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Ladies and gentlemen, good day, and welcome to Q3 FY '23 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 Mr. Navneet Munot, Mr. Naozad Sirwalla and Mr. Simal Kanuga.
I now hand the call over 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, sir.
Yes. Thank you. Thank you very much, and good evening, everyone. Our results for the quarter along with the business update presentation is available on our website as well as on website of exchanges.
I'll start with a quick overview on the industry the industry crossed the milestone of [ INR 40 trillion ] and closed the quarter with AUM of INR 39.9 trillion and equity AUM of INR 20.1 trillion. Net new equity growth during the quarter summed up to INR 205 billion materially lower than what we have seen in previous few quarters. The index fund number reported includes both equity and debt index funds. We have excluded debt index fund flows, adding up to INR 177 billion from index fund number and have arrived at INR 205 billion. The comparable number of quarter ending September 2022 and June 2022 were approximately INR 346 billion and INR 642 billion.
Net flows in debt index fund for September and June quarter are estimated as difference in AUM of debt index fund at the end of the quarter versus beginning of the quarter as large part of this growth is through inflows. We continue to observe a negative correlation between flows and markets in the short-term. So rapidly rising market tends to see muted gross flows and increase redemption and vice versa.
Debt funds continued to witness outflow. During the quarter, debt funds for the industry experienced an outflow of INR 152 billion. However, the rate of outflows decreased from INR 293 billion in quarter ended September 2022. We should ideally evaluate flows into debt funds, along with flows in debt index funds and debt ETFs. So for the current quarter, flows into debt funds, including flows into debt index funds and debt EPS, the number is positive INR 103 billion. Liquid funds for the quarter for a net outflow of INR 12 billion as against net inflow of [ INR 191 billion ] for the quarter ended September '22. Others as a category, which includes EPS, arbitrage in fund of fund investing overseas for inflows of INR 100 billion.
Individual flows for the industry crossed INR 140 million mark and individual investors contributed 57.8% to industry's monthly average AUM for December '22. Inflow through SIPs continued on their upward trajectory to be at INR 135.73 billion for the month of December 2022. The number for September 2022 was INR 129.76 billion. Also, the total number of outstanding SIP accounts for the industry crossed [ INR 60 million ] mark during the quarter. At the end of -- now we are moving to us, at the end of quarter, December 2022, our total AUM stood at INR 4,481 billion with a market share of 11.2%. Our market share, excluding ETF on quarterly average AUM basis stood at 12.5% and on closing AUM basis at 12.7%. We closed the quarter with an actively managed equity-oriented AUM at INR 2,314 billion with a market share of 11.8%.
On debt, our market share for the quarter-end stood at 13.5%, while for liquid, it was 14.9%. Our unique investors grew to INR 6.3 million in current quarter as compared to INR 6.1 million for the quarter ended September 2022. Inflows through systematic transaction continue to remain robust as we process 4.13 million transactions, totaling to INR 15.7 billion in month of December 2022 versus 3.91 million transaction totaling to INR 14.3 billion in the month of September 2022.
Our SIP book commitment for more than 10 years stands tall at 77%, and our SIP AUM as of 31st December 2022, stood at INR 848 billion. Our asset mix further tilted towards equity, contribution of equity-oriented assets to a closing AUM for the quarter ended December 2022 stood at 54.5%.
Before we move to financials, a quick update on new launches and our subsidiary in GIFT City. We continued on our journey of expanding our product range. During the quarter, we launched the Thematic fund that is HDFC business cycle fund, the funds for healthy interest both from distribution partners and investors. We got over 110,000 applications, 110,000 applications and an AUM of INR 23.4 billion during the NFO. We also launched multiple debt index funds. For our wholly owned subsidiary, that is HDFC AMC International IFS Limited in GIFT City, we have onboarded 2 experienced and eminent independent director. We have got in Mr. Shyamak Tata, Ex Chairman of Deloitte India; and Mr. Vijay Karnani, Ex Co-Chief Executive Officer of Goldman Sachs India Operations and Head of Securities Division. The subsidiary in GIFT is aimed at targeting India focused global capital, along with targeting a pie of LRS capital flowing out of India. We have identified principal officers and have also identified 1 more resource for our GIFT City company. We'll keep you posted as we progress further on this.
Now the quick uptake on financials. For the first 9 months of the current financial year, we have reported total revenue of INR 18,448 million and our operating revenue increased by 2% year-on-year. We reported operating profit of INR 11,600 million versus INR 11,595 million for 9 months of last fiscal, and profit after tax of INR 10,478 million as compared to INR 10,496 million last year. In terms of quarterly numbers, revenue from operations increased by 2%, while profit after tax reported an increase of 3% on a Y-o-Y basis. Our operating profit margin as a basis point of AUM stood at 36 basis points for 9 months ended December with operating revenue margin at 50 basis points, that is of AUM.
So I will take a pause there. Thank you very much, everyone. Navneet and Naozad are very much here to take questions, if any. [ Samira ], we can start lining up the queue.
[Operator Instructions] The first question is from the line of Kunal Thanvi from Banyan Tree Advisors.
So I had 3 questions. One was in the debt AUM side. So we continue to see outflow both for the industry and for us. Great decision take us through what's happening there like with the interest like with the yields improvement like we will be start seeing some inflows from lower yielding assets to the red side that is question number one. And second was on our market share, like if you look at the month of December, there was a sharp improvement. Like is it because of the launch of the business cycle fund? Or it is like mixture of both the improvement in the performance and using inflow in the existing fees? And third, was on you look at for us from 2018, the operating profits are kind of segment and from here on, what would be the [indiscernible] improvement in the profit both for HDFC AMC because like earlier the challenge was the market, now we're kind of seeing [indiscernible] in terms of improvement in the market share. Now from here on how do we look at the profit growth for [indiscernible] HDFC AMC? So these are my 3 questions.
Sure. I think the first question was on the debt inflows, debt outflows from the market as a whole.
I think a Simal mentioned earlier that debt funds have witnessed outflows. And I think the overall outflows were INR 152 billion. So the rate of outflows has come down from the September quarter. Now we also have to see the overall debt fund flows along with the flows into the debt index fund and the debt ETF. So if we adjust for that, including flows into the debt index fund and debt ETF based on net inflow of INR 103 billion. But you're right, overall, I think with interest rates has been inching up over the last several quarters. And given the pressure from the competitive instruments like deposit rates have gone up, there has been pressure on the overall debt flows. Going forward, I mean, there could be factors which could be favorably placed for the overall fixed income market.
I think CPI has eased from the peak and is likely to ease further in view of softening momentum, lower input price pressure and correction in international commodity prices. And I think overall, most of the major central banks, including RBI seem to be close to their peak policy rates in our view. And with that, over a period of time, if the yields remain range bound with a slight downward buy as and when the downward buy starts, there's a possibility, investors come back into the longer-dated debt funds also.
Your second question was on the flows, right?
Yes, equity market share and or share and [indiscernible] ...
Market share and all. And you said that whether business cycle NFO help, of course, business cycle NFO has helped. It was received very well by our distribution partners as well as our investors. But flows have been good in all the other products as well. I think strong performance across categories and I would add that indication of our stance on portfolio construct is getting well recognized both by our distribution partners as well as clients. And this should further enhance marketability of our products. I think top-tier performance, coupled with new product launches, expanding our product offering, both on the active side as well as passive side, significantly enhanced marketing and communication efforts further deepening of engagement with our distribution partners, strengthen the digital platform. I think all of that should help us further. And the...
And the last question from the margins, how they are progressing on that operating profit has been [indiscernible]...
Yes. I think -- last couple of quarters, we mentioned about that as we are aware, like [ INR 5,000 crores ] of AUM, multiple of every INR 5,000 crores does dilute overall TER by 2, 3 basis points. And during this quarter, we saw 3 of our large funds balance advantage, mid-cap opportunities and Flexicap crossing that hurdle. So these 3 funds are like nearly half of our overall AUM. We do tend to rationalize commissions on new flows into the funds, but that impact will be visible only over a period of time. And then I must add is that it is neither practical nor prudent to keep existing book commissions based on this AUM change.
Secondly, the commission that we pay [ out flows ] is higher than that of book. I think, there is a point we have repeated several times. So yes, there is dilution. The pace of this dilution was rapid in the last financial year. As you would remember, we mentioned earlier that gross flows as a percentage of beginning of the year, AUM was 45% [indiscernible]. In the current year, the same is somewhere in early '20s. So I mentioned this in the past and we want to reiterate that our margins over long-term will be determined by the asset mix coupled with flows and [ churn ]. And I belong to the school of thought that states that volumes will more than compensate for loss and margins.
And just 2 follow-ups. One on the market share, like one of the new loans of products. So unlike the industry, which was in 2021, when we saw a lot of NFOs coming in and there were a lot of commission pressure for the industry. Now when we are launching products at this point of time and the interest is not as high as say it was in 2021. So does it also mean that our commissions are not as bad, as say that they were in say 2021? Any sense on the intensity of the distribution commission for the new products?
So as we've been setting for past couple of quarters, things are getting better on this front. And let me illustrate through a data point, the TER of our recently concluded business cycle fund NFO, came to around 55, 56 basis points. Comparable number, say, for our multicap fund, which we launched in December of 2021, was approximately 40 basis points. And that number even then was higher than most of the peer funds launched during that period. I'm of the opinion that this is still well below our desired TER, keeping in perspective the kind of cost and other investments expected out of top-tier asset management companies like us.
I think we also need to keep in mind actually a low direct TER, which is due to high commission had distribution [indiscernible] medium- to longer-term more than anyone else. And I mentioned this point to all our distribution partners, customers may opt for direct plan, if the difference is materially large. And most of the distribution partners do understand and appreciate the same. And I was of believe that it will fall in balance over the next few quarters.
Sure. Okay. And when we talk about like you did pretty good on the margin that is revenue [indiscernible]...
Kunal, sorry to interrupt you, but your voice is breaking. May I request you to come in a better reception area, please.
Sure, sure. Is it better now?
Slightly better.
Yes. So sir, my point on the fact that our margins have kind of now stabilized and over the period of time, they should improve with the equity mix we're getting better. My question was, apart from your margin being stable, do we also see any levers on the cost side, which can help us grow our profits faster than our [ AUM ].
I think as I said, there is asset mix keeps improving, also depends on the flows in NFOs versus flows in the existing funds. I think some of those will determine the operating revenue side. And I think as of now, in last few quarters, we have seen increased spending on business promotion marketing and the digital and [ impact ] capabilities once that stabilizes. We assume that there would be potential for us to have a better picture on that.
The next question is from the line of Lalit Deo from Equirus Securities.
Sir, just I have 2 questions, 2 to 3 questions. So firstly...
Sorry to interrupt you. I would like to inform you that your voice is coming a little muffled. Can I request you to speak through the handset?
Yes, is this better?
Yes, much better, sir.
Yes. So just want to ask, so on the AUM mix, so currently, like we have about like 53% to 54% of our AUM coming from the equity side. So just wanted to understand like from a medium-term perspective, like how much where this -- where would this share go? Because increasingly, in the industry, there's a rising share of the passive AUM. So just wanted to understand on this front, like how do we see this going ahead?
So one would assume that given the SIP book and given few [indiscernible] penetration of equity products and household balance sheet, and thus, the mark-to-market will be much faster in equity compared to debt. And so logically speaking, equity should grow faster than the debt AUM. Having said that, I must mention this. So mutual fund industry debt AUM with around [ INR 1,000,000 crores ] when bank deposits reached [ INR 10,000,000 crores ], some time, I remember in 2016 or so. Since then, debt AUM of the industry has grown to around INR 4,000,000 crores, while the bank deposits have grown from [ INR 10,000,000 crores ] to [ INR 17,000,000 crores ]. So debt AUM as a percentage of bank deposits has actually come down.
So there is a lot of potential even on the fixed income side given our brand, our long-term track record, our product range, our long -- our processes, et cetera. I think there is lot of potential for us to grow on the fixed income side as well. And I look at the number of folios on the fixing industry out of the INR 14 crores folios less than 6% are in fixed income and liquid funds. So there's tremendous opportunity on that side as well. Our idea would be to participate in the growth of each and every segment. Having said that, as I said, I mean, if I think statistically, over a period of time, equity should -- equity proportion within the AUM should increase faster.
Sure, sir. And sir, like on the flow side. So in this quarter, we have seen a sharp increase in our SIP flow market share. So could you also indicate like how the market share trending like qualitatively in terms of like the long-term gross flows and whether in -- how is it going in terms of redemptions?
No. So [ SIP accounts ] are much larger share of the overall flows. I mean, if you see the flows in the last quarter that Simal mentioned, and you look at the SIP monthly number of last 3 months, I mean they are accounting for bulk of the overall flows as the flows -- non-SIP flows has slowed down. For us, I think over the last couple of quarters, we have made good progress in building our SIP book. I think we have been one of the fund out which has been a pioneer on that front. We were one of the early ones to -- as a [ proponent ] of the power of long-term compounding and SIP. And as our performance has improved across all categories and with the higher engagement with our distribution partners. And on the other effort that I mentioned earlier, including the new product launches or improvement in our digital platform.
In fact, the transition from customer service to customer delight that we've been talking about over the last few quarters. All of them are helping us in growing faster on the SIP book as well. That's been one of the major focus area for HDFC AMC has always been. And I think given the next several quarters here that will always remain one of the focus area to keep building our SIP book.
Sure, sir. And sir last question on the other OpEx. There seems to be some pickup in the other OpEx in this quarter. So how do you see this number going ahead for like in 4Q and also a for FY '24?
Naozad will take that.
Yes. So I think the increase in other expenses are partly attributed to expenses that we incurred for our NFO, driving user experience by [ addressing ] our digital assets, some expenses to a setup of our subsidiary in GIFT. New schemes in passive funds, et cetera, IT infrastructure, we've been discussing. There is some incremental CSR et cetera. But if you take our view of the expenses [indiscernible] over 3 years, excluding CSR, it's about 7-odd percent. So over a 3 year view, considering there's a COVID year in between that's where the expense increases. I think going forward, some of the investments, as you said, will continue on the digital front and on the IT infrastructure where we can continue to invest in.
The next question is from the line of Mohit Surana from CLSA India.
First is that I just wanted to get a sense of when, let's say, HDFC Bank becomes your parent what kind of synergies do you expect to derive from that? And once the merger is complete, do you expect your Banca channel to grow faster than your overall AUMs? And second question is regarding your new initiatives. So if you could indicate some sort of a timeline before when these sort of initiatives start to give material [ kicker ] in terms of your revenue and profits?
So I mean, you would agree HDFC Bank is a formidable distribution machine. If we look at the overall the branch network, the number of client tail and there is tremendous potential for us to grow within that. We will put in enough and more effort to capitalize on the opportunity. We would like to believe that synergies will increase and impact, if any, should be only positive.
In terms of efforts, as you asked, I think we are seeing material improvements in the engagement at all levels, and we'll continue to work on strengthening it further.
Got it. And sir, second question is on your initiatives, when do we start to see some [ kicker ] in terms of revenues, profits from these new initiatives?
[indiscernible] increase in the market share in equity, particularly. And I think over a period of time, I think whatever I mentioned earlier that distribution partners and investors are recognizing the improvement in performance, the diversity in fund management. So the [indiscernible] got expanded and all the other efforts that we are making are clearly showing results in terms of enhanced market share, and I hope we will continue to work and we...
Sir, sorry to interrupt. My question was more in regards to the launch of alternate strategy...
On the alternative side, yes.
Yes, yes, sir.
So again, I mean, all the initiatives we are taking on that front, our fund of funds that we talked about in the last quarter is being launched now. The initial response is very encouraging, both from distribution partners as well as our clients. In terms of material impact on the top line or bottom line, I think these initiatives won't really give material [ kicker ] in the near-term. I mean these are businesses that we will build and results should follow over the next few years.
So Mohit actually, just what Navneet is just to expand from what Navneet stated, right. We are a large top line company. Even if we kind of build these businesses, are INR 20 crores, INR 30 crores kind of an incremental fee, even if that comes by over a period of next couple of years, it won't really move the needle, but we are kind of establishing these businesses from a perspective of next 3 to 5 years.
The next question is from the line of Madhukar Ladha from Nuvama Wealth.
So first, we understand the pressure on equity yields. Are we seeing anything playing out on the debt, liquid and the ETF other categories? Are we seeing any change in yields of there. There was an expectation that with increased interest rates or asset management companies would be able to charge a little extra on fixed income yields. So has that started playing out by any chance? And second on the admin and other OpEx. You mentioned that there were certain additional expenses. Can you sort of quantify them in terms of how much is for CSR and how much is for the subsidiary formation? And any sense that could help us what would be the recurring versus some onetime item this time around? And last question on the other income. Other income the interest rates moved up this quarter as well. So I thought that there would be some mark-to-market impact. I wanted to get a sense on what drove the other income in terms of mark-to-market on the fixed income side versus equity side? Yes, so those would be [ my 3 ] questions.
So [ yield fund ] that not much changed actually. Some money that has moved to debt index fund actually does put some additional pressure. But otherwise, our product margins on a stand-alone basis are very much similar to what it has been in the last few quarters, not much change. We've said that the higher yields will result in our ability to charge higher. What happens that while the current yield of the portfolios have gone up in line with increase in interest rates. But if you look at the NAV movements because of the NPA movement, the last 1 year returns wouldn't be what investors would be seeing when they compare that with the current yield of the portfolio. And even otherwise, I mean, the margins don't move in that fashion, so not much of change on that front.
Your second question on the expense side, Naozad will take that.
Yes. So I think at this point, I wouldn't be appropriate for us to give us your breakdown of the expenses. This anyway, [ arrive ] at the end of the year as part of the annual report, right. And CSR is part of the regulation. It's a computed number on its whole. Yes, We will sort of get the details in the annual report.
The NFO related expense, could you quantify that?
Madhukar, we don't get into the final breakups, so if you can just excuse us for that, please.
Sure. Okay. And the other income part, if you could help me [indiscernible] the return?
Other income is almost similar to what we made in Q2, actually, give or take, INR 100 crores. And we obviously it includes gains on our equity AUM, which is part of [ skin in the game ] investment that we have and on the debt. So actually, given the duration that we are in we didn't see any major MTM loss on the debt portfolio impact for the quarter. That's why it's almost similar to the Q2 other income number.
Understood. Understood. And could you split between equity and debt the other income?
Actually, Madhukar, we have not gone through that financing and anyway see equity is like hardly about INR 300 crores odd, right? So out of the INR 5,500 crores of our asset book, INR 300 crores is in equity.
The next question is from the line of Swarnabha Mukherjee from B&K Securities.
And congrats sir, on a good set of numbers. So most of my questions have been answered. Just one thing on the unique investor side. So what I see is that our share of industry unique investors is going down sequentially. So I wanted to understand, I mean, how to read this? Does this mean that the new people who were coming to the market, the distributors are kind of more focused on maybe smaller funds where their commissions would be higher? Or given that our performances have also inched up and we are giving top quartile performance in most of the categories. Why is this share not increasing? So that would be the first question.
Second is on the employee benefit side. So last quarter, you had mentioned the focus on not kind of stepping down on this side because you want to invest in [ talent ]. So this quarter, the number was slightly lower. So ideally, we should expect it to have a higher run rate going ahead, right? So I wanted to clarify that. And again, just on the other income side. So -- but I mean just to clarify, there are no one-offs in this number, right? So we should kind of broadly expect this to be a run rate given that there are no significant ups and downs in yields or market volatilities. So these 3 are my questions.
So first, on the unique investors. So our unique investors, as identified by Bank grew to INR 6.3 million in December '22, INR 6,300,000 as against INR 6.1 million in September '22. So that's a growth of about [ INR 0.2 million ] investors as against industry growth of about INR 0.7 million, which is roughly almost 30% plus share, INR 0.2 million against INR 0.7 million. So the trend of -- that trend has reversed and clearly very, very positive now for us in terms of incremental addition of unique investors.
Okay. Okay. Got it.
[ Employee cost ], if you see 9-months to 9-month period, and if you exclude the surcharge, I think you have about 10% with that sort of we have look at it on a 9-month basis and quarter-over-quarter basis.
Okay. Sure. Sure. And on the other income side, if you could just highlight the sustainability.
As you explained, the other income is linked to our investment where the breakup. You have the breakup in the deck that we circulate. And [indiscernible] which is a function of markets across both the asset classes and if you move and [indiscernible] the market, right.
Right. So I just wanted to understand that given this quarter, maybe there was nothing very sharp, both on the fixed income side or the equity side? So in an absence of any kind of such volatilities, should we then expect that given that now your book has also -- the size of the book has also increased. So what used to be maybe INR 60 crores to INR 80 crores kind of a run rate in a normal scenario that could will be in this INR 100 crore kind of a number in the quarterly run rate.
Unless the function of [indiscernible] to say it is highly a function of how markets we have on equity and debt side? As you said, you can extrapolate it based on what market yields are. But beyond that, you can't come out of market moment frankly, but the data is there for you to extrapolate.
The next question is from the line of Dipanjan Ghosh from Citi.
Just 2 questions from my side. You don't report equity on a flow basis, but qualitatively, can you give some color on your equity flow share compared to equity AUM market share and how it has changed especially on the flow side, how it has changed Y-o-Y or YTD? My second question is during the last tenant also during this current quarter NFO, what we've seen is the increase in [indiscernible] almost double or maybe marginally lower, and you increase in unique customer count. So would you give some color on within your NFO, what will be the share of existing customers who contributed to the NFO or some breakup on the channel side for the particular NFO. If you can give some qualitative color on that.
NFO is almost 30% of the customers were new, if I remember correctly. And our other question was on?
Equity flow of shares.
Dipanjan, we always abstained from really kind of commenting on the net flow share for reasons that we have already explained earlier. But we can tell you that the flow share for us now is definitely much healthier than what it used to be.
The next question is from the line of Hiral Desai from Anived Portfolio.
So actually, just going back to sort of what Kunal was asking earlier on the operating profit growth. Now for a while it has actually trailed the AUM growth. So I understand that certain funds have gone above a particular threshold, which is kind of affecting the yield. But if I look at yield for 9 months of this year versus 9 months of last year, it's more or less flat or has, in fact, improved. Now the other determinant of operating profit is obviously expenses. So then how long are you comfortable with a scenario wherein the AUM is growing, but the operating profit is actually not growing on a Y-o-Y basis? Because there are 2 parts to it, right? One is growing the AUM also and growing at profitability. So the profitability. So I just wanted to get your thoughts on that.
One of the things I mentioned, apart from that angle of the INR 5,000 crores of AUM and multiple of every INR 5,000 crores does dilute the overall TER by 2, 3 basis points. Also, the second important thing is that commissions that we pay out flows is higher than that of the book. And I mean when you have a time when the gross flows as a percentage of the AUM are higher, which was like almost 45% upfront [ 10% ]. Now, of course, it's come down in early [ 20% ]. Over a period of time, I think it should stabilize.
Well, Navneet, a lot of that will already be in the base, right, for the 9-month number? Because obviously, this pressure was much more relevant a year back versus where it is right now? So wouldn't be the FY '24 base sort of become more favorable if we were to just compare it like-to-like?
No. Why would you say that?
No. I'm saying the incremental flow as a percentage of the overall book. I think you mentioned that the number was 45% last year, which has now come up to about 20%, 25% this year, which essentially means that the pressure that you would see on pricing on a Y-o-Y basis? Because the 45% of fresh flows that came in, let's say, in FY '22 is already actually in the base, right?
That's right.
The FY '23 numbers.
But sir, what happens also is the fact that when my AUM will cross, so let's assume that the AUMs have further increased, right? What has happened in the last 6-odd months. Like 1 year returns, if you look at for most of our equity funds are up by 10% to 15%. So mark-to-market change has diluted our yields by 3, 4 basis points. Now if 50% of my AUM has had a dilution of yield up to 3 basis points, that would actually mean that I lost 1.5 basis points on the entire quarter.
But Simal, that is not visible in the 9-month yield number because I do not...
No, it is so if you look at, for example, our revenue from operations, right, if you look at a 9-month number, it is INR 1,626 crores versus INR 1,599 crores. So the growth has been 2%.
Right.
Right. And now compare that with the growth in the AUM and look at the growth of the equity AUM. So you will get all of those numbers, then you'll be able to reconcile.
No, no. But if I look at the average yield, I think it's been in that 51 to 52 basis points. Now the AUM growth this year is slower because you've seen an outflow in the debt AUM, right?
Right No, that's what I'm saying. So what has happened is the margin has got diluted despite the asset mix changing in favor of equity. See let's assume that if the margins were constant right? With the AUM -- equity AUM growing by 15% on the [ QAUM ] and Y-o-Y basis -- that 50 should have gone up materially, right?
Yes, it would have.
Yes. So that's where the impact is coming from.
Okay. Okay. Got it. Got it.
So if you look at the revenue -- the operating revenue, I mean, that has just gone up by 2-odd percent, right?
Yes.
For the 9-month period, I'm just comparing. And even if you look at quarter 3 FY '22 and '23, again, the increase has just been about 2%, despite a 15% growth in the equity AUM.
Right, right.
So some bit of contraction. So you are seeing 50 remaining 50, thankfully because the asset mix has fallen in our favor.
Got it. Got it. So assuming that the debt piece will come back a bit in FY '24, you will tend to see some more pressure on the yield on an overall basis?
Yes. So if debt becomes a larger part of our overall AUM with equity remaining constant in terms of yield. The statistical number answer is yes. But obviously, the profits overall will -- there will be a positive contribution.
Got it. And if this gap sort of sustains for like next couple of years, wherein the operating profit growth actually trails the AUM growth, you guys are comfortable with that?
See that is the nature of this business, right? At some point in time, it's not about being comfortable. But I think as Navneet mentioned, right in one of the earlier questions, saying that we are of the opinion that over a period of time, the growth in the AUM will excel compensate for loss in margin and thereby, the overall profit number should be -- should see a healthy increase.
Right, right. Got it. And could you just remind us on this, the specialty managed accounts and the PMS AUM, you've seen a sharp year-over-year decline. What led to that? Actually, the number last quarter was also much lower.
That's why we commented on that last quarter. There were a couple of these large accounts who took a call of taking money off the table from India, and we lost those mandates.
Okay. Okay. And any initiatives that you're taking on that side to basically revise the AUM growth?
The answer is absolutely yes.
Absolutely yes. I mean we mentioned about the test we are taking on -- and also, over a period of time, as [ interest ] comes back and given our long-term performance track record, I think our team processes and given our brand, I think we expect that over the years, we should be able to garner money from global investors investing into India through us.
And the GIFT [ FOF ] AUM will be a part of this, [ specially managed ] school or a part of the...
No, no, that's -- I mean the [ FOF ] has nothing to do with GIFT, yes.
Okay. Okay. Got it. Got it. Fair enough.
The next question is from the line of Prashant Kothari from Pictet Asset Management.
I have 2 questions. First was on the flows again. I mean, there were some new articles about the SIP outflows. Would you be able to share some data on what is the kind of roughly the amount of outflows that are there on SIP book?
I think are you mentioning to that SIP [ cancellations ] have gone up, right?
Yes, yes, yes.
Something like that . Yes, yes. Now what we have disclosed is the money that we have received on account of SIP. So ours is on actual flow basis. The total systematic transactions, which include both SIP as well as STP systematic transfer plan.
Sure. But what is our usual experience like when the SIP tenure is over after 3, 5 years, does the money usually stay in? Or do people tend to kind of move out to something else?
No, it's not somebody that are 3-year SIP and after the 3 years are over, they will pull out that money, not necessarily. I mean a lot of that money stays in the system and grows over a period of time.
Actually, Prashant...
And the SIP AUM has got INR 6.5 lakh crores, INR 6.7 lakh crores.
Actually, Prashant for the industry, you might just want to look at Slide #7 of our presentation, where we have -- like if you look at the AUM that came in via SIP mode, the number was INR 5.7 trillion for December of 2021. For December of 2022, that number actually is INR 6.7 trillion. So the growth has been fairly healthy in terms of AUM, the SIP AUM. Even if you look at monthly flows, what we saw was [ INR 113 billion ] in December 21. That number for the industry was INR 136 billion in December of '22. So these are actually net numbers. So that kind of give -- will give you an indication.
Okay. Okay. Fair enough. And second question is on the employee cost side. I mean now that the [ Indian ] is working much better than what it is. I would think that the employee would also demand more increments and some of our employee costs is kind of flat year-over-year. How are you managing that? I mean could you that [indiscernible] in future?
So I think cost inflation on the employee side is something which is true for the sector as a whole and financial services as well as sector. So that's a country we have to factor and sit through our planning for the next year process. Difficult to give a specific number, but yes, it will tend to go up a bit is what we see from what we've done for the last 9 months is around 10%. So give or take around that range a little bit more.
I'm sorry, 10%?
So for the 9-month period, the cost was up by 10%. And If we take that as a base for next year, we would assume that to be in the similar this [ core ] -- we have to apply sort of full study on that, but we believe this is what we should expect for next year.
Right. And last question is your market share, are you happy with the kind of sales performance because obviously investment side has done very well? But do you think the sales side also kind of done as well? Are you happy with the market share that you have gained so far in this good period for your investments?
No, our expectations are always higher. And I think our brand, our franchise, our distribution network and the quality of our people, I think, on the ground, their engagement with the distributors. And all the other things that we have in terms of our digital assets, in terms of our client servicing capability, et cetera. Over a period of time, our expectations would be higher than where we are today. But we are moving in the right direction. That makes us happy, but we are always [indiscernible] to get a lot more than where we are today.
Prashant, if I can just see basically the sales market share zooms up with a lag after performance gets recognized. So if you look at if the performance for us has turned around somewhere starting mid of 2021. So the 1-year number started looking good somewhere in mid of '22. And now if you look at it maybe in this quarter or the quarter next, we'll start seeing improvement in various ratings. And that generally tends to kind of get our funds into the selected list of various large banks and national distributors. So we've just come out getting there. And hopefully, that should have a positive impact in times to come.
Right, right. I mean, just the thought was that the performance tends to be cyclical in this industry and therefore, you only have a limited time window in which to kind of regain your market share? And are you kind of doing enough on that [indiscernible] or not. Yes, that would just caught in my mind.
No, we can say that, we are doing enough for sure, let's hope the numbers follow.
The next question is from the line of Prayesh Jain from Motilal Oswal.
I have a couple of questions. Firstly, on if I look at the mix of equity so that has really gone up Y-o-Y basis. But if I look at the share of MFDs and I'm looking under equity side, that has gone down in favor of direct and national distributors. So is there a trend change that's happening on this side where the share of MFDs is reducing and the focus on direct and national distributors is kind of increasing? And how do you see this going ahead?
Not a big change, Prayesh. So if you look at it, Direct has gone up a bit from 21.5% in December of '21 to 22.1%. I'm talking about equity oriented AUM. So if you look at Direct has moved that way. If you look at banks at more or less constant 13.6% versus 13.5% and national distributors more or less like 20, 30 basis points, that kind of change always can come back.
With the purpose of asking this is, is there something that you guys have kind of started paying out more to national distributors and is there a trend change that we can see and this is just a part of it and things could pan out in similar direction going ahead?
[indiscernible] AUM. So I think flows won't make so much of a difference to that. And it's hardly any movement, right, 23.4% becoming 23.7%.
Okay. Got that. And secondly, from a -- I think you answered this in some form, but just wanted to reconfirm this. Are you talking about 10% increase in employee cost next year and stating that your expenses on or investment in Tech, IT, Digital will continue to happen? And I'm sure that is a good product lineup, if you could also throw that product that would be helpful. But the product lineup will also be in the NFOs that would again be on the cost front. So do you think this kind of trajectory of flat to profitability will continue to say possibly even in FY '24?
The product lineup. So I mean, last year, we had 8 NFOs, this year in last 2 quarters, they were like 16. I think we have more or less than among the core categories, our product range is now full on the passive side, and we have launched lots of products. And wherever we had gap in the sector and thematic or an international funds, et cetera, by and large, it's done. There will, of course, be, let's say, a series of target maturity funds on the debt side and maybe a few other on the passive. But that they don't require much of the business promotion expenditure or the advertising budget. So on the product side, it should slow down quite a bit.
On the new product-related expenditure should slow down quite a bit. And on the overall expenditure side, I think I would have mentioned in my first call after joining. As a culture, we are an extremely frugal organization. That culture of frugality is so ingrained in our DNA that will never go away. And this was some of the investments that we had to make over the last couple of quarters. Also would appreciate the fact that post-COVID I think, for 1.5 years where travel was restricted, I think the number of events, I think were restricted, our ability to move around was limited. And things have opened up in the last 4 to 6 quarters, and all of us have been going and connecting with our investors, distribution partners, our own people. And then all of that is reflecting in the cost.
And of course, I think in light with the technological changes, in light of all the opportunities that can come through better digital engagement or amplifying our distribution with more digital support to them, so on and so forth. I think that's an ongoing thing, but that's an investment in the future. Some of the new things that we have started, whether it's launch of PMS, I think we launched 2 strategies. And then highlight a source for that on the [ AIF ] related costs or the setup costs for GIFT City and other things. These are all investments in future. But I think by and large, the one point, I think you need to keep in mind that, and I think that comes from the group ethos. We have a highly, highly frugal culture and that will never change. I think it's so ingrained in each and every person in the organization from top to bottom. I think we all need to appreciate that. So if we are making some expenditure, I think you would -- you should be rest assured that they are all investments in future.
And Prayesh, just one thing to clarify. The 10% that Naozad referred to is for the current year. The growth in the first 9 months versus what was there in the -- for December of 2021. As you know, right, we don't tend to give any kind of forward guidance.
Also, I think [indiscernible] CAGR gave, I think ex-CSRs was like around 7% or so. And if you look at the total inflation in the country over the last 3 years, I would appreciate that I think we have done a reasonably good job on keeping costs under control.
Indeed Navneet.
You always keep an eye on how the flows are moving, how the industry is moving the prospects in terms of the AUM growth and we adjust the trajectory. And we keep an eye on the growth prospect and accordingly, we look at our cost.
The next question is from the line of Vibhooti Jain from Quest Investment Advisors.
So I know you've alluded to this before, but -- so despite industry leading performance, if you see a share of HDFC Bank in our distribution still remains at the similar level. So just wanted some qualitative colors and if you can give some quantitative data on this, for example, is the share from HDFC Bank improved in the new NFO and the gross [ infill ] that have come in the quarter and during the last 2 quarters. Some color on that would be helpful.
No. Are you referring to the percentage contribution that we get in our equity and overall AUM from HDFC Bank, which is I think [indiscernible].
Yes. And also from the distribution...
I think with the improvement in performance and these product launches, all other distributors have also participated whether [indiscernible] MFDs or national distributors or the other banks. But incrementally, we are, as I mentioned earlier, incrementally, we are positive on getting better flows from HDFC Bank over a period of time.
Okay. But the new flows that have come in there, the share is still the same that was there previously, right?
Yes.
Okay. And how do you target that increasing in the coming quarters, is there some target in your mind?
As I mentioned that our engagement has been increasing. And also, as you know that HDFC Bank has been an open architecture to mutual fund distribution. So as product performance has improved and cash recognized, products come in the recommended list for their clients as more products come into the recommendation list with improvement in the engagement over a period of time, we expect better flows.
The next question is from the line of Saurabh from JPMorgan Chase.
Two questions. One is basically on this dividend, is it reasonable that like last 2 years, the dividend growth should be faster than EPS growth? I mean your payout can continue to increase because you just [ added cash on ] balance sheet?
So I think our dividend payout ratio for the last financial year was the share under 65%. And I think, I mean, no second [indiscernible] support, but the Board is cognizant of the cash on the balance sheet and the incremental cash flows.
Okay. Got it. And the second is, sir, on this regulation, so basically, I mean, in December it was just news that SEBI has initiated a [indiscernible] of expenses charged by the AMC. So -- and given that the AMC fee structure India is going to be higher versus rest of the world, do you think there is a risk of, like what you saw in 2018 in terms of some fee [ capping ]? And also, is there like -- has SEBI also done a study of the distribution done by banks of their own AMC and as well like an opportunity over [indiscernible]?
I think you are referring to the press release by SEBI in the last week of December that they are conducting a study of fees and expenses charged by mutual funds. The regulator is engaging with industry body and is evaluating on how to optimize mutual funds. So from the perspective of all stakeholders. I need to expand on this as if it's currently being debated at various levels. I can definitely state that our regulator is very much open to discussion and constructive feedback. So I will put it this way that regulator is mindful of all stakeholders, and we'll do the needful which will hopefully benefit the entire ecosystem over time. And we will keep you posted on the developments on this front.
And any push towards open architecture will be part of that or no? Or the current structure where other banks continue to [indiscernible]?
Not that we have heard anything on that front.
The next question is from the line of Abhijeet from Kotak Securities.
Just one question remains in terms of flexibility to manage retentions in case there are any fresh headwinds on the regulatory front. You did talk about speaking payouts, but can you give some more color in terms of how do you manage that balance? Do you really have the ability to change the yields on the entire book. Just some color on that would be really helpful.
I mean, if it is driven by the regulation, then I think the whole industry has to follow, right?
And on an ongoing basis, not much really, right?
For the better retention?
No, in terms of, let's say, the steady decline in retention because of the current regulatory structure itself, is there any more flexibility that you can kind of flat with your distribution partners in terms of how we can, let's say, potentially have a much better balance of how the tiers get shared between the 2 partners?
So Abhijeet, what we do in that case is like for the future flows, if the AUMs go up and we are kind of seeing some bit of impact on the TER.On future flows, we tend to moderate commissions. So you might see a bit of a lag effect over a period of 6, 12 months with future flows that would kind of get adjusted because keep -- like kind of keep doing that on a quarterly basis, as Navneet mentioned earlier, might not be really a prudent thing to do.
Got it. Got it. All right. And sir, just one follow-up on the earlier question on the December press release do you really see any gaps that the regulator is looking to fill up because one would've thought that the mutual fund product today is a very, very clean investment vehicle, but looks like there's still something which is missing, right?
[indiscernible] second guess. I think the press release is in the public domain of the study that the regulator is conducting. And as I mentioned earlier, that it's getting debated at various levels. And I must say this, and I think I mentioned earlier, the regulator has always been open to discussion and the constructive feedback from all stakeholders. And I think we have to wait to watch.
The next question is from the line of Devesh Agarwal from IIFL Securities.
Just one question from my side. Aberdeen wanted to sell their stake in the company and for that they said that they want to [indiscernible] the sponsor cosponsored at HDFC Mutual Fund. I think we have moved the regulator for the same. Any update on that?
We are awaiting the response from the regulator.
Okay. Any timeline, sir, that you can share, probably in this quarter you're expecting an approval from the regulator and then thereafter it may take 3 months to follow the process.
No, I think we are awaiting the response.
The next question is from the line of Amrish, an individual investor.
And congratulations for the operational parameters moving in the right direction. My question is relating to the B-30 market. And if you could provide some color on drivers, it seems to be growing faster than the overall. And if you could provide some qualitative color on what are some of the drivers and how it is different from the rest? And also on the HDFC AMC's market share, which seems to be flattish. I know you'd mentioned last call that this is an area of focus. Any further update would be appreciated.
B-30 and T-30 growth has been same. You would appreciate that while there's tremendous potential in B-30. And even T-30 are also under penetrated. I think the overall mutual fund industry is under penetrated and there are opportunities on both sides. In terms of newer [ SIP ] count, if you look at, I think the B-30 contribution in counts not in amount, in count the contribution has been increasing. So in the 9 months ending December '22, 60% -- I mean in the growth of the SIP count, 60% has come from B-30. This number was, I think 55%, 56% in the previous financial year. I think less than 50% in the previous financial year for the industry.
And on HDFC AMC's market share, is there anything we can [indiscernible]...
I mean incrementally slightly better than the industry growth.
Thank you. I now hand the conference over to Mr. Navneet Munot for closing comments.
I would like to wish everyone a very happy, healthy purposeful and a blissful 2023. All the best.
Thank you very much. On behalf of HDFC Asset Management Company Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.