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Earnings Call Analysis
Q1-2025 Analysis
HDFC Asset Management Company Ltd
The mutual fund industry has shown robust growth, achieving a sevenfold increase in AUM over the last decade, reaching an impressive INR 62 trillion. This growth is evident in both equity and debt funds, with equity-oriented funds seeing net flows exceeding INR 1 trillion in the quarter ending June 2024. Debt-oriented funds, including debt index funds and debt ETFs, had a significant turnaround, witnessing net inflows of INR 729 billion after three consecutive quarters of outflows. Liquid funds also saw an addition of INR 510 billion during the quarter. These trends indicate a strong recovery and growing investor confidence in both equity and debt markets.
HDFC Asset Management Company surpassed INR 7 trillion in AUM, with a significant tilt towards equity, comprising 64.3% of their asset mix on a quarterly average basis. The company's actively managed equity funds have grown to INR 4.4 trillion, capturing a market share of 13%. Meanwhile, debt and liquid AUM saw quarterly increases of 9% and 14%, respectively. HDFC remains the most preferred choice for individual investors with a market share of 13.3%. The company added 1.1 million unique investors this quarter, reflecting its expanding customer base and market penetration.
HDFC's financial performance was strong, with total income reaching INR 9,483 million. Revenue from operations rose to INR 7,752 million, marking a 35% year-over-year growth. Operating profit also saw a significant increase of 40% year-over-year. PAT (Profit After Tax) stood at INR 639 million, a 26% growth from the previous year. These figures demonstrate the company's robust financial health and efficient operational management.
HDFC's latest NFO was a resounding success, raising nearly INR 9,500 crores, far exceeding the anticipated range of INR 3,000 to 4,000 crores. However, this success came with slightly lower margins, diminishing the average equity margin by about 0.5 basis points. Despite this, the company remains optimistic, expecting margins to rise from the second year onwards due to a step-down structure in commission costs. This positive outlook is supported by continued healthy inflows post-NFO.
Employee benefit expenses increased due to year-end increments, a rise in headcount by 280 employees, and investments in employee development and engagement. Other expenses also saw a rise mainly due to increased business activities, new fund offerings, KYC expenses, and outsourced service costs. Despite these increased costs, the company views them as necessary investments to support long-term growth.
For the future, HDFC Asset Management plans to maintain its aggressive growth strategy across all segments, including equity, fixed income, and other products. The company is also keen on expanding its branch network and leveraging its relationship with HDFC Bank to increase market share. With a robust product portfolio and strategic investments in technology and employee development, HDFC is well-positioned to capitalize on emerging market opportunities and maintain its leadership position in the asset management industry.
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Ladies and gentlemen, good day, and welcome to Q1 FY '25 Earnings Conference Call of HDFC Asset Management Company Limited. [Operator Instructions] Please note that this conference is being recorded.
From the management team, we have with us Mr. Navneet Munot, Mr. Naozad Sirwalla; and Mr. Simal Kanuga. I now hand over this call to Mr. Simal Kanuga, who will give us a brief following which, we will proceed with the Q&A session. Thank you, and over to you, Simal.
Thanks. Thanks, Nirav, and good evening, everyone. The industry continued its upward journey and closed the quarter with AUM of INR [indiscernible] trillion, a signifying sevenfold increase over the last 10 years.
To put things in context, the size of the mutual fund industry as a whole was about INR 8 trillion as on 31st March 2014. And now we have seen industry adding over INR 10 trillion in the last 6 months. June 2024 was the 40th consecutive month where in equity-oriented funds have witnessed positive net flows, actively managed equity-oriented funds saw net flows exceeding INR 1 trillion in the quarter ending June 2024, with INR 262 billion of this amount contributed by 17 equity-oriented NFOs.
Debt-oriented funds, including debt index funds, witnessed net inflows of INR 709 billion for the quarter, marking a turnaround after 3 consecutive quarters of outflows. Additionally, debt ETF saw net inflows of INR 20 billion, bringing the total net new flows into debt to INR 729 billion.
Liquid funds also recorded an addition of INR 510 billion during the quarter, again, following 3 consecutive quarters of outflows. These flows and debt and liquid funds are similar to those seen in quarter ended June 2023. The following 3 quarters were net negative flows.
Also, over the last 3 years, the debt and liquid fund categories have collectively witnessed outflows totaling to about INR 2,650 billion. Monthly SIP flows have continued their upward trend, INR 213 billion for the month of June 2024. This quarter saw an addition of 2.3 million unique customers, new unique customers.
Now we move to us. We surpassed INR 7 trillion in AUM. Our asset mix has continued to further tilt towards equity, now at 64.3% on a quarterly average basis. On a closing AUM basis, actively managed equity funds have grown to INR 4.4 trillion, market share of 13%.
Debt and liquid AUM has seen a Q-on-Q increase of 9% and 14%, market share of 13.5% and 12.7%, respectively. We continue to be the most preferred choice for individual investors with market share of 13.3%. Our unique investor count reached 10.7 million, which takes our penetration in unique investor base to 23%.
This quarter, we added 1.1 million unique investors, and industries added 2.3 million. Systematic transactions for June 2024 stood at INR 32.1 billion.
About financials. Our total income adds up to INR 9,483 million. Revenue from operations increased to INR 7,752 million, a growth of 35% Y-o-Y. Operating profit grew by 40% Y-o-Y. PAT at INR 639 million, a growth of 26% Y-o-Y.
Thank you, and we can take questions now. Nirav, we can kind of start building up the question queue.
[Operator Instructions] The first question is from the line of Bhavin Pande from Athena Investments.
Congratulations on a great set of numbers. First thing, sir, the employee benefit expenses have gone up, I'm assuming it's on account of variable payouts that happened in Q1?
No, so that's -- employee cost is a function of year-end increments, actual increase in the headcount we added about from the Q1 of last year to Q1 of this year. There is an employee headcount increase of 280 people. We invest in learning and development, employee engagement, et cetera. So that's an overall increase. It's not just performance base. .
Okay. And secondly, other expenses have also shot up. So what could be attributed to that?
Yes. So the increase in other expenses is mainly on account of increase in general business expenses. There was a new fund off for expense. There are certain KYC expenses for mutual funds and outsourced service costs. So these are the 3 or 4 major heads where y-o-Y, there's an increase in expenditure.
So we are a manufacturing NFO during the quarter, and that does have some extra cost. And we assure you appreciate the NFO expenses are not bad in a sense that there is an additional AUM that will fetch us materially higher fees than costs incurred as we go forward.
Yes. Okay. Understood. And in terms of branch expansion, so we added one for this quarter. So would you like to give out some numbers in terms of annual addition that we could look at FY '25?
No. We had 24 branches that we opened in the first week of January. I think in the next few weeks or few months, I mean, we don't have plans to add many more.
The next question is from the line of [ Ujwal ] from [indiscernible] Advisory.
First of all, congratulations on the great set of numbers. I have 2 questions, actually. The first question is currently asking that the percentage of asset under management and equity funds stands at 50%, that is up from approx 39% a year ago. I wanted to ask, like, can you elaborate on the strategic considerations behind the shift share prediction, whether this is likely to increase, decrease or like remain stable in the foreseeable future?
No, so I think the way we kind of look at assets are between equity oriented. So if you just add up the equity-oriented asset for us is 64%-odd. so we are nearing a 64%, 65% mark when you look at purely equity-oriented assets for us. So you are saying where we expect this to go that. Is that your question?
Yes. Equity base like assets under management and equity, basically. So like is it likely to increase or we expect it to like see remain stable considering like in the foreseeable future? And if you can give any guidance about like the on the margin part?
So while we to grow all our segments, but you would appreciate that in case of equity the 2 variables, number one, the mark-to-market gain will relatively be higher than other asset classes that will push the equity proportion higher within our overall.
And second is the SIP book, which is now a very large part of the overall flows. So a large part, in fact, bulk of the SIP flows are into equity funds. So the equity proportion by that should increase at a faster pace. But as I mentioned earlier, our intent would be to like go all our segments of business, including fixed income and other.
Okay. Okay. Got it. And my second question was like, could you provide any insight into like any upcoming initiatives related to introduction of new fund offers? Like specifically, are the plans to diversify or expand this portfolio through NFOs in the near term, like in the near future?
No, we just had a an NFO fund which met with a huge success. After that, we had an index fund just a few days back. We keep looking at our product bouquet, but to a large extent now, we believe that our product book is more or less complete. We've got the full range of products across both active as well as passive side for -- to meet different kinds of investors need. But I consistently encourage the team to consolidate our position in the -- in our existing funds and try to aim for top 3 positions across categories. So I think there may be a few here and there, but I think to a large extent, our product bouquet is full of both on active and passive side.
Next question is from the line of Prayesh Jain from Motilal Oswal.
Just harping on the question on employee expenses, again. So sequentially, when we look at the employee expense, it is up 17% Q-on-Q. So what are [indiscernible] expenses? Is there limit [indiscernible] have gone sequentially. What is the that is driving this sequential increase? Because generally, I understand that your variable pay gets amortized over the years -- over the 4 quarters. So how do you read this? And how should we look at the run rate from here on?
So see, sequentially, the first impact of sequential increase is the annual increments we roll out, right, in the first quarter of the year. So that's 1 aspect of it. Also, in the first quarter, we typically have the initial valuations that come across [indiscernible] cash spend and all other purposes benefits that go in. And typically, the way it works is, the valuation comes in, which is then sort of -- which gets used up over the rest of the year.
This first quarter, we also had a large employee engagement event, which we typically do in our first or second quarter of the year. So these are the elements. I would encourage that you look at expenditure on an overall basis for an annual basis. And on an annual basis, I think for employee costs, we have broadly would be in line with what the market would expect between, say, 10%, 12% unless we have a very large expansion of people, which we have done over the last 12 months, this month, this year, we are still planning on expansion. Otherwise, I would just expect you to look at it on an overall basis on a year-on-year rather than on an annual basis rather than a quarterly basis.
Got that. [indiscernible] on the tax rate, why is it low and how should we look at for the full year?
So we have explained this. Some of the assets that move from short-term bucket to long-term bucket, the DTA benefit comes through, which is why we had a similar setup in Q1 of last year, and some of it is also flowed into Q1 of this year.
Okay. Got that. And so if we start looking at from a yield perspective now, we know yield sequentially improved and we guided also for improvement in the previous quarter. But how has been the NFO yield in this quarter given the state of NFOs that have come in the market, how has been the commission from NFOs? Has that been commissions? Because there are some market talks about some of the teams getting in that much lower rate than the existing book.
I think Prayesh, more or less the newer NFO that are happening in the market are happening in a range. It's not like something which is way off.
Okay. Okay. So there no -- in the past, what we had seen was NFOs were coming at a very high commissions, that's not happening right now?
No, so NFO commissions are higher than the normal commissions because that's what kind of tends to happen, right, overall activity. But as of now, what we hear from very players in the market, I think it has been fairly in a range.
Okay. Okay. And my last question is, can you give out the yields on each of the assets?
Sure. You're asking about the revenue yields on equities. Yes, so equity is just short of 59 basis points, debt has been 28 fairly steady, liquid 12, 13. So yes.
Next question is from the line of Kunal Thanvi from Banyan Tree Advisors.
Sir, I had this question on employee addition. So if you look at our last 5, 6 years employees, they were kind of a number of employees were flat around 1,050 to 1,200 mark. Last 2 years, we have seen a reasonable increase in number of employees and Naozad [indiscernible] we're looking to hire more this year.
Can you talk to us about what are the areas where we are hiring these employees and -- because typically, we would -- like nature of our business is that you don't need at least a large number of employees to grow our business. So if you can throw some light on areas where you've been hiring these employees?
So Kunal, as you are aware, we added 24 branches this year that would have been like a substantial branch expansion after a long time. We have set up a dedicated channel to service HDFC Bank, which is a big opportunity for us over the next several years.
Similarly, like we've had a few of the dedicated channels where we see opportunity for us to grow. We have expanded our technology team, our digital team. We've hired 5 investment resources in our alternative business. We have ambition to grow our international business.
So I think roughly 280-odd people that Naozad talked about that we have added over the last year to meet all of those evolving business needs. In fact, I do see the need for further investment in the back on the digital side, but they would be like substantially larger numbers in terms of people, but that's where we would add some more talent. But a very large part would be in our sales -- core sales and client services in terms of numbers.
Sure. So when we talk about these branches, can you help us understand what is the concept of these branches? Are these like very large branches or low -- like a large number of people in the branch, what would be their typical size and how do we these branches in a way from the unit economics point of view?
No. So the new branches we put up and we see a certain size where we can breakeven very quickly. We look at the overall AUM in that area and to service the catchment in relative to our distribution there. And these have been like 2, 3 people branches and most of them were in B-30 locations. .
So the cost suture is not very high. You would appreciate that in most of these places, they don't pay a very high lease rental or even the people cost not very high relative to the potential. And I'm sure all industry data that you would be looking at over the last several quarters is a substantially higher growth in the percentage growth in B30 towns. And given our brand and franchise, I mean, pedigree, we believe there's a lot of potential for us to make the most of the opportunity that's available today.
Sure. And like a further follow-up on this, like when you look at HDFC Bank, 1 big advantage, of course, [indiscernible] network they are like huge -- largest private branch network in the country. .
Now with our branch network and their branch network presence, how do you 1 read into it, like going ahead as well? And you talked about I think employees for HDFC Bank channel, can you talk more about it? What kind of support or what kind of engagement that is?
No, we operate independently. People don't sit in those branches. But when we are opening branches or when we are hiring people, not only in the newer locations, but even in the existing locations, we keep in mind the spread of HDFC Bank in that area. As we have been mentioning over the last couple of quarters that we are very excited about the opportunity that HDFC Bank as the distribution partner presents.
The management team at HDFC Bank, I'm sure you have heard from them, has been very supportive of all our initiatives. They are a formidable distribution machine, and we won't leave any stone unturned to capitalize on it. In fact, I might have mentioned in the last call that we have a dedicated senior resource overseeing this relationship, and we have strategically mapped branches in clusters with ours.
And the strategic alignment has not only strengthened our relationship but has also deepened our engagement level. And I'm certainly very involved on a regular basis, even across levels and functions they have in the HDFC Bank. And I can clearly see there is a lot more alignment.
Sure. One question was from our annual report, right? We talked about the fact that we are taking strides from client service to client delight. Can you talk more about it, give some anecdotes pointers, which can help us understand how -- what and how we are making this journey or from client service to client delight?
No, many things. We need to constantly keep benchmarking ourselves. The way we are servicing our partners, the way we are servicing our clients, and we have a lot of benchmarking exercise over the last 2 years or so. And based on the feedback, both, I mean, what has come out of this benchmarking exercise and even otherwise, from our people on the ground. We have continuously been trying to upgrade our service level to them be it in terms of training of our people there, be it in terms of the way we response, reducing the turnaround time for every -- the request from the customers.
There are many things that we have done, focused on how do we digitize on our operations more and more. We regularly keep looking at the percentage of transactions, both the financial transactions and nonfinancial transactions that come in the digital form so that how we can reduce the turnaround time as well as improve the client experience.
We initiated an MD award system, which is a fairly objective one. And there is a very healthy, I would say, competition among various zones and clusters to kind of outdo each other in terms of providing better service to their clients. And a lot of this is also driven by the huge amount of analytics that we are putting in place to kind of like measure our effectiveness.
And looking at like each channel, so the way we serve, let's say, our mission distributors [indiscernible] the way we service our banking partners, the way we service as mutual fund distributors have been very important, but very large numbers and the way we service fintech so on and so forth.
Sure. That's helpful. And 1 question like as an MD and CEO of Asset Management company, when you look at our business from a near-term perspective, where markets are on a slightly overvalued zone, like there continues to be on the overwhelming trajectory, some pockets are like maybe in bubble zone. How do you look at -- because our earnings from a year or 2 years perspective?
Because the equity portion has become like one of the highest in our own history, like 64% of our total assets, right? How do you look at earnings from a 2 to 3 years' perspective? Because at the end of the day, equity markets are cyclical, and there are reasonable probability that markets make correct because of any reason that we don't know today? Any thoughts on how you look at this?
So we all take a lot of pride and do this a congratulation in the industry in terms of the way AUMs have grown. Simal mention about that number that are -- the growth in last 6 months is almost same as maybe the AUM, which was there and [indiscernible] back also.
But we also need to keep in mind that still a very tiny proportion of household wealth coming to mutual funds. All said and done, while we have added a good number of investors in the last 3 or 4 years, but their still total count is 47 million, 4.7 crores. Even if we look at number of investors who are participating in the capital market directly, there's still a lot of potential for us, and I'm not going into all the other numbers that we think should be a potential client base.
One of the heartening feature of this growth over the last couple of years has been a large part of the money is coming in the form of SIP. That gives us a lot more confidence about the longevity and sustainability of this growth unlike some of the previous cycles where people will look at this product more as a bull market product and then they look at like entering in the market and then booking profit.
This time, it's very different. And the way product is getting sold and a lot of contribution has been made by the campaign of mutual funds and all the efforts all of us are putting to educate or to increase the -- to educate investors or to increase the awareness about building well by systematic investing over a long period of time. So that gives me a lot more confidence about sustainability of this growth than most of the previous cycles.
Of course, there would be cycles. I don't think that equity markets -- you know this better, I mean, none of us believe that equity markets can deliver returns in a linear fashion. There will be quarters or years where where markets will witness higher volatility than what we have seen of late.
But I think the efforts in the industry is to ensure that investors don't get by the volatility at this time. We continue to ensure that investors invest in a highly disciplined manner, and we create a great experience for them over a long period of time that they can participate in India's growth. Another interesting thing I'll add that while you look at the growth on the equity side, but on the fixed income side, the industry hasn't grown much over the last few years.
In fact, this quarter was good, but the previous 3 quarters were negative. So was the case last year. The same quarter last year was positive. But before that, a couple of quarters had negative flows. So we haven't seen close in fixed income. There is over a period of time, potential to look at that asset class also.
The line for the participant dropped. Next question is from the line of Swarnabha Mukherjee from B&K Securities.
So I just wanted to congratulate the management on the great performance. So I have 3 questions. First is on the employee expense side, I just wanted to confirm that the number that was reported this quarter, whether that has any component of variable costs coming from last year [indiscernible], right?
[indiscernible]
Okay. So variable costs, the accounting method would be prorated across 4 quarters? Would that be correct, sir?
Yes.
Okay. And also, sir, if you could give me the number of what was the ESOP cost that was part of this employee expense this quarter? And how should we think about it for the full year?
It is there on the note. It's about...
So last year first -- sorry, the June quarter last year was INR 11 crores. This time, it is INR 6.3 crores.
Understood, sir. Also, sir, in terms of the margins in the flow, if you could give me some color? I think on the stock, you have said it is 59 bps in equity. What would that be on the flow?
So Swarnabha, that remains constant, what we've been always stating, right? The flows do come in at a bit of a discount to the book. So depending on the product, which sells more during the quarter, it does range anywhere in the range of mid- to late 40s or something or maybe sometimes 50s and slightly higher.
Sir, was there an impact of the NFO that we concluded this quarter on the number that we have reported? And can that kind of unwind going ahead?
Yes. So as you are aware, I mentioned earlier that we did this large NFO [indiscernible] now. There is a technical challenge with the NFOs whenever we do it. We are generally able to estimate NFO raise fairly in a range most of the times. So this time our team anticipated that we would collect somewhere in the range of INR 3,000 crores to INR 4,000 crores and we announced brokerages accordingly to our partners.
And to our positive surprise, the acceptance of the product was way better and we ended up, as I mentioned, and are nearly INR 9,500 crores. So yes, lower TER and accordingly lower margin for us. So I would say a very good problem to have instead of collecting INR 3,000 crores and making 2 basis points higher if we have got INR 9,500 crores, a few basis points lower in absolute terms, that's a larger amount.
So we do expect the margin to rise from year 2 as we have sort of stepped down structure from second year onwards. The -- in fact, the fund continues to see healthy flows post NFO also. So June end AUM stood at around INR 11,800-odd crores. Some part of it is mark-to-market, but flows are good, too. And these new flows are coming in at AUM-aligned commission.
Now that we know this is the AUM, so automatically, commission get aligned. So over a period of time, as we get more flows and as I mentioned, the step down structure from year 2, we do see it getting better from where this is currently.
So this NFO would have a low -- I mean this NFO would have reduced our equity margin on total equity AUM by nearly 0.5 basis point. But as I mentioned earlier, I'm not complaining about it. It's a good problem to have. In fact, I must mention this that you have seen some of our past for we have done the same at a very healthy margin. Actually, in some of the NFOs, our margins were higher than our book margin. So from that perspective, this 1 is an outlier and mainly because we ended up collecting a lot more than what we envisaged in the beginning.
Right, sir. Understood. Very helpful. Sir, the last 1 from the industry point of view, so I think in the last 3 months, as an absolute number, we have seen some amount of SIP discontinuation rates in the industry going up, although it is still much lower compared to number of SIP accounts getting added. But just thought I'd take your views on that whether to -- what should we read into this?
Swarnabh, it can even the other way around because what might happen is if a particular fund is not performing well, people will shut the SIPs there and go to another fund. So those things also will get really factored in. But I think the way we watch this number is look at the absolute monthly flow number in SIP, and that number is growing month-on-month, right?
You're right. Understood, sir. So for our organization, are we seeing any such kind of trend or it is fairly steady?
No, for us, I think the numbers have been fairly strong when it comes to systematic transactions.
Next question is from the line of Abhijeet Sakhare from Kotak Securities.
My first question is on yields. So when I look at, let's say, on a sample of top 4 or 5 funds, which I guess would be attracting more than 50% of net flows. It seems like the distribution commissions, if you look at it in basis point terms, seems to have remained broadly unchanged over the last 12 months. Our understanding would have suggested maybe given that adjustment happens not on the back book, but on the incremental flows, at least some pass-through of the reduced TERs to the distribution commissions as well. So if you can tell us what's the underlying dynamics that are driving this? Is it the contribution of say for general market trends or anything else?
No, Abhijeet, but it is getting aligned. So if you look at it, I don't know exactly how you kind of have mapped this data, but it is getting aligned. Also the very fact that SIP also, it is -- the commission rate applicable on SIP is on the date of transaction. So whatever commission is applicable on a lump-sum purchase on the new purchase happening, SIP goes at that rate, not any kind of a precontracted rate. .
Okay. You're saying the SIP -- commission rates on SIP is same as the rest of the book, right? There's no difference because of that...
On the new flow.
Only on the new flows [indiscernible] but your point on the book, I mean, you have seen the distribution commission versus the trend in the TER, of course, there is a gap. And team is thinking of various options on how to deal with the speed of this fall. As I've been mentioning that this is a happy fall in margins because AM is growing at a much faster pace. So in absolute terms, this is good, but statistically, you are seeing margin. Are there ways to manage this? A bit early for us to further expand. But all I can say is we are evaluating all possible options, and we will further expand on this once we have clarity internally.
Understood. And second one was that you generally your comments around SIP book starting to contribute meaningfully last couple of years. Is it possible to share any numbers? Of the new customers that we are getting how many of them would be coming to us through the SIP route itself? And this is a question in the context of there seems to be a lot of performance phasing that has come into the mutual fund industry as well. So I think that would be a useful data point to have.
So out of the new customers that we would have added in this quarter, how many of that. Good number of that. So all I can say is whether it's a lump-sum flows, the investors -- the new unique investors who are getting added to the industry in terms of putting money in a lump-sum form or investors who are starting with an SIP, in both of them, we have a very, very healthy share.
And the second part was the performance Of course, we have always been saying that performance is a critical component in terms of investors choice of funds at that point in time.
Next question is from the line of Devesh Agarwal from IIFL Securities.
Sir, my first question is around other expenses. You did mention that there were certain NFO expenses and all that in the quarter. which I'm assuming you don't expect to get repeated in the following quarters. So in that light, can you highlight what would be the one-off in this quarter, which you don't think will be repeated in the coming quarters?
One of the bigger 1 was the NFO cost, Devesh for the quarter that we incurred. We don't sell out specific costs for each item. But I think, again, I would encourage you to see it on an annual growth basis and generally, that's the way to look at other expenses as well I think we have been broadly seeing 12%, 15% type of expense growth expectation on an annual basis.
Devesh, if I can come in. I mean, our total costs are of INR 200 crores. So every additional INR 2 crores increase our cost goes up by 2%. And I look at the scale of the operations that we run. And -- I mean, all of -- I mean, I'm sure you would agree with the growth prospects that we have, not only in the mutual fund but and in alternative, PMS on the international side and even on the mutual fund side, there's a lot more, I think, that we can do to expand our market. So I would say that this is a healthy investment in the long term that looking at our cost in 1 quarter.
No, I agree, sir. Secondly, sir, you did mention about the asset-wise yield for 1Q. Can you give me similar numbers for the exit run rate as on first of July, what would be the numbers?
so this is blended for the quarter, and I think this is -- I mean, that's what we typically disclose, and I think it should be fine for the being. We are happy to disclose this for a quarter average basis, Devesh, for the time being.
Okay, sir. And sir, if we were to understand in terms of HDFC Bank assets for FY '24 end, what was their total mutual fund book and of that, how much was invested to HDFC AMC?
Yes, around 30% in the book. But as we have been saying, our flow share has been higher, both in SIP as well as overall.
And what would be the size of the book, sir, for HDFC Bank?
You're talking about the equity book or the overall book, Devesh?
The one that they invest in mutual funds.
No, but on the equity mutual fund or everything?
Everything put together.
So if you look at it, right, we have disclosed all the total AUM, they are 6% of our overall, right? So if you look at our AUM of June 2004, they have 6% of that. So you'll be able to just get that number.
And we have also put the number for the equity AUM, 7.7%.
Understood. And lastly, sir, if you were to talk about growth opportunity other than the general market growth that is applicable for everyone, the way I look at it is one is NFOs, which you said that more or less we have already completed all our open, there would be some, but nothing big. And the other is the HDFC Bank, where we can see the increase in the market share, other than this to any other opportunities that you can call out, which you would be targeting for FY '25?
Devesh, in our existing files, I think several of them have tremendous potential to grow. There are so many of our products where we may not be among the top 1 or 2 or 3 players in that particular category and the team is we need to -- I mean, we must have -- I mean, our endeavor should be to have a leadership position in all of that.
Now with diversity, we have different PMs with different times, managing different kinds of funds. And we need to ensure that not only at the overall level, but we should look at granular level even in every channel, every product, every zone, we look to expand in our current set of products.
Next question is from the line of Raghvesh from JM Financial.
Congratulations on the strong set of numbers. Sir, only on the top line yields, so last quarter, we saw a one-off and the expectation was that the yields would improve by around 2 basis points. I think the NFO around 0.5 basis point of the decline.
Are there any other one-offs that we can see in the yield this would be the trend going forward? Because if you see the quarter, the quarterly average AUM is a good 8% lower than the closing AUM, if the trend was to continue, we can see a stronger decline in yields in the coming quarters in this year?
No, sir, I disagree. We've mentioned about the adjustment in the previous quarter. So optimal would be to compare it to the December quarter. In December quarter, operating revenue margin then was 48 basis points. And for this quarter, it is 46 basis points.
But look at how the AUM has moved as compared to December quarter. Our quarterly average active equity AUM for December quarter was about INR 3 lakh crore and for this quarter, the number is INR 4 lakh crore.
This is a INR 1 lakh crore increase in last 6 months. Now at each scheme level, we would see a drop of 2, 3 basis points for every INR 5,000 crores increase in AUM, the point that we have been making in last couple of quarters, purely as per the regulatory formula.
Now due to increase in AUM by about INR 1 lakh -- I mean INR 1 lakh crores, many of our schemes would have seen an impact of 2 to 5 basis points and some even higher. I said the overall revenue margin would have looked even lower if our asset mix would have been constant, right? Because of this INR 1 lakh crore mark-to-market gain, the equity-oriented assets, which were 60.6% in December '23 for June is 64.3%.
So part of the dilution has been set up by a change in mix and this is what we have always mentioned that part of dilution will get absorbed in changing asset mix. Of course, these are intertwined increase in AUM of INR 1 lakh crore consist of material gain through mark-to-market and not just flows.
So if market goes up, our AUM will go up and vice versa and margins as we know are inversely correlated. But as I keep saying, every time that it is not a bad problem to have. I think margins would have looked exactly flat if there was no AUM. I mean, if there was no mark-to-market growth, so it's like absolute revenues or statistical margin. And we also mentioned about the manufacturing fund, where we added INR 10,000 crores, and that has led to like 0.5 basis point dilution on the overall book. But that, again, is like a good problem to have.
Okay. So other than that, no one-off. So this is a trend which is likely to continue with the AUMs [indiscernible].
So that is one, of course, I mean, as I mentioned earlier in one of the questions that we are definitely thinking of various options because the MPM growth has been so fast that how to arrest the speed of this fall, while as I mentioned, in absolute terms, we make more money, but still margins get impacted. And are there ways where we can manage this better. But as I mentioned earlier that a little early for me to further expand. But we are -- I mean, the team is evaluating all possible options and we will get back to you when we have more clarity internally.
I think the only thing I would like to add here is also coming from the fact that every 6 months, we don't see an increase of INR 1 lakh crore of AUM. So this [indiscernible] dilution has been more magnified because of a very rapid increase in AUM. .
Next question is from the line of Dipanjan Ghosh from Citi.
So 2 questions, sir. First, on this NFO that you have done in the month of May. Just wanted to get some color of what was the difference [Technical Difficulty].
Dipanjan, sir, [indiscernible] audio. Can you please speak for the handset?
[Technical Difficulty] but how do you kind of discuss your MSP counter share, do you kind of track that, let's say, for the top 50 or top 100 or 1,000 and how that is...
Sir, sorry to interrupt you. Dipanjan, sorry, but we are unable to hear you, I'll request you to come back in the queue, please.
Next question is from the line of Shreya Shivani from CLSA India.
Most of my questions have been answered. I just wanted 1 that clarification on the tax bit. Is this -- I'm probably not able to understand this better, but is this going to be on an ongoing basis or it's something that has happened in the past 2 quarters because of the move in from short-term to long-term assets? I mean, if you could help us understand that better? And how should we look for the -- look towards the coming quarters on that matter?
So actually, if you see it on an annual basis, it sort of evens out, more or less, right? When the year-end changes some of the assets too move from the short term, long-term market. So it's not like an annual thing and it's not like that this effective taxes country through the year. Towards by the end of the year, it will get more normalized towards the overall company's tax rate.
Got it. So it's probably something which impacts in your quarter and some quarter end, right? Not something which normalizes over the year is what you're saying?
So I think Shivani, what Naozad is saying is, there is -- so when we make an investment from the Prop balance sheet until it completes the period. So let's assume that we make an investment in an equity fund for the first 12 months, it's a deferred tax needs to be approved on the gains that have happened. For the first 12 months, it is classified as a short-term capital gain. an thereby, the tax provision is made at 15%. But once it kind of process the 365-day number, it becomes a long-term capital gain, and there is a reversal of entry of that 5%, which reduces the overall deferred tax and hence, the tax efficiency kicks in. But as Naozad pointed out, it's not something that will happen every quarter. Over a period of time, it will kind of get back to the normal corporate tax rate.
Next question is from the line of [indiscernible].
This is [indiscernible] So I have 2 questions. So Naozad mentioned 2 things on employee cost as well as on other expenses. So on the employee cost, we said that we should look at a full year basis and on a full year basis, it should grow in the range of 10 -- 12% to 13%. So this 12% to 13% growth in employee cost, is it including ESOP that we are guiding or we should look at it more from excluding ESOP?
Yes, yes, it's all included. It's 12% to 15% range, I gave, and you can assume all including [indiscernible].
Okay. Because in last year, we had a ESOP -- higher ex base and this year, the shop cost is going to be lower. So the ex ESOP employee cost this year could be slightly higher, right?
Yes, that's why you're giving you a blended rate.
Right, right. And on the other expenses side, we are saying that we should grow other expenses in the range of, again, 12% to 15%. Historically, our guidance has been that we should look at other expenses from pre-COVID till now, the growth rate was around 8% to 10%, and that should be our growth rate on the other expenses side. So now we've changed it to 12% to 15%. So any specific capacity building or gaps that we feel that needs to be building because of which we have upped this guidance of other expense growth?
Yes. I think Navneet actually gave a very detailed answer earlier on the call, right? He explained the entire rationale of where the investments will go the branch banking side, digital side, technology, I thought there was a very detailed answer Navneet gave. Probably if you will do the call again, you'll get the answer.
And also 1 more thing, if I may just add, if you look at even pre-COVID till now, our expense -- other expenses have been growing at the range of nearly 12% CAGR. So also the very fact, right, if you do a new fund offer, the market has expanded. Look at the size of the business that has kind of come up, the opportunity in store. So keeping all that in perspective, and I think I'm sure you would appreciate the fact, right? If things are not looking as good expense curtailment is something that we would obviously act upon.
We have kind of exhibited that very well during COVID times and even in past. But if there is a growth that is visible -- and I think we always made this comment, we'll never shy away from spending money when the business opportunity is something that we kind of find favorable.
Absolutely. So the question was also from a similar point of view that we are being mindful of the fact that the expenses that we've been adding, they are more variable in nature rather than being very sticky in nature because we all are aware of the markets and the levels that we are at. So the nature of the expenses are more on variable rather than being fixed or sticky in nature?
No. So actually, on a lighter note, we aren't aware about where markets are going. And so I think we would have exactly stated the same thing 12 months back. And if somebody would have lost out on the following 12 months, it was 1 of the so-called good times of Indian market.
So 1 needs to be very, very cautious when you thread that territory, right? In sense, I'm sure you appreciate the fact, right, and I think Navneet did touch upon this point, we now manage upwards of INR 7 lakh crores, so we have like 250-plus branches, we now have an alternate business that is getting set up. All of this is getting done for like sub-INR 200 crores a quarter.
And 1,600 people.
Yes. So I think we are definitely very, very mindful. And I think as an organization, we have been fairly tightfisted when it comes to spending money. So nothing changes there for sure. But for example, if we feel that by hiring the right set of people in analyzing our data, that would help us immensely over a period of time in terms of doing business, I think that's the call we would like to take positively.
Our last NFO has made our product tally -- I mean, has made our product tally to 100. And to put that number in perspective, in March of '21, exactly 3 years back, our total number of products we had on offer was 43. We have added 57 products in last 3 years to complete our like product bouquet, to meet investor needs of all kinds or needs of distributors of all kinds on active as well as on passive side.
And of course, all the taxability, the digital capability, the client services, somebody asked about, moving from client service to client delight, the new channels that have opened up or the opportunities that have come up our way be the HDFC Bank on some of the other opportunities and of course, initial days, but we are investing in building the non-mutual fund business as well and of course, on the international side.
Next question is from the line of Jayant Kharote from Jefferies India.
So 2 questions. First, on the wealth tax. Can you just tell us what is the share of these wealth tax apps senior SIP count and SIP flows? And also, how do they...
[indiscernible] fintech?
Yes, yes, fintechs.
You scared us here by saying wealth tax. So I was -- but yes.
Yes, sir. And also, our wallet share and market share, I mean, how -- is it in contrast to our overall market share and how is it progressing in these apps?
So we don't give specific channel-wise market shares as such. But yes, we can definitely comment, it's fairly healthy.
Okay. And sir, the total share of these apps on your SIP flows or any indication how big have they become for you?
So the more than half of the new SIPs in the industry come through fintech channels. A larger proportion of that comes from B-30 towns. And on the incremental SIPs that come, we have a healthy share. They are more prominent in the new SIPs rather than on the lump-sum side. and our share over the last 3 years has been inching up. So it was lower on the lower side 3 years back and almost every year, it's been inching up.
Great. Sir, secondly, on the alts business, if you could help us understand how you hired -- you invested in that business. What are your time lines and expectations? And what would be the sort of early harvest or early launches that you see over there. Any clarity on your aspirations over there?
So of course, as of now, I mean, the biggest priority for us, the management bandwidth gas spend is like continue to build our mutual fund business. As you are aware, the kind of growth that we have seen over the last couple of years, and in fact, particularly on the SIP side, so we put all our energy on that side.
But at the same time, we are cognizant of the fact that over a period of time, this is another important opportunity for us, and we don't want to miss out on that. So we launched our fund of fund investing into fund that has crossed INR 1,000 crores in commitments. And I'm very happy to see this progress over the last 2, 2.5 years on this side.
We have already started investing and have seen participation from 4, 5 institutional clients and a little over 400 other individual clients who are definitely encouraging. And the way the whole portfolio construction on 1 side and the client engagement on the other side has been evolving that makes us feel very happy about it.
This is also helping us in terms of going up the lending curve on the overall alternative business. The second, on our private credit team, which has joined us in the last few months. So our product here over the next couple of quarters, you would see.
So we are laying foundation stones for our alternative business, and you will keep hearing from us on this front. On the PMS side, the business is building up slowly and steadily. There's a lot more that we need to do. There is potential on that side as well, and we are cognizant of that. On the international side, regarding our Gift City subsidiary, we have received all the necessary approvals for the launch of funds and have started onboarding clients and distributors. Yes, so in alternates and international, this is our another focus area apart from mutual fund where we want to see further growth.
How much are you targeting from the GIFT City this year?
No. I mean, early days. The whole thing is evolving. We are very confident that over a period of time with all the efforts that policymakers have been putting in and the structure that we have got and the setup that we have put in place, this will have a good opportunity over a period of time. But difficult for me to share the target as you...
Next question is from the line of [ Rahul Agrawal ], individual investor.
Congratulations on a good set of ambers. My question pertains to the investment book, which declined on a sequential basis by INR 500 crores, INR 600-odd crores. So what is the further plan of deployment of this amount?
No, sir, that has happened because we have paid out dividends.
[indiscernible] paid out dividend of almost INR 1,500 crores. So that is the fall you'll see in the [indiscernible].
He's what is the deployment...
The deployment schedule is already actually attached as part of the shareholders' presentation, sir, at the end, you will see the breakup of the investments made that's available in your sheet and...
My question is like such a big amount is standing on the [indiscernible] so which is yielding us around 7%, 8%, so my -- like for that only just 10% which is in equity that is in the part of the regulatory requirement. Apart from -- so I need to just want to know that the remaining INR 500 crores INR 600 crores -- INR 6,000-odd crores, so do we have any further CapEx plan or do we have any plan for giving out dividend or buyback?
So sir, for this year, the dividend payout ratio for March '24 was increased to 77%, which was 72% last year. Also, we have to adhere to the skin in the game, which is a SEBI formula, so capital that is invested in our scheme and that's something which we cannot touch in, that's the mark-to-market gain, which has to be reinvested.
The treasury surplus is invested in largely debt mutual funds. We are obviously seeding our alternate platform. We have mentioned in the past that in our alternatives own alternate FOF, we have committed significant capital from the balance sheet, that will get committed and deployed over a period of time.
And we always keep evaluating any and all M&A opportunities that come through to us given our size in the market, we get to see every transaction. We have not done a deal over a period of time just because it's a function of valuation and whether it's an appropriate fit for us. But we do keep exploring all options on the strategic front as well.
Next question is from the line of Dipanjan Ghosh from Citi.
Am I audible this time, sir?
Yes.
Yes. Sir, just 2 questions, sir. [Technical Difficulty] mix for that particular NFO? And was it materially different from your equity-oriented distribution mix on the back book? And second, your MFP mix in your equity-oriented business or AUM has been on a declining trend. So just wanted to get some understanding of whether is it a factor of other channels growing very fast or you are seeing some amount of maybe counter share pressure. So in terms of the top 100 or MFT the data that you track, if you can give some qualitative understanding on that?
I think, Dipanjan, one thing, I'll just take the second question and Navneet will expand on the first one. See, if you look at what has happened is if you look at last 12 months, the direct has gone up from 22.7% to 25.6%, right?
That is 2 counts. One is basically the mark-to-market change and direct is more favorable because of lower fees. And overall traction in direct has been higher. So if you look at that mix, it is not about we're losing a share in a particular channel. It is about how the overall pie kind of shapes up because of the varied channel that does business for us. So if you look at national distributors has been more or less flattish over the last 12 months, the banks have been -- have ticked up marginally and MFDs have gone down. So that would be the overall scheme of things, nothing to do with losing a share in the MFD channel or anything on those accounts. Does that help?
Yes, if I can just let me ask you in a reverse way. If you can give breakup of your direct mix in terms of -- and I think Jayant also asked this, direct would be a combination of both maybe direct money coming in some of the wealth platforms, maybe some of the [indiscernible] your own website and maybe some other through the fintech partnerships, so which channel will be probably growing the fastest or some color on those parts?
Maybe I'll also explain you 1 more thing. See, what tends to happen is off late over the last year or 2, we have also seen a lot of integrations of some of the MFDs into national distributors, so on and so forth. So what happens is MFD goes to a particular size and he gets acquired by a national distributor.
Now he moves from the MFD part of the might be under the MFD in June of 2023, but in June of 2024 his assets would move because of the integration into the national distributor channel, right? So those kind of adjustments have also been taking place over the last, whatever, 12-odd months. Now as yet, we have not got into dissection of the direct assets into RIA, into fintech and the direct-direct as it is known. So we haven't really gone to that level of disclosure.
Got it, sir. And on the first question, on your NFO origination mix, if you can shed some color?
Directionally would be similar. I think we have seen very good participation from all sets of distributors be it banks, be it MFD, be it all national distributors, be it fintechs and of course, HDFC Bank as a distributor and investors who came directly.
So there was very good participation from all distributors. But still, there will be some difference between the book and the incremental because there are some people who participate in Notes distributors, some people who focus more on the existing funds. So some bit of difference, but otherwise, nationally, that would be in line.
Dipanjan, historically always NFOs, and even in this one, the NFO it is more distribution led rather than direct led.
Rather than the direct led. So direct investors come later.
Next question is from the line of [ Mohit ] from Centrum India.
Looking at the unique investors, so unique investor, I think the industry added around 2.3 million, and I think we have kind of 50% market share that as overall, we have around 22%. So this distribution channel was I mean kind of responsible for this kind of an addition, I mean, you could just throw some color on that?
So all -- we are seeing -- in terms of the incremental client acquisition in all channels, our flow share is higher than our stock share in terms of client acquisition.
No so, also see, this is not necessarily a market share in sense, the same investment might have invested. So this is a penetration in sense that the same investor possibly would have invested in 3 funds, right? For the first time, it is invested in us for us is a new customer.
Yes. No, I understand, but I mean I just wanted to know, I mean, distribution HDFC Bank or MFD are kind of -- I mean, if you have some kind of a data on that?
In absolute numbers, fintechs would be very high, but otherwise, all channels.
Fine, fine. My second question is the debt. I mean we have seen industry data that we have got inflows after 3 quarters of outflows in the debt segment. So any particular strategy we are, I mean, kind of taking so that we could further increase our debt portfolio as well?
So I think it's a mix, some part of flows at the shorter end. And we have seen some flows from the individual investors. And the longer end, we think that interest rates have almost peaked, and there is a possibility over a period of time rates go down and they want to lock in these rates through duration products. But from an amount perspective, a larger proportion is at the shorter end [indiscernible] like many market, ultrashort, low duration, et cetera.
Next question is from the line of Gaurav Jani from Prabhudas Lilladher.
Congratulations. First question is to Naozad. Naozad if I stripping off the ESOP cost, right, last quarter versus this quarter, there's been a INR 18 crore increase in the staff cost. So would you like to call out as to how much of this is sort of onetime in nature and what's the normal run rate we're looking at?
So there is -- I wouldn't call it onetime, some of the employee engagement events we do, sometimes they spill from 1 quarter to the other, something we may have happened in Q2 last year happened in Q1 this year. So in that sense, it's not a one-off. It's just an inter-quarter issue, right? And that's I would encourage you to see on an annual basis, and it will just further out over that period.
Yes. I understood. The second question is from a more perspective, right? So if I have to look at actually the kind of growth you saw in FY '24, right, overall equity, and this is why our general sort of shrunk by about 2.5 basis points, obviously, an outcome of decline in equity yields.
Now all things being equal, right, assuming a similar sort of a -- let's resume that similar sort of equity growth comes through technically, revenue growth should actually be better than [indiscernible], right, considering that it is [indiscernible] lot of the funds would have [indiscernible] just wanted to understand that.
Gaurav, if the AUM will go up, the yields will come down. The revenue, basically the SEBI telescopic pricing formula will take off. So overall yields will come down. Profits, you're right, profits will go up. But the basis points that you are referring to would, of course, come down.
No, sir. So what I meant is the pace at which they actually have been declining, that should actually reduce, right?
Yes, yes. Obviously, so if you look at the absolute numbers being same as a percentage of a higher denominator, it will kind of come down. Yes, the steepness of the slope will go down.
Yes, correct. So what just trying to understand the kind of decline that we saw, assuming a similar sort of growth, same kind of decline may not happen in future [indiscernible].
You are right, yes.
As there are no further questions, I'll now hand the conference over to Mr. Navneet Munot, for closing comments.
Thank you so much.
Thank you very much. On behalf of HDFC Asset Management Company Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you. Thank you.