360 One Wam Ltd

NSE:360ONE

Earnings Call Analysis

Robust Growth Amid Market Resilience

In a challenging landscape with geopolitical concerns and inflation, 360 One Wam showcased a strong financial performance in the first half of the current fiscal year. Despite market corrections in Q3, the company's long-term outlook remains bullish. Fuelled by substantial net flow increases, total assets under recurring revenue (ARR AUM) soared by 30.7% year-over-year to INR 203,000 crores. Notably, recurring revenues, comprising a 76% chunk of operating revenues, witnessed healthy growth, augmenting by 9.6% Y-o-Y. Q2 profits (PAT) also strengthened by 7.3% Y-o-Y. An interim dividend of INR 4 per share was declared, bringing the fiscal's total dividend to INR 12 per share. The company's tangible return on equity (ROE) stood resilient at 28.3%, echoing the prudent capital management and steady dividend payouts.

Dividends and Market Outlook

In the context of robust capital markets reaching all-time highs, the company announced an interim dividend of INR 4 per share, bringing the fiscal year's total dividend to INR 12 per share, as a sign of ongoing profitability and confidence in the company's financial health.

Asset Growth and Recurring Revenues

The company reported a striking growth in Assets under Management (AUM) with a Year-on-Year (YoY) increase in total AUM to INR 203,000 crores, a sharp 30.7% jump. This was led by significant net flows and complemented by an impressive wealth AUM reaching INR 138,243 crores (a 39% YoY increase) and an AMC AUM of INR 6,293 crores (15% YoY increase). The business also saw a 9.6% YoY increase in recurring revenues, highlighting its stable revenue base and signaling predictability in future earnings.

Financial Highlights and Profit Growth

The Cost-to-Income ratio was reported at 48.6%, with operating costs increasing slightly on a quarter-to-quarter basis. However, the company's Profit After Tax (PAT) was robust at INR 185 crores for the quarter, marking a 7.3% YoY growth, and an overall 10% increase to INR 367 crores for the first half, which aligns with their full-year guidance for FY '24.

Business Health and Strategic Initiatives

The company has highlighted the strength of their core wealth business with net flows of nearly INR 20,000 crores in the first half of the fiscal year, where discretionary and nondiscretionary advisory propositions account for about 75%. They are also making strides in new business segments such as a digital-first High Net Worth Individual (HNI) proposition, geographical expansion, and a focus on serving the global Indian client segment. These strategic initiatives are expected to add 20-30% to their existing business over the next three to four years.

Guidance and Looking Forward

Management remains confident in maintaining strong business performance with a continued focus on innovation and comprehensive offerings. They expect the firm's temporary increase in costs (3% to 4%) due to strategic growth investments to normalize over the next 12-18 months, bringing their cost-to-income ratio back into the projected efficiency benchmark of around 45%.

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon, ladies and gentlemen, and welcome to 360 One Wam's Q2 FY '24 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. On the call today, we have with us Mr. Karan Bhagat, Managing Director and CEO; Mr. Anshuman Maheshwary, Chief Operating Officer; and Mr. Sanjay Wadhwa, Chief Financial Officer.

I now hand it over to Sanjay to take this conference ahead. Thank you.

[Sanjay Wadhwa, executive]

Thank you, Anil, and a very good afternoon to everyone on the call. In the first half of this financial year, the domestic capital markets maintained its positive momentum and rose to all-time highs despite global concerns related to geopolitics and inflation. Although there has been some correction at the start of Q3, we continue to remain bullish in the long run about the India growth story with our business showing resiliency across phases. Before we deep dive into financials, we would like to highlight that we have announced an interim dividend of INR 4 per share. This is our third interim dividend for this fiscal, taking the total dividend to INR 12 per share.

Coming to the business and financial numbers. In line with our focus on ARR assets, total ARR AUM increased to INR 203,000 crores, up 30.7% Y-o-Y. This growth was driven by strong net flows at INR 5,743 crores during the quarter. Our wealth ARR AUM stood at INR 138,243 crores, up 39% Y-o-Y while AMC ARR -- AUM stood at INR 6,293 crores, up 15% year-on-year.

As noted in all our previous calls, our focus remains to increase ARR assets and the resultant high-quality recurring revenues. Our recurring revenues increased by 9.6% Y-o-Y to INR 311 crores, and up 8.3% Y-o-Y to INR 635 crores in H1 FY '24, led by growth in assets across all business segments.

During H1, recurring revenues comprised 76% of our overall operating revenues. Total revenues for Q2 FY '24 are up 9% Y-o-Y and 1.6% Q-o-Q at INR 441 crores and 13.1% Y-o-Y at INR 875 crores for H1 FY '24.

H1 retentions on ARR assets were 69 basis points with wealth ARR retention at 65 basis points and asset management at 75 basis points. Excluding carry, ARR tensions have remained relatively stable at 61 basis points. For the quarter, operating cost rose by 2% quarter-on-quarter and 19.5% on a Y-o-Y basis at INR 214 crores. The employment costs increased of 4.8% quarter-on-quarter on account of additional headcount, including certain senior-level hires, which Anshuman will cover later during the call. Cost-to-income ratio stood at 48.6% as against 48.4% in Q1 FY '24. A Q2 FY '24 PAT remained strong at INR 185 crores, up 7.3% Y-o-Y and 2.2% quarter-on-quarter and at INR 367 crores for H1, an increase of 10.2%. Importantly, our tangible return on equity, which is ROE, excluding goodwill and intangibles, was robust at 28.3% for the quarter. This is a result of prudent capital management and regular dividend payouts. With that, we come to the end of financial highlights. I'll now hand it over to Anshuman to cover key business and strategic highlights.

[Anshuman Maheshwary, executive]

Thanks, Sanjay. Good afternoon, everyone. At the outset, as Sanjay shared, our overall financial performance and key business metrics remain strong. We are excited at reaching a milestone of INR 200,000 crores ARR AUM at the end of the last quarter, which translates to a 30-plus percent growth over last year on the ARR AUM. Our overall AUM has also increased to $50 billion, highlighting the strength of our platform, relationships and positioning in the Indian wealth and alternate asset space. While we focus on growth and continue to invest for the same, profit after tax, as Sanjay shared, showed a healthy 10% growth over last year at INR 367 crores for the first half of this financial year, in line with our guidance for the full year FY '24.

Some key highlights on the business performance that I would like to call out. I think firstly, our core wealth business remains very strong with ARR net flows of nearly INR 20,000 crores in the first half. And even within this INR 20,000 crores, about 75% coming from our discretionary and nondiscretionary advisory proposition. Now in this proposition to bring greater clarity on the retentions specifically for the nondiscretionary advisory proposition, as a part of our enhanced disclosure this quarter, we have shared detailed information on our active ARR AUM.

Apart from the treasury assets, active ARR AUM excludes assets of approximately INR 20,000 crores, which are non fee bearing or low fee bearing. And this reflects the lag between flows coming in from new clients that are yet to be charged regular retentions or flows from select old mandates, which are continuing at low legacy retentions. A firm-wide strategic initiative is currently underway as a part of our practice management initiative to drive conversion of mandates to regular retentions, and we expect this to happen over the next 6 to 9 months.

On the asset management side, our -- while overall net flows have been muted, it is important to note that we have about INR 3,500 crores of planned distributions or redemptions in the quarter. Excluding the same, we saw strong flows across our listed equities and new PE funds with some of our new PE funds going to continue getting and seeing inflows come in over the next few months as well. So we remain very confident on the outlook on asset management.

The continued focus on deepening our channel presence in the domestic market as well as the increased traction from global institutions across different strategies has been quite positive. We understand that the present market cycles remain volatile, but our diversified strategies on alternates across listed, unlisted, credit, real estate and infra allow us to see through these cycles with a far higher resilience than any other player.

On our new businesses and some of the strategic initiatives that we've been speaking about over the last few quarters, I think the first half of the year has been actually very interesting for us. On the domestic front, we have been making continuous progress in sharpening our digital-first HNI proposition. As noted in our previous call, this opens a new segment of approximately 160,000 to 170,000 households in the domestic market. We are excited by the prospect of being able to take our sharp and unique wealth proposition as well as the strength of our current platform to this client segment. The business build-out is progressing well, and we are on track for going to market towards the end of the financial year.

We are also very happy to announce that industry veteran, Satheesh Krishnamurthy has joined us to head this business. Satheesh has been instrumental in developing similar businesses from scratch in his earlier stints with large banks. On our current core wealth business, our focus on expanding beyond the Tier 1 cities in the domestic markets continues. That will further strengthen the UHNI client base as well as continue to support the HNI strategic initiative as we build it out. Also, we see significant opportunities in serving the growing global Indian client segment and are in the process of expanding our platform and proposition for the same. Industry veteran Vikram Malhotra has joined us to build this growth engine and brings a wealth of experience, having built similar driving businesses across diverse geographies, including Singapore, Dubai, London, geographies, which are initially going to be core focus areas for us.

Overall, we are very excited by the strong talent we are attracting across our existing and new businesses, but even more so with our existing seasoned team. It's a very proud thing to say that over 2/3 of our middle and senior leadership have a vintage exceeding 5 years with overall attrition being in low single digits. We continue to be clearly a platform of choice for the best talent in the country, in the wealth and alternates asset management space. So overall, we are excited by what we see in the first half. We recognized the challenge and the uncertainties as well. But we remain positive for the second half as -- and we continue focus on the innovative comprehensiveness, wealth and alternates focused product shelf, also venturing into new areas of growth.

So with that, I'd like to open the session for question and answers, and I'll invite Karan to take the same.

[Operator]

Thank you, Anshuman, and thank you, Karan, for joining us. [Operator Instructions] First in line, we have Prayesh.

[Prayesh Jain, analyst]

Good set of numbers, but just, Karan, there has been a sustained drop on your ARR realizations for the past few quarters. And we have -- earlier when it started, it was mentioned that there are some legacy assets, which were given at low realizations and eventually, it will trend higher with the mix shifting towards newer assets. Then in the last couple of quarters, we've heard that the flows have been lumpy and the benefit of those flows will start flowing through over the next few quarters. But somehow, this trend doesn't seem to be changing and the retentions continue to grow. So how should we look about this in the future going ahead?

[Karan Bhagat, executive]

Thanks, Prayesh. So no, I think you kind of summarized it correct. The assets in some senses are broken up into 2 parts. One are some -- so if you look at the -- we've kind of given a breakup of the INR 62,000 crores, you have around about INR 32,000 crores, which have kind of stabilized at 20, 30 basis points. I think there's a little bit of scope of that also improving. Maybe potentially that will move from 30 to 35 basis points. But otherwise, the INR 32,000 crores is well settled. Now on the remaining INR 30,000 crores, we have 2 breakups. We have INR 10,000 crores on the corporate treasury, which has always continued to be at 5 basis points, 4 basis points.

So that's unlikely to change. Though that AUM pool by itself doesn't increase much. It's always in the region crores of INR 9,000 crores to INR 10,000 crores. And we're really not focusing on corporate treasuries that much. The remaining INR 20,000 crores has near INR 10,000 crores to INR 12,000 crores of flows, which have come through over the last quarter or the last 2-odd quarters, maybe maximum 3 quarters. That essentially has a bit of a lag effect, and that takes around about 2 to 3 quarters to largely move into a normal fee mandate. Typically, our experience is 65% to 70% of that number moves into the fee mandate, 25%, 30% might not actually move in. But 65%, 70% of that would definitely move into the fee mandate with the same ratio of around about 35 basis points.

So actually, the intent of showing the break is the stable state retention is around about 30 to 35 basis points. On the new flows, okay, there's a continuous lag impact. And whenever the flows are slightly larger in terms of percentage terms, they are 4% to 5% of the -- and in this specific case, if you see the first quarter was nearly INR 11,000-odd crores followed by INR 4,000 crores, INR 5,000 crores in this quarter. It is practically close to around about 10% to 15% of the existing AUM. And that has a largish impact on the retention. So our existing AUM on which we are charging fees, was itself in the region of -- outside of the INR 16,000 crores was around about INR 46,000 crores.

So it's effectively adding INR 16,000 on INR 46,000, of which, let's say, INR 10,000, INR 12,000 is not yet fee bearing. So the immediate impact on the quarter looks large. But over the next 2 to 3 quarters, it should normalize as these assets become fee-bearing. Obviously, having said that, if there are a couple of quarters where the incremental AUM is not that large, okay, then automatically, it will also stabilize. If the incremental net flows are very, very large, then again, it can for 1 to quarter show a 1, 2 basis points dip because of the lag effect of the conversion of the new flows into chargeable assets. But I think we've had 2 largish quarters. So I think it's more or less there where it should be. I think the fees will automatically kind of move up without us actually increasing the yields because of the lag effect.

[Prayesh Jain, analyst]

Okay. That helps. Secondly, if I look at your expenses also and expenses have been on the elevated side and relatively higher than what we had earlier guided for. So how should we look at this for, say, this year and next year going forward?

[Karan Bhagat, executive]

I mean that's right. I think expenses are around about 3%, 4% higher, but it's kind of, in some sense -- so from a mindset perspective, I think the firm is looking at a little bit more of a growth bias over the next 3 to 4 years as compared to where we were potentially over the last 12 to 24 months. I think it's fair to say we were looking at the last 2 years is consolidation of our 2 key businesses and segments, which is wealth and alternate asset management. I think over the last 6-odd months, as we've dug deeper, we have much more confidence in our own brand and our ability to reach out to multiple new segments. And we've obviously invested in a whole set of people in building these 3 different segments. So for example, on the high-net-worth space as distinct from the ultra-high-net-worth space. We've now got a team of nearly 35, 40 individuals working very strongly over the last 3 to 6 months to prepare for our launch in April '24.

On the global side, we've added a team of around about 6, 7 individuals. Again, I think by the time we launch that business, it will be between April to September '24. And thirdly, obviously, on the geographical expansion, we've added a lot of -- we've been able to recruit at least 10 to 15 extremely senior recruitments from different banks who joined us on the wealth management side. So I think outside of normal salary increases, I think we've had a fairly interesting expansion of individuals on the platform. We're fairly confident all of these 3 different sets of individuals will deliver the right results over the next 6 to 18 months. And therefore, we feel this 3% to 4% increase in cost to income in some senses is a temporary dislocation. On the core business itself, we've honestly not seen any increase. It continues to be in the region of the 44, 45. I think we've added 3%, 3.5% for these 3 or 4 new growth initiatives, which we believe will play out very well in the next 12 to 24 months.

[Prayesh Jain, analyst]

Karan, on these 3 new business initiatives, the global, will we bring them as separate business units altogether and we could expect some reporting also coming in differently for these entities?

[Karan Bhagat, executive]

Sure, we'll do that except for -- I should kind of -- the geographical expansion piece, obviously will happen much faster because the product, the platform, everything said, is just about getting the right set of people in different locations. So that pretty much kind of happens here and now in the sense over the next 2 to 3 months. In the high-net-worth business and the global business, I would -- high-net-worth business, I would say we would be in a position to start kind of reporting separately from April, which is essentially first quarter of next financial year. And I think the global business maybe potentially a quarter after that because by that time we will go to market for both. I think the high-net-worth business would be around April '24. The global business potentially July '24, worst case September '24.

[Prayesh Jain, analyst]

Just last question from my side. If you have to, say, look at next, say, 3 years' time frame, how would you see the share of the current business, the HNI business and the global business in terms of AUM, revenue and profitability?

[Karan Bhagat, executive]

So this is specific -- okay. So I'm going to exclude the asset management side and try and answer the question. I think if I was to see the existing business, so obviously, the existing business also is going to grow substantially, right? So I think we'll have to kind of balance it with that. But purely in percentage terms, I think the 2 new businesses, which is broadly the global business and the geographical expansions, I think on an incremental basis within the next 3 to 4 years, should allow us to add on about 20% to 30% of what we've kind of already built, not in the sense of today's numbers, but on the expanded base because the existing wealth business itself will also expand quite a bit over the next 3 to 4 years. So I think of that round about 20% to 30% should get added.

[Prayesh Jain, analyst]

From both these regions?

[Karan Bhagat, executive]

Yes.

[Operator]

Next in line, we have Mohit Mangal.

[Mohit Mangal, analyst]

congratulations on achieving INR 2 trillion of ARR AUM. My first question is on profitability. So we -- if I look at first half, we are around INR 367 crores, while we have given a guidance of around INR 800 crores for the entire year. So do you think that, that would be achievable by going by current numbers?

[Karan Bhagat, executive]

So Mohit, I think, honestly, broadly ahead, we feel comfortable with that guidance of INR 800 crores. However, I think we have -- we will end up incurring around about INR 30 crores, INR 40 crores of cost extra for the reasons I just explained. So I think -- but obviously, INR 30 crores, INR 40 crores from a revenue perspective is not a large number, and we would work hard to ensure that we can kind of cover that through a little bit of transaction and brokerage revenue. So all things being equal, we should still aim for that INR 790 crores, INR 800 crores kind of number. But just to kind of give the context right, we'll have to get to the INR 800 crores number with an incremental cost of INR 30 crores to INR 40 crores.

[Mohit Mangal, analyst]

Perfect. I was looking at your net flows. I think if I look at AMC, both private equity and long-short have been giving outflows over the last 2 quarters. This quarter, the number looks a little amplified as well. So what could be the reasons for that? And how do you see that going forward?

[Karan Bhagat, executive]

See, long-short is episodic, we've kind of decided not to continue with that business. So it's a onetime INR 1,600 crores, INR 1,700 crores outflow. Private equity by itself is -- we started the fund raise. So it's broadly going to culminate around February, March. I think we would expect most of the private equity outflows we've seen through this quarter as well as in the last 2 quarters to all come back in quarter 4. So we don't see that as a permanent outflow at all. I think we would be surprised if we don't end up getting higher than what we've seen as outflow in quarter 4.

[Mohit Mangal, analyst]

Okay. Other thing is that if I look at your transactional revenue, it has grown by around 40% sequentially. So any major deals that we have done this quarter, syndication or something? .

[Karan Bhagat, executive]

Nothing major, honestly. I think it is just pretty much part of the normal thing. I think we would have had INR 10 crores, INR 15 crores extra income from a little bit of NSC syndication. But outside of that, nothing really to be amplified or talked about.

[Operator]

Next in line, we have Gaurav [ Jain. ]

[Unknown Analyst]

In the last con call, you highlighted that the secondary liquidity events were on the higher side, and we got a major chunk at 65%, 70% of those money. So just wanted your perspective on how has this quarter been on that regard?

[Karan Bhagat, executive]

It's similar, honestly. I think if you just gross up our flows and redemptions of INR 3,000 crores, INR 3,500 crores on the private equity and the long-short, I think we still ended up getting a very healthy portion of the secondary transaction [indiscernible]. We still would be between the 60% to 70% number. So very happy with that market share participation. As we speak, even in this quarter, there are already 3 or 4 large transactions, and we are pretty much proud of all of them. So overall, we feel comfortable with our ability to be able to access clients with new liquidity events.

[Unknown Analyst]

Great. Second question is on the balance sheet. What is the reason of this borrowings excluding debt securities going up to some INR 1,980-odd crores as on September '23 which was just INR 200 crores as on March '23 and this has also led to finance cost going up and correspondingly, what has gone up is the investment line item. And if you can also help us understand why is this other income not adding up to the investments that we carry. I mean, other income for the half year has been only INR 42 crores versus -- on a INR 4,500 crore investment that we have. So why is the borrowing line item gone up? And why does other income not match to the investments while I understand the investment is in EIF, et cetera. But...

[Karan Bhagat, executive]

So part of the investments are in what is basically a government of India bond. So we have a structured note essentially through which clients get participation to the G-Sec. It allows us to borrow substantially cheaper. For that portion of borrowing, we effectively end up borrowing at sub-8% rates. So effectively, the balance sheet on the investment side gets bloated a bit because of investments on the -- into G-Secs through the CBLO market. But that's really what happens. That's approximately around about INR 1,400 crores, INR 1,500-odd crores.

On the investment book itself, we've broadly got a liquid net worth of round about INR 2,450 crores, of which around about INR 1,400 crores, INR 1,500 crores is in the NBFC, around about INR 900 crores, INR 950 crores is the liquid net worth outside of that. We've got a working capital of approximately, give or take, 25% of our revenues, so approximately INR 350 crores, INR 400 crores, which leaves us with around about INR 500 crores, INR 550 crores. of which we've got INR 75 crores, INR 200 crores in our fixed deposits for the brokerage account. So we've got around about INR 400 crores, INR 450 crores of net cash surplus of -- against the INR 400 crores, INR 450 crores net cash surplus, we've got the investment book. So really, the investment book in some senses gets offset for the borrowing cost. So it adds a relatively lower portion to the other income. So really, the way to look at other income would be on a INR 500 crore investment book, if that makes sense. INR 500 crore investment book plus INR 100 crores of FD.

[Unknown Analyst]

Okay. And anything around this borrowings going up or all of this is just to...

[Karan Bhagat, executive]

So borrowings is effectively against the G-Secs, right? That's -- borrowings is against the S-Secs and the loans. Our loan book has gone up by INR 300 crores, INR 400 crores, and the borrowing is effectively on the same road. There's no real increase in borrowing as such. Sanjay, do you want to comment if I'm missing something?

[Sanjay Wadhwa, executive]

Yes, yes. So you covered it well. So G-Sec and CBLO both are bloating the balance sheet. So one is on the investment side and one is on the borrowing side.

[Karan Bhagat, executive]

Yes. So there is increase in G-Sec of exactly INR 1,100 crores against the CBLO borrowing exactly the same amount.

[Operator]

Next in line, we have Abhijeet.

[Abhijeet Sakhare, analyst]

First question is that there is -- I mean, looking at the results for the past few quarters, you get a sense that the franchise is getting stronger, but there is some sort of normalization because of past money, which is going out. So you've given some sense on the wealth side, but is there a low pipeline on the AMC side given the planned fundraisings?

[Karan Bhagat, executive]

Yes. No, that's a fair question. I think on the private equity side, we had a scheme for special opportunities, which was a fairly large scheme. It was -- at cost close to around about INR 7,500 crores, INR 8,000 crores. And on realization, nearly around about INR 15,000 crores to INR 18,000 crores. The INR 15,000 crores to INR 18,000 crores is obviously kind of getting paid out over the last 2, 2.5 years. But the residual part of the scheme, which is around about INR 6,500 crores of the INR 18,000 crores gets redeemed through the year as we speak. So out of the INR 6,500 crores, you've broadly seen a redemption of INR 1,000 crores earlier in the year and another INR 1,500 crores, INR 1,600 crores now.

So we've seen INR 2,500 crores of the INR 6,500 crores get redeemed. But our new funds kind of got launched now. I think most of the INR 6,500 crores will come back but the scheme will only end in quarter 4. So of the INR 2,500 crores, which has gone back, plus another INR 4,000 crores, which will go back over the next 14 to 15 months. We expect the same amount to come back into the new schemes given the decent performance of the old scheme and initial indications of the launches are also fairly positive. So I think the private equity outflow that you're seeing in the last quarter and this quarter will get more than complemented by the new scheme at the end of the financial year, not in quarter 3, but in quarter 4. The scheme has already launched. They will close by quarter 4 in February thereabouts.

[Abhijeet Sakhare, analyst]

One clarification, Karan, here is that given that the relationships that we have with these clients, people who invested in these funds, that remains alive, but the funds have got redeemed -- so do you really, I mean, need the clients to reallocate those amount of funds or the redemption is sitting somewhere in your books itself that gets redeployed?

[Karan Bhagat, executive]

It would be a combination. I think 55% to 60% would be still sitting on our books. So there are obviously 2 parts, right? There are funds which are distributed by our own distribution business on the wealth management side and other funds which are distributed by external distributors. So if I remember correctly, I might be off by a few percentage points. But if I remember correctly, of the INR 7,500 crores of special opportunities, I think around about 75% was by our own distribution unit and round about 25% by other distributors. So after distribution, 25% to the other distributors, obviously, goes back to the clients and needs to get reallocated. Of the 75%, which has gone to our wealth clients, 65%, 70% would be sitting within the system itself.

[Abhijeet Sakhare, analyst]

Got it. Karan, second question is that on the mid-market piece -- so we don't have good market comparables. But going by the recent disclosures by another firm, this business tends to operate at maybe 60%, 70% sort of cost to income. Is that a fair number to look at? And what would be your, let's say, guidance or, let's say, target where you would like to operate this?

[Karan Bhagat, executive]

A couple of years, 60% to 70% may be fair. But eventually, I think 45-ish is where it should end up, 60%, 70% is too large.

[Abhijeet Sakhare, analyst]

That's only in the initial phase you're seeing.

[Anshuman Maheshwary, executive]

Yes. Yes.

[Abhijeet Sakhare, analyst]

So even the mid-market is -- can operate at the [indiscernible] business?

[Karan Bhagat, executive]

Yes. So we only have to -- we are only going to add distribution costs, right? Everything else for us is already there, whether it's the product, technology. In that sense, every other part of the business outside of distribution, we already kind of get covered. We don't really need to build out absolutely full-fledged teams for product, for advice, for analytics, for compliance, regulatory. It's absolutely -- in that sense, it's a new segment for us. It's not a new business, if that makes sense.

[Abhijeet Sakhare, analyst]

Understood. Just a last final one. How do we look at the impact of mark-to-market on the unlisted side because -- unlisted side of the investment book both on the investments as well as the balance sheet because I think that's not as correlated to what we are seeing in the public market. So fairly difficult to project.

[Karan Bhagat, executive]

On a last 5-year basis, I think it will be close to around about 13% to 16% on the unlisted side. So it will be relatively higher than what we've seen on the listed piece. But you're right. On a quarter-on-quarter basis, it's not that easy to kind of correlate it with the index itself. But for all our unlisted investments, I think broadly, return has been in the region of maybe 13% to 17%. So in that sense, it's paid off well. But quarter-on-quarter, there can be a bit of an aberration compared to the listed markets.

[Operator]

[Operator Instructions] Next in line, we have Dipanjan.

[Dipanjan Ghosh, analyst]

Am I audible?

[Karan Bhagat, executive]

Yes, Dipanjan.

[Dipanjan Ghosh, analyst]

So Karan, just a few questions. First, over the last few quarters, you have mentioned that there are some -- there is a pipeline of institutional mandates that might come in. So I just wanted to get some idea of the traction on that part for the quarter or maybe for the next 9 to 12 months.

Second, on the cost front, again, I mean what proportion of cost do you think has already been absorbed out of fronted. And what can be the recurring cost that can come in this sort of a business going incrementally? You mentioned that 6% to 7% for the initial few years might be a legit guestimate. But I just wanted to get some sense of how do you think of the cost that has been absorbed or in the new cost that might still be incurred in rolling out the team or the tech capabilities, et cetera. And lastly, in terms of your flows on the ARR business, if you can give -- you mentioned that the current quarter is also seeing strong traction. So do you kind of expect to increase your guidance on that, both from, let's say, 2H and FY '25?

[Karan Bhagat, executive]

No. So I think I'll maybe start with the last question first, and then I'll come back to the first 2. I think from a net flows guidance, I think we've given a guidance of somewhere between the INR 35,000 to INR 40,000 crore number. I think that's a fair number. I think that's really where we'll end up for the current year. FY '25 might be higher, but -- it's early days, but I feel confident about a stronger FY '25 on net flows. But for the current financial year, I think that INR 40,000 crore number is broadly in the right ballpark. In terms of expenses itself, I think both from a technology spend as well as the distribution spend perspective, I think we've kind of reached a little bit of a stable cost. I think we will be adding a little bit more on the distribution side of the business, for sure. But obviously, revenues will also start kind of coming in.

I personally feel we have a lot of operating leverage in the business just given our own experience over the last 10, 15 years as well as all the other parts of the business, which are well set up. 60% to 70% is obviously a function of how quickly we are able to scale up. But I would like to believe year 3 onwards, this should be below 50%. But obviously, it's still early days. We've not yet gone to market yet. So we are in some senses right now, more in an expense-bearing mode for the next 6 months as opposed to revenue-booking mode. But I'm fairly confident from April onwards, it will be net -- in some senses it'll be net positive. And we'll see some kind of fruits coming up for our extra 3% to 4% expenses.

On the third question, I think I would like to believe, I think the 3% to 4% is also kind of a temporary dislocation. I think we have some efficiencies in our core business, which over a period of time, we will be able to reduce our costs by 2% to 3%. And eventually, I think over a period of maybe 12 to 18 months, including the new incremental costs, we'll be able to get the cost-to-income ratio down to because as we've kind of obviously recruited a huge number of people over the last 3 to 6 months, there are certain efficiencies, which can be derived in the existing teams and set up itself. And honestly, to adjust that in a quarter or 2 is difficult. But we see a clear road map to be able to get our core business of the ultra-high-net-worth and the alternates down from 45 to maybe 42, 43 and then kind of absorb this extra 3%, 4% on top of that itself.

[Dipanjan Ghosh, analyst]

On the institutional mandates?

[Karan Bhagat, executive]

Yes, sorry, I forgot that. So the institutional mandates is going well. Honestly, I think we have 3, 4 large mandates, of which one mandate has kind of partially already converted this quarter. So I would expect at least a couple of mandates to go through between now to end of March.

[Dipanjan Ghosh, analyst]

Got it. And if I can squeeze in one more question. Your TBR revenues have obviously been quite high, obviously, to some extent, linked to the current market conditions. Any guidance or any sort of visibility that you have for the second half of '24?

[Karan Bhagat, executive]

To be honest, I think TBR revenue will be very comfortable between that at INR 350 crores to INR 450 crore number. That's the ballpark number we are comfortable with for the year. Obviously, if markets are super tepid, it can move towards the INR 350 crores number. If the markets are stable to positive, it can move towards the INR 450 crores number. So that's the broad number we are comfortable with. I think the current year, given the fact that the first 6 months are over and even for the current quarter, we've already been through the first 30, 45 days, I think being closer to that INR 400 crores number -- INR 400-plus crores number seems a fairly comfortable number for the financial year.

[Operator]

[Operator Instructions] Mohit, you raised your hand again, you have a follow-up question?

[Mohit Mangal, analyst]

Yes. So sir, just one thing. So one, I think -- just a couple of questions. So one, I think, we acquired Mumbai Angles around 7 to 8 months back. And I just wanted to know how that is progressing.

[Karan Bhagat, executive]

It is progressing well. Our app has just about got prepared. I think we will launch it maybe end of this month or early next month. And post that, we'll start our distribution efforts there. We're working with the existing team as well as incubating new people. So I think around December, Jan is really when the new version of Mumbai Angels will get launched for us.

[Mohit Mangal, analyst]

All right. Just a follow-up on a previous participant's question on other income. So you said that around INR 42 crores on a INR 500 crore investment would be the right thing to look. But I believe other income is more of an M2M gains and losses on our investments in AIFs. So I think do we had some M2M losses there?

[Karan Bhagat, executive]

No, Mohit, it has to be netted off the interest cost, right. So broadly, what I'm trying to say is around about let's take INR 500 crores. Let's assume you're having INR 60 crores or let's say INR 500 crores to INR 600 crores, I might be off by INR 50 crores, INR 100 crores. INR 500 crores, INR 600 crores is our net investment after working capital. On that INR 600 crores, broadly if we're earning INR 60 crores, it's -- and we are -- investment in our own AIS is around about INR 1,400 crores, INR 1,500 crores. So the remaining INR 800 crores, INR 900 crores also has to be netted off the interest cost. So the other income, INR 60 crores is basically the net income post interest cost.

Yes. Okay. Just to explain again, the interest cost relevant to the investment book is netted of the other income, not part of the NIM. NIM is only the interest costs relevant to NIM.

[Operator]

Next in line, we have Aejas Lakhani.

[Aejas Lakhani, analyst]

Karan, just 2 questions. Could you speak about how the competitive landscape is shaping up? And point number two, could you give some granular color about the mid-market and how is the scale-up going to happen? What are you going to chase first? Is it going to be asset gathering from day 1 or is it -- does the scale require you to sort of develop relations and asset gathering is about granular process in the mid-market. So some color on this.

[Karan Bhagat, executive]

Yes. Sorry, what was the first question?

[Aejas Lakhani, analyst]

On the competitive landscape.

[Karan Bhagat, executive]

The competitive landscape. Yes. So I think on the competitive landscape, obviously, I think it stays the same largely. There are 4 or 5 different pools of competition. Obviously, you have the banks largely kind of -- some of the banks which have an ultra-high-net-worth stroke of wealth kind of offering. There, I think not too much of change, obviously, over the last 12, 18, 24 months. Most of it continues to remain the way it was.

I think second largely is some bit of boutique players. So you've got 3 or 4 boutique players we've kind of -- are kind of relatively aggressive and positively kind of wanting to build a business in the space. There, we continue to see -- it's fair to say, outside of us and One Bank, one of these 4 or 5 players in every mandate. We really don't have a trend yet to say that it's a similar player across every client, but it seems as there's one player across every 4, 5 mandates.

Third, obviously, you've got brokers -- brokerage firms who already got a good client base, trying to kind of upscale to wealth management. And fourthly, you've got a little bit of independent financial advisers and some new boutique setups, which are kind of wanting to set up more as external asset managers. So we will have to -- all of these are in different stages.

From our own competitive positioning perspective, along with one of the bank competitors, we continue to believe that between the 2 of us, we have a large market share. We really haven't seen a big change there. We'll have to wait and see how the global names kind of play out in the country. As of now, the really a little traction there. But we'll have to wait and see whether they want to make a renewed pitch into the country into the business. So right now, I feel fairly relatively sanguine about the competitive landscape. Having said obviously, we need to keep our eyes and ears open. But there's no drastic change in the competitive landscape over the last 3 to 6 months. On the -- does that answer your question?

[Aejas Lakhani, analyst]

Yes, yes.

[Karan Bhagat, executive]

Yes. On the second question around the granular color on high-net-worth, I think you're absolutely right, the asset gathering exercise has to be substantially more granular. And it has to be slightly more segment-driven, okay, as opposed to looking at specific ultra-high-net-worth families and only going after a certain circle of influence. The good news, however, is most every ultra-high-net-worth family of ours would himself or herself be a large circle of influence for a large pool of clients within the high-net-worth space itself.

So if you just look at our existing 5,000 to 6,000 families, they themselves, from a connection perspective, give us access to at least another 40,000, 50,000 families. And obviously, our own coverage to our own other businesses gives us access to another potential 100, 200 connections, therefore, leading to another 3,000, 4,000 families. So I think the initial build-out in year 1 would require -- would see us kind of going out with a lot of our already built connections over the last 12 to 15 years, both from a sales force perspective as well as from a client perspective. Having said that, you are fully right, the product proposition as well as the asset gathering has to be substantially more granular. But in terms of our ability to reach out and our ability to actually access the final client, it's not an absolute short in the cold exercise? We have a very good feel as well as the reach on where exactly we want to head towards.

[Operator]

Next in line, we have [ Bhuvnesh. ]

[Unknown Analyst]

Sir, just a question on the business model. So one of our competitors was talking about, they are having a lot of external RMs where the RMs are not on their payroll. I mean it is purely on variable basis. So -- and they were saying that it is quite workable in international markets as well. So just wanted to understand your thoughts on that, are we looking at that model?

[Karan Bhagat, executive]

No. So I think personally, I have kind of studied that model multiple times over the last 10, 15 years. And my personal view at least is it's too early for us to have external asset managers. I think the market is extremely large. By kind of, in a sense, ending over control of the client to an external asset manager so early in the life cycle, I think it's a bit of a challenge. I think you're losing the lifetime value of the client. I think we have a unique combination of having the right set of relationship managers and a very strong platform for us to be able to reach out to potentially every ultra-high-net-worth family in the country.

So I think for us, we really wouldn't like to believe that we need to take a shortcut to use an external asset manager to reach the client because once you do that, in some senses, you kind of give up control of the client, and therefore give up lifetime value of the client. And given this capability and the brand we've built on the platform, honestly, our ability to access every client either as a service through our advisory platform or sometimes the client's already tied up on a service-based model with somebody else. Get the right endorsed product and finally convert it to service is both there. So honestly, I think given the size of the market and the deep inroads we're going to see over the next decade, we wouldn't really want to get into the external relationship model right away. At some point, we believe that model will come through, but I feel we are nearly a decade away from us from the market being that deep that we need to kind of go into that model.

[Unknown Analyst]

Got it. Got it. And sir, if I look at our discretionary PMS under 361 plus. So that AUM has kind of declined sequentially. Hasn't grown, I mean, much in last couple of quarters. So how do you see that? And what...

[Karan Bhagat, executive]

No. I think that strategy had a couple of large redemptions. But it has done extremely well. It needed a little bit of [indiscernible]. We are very positive on that next year, I think it will add a huge amount of momentum over the next 3 to 4 quarters. It's come up quite well. It's going to be an integral part of our strategy.

[Unknown Analyst]

Right. And you -- I think in the press release, you mentioned that you are strengthening that advisory proposition. So particular steps so you can outline?

[Karan Bhagat, executive]

It's really a large learning exercise, right, because it's in some senses, 9 quarters old, so it sounds old, but in reality, it's 2.5 years old. So we've also gone through our own learnings. But I personally feel what we've built on the advisory and the discretionary PMS side as well as on the RIA platform really normally in the country is built out and that distinctive edge is available for the client to see as and when we go out and meet our clients. And it's kind of shown to a certain extent in the INR 30,000 crores, INR 35,000 crores of fee-bearing assets we have.

Given where we are in the platform, it's just not impossible to believe that number. The first 1/3 can take some time to come. But for the first 1/2 to become 1 whole may not take that long because once the INR 30,000, INR 35,000 crores is established, the operating leverage on that platform becomes very large because unlike the wealth distribution business that piece has a huge amount of operating leverage pretty much like any other asset management business. So I'm quite confident the ability to scale that INR 30,000 crores, INR 35,000 crores quickly will be substantially larger as compared to wealth management distribution model.

[Unknown Analyst]

Got it. Okay. And sir, in terms of yield, so I couldn't understand clearly what was the steady-state yield you mentioned...

[Karan Bhagat, executive]

Nondiscretionary advisory side, around about 30 to 35 basis points, discretionary side but 50 to 55. I know the numbers are 5 basis points lower than what I'm saying, but I think it's stabilized at the 35 to -- 30 to 35 basis points on the nondiscretionary and 45 to 50 basis points or 55 basis points on the discretionary.

[Unknown Analyst]

55 basis points on discretionary, okay.

[Karan Bhagat, executive]

50 to 55, yes.

[Operator]

We have one last follow-up question from Prayesh Jain.

[Prayesh Jain, analyst]

This is a very broad question, Karan. There has been a lot of trend changing in the way people are investing today. And we've seen a lot of global investing happening, global citizenships that people are talking about. So how much are -- and especially, we've heard about this in the ultra-HNI families and they want dual citizenship in geographies like Portugal and these geographies. So how much are we playing a role out there? And anything that can be meaningful here?

[Karan Bhagat, executive]

Honestly, we don't play a role in facilitation of individuals kind of relocating or something like that. That's really -- that's not something which we play a role in. But if people do have one family members becoming an NRI, in that sense, they are able to able to remit a little bit more money because current income comes without the cap of $1 million, which is available for an NRI. So dividends net and interest in that sense can be additionally moved out over above the capital amount of $1 million available for NRIs.

I think that's really where we've seen pretty much maybe in the super-ultra-net-worth space, a few families have one family member move out maybe to Dubai, Singapore, London and so on and so forth. In which case, obviously, even then, 90% to 95% of their assets have to remain in India because you really can't move capital. 5% to 10% over a period of time can move to -- move outside India. And that's really where I think our desire to set up a global platform comes in because we already own the relationship with the client, and he sees us as a trusted adviser. So there's no reason for us to lose that 5%, 10% wallet share also as it goes outside. Though, we may not have the full fledged platform to service them like a private bank, but definitely he would want us to use -- want to use us as an adviser.

And it's to ensure that we are able to continue to capture that 5% to 10% market share is really where you're seeing us also build out a global platform over the last couple of months, we've had a very experienced team. And hopefully, by September of next year, maximum, we would have a comprehensive advisory global platform set up.

[Prayesh Jain, analyst]

The next piece is on the transaction revenues, which have kind of...

[Karan Bhagat, executive]

Can you speak a little louder, Prayesh?

[Prayesh Jain, analyst]

Yes, it this better?

[Operator]

Yes.

[Prayesh Jain, analyst]

Transaction revenues on the wealth side have seen possibly one of the highest numbers in the past many quarters. Any thoughts there as to how should we look at it because in the past, you had mentioned that transaction is something that you wouldn't want to be the highest of your part. So how should we think about this, say, from a medium-term perspective?

[Karan Bhagat, executive]

So I think, as I said earlier, I think that INR 400 crores, INR 450 crores is the number we are comfortable with. I think on a stress case basis around about INR 350 crores. See, the not so exciting part of the transaction revenue is the fact there is not -- it doesn't have a mark-to-market element. It's not -- doesn't scale up in the same way as the ARR revenue scales up, right? So I think that's the portion of the -- otherwise, we like transaction revenues, there's no harm in it. The only problem is the scale-up on transaction brokerage revenues is not equal to the ARR revenue, right? Because the ARR revenue kind of start -- you don't have to start the treadmill again. It's already all set. And we also benefit from the mark-to-market increase in wallet share as well as expansion of the of the clients' wealth itself. So I think I would be surprised if the number is below INR 350 crores, INR 400 crores at any point in time.

And as our ARR revenues increase, the percentage of TBR will automatically come down. I don't think so TBR is going to come down because we start booking lesser transaction revenue. It's going to come down as a percentage, purely on account of the fact that our ARR revenues will keep increasing in a higher absolute form as compared to the TBR revenue.

[Prayesh Jain, analyst]

And what would the share of equity brokerage in our transaction revenues in this quarter?

[Karan Bhagat, executive]

Approximately INR 1,400 crores to INR 1,500 crores a quarter for us. Well, equity brokerage is a relatively small portion. It's around about INR 60 crores out of the INR 400 crores for the year.

[Prayesh Jain, analyst]

Yes. So the NSE -- parkings of something stocks like NSE and all, would also be -- that be a part of it?

[Karan Bhagat, executive]

Yes. All will be part of transaction. .

[Prayesh Jain, analyst]

And how much would -- that would have been in this year or half year?

[Karan Bhagat, executive]

It would be around about 25 to -- INR 30 crores to INR 35 crores, yes.

[Operator]

I think that's all we have time for. Thank you, and that brings us to the end of this conference. Thank you all for joining us, and look forward to hosting you next quarter. Wish you and your families a very happy Diwali in advance. Thank you.

[Karan Bhagat, executive]

Thank you. Happy Diwali, everybody. Thank you.