Good afternoon, ladies and gentlemen. I am Sejal, the moderator for this conference. Welcome to the Second Quarter FY 25 Earnings Conference Call for Motilal Oswal Financial Services Limited. We have with us today Mr. Raamdeo Agrawal, Chairman, Mr. Motilal Oswal, Managing Director and CEO, Mr. Naveen Agrawal, Group Managing Director, Mr. Ajay Menon, CEO, Wealth Management, Mr. Prateek Agrawal, CEO, AMC, Mr. Ashish Shankar, CEO, Private Wealth Management, Mr. Sukesh Bhowal, CEO, Housing Finance, Mr. Shalibhadra Shah, Chief Financial Officer, and Mr. Manish Kayal, Head Investor Relations. A short disclaimer before we start this call. This call will contain some forward-looking statements that are completely based upon the beliefs, opinions, and expectations of the company as of today. These statements are not a guarantee of future performance and will involve unforeseen risks and uncertainties.
As a reminder, all participants in line will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I would now like to invite Mr. Naveen Agrawal to make his opening remark. Thank you, and over to you, sir.
Good afternoon, everyone, and welcome to the Motilal Oswal earnings call for the second quarter in the half year ending September 2024 . At the outset, I want to wish you all a very, very happy Diwali and a fabulous coming new year. Let me start, as usual, by providing you a very quick snapshot of the quarter ending September twenty-four at a group level, and then highlighting to you segmental performances, concluding with a broader outlook as we see for our overall businesses. The consolidated profit after tax, including the other comprehensive income for the second quarter, was at INR 1,242 crores, which is up by 123% year-on-year. We delivered an ROE of 48%.
Consolidated operating net revenue for the second quarter was at INR 1,366 crores, up by 46% year-on-year. Consolidated operating profit after tax, excluding the treasury, income for the second quarter, stood at INR 541 crores, up by 53% year-on-year. Our assets under advice crossed, 5.7 lakh crore mark, which is up by 82% year-on-year. Our net worth was a robust 11,070 crores, as of September 2024, which is up by 48% year-on-year. Both, CRISIL and India Ratings, have upgraded our rating outlook from AA Stable to A A Positive during the quarter. ICRA had similarly upgraded our rating in the first quarter of the year. Turning to the segmental performance and starting with the wealth management business, which was our wealth broking and distribution business.
This business comprises of the retail broking, the distribution, and the NII income. The net revenue for this business for the quarter stood at INR 634 crores, up by 53% year-on-year, while profit after tax stood at INR 225 crores, up by 71%. We have a strong blend of 2,100 plus internal relationship managers in this business and 9,400 plus external wealth managers, covering 2,500 plus business locations, and our clients are present in 98% of all the PIN codes of the country. We acquired 200,000 clients during the quarter. Our retail broking ADTO has grown by 90% year-on-year, 7% quarter-on-quarter to INR 4,461 crores. Our cash volume market share for the quarter was at 7.9%, up by 85 basis points year-on-year.
As we've been highlighting, the market shares across the cash and the F&O business in each of the last three years have seen very strong uptake. Our F&O premium market share for the quarter stood at 9%, again, up by 150 basis points year-on-year. Our total assets under advice grew to INR 294,000 crore, up by 88% year-on-year. Distribution AUM was at INR 29,400 crore, up by 43% year-on-year. Distribution net flows stood at INR 2,400 crore, once again, substantially higher compared to last year. And the net distribution revenues for this business stood at INR 98 crore, up by 136% year-on-year. So, we are across the board, that is the market share, volumes, revenues, we've seen very strong uptick in all the metrics.
Turning to the asset and private wealth business, which comprises of asset management, private equity, and the private wealth business, the net revenues for this, these businesses were at INR 490 crores, up by 52% year-on-year. Profit after tax stood at INR 213 crores, up by 63% year-on-year. Starting with the asset management business, the AUM for this business crossed one lakh crore in July of two thousand twenty-four, and we've ended September two thousand twenty-four at an AUM of INR 1,10,769 crores, which is up by 101% year-on-year. The net revenues for the business stood at INR 201 crores, up by 64% year-on-year. Profit after taxes at INR 104 crores, up by 68% year-on-year. We've continued to see strong performances across the mutual fund, PMS and the AIF business.
Almost the entire AUM of the asset management company continues to be not only outperforming the benchmark, but in the top quartile of performance. As a result, the gross flows for the second quarter stood at 18,000+ crores, up by 346% year-on-year. Net flows increased from 413 crores in the same quarter of last year to 13,238 crores in the current quarter. Mutual fund AUM stood at 80,000 crores+, up by 124% year-on-year. We added nearly 14 lakh SIPs in the second quarter, and our SIP flows for the quarter alone stood at 1,878 crores, and the SIP AUM stood at 17,641 crores.
Our market share up in the mutual fund business on gross sales rose from 1.4% in the second quarter of last year to 4.4% in the second quarter of the current year. Net sales market share increased from 1.2% in the same quarter last year to 7.5% in the current quarter. SIP market share increased from 1.4% to 2.6%. Our alternatives AUM grew to INR 30,646 crores, up by 60% year-on-year, and our AIF AUM within this crossed INR 15,000 crores. Turning to our private equity business, we had a fee earning AUM of INR 9,956 crores and a total earning AUM of INR 13,675 crores across growth capital and real estate funds.
The market value of the fund stands at INR 17,000 crores. Substantial amount of carry is accrued, but will be realized at the time of the fund close. In second quarter, the net revenue for this segment stood at INR 48 crores, up 18% year-on-year. Turning to the private wealth business, during the quarter, we strengthened our private wealth team with the addition of Anupam Guha and Akash Haryani. Anupam brings in a quarter century of experience of running India's leading wealth platform that encompassed masses to mass affluent, to HNI, to family offices, and will deploy that capability on our platform. Akash brings in a quarter century of experience, but very different and complementary to our private wealth business. He headed the family office vertical of the private wealth business of India's largest wealth platform.
These recruitments, along with the various initiatives we've presented over the last four to six quarters, demonstrate the focus and the commitment of the Private Client Group to grow the wealth business to a leading position in India. The private wealth AUM stood at 157,000 crores plus, up by 68% year-on-year. Net revenues stood at INR 242 crores, up by 51% year-on-year. Profit after tax at INR 90 crores, up by 66% year-on-year. Relationship manager base at 585, up by 28% year-on-year. 28% of the RMs have a vintage of more than three years, implying that over 70% of the RMs have been hired in the last three years. Turning to the capital market businesses, these comprise of institutional equities and investment banking business. Here, again, we had very strong traction.
Revenues were at INR 174 crores, up by 52% year-on-year. Profits at INR 73 crores, up by 45% year-on-year. Our investment banking business has successfully completed 22 deals with an issue size of INR 25,000 crores plus during the first half. The second half pipeline is a multiple of the first half, and we expect very strong outlook of this business for the second half. Turning to the housing finance business, our AUM stood at INR 4,233 crores, up by 13% year-on-year. Disbursements for the first half stood at INR 620 crores, up by 114%. For the second quarter, stood at INR 368 crores, up by 86% year-on-year. Yield on advances stood at 13.6%, cost of funds at 8.4%, spread at 5.2%.
The NII for the quarter was at INR 81 crores and profit after tax at INR 27 crores. The sales relationship manager base stood at 1,050, up by 68% year-on-year, leading to an increase in the cost-to-income ratio as we are looking to grow the book strongly. Gross NPA stood at 1.3% and net NPA is at 70 basis points. Gearing stood at 1.9 times. Capital adequacy stood at 45.6%. ROA was at 2.3% and ROE at 8%. Turning to the treasury investments, our total equity investments, including alternative funds, grew to INR 8,113 crores as of 30th September, up by 57%. The XIRR on all the investments that the treasury has made since inception stood at 20.8%. To conclude, our businesses have demonstrated strong performance.
We reported an all-time high quarterly profit and strengthened our market share nearly in every business that we are present in. Our co-founder, Mr. Raamdeo Agrawal, shows that the cumulative household savings will rise from about $14 trillion in the last 25 years to $126 trillion in the next 25 years, with higher share of financial savings, equities, alternatives, and greater concentration of wealth. This is a mega trend, which is driving nearly all of our businesses, from wealth management to asset management, to private wealth, to alternatives, to capital markets. We aim to be a leader or a leading player in all our businesses.
We've delivered a profit after tax compounded growth over the last ten years of 42%, a network compounded growth of 24% for the last ten years, despite maintaining strong payouts, executing three buybacks, and not raising any capital ever since our IPO back in 2007. We expect the mega trend discussed, supported by our strong brand and balance sheet, to help us deliver continued best-in-class earnings growth and return ratios without any dilution. We will now open the floor for Q&A. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Tanay Gandhi from Investec. Please go ahead.
Hi, Naveen. Congrats on the great set of numbers. I just have a couple of questions which I have split across all the segments. I'll just put them across together. Firstly, on a group level, you have given ARR, TBR split, and I can see that the TBR, the ARR is constantly increasing. I just wanted to understand what all segments contribute to the ARR and TBR at a group level. Then I wanted to understand in the wealth management segment, what is your direct broking and the sub- broking split for revenue pie and probably other line items, whatever you can help me with? For even the NIMs, I wanted to understand why are they particularly high in the wealth management and private wealth management segment?
And then in housing finance, could you just give some clarity on the mix of the loan book, based on loan against property and secured, unsecured, et cetera? And a bit on the yields, why are they slightly reducing over the quarter?
Yeah, Tanay, you can hold for the rest of your questions. Let,
Sure, sure, sure.
I will answer all your questions. Don't worry.
Yeah. Hi, Tanay, this is Shalibhadra. So as far as the ARR mix is concerned, so overall, at the group level, the mix is coming from largely from our asset management business, where the focus is to improve the ARRs, given that our flows run rate has substantially improved, which is resulting in improvement in our overall ARR mix. Because if you look at our asset and private wealth management, the ARR mix is almost 75% in those assets. And followed with that, the ARR improvement is also happening on our distribution business in our wealth management, where the ARR flows are improving and the ARR mix is overall improving.
So the ratio of brokerage, which is transaction-driven revenue in our wealth business, is reducing, and the distribution pie is improving our ARR mix along with the lending book, which is there. So these are the business segments where the ARR improvement is happening and is expected to happen given the strong trajectory of our ARR flows in these segments. Coming to the next question on basically the NIMs. The NIMs in the wealth management basically is a function of the funding book and the opportunity that we get in the margin trade financing segment. And the NIMs have actually marginally gone up because our cost of funds have also come down, because incrementally, our costs has actually come down in last six months by almost around 40 basis points.
In fact, yields have also improved marginally on our MTF book because that is also a more diversified book across retail and HNI segment. And that is one of the reason where we see marginal uptick in the NIMs have also happened YOY and even sequentially during the quarter. As far as the... Yeah, sorry. Could you repeat your other questions, please? Sorry.
Yeah. One question was direct broking and sub-broking split in the wealth management segment.
Yeah. In the wealth management segment, the direct broking and so revenue-wise, both are equal, the direct broking and the external wealth management segment, so we are almost fifty-fifty. In terms of the profit mix, the indirect segment would be almost about 60%.
Okay. Yeah, and then later on, the other questions were on housing finance and treasury. So housing finance was, I wanted to understand the mix of the loan book by secured, unsecured, loan against property, and why there was yield reduction in the loan, in the home segment. And what is the other operating income? Because I can see it's a good 10%-15% of your entire lending.
Yeah, on the home finance thing, so basically, the mix is, the entire book is secured financing. There is no unsecured, lending that we do. It's a housing finance company, where we are doing housing loans, which is retail affordable housing loans. We also have a portion of a loan against property and also construction finance. So actually, overall, from the mix perspective, 78% of the book is housing loans, 9% of the book is LAPs, and almost 13% of the book is construction finance, the entire secured book. As far as the yields are, on this book is concerned, so, yields are actually, from a mixed perspective, the overall yield is lower, because, we are increasing the mix of retail housing book, in that entire proportion.
So if you look at our numbers on a year-on-year basis and even sequential basis, our retail housing loan book has gone up YOY by almost about 82%, and that is resulting the overall mix is more towards the retail home loans, where the yields are marginally lower than the segments of loan against property and construction finance. So that is resulting in a bit of moderation on the overall yields on the housing book. As far as the other operating revenue is concerned, you spoke about any particular business or it's a general query?
In HFC.
HFC, so basically that is a function of our normal recoveries that we do, which is basically the branding income or basically the recoveries, other ancillary recoveries that we levy to the customer. So that number would be slightly lumpier number on a quarter-on-quarter basis or YOY basis.
Got it. Thank you so much. And, just lastly, on the treasury, I just wanted to understand what comes under OCI, because you have disclosed it in the data book, like, difference in OCI and P&L.
Yeah. So OCI is basically a recognition of mark-to-market on our equity shares investment. So we have investments in, basically various, buckets of equity. So equity mutual fund, and alternate assets are done mark-to-market through the P&L, but the equity shares investments are done mark-to-market through the OCI. So that is as per the Ind AS norms, where on the equity shares we have opted it to do mark-to-market through the other comprehensive income. So that's why we aggregate and report both of these profits as a treasury profit, which is a combination of, both of these line items, of mark-to-market movement on our entire treasury book of 8,100 crores.
Perfect. Thank you so much.
Thank you.
Thank you.
Ladies and gentlemen, you may press star and One to ask a question. The next question is from the line of Bhavin from Athena Investments. Please go ahead.
Hi. Congratulations on great set of numbers. So we can see a significant uptick in the SIP as well as gains in market share in the AUM business. So what do you think has contributed to this, and what would be our distribution mix in the AUM business?
So basically, as I mentioned, over 95% of the AUM is performing top tier across the mutual fund as well as the alternative assets. We have the widest range of passive funds. Our Quant Fund is also one of the best performing funds and has seen strong traction. So these are the four segments. As far as distribution is concerned, you know, almost all banks in India are now distributing our product. There's a lot of headroom here in terms of the market share growth for us. This would be the smallest market share among all the distribution segments. IFAs, we've seen very strong traction, and the market share there is higher than the banking market share. Wealth firms, again, we've seen reasonable traction.
But the digital channel is one of the, you know, best performing segments for us. And the strong performance also has meant the strongest uptick in that segment. So we've seen the highest YOY growth within that segment. We were present... We were not present in a lot of categories within the mutual funds. As we have been explaining in the last few calls, over the last fifteen months, we've seen the launch of our large cap fund, the launch of our small cap fund, multi-cap fund. With that, we've covered a lot of the broad-based categories. In terms of the sectoral funds, we had no presence fifteen months back.
We already have three funds that are now live, and we filed for a few more, you know, important categories of sectoral funds there. So better coverage of just the various segments within the mutual fund business is an additional driver for the overall revenues. We are also substantially increasing our distribution footprint and our sales team, right, as we have strong uptick in many cities where we're still not present. Digital has already reached there ahead of our own physical reach, so that will be an important driver. So I think this is work in progress. We've seen very strong, you know, growth in the September quarter compared to the June quarter.
Importantly, October has been a record month again in all the channels and in terms of the overall sales. I think in alternatives we should be at nearly INR 1,000 crore monthly cross sales for the month of October alone. So yeah, we have I think there's still a lot of fuel in terms of the channels, in terms of the segments and the products, and our own team manpower that we see playing out over the course of the next twelve-month time.
And sir, how does captive arm behave in terms of distribution? Has the share improved over time?
So we are very widely distributed across all the channels, as I explained to you, including distribution. Our own, you know, captive distribution accounts for less than 20% of the overall numbers. That too is growing very, very strongly, but there's an even higher growth just by virtue of greater channel coverage that we are seeing. So the overall growth rates in both the channels are strong. In the non-captive channel is even stronger than the captive channel.
Okay. And so what would be our B30 mix?
I'll come back to you on the, on B30 mix during the course of this con call.
Great. Great. And, sir, just, one last thing. What would be the RM count that we would be looking to close specifically in the PWM business?
Yeah. So the RM count currently is at 545. 585. We will close the year at about 700.
Okay, sure. Congratulations again, and thank you.
Thank you.
Thank you. The next question is from the line of Mahek from Emkay Global. Please go ahead.
Hi. Thank you for the opportunity, and, congratulations on the great set of numbers. A few questions, so in the wealth management segment, there's been a significant, great performance. So I just wanted to know, how do you see the volumes, I mean, for the H2, and any outlook, on how do you see the business, for H2? Secondly, you mentioned, for the wealth management segment management business, the focus is kind of on the, on strengthening the, distributions, so just wanted to know, that, any kind of color on what efforts the company is making towards, this initiative, and are you looking to add any new RMs, particularly for the wealth management segment?
Third, would be on the Private Wealth Management segment. So you've added around hundred RMs in the last year, while you said that you will be adding over-
Sir, you can hold on to your question.
Yeah, yeah. Sure.
We will, I'll take the rest of the questions as well.
Sure, sure, sure.
Thanks. So as far as the volume growth is concerned, certainly volume growth has been very strong on the cash side of the business. If you'd have seen YOY, QOQ, there has been a very, very strong uptick in the volume growth on the cash side. And in our case, our mix towards the cash volumes is pretty high. Our cash revenues are almost about 60% of the overall brokering revenue. And we expect the cash volumes to continue the growth journey. The...
There could be a bit of moderation which could happen as far as the F&O volumes are concerned, given that the new regulatory changes, which are going to come into effect from twentieth of November, while the regulator has spread out the implications of that over the next few months. So we would see- we could see some bit of moderation coming on because of the reduction of the expiries, especially, because one of the expiries on the Nifty, which is the Bank Nifty, would actually go off. So to that extent, there could be some impact. Of course, again, it will be driven by how the retail behavior comes into play, whether other expiries would compensate or whether the retail volumes would grow on the other side, which is the cash side.
But we are seeing a good mix of our delivering revenues, which is resulting into higher revenue and profit growth for us in this business. Even market shares have continued to grow for us. So cash market share has grown by 80 basis points, and F&O market share has grown by 150 basis points. So we continue to have a healthy part of the market share as well. As far as the distribution business is concerned, we have been investing in that business, and the idea is to take the manpower count to double from here over the next two years. And we have currently a 400-member dedicated distribution team, which is going to scale up to garner more flows and assets.
So distribution assets have grown to now 30,000 crores. And we are seeing a healthy improvement of both our ARR and TBR revenues on this business. And if you see YOY and QOQ basis, the revenues have grown by almost doubled on a YOY basis, more than double, and even sequentially, they have gone up significantly. So we continue to invest on the distribution side. The pie of revenues has already grown to 15% of our total wealth revenues. And the pie of brokerage and NII are moderating versus the distribution on a mix basis. Sorry, you had further question?
Yeah, I had just one last question, which was on the private wealth management segment. So, you've almost added around 100 RMs in last one year, and you just said that you will be adding around 700 RMs for the full year. So I mean, you'll be taking the total number to 700. So I just wanted to know how is the productivity of the recently added RMs, I mean, how is the performance being done? And kind of you also mentioned previously that you would be adding junior RMs and grooming them to senior RMs. So is the strategy continuing?
Yes, absolutely. So we are looking to go from 585 to 700 by the end of the year, and this addition will happen across HNI as well as Ultra HNI. The strategy of grooming RMs gradually to make them productive and make them bigger continues at the moment. In terms of productivity, we had mentioned that typically a relationship manager in the first year reaches one to one and a half times productivity, and by the third year, they are 3+ productivity. So that journey continues as it is.
And as we just explained that 50% of the RMs have a vintage of less than three years. So as the back book of RM vintage improves, we obviously have an investment of nearly 15% of the wealth management top line in these RMs in terms of a drag.
... which we expect to recoup over the course of the next couple of years.
Thank you. Thank you so much for answering the questions.
Thank you.
Thank you.
The next question is from the line of Chandrasekhar from PPFAS Mutual Fund. Please go ahead.
Hi. Thanks for the opportunity. I have a few questions in the private-
We can't hear you, sir. I would request you to please use your handset.
Is it better now?
Yes, sir.
Hi. So I had a few questions on the private wealth side. So I just wanted to clarify, these one lakh fifty-seven thousand crores of assets as on September, does this include custody assets or is this ex of custody assets?
It includes custody assets. It includes.
So, I mean, if you could give an indication of how much is custody assets?
That number is INR 52,497 crores. On the basis of INR 157,000 crores, the custody assets are INR 52,497 crores.
Okay. And typically, I mean, do these assets yield anything, and how are the yields different from the non-custody assets? If you could give an idea about that.
So custody assets as such, don't yield unless the client actually,
Brokering.
As far as the broking revenues is concerned, when the client exits, then when reinvest, the broking revenues comes into play.
Okay.
I think when these assets are converted into other financial assets, we earn the trade income as well on those assets.
Okay. And within private wealth, if you could split up the assets in terms of ARR and transaction banking assets, how would the split be?
Yeah, we already would actually have ARR. From a revenue perspective, ARR asset is 50%.
Okay.
ARR is 50%, yeah.
So, and if, I think PCG is also included since the last quarters on the private wealth, so, can I get the numbers separately for the PCG as well?
We can share those numbers separately.
Sure, that would work. Sure.
Thank you.
That's it from my side. Thank you.
Thank you. The next question is from the line of Lalit Deo from Equirus Securities. Please go ahead.
Yeah, hi, good afternoon, sir. So just two questions. Firstly, on the core Opex side, so when you mentioned that, we want to increase the RM count to 500-700 in this, in the private wealth management, so how should we- how should one look at the overall cost-income ratio over there in that segment? As well as if you could give us some color on the segment-wide cost-income ratio for the next two years.
Given the previous back book turning productive, we don't see any further fall in the margins. In fact, we would, we think that the worst margin is already reflected in the first half. The second half margins should be better, despite these additions now, compared to the first half, and then we should build on from there in terms of the improvement. Because remember that this process of the strong RM addition started just over two years back, so at least that part of the book will start contributing to the profits. And you know, going forward, the pace of the addition is not really accelerating, but we are kind of maintaining the run rate of RM additions at a similar level.
You should assume that the low end, you know, margins are at the bottom, and the second half should be better than the first half, and then next year should be better than the current year.
Sure, sure, sir. And so, sir, on the net flow side, like, how should one look at the overall net flow as percentage of my overall AUM in both in the AMC as well as the private wealth management, for, like, this year as well as the next year? Like, any guidance or any color on that front?
Given the strong performances of the asset management business, while we're not guiding for the numbers, but we've given you the market share numbers for mutual fund for SIP, both gross sales and net sales, and all of them in the second quarter are meaningfully higher than the first quarter, right? I mentioned to you that October is higher than the September quarter numbers also meaningfully. You know, with wider distribution network, wider product suite, and very strong growth across captive and non-captive, I mean, I'd rather net sales to divide by the AUM growth.
But I think in terms of the market share, you should expect continuous improvement in the September quarter market share for all these metrics in the coming quarters, as far as the asset management business is concerned. As far as the wealth management business is concerned, again, as the RM vintage improves, I think you should see a very strong uptick in the net sales, like we've reported in the first half. I think that trend of strong growth in both the, you know, TBR and the ARR should continue in the coming years for the productivity and the margins to go back to their previous highs. That is our plan.
Sure, sure, sir. Yeah, done. Done. Thank you, sir.
Thank you. The next question is from the line of Uday from Investec. Please go ahead.
Thank you for the opportunity. Just two questions. Firstly, on the home finance side, as I can see, on a year-on-year basis, you have increased the RM count meaningfully. So is that exercise done, or you further plan to increase the RM count in the home finance business from here on?
... Secondly, on the broad level, as you mentioned, that you are completing the AMC bouquet of products by adding some sectoral funds that are left. Are there any further products or segments or anything that you want to further add to complete the whole, you know, Motilal suite of products? Your thoughts on that?
Yeah. With respect to the RM count for the HFC business, we have grown substantially over last year, and for the rest of the year also, we expect a good growth in the RM count, and does that answer your question?
Yeah, sure. And, on the broad level of products?
On the asset management side, the bouquet of products, and I'll let Prateek take that question. Because passive and active, we have a very heavy pipeline of-
Yeah.
-uh, setting.
Yeah. So, as we go forward, one should expect to see us launch a product on the passive side or on the active side, practically every month, one a month. So there are gaps in our product suite. On the mutual fund side, that is what we are looking at filling. And on the passive side, you know, we are looking to create some of the first-of-kind products in the country. So this activity will continue to be very strong for us going forward.
Sure, sure. Thank you.
Does that answer your question? Thank you. The next question is from the line of Umang Shah from Kotak Mutual Fund. Please go ahead.
Yeah. Yeah, hi. Thanks for taking my question. I just have a couple of them. One is, just wanted to understand a little bit on the wealth management business front, right? I mean, I was just looking at the, closing AUM breakup, where, the ARR revenue-earning assets, appear to be fairly small. But in terms of revenue contribution, clearly the, the ARR revenue contribution appears, slightly higher. So how should we read this? I mean, split between, ARR, TBR, AUM versus ARR, TBR, revenues?
Yeah, Umang. So as far as the ARR revenues on wealth management is concerned, so I spoke about the improvement in the NII yields also, which is happened, and that is the reason if you see versus the, the AUM growth, the revenues growth on the ARR is higher. Yeah? And also, on certain assets, on the distribution side, there is a net flow improvement both YY sequentially as well, and that is also resulting in a higher ARR revenues for us. So versus the AUM, the ARR revenue optic is higher because of these two reasons. Otherwise, largely they will move in tandem with the growth in the assets.
Understood. So basically you're saying that the way to look at it is, the ARR revenue should be sort of correlated with ARR, AUMs, the distribution assets, and the lending book, all three put together. I think that would give a better picture. Yeah. Is that right way to look at it?
Yes, that's the right way to look at it. That's right.
Okay. Understood. Understood. The second one was on the treasury line item. Right now, clearly, I mean, our strategy of skin in the game has worked extremely well for us. And FY 2024 full year and first half of FY 2025, I mean, we have seen significant contribution coming through in terms of treasury profits as well. But just from a medium-term perspective, how should we again look at this? I mean, should we see some sort of a linearity in this line item going forward? Or probably this will continue to remain a bit lumpy in line with how the markets perform?
Umang, you should expect it to be lumpy, in line with the markets, because, the share of fixed income within this is zero. So we have a mix of, mutual funds, our alternative funds, including AIF, PMS, private equity funds, real estate funds, and, a very small, direct investment book. But all of these are equity instruments. There's no fixed income in this, by and large, barring the real estate fund, which is a very small part of the overall book. So, I think the reason why we give the XIRR number is to help you think about it longer term. That number was as poor as 18%, you know, when the markets were at a much lower level. That has gone up to 20.8%, since inception, XIRR now.
I'll be surprised if it dips below 18%, but you should take that 18%-20% number, you know, and some alpha over whatever the benchmark performance, longer term. There are two sources of this book growing, the 8,000+ crore treasury book. The first is obviously this XIRR number, which could be, let's say, 20%. And the second is the plowback of the profits after paying out dividends. And we have highlighted earlier that the ten-year treasury book, this 8,300 crore book, the ten-year CAGR of that book is over 40%. Roughly half of that came from returns, and the other half came from plowback of profits, you know, from the previous year, post paying out dividends.
So really, this book grows because of both. The second part, which is the plowback of profits, will continue nevertheless. As far as the market, you know, the fund performance of the XIRR is concerned, that may be volatility in that on a year-on-year basis.
Understood. No, I think this is quite helpful, and last one is on our private equity funds, right? So, any planned exits. So I think in the presentation we have provided a slide, which is slide number 30. Just wanted to understand that FY 2026 and FY 2028, so these are the planned exits that we are looking at? I'm sure the IRRs will change, probably, as and when the exits happen, but these we should look at these numbers as the planned exits, right?
Yeah. So you should look at the private equity fund two series exit in FY 2026. You should expect the real estate fund exit in the series two in FY 2028. From there on, almost on an annual basis, every single year you will have... Because you'll have the two series of growth and three series of you know real estate. So effectively, five more series apart from these two that will mature in the following five years. Let's say FY 2026, one exit, FY 2028, next exit, and FY 2029 onwards, every single year for the following five years, you'll see one exit each.
Okay. So, okay. Understood. So, I think that will also sort of become a bit more linear for us, by the way, the way the exits have been planned.
Yes. As we have more series outstanding, also going forward, the idea is to have, you know, faster DPI compared to what we have done in the past. So you will see some of these funds being carried sooner than the long duration that we've seen, both in our growth capital and real estate funds in the past.
Understood. Understood. And Naveen, one last question was on the housing finance piece. Now, I understand in the past, too, you guys have spoken about it, that the growth is likely to be a bit more calibrated. The book seems to have stabilized quite a bit. But again, how should we look at this business given that I believe this is probably the slowest of the businesses in the overall scheme of things? But again, from a medium-term perspective, how should we look at this business?
So this business, we are investing a lot. Our relationship manager base has gone up a lot, and as Sukesh just articulated, the strong RM growth base will continue into the second half of the year. Our book, our disbursements have grown very strongly year on year. I think I'll let Sukesh talk about how the trajectory of this business could be in the coming years. Yeah. We invested a lot into our RM strength last year, and that's showing a very good result in terms of our disbursal volume growth in this year, and we will continue to invest in our RM capacity for the coming four quarters at least.
Which should for 25, 26. This should result in a very good momentum in terms of disbursement volume growth and which will then result into a good growth in our AUM. Because what's happening now is that while our disbursement has grown quite well in the last compared to the last year, the repayments on the book do not lead to a very strong growth in the AUM, so once we have the RM capacity coming in and the disbursement volume moves up along with that, we will also see a good growth in our AUM.
Understood. Understood. This is helpful. Thank you so much, and wish you good luck. Thanks.
Thank you.
Thank you.
The next question is from the line of Sanjay from Ampersand Capital. Please go ahead.
Yeah. So thanks a lot for the opportunity. So, one question is regarding your treasury income. Is it possible for you to explain how really you book those profits? And, related question to that is, that you have articulated that your dividend policy is 20% of your operating profit. And, is it- does it mean that, the profit of treasury is not really considered for dividend?
The treasury profit, because of the new Ind AS norms, require us to show in the income statement, the mark-to-market, and that is what is causing these big numbers to be reported, because the denominator is big and the performance is also big. Big AUM into big performance is equal to the number that you see. That will only get bigger. As I explained to you, this book has been growing at a rate of over 40%, per annum. But a lot of it is unrealized. Bulk of it, most of it is unrealized. And that is why when we look at dividends, we are looking at cash earnings and notional mark-to-market earnings to distribute dividends to shareholders.
So I think from what we earn out of operating profit, which is largely free cash flow, we are paying out at least 20% of the profits as dividend. We used to pay out higher earlier, but as you are aware, there have been meaningful regulatory changes in our core business in the last three years, which require us to invest a lot more capital. The free flow of the business has come down meaningfully. And so the business, while fundamentally generates a lot of free cash flows, also require a lot of capital, and every rupee of our skin in the game that we talk about, this 8,000 crore treasury book, is actually supporting the agency businesses in terms of the margins, to be able to do bigger and bigger transaction volumes and market share.
So really, they are really linked very, very closely to each other, point number one. Point number two, the treasury profits are mostly mark to market and hence not distributable. And, finally, the treasury book, while it looks like excess cash on the balance sheet, is actually no excess cash according to the board's understanding and estimate. It is all the backbone for the agency business as we continue to grow our market share and the market size itself becomes larger.
Sir, does it mean that once you realize those profit, those will become part of your distributable income?
I want to repeat that this pool serves as skin in the game for all our products, but importantly the backbone for the agency business, so we need this capital. As you may have seen, a lot of our peers in the last two years have had one or multiple rounds of fundraise. Dilution to raise fresh capital to support this growth. We haven't raised a penny of capital in this time period or ever since our listing, despite the strong growth in market share and the market volumes. So I think there are two options for us.
We can deploy all of these INR 8,000 crores in a bank deposit and serve that as a collateral to the bank for our, all the exchanges, for our lines or for, or we can deploy this in our funds and serve that as a collateral. Because we believe in the longer term performance of the fund and the superior performance that this can give to the shareholders, we have chosen otherwise. So-
The last question is that yesterday on TV your management explained that there will be some 15% impact of a new regulation on the brokerage business. But my general understanding was that since yours is a much bigger in terms of cash market and your futures F&O market your market share is much less. So this makes you a lot more competitive with respect to your competitor who are pure play F&O derivatives. So are you going to see some kind of significant improvement in market share because of the changes? How are you really approaching this new regulatory landscape?
This obviously, it competitively is favorable to us. Correct? As more than 50% of our revenues come from cash markets. Correct, point number one. Point number two, we do see some of the volumes from Bank Nifty, you know, moving to, let's say, the other exchange or the other exchanges, correct? And you've already seen that if you look at the last three months and the last four weeks of volumes on the other exchanges and the other indices, you have seen a meaningful pickup in that. We also have significant investments in our distribution business, and that income is growing. Our cash contribution is more than 50%. So if you analyze this, lower F&O contribution, higher distribution income growth, correct? And improved competitive position.
All these three are levers that put us in a better place, correct? So we... But having said that, there is going to be a near-term, a short-term impact, you know, in terms of the volumes of this business. We think that the strong growth in the rest of the businesses, i.e. the asset and wealth three businesses and the two capital market businesses, so the growth in those five, strong growth in those five businesses sequentially, should more than offset any temporary drawdown in this business.
Understood. Thank you so much.
Thank you. As there are no further questions from the participants, I now hand the conference over to Mr. Shalibhadra Shah for closing comments.
Yeah, just one point to answer about our share of B30 AUM, so that is 30% of our mutual fund AUM. So that's it from our side. I would like to thank every participant for attending the quarterly Q1 FY25 con call. In case of any further queries, please do get in touch with Manish Kayal or with me. Wish you all a very happy Diwali and a prosperous New Year. Thank you, and have a great day.
On behalf of Motilal Oswal Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.