Ladies and gentlemen, good day and welcome to the Nuvama Wealth Management Limited Q3 FY 2025 Earnings Conference Call. As a reminder, all participants' lines 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Kehair, Managing Director and CEO. Thank you, and over to you, sir.
Thank you. Thank you, Sejal. Good morning, everybody. Welcome to the Earnings Call for Q3. I have with me Bharat, Group CFO, and SGA team are Investor Relations Advisors. So, like every time we do, I will summarize the last quarter and maybe give some outlook or some guidance on how we are looking at the future ahead, and Bharat can then detail the results, and then we can move to the questions that you may have. Please do share that we've had a successful Q3 and a very good nine months. Client assets have grown by about 36% year-on-year. Revenues until Q3 grew by about 45%, and profits for Q3 was about INR 252 crores and for nine months, INR 731 crores, recording a growth of 76% year-on-year. I would sincerely like to thank both our customers for their trust in us and our teams for their relentless commitment.
I think that's the dual force behind these outcomes, which continues to be superior to most of the market. On macros, I think it's a very interesting day to talk about it. A lot of uncertainties now are coming about, but I think things will settle in maybe the next 20, 30 days. I'm fundamentally an optimist, so I believe that India's long-term structural story is fully intact. These bouts of volatility will give opportunities to people to participate in the market, and everything finally settles down and things come back to fundamentals. Short-term ups and downs are going to remain, but I don't see anything getting impacted in the long term.
I think in this kind of a setup is where the diversified business model, which we are blessed to have, comes into play, where you have multiple levers playing out, and if one thing sort of undergoes some moderation, the other picks up. And that we have seen play out for the last three years and more so in the recent quarters. We continue to remain bullish on our core Wealth and asset management and all the ancillary services around it. I think if those two grow, which are destined to grow given where the Indian fundamental story is, businesses like asset services and capital markets will also thrive.
Coming to the results and more so on our strategic priorities on what we've been focusing on, I think beginning of the year itself, we had highlighted that there are three or four key levers which we are going to drive for this year. The first being scale and growth across both our Wealth businesses, asset management businesses, asset services, and happy to say that we've really played that out well. We've increased the capacity and geographic expansion in both our Wealth businesses. We've also gone offshore, and in asset services, we've added a significant number of clients over the last year or so in order to make the business more granular. Second was capital efficiency. When we started out, we had clearly said that we want to be best-in-class ROE, and we continuously looked at opportunities to deliver this superior growth, but also improve the usage of capital.
Deliberately, we calibrated our loan book because we wanted to make it undergo a change such that it becomes a reasonable ROE business. We've now reached that state. I think we can now increase the loan book from here, more like what our peers are doing. Revenue quality and granularity, this was one of the key agenda points for us, where we said we will now focus on annuity and ARR assets in private and managed products and investment solutions in Wealth. And as I said, increase the number of clients significantly in our asset services business so that it becomes granular and extremely resilient. Last was leveraging technology across the board because if you're aiming for this kind of a growth and capacity expansion and you want to maintain your handle on efficiency and productivity, I think technology becomes a key player.
On all four parameters, we are quite happy on how the progress has been made, and I think we can talk about it more in detail if you have a few minutes. Coming to specific businesses, Nuvama Wealth, as I said, our focus continues to be managed products and investment solutions. We've visibly grown the flows there. The net new flows for the year for nine months now is about INR 5,000 crore plus, which is more than what we did for the full year. It's grown by about 46% year-on-year if we compare the same period. Also, on an annualized basis, it's growing at about 35% on the opening base, which I think is reasonably robust. And within this, also, the constituent of managed products is now increasing. It used to be around 45-50%. It's now nearing 65-70%. So that was one key element.
Second, as I said, tech. We have significantly invested in technology and continue to do so in this business, and I've been speaking about one of the solutions which we had launched earlier, the portfolio solution. I think that's one of the kind in its industry. We've done second pioneering development in this space. We've created a product called Nuva.ai. It's an AI-based training solution because we are hiring in such large numbers. We figured out that a classroom training solution becomes extremely suboptimal to deliver the kind of objectives which you want to do, so we properly developed a solution to deliver training which is one-on-one to our relationship people, and I think there's a significant amount of acceptance by the relationship people on the field.
On the loan book, as I said, we deliberately calibrated it because we wanted to improve the quality of the book, which we have now done. You will see that there is a dip in the NII in this business. That is temporary. I just wanted to highlight because of two, three reasons. One, I'll take this opportunity to talk about it. We've moved into what is called self-clearing in the Wealth businesses. Earlier, we used to clear for the Wealth management clients. The clearing used to be done by the Asset Services division, but for three reasons. One, operating efficiency, because operations of one team and the other team had to coordinate. It led to a lot of suboptimal processes. So operating efficiency, margin efficiency for clients, and capital efficiency for the Wealth business. For three reasons, we have shifted it to Wealth.
Now the clearing is done by the Wealth business itself, which this movement was done in this quarter. And to do this movement, we had to borrow about INR 800 crores extra for about 45 days, which was a temporary borrowing, which at the end of December was paid back. And the cost of that borrowing has had some impact on this NII. So if you see, there's a INR 10-crore gap out of this INR 4 crores comes from there. And given the volatility in the quarter, there were some INR 2-3 crores cost on the MLD hedging side. I think these are the two large things. And of course, the average loan book itself was down by INR 100 crores. So I think out of the two, three factors, two are temporary, and we will see the margins come back in Q4 for this part of the business.
On Nuvama Private, again, focus remains the annuity products, the ARR sales. And if you look at the numbers, it's about INR 8,000 crores again for nine months, which is exceeding what we did for the last full year. This growth is about 88% year-on-year, and again, on the opening base, about 35% annualized. So robust capacity expansion here also goes on, though we prefer to not be mindless in adding RMs because of the price point. And I think the volatility of the market now will be of some help because people will understand that at every price point, it doesn't make sense because it takes enormously long for the relationship person to break even and puts a lot of pressure on the individual himself and also on the system. But we've added now, for the last one year, we've added about 11% in terms of capacity.
We now are fully functional on the offshore side. Our first location, DIFC, is live. Business has started. Revenues have started coming in. Clients have started joining in. So I think that's a reasonable progress. Maybe in another six to nine months, we'll break even there. Self-clearing, I've already spoken. On asset management, again, net flows remain strong. We had about 1,200 crores of net flows in this quarter. We did our first close of our commercial real estate fund at about 1,700 crores. Once we make one or two deployments, we will start raising funds again. We target to achieve about 3,000 crores in that fund. On the private equity fund, we returned some money. We did some sales of Ola Electric, and also we distributed capital back, which is why there's a reduction of about 200 crores in the AUM there.
But we have launched our fourth series of the private equity fund, which should do the first close in about two quarters. So again, fee paying AUM, we'll get back added back. Public markets, we have grown 3x in the last 12 months, from INR 1,600 crores to about INR 5,000 crores. Some of our funds have become largest in the category in their segments and are always in the top two, three in terms of performance. We now have products across the risk spectrum, starting from a capital-protected product, an absolute return product, Long-Short, flexi cap, mid and small cap. So across the risk spectrum, and we've also added GIFT as a location for getting offshore money, and we are expanding on the external distribution side. About 20-25% of the funds that we raise in our public markets come from external distributors.
We are adding more external distribution and hope to see that expand further. You would have seen one of the announcements made that we are making an application for a license, mutual fund license from SEBI. This is for the special investment fund. There is a new category which has been rolled out by SEBI, which is the SIF, which is a 10 lakh minimum ticket size. And that will allow some of our strategies which we now deploy on the AIF side, like long-short and absolute return. As of now, SEBI's intention is to allow these strategies on SIF. And if this fund has the taxation structure which is similar to MF and not like AIF, which means taxation only on redemption, then I think this vehicle will become extremely efficient for clients.
Hence, we want to apply and be one of the first ones to launch this under this structure. Coming to Asset Services, this is feedback from most of you. We've now segregated Asset Services from core Capital Markets. And over the last one year, many of you have individually come and told me that you need to segregate that out if you have done. And I think fundamentally, we also agree that the nature of the business is closer to Wealth and asset management. In my view, everything is correlated to the markets and the Capital Markets. It's just the degree of correlation changes. And Asset Services is, I would say, closer. And hence, we thought we'll segregate it out. And the reasons are basically the growth of that business is more linked to the growth of Wealth and asset management business in the industry.
The revenue stream is more recurring, less transactional. Assets are more sticky, less volatile to move. I think these are the fundamental reasons why we moved. On how we did in that business, assets under custody and clearing have grown by about 57% for the full year. Now we are at INR 1.3 lakh crores, and as I said earlier on, that we've added a significant number of clients. On the domestic side, now our market share happens to be 22% of all incremental AIF and PMS registrations. We are able to onboard them, and internationally, obviously, in the client segment of our choice, we have a dominant position. Coming to the core capital markets now, institutional equities and investment banking, I think equities saw a bit of a tepid quarter this Q3 because of the fall in volumes.
We're about 10% in the market, and I think we've seen about a similar fall. Market shares have been intact. We still have a 6.2% plus market share in institutional equities, which is industry-leading. On the IB side, on the other hand, I think this quarter was reasonably robust. Our capital market income dipped because there was a large transaction on M&A in Q1 and Q2. I think some impact came from there. But if I look at standalone IB BAU, I think Q3 was actually better than Q1 plus Q2. In the market, there were 57 deals that happened across IPOs and QIP and a fundraiser of about 1.45 lakh crores. We were able to capture a market share of 18% out of that, 18% about 11 deals and 25,000 crores. So I think from, and most of it doesn't get billed in the same quarter.
Yes, we have a spillover of billing of Q1 and Q2, but I think the activity of Q3 was significantly higher, which doesn't get fully billed, so you will see the flow-through coming in Q4 and ahead, and even the deal pipeline remains significantly strong even now. I think there is some bit of market volatility and price correction that could lead to postponement of some issues, but once it settles down, I think people will get on with it. This is all from my side for now. I will pass it on to Bharat. He will take you through the detailed numbers across all the metrics in the businesses, and then we can move over to Q&A.
Thank you, Ashish. Thank you so much for setting up the context. Good morning, everyone, and a warm welcome to all the participants on the call. See, before we jump onto the number, as you know, the last quarter actually sees a lot of volatility as well as driven by the macro and the geopolitical events. And within India, if you look at, there were a lot of mixed expectations on the results. And similarly, the implementation of key regulatory changes, more specifically SEBI, F&O regulations and all. I think that all kept the market on its toes during the last quarter. And we saw a lot of volatility. And we also saw some bit of hit on our broking revenues also, which is driven by the regulatory changes. So that is also built into the performance.
Overall, if you look at the company-level performance, I think I'm happy to share that all our businesses during the quarter have delivered a continuous performance quarter on quarter, whether it was a net new flows for Wealth business, private business, or asset management, whether it was launching new strategies in our asset management business, adding new clients on the asset services side, market share on the IBI side. I think all in all, these were the business numbers. But even if you look at the qualitative parameters in terms of actually getting more people on the RM capacity increase, investing actually into our enterprise tech stack, all those things were also in place. So I think from a quarter perspective, as a management, we believe that this has been a good quarter for us.
Overall, number-wise, as Ashish also covered in the beginning, the client assets have actually grown by 36% year-on-year, and we are now at arounde INR 4.5 lakh crore, which is a very respectable number. Revenue continued to grow strong at 30% for the quarter at INR 723 crores, and this, as I mentioned, was done by all the businesses, so it was not just one business which was pulling up the numbers. Total cost is at INR 390 crore or so, which is a 19% growth, but that's mainly driven by the people which we have added in the last 12 months or so. We have added around 270 plus RMs.
So I think that cost is coming in, but that's a good cost to invest. However, I would want to highlight that our OPEX on a quarter-on-quarter basis has always been flat. We are at whatever 90, 95 crore a quarter OPEX.
But we are looking at investing into our enterprise tech upgrade. So we may see in the coming quarters that there is some increase in the OpEx. But I think that's like investing in tech is never a wrong idea, I would say. So to that extent, it's fine. Overall cost income, we should continue to improve. We are at 54% compared to 59% last year. And the PAT has actually grown by 43% for the quarter and 76% for the full year at INR 731 crore. Last year, full year, our profit was around INR 597 crore. And we are now seeing in the first nine months, we are at INR 731 crore. Ashish did touch upon the capital utilization. Our ROEs for the quarter is 32%. I'm happy to share that for nine months also, it is at 32%.
It's not about just in a quarter we saw some ROE uplift. It has been consistent at 32% for the nine months. Moving specifically to the businesses, again, Wealth, our focus area within that, our Wealth segment, the AUM has crossed INR 1 lakh crore with a growth of 38%. MPIS, which is our key focus area, have actually grown by 34%. And the assets under management is now around INR 29,000 crore or so. Good sustained net flows. We are at INR 5,800 crore for the nine months. We did almost same number for last full year. So we did 5,800 now and 5,785, something like for the full year, FY 2024. And again, the MPIS contribution has actually gone up to 90% in the first nine months of the financial year. So that's a good sign. Capacity, we are at around 1,237 odd RM.
There's one more number which I would like to specifically highlight for Wealth. So the quarter three revenue has actually grown by 24%. And nine months has also grown by 24%. So it's like a very consistent performance. If you look at quarter or you look at the nine months, a 24% consistent growth is a very reassuring number. Cost income ratio at 67%, same as last year, despite adding a lot of new capacity. If we remove that capacity cost as well as the revenue, actually the cost income ratio would have improved by 300 basis points or so. So I think it's all, I would say, a good investment in the right direction. Operating PBT has actually grown by 19%. So I think Wealth ticked all parameters in terms of revenue growth, in terms of capacity addition.
Tech also, as Ashish covered, as well as on the PBT growth. Nuvama Private crossed 2.1 lakh crore and grew by 24% in terms of the client assets. ARR asset continues to grow much faster at almost 38%-39%. The ARR net flows is actually 8,000 crore for the first nine months, which is significantly higher than what we did the full year last year. Again, we continue to add number of families. We added around 20% families when it is compared to year-on-year or 150-odd families in the quarter. So I think that's a good sign of adding new families or the new clients in the private segment. That's working well. Q3 revenue was around INR 153 crore. So now, if you look at Wealth, has touched almost like a INR 70 crore per month run rate, and private has touched a run rate of INR 50 crore.
So I think that has come to a level where it is reasonably assuring, saying that a 70 or a 50, give or take INR 120-130 crore, a month number coming from a Wealth business is a good way to look at it. Overall, you will see that the revenue growth for this quarter over previous year was a little lower. Nothing unusual. What happened till last year, same quarter, our sales, the gross sales was more heavy towards AIF II, where you have a little bit more upfront of one-third commission. But now in this quarter, we have more of sale of AIF III, which is more trail-based. So if you ask me, it is basically the revenue and the profit cash flow timing issue. Nothing structurally has changed. For private, we should rather see quarter-on-quarter. So quarter two versus quarter three, the growth is around 6%.
So we have actually implemented that change in the system, and that's why the quarter-to-quarter growth is more relevant versus compared to a YoY growth. Otherwise, I think this business is shaping up pretty well, and we are all in the right place. Asset management, Ashish covered a lot of things about it in terms of AM is touching around INR 11,300 crore, INR 1,200 crore of net flows. Also, to share that in the public market, we picked up actually INR 725 crore and commercial real estate INR 675 crore. But we have actually first-time distributed from our first Crossover III Fund around INR 225 crore, which has been distributed. Launched our flexi cap and did our first close of the CRE fund. Otherwise, things are in place. SEBI MF application anyways, Ashish covered in a lot more in detail why this is relevant for our business.
Asset Services, I would request the people to look at our investor deck. We have actually added a new disclosure or new insights about the business, why this is more recurring in nature and relatively less correlated to the Capital Markets movements. I think it's a pretty reasonable articulation how the business is actually working and what are the various levers in the business. I would request the team to look at it. Capital Markets, again, we discussed it's been steady for us. And I don't know whether Ashish covered or not, but our market share in terms of our equity IPO has actually moved double. So if you look at Prime Database from calendar year 2023, from a 9%, it has moved to actually 18% in calendar year FY 2024. And I'm happy to share that we have secured number one rank in terms of our public debt issue.
I think as an end to my commentary, I would say the quarter three has been pretty happy for us. And now open 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 touch-tone 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 Prayesh Jain from Motilal Oswal Financial Services. Please go ahead.
Hi, good morning, Ashish and Bharat. Great set of numbers. Few questions. Firstly, on Wealth, could you give me some understanding on the breakdown of your managed products category and what is the kind of share of insurance or some other product? The breakdown will really help us understand as to how things are moving. And the yield pressure in the Wealth segment is primarily just because of NII going down, right? Nothing else to be kind of looked at there. So that's on Wealth. On private, again, the needed breakdown of AUM with respect to especially the ARR AUM, that is where from which segments does it come through. That will help us understand better. And again, the yields have been declining consistently. It's not that it's just the recent quarter or anything else. But how should we look at it from a structural standpoint?
Whether the yields have to be assumed at the current levels or it can see further more decline? Bharat did allude to it, but your view going ahead is something that will look clear. Also, there is some weak net new money in this business, right? Last question would be on Asset Services. What is the kind of split between domestic and international year, and is there any concentration risk in the international piece? Those would be my questions. Thanks.
I'll start with your first one. Wealth, managed products. Basically, out of the net new money that is coming in now, Prayesh, about 65%-70% essentially pertains to PMF, AIF, and MF. Balance, yeah. So in terms of the MPIS flow, MPIS total about 65%. And out of the total MPIS AUM, I think now about 60%-70% is now managed products. And when we say managed products, we don't include insurance in it. Insurance falls in the bucket of investment solutions. So fixed income, MLD, unlisted, and insurance, that is the other bucket. So 65%-70% now flows is now sitting in managed products. And within that, given the segment, I think the yields would be more on a trail basis between 1% plus because all PMF, AIF, CAT3 would be at that range itself.
On the yield falling from whatever 85 to 83, I think there's nothing structural. There is just one element which we want to keep saying on the Wealth business is that there is a component of broking assets where MTM and the revenue doesn't actually move in tandem. If you see last 18 months, Prayesh, 35,000 crores of broking assets have become 70,000. So literally doubled. But revenue of broking doesn't move like that. And in this quarter specifically, MTM is 7% positive, but revenue is down on broking because of whatever has happened in the market, true to label, FNO, consolidation, all reasons put together. Now, 7% positive MTM and minus 20%, and yield impact is just two basis points in a quarter where your NII has been because of the self-clearing and all. So if you remove the impact, our actual yield this quarter is 90 basis points.
There is nothing structurally wrong. Q4, you will see things coming back. Private ARR breakup, again, out of the ARR flows, actually everything is managed products only. And around INR 42,000 crores is our ARR AUM. Out of that, 12,000-13,000 is advisory, and rest happens to be about INR 2,000 crores of loan, and rest is managed products. And yield there, yes, this quarter we saw about 700 basis points, sorry, 7 basis points of fall. 7 basis points of fall. Out of that, again, 4 basis points comes from self-clearing. So that will reverse about 1 to 2 basis points from MLD. So I think that will also change. The third bucket, which is the proportion of CAT3 AIF is going up, that is structural nature. So if you ask me, I think 80 to 85 basis points should be the sustainable yield.
I think Q4 we should come back to that level. Asset Services, domestic international breakup remains the same, like I said last quarter, 25, 75. Internationally, there is always this concentration, but the good point is that the top five, seven, 10 clients, see, it's not a business where you have thousands of clients, right? There are only limited set of clients, let's say 100, 200 internationally. The top 10 keeps changing. That is the good part which we always want to see, that you are not necessarily dependent on just one or two. It keeps changing depending on how they are deploying their strategies, how they are bringing in capital into the country. That's where we are in terms of Asset Services.
Just one question there on the net flows on the private side. There are some.
I'm sorry. Net flow on the private side, sorry, I missed that. Transactional, there is a negative. There is one transactional client which basically moved out, but hardly any impact on revenue, but on the ARR side, if you see, the flows are consistent, and this was a one-off transactional outflow which happened for one client because I think they are relocating and they are taking everything to the Middle East.
Okay. Got that. Thank you so much. All the best.
Thank you. The next question is from the line of Lalit Deo from Equirus Securities. Please go ahead.
Yeah, hi, Ashish. Congratulations on a good set of numbers. So firstly, so in the clearing business, we saw some yield pickup in this quarter. Now, that would be mainly on account of the movement of self-clearing. But I wanted to understand more on that, how that yields have increased. Secondly, like you mentioned, that we are building a presence in Dubai and Singapore. So just wanted to know how many RMs over there we have recruited and what is the growth plan for the next two to three years.
Okay. So self-clearing, basically, as I said earlier, the clearing of Wealth business used to happen through our Asset Services division. Now we have moved. So those assets which were sitting have been transferred back to Wealth. So you will see that assets under clearing, there is a dip, right? So about INR 10,000 crore assets moved. Now, the earning which the Asset Services division used to make on these clients was lower than what they do from their other clients because these were largely Wealth clients and only minor clearing services and all were there. Hence, on the remaining book, the yield has gone up. It's just mathematical. It's not that there's something different that has happened there. And on our offshore plans, DIFC, as I said, is now fully live, functional business happening every month, revenue coming in. At an RM cost level, we have broken even.
Of course, infrastructure costs and all, in another five, six months, we should now break even, and then we have about three RMs there. We may go to five, six over the next 12 months, depending on how it shapes up. Singapore, we are just in the process of thinking through on how we want to do. I think we'll first want to focus on Dubai and take it to the next level and then maybe add Singapore because the competitive intensity in Singapore is significantly higher, and the cost of people and the time taken to break even is longer. So we may want to prioritize Dubai more than Singapore at this point in time.
Sure, sir. So just two things. So as you said, there has been some yield pickup. So going ahead, should we see that yield in the clearing business to be in that range of in excess of 150 basis points, or that should revert back to 130-140 basis points of yield?
No, it should remain at this level. It will not revert back unless there is a structural change in the interest rates and all, which takes about 12-18 months to take impact.
Sure, sir. And so just one question on the transactional income in this particular quarter. So we have seen some good pickup over there in the Nuvama Private Business. So what led to that?
Largely, two, three things. I think there is, given that there was volatility in the secondary markets, I think activity in the unlisted space picked up. We've not done credit downselling still. I mean, I think that is also one thing which is happening in the market in a big way. Direct transactions in the markets are increasing as a trend is what we are seeing. And I think we just participated in a few transactions, and that led to that income. It should become par for the course, in my view, in the Wealth management space because more and more clients, in addition to putting money in funds, also want to do direct deals and direct transactions. And unlisted as a space over the last three, four years has grown significantly.
Yes, sir. Thank you. Thank you.
Thank you. The next question is from the line of Abhijit Sakhare from Kotak Securities. Please go ahead.
Yeah, hi. Good morning. My first question is just to get some clarity on the asset class mix for both Wealth and Private divisions, especially pertaining to the ARR assets between how much would be equity, listed, unlisted, and the rest of it?
So, ARR assets in private largely for us is not equity. We've just, over the last eight, nine months, 12 months, started doing more PMS and AIF. So our impact, therefore, on the positive and the negative MTM is lower than rest of the street. It's more non-correlated asset classes. So it includes real estate funds, private equity funds, infrastructure funds, credit funds. And now, listed equity funds also getting added there. So that's how the split is. In terms of Wealth, I think it'll be more 50/50. 40%-50% would be listed equities, and balance would be non-correlated asset class.
Got it. Thank you so much. And secondly, a bit of a qualitative question. So we operate across the spectrum, right? Asset management, Wealth, and capital markets. So is there a way to quantify what would be, let's say, synergy benefits or what would be the likely sort of franchise value in terms of having everything within the firm and how much extra revenue does it create for the overall firm?
Interesting question at this time. So I think over a period of time, the value gets derived. The way we look at it, it's like a flywheel. The customer can enter in any part of the business. So for example, and I'll give you a theoretical construct and then tell you practically where we are and what we have achieved. So a customer could enter into a fund of asset management and could be a pre-IPO fund or a private equity fund. Technically, you have a shot to becoming an investment bank for the IPO. And at the time of monetization, you can get access to the Wealth for the promoter. And then if you have an HNI and an affluent division, you can also extend the services to the senior management of that company. So that's just one construct.
There are many such use cases like Asset Services and Wealth, Investment Banking and Wealth. I think around 10%-15% of the revenue is what we think one can add by bringing out these synergies across the board. That's a straight-through pass to the PBT because there is no extra cost apart from the incentive or the incentive you will provide for creating this ecosystem. That is the only extra cost. Otherwise, it's a straight-through pass to the PBT. I think that's where we have reached right now. The areas where we have sort of tried to focus more are between the investment bank and the Private division. I think that is where the highest level of synergy lies. Some, let's say, in the mid-cap equity research and Wealth division and so on and so forth. It's an ongoing process.
It's easier said than done because people of different businesses take time to understand the nuance of each aspect and why they should do and why it is beneficial for them. But once you taste success, once any individual tastes success, then we've seen that it becomes widespread in that division, and then it follows through from there.
Very helpful, Ashish. Thank you so much.
Thank you. The next question is from the line of Dipanjan Ghosh from Citi. Please go ahead.
Hi. Good morning, sir. So just a few questions. Now, we've seen one month into the quarter. In terms of activity levels on the Wealth side, both on incremental flows on the ARR side or on the transactional pipeline, how you see Jan kind of play out, if you can give some color on that? Second would be on the transactional income that you're booking in both Nuvama Private and maybe a little bit of in the Nuvama Wealth segment also. In terms of quality of the underlying structures or products that you're really downselling, if you can kind of break it up or maybe give some color so that we can get some understanding of how this should be on a more of steady-state run rate basis?
Lastly, if the markets were to remain sluggish for, let's say, a prolonged period, what sort of expense levers would you really have to kind of manage your margins? Or do you expect the margins to sustain at current levels?
So the first one, I don't know whether we are allowed to answer, but I'll still do that. We are not seeing any significant negative impact either in the transactional flows or ARR, both in both the Wealth businesses, at least in the month of Jan. I think where we are seeing impact is, of course, broking volume, which has come up. But I think Jan, again, is coming back in that sense. But in terms of the other areas of business, right now, at least, we have not seen any negative impact flow-through. In terms of transactional income, let's look at Wealth first. So basically, there are three, four categories which fall into transactional income. One, or there we don't call ARR transactional, but I'm saying unlisted, fixed income, MLDs. Largely, it'll be these three. And it'll be dominated by fixed income.
I think more than 80%-90% would be fixed income, and between unlisted and fixed income and MLDs also to some extent, I'm saying unlisted is sporadic in that business. It's not like a BAU, but fixed income is BAU. Every month, fixed income for that client segment is a significant part of their asset allocation, and as we all know, that mutual fund fixed income does not attract flows from individual clients. The large part of mutual fund fixed income, 85%-90%, still comes from corporates and institutions, so the fixed income allocation of individuals sits in bank deposits. That remains as a large opportunity, and we tap it through direct fixed income, so it's fairly steady and consistent in that sense. When we come to Nuvama Private, it's a combination.
Again, fixed income is a big component there, followed by, I would say, a bit of MLDs, followed by a bit of direct deals, direct deals more in the unlisted space, very little maybe in the credit space. If we find a transaction in some fund which has an overflow and passes our diligence, then we may offer it to our clients. So largely this. But between these four, opportunities keep coming, and we keep repeating that. In terms of sluggishness, I think if there's a sustained and prolonged sluggishness, there are discretionary expenses which we have. There are conferences. There are events. There are marketing events. I think in general, the travel costs come down, variable expenses, variable employee expenses. So those would be at least 20%-30% of the cost.
Today, if I look at our variable costs and fixed costs, our variable costs is actually at the same level as fixed employee cost, given how we are performing as a business on the overall level. If you are saying that everything becomes sluggish and prolonged, that level, of course, comes down. There is a 20%-30% play that is available. When I analyze our cost income today, let's say we are sitting at 54%. This depends on now I'm taking a three-year view. Now, we are clear that in three years, Wealth will move from 65% to 60%. Asset management, which is now at 127%, will at least break even or become like 80%-90%. Asset services at the same level.
I'm saying even if Capital Markets deteriorate by 20% from here, given how our business is proportioned, our cost income will remain at 54%.
Got it. Got it. Thank you so much for the explanation. Just one follow-up, if I may. In terms of the RMs that you have added or the productivity pickup that should play out over near to medium term, obviously, on a low base, you're currently operating at a low AUM, which is significantly strong, like north of 30%, as you mentioned. How do you see that really changing as the business scales up and also the productivity levels peak up? I mean, how do these two things really work in parallel?
I don't think this will slow down significantly unless we meaningfully reduce capacity addition. Because right now, if you see in both the businesses, the productivity of new people has just started to play out. It's not even played out. In the Wealth business, if I look at our RM cohort, more than 40%-45% is less than one year. Right? Now, 45% of people less than one year are doing, let's say, around 1x or less than 1x. When they move, and I'm saying there will be attrition. So even if 50% of that moves to more than three-year bucket, that's like a 4x jump. So in both the businesses, that is yet to play out, which is why we keep saying that there will be a cost income advantage when this capacity starts adding over the next three to four years.
Maybe, yeah, I mean, two, three years down the line on an opening AUM, we may not get 30%-35% of incremental flows. But between mark-to-market and flows, I don't think that to come down below 25% on an overall business.
Got it. So if I understand correctly, you're saying that the AUM growth even two, three years out should be 25, assuming mark-to-market is more steady and normalized?
Correct.
Got it. Thank you, sir, and all the best.
Thank you. The next question is from the line of Mohit Mangal from Centrum Broking Limited. Please go ahead.
Yeah. Hi. Thanks for the opportunity. So first is in terms of the RM attrition. So I mean, in the last call, you said that you have RMs in the big league, which actually produces maximum revenue for us. So just wanted to know, in quarter two, we lost around two RMs. So how has been the movement in that category in Q3?
I think Q3 was actually zero loss.
Okay. Understood. Yeah. Yeah. The second is in terms of.
The volatility increases in the market, so the RM attrition also keeps coming down.
Understood. Second is in terms of the cost-to-income ratio, right? I mean, you just said that the Wealth will come down from 65%-60%. And we have also seen that, I mean, the competition is ready to pay more. So are you a little confident that you'll be able to retain those RMs with the lower cost or in the same cost? Just wanted to understand that.
So again, let's segregate both the businesses. And also, you have to understand that when you say pay more, it always means fixed cost, right?
Yeah.
And what people actually make is a combination of fixed plus variable. And variable is largely a function of how much monetization opportunity a platform can provide. And all platforms in Wealth management are not equal because of the number of products, access to opportunities, access to in-house products, access to investment banking deals, institutional equity block deals. Everybody doesn't have all this. So the ability of the RM to make money on this platform for their clients is significantly higher, which basically ensures that they end up making a higher variable. And once you have spent some amount of vintage on a platform to go out and to recreate it, it takes time and long. So you will see that movement of people, when it happens from one place to the other, actually performing people move less. Underperforming who move more.
Performing people sometimes move for change in role, change in position, or some significant opportunity. It's not that they keep jumping. Large part of the attrition noise is actually not in the performing bucket in the Wealth management industry. We also face that challenge. When we go out and we want to recruit, it's not easy to get performing people, even from moderately successful platforms.
Understood. And any, I mean, change in the fixed cost to variable cost component, any change in the formula for that for RMs? Or is it as remains the same as?
No. Largely the same. No, nothing. Don't change.
Okay. Thanks, and wish you all the best.
Thank you. The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead.
Hi. Congratulations on a great performance. My questions were on the loan book only. I mean, you had said it was calibrated, but actually, if I see the loan book has been relatively stable given the market conditions. So I wanted to know, in terms of calibration or better quality of loan book, what have you done? Is it just more granular in nature? And how do you expect to grow this? Is it the number of clients? Because the market remains a volatile thing. Thank you.
You have to understand our loan book. It's not necessarily margin-trade financing, which is linked to the levels of market and market activity. We have loan against shares. We have ESOP financing. We have loan against AIFs funds, which typically Wealth clients take for either leveraging and improving their returns in those funds or for temporary liquidity. Margin-trade financing is a small component of our book, which is more correlated to the market. What we have done is that in some cases, like in our ESOP loans or loan against shares, people used to, I'll just take one specific example, and that will give you a sense. People used to borrow against their ESOP and then sit on it for a year, two years' time, and we thought, essentially, that in a rising market, that was an okay thing to do for the client.
But given where we are right now, it may not be very wise to be leveraged and hold on to your ESOP when valuations are sitting at this level. So that was one point of view, which was client-related. And therefore, we said that we want them to borrow. Yes, fine. Exercise, but then sell and diversify. So we changed the structure of our rate. We made it extremely competitive less than 30 days and then increased post-30 days. So that induced the behavior of people moving out and moving into other assets. So the book remained same, but more people borrowed. And your ROE also improved simultaneously in the process because you have a processing fee on selling. You have a brokerage, which if you annualize 12 times, it increases.
So that gave us the capacity to access more clients with less capital and overall led to an improvement of ROE in the business. Now, with this in place, we can expand our book size. We can go to more corporates. We can add more clients. We can allow more people to borrow. But we don't want to, when I said we can grow the loan book, I want to make myself clear. We don't want it to become some dominant contributor of our revenue. But one year, we've kept fairly steady. We can now look at it increasing with the size of our scale of our business and not just remain flat.
Excellent, sir. Wish you all the best.
Thank you.
Thank you. The next question is from the line of Ashish Agarwal from Oaklane Capital. Please go ahead.
Yeah. Hi, sir. Sir, I have a question on the ownership. So what is your view on PAG's long-term ownership in the company? Also, how does PAG add value to your company? Basically, you mentioned that it adds strategic value. So how does it add value? So yeah.
What was your first question?
So what is your view on the PAG's long-term ownership in the company?
Oh, okay. So see, PAG essentially is a fund, right? And it's like Blackstone, Advent. And this is largely an alternative investment fund. And private equity happens to be one of their key areas. And India now happens to be one of their key sort of investment thesis. And we are a reasonably successful company in their portfolio. The fund life is up to 2030. But any private equity fund always enters into an asset with a view to exit at a point in time. So it's never permanent. So they will explore opportunities in their normal course of business. We wouldn't know more than that. In terms of strategic value, see, I've always maintained that when a private equity actually enters into an asset, it's clearly entering to create value in different components of the business and take the multiple higher valuation higher.
So in a sense, it's completely aligned with all the shareholders. And the way they add value is they will find pockets where are there businesses where your operating efficiency is low, your capital efficiency is low, or are you not looking at some strategic target market, which you should be looking at? How do you bring synergies between various components? So it's more strategic and a business owner kind of a mindset. They have extreme amount of learnings because they've invested. And I would say any large private equity invests in so many businesses across so many markets that they are able to see the mistakes which typically managements make who are in their business. And they're able to point it out and help you clear that and help you grow faster than the others. I think that's one.
And also the focus on governance and relationship with stakeholders like lenders, rating agencies, and all. I think those are the things which bring an immense amount of help in having a large pushback in private equity as your promoter.
Okay. Thank you, sir. Just one more question is that what is the time frame that you look to break even the Asset Management tools?
As I said, if we don't load in our company, we load allocated cost equally to all businesses. If we remove that, they are breaking even now. But with that allocated cost loading, I think by the time we cross about 20,000 crores, so maybe another 12 to 15 months.
Okay. Thank you, sir. That was helpful.
Yeah.
Thank you. The next question is from the line of Sanketh Godha from Avendus Spark. Please go ahead.
Yeah. Thank you for the opportunity. Sir, we see that you added almost 600 families in nine months in ultra HNWI space. And if I do nine months net flows figure, it is INR 7,300 crores. So just wanted to understand this INR 7,300 crores is largely driven by mining the old 3,600 families or these 600 actually have added much to the numbers or not? And if they have not, then how do you expect it to play out in subsequent quarters or years in that sense? And I think it's a similar trend I see in the Wealth business that the family's additions are there. Just wanted to understand the waterfall, whether it is more driven by family's addition or client addition, or is it mining of the existing customer? If you can give a waterfall in that thing, it will be helpful to understand how it works.
Typically, Sandeep, it's a combination of both. And in the Wealth business, for example, we've added about 15,000 families in the quarter and maybe 75,000 in the year. But out of that, only 10%, 15%, 20% will be relevant. And the contribution into net new money, 30%, 40%, 50% will come from, let's say, the new family, and balance comes from the old. And even from new, actually, we'll also share this data. I think going forward, we'll look at how we can share. The new family, typically, when they come in anywhere, whether it is Wealth or Private, it doesn't happen that you get 100% of their investable flows in one go. In some cases, it may be a possibility, but more often than not, it starts with a product, and then it keeps adding, keeps adding, keeps adding.
So it is not fair to assume that if you add 600, their entire investable surplus will come to you. I would say maybe 20% would come now, and then it keeps adding over the following years. So depending on year to year, the mix will keep changing. I think 30%-40% is safe to assume would come from new clients and balance from mining of old clients.
Got it. Perfect. And second question, sir, is to understand, means both in Wealth and Private, how much of our revenue concentration or AUM concentration is linked to MLDs? And if there is any specific, I mean, basically, just wanted to understand MLDs concentration into the entire revenue pie of ours. If you can give that breakup in both.
Less than 1%. I mean, hardly anything. I mean, our MLD sales total would not be more than INR 50-60 crores a month. I mean, because we don't actively encourage MLDs on our own book, we are actually bringing that book down because we don't want to have the hedging risk. And second, we don't pay significantly on that as a commission because we want to keep the cost of borrowing down. So not more than INR 50-60 crores. And even if you take 2%-3%, hardly 1%-2% of our revenue would come from MLDs.
When you say 1%, is it MLD of your own industry or?
Before the tax change. Sandeep, before the tax change, it used to be reasonable. But our own MLDs, I mean, it's not a significant revenue provider to us.
Got it. Got it. And so the reason I asked this question is that in one of the questions, you said that in MPIS net flows, 60-65-70% is AIF, PMS, and mutual fund, and rest 30%-35% is insurance, fixed income, and MLD. So is it fair to assume it is?
MLD would be, let's say, of other issuers who still are issuing some, but that also will not be big. Like in our fixed income, more than 90%-95%, so we include MLD in fixed income only. More than 90%-95% is vanilla fixed income.
Okay.
Yeah. MLD, MLD, now I think across the market, except maybe one player, everybody else's MLD has come down significantly. Only two players, I think. One, we all know, and the second one is an unlisted Wealth management player. Otherwise, across the board, MLD has come down significantly post the tax change.
Perfect. Perfect. Yeah. That's it from my side. Thank you.
Thank you. The next question is from the line of Nishant Shah from Millennium Capital. Please go ahead.
Hi. Hi. Thanks for this opportunity. So I just have one clear question to ask. You mentioned in your opening remarks that there may be some postponement of flow activity or deal activity. And earlier in the call, you also talked about how January has been relatively steady. Do you mind just reclarifying this part again? Do we see some postponement of flows given capital market activity slowing down? So not a lot of promoters unlocking value, not a lot of ESOPs getting in cash. So does that kind of reduce flow activity until the markets kind of settle down a bit? Or how should we kind of think about flows going forward? Medium term, I take your point. It's probably irrelevant, but more in the six-month time frame.
So as of now, actually, Nishant, we are not seeing. We were discussing amongst ourselves that logically, this could happen because prices have come off very sharply. So maybe people who wanted to do QIP or IPO may want to wait. But the filings are still going on at the same pace. I mean, our teams are saying that that has not come down. People are saying that, "Okay, valuations were significantly higher than what we had thought earlier. Now it looks more reasonable. We want to go ahead because our plans have not changed." Maybe some private equity funds who want to exit through IPO, they may want to delay because for them, it's not necessarily related to plans around their business. It's more maximizing the IRR. And if that, they can delay by one month or two months, it may be okay.
But that also, they're not stopping the filing. But on the promoter side, and ESOP and cash fund and all, we are not seeing any change as of now. I'm just saying that if it becomes prolonged, that is one area that can get impacted. But if you're asking me on actual activity side, are we seeing that change? As of now, no.
Understood, and a second question was on just your clearing F&O clearing business. There's been a slew of kind of regulatory changes, but not a lot of real impact on the premiums traded, so how is that business kind of shaping up? Last time we had spoken, you had mentioned that you have a long pipeline of new clients, hedge funds that you want to add as well, so any outlook that you can give, let's say, the coming year for that part of the business?
Outlook, actually, we don't give. But all I can say is that from an activity, two things, right? One, of course, the premium levels are back. And I think January, I was reading one of the reports of one of the analysts in the call only that both for BSE, NSE, even the premium turnover is back. But for us, actually, the premium value matters, and that is reasonably intact. And new client addition, and I'm not talking small clients. These are large billion-dollar clients. They have not stopped activity either, taking offices on lease, racks on lease, hiring of people. So I can only say that the momentum of the activity, we have not seen a slowdown. And when we spoke to them, again, they said that, "Look, even after all this, India remains within Asia.
The next largest profit pool is 20% of India in the derivatives market." So it is a long time away that we will go away from here. Addition is only happening. And many participants globally have still not come. They're still looking to come to India. So I am not actually sensing a slowdown in activity there.
Perfect. Yeah. That answers it. Thank you so much. That's it from me.
Thank you. The next question is from the line of Vivek Gautam from GS Investments. Please go ahead.
Yeah. Am I audible?
Yes. Yes.
Yeah. Just wanted to know about your statement. You said that the coming quarters will be better. What could be the reasons for that? And how is the opportunity size looking for market in terms of the volatility, which is now in surging Indian markets? Thank you.
I think coming quarter, I said, will be better in two things. One was the yields in the private should come back to the 80%-85%, which they have, and NII income in the Wealth management business, because both of which underwent a depression due to the same reasons, which were temporary in nature. So that will reverse. In terms of overall activity, I think institutional equity volumes is the only place where we are seeing some impact. Other than that, largely things remain to be in place. So I don't think we are seeing an impact on the business. But yes, we have to be watchful of the global situation. I mean, there is a significant change in leadership in the U.S.
He is coming out with tariffs and other things, which have a bearing on their inflation, which means it has a bearing on their interest rate, which means it has a bearing on their currency, which basically has a bearing on everybody in the world, and how that plays out, how each country reacts, and what it does to the emerging market. I think there are too many factors to be considered to be able to give a calculated call on how it will go. All I can say is that activity levels of clients have not gone down, and we are not seeing this negative chatter or sentiment playing in large parts of the business, except broking volumes where there has been an impact, but I think that will get covered up with the positive activity in other areas.
How much does the broking contribute to our business? Because I believe most of your offline brokerage is now shifted.
See, total, if I look at our overall revenue, our institutional equity revenue would be in the range of 12%-13%. And within Wealth management, if I look at broking, it's less than now, maybe again, 12%-13%. And if you see a 10%-10% fall in both, you're actually seeing a 2%-3% change in revenue.
Okay. Thank you.
Thank you. The next question is from the line of Anirudh Agarwal from ValueQuest Investment Advisors. Please go ahead.
Yeah. Thanks for the opportunity. Question was on the lending business. So if you could just talk about how much capital you've allocated to the lending side and what are the current ROEs that you're making. So you spoke about improving the ROE profile of this business. So where is it now? And what is the target ROE that you would be comfortable with in the lending side?
So the way we look at lending is not actually a business. It's a product. Actually, nothing, neither broking nor lending. Everything is a product because your end client is same. And overall book size is about INR 5,000 crores. And it's split across largely three products: ESOP financing, loan against securities. I'm saying securities, not shares, because it includes everything. And third is your MTF. MTF out of this overall 5,000 would be more or less around 20%, which is people who buy and. Rest, 80% is around the above two. And ideally, the way we look at this is that this is not the only product the client should be consuming for us.
Because if this becomes the only product that the client will consume, then at an ROE level, you will always be inferior because you are lending to the super prime client at the finest possible rate against the best available collateral, and there has been no credit event for the last 10 years, so you cannot hope to make a large ROE unless you leverage seven times, six times, which we don't do. We run an overall book at a two and a half times leverage, so therefore, your ROE actually comes from doing other activities and other products with the client, which will be, let's say, some buying, selling, broking, some Wealth management, so if you put everything together, the Wealth management whole cluster ROE is now upwards of 22%. We were sitting at 16%, 17% a year back. We are now upwards of 20%, 22%.
And I think at 25% is a level where we can then say it's good enough. From there, you can keep on expanding the usage of capital and keep the ROE intact and drive more growth. So that's how we look.
Got it. Got it. Second question was on the MPIS piece in the Wealth business. So the incremental growth that we've seen in this quarter, is that also largely on account of increase in PMS, AIF, MS, or there has been some activity on fixed income, MLDs, or insurance in this quarter?
So insurance is not significantly high in this quarter as compared to previous quarters. But fixed income is high. And so it's a combination of all. So your MF, PMS, AIF, that trail keeps adding. And of course, fixed income was high. Only out of those three, this kind of an impact cannot come in the quarter. So it has to be both. I think Q4, we will have insurance play coming in because largely Q4 traditionally has been big on insurance for everybody.
Got it. And there is any implication of the surrender value regulations change on the insurance front? Any change in commissions, etc., on that?
Not for us, clearly, because our persistency ratios were best in class in the industry. We are actually saying that we want to have a positive impact of this change because we are one of the few where the insurance company doesn't have to worry because of the surrender charge change.
Understood. Understood. Thanks, and all the best.
Thank you. Ladies and gentlemen, due to time constraint, we will take that as the last question. I would now like to hand the conference over to the management for closing comments.
Thank you. Thank you once again for sparing your time. I think we've had a decent quarter. Now we'll focus on Q4 and see you again after three months. Thank you for coming again.
On behalf of Nuvama Wealth Management Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.