That's very helpful. Sir, just one question on the ESOPs. What's the pending ESOP outlay we have probably for the next quarter or for the next year? The ESOP pool is almost 85% utilized. The balance pool is about 15%, and as and when the board decides to do anything new, it will come up. But as of now, it's 85% utilized. Got it, sir. Thank you very much for your answers. Thank you. Before we take the next question, a reminder to all the participants, anyone who wishes to ask a question may press star and one now. The next question is from the line of Sonal Minhas from Prescient Investment Management. Please go ahead. Hi there. This is Sonal. Am I audible? Yes, you are. Yes, sir. Hi. Thanks for taking my question. I had a question to understand your DSO cycle when compared to your leading competitors in this space. I just want to understand the business structure to the maximum possible, to understand why there are such high debtors in this business compared to the only other data we have, so we need to compare to them. What are we doing to actually bring this down? Or is this like a business kind of a call that you've taken, this is what we basically would go ahead with. The second part actually there is that there are also some write-offs we do take on a quarterly or yearly basis on these debtors. I wanted to understand, since we're dealing with high quality mutual funds, asset managers, AMCs, and wealth managers, what is the need to actually write down those receivables at the entity? Yeah. Thanks for your question. As you would know that about 68% of our business revenue comes from mutual funds. There is 32% of the business which is non-domestic mutual fund. About 14% of the business comes from issuer solutions, which is the listed and unlisted clients that we service for portfolio management or collections. That is where the DSO cycle collection period is much higher. It's upwards of 90 days on an average. That is what puts stress on the overall DSO. While there are 5,100 corporates that we service. Everybody has got a different cycle in terms of. We do unbilled revenue accounting. Besides the billed revenue accounting, we accrue for revenue while the actual bill may get raised on a quarterly basis or half-yearly basis or yearly basis. That's how the impact of actual collections versus outstanding is reflected there. As far as mutual funds are concerned, they are regular payers. There may be some delay. We actually have a 40 days normal period, credit cycle period with the mutual funds. Usually they pay on time. In some cases, where there are some negotiations going on, not just on mutual funds, but on large debt product It comes into play in terms of trying to put pressure to hold back something which results in some billing, but that is exceptional in nature. That is not a regular feature. Sir, 40 days, even if we just assume 40 days from initial funds, being put on the higher side, because you were talking about financial intermediaries and you are being one of them when compared to, let us say, other companies. Typically, financial intermediaries do the nuts and bolts businesses in the entire chain. They do not have such high working capital days. We are dealing with high velocity kind of transactions or just kind of financials with this entity. Please help me understand why even 40 days? Why I am saying 40 days is, let us say, 1st of December to the day the bill is raised, it takes about 35 days from day one to the actual billing days. Then once the bill is raised, then the credit period is not more than 10 days. I am taking 30 days of the period of a month itself to say that you are processing, you are working, you are processing the transaction. The actual bill is raised after 30 days. Then 10 days of credit period, so five days you take to raise the bill and another five days you give credit. That is why I am looking at credit period. It is not from the day the bill is raised, we give 40 days. Got it. Understand that. The second part was just to understand, is there a way in which this cycle should be reduced, or is there intention to reduce this cycle over time? Just to understand. Yeah. We are working with our team and the corporates to reduce the payout period from 90 days to 60 days and eventually coming down to 30 days. 30 days is a journey where clients who are specifically unbilled clients, where they pay based on their convenience; or unless there is a court petition, they do not bother to pay. We are now sending reminder, formal reminder notices. There are regular follow-up engagement in terms of selling them value-added services. At the same time, we request for payment. There is enhanced focus. This period used to be much higher in the past. We have now brought it down considerably, and we expect that from now to next year when we meet, there will be a substantial improvement in this year. Got it, sir. That is it from my side. Thanks. Thanks for your time. The next question is from the line of Kshitiz Sarkari from Public Securities Limited. Please go ahead. Hi. Thanks. Just a few questions on AUMs. Coming out of a fairly strong growth as far as AUMs is concerned, for you, but more generally on an industry level as well. Now that the revenue of AUMs is probably a little more, how should I say, lot more volatile in terms of AUM linkage. What is your visibility or let us say, flexibility, to put it that way, to meet those kinds of more way? Basically, operating leverage or the margin will actually remain within a fairly narrow range. Yeah. Thanks, Kshitiz for your question. We are constantly working on cost optimization initiatives. We have given up two floors in Selenium head AUMs. We are now at the end of December, almost flat in terms of headcount as we were last year, December. Whatever increase that we have seen during the year has been normalized by taking action in the last quarter of the calendar year, and this will flow into Q4 as well. There are constant initiatives being explored to cut down on cost. Having said that, we stick to our overall guidance on 30%-45% EBITDA margin. Whatever stress we have seen because of the AUM movement or because of any pressure coming because of reduced VAS revenue as compared to what we were expecting and augmentation in terms of investment in technology that we have done, we constantly look at all the parameters to ensure that we're maintaining that range of 40%-45% EBITDA margin. Having said that, Amit Purushottam himself is leading many of these cost initiatives that I have talked about two or three. We are constantly looking at enhancing VAS revenue. There is a strong pipeline of VAS revenue that will emerge in terms of culmination of contracts and revenue in quarters to come. Therefore, we are not depending purely on AUM-based fee. There is a strong pipeline even in Southeast Asia, as we know it. All I want to say is we are working on both revenue as well as cost side, how we can add more value to our client by giving value-added services, how we can win back clients in the issuer solutions both from new IPOs as well as from existing clients of other RTAs through our value proposition. We are constantly looking at how do we optimize cost, both in terms of headcount and operating expenses. Like what I mentioned to you that although the cost reset was done for IT employees where the cost went up, but we have taken a parallel action in terms of reducing dependency on outsourced IT manpower. That's how these initiatives being taken results in maintaining the EBITDA margin that we really want to grow over a period of time. I hope I am able to answer your question. Sure thing. Second one is on capital allocation. There was a comment earlier in the day from Srikanth around potential M&A opportunities. Some more details around the other potential areas you're looking at. Account aggregator was one space that you had previously mentioned as well. That space anyways, I don't know in terms of pricing rationality, if you have any strong views there and in terms of really how it adds to your overall revenue diversification efforts as against, let's say, paying out higher dividends. Sure, this is Sreekanth. Let me take that question to you. First of all, as an organization, we want to be focused largely on asset management space, first and foremost. Hence, dabbling into other businesses which may seem incidental and ancillary to this business. But we believe that we would want to play to our strengths, which is to kind of drive more and more depth as well as breadth in the asset management space. So within this space, already every asset class is important for us, and expanding geographically for the same asset classes is the second most important thing. Third thing is expanding the scope of services across the same asset classes, across multiple geographies is the most important for us. So basically, if you were to put an XYZ axis, those are broadly, right? Every asset class, as many countries as possible, every scope of service that is possible to be rendered for X and Y axis is typically what we are very keen to do. In terms of capital allocation, our M&A strategy had been and will continue to be. So, for example, when we acquired Hexagram, that was to add a layer of a service which we hitherto never used to do, which is the fund accounting administration side of things. So we are looking at scope of services on the issuer solutions, for example, where there are more domains than just services. For example, are there things that we can do to provide credit to give solutions like ESOP administration, for example, or investor relations side of things. Or if you look at alternate investment funds, both PE and FPI side, the entire administration layer, especially if you were to move to GCC and so on and so forth. So I do not believe that we are in a ESOP pool at the moment to look at insurance and others are not our focus. We want to be a more focused asset management space. Account aggregation. Yes, we are continually interested. That is more from the standpoint of value addition we can render to the entire wealth management and asset management space, and not just by virtue of AA itself. We believe it will be a reasonably commoditized business over a period of time, excepting of course, the value-added components as a CSU which we can render to the asset management space. Abhijeet, just to add to what Sreekanth mentioned on your question on capital allocation to dividend policy, we believe that if we can create future moats through acquisition rather than paying out is always the preferred mode. However, board reserves the right along with the shareholders to decide what is the balancing act the board wants to play on the dividend payout. But it is always our preference to create value for shareholders through constant evaluation of available M&A opportunities in the market. That is what Sreekanth and team do, that we continue to evaluate, but in those areas where we feel that we need to get into. All right. Thanks a lot. Thank you. We have the next question from the line of Sarang Sanil from RW Investment Advisors. Please go ahead. Good evening, sir. Am I audible? Yes, you are. Yeah. Thank you for the opportunity. Sir, could you please provide the absolute number for legal and professional expenses? The reason I am asking you that over a period of time, this is one of the components that drags our margin. Legal and professional fees. For the quarter, I mean, that specific number will come back to you. Sure. Also, broadly reducing. I mean, personally, the revenue it is covered. Yeah. I will tell you, there is an increase of about INR 11.4 crores in the legal and professional expenses year-on-year for the nine months period ended. It is also, as I mentioned, that we have different directions where we are reducing dependency on external help, and therefore this number is likely to come down quarter-on-quarter. Thank you, sir. Also, regarding the three litigations against the company that you mentioned, DRHP, any recent update on that? Also, what is the material amount related to this litigation that could impact our business? I do not know which litigation specifically, if you can mention which litigation you are talking about. There are three against the company. Those are related to IPO issue. AD Band, HDFC, and Okay. There is nothing that we have filed discharge application in all the cases. We don't expect any liability on the company or its existing directors. It is something which is related to past, where the corporate veil is lifted and the people who were in charge at that point of time are held liable. Whatever may happen in terms of the court taking its own decisions, there is nothing we expect as a result of that happening on the company. As far as the status is concerned, there is no change in status. There is a new date which we get. So far, I have seen that in the last three years, there is no decision of hearing which has happened, except that we filed discharge application that is yet to be argued and decided upon. Sure. My final question, any reason as to why the margins of data processing business segment has been volatile over the period? Margins of data processing? Yes. Data processing. Sarang, I think that is not something that we reported as part of the financials at all. The data processing piece, it includes all the different line of businesses which get clubbed into the data processing. If you look at, I mean, the mutual fund issuer solutions, I mean, across all these businesses, I mean, we are kind of similar gross margins is something that we run with in the range of around 30%-45%. That's it. Sure. Thank you, sir. I'll be done. Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Abhijeet Sakhare for closing comments. Over to you, sir. Thank you all for joining this conference call. Thank you. Thank you. On behalf of Public Securities Limited, I thank you for this conference. Thank you for joining us and you may now disconnect your line.