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Aditya Birla Sun Life Amc Ltd
Earnings Call Analysis
Q3-2024 Analysis
Aditya Birla Sun Life Amc Ltd
Sales growth in December lagged behind the industry standard, but January has shown promising signs of recovery. Key funds have started seeing inflows again, particularly Small and Midcap Fund, Pure Value Fund, and Digital India Fund. Moreover, the company has experienced a boost in systematic investment plan (SIP) subscriptions, pushing the numbers above 330 for January. This rebound is critical as it turns around a previously declining trend.
Notably, company performance is on the upswing, with sales seeing a positive trajectory in both November and December, and for the entire quarter overall. This uplift suggests the company's strategic efforts to boost performance are yielding tangible outcomes, reflected in enhanced investor interest and sales figures.
The company's other income has surged due to favorable conditions in both the capital and debt markets, resulting in a robust average yield of around 13% for the treasury portfolio. This impressive yield reflects strategic investments, including mandatory seed capital per regulatory requirements and selected equity fund seeding.
Equity investments are seeing healthy yields, with the average hovering between 69% and 70%. Fresh inflows are shared at about 65%, aligning with market standards, and a new fund offer (NFO) during the quarter has successfully gathered INR 799 crores. Positive net inflows are confirmed for existing equity schemes, aside from the NFO figures.
Digital engagement is growing, with about 7.5% of market share in online channels, which is believed to have increased on an incremental basis. Although precise numbers weren't shared, executive commentary indicates a marked upward trend. These channels are demonstrating their potential as significant contributors to the company's distribution strategy.
The company is looking to fill product gaps with new offerings, including a launch either by the end of March or the beginning of April. Efforts will focus more on the alternate asset space, such as PMS, passive ETFs, and AIFs, particularly in the GIFT City, where plans include products predominantly investing in Asian equities. Domestically, however, product options will remain relatively limited.
Aware of the substantial growth in mid-cap and small-cap categories, the company is actively working to increase its market share. While the Small Cap Fund has already attracted about 5% of industry flows, further enhancements to the investment team, including an upcoming external hire on the mid-cap side, are anticipated to solidify the company's position in these segments.
Future expenses are expected to align with inflationary trends, with personnel costs projected to increase slightly above inflation. The company intends to balance any potential increase in commission costs from the growth of alternate assets with corresponding revenue growth. Admin expenses should largely follow the pace of inflation. A strategic reduction in branch numbers is also being pursued to optimize costs.
To achieve a new level of business growth, experienced talent is being onboarded, particularly in banking and wealth management, to spearhead retail expansion. Enhancements embrace both internal and external expertise, with a sharp focus on the retail sector. As the company aligns its strategy with future momentum areas, they have made adjustments to harness the full potential of their distribution network.
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Ladies and gentlemen, good day, and welcome to the Aditya Birla Sun Life Asset Management Q3 FY '24 Earnings Conference Call hosted by InCred Equities. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Jignesh Shial from InCred Equities. Thank you, and over to you, sir.
Yes. Thank you, Leo, and good evening, everyone. On behalf of InCred Equities, I welcome all to Aditya Birla Sun Life Asset Management Company 3Q FY '24 Earnings Conference Call. We have, along with us: Mr. A. Balasubramanian, Managing Director and CEO; Mr. Parag Joglekar, Chief Financial Officer; and Mr. Prakash Bhogale, Head, Investor Relations. We are thankful to the management for allowing us this opportunity.
I would now like to hand it over to Mr. A. Balasubramanian, Managing Director and CEO of Aditya Birla Sun Life Asset Management Company, for his opening remarks. Over to you, sir.
Yes. Thank you, Jignesh, and thank you for the introduction, and good evening to everyone and -- for attending today's investor call. I'm sure the beginning of the new year has been great for everyone. And I also hope you had the opportunity to go through the earnings presentation. It's available on the stock exchange and as well as our website.
Let me first begin with the economic outlook and mutual fund industry update. On the economic outlook, we believe the new year will be brighter. And some of the key concerns of 2023, such as the U.S. recession, inflation, rate hikes and geopolitical tensions, have receded. The interest rate cycle has likely peaked out.
With an expectation of rate cycle easing across most economies at the beginning of this year, we expect a soft landing in the U.S. and slowdown in global growth but not an outright global recession. And 2024 will be a year when more than 60% of the world population goes for election. And therefore, the fiscal policy would remain loose globally. And overall global macro backdrop has gone supportive of India.
India remains the fastest-growing major economy in the world and is well on track to become the world's third-largest economy for the next 5 years. It has structurally transitioned to a low macroeconomic volatility regime, which will support lower risk premiums and higher valuations.
The macro outlook for India also seems to be enjoying the Goldilocks scenario with reasonable growth momentum, stable commodity prices, especially crude, a slowing inflation and weakening dollar bias. India GDP is expected to grow close to about 7% and upwards of 7% in FY '25.
With respect to the MF industry. As of December 31, 2023, the Indian mutual fund industry quarterly average AUM grew by 22% on a year-on-year basis, reaching to a INR 49.21 lakh crores versus INR 40 lakh crores as of December 31, 2022.
During the quarter, the industry witnessed net equity sales of around INR 91,000 crores through new fund offerings and existing funds. Within the existing equity in hybrid categories, arbitrage funds and small-cap, sectoral funds, multi-cap and mid-cap funds for higher net inflows, the mutual fund industry witnessed total NFO collection of about [ INR 16,100 crores ] during the period [indiscernible] net sales.
The industry SIP flows grew by 30% year-on-year from INR 13,573 crores as of December 2022 to INR 17,610 crores in December 2023. The total number of mutual fund investors stood at 16.7 crores with an increase of 17% year-on-year basis. The individual average AUM grew by 30% on a year-on-year basis and contributed 60% of the total AUM. B-30 cities accounted for an average AUM of around 17.8% of the total AUM.
Coming to ABSL AMC performance. In Q3 FY '24, our overall average assets under management, including alternate assets, reached INR 3,25,000 crores, growing by 11% on a year-on-year basis. The mutual fund quarterly average AUM stood at INR 3,12,000 crores and the equity average AUM stood at INR 1,30,000 crores.
SIP flows have increased from INR 942 crores in December '22 at about INR 1,005 crores in December 2023. As is stated, customer acquisition remains an integral part of our strategy. We have added close to about 4.6 lakh folios in the last 9 months and that is around 8 lakh folios of investors.
Our overall asset mix between individual and institutional customers, individual customers account for about 22% of our overall assets under management. Our strategy efforts across various channels to enhance our market presence have delivered a favorable outcome this quarter.
As you are aware, we recently brought in a Co-CIO and Head, Equity to further strengthen our investment team. As we speak, we have added a new member to our leadership team to lead and drive our retail sales, building on our strong presence and distributor network and gain further traction in the market.
In the upcoming months, we even aim to make a few structural changes in our alternate assets vertical to build on the momentum that which we have achieved so far in the PMS and AIF business and create robust franchises in AIF, PMS and [indiscernible] business as we move forward.
Our efforts have worked well with the contribution of retail franchisee increasing to 52% and the contribution of B-30 cities has grown to 17% as of December 2023. Our sales ecosystem, which includes virtual relationship managers, Sampark, service to sales, retail distribution, all of them are supporting overall retail sales growth, have seen favorable results so far.
Coming to our alternate and passive businesses. Our passive offerings grew by 36%, around INR 29,600 crores as of December 2023 and has a growing customer base over 6 lakh folios. Our current products consist of about 43 products.
On the AIF front, fundraising is underway for our ABSL India Special Opportunities Fund Category III AIF. And our ABSL Structured Opportunities Funds is also in pipeline, as a Category II AIF, is also in pipeline to be launched in the current quarter.
We have launched the ABSL Index Linked Fund, a Category III AIF under the GIFT City, which is investing in index-linked notes issued by one of the foreign banks globally, which the fundraising is on the way. And hopefully, we should see a closure in the coming quarter.
Moving on to the financials for the quarter. Our Q3 FY '24 revenue is at INR 421 crores, up by 16% year-on-year. And profit after tax for Q2 FY '24 is at INR 209 crores, up 26% year-on-year. For 9 months ending December 31, 2023, revenue is at INR 1,201 crores, up by 17% year-on-year, and profit after tax is at INR 572 crores, up by 25% year-on-year.
With this, I would like to conclude and open the floor for any questions that you may have.
[Operator Instructions] The first question is from the line of Aditya Modani from Prabhudas Lilladher.
I just had a couple of questions. Can you just share the blended yields for the quarter? And at what levels should we expect the same to stabilize? And what is the SIP AUMs for December '23?
The blended yield for like the equity is in the range of around 69%, 70%; for debt, it is in the range of around 24%, 25% basis; and for liquid, it will -- it is more or less in the flattish or 13% basis.
On SIP, Prakash will answer.
Aditya, Our SIP AUM for December is INR 66,741 crores.
And at what levels should we expect the blended yields to stabilize? If you could quantify [indiscernible] or even in a matter of years as to how many years?
Yes, so equity may drop a little bit even in the future. Because as the size goes up, the accrual will drop. And the new sales will replace the old, which may have an impact on the yield. So maybe a couple of basis, we may see another 3 years sort of a drop in yields.
[Operator Instructions] The next question is from the line of Nemin from Motilal Oswal.
Yes, I had one question regarding -- so what has been color on net equity flows for the quarter? And how is this shaping up?
Yes. So I think in terms of flows, of course, overall, the sales growth in the month of December was lower than the industry. But however, we are seeing some pickup coming in the month of January. Broadly, we have seen inflows in the Small and Midcap Fund, Pure Value Fund, Digital India Fund. We have seen some outflow in the ELSS, which is predominantly an [ APC ] scheme and -- but as it stands today, in the overall momentum in the month of January, we are seeing some of our funds, which are in the top quartile performance, these inflows to the online platform as well as in the offline platform, contribution has been rising, especially in the PSU Fund, Digital India Fund, Pure Value Fund and the other funds.
We're also seeing some pickup in the overall SIP flows. Along with the overall pickup in the overall [indiscernible], the numbers have crossed about [ 330 ] in the month of Jan. That is something that comes on the back of the improved performance we are seeing in the equity. And hopefully, we should see that trend continuing in the current quarter. Therefore, it reverses the trend that we have seen in the past.
Got it, got it. So for October and November, how were the net flows compared to industry, if you can give us some color on that as well?
Yes. Normally, we don't disclose the numbers.
We don't disclose this number. But compared to the earlier months, we have seen a positive net sales in the month of November and December and for the quarter also.
Okay, okay, got it, got it, got it. This is helpful.
Also, you have to take into account that I think in the last quarter, we raised funds about INR 850 crores -- INR 790 crores through the Transport and Logistics Fund coming from close to about the lack of investors there.
[Operator Instructions] Next question is from the line of Amansingh Sahajsinghani from Nuvama Wealth.
So as I can see, other income for the quarter has raised significantly due to the strong capital market. So can you break down the treasury book that we have of how much percentage have we invested in equity?
Sure. So Aman, as you rightly said, we have seen a growth in other income nearly on back of capital market doing very well plus even the debt market has done pretty well, which are a result of a better yield on the overall treasury portfolio in the range of around 13% of the overall portfolio, which includes some of the -- one seed capital which we have to invest as per the SEBI requirement. And other is some of the seeding which we have done to the some of the things in our equity funds, which has resulted in an overall percentage of 13 in the treasury book.
[Operator Instructions] The next question is from the line of Dipanjan Ghosh from Citi.
Sir, firstly, on the expense side, you mentioned, if I heard correctly, some structural changes on the alternate business. So just wanted to get some color on what are the changes and what sort of expenses should be related to that.
Second, when you mentioned your net flows were positive for November and December, could you give some color on which schemes this were from? And also if you can give some color on the gross to net, I mean, in terms of how that has been shaping up over the last few quarters or months?
And lastly, you gave the yield number on the blended book across segments. If you can give -- for the equity segment, if you can give what is the net yield on the fresh business that is current or at least what is the differential between the blended book versus the fresh?
Dipanjan, what is the first question that you had, on the AIF expenses, is it?
Yes, the first question was, sir, if I heard correctly, you mentioned that there are some structural changes that you're undertaking in the alternate and PMS businesses.
Okay, okay, okay. Yes, yes. No, basically, on the AIF and PMS, one, of course, we are beefing up the team with the Head of Credit being recruited. And that's something which we are doing. And hopefully, the person should be onboard by Jan with the intention to offer credit opportunities funds to the growing HNI needs. That's something we'll do. Therefore, we'll have beefing of the team.
And second, within the existing team, of course, giving some responsible to people with the Head of Retail coming onboard. And to beef up that segment of the business, we're making some changes, does not lead to incremental costs, except the credit guy coming onboard will have an incremental cost with coming in, in the form of salary. But [indiscernible] will start coming in later.
So that's something we are doing it, given the fact that the AIF/PMS both on credit and equity have got significant potential for us to grow. And given the fact that we have incredible performance track record within the PMS, that's something we are building up. Given again the high capability that we have in running credit fund, that's also something we plan to launch it once the person is onboard. So that's something I just mentioned about it.
In terms of the sales, generally, we have been saying flows for us coming in, Small Cap Fund and Pure Value Fund, Digital India Fund, these are some of the schemes, the PSU Fund, basically, sectoral funds we are getting money, including the Transport and Logistics Fund I already mentioned about as again sectoral fund.
We have largely have seen the redemption pressure on some of the schemes getting reduced, except on lesser schemes, where we have seen some kind of redemption, which, of course, in general, the industry has also seen some outflow in that category. But ours was a little higher than industry, given the fact that performance are not fully backing from the overall perspective.
But the gross sales are generally in the range of about 5.5% to 6% as a range. That's something, our endeavor should improve the numbers while overall productivity increases, which we are seeing it happening in the month of Jan in terms of improving both gross sales and net sales with increased contribution coming from the SIP as a category, which I just mentioned earlier. Also, we're seeing an improvement coming in the month of Jan. And then the last question is on...
On the yield, the fresh versus blended book?
Yes, yes, fresh versus blended.
So generally, the sharing on the fresh book is in the range of around 65% around. So that actually will be a little bit lower compared to the stock which we have. The average yield will be in the range of around 69% to 70% basis on the equity side.
Got it. And if I can have a follow-up on the second question, can you give the NFO flow that you got during the quarter?
INR 799 crores, we collected, INR 800 crores.
So even ex of that, you will have a positive net inflow for the quarter, right, on the existing schemes on equity? Is my understanding correct?
Yes, yes, yes.
[Operator Instructions] The next question is from the line of Devesh Agarwal from IIFL Securities.
Sir, just continuing on the yield on the new flows, you mentioned 65% is the sharing. Some sense if you can give, as you said, that on the book, we are earning a blended yield of 69%, 70%. So can you consider 55%, 60% would be the yield that we have on the new flows?
Yes, it should be around that range, Devesh.
Okay. And sir, is there any possibility of this to improve the yields on the new flows based on the contracts that you have with the distributors? Is there any scope or headroom where we can reduce the payouts to them from, say, 65% to any number? Is that a possibility or very difficult?
So it will be more in line with the market because it's a very competitive market. So we will have to be in line with the market and echo the behavior how the market has behaved. But obviously, as we have been saying that the mix will be the longer the AUM, the sharing may drop. So that may help us a little bit. But otherwise, the sharing will be more market-driven rather than individual [indiscernible]
One of the areas, Devesh, we are trying to build is we already built about a 30-member team on the direct channel. We are seeing, by the way, our customers, we can directly offering our products across PMS and AIF and fixed income and equity that we are seeing a pickup in volume. So as that size starts growing continuously may lead to a bit of better margin range protected.
Though the overall margins remain the same between the distribution-driven channels and direct channels because anyway, the expense is calculated only after the distribution payouts are calculated. But however, that volume increasing would lead to marginal improvement on the profitability as time progresses. As the volumes starts coming in, we'll see that contribution coming in.
All right, sir. And sir, in terms of your distribution strategy, you did mention that you are focusing on creating direct channels. But at the same time, we also see that you have added almost 10,000 distributors to your MFD network. So any particular strategy that you can share in terms of which could lead to a higher flow market share for us?
Yes, of course, one, the traditional channel engagement remains, that remains our core contribution business, which is your banking channels, ND channels and MFD channels. And MFD channel is very quite large for us. Therefore, one, activating them continuously. Second is reaching out to the MFD market in smaller locations and ensure a contribution from MFD increases. We have a separate channel to do that. And third is the verticals that we've created, which is called the virtual RM model and sales to service model. These two combinations, we have set a separate target for both the team to ensure that we actually bring in higher contribution coming from the channel partners.
While doing that, we also -- through our internal brainstorming, we've come out with a strategy called sales execution excellence model, which is nothing but identifying high-potential people who have been with us for a many number of years, [indiscernible] their growth participations may not be up to the expectations. That's something we have put a separate strategy, wherein 80% of AUM come from, say, 20% of the people. How do we ensure that those 20% of people contribute to the success?
We brought in a different level of engagement program with the channel partners and showcasing the change that we have brought in the last few months and also the improved performance we are seeing in the equity with respect to the competition as well as [indiscernible] benchmark. That campaign, we are going at this in terms of engagement program, which are my own belief is starts contributing to the overall incremental growth. And last but not the least is the direct channels, which I mentioned about. This, of course, will keep increasing the team size each year so that we are able to calibrate the cost involved nicely and at the same time, build a channel that can contribute to the overall business.
And finally, the online channel platforms are purely driven by the performance. As they overcome the top 3, they get recommended. In fact, I'm happy to share with you in the month of January, three of our funds are figuring in the list of the online channels. It's also leading to a significant increase in purchase volume from the online channels compared to the December quarter. And assuming this trend continues, then we'll probably see increased participation coming from the online channel partners.
Again, we do it with the purpose of engaging with them very closely, looking at their way of looking at fund collection and then see how we are actually figuring in their fund collection processes and therefore ensure that our funds, who are actually coming closer to their recommendation process, we ensure that it comes onboard. And that's something we've been engaging for quite some time. And you have seen the result of that as it stands today.
Right, sir. And sir, what could be share of online channels in the new flows?
Yes. I think on an outstanding basis, we have 7.5% contribution in terms of market share in the online channel. On incremental basis, probably the number would have gone up. So I don't have the exact number right now, but the number is -- I mean, compared to the last month, this one number, if I have to take up -- the number I would look at, maybe I can share with you separately.
Sure, sir. And sir, in terms of product, are there any gaps which we are targeting? Or right now, we have a complete product suite and there will be limited opportunities for NFOs?
We have limited option as the product is concerned. We have filed one product, which is account-based product. Given the fact that our Head of Equity has got very good capability running these account-based funds, given his background, that's something that's there in the pipeline. I think once the team is ready, they are actually planning to do one all-day event with the distribution community in Bombay, it's called [indiscernible], what do you call it.
And post that, we'll launch this product either at the end of March or beginning of April. The product is already approved and in place. And that's something we have seen as a product gap. And other product gaps right now, there is nothing which is being visualized. We'll probably have more product launches in PMS. We'll have more product launches in passive with the kind of ETFs that we will start, so we're able to add that [indiscernible].
And third, we'll have some product launches in the GIFT City. One is building volume in the fund already launched that predominantly invests in Asian equity. And we'll have one or two more product launches for the GIFT City AIF. As far as domestic concerns, we'll have very limited, one or two options could be there. One is already there in pipeline. One or two options, we have to figure out what kind of product that we can launch it as we move forward there.
And sir, one final question. Within the categories that we are present, we see that in mid-cap and small caps, which are the categories which have seen a sharp growth over the last 6 to 8 months, our market share is significantly lower than the overall market share. So any strategy to improve our market share in these categories?
Yes. So while I'm happy to say that we have seen inflows in our Small Cap Fund and, to some extent, Midcap Fund, but Small Cap Fund has received close to about 5% of the flows for the industry. While that is a case in our fund, but of course, given the momentum that we have seen in the industry, huge flows have come in the return. That, of course, we take note of it. But at the same time, having internal capability on the mid- and small caps, there some changes that have happened in the investment team.
Of course, some more beefing we'll do on the investment side, getting one external person on the mid-cap side. That's something that's in the pipeline. It is just to ensure that sales -- where we have internal talent and given the fact that one of the exits has happened sometime back are able fill that vacancy in the mid-cap manager, then it will actually complete the boutique of fund management capability on site. As a result of that, we are able to build size across all our categories.
The next question is from the line of Abhijeet Sakhare from Kotak Securities.
Sir, first question is again color on the channel. So if you could provide some color in terms of across different channels, where have you seen maximum redemption pressure? And similarly, in terms of the new inflows that is coming in, is there a specific skew that you're seeing where one or two particular channels are driving bulk of the inflows?
Sure. Prakash?
So on the new channel side, the MFD is the one who contributes the higher, then comes the banks and the NDs.
NDs and banks.
NDs and banks, yes.
See, taking all that, roughly about 55% comes from IFAs, MFDs, roughly about 14% will come from NDs, roughly about 12% comes from the banking channels, about 16% come from the direct channel, direct includes RIAs as well. In terms of steady state of flows that come from MFDs, that then comes in NDs and banks. We're also seeing increased flows. It was not so much in the month of December. But I see it coming in the month of Jan, which is the increased flows coming from the RIA channel, which is predominantly the online platforms, which is the digital platform.
We have seen an increased volume coming from that. That's again fueled on the back of the schemes are being part of the recommendation list, are part of the algorithm that they may use. Some of the funds have been coming in there quite continuously. Of course, we see traction coming in that space. And definitely, I think MFD channel being one of the largest channel for us and the ND channels would be the major driver of the overall growth momentum perspective.
Got it, sir. Sir, I mean, your comment on the January sort of improvement is good to see, sir. But generally, given the changes that you have seen or you are anticipating in the investment team, do you see any impact of that in terms of how the channel will react to it? Or will there be like a lagged impact of these changes in terms of improvement in flow market share that you'll see maybe going into the next financial year?
I think actually, people have appreciated the changes that have come. I think people have given a good feedback on the changes that we have made. And in terms of product recommendation, it remains the same. It's not affected, given the fact that we always have the continued factor. Irrespective of the movement of people, we always kept the continued factors, one of the big strengths of AMC, by way of the structure that we have created in the investment side. That has been ensuring that the product recommendation part of the channel partners remains good.
Even improvement on the performance that is being seen, also being noted. Therefore, it can only lead to an incremental volume growth coming in. But having said that, I think whenever we see any changes that we're bringing in, the resultant impact of that, it takes about 1 to 2.5 quarters, I can probably see it. Or else that is the normal trend that we are seeing, but giving the push in the market, engaging with people aggressively and warming the market is key to the success.
That's something we are currently being -- currently driving it. While, of course, all these such efforts will lead to improvement in the numbers and so on and so forth, but having now made changes, having created a positive impact and the feeling is also pretty decent from the distribution community, that's something that should result in as we move forward in terms of numbers improving.
Okay, sir. One question for Parag, sir, was any outlook that you can provide on the expense growth for next financial year?
So expenses mainly will be maybe inflation plus something. So the majority cost for us is on the people side. So people will be inflation plus something. And any growth on the alternate asset side may lead on increasing fee and commission line but which will be obviously compensated by the top line growth on the income side also. Otherwise, even the admin expenses will...
[Technical Difficulty]
Yes. What did you say, Parag?
So the last -- even the admin expenses will remain more or less inflation range always. See, what we are trying to do that, the branch extensively, we are trying to reduce by [indiscernible] branches. So that may help us to a certain extent.
Got it. And one comment I missed, I think, opening remarks by Bala, sir, did you mention that you kind of hired some senior reports on the distribution side of the business, if you could repeat that, please?
Yes, yes. With the banking experience and also having the experience on both managing HNIs and family offices with the wealth management experience, was then part of the bank and building retail. That's something we thought that, given the fact that we need to take business to the next level, some bit of [indiscernible] that we are doing in terms of taking into account the internal talent and aspirations as well as the external talent that can come and help in building this to the next level.
There's been few areas where we need to see the next roll of momentum, especially retail. So that is where we have made some adjustments. And the personnel come onboard, yes, he comes with that experience of building retail. So it comes from the banking backdrop, yes.
[Operator Instructions] As there are no further questions, I would now like to hand the conference back to the management team for closing comments.
Yes. Thank you, and thank you, everyone, for joining. With this, we conclude our Q3 FY '24 earnings call. Do feel free to reach out to our IR Head, Prakash Bhogale, for any inquiries that you may have. Thank you.
Thank you very much. On behalf of InCred Equities, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.