Anand Rathi Wealth Ltd

NSE:ANANDRATHI

Earnings Call Analysis

Company Projects 20% to 25% Growth Guidance

The company exhibited a robust inflow of INR 1,507 crores in equity mutual funds. After accounting for debt and liquid outflows, and non-principal protected SP and other products, the total net flow stood at INR 1,226 crores, with equity mutual funds alone at INR 1,510 crores. Looking ahead, the company is optimistic, projecting a long-term annual growth rate of 20% to 25%.

An Impressive Growth in a Fast-Paced Market

Riding the wave of India's rapid economic growth, Anand Rathi Wealth Limited has leveraged the vibrant investment climate to their advantage, demonstrating an exceptional performance in the first half of the fiscal year 2024. The company's revenue surged by approximately 35% year-on-year to INR 368 crores, while the profit after tax blossomed by 34% to INR 111 crores. Perhaps the most telling sign of their robust health is an impressive 34% growth in Assets Under Management (AUM), summoning a substantial total of INR 47,957 crores.

Heightening Investor Confidence with Upward Guidances

Expressing confidence in their ability to sustain and build on their success, Anand Rathi has announced upward revisions in their full-year financial projections for 2024. The new forecasts include a revenue target set at INR 720 crores, up from the earlier INR 661 crores, and a profit after tax goal adjusted to INR 220 crores from the prior INR 205 crores. These revisions not only highlight the company's strong operational execution but also its forward-looking optimism.

Expanding Horizons with New Client Relationships

The company's holistic and uncomplicated wealth management solutions have attracted a wider clientele, widening its reach to 9,212 families as of September 2023. The company's persistent efforts in relationship building are underscored by the addition of 40 new relationship managers over the past 12 months, with an applaudable zero regret attrition in the latest quarter.

Private Wealth Vertical: A Stellar Success Story

The flagship Private Wealth vertical has been particularly outstanding, marking a 33% annual growth with an AUM standing at INR 46,571 crores. This vertical alone exhibited a 14% growth in equity mutual fund net flows. In contrast to the industry's overall outflows, Anand Rathi boasted impressive inflows exceeding INR 1,600 crores in the first half of the fiscal year.

OFA Business: Harnessing Digital to Reach New Heights

The OFA (Online Financial Advisor) business, a technology-driven platform targeted at mutual fund distributors, has rounded up 5,880 distributors and manages assets north of INR 18,000 crores. This facet of Anand Rathi's operations demonstrates the company's fitting response to the digitalization trends in wealth management.

A Glimpse at the Financial Fortitude

The company's consolidation prowess was evident with a 37% revenue growth for the quarter ending September 30, 2023, amounting to INR 189 crores. The profit before tax grew by 35%, leading the quarter's PBT to INR 78 crores. Subsequently, the profit after tax ascended to INR 68 crores, marking a 34% jump from the previous year's corresponding period. Additionally, the earnings per share for the quarter floated at 3.8% compared to 10.3% the previous year.

Sustained Growth Through the First Half

Anand Rathi's H1 FY'24 achievements do not fall short, with revenue touching INR 368 crores, representing a 35% surge from the previous year's first half. The profit before tax saw a similar 35% growth, while profit after tax also maintained a 34% growth trajectory. This consistency is reflected in the earnings per share for the first half, which was an impressive INR 26.6 per share — a significant growth from 19.8% recorded in the previous year.

Private Wealth Business Financials: Robust and Growing

The Private Wealth vertical alone achieved a 36% rise in revenues to INR 181 crores in Q2 FY '24, with profit before tax growing at a rate of 34%. The half-yearly figures were equally vigorous, total revenue climbed by 34% to INR 352 crores and the profit before tax enhanced by 33%. This vertical's enduring profitability is further cemented by a steady 33% growth in the profit after tax for H1 FY '24.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Anand Rathi Wealth Limited Q2 and H1 FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These are not the guarantees of future performance and involves risks and uncertainties that are difficult to predict.

[Operator Instructions] And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this [ call ] is being recorded.

I now hand over the call to Feroze Azeez, Deputy CEO for Anand Rathi. Thank you, and over to you, Mr. Azeez.

[Feroze Azeez, executive]

Thank you so much. Good afternoon, and thank you, everyone, for joining the earnings conference call for the quarter and half year 30th September 2023. With me, I have Mr. Jugal Mantri, the Group CFO; Mr. Rajesh Bhutara, CFO of the company; Mr. Chethan Shenoy, Executive Director and Head, Product and Research; Mr. Vishal Sanghavi, Head, Investor Relationships and our Investor Relations adviser, H Group.

India's position as one of the world's fastest-growing economy continues to attract investments in equity. At Anand Rathi, we have placed a strong emphasis on providing comprehensive, well-researched, data-backed wealth solutions to our clients. This approach has been a key factor in our achievement of several [ mine stores ] over the years, and we look forward to building on this success in the future as well.

In H1 FY '24, our revenue grew by about 35% year-on-year to INR 368 crores, while our profit after tax increased by 34% year-on-year to INR 111 crores. We have also revised our guidance upwards for the full financial year 2024. Revenue guidance are revised to INR [ 720 ] crores from the earlier guidance of INR 661 crores. The profit after tax guidance is revised as well to INR 220 crores from the earlier guidance of INR 205 crores. Our success can be attributed to our uncomplicated holistic approach, which resulted in an impressive 34% year-on-year growth in the AUM as well, and hence, the AUM stands at INR 47,957 crores at September end 2023.

Furthermore, we have expanded our client base to 9,212 families as of September 2023, cementing our reputation as a high-quality wealth management solution provider. We have added 40 new relationship managers on a net basis over the past 12 months. A reflection of our entrepreneur work culture is we have had zero regret attrition in this quarter as well. Our client-centric approach has been a driving force behind our success so far, and we are confident that it will continue to fuel our growth trajectory in the future, too.

Now moving on, I would like to share our flagship Private Wealth vertical performance for the second quarter and the half year ending FY '24. Our flagship Private Wealth vertical AUM grew by about 33% year-on-year and stood at INR 46,571 crores. Our equity mutual fund net flows grew by 14% year-on-year. This highlights and solidifies the value we add to our client families by offering holistic and uncomplicated wealth solutions.

In the first half of the year, excluding SIP flows, the industry approximately witnessed an outflow of INR 30,000 crores, while Anand Rathi Wealth saw inflows of more than INR 1,600 crores during the same period. The Private Wealth vertical has consistently delivered year-on-year growth, and we at Anand Rathi continue to see larger growth opportunities going forward.

I will now request Jason Chethan take us through the digital wealth and the OFA vertical to give you a brief highlight. Mr. Shenoy, over to you.

[Chethan Shenoy, executive]

Thank you, sir. The company's digital wealth segment and extension of its offering for mass-affluent segment also experienced steady growth. The AUM in this business increased by 46% year-on-year, reaching INR 1,387 crores in. Revenues from this business grew by 94% year-on-year reaching INR 12 crores.

The OFA business is a strategic extension for capturing the wealth management landscape to several retail clients through mutual fund distributors using our technology platform. As of September 30, 2023, OFA has 5,880 mutual fund distributors and has assets under administration on this platform over INR [ 18,000 ] crores.

Thank you very much. And now I hand over the call to Jugal to take you all through the financial performance of the company. Jugal, over to you. .

[Jugal Mantri, executive]

Thanks, Chethan. Thanks, Feroze bhai. Good afternoon, everyone. India's economy is on an upward trajectory, displaying strong performance in recent quarters. With robust growth in key sectors, increased investment and a promising business environment, the economic outlook is bright, reflecting a positive and resilient trend.

Let me start with consolidated financial performance of the company. Our consolidated revenue for the quarter ended September 30, 2023 stood at INR 189 crores compared to INR 138 crores in Q2 FY '23, registering a growth of 37% year-on-year. Profit before tax for the quarter stood at INR 78 crores, registering a 35% year-on-year growth. The PBT margin stood at 41.1% in Q2 FY '24. Our profit after tax for the quarter stood at a healthy INR [ 68 ] crores. registering 34% year-on-year growth compared to INR 43 crores in Q2 FY '23. The PAT margin stood at 30.5% in Q2 FY '24, and earnings per share for Q2 FY '24 was at 3.8% compared to 10.3% last year. .

The revenue for H1 FY '24 stood at INR 368 crores compared to INR 272 crores in H1 FY '23, registering a 35% year-on-year growth. Profit before tax for H1 FY '24 stood at INR 149 crores, registering 35% Y-o-Y growth. The PBT margin was [ 40.4% ] in H1 FY '24. Profit after tax for H1 FY '24 registered a 34% year-on-year growth standing at INR 111 crores versus INR 83 crores in H1 FY '23. The PAT margin stood at 30.2 in H1 FY '24, and earnings per share for H1 FY '24 was INR 26.6 per share compared to 19.8% in the first half of previous year. Return on equity on an annualized basis stood at 42.4% for H1 FY '24.

Coming to the Private Wealth business financial performance. For Q2 FY '24, our revenue grew by 36% year-on-year to INR 181 crores. For the quarter end, trail revenue grew by 32% to INR 60 crores. Profit before tax for Q2 FY '24 was INR 76 crores, a growth of 34% year-on-year. The PBT margin for the quarter ended -- it stood at 42.1%. Profit after tax for Q2 FY '24 was INR 57 crores, registering a growth of 33% year-on-year. The PAT margin for Q2 FY '24 was 31.2%.

For H1 FY '24, all flexi Private Wealth verticals revenue grew by 34% year-on-year to INR 352 crores. Trail revenue for the first half grew by 25% year-on-year to INR 109 crores. Profit before tax for H1 FY '24 stood at INR 146 crores, a growth of 33% year-on-year. The PBT margin for the first half stood at 41.5%. PAT for H1 FY '24 stood at INR 109 crores, a growth of 33% Y-o-Y. The PAT margin for H1 FY '24 stood healthy at 31%.

Now we open the floor for question and answers. Thank you. Over to Mr. [indiscernible].

[Operator]

[Operator Instructions] So the first question is from the line of Rohan Mandora from Equirus Securities.

[Rohan Mandora, analyst]

Congrats on a good set of numbers. Sir, you can share what was the issuances on the structured products for MLDs for the primary and secondary issuances for the quarter? And second one, on the net flows of INR 226 crores, how it between equity, debt market and debentures?

[Feroze Azeez, executive]

Chethan, can you take this one?

[Chethan Shenoy, executive]

Yes, sir. See, for the MLD in Q2, the gross issuances was INR 1,067 crores, INR 1,396 crores in Q1 FY '24 and INR 1,121 crores in Q2 of the last FY '22/'23. And when you do the breakup, the secondary issuances was INR 278 crores in Q2 FY '24 compared to INR 250 crores in Q1 FY '24. Did that answer your question?

[Rohan Mandora, analyst]

Sure. And sir, the net flows of 2026, what was -- for the quarter, how much was equity demand structure MLDs?.

[Chethan Shenoy, executive]

You're talking about the net inflow?

[Rohan Mandora, analyst]

Yes.

[Chethan Shenoy, executive]

See, the net inflow...

[Feroze Azeez, executive]

Chethan, I have the numbers.

[Chethan Shenoy, executive]

Yes, yes.

[Feroze Azeez, executive]

Okay. INR 1,507 crores of equity mutual for net flow, minus INR 406 crores of debt and liquid, Total mutual fund of INR 1,101. Non-principal protected SP, minus INR 57 crores, other products, INR 182 crores. So INR 1,226 crores is the total. So equity mutual funds, to answer your pointed question, is INR 1,510.

[Rohan Mandora, analyst]

Sure. Second is in terms of the MLD originations that we are doing right now, is there any change in mix in terms of the tenor, 3-year, 5-year kind of products? Or is it broadly the same that we have been issuing in the recent months, recent quarters?

[Feroze Azeez, executive]

So Rowan, our principle has been to optimally innovate. And 5 years was something which we statistically found was a better risk reward product client, and so we continue with the 5 years. There's no change whatsoever.

[Rohan Mandora, analyst]

And in terms of the originations, what are the mix from the nongroup entities on the MLPs for this quarter?

[Feroze Azeez, executive]

[ 19 internally ].

[Rohan Mandora, analyst]

Okay. And lastly, in terms of the primary issuance run rate, which is around INR 1,400-odd crores quarterly. What is the peak rate that we can issue? Are there any constraints maybe from a regulatory perspective which can cap run rate? Just trying to understand on a growth perspective from FY '25/'26 or perspective, what kind of an origination run rate can we see at peak?

[Feroze Azeez, executive]

So there is largely no limiting factor, at least in the next 5, 7 years.

[Chethan Shenoy, executive]

And on top of it, Rohan, as of now, like we are limiting it to one external vendor and one group entity. The market is very wide. We can always explore and keep on adding the issuers. So there is no limitation whatsoever even in any new year as well as the far future.

[Operator]

[Operator Instructions] The next question is from the line of Ms. Pallavi Deshpande from Sameeksha Capital.

[Pallavi Deshpande, analyst]

Just wanted to understand in terms of the revenue growth is a little slower, would this primarily be explained by this decline in the MLD book?

[Feroze Azeez, executive]

Sequential growth is lower, something that's the case [indiscernible]. So year-on-year growth is 36% in revenue. And sequential from the quarter -- first quarter, there is still a growth of about 20% -- no, the revenue growth...

[Jugal Mantri, executive]

Revenue growth at 6% on Q-on-Q.

[Feroze Azeez, executive]

Correct.

[Jugal Mantri, executive]

So that is a very quite healthy number when you look at the Q-o-Q growth in case if you are comparing it with a quantum leap, which has been achieved in the AUM growth. And that is what makes you feel that the revenue growth is smaller compared to the AUM growth. So there, the main thing is that -- see the sizable growth which has come in the mutual fund scheme, there, it is largely the trail income. And trail income accrual will happen over a period of time. So it never happens for the full quarter as and when we keep on adding AUM. So even for some AUM, the revenue might be for a few days only in the whole. So that is why it looks smaller when you compare it to the AUM percentage. But going forward, it will get normalized and you will see the similar kind of growth. Is that right, Chethan sir?

[Feroze Azeez, executive]

Yes, absolutely, Jugal, If you normalize the 6% growth revenue growth in a quarter, that implies 25% for the year and -- 24% to be precise. And like you said, the trade revenues come in gradually, and they don't come upfront. And if you look at the structured product issuance, which is also exactly or almost equal it was, because the structured product issuance is an outcome of a portfolio design. And if the portfolio of design has a certain percentage, there will be allocation opportunities in structured products or in mutual funds because when there is a rebalancing. Let's say, there is a 30% allocation a client actually has desired to have and structured products. If mutual funds run up, there will be movement from mutual fund to structure product and vice versa.

So the revenues are an outcome of client action derived out of a portfolio construct pre the demand. so that the process is driving and revenues and outcome. Our clients return is the primary requisite and the desired portfolios which are agreed with the client makes the repeated sale practically a few minutes' job.

[Pallavi Deshpande, analyst]

Right Sir, just second, I just wanted to understand, I think you did mention before that there is no capacity constraint for the [indiscernible] protected products. Would there be any -- I understand long term, there's no capacity constraint. But in the near term, do you see an overheating in the credit markets, and due to which, you may be wanting to go slow there?

[Feroze Azeez, executive]

Not at all, Pallavi. The reason being, when we look at -- when we give our long-term guidance of 20% to 25%, we have methods where we simulate at least the next 8 quarters, if not more, okay? So there is no constraint from a credit market heating up. Will we have difficulty in further issuances? The answer is no. And this is something which we've been doing for the last 11 years. And when you plan -- and it is the same 2 products or 3 products, which have been repeated maybe 1,000 times each. So we believe in doing the same thing over and over again and perfecting it rather than innovating to get our revenues in the bank.

[Operator]

[Operator Instructions] Our next question is from the line of Sunil Shah from EMS.

[Unknown Analyst]

My question is more towards the next 3 to 5 years. Now if I run with an assumption of, let's say, 25% compounded growth, maybe 12% for us can come because of the market appreciation because we are selling such products, wherein our AUM will be either 11%, 12%, 13%, 14%, 15%. So if I take a 12% growth over that period. and the residual 13% growth can come in from, let's say, incremental AUM from existing clients, that introduction of new clients because of your increase in AUM. So this 25% kind of a growth number for the next 3 to 5 years is the broader assumption with which I'm moving forward. Is there any risk time assumption which is internal to the organization?

External in terms of market is something which I can understand. But is there anything that I'm missing out on this assumption that I'm going out with? .

[Feroze Azeez, executive]

Sunil, thanks question. Firstly, we've given the guidance of 20% to 25%. Of course, the 25% compounded growth, not just for 5 for 10, 15 years, and we firmly believe it's part of cost, point one. Like you rightly said, if the client's portfolio grow by about 12%, then the other 13% needs to come from the 3 other cylinders of growth: new client addition, penetration into existing clients and new RM addition. Let me throw some color for you to be able to comprehend the potential of these -- all these 4 verticals or 4 cylinders.

We did an analysis -- we continually do this. But the latest numbers of all our 10-year plus clients, the top 200, the return compounded for their portfolios is 13.97%, give or take, because this is still not audited. It is in the audit stage. So 13.97% is the compounded return of our 10-year-plus client with [ EBITDA ] of about 0.57 in the same period, transaction-by-transaction, it is deliverable to us. So having said this, like you rightly provisioned for the future, like 12%, I would say, to be on the safer side, 10%, 11% is what we promised. From the automatic growth as time progresses, if we do justice to people's [indiscernible].

Then coming to the second part, penetration of our existing families, which is 9,212, you will also be very happy to know, our top clients who contribute to 20% of the AUM, approximately INR 50 crore-plus, all of them barring none were acquired at an average value of INR 12 crores. So this can give you a sense of the potential of the large number of acquisitions which are happening. With time, we are able to build credibility of reasonable distributors who don't overstate and underdeliver, And when once a client realizes that this is some place where he can drop, there is risk management, numerical risk management. And everything which is given to them is what the relationship [ buys ] for himself, then penetration becomes simpler.

So the point I'm trying to make is all our top clients, we have penetrated in the wallet reasonably over long periods of time. And if we have thousands of clients waiting and in the process of the credibility, the potential is humongous on the second cylinder, which is penetration.

When it comes to new client addition, the engine of new clients as we become more and more visible is becoming relatively simpler. And next 1, 2 years, the full strategy of marketing seems to be currently showing green shoots. Most of our clients today take pride in referring their friends. There are several clients who want to bring 30,40 of their friends to make us -- do [ evens ] for them. So that whole inflection point, I think, is around the corner in terms of client acquisition so that we can get to 0.751 per RM per month, which is our aspiration.

Fourth engine, which is new RM addition. We have 330-odd account managers which are apprenticed, being trained by the 300-odd RM on a one-on-one relationship. And most of our RM promotions come from our RM additions -- reasonable number come from this set of those people who emerge themselves as capable of carrying the brand and in the marketplace. So to answer your point question, sorry, a long one Sunil, I think your assumption is very, very fair. To provision for external risk is why there is a range of 20% to 25%.

[Unknown Analyst]

Right. I understand this much better. Yes, clearly, Anand Rathi for us is one of the only companies in this financial world in India which has carved out a process for the RM side, the client side, the product side, which is not visible in any other company. I appreciate that a lot.

My -- again, I'll just dwell back on the question, which is the risk part. This is beautiful, what we are doing. But anything that you think can mean that minus 3 sigma kind of an event, which you cannot think about internally is what I'm trying to understand. Is there anything -- or if it is just maybe I'd be happy to hear that. But at this point in time, we do not foresee. But just not on the MLD &D parts the relationship that we have with our concern. Everything else with what I'm talking about.

[Feroze Azeez, executive]

Sunil, like you rightly said, there could be 3 sigma, 4 sigma, even 6 sigma events, which are not seen. But if you look at how the group has behaved like Rakesh, sir, is the long -- one of the longest-standing CEOs. I'm saying one of them because I don't know all of them, but 17 years. And we've traveled several challenges reasonably well. I think there is risks which we mitigate. Now if you look at the regulatory side, the tax side, the life side, like there was an MLD tax change and we had predicted that a year before that. And that's why we were not doing listed MLD. And this was in public domain, given as this is rising on the wallet will happen, so regulatory.

Now if there is any change in trail commissions, for example, I'm again taking you out of MLD for a moment. I'll come back to that topic. We know that it is going to be an advantage. Even if there's a yield compression, it's going to be an advantage for us. Why will a yield compression be an advantage? Well, it looks like -- sounds like an oxymoron. So the third largest distributor, nonbanking distributor and yield compression could be an advantage because it helps me have the same level of interest where my competitors are losing interest. The evidence of that is the lump sum in equity mutual funds is minus INR 30,000 crores in the same half year where we are speaking of INR 1,500 cores, INR 1,800 crores of addition. If you remove the SIP number of INR 90,000 crores, the total inflow is only INR 60,000, which implies lump sum money has gone up.

So from a regulatory standpoint, from a taxation standpoint, from a supply standpoint, I'm sure you're very interested in the MLD piece -- or now as we -- now MLD as a definition, so we call it non-principal structured product which is what it is. We have looked at all the 4 constraints, and we have [ reviewed ] these constraints very, very extensively. Constraints could be supply in terms of borrowing needs of the NBFCs, supply of the hedging need of the derivative market, for example, so on and so forth. There are 4 constraints. All those 4 constraints are -- have been examined to an AUM of INR 1 lakh crore in structured products alone.

So we like to simulate. We have a written down strategy for each of that. So probably we can give you a reply, Sunil. We can also do some other non meetings a explain a simulator. In fact, we've also made a simulator, a very interesting one. Because Sunil, you spoke about process, The process has been laid down because in our company, everybody is a relationship manager, me, [indiscernible], Chethan Shenoy. Even our erstwhile HR Head used to mainline. So there is a lot of experience when you go to the marketplace, and Chethan Shenoy could be my tenth largest or even -- so it's not just for a tick box. We are serious relationship managers who understand what's happening in the marketplace.

So putting a process, keeping in mind the RM difficulty, the client need and the delivery performance for the client, those processes are being defined and always being strengthened as we learn as we go on.

[Operator]

[Operator Instructions] So the next question is from [ Rusmik Oza ] from Nine Ways Equity Research.

[Unknown Analyst]

My question to both Feroze and Chethan was just to understand the strategy of the Digital Wealth space. Because the last one, number of customers have gone up only by 10% because it's a platform business much more fast, scalable. And in terms of AUM, it is around 3% of our assets survey. What's your strategy for this in the next 3 to 5 years? And in terms of profitability, how does it compare now and maybe 5 years on there and once it is fully scalable, how could it build up?

[Feroze Azeez, executive]

Mr. Oza, the thought process here is to see if we can give kind of advice to mass affluent digitally and still continue our huge cultural principle of giving ethical advice. Because currently, the mass-affluent buys investment-based insurance plans largely by several other banks and distributors. So that's the thought process. Now coming to your pointed question, what do we see as the future? We've always had this principle of first evolve and then scale. So we are in the evolution stage to understand where we are right, where what's wrong, what's right. So these are profit-making entities. And we are still in the process of getting the trial and error to make sure that it becomes a scalable business. So I would not want to comment on its scalability at this stage.

Like you would see in the Private Wealth business, now we are, for the last 2, 3 years, think pressure on the accelerator because a company which deals with people's money needs to evolve and not scale so soon. I think that's why I would not have projections or any guidance to give on those businesses. It will be like counting the chickens before they hatch. And we would not want that. But yes, the first -- the core principle is can we give mass affluent a similar advice where still there is a relationship manager who can manage 100 to 200 clients using the technology platform? Because we have realized the technology stand-alone does not handle the client during bad times. Investing is both heart and the mind from an investor standpoint, if you think.

We were the only or one of few wealth managers who had a positive equity mutual fund inflow during the COVID year whereas the industry lost a few lakh crores between PMS and mutual fund. That's because handholding is the most important thing when adversities happen. That's when a person is able to realize the long-term benefit which he sees on paper. So technology stand-alone is not our thought process. It should help augment an RM to manage 200 clients as against 50, which we -- what we have as private wealth number of clients. So that's the key fundamental thought process, I thought I'll throw some color on it and have the expected numbers. It will be a little premature for me to even create a guidance on that and very.

[Unknown Analyst]

That Was very helpful. My second question is, since our business is actually more to manpower, and that cost doesn't go up so much. But as earlier Sunil was asking, if you have got 10%, 11% AUM growth and other additional growth coming from various aspects. And if you grow at 20%, 25% per annum for the next couple of years, then is there any scope for the net margins we may make around 30% right now which are further going forward? Or we feel hat this 30% is something which could stay for the couple of years? .

[Feroze Azeez, executive]

Mr. Oza, can it go up? The answer is yes. Like you rightly pointed out, several costs are variable and the fixed cost gets amortized over a larger revenue, that could definitely give us operating leverage. Having said which, we believe that investing in the business for future growth being insured or at least the probability of future growth becoming higher and higher, we are currently investing in several other verticals like strengthening our marketing, strengthening our compliance, strengthening our product division, strengthening several other divisions, which required to be made as professional as any company on The Street so that we can ensure the growth.

Having said which, we have an LCM kind of a number in our mind when we discuss internally. 40% PBT and 30% for PAT. In the order of magnitude, we always would like to protect this on the most controlled circumstances. But it's also very important to strengthen. Let me give you an illustration of how we've strengthened. The front-end product team, we have several research people who currently, because of the digital transformation after COVID, do joint meetings with RMs for effective communication and conviction transmission to the client. And you would be very happy to know if you're already a shareholder that we do 25,000 to 30,000 joint meetings by these 50 product research people who are front end, and their calendars have 4, 5, 6 meetings every single day on a working day and even on holidays. So that's why you would see revenue jumps not resulting in operating risk currently because we would want to invest in the business for the enhancement of the probability of the guidance which we have given so that we can continue the ethos of under-commit and over-deliver.

[Unknown Analyst]

And my last question is on the regulatory side. We've seen the regulator side has been very aggressive in the last couple of quarters on trying to introduce a lot of the tactics and other things. Do you see any threat on the regulatory side? And if so, are there any solutions which we have? .

[Feroze Azeez, executive]

Mr. Oza, for us, we have seen regulators as a regulation as an opportunity. Why? Because we have tried to always read between the line of each regulation, not read the line but get the essence of it. I can give you several examples. But for the lack of time, I'll just tell you that we look at regulatory changes as opportunities. Why does this become? Because we've interacted with regulators in different informal forums largely, where the regulator wants you to be client-centric. If the expectation of the regulator is mean client centricity, we want to be the 3 sigma more than mean in terms of client centricity. That's our aspiration. We don't want to be told to be client-centric. We want to be 3 sigma more than the average expectation of a regulator. That's why any change has resulted in some degree of [ fill-in ] for us. And I can list down the 7 changes, which I have in mind when I'm making the statement.

Having said that again, let me tell you that regulatory changes could be on commissions, which I think the regulator had spoken about. And we have already done a certain conference call also in terms of -- I think we have one, where we were trying to decipher that none of the regulatory comments were applicable to us. We were not using B30, we were not using -- we were not using smaller teams to get more commission. We were not doing NFOs, not even 1 NFO approved. Forget selling, not even 1 approved for the last 11 years. I don't think people -- we very well knew our neighbor could make 3% as a competitor upfront commission. We were still very happy making the 1.09 trail commission because we think that [ MNF ] doesn't have data enough for me to analyze. So we stuck our ground. So we didn't take the advantages of the generosities on the regulatory fund. So when the generosities get curtailed, we are not hampered.

Lastly, if you look at the study which we did, India has INR 607 lakh crores of household savings which was only INR 270 lakh crores in 2013. Large part of this data comes from RBI's website. Out of this INR 670 lakh crores, for all industry participants, it may be surprising to know that there is only 4% of Indian household savings in equity mutual funds. And we have, as a country, more money in the form of currency than equity mutual. This tells us what kind of role as part of the industry we have as a duty to make sure that if there are 18 crore people in crypto and 4 crores in equity mutual fund, we have a long way to go as an industry to do the charge of this platform, which is the most transparent. So I think regulator also understand what is ahead of us and what kind of distribution infrastructure will be needed. And I think there will be a balance because there is rationality in our -- all our regulators.

[Unknown Analyst]

I appreciate the kind of work you are doing because I spend 11 years in the wealth management division historically so I can relate understand the kind of quality work you're doing. Best of luck to the entire team.

[Feroze Azeez, executive]

Thank you for your generous comment.

[Operator]

[Operator Instructions] So the next question is from the line of Pallavi Deshpande from Sameeksha Capital.

[Pallavi Deshpande, analyst]

Just wanted to understand this is something from an industry perspective that the small cap funds are now facing a challenge given the size in terms of that choice for investments getting limited. How do you see this play out for the industry?

[Feroze Azeez, executive]

Yes. Pallavi, madam, [ spoken of small cap ]. With full humility, let me take some credit for the company. On January 2, 2023, which was much before all this outperformance, in public domain we have said small cap has to go up because of some plan analytics, which we back-tested and fund tested. So we increased in our model portfolio small caps, which was just 5% in the fund level to almost about 24% much before this rally.

[Technical Difficulty]

[Operator]

Ladies and gentlemen, please stay connected. Mr. Feroze Azeez's line has been disconnected. I'll try to get him connected on the line.

Mr. Azeez, can you hear me?

[Feroze Azeez, executive]

Yes. Perfect. So Pallavi, madam, can you hear me now?

[Pallavi Deshpande, analyst]

Yes.

[Feroze Azeez, executive]

So like you rightly said, small cap as an industry has become larger. The assets which have come into small cap in the month of August was about INR 4,340 crores came into small cap as a category. Last month, INR 2,638 crores in the month of September. Small cap as a name has remained the same over the last 5 years and the next 5 years, we will still call the subsequent 250. Other than the first 250 as small cap, the English description would remain as that. But you will also be happy to know that the top stock of the small cap index, which is the NSE Small Cap 250 which is what is the concern for a mutual fund investor, as per semi, the largest stock is a INR 36,000 crores market cap.

So if you look at the average of the top 10 stocks in the NSE Small Cap 250 Index, the smallest one is INR 20,000 crores in the top 10. So I think 5 years back, the largest small-cap stock was INR 8,000 crores. Today, again, it is called a small cap, but the largest small cap is INR 36,000 crores. Unfortunately, English hides more peaks. So we like to look at the mathematics of it. That's point one. Point two, nothing to say that these 2 funds, which are really large, like Nippon Small Cap and the SBI Small Cap, which have reached more than INR 25,000 crores, like Nippon small cap had some 160 stocks in the portfolio. But again, SBI Small Cap, which is equally large, had only about 60 stocks in the portfolio. So every fund manager is able to apply his judgment to what he can manage because the universe has become larger.

The number of stocks which we call non-micro cap, which is greater than INR 3,000 crores market cap, has expanded significantly by about 80% in the last 5 years. For a country this large, which India has the largest number of listed stocks in the world, do we think that supply will come? To my mind, yes. But from a mutual fund distributor standpoint, if the person is ahead of the curve in terms of not looking at the rearview mirror to decipher the returns and its actions, we are able to generate the alpha. So the model portfolio which we ran from January 1, 2013 after direct was introduced, we knew that this is one risk. So we'll have to put in a lot of to add value to be a relevant distributor. So we started a model portfolio on June 1, 2013. Jan 1, 2013 is when Direct was introduced. Just past performance advice or distribution would not work we knew then.

So after 10 years, I'm very happy to disclose that all the buying and selling, which our model portfolio recommended is done, would have generated an alpha of 3.97% on [ NIPT ] over a 10-year period compounded. So if one were to invest INR 10 crores as per Anand Rathi model portfolio and agreed on all decisions taken, he would have had INR 41 crores instead of INR 30 crores in it. So INR 11 crores at alpha has been added because we spend -- 25 people spend day and night only to understand out of the 384 active funds, which one will be the 14 which will form a part of my portfolio and the intense and rigorous mathematics in terms of solving equation using regression, using holiday NAV, using target NAV, all these are concepts which we are working on even a copyright on, if possible, as a process, should give us the 3% alpha.

So point is for a distributor, everything is open. For our industry as such, I think small cap has been redefined, not in English, though, but in mathematics.

[Pallavi Deshpande, analyst]

Great to know about the alpha. What -- second part this would be that what's the view on the small caps?

[Feroze Azeez, executive]

I don't think it's the right forum. For whatever it's worth, we think that small caps have potential. But there's a liquidity which has chased the stocks. So we try and see the intersection between. So we -- I tell you what we did. Because the exuberance in small cap, which is apparent from the dispersion and nifty returns to the small cap return, especially for this financial year when we moved into small cap, it's so large that we wanted to see whether it is time to book profits out of them. We realized that we first made a list of the negative stocks of 25, and then we try to see the intersection in our model portfolio on an exposure basis. That was very less.

So what is our thought is that out of the 250 small cap stocks, being very, very selective is the name of the game, in our humble opinion, which might be completely wrong. But yes, I'm just telling you what we feel, especially a year where there is an election. This is one thing from an industry participant out of our -- digressing from our results. We did an analysis of the last 5 general elections. Elections generally are perceived by an investor to be an adversity. But all 5 years or if somebody were to invest just 6 months before election, general election and exited 6 months after general election, the all 5 times you would have made a positive return. That was a surprise to me. Even a 1-year investor plus or minus 6 months with a general election in the middle has always positive return, and 10% is the minimum return and 16% in average.

So we tell the client that elections might seem like an adversity, so don't change your risk and calibrate it too much unlike what the perception with the decibel of the news going up on this is going to happen. That's what we want to counsel our 9,212 so they won't be equal to the rest of the 4 crores.

[Operator]

As there are no further questions, I would now like to hand the conference over to Mr. Feroze Azeez, Deputy CEO of Anand Rathi Wealth Limited for closing comments. Over to you, sir.

[Feroze Azeez, executive]

I'd like to thank everyone for being a part of this call. We hope we have tried to answer your questions. If you need more information, please feel free to contact Mr. Vishal Sanghavi, our Investor Relationship Head; Rajesh Bhutara, our CFO; our Strategic Growth Adviser, our Investor Relations Advisers. I appreciate your time, and I'd like to extend my heartfelt wishes for our upcoming festive season, and may you have a great weekend. Thank you for your time and patience.

[Operator]

On behalf of Anand Rathi Wealth Limited, that concludes this conference. Thank you for joining, and you may disconnect your lines.