Ladies and gentlemen, good day, and welcome to Nuvama Wealth Management Limited Q1 FY 2025 earnings conference call, hosted by Nuvama Wealth Management. As a reminder, all participants live will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch tone phone. I now hand the conference over to Mr. Ashish Kehair, MD and CEO from Nuvama Wealth Management. Thank you, and over to you, sir.
Thank you, Deepika. Good morning, everyone. I welcome you all, and thank you for joining us today to discuss the financial results for the first quarter of fiscal year 2025. I have alongside with me, Bharat, Group CFO. This is his first call. Manish, our Head of Investor Relations, and the SGA team, our investor relations advisors. I'll start with my opening remarks, and then we'll hand over to Bharat to detail our financial performance, and then we can jump over to the Q&A section. For easy reference, this time we've emailed all our results to most of you, the presentation and the data book also. These documents are also available in the disclosures with the stock exchanges and our website under the Investor Relations tab. Hope you got a chance to look through it over the weekend.
We've added some more slides to give some more color around the business. I'll start with a bit of macro. I think two big events are now behind us, both elections and budgets. So the focus will be on economic growth, global macro, and the geopolitical situation, I think, U.S. election being the most important. But we are confident that in any situation, India will remain relatively better positioned. Economic and business performance will continue to be driving the growth of wealth. So from a macro perspective, we don't see any worries about India as much. Jumping to our results now, I'll briefly summarize the business-wide outlook and share the progress we are making against our strategic priorities in each of the businesses. Overall, I think we had a good quarter. All the businesses performed well.
Most of the input metrics which essentially we focus on are trending in the right direction. We continue to grow our sales capacity, our client relationships, client assets, and our market share. We reported a revenue, revenues of about INR 668 crore for the quarter, an increase of about 60% over last year, same time, and an operating PAT of INR 221 crore, which is an increase of about 133% over the same period. I'm also pleased to announce, as you guys keep asking all the time, our first dividend of INR 290 crore. This is approximately around 50% of last year's profits. Now coming to wealth management, I think Q1, we continue to see strong flows around our focus areas.
Our differentiated platform is working really well. The industry continues to evolve. I think forces are at play, growing wealth, emergence of new geographies, specifically beyond Tier 1, which I keep saying, with both HNI and UHNI, changing customer preferences and increase in product suite and complexity, with more regulatory focus, and leading to technology disruptions. In our assessment, these forces will drive consolidation and continue to do the movement from unorganized to organized. Over a period of time, I think business models will have to transform and become more platform-led, with universal, you know, wallet approach of the customers rather than being monoline and offering few products. Because that kind of a model is extremely exposed to regulatory risks.
As we all know, any kind of regulation change can happen in any single product line, which can disrupt your whole model. Therefore, we've chosen to build a multi-product, multi-channel, multi-customer segment model, which is working well for us. Over a period of time, the scale, the presence, and the franchise we've built, I think will help to grow this business consistently. Coming to our wealth cluster, the first business, Nuvama Wealth. I'll speak about the focus areas here. We continue to add capacity and grow the relationship management pool. Last 12 months, we've added about 350 RMs, and in Q1, more than 60 RMs. I also want to say that, as I mentioned last time, that as we scale this order and magnitude, it is of utmost importance that processes are institutionalized.
And not only, not only the advisory process, about which I will talk about later on the technology stuff which we are doing, but also the entire talent management, learning and development, and sales cycle management. I think all of this has to work seamlessly to be able to get this kind of a workforce insight and make them productive in a reasonable period of time. On asset flows, Managed Products and Investment Solutions, MPIS, continues to remain our focus area. In Q1, we've garnered about INR 1,400 crore in net new money in MPIS. We've added this disclosure in the data book, additional disclosure. INR 1,400 crore is about 11% higher than the full FY 2024 quarterly average.
And over the last 12 months, we've added about INR 3,700 crore, which is on a base, a 25% YoY growth on the starting base. And within NNM, I'm happy to state that NNM for managed products, the proportion of that is growing faster. That has grown about 40% year-on-year, and now constitutes more than 70% of the entire NNM that is happening for the last 2 quarters. We expect this trend to continue, but there is an implication of this, because most of the managed products now are equity-based, so we are building that book, and the trail build out, as you understand, takes time.
In about two-three quarters or maybe three-four quarters, you will see that meaningful growth in the managed products income that will come by the accumulation of trail that is happening because of the addition of them. On revenues in Nuvama Wealth, while the overall revenues have gone up, if you look at quarter-on-quarter, MPIS is down marginally, about 2%. And I'd like to state that is largely because of the AIF revenue recognition impact. If we normalize that, the revenue growth in MPIS itself is about 20%. And quarter-on-quarter, actually, we don't see here, because quarter four, sorry, YoY was -2%. Quarter-on-quarter is about 13%, and that's largely because of insurance. Because insurance is heavy on Q4.
We all know it happens every year, it'll happen this year also, and therefore, it gets normalized. And which also actually has a leading impact on yields. So you cannot really compare the yields in Q4 and Q1 because insurance has a bump. And in this year, Q1, we had a significantly higher mark-to-market in brokerage assets. If you look at the entire mark-to-market number of last year versus this year, in Q1, the mark-to-market is about 50% of the absolute value of last year's full number of mark-to-market. If you normalize that, then Q1 is actually inch up and are almost equal or higher to the Q4 yields. And cost income, Q1 is about 66%, Q4 was 68. So there is a 200 basis points improvement there.
Vis-à-vis last year, Q1, it was 64, but not comparable because we added about 350 RMs after that. And if you take the impact of that gross cost and the revenues produced by those RM, it's actually 63%, so there's a 300 basis points reduction. I think we'll talk about this more during the Q&A session. As I said, on the technology side, we are investing heavily in this business, specifically around two areas. In the last call, if you would recollect, I had mentioned that we've launched a portfolio advisory tool, which we internally codename as MAAS, Multi-Asset Advisory tool.
which was-- which is now in production, rolled out to the entire sales force, and it's getting extremely good feedback because it's helping the field to engage better with the client, deliver more, I think, consistently and achieve a personalization at scale. And second, I had mentioned that we are launching an internal platform, which is like a sales cycle cum CRM cum, you know, book management and activity management tool, which is called One Platform. Now it's available even on a mobile app to the entire sales force, and I think it'll help them deliver their job. Moving on to our Ultra HNI segment. Nuvama Private. I think the segment continues to see robust demand across, not only Tier 1, across Tier 2, Tier 3.
Economic activity, corporate profitability, everything has a positive impact. And, recently we saw the data that, more than 50% of recognized startups in India are coming from, Tier 2 and Tier 3. This will lead to an unprecedented, you know, disposition of wealth in the hands of customers there. And the need for organized wealth management is only going to go up. I hope and wish that service providers are, like us, are able to match up on the supply side. We continue to invest in capacity here also. About 15%-18% has been added in the last 12 months. Our first quarter is normally slow, in addition of capacity in this business, because typically the appraisal cycle ends around April, May, June, and people are reluctant to move because their bonuses and all happen.
So Q2 onwards, activity will pick up, and we have a decent pipeline, Q2 onwards. But I want to state one point here. Actually, something which is a little disturbing in this segment, is there is some kind of FOMO happening. Lot of organizations are jumping into this business. Many traditional players are changing nomenclature and moving into this business. And I, a sincere piece of advice to the world of relationship people, that please do not make a movement to IB business, because when the cycle adjusts, things do not go well and massive layoffs happen. And we've seen that play again and again in any sector that goes overboard.
Therefore, you should look at players who are serious, who have vintage, who have deep pockets, who have sustained cycles, and who have a platform that can deliver value to the customer. Overall, we've added about 200 families, taking the count of families to about 3,900. So customer acquisition remains robust. The synergy with investment bank is working really well. About 40% of the relevant deal clients, and 80% from a value perspective, the total value of deals which investment bank has done, has now started working with Nuvama Private, and which is a reasonably a good number. We'll continue to improve upon that. Coming on to flows, ARR, flows remain as a focus area for us. Q1 was highest ever, in terms of flows in ARR, about INR 4,700 crore.
And out of that, happy to say that more than 93% is managed products, which is a trend now we are seeing over the last two quarters. And if you see last 12 months, the total flows here were about INR 11,200. In comparison, I think the transactional assets, they are largely seeing MTM, and I'll talk about it a bit more. Again, as I said in Nuvama Wealth, the implication of building the ARR flows, especially in the area of managed products, is that you'll see the trail build-out happen gradually, but meaningfully. So there will be some quarters where, I mean, we will get a little impatient, but I don't think we will digress from our strategy.
There is a bit of depression in the transactional income in Q1, which is why the Q1 versus Q4 revenue looks lower. But Q2 onwards, the transaction income will come back, because there are opportunities in sell downs and unlisted shares and other products which are coming back in Q2 onwards. On the offshore build-out, last time I'd mentioned that we are working in DIFC licensing and all. Happy to state that all our approvals have come, our leadership is in place, and about two to three relationship managers will be joining in the next 20-30 days, and we'll be open for business. Coming to asset management, our AUM is now around INR 7,700 crore. We've added about INR 700 crore last quarter between new money and MTM.
Overall, I think the target or the aspiration this year is to add about INR 3,500 crore-INR 4,000 crore across the multiple strategies which we have. Because we've added new products like commercial real estate, we've added one more fund in our private equity space, which is Crossover IV, both for domestic and international investors. And we've added a Absolute Return Fund, which I'll talk about more. So I think we now have the product palette fully available, and the sales engine is also firing. In the private markets, the approach has been right now for the last 12 months, deployment. Now, deployment momentum has picked up, so we will continue that and add the new strategy which we have rolled out. Public markets, we have our two flagship products, Edge, which is our long-short fund.
Now, that's the largest in its category and in top two performance figures always. So we have reasonable amount of demand now coming in from external distributors. And Nuvama Absolute Return Fund is a fund which basically is a fixed income alternative. It targets pre-tax, pre-fees return of about 15%, with no negative quarter. So essentially, after the debt mutual funds have gone to marginal slab-based taxation, I think there's a huge gap in that space, and this product fills that space. So we are extremely bullish on both these products. In the first quarter, we saw sales of about INR 500 crore in this category. And over the last 12 months, we've moved from INR 1,000 crore - INR 3,000 crore almost in terms of AUM here. Commercial real estate, our newest product, is now picking up.
I think in the next two quarters, we'll be able to do our first close and also start the deployment. Capital markets, the uptrend actually continues. Extremely robust performance in Q1. Asset services, we are seeing growth across client segments, both in the international clients and the domestic clients. Domestic clients typically comprise of PMSs and AIFs, where we do their fund accounting, client onboarding, and custody services. So it's somewhat like what RTAs do, in a similar setup, which we offer to the domestic PMSs and AIFs. We've added about 30 new accounts. We have a lead market share in the domestic market, in that space. And in the international side, we've added about five new accounts, multi-strat, on the clearing side.
Both put together, the assets have grown about 3x in the last 12 months. We've added about INR 37,000 crore of assets in these two spaces. Both institutional equities and investment banking, which is our core capital markets, are doing well. Institutional equities, there has been a volume pickup in Q1 on the cash side, whereas the derivative side, the volumes in the markets have been a bit muted compared to Q4. But, we've seen a reasonable increase in our market share both in cash and in derivative segments, which has led to the increase in revenues.
Investment bank, I think the deal activity continues, in terms of QIPs, blocks, IPOs, and we've also been able to do a market transaction, one of the largest in the ophthalmic devices space, where we sold a company called Appasamy to Warburg Pincus , one of the largest deals in that space. So that was all happened in Q1 for us. There were a few regulatory changes, I think, which happened, and one of them is around the rebates, which market intermediaries will now not be able to earn, I think, from October 1st onwards. For us, I would like to state that the impact is negligible, I mean, less than 0.2% or 0.3% of our revenues. So there will be negligible impact.
And the other question that keeps coming to us is, will the asset services revenue get impacted if there's a decline in yield? In FY 2025, we don't see any impact at all. The way we have structured and hedged our book and the deposit structure is in a manner that at least for the next 18 months, we don't see an impact in the fall of yield and at the pace at which assets are getting added, I think even in future, if there is a yield reduction, it should be more than compensated with the addition of assets. I think with that, my opening remarks I'd like to come up, that overall, a good quarter. Hope to see it and continue in the coming quarters. And we'll hand over to Bharat to take you through the quarter performance and analysis.
Thank you, Ashish. Thank you, Ashish, and good morning, and warm welcome to all the participants. And Ashish, first of all, I think you covered most of the points. So I'll try and brief and maybe a few things if it has not been covered, I'll try and cover that. So again, good morning to you all. So as Ashish covered a lot of things in terms of the macroeconomic, also the sector or the economy has been very positive in terms of the real GDP growth, or there has not been a much of a, say, any regulatory, larger financial system issues, or there has been a improving profitability by the corporates. So I think all those are in the right direction for the industry which we operate in.
Having said that, like any other industry which is involving people's money, whether it is banks, NBFCs, wealth management companies, mutual funds and all, they are always under the extra vigilant in terms of the regulatory environment, and that is true for us also. So what we have seen, there have been two key changes which has actually happened. One is on the AIF revenue recognition, which happened last year, say sometime May 2023. That has a base effect in this for us, and more specifically for our private business, where we've been a large player on the AIF side. The second is, as Ashish touched upon, the insurance sector is also undergoing a change, wherein there has been a change in the surrender values, which has been effective from October 1st, 2024.
Which in a way means, again, there may be an impact in terms of upfront commission versus the trail commissions. What I'm trying to say here is that both these impacts are the base effect for FY 2024 and 2025. So maybe the quarter-on-quarter performance is not exactly comparable. So if you look at quarter one last year versus quarter one of this year, even if the... I'll cover the numbers at the Nuvama private label also, but there has been an impact on the AIF income, which will reflect in the overall, overall wealth income growth. If you look at the other things which Ashish covered or, maybe the budget part, the budget has been very, I think the focus has been more on the simplification on the whole of the capital gains structure.
Whether it was making the slabs flat versus 10% versus 12.5%, or even the holding periods changing from a multiple different periods to flat 12 and 24 months. All this has been implemented now, effective July-- effective this month. The other thing which we are happy to announce is that we have declared the dividend, which is INR 81.60 per share, which is roughly INR 290 crore, or in a, in other words, which is roughly 50% of our last year operating profit. That is where we have declared our first dividend after the listing, and our endeavor will be to declare a dividend in the range of 40%-60% of our annual consolidated profit.
So that's where we are heading, obviously, the focus is on the capital management, and also where we are deploying our capital. So the capital deployment will continue in terms of deletion of liabilities, building our tech platform, which will lead to better customer experience, as well as the engagement with our own relationship managers. Which in turn comes back as more like a retention for our relationship managers. So I think all this is where we will continue to deploy our capital. Having said that, Ashish covered most of the numbers. I'll go on our business by business and our total levels. If you look at our overall asset base, it has moved around 50%. I'm comparing all the numbers on a YoY basis. There has been a 50% growth on the client AUM, at around INR 389,000 crore.
Within that, if you look at Nuvama Wealth, our mid-market segment, that is up by 45% and touching around at INR 88,000 crore. It has been a good quarter for us in terms of our new money, which is in the MPIS space, which has been very strong at around INR 1,400 crore, which has been, like, total the NNM contribution, 75% has been in the MPIS segment, so that has been very reassuring. If you look at Nuvama Private, our asset base is now at INR 1,86,000 crore, a growth of around 51% year-on-year. Again, if you look at the total assets, which has grown by 31%, but our ARR assets—ARR, ARR assets have grown much faster at 48%, with the AUM of ARR at around INR 39,000 crore at the end of the quarter one.
Asset management, again, it has been a strong growth of 50% YoY. We covered a lot of things in terms of the new offerings and the new products which we have launched in the last maybe six months. And similarly, if you look at the capital market side, the custody and the clearing businesses saw a very strong growth of 115%. Again, we discussed in the previous section with Ashish in terms of where the money is coming from, whether it was on the international clients or on the domestic side. If you see the overall revenue part, the revenue has grown by a healthy 60% at INR 668 crore. All the businesses has done well, with Nuvama Wealth, that has gone up by 23% year-on-year.
Nuvama Private has grown 11%, but that's mainly, as I mentioned, because of the AIF impact. Our internal estimate around is INR 20 crore worth of AIF revenue impact in quarter one last year on a like-to-like basis. If you neutralize that, the growth would have been in the range of 30%-33%. So I think, it is again on a base effect basis where it is reflecting at an 11%. Otherwise, this has been a strong growth for the Nuvama Private also. The ARR revenue continues to grow at a much stronger pace and now it's contributing 63% of the total wealth revenue, which is where our stated approach is that our focus will be more on the ARR side of the business.
In terms of asset management, excluding the carry, the revenue has grown by 23%, and within that, the 44% of our AUM is now fee-paying. It is a growth of 44% in the fee-paying AUM, which is much faster than the overall growth of the asset management revenue. Capital markets is a very strong growth of 153%, taking it to INR 361 crore. We continue to benefit from the synergies, as Ashish also mentioned about our deal, which has been within the system, which leads to a first IB deal, then it comes back to a wealth management business opportunity. That all is playing well for us and we hope to see more such things. On the cost side, the cost has actually gone up by 28%.
If you look at what we have done is that there has been an addition of around 350 odd people over the 12 months period. In the, that is only on the RM side, but if you look at it, the total employees is, increase in the number of employees around 500 over the last 12 months, which one is playing in, the annual increment is playing in. And this is the variable cost which is linked to our business. When we are growing at 60%, variable expenses, which is linked to the incentives, are also being provisioned accordingly. That is what is leading to a 28% growth. If you look at the data book, the Nuvama Wealth, cost-income ratio has marginally gone up from 64% to 66%.
But as I mentioned, it is because of the 350+ RMs which we have added. And the throughput of such people, it typically takes 12 to 24 months to reach to the desired level, and hence it is impacting it. But if you exclude the growth capital or the growth investment which we have made, the CI ratio has actually come down from 60% to 62% kind of a number, so that's always playing in. Similarly, on the Nuvama Private side, there is a marginal increase in the cost-income from 68% - 69%. Again, if you remove the AIF impact and the growth capital impact, it should be easily 64%-65% number. So that's where we are heading.
Lastly, I think my general commission here is that on a quarter-on-quarter basis, our INR 2 crore-INR 4 crore or a INR 5 crore cost impact, or maybe a timing of a INR 10 crore-INR 15 crore impact on the revenue side, can actually move the cost-income ratio by 1% here and there. It always becomes little tricky to manage it at the last decimal. So, maybe on a steady-state basis is where we are heading as the cost-to-income ratio. If we exclude the growth cost, it should be at around 60%-61% over the next maybe 24-26 months, is where we are heading. Lastly, as we mentioned, the profit has been very strong at INR 221 crore, which is a 163% growth. And even on a sequential basis, it's a growth of 22%.
That's all from my side, and happy to take any questions from the moderator. You can take over.
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 your phone, 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 Jayant Kharote from Jefferies. Please go ahead.
Hi. Congratulations, sir, on the good set of numbers. First question is, rightly, what Ashish pointed out at the beginning of the call. We are seeing a high level of churn, so to say, not just at RM, but even at senior management level in this space. So first of all, where have we been in this? Have we made any acquisitions or actually hire this quarter? And then a follow-up to that is, if we do see RMs moving across, typically, what parts of the AUM are you able to retain? And then what are the moats you're building to be able to retain AUM?
Thank you, Jayant. So acqui-hires, actually, we are working on. Acqui-hires may not be one of the best approaches because if you do that kind of a hiring, 50% of the team which you get may not be what you want. So our approach is twofold always, that you look for individual RMs, and if there are teams in which higher proportion of people are the are some are of the type which you want, then you go ahead. We've not lost too many people. Like any industry which is growing, I mean, this is a pain which you will have to live with, right? Specifically in people-oriented industry. If either the industry is not growing, then it's a different kind of a pain.
And if you are seeing a reasonable amount of growth and optimism about future, this is one of the factors which you'll have to live with and you have to manage, time and again. At least at the leadership level, we've not seen any churn. But many new players, I think, are coming into the space, across the spectrum. I think in retail, in affluent, in, HNI, ultra HNI, and many players are also changing their strategy to move into this space. I actually see that it will lead to an overall talent expansion, because whichever way they you slice it, I, I don't think people keep, you know, recruiting from one another, then, that is going to be a winning approach, because ultimately the talent pool is limited.
So people will have to dip into talent pools which are sitting inside banks, build infrastructure around training and other stuff, in order to add to the talent pool for the industry to grow meaningfully. In terms of asset movement, I have always maintained this, that it's not really easy for clients to close accounts and shift everything. And specifically in cases where if somebody is making a movement a multiple number of times in his career, it's practically impossible for clients to shift everything.
Yes, incremental business will get split between the two firms. But I think more than 60%-70% of the AUM is retained with the existing firm, especially in ultra high net worth. Because the number of relationship points, the number of folks which you have with the clients, the number of touch points which you have with the clients, goes significantly beyond just one touch point. So business typically gets split. It's not that 100% movement happening of assets. Neither do we get it, nor we lose.
Just to add to this, sir, do you expect your cost income in this segment to be slightly elevated until this competitive intensity sort of recedes for the next 6-12 months?
In my view, no. Actually, the more impact of cost to income is happening today because of the change over, which is happening from, let's say, the revenue recognition of AIF. Because you were-- for us, for example, we were in the process of booking 60% in year one, which in act two has later fallen to only 20% or 25%. Many players in the market were booking 100%. And that changeover is, to my mind, 12-, maybe 24- to 36-month process, where it will be celebrated. But even this year, in our view, by the time we end the year, it should come back to 65% or below.
Because if you see even in Q1, the impact to cost, cost to income has happened not because of your regular revenues or ARR revenues, but because of transactional revenues. And transactional opportunities actually keep coming differently from quarter -to -quarter. And we are now seeing opportunities which are emerging in Q2. You will see it come back. And the cost movement, actually, people don't... In a way, people are overpaying, but ultimately the relationship manager cost as a proportion to overall cost of the business is maybe 50%-55%. So if you have an established infrastructure, if you have—if you're a player which is of scale and your other costs are under control, and if you're not mindlessly adding RMs at any cost, then the cost income should be under control.
That's, that's very helpful. The one last question, if I could squeeze in, is on the yield. We have seen, and I'm, I'm not referring to the YoY numbers at all. If I look at this quarter in isolation, I see the yields are down to 90 basis points on the ARR, earning assets in the private key. And if you of the last, the interest earning fees probably is around 35-odd basis points. This has been, slightly lower than what you've been doing in the past quarter. So can we assume this to be the new normal?
No, no, no. I, I meant to cover this in my opening remarks. I missed it. In this quarter, we've actually had a big win in our ARR assets. If you see our net new money in ARR is about INR 4,700 crore. Out of that, about INR 2,000 crore have come early. It came in the months of April, May. The deployment has not happened. It's come from two large families. Right now, that money is sitting in liquid fund and arbitrage fund. It's come in our Infinity Portfolio, which is our in-house non-discretionary and discretionary multi-asset portfolio. Once the deployment happens and we start earning the contracted rate, the yields will come up. The impact of that full inflow is about 5 basis points.
That's very helpful. Thank you and congrats on quarter.
Thank you, Jayant.
Thank you.
Thank you very much. Next question is from the line of Prayesh Jain, Motilal Oswal. Please go ahead.
Yeah. Hi, good morning, everyone. Congrats on a great set of numbers. I wanted some more understanding on the Capital Markets business. You know, if you could relate the cost income between the two segments, which is, which is your Asset Services and IB. And also from that point, regulations or what the media has been talking about with respect to, F&O activities, that, there will be a meaningful impact on the volumes and, Asset Services business.
So overall, cost-to-income ratio, if you see in Capital Markets, is about 42%.
Yeah.
Asset Services, in that sense, is a more, I would say, is a lighter cost-income business. So that would hover around maybe, you know, 20-odd%, 20%-30%. And, the other part obviously goes to about, maybe 50%-55%. On the F&O side, actually, we are also waiting, like everybody, to see what's going to happen. There are a number of changes which are being proposed, which will lead to a, which is basically, targeted to reduce the retail participation in the F&O market. Which I think will have a larger impact on, maybe people who have, broking business around retail.
What that has, the second order impact on the institutional side will have to be seen, depending on what is the order of magnitude fall. If I'm saying if there is a, let's say, drop to 25%, then there could be a 5%- 8% impact on the float of asset services business of the institutional clients. We do not have a F&O flows, of retail clients, as you know, our overall broking product, within wealth management is relatively small, and within that, derivatives is even smaller. We never participate in that part of the business. So that we are isolated, but if there is any second order impact, on the institutional volumes on the derivative side, that we'll have to wait and see. Very difficult to see right now.
Is it fair to say, at least, that, you know, the Capital Markets or the Asset Services business is more closer to being an annuity?
So if you look at degrees of fluctuation, Prayesh, like if I were to see and like it in this, the closest to, let's say, the volume volatility of capital markets is, I think, broking, and the most distant is wealth management, and somewhere in between is the asset services. Because it essentially serves two communities. One is international clients, which, which basically trade in domestic markets, and second is the domestic PMS and AIFs. Domestic PMS and AIFs, I think, is fairly, fairly, fairly insulated because they, there our income is, completely not linked to volume ups and downs. It, it's typically a service-oriented business. International, yes, if, let's say, there is a massive volume reduction and if they bring their volumes down, there could be some impact.
But if you ask me, it's more or less the current nature of income which we have is more than 60%-65% is annuity. So ideally, I don't think it should be valued in a similar manner as, let's say, core Capital Markets, because Capital Markets is a different nature versus Asset Services, if that's what your question is.
That's very helpful. Just on the management side, you know, the yields have dropped sequentially. Why would that happen?
There are three things, Prayesh, in that. One, there is a product level yield, right? The product level yield is more or less consistent if you look at private markets and if you look at public markets. Now, in the last 12 months, what has happened is that, which I've been saying, that we've not added assets in our private markets because our focus was on deployment. And once... And that's how private markets work, right? You first raise a fund, you deploy at least 70%-80%, and then you raise the next fund. Whereas public markets are continuous vehicle. There is no end date, unless you are doing a closed-ended fund, which we don't have. And in the last 12 months, the proportion of public markets have gone up, so it's just the multiplication.
Now, if, let's say, we add another INR 2,000 crore of private assets, again, the yields will inch up. But I have always maintained that in the long run, let's say you look at a INR 20,000 crore AUM when we reach the next two years, three years, on a blended basis, the gross yield should be anywhere between 75, 70 to 80 basis points, is where we should land and settle, given how we see the composition of assets will move.
Got it. Last question. What is our account plans for both wealth and private segment for this year, and possibly, if you can go from there to the next couple of two, three years?
So we've said that we want to, like, two years out, achieve 20% every year, so we were able to achieve that last year. We added about 15%- 16% in private and I think more than 25%. This year also, the idea is same. So you can anchor the figure at 20%. In some cases, we may be 15%, in some we may be 25%. That's the range we want to occupy that. It's not... That's the target. Now, if depending on how, you know, the market environment is, we may calibrate it, dial up or dial down. But that's the way we are looking at it right now.
Thank you so much, and all the best.
Thank you. The next question is from the line of Lalit Deo from Equirus Securities. Please go ahead.
Yeah, hi, sir. Congratulations on a good set of numbers. So I have two questions, actually. So firstly, on the assets of MPIS in the Nuvama Wealth and the ARR assets, so could you give us more details about the nature of, like, the assets, whether how much is debt and equity? Because the reason I am asking this question is because if you look at the flow side, then if you calculate the MTM gains on these two books, the, that is higher than the gains of about 53% on a sequential basis.
Correct. You're right. So I got your question. So if you look at right now, the proportion would be more towards yield-oriented assets. But if you look at it 12 months from now, the way the net flows are happening now, you will have more equity. So higher proportion of equity managed products are now coming in the net flows of both MPIS and ARR. Current AUM may not be, let's say, reflective of where we will be 12 months from now.
But, like, as of now, like, how much would this really be? Like, you, can you, give us a broad sense, like, how is and how it has improved over the last few years?
Not last few years, maybe last 12 months is the right approach. Before that, our focus was, reasonably high towards, fixed income and yield-oriented assets. Even within the managed products, we had a lot of, you know, non-correlated stuff like, credit funds, infrastructure funds, asset funds, which were less MTM products. Because our approach was to attack the fixed income portfolios of clients, because everybody was doing equity. Now it's become more balanced, and incremental flows are now coming towards equity assets. So currently, maybe 10%-15% would be equity assets, but 12 months from now, maybe that will be 30%-35%.
Sure, sure, sir. Second question was on the cost side in the Capital Markets business. So as you have calculated that in that Asset Services, it is roughly in the range of 30%-33%. Whereas in the IB business, it is in the range of 50%-55%. So will this be, like, going ahead, as I understand that something like in the next, in the second half of the financial year, then it should increase because of the variable payouts and all those things. So, so the current level?
What we have done, Lalit, is that we have, in the first quarter itself, up-fronted the variable payout. Given the fact that Capital Markets is a very strong booker, if you look at the total cost, and if you see between Q4 and Q1, FY 2025, there is almost a INR 24 crore cost jump, which is largely towards two elements. One would be the hikes, because, there is the manpower addition which is happening here. One would be the hikes would be, let's say, order of maybe 35%, but rest would all be attributable to variable cost.
So, the segment between the 30%-35% and 50%-55% will remain over the next twelve months?
Our approach of variable, we try to, I mean, we are always, not always correct, is to basically keep accruing the variable costs in line with the revenues in any quarter. We've not been perfectly, as I said, right at it, but to the extent possible, we try to align it so that there is no weekly catch-up that happens. Although, segments in the last two years in our wealth management businesses, we had to do a catch-up in quarter four, but not in the capital markets business.
Okay. Thank you.
Thank you. Participants who wish to ask question, please press star and one at this time. The next question is from the line of Bhavin Pande from Athena Investments. Please go ahead.
Hi. Congratulations on wonderful set of numbers. I just had one question regarding Capital Markets business. So we could see some increase in market share. So could you just shed some light on the dynamics of the Capital Markets space and how one sort of plans to move or gain market share?
There are three lines of business which we report in our Capital Markets segment. One is institutional equities, second is investment banking, and third is Asset Services. I'll start with the Asset Services business first. That basically serves two sets of clients. One is international investors, which is FII, in which usually we serve systematic bond funds and hedge funds, and on the domestic side, long only PMS and AIFs. Essentially, the function of market share is out of the new clients which come into the fold in both the categories, how many new accounts are you able to get as far as your competition is concerned? In institutional equities, similarly, we serve FIIs, domestic MFs and insurance companies, and that is typically volume-led. So as your volume on the side goes up, your market share will typically go up.
And investment bank, we are in ECM, M&A, ECM capital markets. So across that, depending on the league tables and how much we are able to win is how our market share moves. So I think overall, more than market share, on the capital market side, what we keep worrying about is how the activity will move up or down. But at least post-elections and post-budget, for the next 12 months, it doesn't seem... Unless there is an external shock, which comes and hits, we don't foresee a, you know, tapering.
Yes, quarter-on-quarter, the numbers could move up and down, but overall activity in the market should be at a similar level, except what Prayesh was mentioning in his question earlier, as to if something draconian happens on the F&O side, and that has a second order impact on the overall market performance, then I think, entire sector, whether it is us, asset management, broking, everybody will get impacted.
Okay. And Mr. Can I just, you know, it's landing on the anticipated rate cut, do we think that there's a rate that maybe, let's say, in a couple of quarters, the private startup space could revive, that could lead to more growth? Or do you think the sort of action in investment banking activity that happened in this quarter is sort of is a manifestation of the anticipation of a rate cut, if we put it in better way ?
So rate cut for us actually is reasonably neutral. It doesn't impact us too much because some businesses benefit, some businesses lose. Overall market, how it will react? Now, rate cuts typically happen when economy is not doing well, but markets have become counter to that. So if you see when talks of rate cut happens in U.S., broader market starts doing well, because your asset valuations, your discount rates, everything starts coming down, so your current valuations start looking cheaper than what it could be in future. So it's extremely counterintuitive. If rate cuts will happen, I think it'll lead to a positive into the market.
That's it, sir. Very helpful. Congrats again and good luck.
Thank you.
Thank you very much. The next question is from the line of Sanidhya, Unicorn Asset. Please go ahead.
Hi, good morning, congratulations. My first question is on the, I just wanted to understand on the yield and net new money in the MPIS and other segments. So how should we see it, like year-on-year, quarter-on-quarter, gradual basis? Because there is some, like, not—there's like, the yield on assets versus the, revenue versus the, there's a, there is a difference in proportion of growth, particularly in the wealth and the private. So if you can just elaborate on that.
The retention on average assets in Nuvama Wealth ranges between, you know, 90 basis points to 1% depending on the quarter and the kind of MTM assets we've seen. Q4 will normally be higher because insurance comes in. Typically, the way you have to look at Nuvama Wealth is MPIS growth is around 30%-35% of the initial base. And that's how we have seen it over the last two years. And if you basically look at the fact that that constitutes anywhere between 40%-50% of the revenues, that will provide you anywhere between 12%-15% of revenue growth. Your other assets, which is your broking and loan assets, typically could grow anywhere between 10%-15% in a year, and that has a 50% contribution.
So that will give you another 7, 7.5. 20%-23% revenue growth is what you should be able to see, and if you are able to keep costs below 20%, then the profit growth will be higher. That's how it works in Nuvama Wealth. And in Nuvama Private, typically, the ARR growth, we've seen, exceptional growth over the last two years. So I'm saying even if you take, again, 30% growth there and, and 15% in transactional assets, that should also lead to about 20% growth in the overall business. That's how we see it in terms of breakup and composition.
What is this others in the client asset composition?
In which segment?
The Nuvama Wealth.
That could be, maybe unlisted shares, that could be client margin changes. So multiple items, could be sitting there.
Okay. So, okay, fine. So it's like the majority portion, like almost 60%. Certainly on the AMC front, so I think we are not taking the actual loss in the presentation or anywhere else. So it would be great if, in the presentation, it, it, because it doesn't make sense to not write it just because we are in loss.
I didn't understand the question.
In AMC section, the
We show the operating loss, no? In the data book.
Okay, maybe I missed it.
There is an Excel data book.
Mm-hmm.
which, so in our disclosures which we give, there is obviously a quarterly presentation. But if you want more details, we also upload an Excel data book, and that's there on our website also. In the Excel data book, we have detailed numbers in terms of revenue, costs, and other metrics and parameters across all of these businesses, given detail in Excel, so you'll be able to see it.
I'll surely go through that. If it, I was just presented, the presentation is.
Sure. Sure. We will add that. No problem.
Thank you. Thank you so much. And lastly, lastly, we had some news, or maybe rumors, Indian promoter trying to exit from Nuvama. Any comments on that?
Not that we know of, because they hold about 56%.
No, the Indian promoters.
No, that's not a rumor. I mean, there is no Indian promoter now. Edelweiss is now a passive shareholder. They hold 14%. As part of the merger, they had 10%, and they are not a promoter anymore. They may look to monetize a part of it, maybe half or a third of it. One, they're under a lock-in till 12 months from listing. So last week of September, the lock-in will go. Post that, they may want to sell because they want to monetize some and take the cash within the company, or Edelweiss Group.
Thank you so much. And on the dividend front, will it continue? Like we have the last quarter, right? In order for that, we were discussing that we are yet to set up framework for this.
So, like Bharat pointed out, the endeavor will be to do 40%-60% of annual profits.
Okay. And since now liabilities also would be flexible and other things, so are you looking for any other, like, bonuses or any compensation, like, anything like that?
Right now, not under discussion, because bonus, unfortunately, if you look now, the taxation structure for people will get impacted, so we are not thinking of bonus or anything. Maybe at some point in time, if the board decides and discusses to do a split, they might do, but right now, nothing under discussion. Dividend is something which has been discussed in detail, and that's why we started it.
Great. Thank you so much. Thank you so much.
Thank you.
Thank you very much. Next question is from the line of Rahul Agarwal from Himalaya Investment Advisors. Please go ahead.
C ongratulations on a very good set of numbers, and thanks for the opportunity. This question is more on the asset services business. You report clearing assets and custody assets there separately, and you calculate the yield on clearing assets. So can you just explain this a bit? What is- are these two different models of revenue? And what will be the kind of yield that you expect from each of these two segments? And what portion of this revenue comes from domestic clients versus international clients?
So custody and clearing are two different activities. Custody is what, let's say, any institutional investor can give their assets to a custodian for safekeeping, and different kinds of services are provided where you do custody and accounting. Clearing is when a client trades in derivatives, and the trades have to be cleared, then you use a professional clearing member. And you have to post your margin to the exchange through the professional clearing member. And the clearing member earns on that margin and also on the services that are provided. So these are two different lines of businesses. Assets under custody actually sit in a company which is different, and assets under clearing sit in a company which is different. In combination, this is Asset Services business.
The company in which assets under custody sit, we hold first line interest, so we do a profit pickup. We don't show the revenue here. That revenue is lower. These are typically services-related revenue. It will be maybe order of in between, INR 30 crore-INR 40 crore, 50 crore a year. So you can do the calculation, in terms of bps on assets under custody. In clearing, it's about 1.4% on assets under clearing, and that's what we show here.
I understand. So most of the, I mean, all of the reported revenue comes from the asset under .
reported revenue here, what you're seeing is all coming from clearing. Assets under custody, and the profit from, will be shown as a profit pickup in the main P&L. We can't show the revenue on that because it's an associate, not a subsidiary.
Understood. It's about INR 30 crore-INR 60 crore per year.
It keeps ranging, yeah. We see maximum INR 60 crore-INR 70 crore every year, and keeps rising with the increase in assets under custody.
And that's the revenue number, INR 60 crore-INR 70 crore?
Yeah, that's the revenue. Correct.
Understood. On the asset under clearing, since it's largely linked to what you mentioned, how do you... what portion of it do you consider as annuity versus, you know, exposed to capital market volatility? And what are the underlying growth drivers for that business, or is it very hard to forecast and is just linked to capital markets?
So in a way, it's linked to Capital Markets, but it's not difficult to forecast. If you ask me to say on a 3 to 4 year basis, because institutional interest in India is on the uptrend. So we are seeing newer clients from newer countries come in, register, and start participating. So there is an increase in activity. So if you look at the last 10-year, the last 5-year, the number of institutions that have come in, so our revenues will not move up or down with the, you know, daily volume which they do and all that stuff. It's more to how much exposure they want to take to India through derivatives. So that on a secular basis, if you are asking me, we are seeing a positive trend.
The impact on that business can happen if, let's say, over a 12-month period, there is a reduced, completely reduced activity in the Indian derivatives market, or there is a sharp fall in yields in interest rates. That also, the impact starts hitting you after 12-18 months, because the way you've structured the collateral, there is zero impact for the first 18 months. So I think those are the things that can impact that business. If you ask me from a split perspective between annuity, non-annuity, I think 50%-60% you can configure as a base level annuity, that should continue to stay.
One last question: In the wealth business, you report a brokerage revenue as well. Is this linked to products like, say, market linked debentures and or any other placement of products? Or is this linked to the broker revenue that a typical broker would see from the equity, cash or derivatives segment?
The same category.
Understood. Got it. Got it, got it. Okay, thank you so much.
Thank you.
Thank you. The next question is from the line of Sanketh Godha from Avendus. Please go ahead.
Yeah. Thank you, thank you for the opportunity. In the wealth business, what I see is that your AUM in net interest income has declined either year-on-year or sequentially. But if I look at the revenue, there has been meaningfully a strong growth either on year-on-year or sequentially. So just wanted to understand that this net interest income growth is largely driven by interest rate increase on the margin trade funding or loan against it. So what led to that growth is one first question I have. And in wealth, maybe if you can broadly indicate out of the revenue of INR 76 crore what you made in NII, how much could be potentially annuity in nature?
which is going ahead also for the. That's the first question which I have on wealth. The next question I have on the flows, which is the last question you answered.
So on the interest income bucket, simply put, there are three, four factors which affect the overall interest income. One, of course, is the size of the book. Now, what has happened in this quarter, the average book was higher, but the closing book was lower. So, because, you know, our book is not like a long-term loan, right? It's either ESOP funding or loan against share, where people come in, go out, and typically within ESOP also, we promote early selling because it's in the interest of the clients. We don't want them to hold their ESOPs on a levered basis on the hope of price increase, because that's not in the interest of the client. And there are three factors which affect our income. Actually, four. One is the composition of the book. So composition keeps changing.
It's between LAS, ESOP and let's say, margin finance. And if margin finance goes up, our income will go up. Second, if your average book is higher, obviously you will earn higher because the average book was higher. And if your closing book is lower, that also becomes a positive impact because your expected loss gets reversed and the processing fees gets front-ended. Because normally, when you book a loan, the processing fees is accrued. Let's say the contracted loan period was six months, and processing fees was say, 50 basis points. You will accrue it over six months. But after 45 days, if the client sells his share and repays the loan, the residual processing fees comes in. So these three, four things actually keeps the inter- NII keeps going up, down, up, down, up, down in that sense.
Is it fair to assume that because the markets did very well in the current quarter, margin trades have been played a meaningful role?
Not really. No, no. For us, for us, you know, that's not a big component. I think the larger impact will come from... If markets do well, the positive to us is that people exercise their ESOPs more and sell them faster.
Okay, faster.
So that gives you processing fees, brokerage and NII, all three together, and that also has a positive impact.
Okay. If you can, maybe indicatively tell me the MPIS closer to annuity, how much is annuity and how much is transactional in nature?
Oh, that I think I'll have to come back, because offhand, I don't want to hazard a guess right now. But let me just look up if we have the numbers. Give me 30 seconds.
Yeah, sure. If you can even give indicatively how it has trended compared to the last four quarters and, and just to, just to show-
Trend-wise, trend-wise, I'll tell you. Trend-wise, it's on the upside. Because if now you look at the sales that you are doing, okay, in MPIS, more than 70% is now managed products. Which means what? Which means AIF, which means MF, which means PMS, and insurance is very small in terms of sales. So and all those three categories, and within AIFs also, as a stated strategy now for us, Category three is far more important than Category two. Because Category two just gives you some little bit of upfront, and then the trail is over the life of the period, and most of the funds of Cat two are 7, 8, 10 year products, right? Real estate fund, category fund. So the trail becomes meaningless.
In terms of sales, I can tell you our mutual fund, PMS, the sales numbers now on a quarterly basis, we do what we were doing in one full, full year. So at least in the coming year, the way we see, if we book, let's say, X of annuity in Q1, it should, in my view, if we continue this trend, should become 3x by Q4. Currently, if I look at the overall, I think MPIS number, I think more than 50%, 55%, 60% will be annuity. But we will have to confirm to you, this is just a rough cut calculation.
Got it. Got it. Yeah. And the second question was that, if I look at overall flows, the privates have done very well. Almost, it's like INR 4,000 crore number, even if you actually private. Just how to understand this trajectory, how do you see, given this is meaningfully better off to earlier run rate of previous quarter, previous year, how do you see this play out? Is it... I mean, you yourself said that you won one couple of two big families, which supported this number. But do you think some kind of a deals will happen or this number should be toned down a bit for subsequent quarters?
See, total last year, if you see, the net flows was about INR 11,000 crore over the full year in private. I think if we extrapolate INR 4,700 crore , it will go to some INR 18,000 crore . I don't think that should be the right approach. What you're saying is right, we should tone it down. Maybe order of magnitude anywhere between INR 13,000 crore- INR 15,000 crore. Essentially 30%, 35%. Last year we were able to do 42% of the opening book. This year, our opening book is around INR 38,000 crore, and INR 38,000 crore or maybe INR 44,000 cro re. So, 30% of that, anywhere between INR 13,000 crore-INR 15,000 crore is what we will aspire to achieve in the full year.
Got it. Perfect. And lastly, just based on private again, on UHNI space, just wondering whether incremental client addition which is happening, is it happening on advisory or still trail is the thing? Just wanted to understand if it's advisory, do you think that-
Like I said, the INR 4,700 which came out of that. At least 65% is between non-discretionary and discretionary PMS. Now, you call that advisory, we call that trail base. It's all the same. Now, in ARR, actually, more than in private, at least more than 90%-95% is managed products, in which we include advisory, discretionary, non-discretionary, everything.
Mm-hmm. No, no, my major question was that, given incremental sold flows, if they come in the way I see is advisory, whether-
That pure advisory, with some high end basis points or from that variety, if that is what your question is.
Okay. So the yields around 90%-95%, what you indicated, will remain in the business? That's the point I want.
Yes, yes, yes. That's what we feel.
Okay. That's it from my side. Thank you very much.
Thank you, Sanketh.
Thank you. The next question is from the line of Yash from Stallion Asset. Please go ahead.
Thank you for the opportunity, and congratulations for the great er quarter. I wanted to understand that your Asset Services business is about 40% of the Capital Markets revenue. You know, just sort of an internal benchmark which you have that over the next, you know, 3, 4, 5 years, you think we can this sort of business can sort of grow more steadily and contribute to, like, you know, maybe 60%-70% of the overall Capital Markets revenue? How do you think how large can this business be?
So it is 40% of the business, today. I think, yes, over a period of time, it can grow larger in terms of proportion. But even today, in terms of profitability, its contribution will be more than 55%-60% of the capital market.
Right. Right. Do you have sort of an internal benchmark that, you know, maybe by the next three years, we should have it like 60%-70% in terms of revenue contribution or, or anything like that?
Automatically. See, typically, I mean, unless both institutional equities and investment banks continue to grow in the way they have grown over the last year, which we will hope. But otherwise, I think from a secular growth perspective, asset services, the probability is higher, and directionally, yes, it could become, 60% of the revenues in the next 3 to 4 years.
Okay, got it. Thank you.
Thank you very much. Ladies and gentlemen, due to time constraint, that was the last question. I now hand over the conference to Mr. Ashish Kehair for closing comments.
Thank you, Deepika. Thank you, everybody. It was again, a pleasure, having you all here. Hope to see you again in the next quarter. Thank you.
On behalf of Nuvama Wealth Management, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.