360 One Wam Ltd

NSE:360ONE

Earnings Call Transcript 2024-Q4

[Anil Mascarenhas, executive]

Good afternoon, ladies and gentlemen, and welcome to 360 ONE WAM's Q4 FY '24 Earnings Call. [Operator Instructions] Please note that 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 Mr. Sanjay Wadhwa to take this conference ahead. Thank you.

[Sanjay Wadhwa, executive]

Thank you, Anil, and a very good afternoon to everybody on the call today. Indian equities witnessed one of the most upbeat market cycle, supported by a robust economic momentum, financialization of assets and global flows. Strong GDP growth and capital markets expansion is accelerating the pace of wealth creation in India.

As per industry and our own estimates, the financial assets of ultra-high networth households are anywhere between $915 billion to $935 billion and that of HNI households are anywhere between USD 230 billion to USD 240 billion. We expect them to grow at 13% to 14% CAGR over the next 3 to 4 years.

Overall, we believe India's wealth and asset management sector is poised for a structural growth phase in coming years, supported by faster wealth creation and overall low penetration.

Now coming to our business. The growth in our client base has been very healthy for FY '24. For this year, we have onboarded over 400 new clients with INR 10-plus crores of ARR AUM. Clients having total AUM of INR 10 crores-plus stood at 2,750 and account for 93% of wealth AUM, excluding custody.

During FY '24 at partner and above level, 35-plus new hires have been onboarded in the wealth and sales teams, allowing us to significantly expand our market coverage and penetration. Before we deep dive into financials, we would like to highlight that the Board has approved a first interim dividend of INR 3.5 per share for FY '25.

Coming to the business and financial numbers. In line with our focus on ARR assets, total ARR AUM increased to INR 227,000 crores, up 36.3% Y-o-Y. This growth was driven by strong net flows at INR 26,915 crores during the year.

Further, the overall active ARR AUM stood at INR 199,000 crores. Our wealth ARR AUM stood at INR 155,000 crores, up 43% year-on-year, while AMC ARR AUM stood at INR 72,248 crores, up 24% year-on-year.

Our ARR revenues for the full year grew by 13.6% Y-o-Y at INR 1,331 crores, led by growth in assets across business segments and healthy retentions in active ARR AUM. Our ARR revenues as a percentage of total revenues from operations stood at 72%.

As mentioned in our previous calls, our focus continues to increase this pie of ARR revenues. Total revenue from operations was up 17.9% Y-o-Y at INR 1,846 crores for FY '24. The year also witnessed higher transaction and brokerage income, mainly driven by opportunities in the private markets.

Our large UHNI client base allows us to capitalize on such opportunities, creating value for our clients and the firm. Total revenues are up 25.3% Y-o-Y at INR 1,965 crores for FY '24, also supported by higher other income.

Total costs are up 33% Y-o-Y at INR 956 crores in FY '24 due to addition of multiple large teams in the wealth segments and investment in HNI and Global Business segments. The employee costs rose by 36.3% Y-o-Y on account of additional headcount, including certain senior-level hires.

The overall cost-to-income ratio stood at 48.7%. We expect this to gradually settle down over the next few quarters as the new business initiatives and the new team starts generating revenues. The overall cost-to-income ratio without the expense attributable to the new initiatives was 44.4%.

We are very happy to report our highest ever PAT on both quarter and full year basis. Q4 PAT stood at INR 241 crores, while the full year PAT stood at INR 802 crores. Tangible ROE is at 30.1% in FY '24 as against 26.7% in FY '23.

Importantly, our tangible ROE, which is ROE, excluding goodwill and intangibles, was robust 30.1% for the quarter. This is a result of prudent capital management and regular dividend payouts.

With that, I would like to hand it over to Anshuman to cover key business and strategic highlights.

[Anshuman Maheshwary, executive]

Thanks, Sanjay, and good afternoon, everyone. As covered by Sanjay in his initial comments on the industry, we are confident about the significant opportunity for Indian wealth and asset managers.

India witnessed more than 150-plus OFS or IPOs and 600-plus stake sales in FY '24, unlocking approximately USD 27 billion in value. While the data from the top 50 cities suggests, there are over 150,000 folios with ticket size more than INR 1 crores.

Robust growth of 12% to 15% plus CAGR and high-ticket financial asset classes such as AIF, PMS and unlisted equity further strengthens this thesis. Annual growth projection of 13% to 15% over the next 3 to 5 years for ultra HNI and HNI clients in India indicates a higher level of wealth creation in these segments as compared to the average economic growth estimates.

As a firm, we have always believed in defining sharp strategic focus areas, creating deep competitive moats and giving disproportionate attention to execution. This has allowed us to take the right capital allocation decisions, significantly invest in talent, platform and technology and drive innovation on products and proposition.

We believe we are even better positioned today to sustain all of this while scaling up to meet the requirements of larger client segments and new business engines. While our financial performance for the year remains extremely strong, I'm taking this opportunity to present our performance across the overarching strategic themes we have defined for ourselves 4 years ago as well as our key strategic agenda for the next few years.

Firstly, 360 ONE pioneered the recurring revenue business model with the transition transforming us into a far more resilient business model, both from a client and a shareholder perspective. Our ARR AUM stands at upwards of INR 225,000 crores from a base of INR 62,000 crores 4 years ago.

Further, our active ARR is at about INR 200,000 crores, which is 88% of our total ARR AUM and operates at healthy yields of 77 basis points. Total growth in active ARR AUM over the last year has been close to INR 50,000 crores, and we believe this momentum can be sustained through the coming few years.

Secondly, we had identified 2 growth business segments, the advisory proposition for our wealth clients and the alternate-focused AMC business. AUMs for both these strategic thrust areas have increased by 3.5x to 4x over the last 4 years for us and today are at about INR 72,000 crores each.

We today have the most comprehensive advisory proposition covering discretionary and nondiscretionary mandates and includes areas of family office, tax and estate planning. On the AMC front, apart from listed equities, we have the largest and scale offering of alternate strategies which covers seed to pre-IPO, credit, real estate and infrastructure.

Going forward, we see a strategic thrust on 4 key areas: firstly, geographic deepening for our core UHNI wealth clients; second, extending our core to be the wealth manager of choice for the HNI segment; third, building a robust proposition for the global Indian; and fourth, driving growth in our asset management business through expansion in institutional relationships as well as new fund strategies.

The third strategic thrust area that we had called out was our focus on cost and capital efficiency. Our business, as usual, cost to income, as Sanjay shared earlier, has come down to 44.4% for FY '24, with an additional 400 basis points for investments in new growth engines. With the new business areas starting to accrue revenues, we would expect our overall cost to income to also reduce to the 44% level over the next 2 to 3 years.

On capital efficiency, our tangible ROE has moved from 7.7% to 30% over the last 4 years. This has been as a result of a prudent release of additional capital as well as a continued dividend distribution approach. We expect this ROE to sustain while we continue to invest in future growth areas.

Lastly, we have sustained our position as being the employer of choice for our business areas. This is specifically evidenced by the addition of significant number of senior private bankers as well as the deep experience in investment professionals we have added over the last 12 to 24 months. Our employee retention also continues to be industry-leading with voluntary attrition at only 5.4% for FY '24.

We will continue to selectively add talent in specific business growth areas as well as maintain our strategic focus on technology and data. Additionally, we continue to take pride in the external recognitions received by our wealth and asset management businesses.

We are very proud to be awarded the Best Private Banker at both Euromoney and Asian Private Bank for the last year.

Lastly, we are very excited by the pathbreaking work being done by the 360 ONE Foundation. Over the last few years, we have transformed the traditional grant giving to a catalytic approach towards CSR, leveraging outcome-based and blended financing to unlock additional pools of capital and drive exponential impact for the end beneficiaries.

We look forward to sharing more on the foundation work over the course of the year. With that, I would like to hand over to Karan for his comments and then open the session for Q&A.

[Karan Bhagat, executive]

Thank you, Sanjay. Thank you, Anshuman. Good afternoon, everybody. Before we kind of get into question-and-answers, I'll take 2 minutes to potentially ask -- kind of summarize what the last year has been for us.

For me, last year, obviously, it's been a good year, but most importantly for us, it has been a year where we've seen a combination of growth and consolidation. And both of those words are very, very important for us. From a growth perspective, we've seen our ability to digress into 3 new areas.

First, we've established and set up our team and technology for the mid-market business and the high networth business. Secondly, we recruited an excellent team to set up our global platform. And thirdly and most importantly, we've been able to expand our sales force on the ultra-high networth side, especially with a focus to increase our geographical spread.

As we go forward, we are sure these 3 levers and 3 initiatives, though they have a short-term impact on cost, will lead to the right set of results over a period of 2 to 3 years. I think the expansion on the local and the geographical areas will start paying dividends over an 18-month period itself.

The global business and the mid-market business over a 24- to 30-month period will start becoming profitable and paying the right set of dividends. As we look back at the last year and look at these 3 components, each of these have contributed approximately INR 25 crores to INR 30 crores of cost incrementally to us over the last 12 months, adding to around about INR 80 crores to INR 90 crores of cost over the last 12-odd months, leading to approximately 4%, 4.5% increase on cost-to-income ratios.

But for us, that's really an increase -- this is really an investment for increasing and consolidating our core position across these 3 businesses.

Second is this entire -- our entire focus on consolidation. And when I say consolidation, it's very important to continuously improve the quality of our new -- quality of our core business, both on the ultra-high networth wealth management side as well as on the asset management side. On the ultra networth high asset wealth management side, we've really spent a lot of time over the last 6 to 9 months on improving the quality of business. And therefore, we've kind of internally divided our active ARR AUM into active and passive. And as we speak every day, we are undergoing a transformation to ensure that the clients who are embodied with us, either on 360 ONE plus, either on discretionary, nondiscretionary or advisory are onboarded on the right platform with the right fee structure.

And as we go through that change, we expect a little bit of turbulence on our inactive ARR and some clients potentially moving from inactive to potentially a distribution model. But overall, we expect most of our clients to move from inactive to active and very soon, most of that portfolio will get consolidated in the right manner.

And as we go forward, I think the ability -- the way we are looking at it is our active ARR, will effectively in some ways, be like the equity AUM of any asset management firm, where we are charging AUM-based fees. And the passive ARR will be more like practically passive ETFs and so on and so forth, which at a point in time, will move on to the active bucket.

So I think our focus will continuously be on the consolidation on the ultra-high networth side to increase the number of families as well as ensure that our segmentation and engagement with the level with the client is absolutely on the right side.

On the asset management side, while the net flow number for the year is a muted number, it has to be -- it's a very exciting year for us on the asset management side. In 2018-'19, we've kind of raised our first private equity funds, and we were both lucky, fortunate as well as we had a good idea. We have raised a large amount of money at that point of time.

In that 1 year itself, we had raised close to around about $700 million, $750 million in our pre-IPO funds Series 1 to 7, all of that has come up for redemption. And that's pretty much had been the start of our alternates business in some way or the other. All of that came up for redemption over the last 1 year and potentially a little bit is left over the next 6-odd months.

We've actually had a very good year in alternates in terms of gross sales. We've had nearly close to around about INR 6,500 crore to INR 6,700 crores of gross sales on alternates, which, in some ways, is got set off by this onetime activity of a block of funds getting redeemed this year. It's unlikely to continue ever again. Over the next 6, 8 months, we'll have a little bit INR 15,000 crores, INR 1,500 crores.

After that, all redemptions are pretty much on an equated basis and part of regular business over the next 5 to 10 years. So both on the asset management side and the wealth management side, I think it's also a period of consolidation for us.

We are fairly excited to have added a net flow number of INR 5,800 crores, INR 5,900 crores on the active side. And while we continue to see a little bit of plus and minus on the inactive ARR AUM, we are fairly confident we'll be able to add around about INR 15,000 crores to INR 20,000 crores on a yearly basis on the active ARR AUM side.

And that aided together with the mark-to-market will effectively help us increase our ARR AUM base on the wealth management side.

So with that, I've kind of covered the 2 main kind of thoughts on growth and consolidation. I think for us, it is backed -- this year has been backed by a huge stability of revenues and obviously aided by a little bit of increase in capital market activity, which has led us to have an increased, maybe INR 100 crores, INR 150 crores of transaction income extra as compared to what we would have every year.

So overall, I would kind of like to put on '23, '24 as a year of growth and consolidation across businesses with stability of revenues, a very strong focused strategy and incrementally, aided by a little bit of activity, incremental activity on the capital markets side.

Thank you. With this, we'll open it up for question-and-answers.

[Anil Mascarenhas, executive]

Thank you, Karan. We now open up for Q&A. [Operator Instructions] First in line, we have Mohit Mangal.

[Mohit Mangal, analyst]

Congratulations on excellent set of numbers. So to start off with, so nonrecurring revenue was unusually high in Q4. So what are the major reasons driving that?

[Karan Bhagat, executive]

I think we had 3 or 4 transactions. We had a large block of placement of National Stock Exchange shares, which has essentially led to around about INR 50 crore to INR 60 crore incremental -- sorry, INR 75 crores to INR 80 crores incremental transaction and brokerage revenue. And we also had another placement of shares, which effectively led to another INR 30 crores to INR 40 crores. So that was the incremental INR 100 crore, INR 110 crores which got added in the last quarter. And otherwise, of the INR 216-odd crores, INR 115 crores, INR 120 crores was business as normal. The -- another INR 100-odd crores -- INR 95 crores to INR 100 crores was extra transaction brokerage revenue in the last quarter.

[Mohit Mangal, analyst]

Right. Got it. So flows-wise, you said that the AMC had witnessed some outflows and then that was kind of expected. But 360 ONE also this quarter saw some outflows. I mean any color on that?

[Karan Bhagat, executive]

So I think overall, the active flows are better. It's around about INR 5,850 crores for the current quarter. On the overall ARR AUM, we've kind of gone back to most of our large clients and especially clients who had some bit of monetizations over the last 12, 18 months to either move into our advisory fee structure at the right fees or effectively kind of get remapped back as distribution clients. So really, those assets are not in some ways, lost in the system. They really kind of moved out from the advisory side to the TBR side.

[Mohit Mangal, analyst]

All right. So now that we have completed the year with INR 800 crores PAT, as you had guided earlier. So now going over the next 2 to 3 years, if you could give some guidance as to how should we see the business and even in the other flow side as well, that would be great?

[Karan Bhagat, executive]

No, so I think from a guidance perspective, I think broadly speaking, we expect to add round about 12% to 15% of our ARR active net flows, and that's important. I think we would like to kind of focus on that number. So our current numbers, obviously, INR 200,000 crores of active ARR AUM because that is a clean translation into a retention of 68, 70 basis points and therefore, the clean translation into the ARR revenue. .

So the active ARR, we would definitely want to grow it at a number of 20% to 25%. Obviously, that includes the mark-to-market element. So if you kind of take a normalized mark-to-market of around about 8% to 9%, I think the remaining 15%, 17% we would like to add from net flows every year.

[Mohit Mangal, analyst]

All right. And on the profitability side for the next 2 years?

[Karan Bhagat, executive]

I think from a cost perspective, I think last year has been an interesting year for more regions than one. I think 2 things have happened. I think as I said earlier, I think there's an incremental investment of round about INR 90-odd crores in the 3 new businesses we started.

Of the INR 90 crores round about INR 20 crores is onetime because they are sign-on bonuses and so on and so forth to a large kind of team coming in. INR 70 crores is obviously kind of continuing -- going to continue as business cost for these businesses over the next 2, 3 years. From a salary cost perspective and an employee cost perspective, I expect broadly round about a 4% to 5% kind of maybe potentially increase next year on the full block because we are obviously going to have a little bit of efficiency improvement over the last -- over the next 12-odd months.

We'll have -- we'll obviously have a salary hike for the existing set of members. Plus, we obviously were kind of not going to have the INR 20 crores, INR 25 crores onetime bonuses paid to these 3 teams over the last 1 year. I think admin and tech cost approximately, we'll see a broad increase of round about 10% to 12%, largely driven by tech and marketing.

Those are the 2 aspects where we'll kind of end up investing a little bit. So if I look at cost itself, you broadly got a cost of round about INR 955 crores, INR 960 crores for the current year. Of that, you take out INR 20 crores, INR 25 crores, which is kind of exceptional. And I think from there on, you should have an increase of around about 7% to 8% in terms of cost. So I would expect the cost to, on a gross overall basis increase, by 5% to 6%, but that would actually translate to an 8% to 10% cost increase after removing the onetime exceptional items.

[Mohit Mangal, analyst]

All right. And basically, the newer businesses, the HNI and the international would constitute about around 10% to 15% of the total over the next 2 to 3 years?

[Karan Bhagat, executive]

Over the next 3 years, yes. Not over the course of the current financial year. In the current financial year, definitely, the mid-market business will start getting us revenues. The global business, we will be launching on 1st October.

So I think the revenue contribution of that business for the current financial year will not be large. But it'll start from October. I think the mid-market business should be approximately, for the current year, maybe 2%, 2.5% of our overall revenues. And that number would steadily move to around about from 2.5% to 10-odd percent over the next 3 years.

So from a profitability perspective, I think there are a lot of different set of variables, but I think we'll kind of continue to keep retentions tight, grow the AUM at the number I spoke about earlier. The transaction brokerage income, I see it more or less in a steady course and causing kind of moderated increase between 6% to 8%. So that's broadly 6% to 8% at the headline level, but at the base level, around about 9% to 10%. So I think that's the combination, which will lead to the profitability growth.

[Anil Mascarenhas, executive]

Next in the line, we have Jayant Kharote.

[Jayant Kharote, analyst]

Congratulations for a great set of numbers. So Karan, just picking your brains on the INR 15,000 crore to INR 20,000 crore active ARR AUM guidance that you mentioned. First of all, last couple of years, it seems we've been adding in that range of INR 18,000-odd crore on the active ARR AUM in the wealth side, excluding the AMC business. So what makes you -- I mean, isn't this guidance a bit conservative given that we've -- the base has grown up quite a bit or almost doubled in the past 3 years, client base has also expanded. So how are you thinking about it?

[Karan Bhagat, executive]

No, I think from an AUM-based perspective right now, obviously, our guidance is we've not fully factored in our mid-market and global businesses. I think that should kind of at its own levers over the next 2 to 3 years. And also the geographical expansion should come through in a more measured way. I think you're right, the number of families also. We had a good year last year.

We've kind of had 400, 425 families, which have incrementally added a minimum of INR 10 crores with us. So I think, honestly, numbers may look better, but on a steady-state basis, assuming tougher capital markets for the -- for some time during the next 3, 4 years. I think if I take an average over a 3-, 4-year, 5-year time period, I think a net flow growth of around about 15% to 20% is broadly where I would feel very, very comfortable with.

Obviously, if we end up doing substantially higher, it would be great. But I think a 15% kind of growth in net flows would be great. Obviously, you've got a certain addition which will also kind of come through on the mark-to-market side. And obviously, if you can get a little bit of operating leverage on cost, it kind of leads to a fairly healthy growth on profitability. But we will have levers like you're rightly pointing out to maybe potentially do slightly better.

[Jayant Kharote, analyst]

And if I could just squeeze in one more question. How do you think about the yields right now? You've had a very strong quarter this quarter on AIF, PMS in the managed accounts. So can this momentum be sustained? Is this pocket that you identified for this quarter?

[Karan Bhagat, executive]

Net on the yields, honestly. I think the yields are fine. I think you might see a little bit of distortion on the inactive ARR AUM as we kind of request clients to decide their engagement with us, whether they want to be advisory and discretionary clients or they want to be distribution clients.

So I don't see a massive distortion in yields. We're unlikely to onboard advisory clients and nondiscretionary or discretionary clients for 5, 10 basis points. We may rather have them as distribution clients rather than advisory clients at 5, 10 basis points.

So that might lead to a little bit of volatility in the inactive ARR AUM inflows. But I think otherwise, on the active ARR flows, which I'm kind of forecasting to grow at that percentage. I think yields will not be a big challenge.

I think the mix of the revenue on the yields is important. I think, for us to continuously maintain our 68, 70 basis points, we need to have a good diversified base of clients. We can't have only large clients about 30 million, 40 million, the deals kind of start going slightly lower. The engagement has to be slightly more discretionary as compared to only purely advisory and nondiscretionary. And third, obviously, the NIM, the net interest margin, should be around about less than 20% or the maximum, 21%, 22% of the overall revenue.

I think if I combine all of these 3, I think our retentions and our yields will be in the continued region between that 68 to 72 basis points that I'm kind of comfortable with. And I think on the TBR side, also, that broad number between INR 350 crores, INR 400 crores to INR 550 crores, INR 600 crores is this what we'll kind of end up with depending on how the capital markets are looking every year.

[Anil Mascarenhas, executive]

Next in line, we have Prayesh Jain.

[Prayesh Jain, analyst]

Congrats on a great set of numbers. Firstly, on the transaction bit, you mentioned that you would want to maintain the rate. So should we look at the annual rate to be maintained or this was an exceptional quarter and we should strip out that and look at our current rate, which is more of a 9-monthly and rate that we had seen that to be maintained?

Because for some time, we've been mentioning about transaction revenues to be -- I'm happy that we were still getting good volumes from there. But eventually, how do we look at the mix between transaction and ARR? Whether we go back to increasing ARR trajectory or it's -- that would be my first question.

[Karan Bhagat, executive]

No, so I can obviously tell you how I look at the business, and that can kind of give you a bit of a perspective. But I think for us, honestly, I think the way we look at the business is it's active ARR AUM multiplied by the retention. That's pretty much the first parameter. So just to kind of maybe break up last year's numbers and kind of explain it to you.

I think last year closing ARR number is around about INR 2 lakh crores. I think our average -- I might be off a little bit here or there, but our average ARR AUM for the last year would be around about, give or take, INR 1,80,000 crores, INR 1,85,000 crores, which would have a retention of 71, 72 basis points, leaving us with ARR revenue of around about INR 1,320 crores, INR 1,330 crores for one, I think it's INR 1,340 crores for last year.

So that's the first component. And what can this 2 lakh number grow to next year is the most important because that has the highest amount of operating leverage and also has a little bit of a mark-to-market element, which keeps this INR 2 lakh crores growing.

So the first line item really to look at is this INR 2 lakh crores and 70 basis points, which becomes the starting ARR revenue for us for, let's say, 1st April FY '24 onwards. Then obviously, we had the transaction and brokerage income, which now we've been seeing different set of markets from 2016-'17 all the way to now.

I think it's fair to say that at our current base, current set of clients, current set of transactions across fixed income, listed equity, unlisted equity, everything put together, I think INR 85 crore, INR 90 crore number on a quarterly basis is pretty much the base.

Typically, it can get pushed to INR 125 crores to INR 150 crores on the higher side. So I think the way I would look at transaction brokerage revenue is any number between 400 to 600. It's a little bit of a function of the markets. So I think that's the way to kind of look at that.

And then obviously, we had the INR 60 crores to INR 100 crores of other income. So these are the 3 components of the business. So effectively, the ARR AUM into the yield plus the transaction and brokerage revenue plus the other income.

[Prayesh Jain, analyst]

Yes. That's pretty helpful. Secondly, just looking at the cost of the variable base significantly jumped up in this quarter. And was there any linkage to the transaction jump? And secondly, even on the admin cost, we have seen a sharp jump. Now if I divide the admin cost as a percentage of your ARR AUM that would really be very high. So how do we kind of see that? Is there any one-offs in those numbers?

[Karan Bhagat, executive]

Yes, so I think on the employee cost, like I pointed out before, there is around about -- the incremental bonuses kind of broken up into 2 parts. The first portion of half of it is really a function of the increase in transaction revenue. So it's kind of directly proportionate to that.

I think around about INR 100 crore increase in transaction revenue -- extra transaction revenue adds around about INR 17 crores, INR 18 crores of bonus extra, so it's around about 17% to 18% is that addition.

Of the INR 23 crores, INR 24 crores of sign-on bonuses for new joiners, we've got around about INR 11 crores, INR 12 crores coming through in this quarter. So I think those are the 2 one-offs in Q4, which has led to an increase in the bonus.

On the admin cost, I think we've added a little bit of incremental spend on legal, marketing and tech. I think on the tech side, we've kind of accelerated a little bit of the spend on the mid-market side. So it's unlikely to repeat in every quarter.

But I think directionally, I think marketing and tech will be slightly higher. So what we've seen typically INR 60 crores a quarter over the last 2 quarters and potentially around about INR 57 crores, INR 58 crores on the quarters prior to that, I think over the next couple of years, we'll head towards the INR 70 crore number and then consequently towards the INR 75 crore number. So I think from an admin and all other costs put together, rent and so on and so forth, I would be comfortable around that INR 70 crore number with an incremental bias towards marketing and technology.

[Prayesh Jain, analyst]

And another question is on the retentions, while you mentioned the retentions are broadly okay-ish. Now one piece I've been asking every quarter, I think is on the nondiscretionary element of 360 ONE plus, which is still at 17 basis points for the past 3 quarters. And when do we seek a recovery there? And secondly, there is the lending book which has also seen a dip in the net interest margin at around 5.16 as compared to 5.75 in the previous quarter. What drove that and how do we see it next year?

[Karan Bhagat, executive]

So I think the active -- on the nondiscretionary side, I would kind of encourage you to try and look at the active ARR. I think that's where the retentions would kind of come through. And I think as we make it sharper and sharper over the next 2, 3 quarters and kind of bridge the divide between active and inactive fully. And I think we will see a retention between the 30 to 35 basis points, I think, currently closer to the 20 to 29 basis points, I think, we'll move that towards the 30, 35 basis points. On the second question on -- sorry, what was the second question?

[Prayesh Jain, analyst]

Lending book.

[Karan Bhagat, executive]

Yes, lending book. Yes, lending book, obviously, we saw a slight spike in lending costs in quarter 4. Nearly 60%, 70% of that is passed on, but it's passed on effective 1st April. We typically don't do in the -- don't do it in the middle of the quarter. We wait for the quarter to end to pass it on to clients. So it's not something which is kind of not normal. I think we'll be back to more or less similar spreads because the cost of borrowing, generally speaking, has also kind of come down back again substantially over what it was in February and March. And we've also done a small public issue in the month of January. So we had some money unutilized also for 30 to 45 days, which has also kind of led to a little bit of a spike in cost.

[Prayesh Jain, analyst]

Got that. Got that. And last question, the global business and the mid-market segment, you mentioned that they would be scaling up, say, in 18, 20 months, contributing 18, 20 months and possibly breakeven in about -- or start giving some profits in around 30 months onwards, right? But from my side to look at it from a 5-year perspective, rather than just looking at a 2-year or a 3-year perspective, would you say that the ultra HNI would be -- ultra HNI segment will be somewhere around 60% and these 2 would be contributing 20% each and that would be in the top line? And would that also mean that the profitability mix of these will also be similar or would it be different?

[Karan Bhagat, executive]

I think profitability will be slightly different. I'm comfortable with your headline number of 60, 20, 20, maybe 65, 20, 15 may be better represented, but it's broadly in the right range, let's put it this way. I'm not quite exactly sure on the exact percentages, but I think it's fair to say around about 2/3 of the business would still continue to come from the 2 existing businesses we have, which is the ultra-high networth and the asset management businesses.

I think around about 25% to 30% could potentially come out of these 2 businesses with a slightly larger bias to the mid-market business. So I think if I look at the overall whole business, excluding asset -- including asset management, I think Global will end up being around about 8% to 10% of the business, mid-market around about 15% or -- to 17% of the business.

[Anil Mascarenhas, executive]

[Operator Instructions] Next in line, we have [ Anirudh Agarwal ].

[Unknown Analyst]

Congrats on a great set of results. First question, Karan, was on the flows guidance of INR 15,000 crores, INR 20,000 crores. How do you think about the mix of these flows going ahead, right? So I mean, last year, we've seen that a large part of the flows essentially came in the advisory business, which has its own implications on and so on. And distribution seem to be slightly weaker after a while. So any thoughts on how you think about that?

[Karan Bhagat, executive]

I think that's a great question. I think, honestly, the mix of that INR 20,000 crores will finally dictate the yield. So I think on an ideal basis, as I said earlier, I think having a slightly bigger bias to discretionary and alternates, those 2 obviously will have the highest yield, followed by the public markets and then followed by our advisory. So I think that's the broad descending order of retentions.

So I think for our INR 20,000 crores to maintain the right retention, we have to have the right mix of all the 4. And we are quite happy with our discretionary the way it's kind of panned out for the last 12 to 18 months. Even there, though we report everything under active, we've had our own set of consolidation points.

We had a couple of clients. We had one client with nearly INR 1,300 crores with a very, very low yield which we've kind of gotten down to around about now close to INR 400-odd crores. So his INR 1,000 crores of redemption is actually kind of knocking off INR 1,000 crores of new flows in that segment. But we're quite excited about our discretionary piece, I think it's coming out very well.

Performance is extremely good. Our relationship managers are fairly excited about that platform. So I think I'm expecting that to do substantially better over the course of the next 2, 3 years. and we are much more in digital part of this INR 20,000 crores as compared to what it has been over the last couple of years.

And second, I think on the alternate side with not that many -- with regular redemptions coming through every year, I think if you can repeat our performance of last year where we had gross flows around about INR 6,500, INR 6,600 crores. And I think we've got a really good product pipeline, including a product, which we launched in February, March. I think that INR 6,500 crores, INR 7,000 crores will also incrementally add a lot. So I think these 2 out of the 20,000 obviously adds the highest retention followed by the third-party product distribution and then followed by advice. So I think this would be the sequence.

So I think while I don't have an exact breakup of that INR 20,000 crores of net flows, but I think directionally speaking, I think these are the 4 places where we should have -- where we should be able to kind of get the right mix.

[Unknown Analyst]

Got that. My second question was on the team, right? So you've clearly gone got aggressive after a while and hired the senior hires, but the RMs number seems to be flattish. So is there any disconnect there wherein you've added a substantial number of team leads, but RMs, we've not hired. Any thoughts on that?

[Karan Bhagat, executive]

Yes, that's a planned strategy, actually. I think that's by intent and not by default. I think as we've gone out to the advisory side of the business and gone a little slow on the pure distribution business and even our method of acquiring clients is more on the advisory and the platform and the solution side as opposed to the product side.

I think on that business, just increasing the number of relationship managers really doesn't help. We really need the right set of senior bankers or partners to be able to onboard the clients. So I think there, the model is really going to be 1 senior banker and along with them, maybe potentially 1 or 1.5 and I'm just -- I'm kind of cutting across designations here. I'm just kind of using it loosely.

There will be 1 senior banker or team leader combined with 1, 1.5 junior bankers. So that's really what you're seeing the representation of the team right now. You've got around about I think afterwards, the people recruited around about 120-odd -- 95 kind of senior partners, we were 20, 25 partners and around about 85 to 90 or maybe 100 relationship managers. So I think that's the broad setup of the team.

I think all the 95 senior partners obviously are kind of, in a sense, supporting the remaining 120. But we've got a further 25 partners who are very, very close to kind of moving towards senior partners over the next 12 to 18 months and we've got another 100 relationship managers.

So I think the relationship manager strength will be more or less double the senior partner strength over a period of time. So you'll have 100 -- let's assume 100 senior partners, you will have another 100 relationship managers, very broadly. That's the way it will look like.

[Unknown Analyst]

Got it. Final question, if I can squeeze in? The NSE shares that you had on your own books, if you can just update on the status of that? I'm assuming some part of it was sold in the recent function?

[Karan Bhagat, executive]

No, we don't have any NSE shares on our books as such. I think whatever we -- we kind of more or less try and do it as simultaneously as possible. Obviously, whatever we've kind of -- we have a lot of exposure to NSE through the investments we made in our funds. So that's our larger exposure to NSE, but we may have around about not more than -- at the end of the quarter, not more than $12 million, $13 million of NSE, so around about INR 100 crores of NSE, everything else is sold there.

[Anil Mascarenhas, executive]

Thanks. Next in line, we have [ Gaurav Jain ].

[Unknown Analyst]

First is on the cost side, Karan, this 10%, 12% growth expectation that we have on other expenses and 8% to 9% on the adjusted employee cost, et cetera, this is building in the launch of mid-market global that we have in this year. And also, are there more RMs or team leads required to be recruited for these businesses?

[Karan Bhagat, executive]

No, so I think for the current year, it's well factored in. I think there is a little bit of productivity efficiency on the current relationship manager strength. And I think if you look at our launch of our mid-market business, today, for the current year, we have the ecosystem of -- broadly, if you look at our client base today, we have around about 3,000-odd families above that INR 10 crores with us.

We've got another potentially 3,500, 4,000 families with between INR 1 crores to INR 10 crores with us. And I think that will really, in some sense, be the starting point of our high networth business.

Secondly, when we look at these 3,000 clients who have INR 10 crores with us, they themselves around them have an ecosystem where they are connected at least to a minimum of 4 or 5 clients in their immediate ecosystem or it could be their office, it could be their trends, it could be peers or colleagues they are working in, effectively, who would have at least 4 or 5 clients, we can touch base through them.

So I think the idea in the first year really is to do 3 things. First, obviously, we've got these 3,000, 4,000 clients who are already onboarded in their system over the last 8 to 10 years. Second, you've got a very, very strong circle of influence of these high networth in existing 3,000 families.

And third, like we discussed earlier, out of the 230, 240 relationship managers we have, we have some 40, 50 really good relationship managers who've kind of moved from different banks to us and kind of enjoy and also fit in potentially the HNI business a little bit more because they enjoy acquisition, they enjoy product sales.

And they want to onboard a lot many more clients and spend a little bit more of their time on man management. So I think we see the initial 30, 40 people also kind of move out from -- or rather move from the ultra-high networth business to the high networth business.

And we'll end up recruiting, I think, potentially another 8 to 10 people as we build out the business over the course of this year. On the global side, I think our recruitment ambitions this year will be fairly moderated after recruiting the initial team of 12 to 15 people, which are relatively fairly senior people.

So I think we will launch our business in October. We expect to recruit another 3 to 5 people, both on the investment side as well as on the sales side. I think we'll try and get to our first 500 million or 1 billion the end of this financial year.

And once we've really tested the platform out and we know our exact right to win, it's only then we'll kind of go out and invest massively in building out people. So I think in the current year, both these costs have been well factored in. And a large part of the platform costs are already kind of incurred or being incurred and part of that salary cost of INR 720 crores for the last year.

[Unknown Analyst]

Got it. Second is on NIM yield. So NIM yield has basically fallen to 5.16% for the quarter from a run rate of 5.75%, 5.8% that we used to enjoy. So what exactly has led to this drop? And is it the new run rate that we should be building in FY '25 onwards? And is it also linked to the lower dividend that we have announced for this year? I mean, from a 4, 4.5 run rate, we have announced 3.5, so is it that we are wanting to conserve more capital while I understand the payout policy is 70% to 80%, and this is in that range, but the past 2 years...

[Karan Bhagat, executive]

I think the NIM is pretty much similar to what I kind of explained in the question before, I think a little bit because of cost of funds, while a lot of it is kind of -- most of it is going to get translated to clients this quarter.

In terms of building the new long-term average for NIM, I think it will be somewhere between last quarter and what it was before. I think that's really when kind of end up. I think going forward, in terms of why the dividend payout ratio is slightly lower.

I think you're right, we've obviously kind of got a fairly good growth in the loan book of nearly INR 800,000-odd crores, and I think we just kind of decided to keep a little bit extra capital for that. And also as we've kind of -- as we're raising new funds on the AIF side, just trying to ensure that we have a good amount of capital to put in as a sponsor.

Though we don't need to put in a large amount of capital, now we are ending up putting more amounts like INR 10 crores to INR 20 crores per [indiscernible] but we are ensuring that we have the right amount of capital to put into this. So I think we'll be therefore, maybe towards the lower end of the range on the 70% to 80% at this time.

[Anil Mascarenhas, executive]

Thank you. Next in line, we have Nidhesh Jain.

[Nidhesh Jain, analyst]

So last year, we have guided for INR 40,000 crores of net flows on overall ARR assets. And now we are guiding for around INR 20,000 crores of active net flows in ARR. So why there is sharp reduction in the guidance on the net flows for next year despite adding manpower in the UHNI segment?

[Karan Bhagat, executive]

So I think INR 40,000 crores of flows, obviously, in some senses, I think on the ARR side included a little bit of active and inactive. I think to be fair, I think INR 40,000 crores should represent around about INR 23,000 crores, INR 24,000 crores of active ARR assets.

So really, in that sense, when I'm saying INR 20,000 crores, I'm not really being that exact. I think a fair number would be INR 15,000 cores to INR 25,000 crores, which is around about 10% to 15% of current AUM, right? So if you take our current AUM of INR 2 lakh crores, I'm saying any number between 10% to 15% we should add has active net ARR flows, which is effectively INR 20,000 crore to INR 30,000 crores. That INR 20,000 to INR 30,000 crores should represent around about 70% to 75% of the total flows.

[Nidhesh Jain, analyst]

Okay, sure. And if you can share the trend in active ARR net flows over last 2 to 3 years, that will be useful for us to compare how the net flow...

[Karan Bhagat, executive]

Yes, we'll do. From next quarter onwards, we'll kind of break it up into active and passive ARR and we'll report it historically also.

[Nidhesh Jain, analyst]

Okay. And lastly, if you look at the trend in NDPMS and especially PMS. For the last 2 years, last 8, 9 quarters, in the nondiscretionary PMS, the AUM has been stable despite decent mark-to-market movement probably. So what is happening there, why we are not able to scale that business?

[Karan Bhagat, executive]

I think -- do we have the active NDPMS exact growth on this. I think, it will be the same reason. I think the active NDPMS would have grown in line with both the flows and the market. The overall NDPMS numbers would have suffered from the same set of reasons which I described earlier, where there's a certain set of movement from active to inactive.

[Nidhesh Jain, analyst]

So going forward, do you expect 360 ONE Plus share in overall ARR AUM to go up or it should remain stable?

[Karan Bhagat, executive]

It will go up. It will go up. But as I said earlier, we would like the discretionary part of the 360 ONE Plus also to move slightly faster than the overall.

[Anil Mascarenhas, executive]

Next in line, we have Dipanjan Ghosh.

[Dipanjan Ghosh, analyst]

So just 2 questions from my side. First, on the institutional mandates in your AMC business. It seems there have been some outflows or redemptions. So just wanted to get some sense of how the pipeline is stacking up and in terms of your family offers, the distribution engine, how that is really going on?

Because if I look at the AUM on the institutional mandates on a quarter-on-quarter basis, it seems to be down by around 4 billion sort of a number on the PMS institutional mandate side from 184 billion to 180 billion. So that was the first question.

Second, now in terms of your new client acquisitions or active client acquisition, that has been quite strong during the quarter or even for the year. So just wanted to get some sense of what is the capacity to really milk these new customers who have come into your ecosystem? And how do you see in terms of overall volumes from these new customers who have been onboarded in, let's say, the next last 12 to 18 months out there?

[Karan Bhagat, executive]

Great. No, I think the first one is basically an institutional mandate, which has around about, I think, 550 million, 600 million with us. They've kind of redeemed around about close to 170 million, 180 million, which is around about 20%, largely driven by a need to reduce -- or they wanted to reduce India exposure a bit. So nothing extraordinary there.

It was kind of matched by 100 million, 125 million mandate we got 2, 3 months back, but that came in to our mutual fund. So effectively, it's kind of got grouped differently. It's got grouped in the mutual fund side as compared to the institutional mandates.

I think going forward, we are running -- we are fairly close potentially to looking at 2 to 3 mandates this year. I think we are in the final shortlist and diligence stage. So hopefully, that will kind of show a better kind of outcome over the next 2-odd quarters.

On the people side, I think -- it's a great question. I think you would like to kind of divide the clients into 2 parts, really. I think number 1 is the ability to onboard new clients and second is obviously to do better and do more business with the existing set of new families we've kind of onboarded.

To the answer to the first question, the way we look at it is we have approximately 110 to 115 senior bankers, right? We were at 95 senior bankers and another 25 in the waiting. So let's say, around about 120-odd senior bankers, plus around about 100 relationship managers. I think from a capacity perspective, each of these bankers ideally should be able to do at least at least manage 45 to 50 families along with the 1 junior banker.

And if you honestly see from a capacity perspective, today, we are well-equipped with among the best set of bankers in the country to manage 5,500, 6,000 active families with more than INR 10 crores with us, of which today, we have around about 3,000-odd crore -- 3,000-odd families.

So actually, you see from a capacity utilization perspective, there's a lot of roadway available for us to do much more. So actually, I expect, without the need to add too many people. Obviously, we will add people if you get new resources, if you get good resources. But the current set of 120 people can really service double the number of clients, which we are servicing today.

And on kind of utilizing the new family, which have got added into the system, I think we have 1 slide in the presentation. I don't remember the number, but the proportionality of the tenure of the client and the tenure of the RM to the quantum of business from the client is phenomenally linear.

And I think -- phenomenally linear -- sorry, phenomenally correlated and quite exponential, if you kind of look at 1 year, 3 years and 5 years. So I think as the client goes through the 1-year 3-year, 5-year journey along with the RM, I think the potential to utilize our client becomes substantially higher.

And I think if I'm not wrong, at least volumes increased by at least 2.7x, 2.8x over a 3- to 5-year period as compared to the 1-year period. So I think we -- can we make that 2.7, 2.8, 3, 3.5x? I think the answer is yes. It needs to be supported by a combination of sometimes the same relationship managers servicing the client.

So I think the real exponentiality comes when you have the same relationship manager and the same client over a length of time. So I think in that sense, it will be a combination of both our ability to increase the number of active families from 3,000 to 6,000 and also potentially kind of do more with the clients we onboard.

[Dipanjan Ghosh, analyst]

Got it. Just 1 data keeping question. When you mentioned the active expected flows of around INR 15,000 crores to INR 20,000 crores for FY '25, you're not incorporating the mid-market or whatever the 6 months of global flows in that? Or do you...

[Karan Bhagat, executive]

I'll just correct that statement again. I said -- I think there are 2 different places I was talking, INR 15,000 crores, INR 20,000 crores are on the wealth management side. Overall, we expect 10% to 15% of the INR 200,000 crores, okay?

So of the INR 200,000 crores active ARR AUM, we are saying INR 20,000 to INR 30,000 crores of active flows for the next year, okay? Of that INR 20,000 crores, INR 30,000 crores, potentially around about INR 15,000 crores, INR 16,000 crores from the core wealth management side, INR 15,000 crores to INR 17,000 crores.

INR 6,000 crores to INR 8,000 crores, INR 9,000 crores coming from the asset management side and potentially INR 4,000 crores to INR 6,000 crores coming from the mid-market and the global business. That's really the breakup of the INR 30,000 crores.

[Anil Mascarenhas, executive]

Next in line, we have [ Anusha Raheja ].

[Unknown Analyst]

Sir, you said that some amount of passive inactive flows are likely to move to transactional AUMs. So if you can just quantify how much that number could be because I believe this quarter, it was somewhere close to around INR 6,000 crores to INR 7,000-odd crores?

[Karan Bhagat, executive]

No, I think we're not really losing AUM even when we are having this discussion with clients to kind of either get on with us on the advisory mandate with the right fee structure or potentially state distribution. I don't think so we are necessarily losing clients. So I think it's safe to say 90% of the AUMs remaining within the ecosystem. Some clients are obviously absolutely kind of happy to move and kind of get onboarded at the right retention on the advisory and discretionary side. So I think not more than 10% to 12% of the AUM moves out of the system. I think it's potentially moving out of the ARR bucket, but it's not going to move out of the system.

[Unknown Analyst]

Okay. So if I can get it correct, you said that 20 to 30 -- closer to around 30,000 of new flows, and that will include HNI as well, right?

[Karan Bhagat, executive]

30,000 of active ARR AUM.

[Unknown Analyst]

Active ARRs and HNI is part of that. So if I add mark-to-market on that, so we can see somewhere close to upwards of INR 30,000-odd crore of flows in FY '25?

[Karan Bhagat, executive]

Yes. I'll kind of just repeat that once again. The way we look at our business is 10% to 15% of the opening stock, okay? The opening stock for us is around about INR 200,000 crores right now. 10% to 15% of the opening stock to come in as net flows. So if I quantify the 10% to 15% of the INR 200,000 crores, it will be approximately INR 20,000 crores to INR 30,000 crores of net flows plus the mark-to-market on the INR 200,000 crores, that's the way to look at it.

[Unknown Analyst]

Okay. And sir, one thing is on why there is a scale down on the new flows and plus even on the HNI flows as well as compared to what you had discussed in the last quarter, some scale down on the new flows?

[Karan Bhagat, executive]

Yes. So as I said earlier, I'm looking at -- there is a little bit of scale down, especially on the asset management side. I think the flows are slightly muted given the redemptions. But I think on the wealth management side, as I said, it's a little bit more of consolidation than ramp down of flows. So I think if you see the net flows on the active side, it's good.

I think it's just a little bit more -- on the wealth side, I would say it's a little bit more consolidation. On the asset management side, the flows have been a little muted and could have been better if you could have kind of looked at it slightly more. If the redemptions are slightly more spread out as opposed to being as patchy as they were.

[Unknown Analyst]

Okay. And also on the deployment of the funds, I believe this quarter, it was somewhere close around INR 6,000- to INR 7,000-odd crore and still, I believe there is a lot of room for deployment to happen. So can you just elaborate more on that? Because that is also one of the reasons that retention is -- on the nondiscretionary side, it's close to around 18 basis points. So some just color on more with respect to the deployment of the funds in FY '25?

[Karan Bhagat, executive]

No, I think deployment is just a function of the time the money came in. I think part of that would have come in towards the second half of the quarter. That's why it's kind of getting deployed, nothing else. I think there's no other reason for the deployment not to happen. I think the deployment will happen as a matter of natural course. It takes around about 2 to 3 months to happen. So part of the money would have come in the second half of the last quarter.

[Unknown Analyst]

Okay. And I mean, retention yields in managed accounts has dropped, I believe, close to around 10 to 15 basis points. So some color there? What has resulted in the drop?

[Karan Bhagat, executive]

Little bit of mix of assets. So I think it's also to do the same thing because we had a bit of a private equity fund redemption, as I said earlier, on the asset management side. So that would have a little bit of an impact on the retrocession commissions to the Wealth Management business because the overall yields would have come off because yield reduction on the alternate side. But overall, I think the yields have remained steady, not really too much of a change.

[Unknown Analyst]

Okay. And just one last thing on this HNI strategy. If you could just give us some thought over it in the next 3 to 5 years' time, how do you see the AUM build-up in this mid-market and global side?

[Karan Bhagat, executive]

I think as I said earlier, I think it's still a fairly -- I think global obviously, is a bit of a blue sky planning situation right now. So I wouldn't really want to get into commenting on numbers. But as I said earlier, I think our first block in the current financial year is to kind of build out around about $1 billion of AUM there. And I think on the mid-market side, we would also want to take it step by step. And I think the first goal would really be to reach INR 10,000 crores and then set our next site on INR 25,000 crores and INR 50,000 crores over a reasonable period of time.

[Anil Mascarenhas, executive]

Next in line, we have Vivek Ramakrishnan.

[Vivek Ramakrishnan, analyst]

Maybe, Anil, we can do a question instead of multiple questions, it may be faster.

[Anil Mascarenhas, executive]

Vivek is not on the line. Abhinav, in case you are online, kindly unmute yourself and ask your question.

[Unknown Analyst]

Congratulations. Just one bookkeeping question. How much is in the custody assets in the wealth management business approximately? It was...

[Karan Bhagat, executive]

Around about INR 1,25,000 crores.

[Unknown Analyst]

INR 1,25,000 crores. And if you could -- I think you had touched upon it, if you could briefly touch upon it. How do you see the managed account in the distribution, wealth management business, the yields changing, not changing because I think quarterly, there has been some change. But on an annual basis, it doesn't change much. So just qualitative view on that?

[Karan Bhagat, executive]

I don't see it changing much, to be honest. I think it's -- the yields are not going to change. But what may happen sometimes, especially on a quarterly basis, the mix changes, then it has a little bit of an impact on the yield. And again, in descending order, obviously, alternates have the highest distribution yield on the private equity side, then alternates on the credit side, then obviously, you've got PMS and managed accounts on listed equity.

After that, you've got equity mutual funds and then debt manual funds. So that's really the descending order. And the mix is a subtotal of all of these 5. Obviously, debt mutual funds could go as low as 15, 20 basis points. Equity funds mostly would be in the region of 60 to 80 basis points.

Private equity could be 90, 200 basis points. So it's going to be a mix of these 4 or 5. And I think, overall, I think it will represent more or less a similar number, but a little bit of change depending on the mix of this will kind of have a little bit of impact, but I don't see too much of a change on the managed account side.

[Anil Mascarenhas, executive]

Thank you, Karan. I think that's all we have time for. On behalf of 360 ONE, thank you for joining us this afternoon. We look forward to hosting you next quarter. Thank you.

[Karan Bhagat, executive]

Thank you, everybody. Thank you.