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ICICI Securities Ltd
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Good evening, ladies and gentlemen, and welcome to the Earnings Conference Call of ICICI Securities Limited for the quarter ended March 31, 2023.We have with us today on the call, Mr. Vijay Chandok, Managing Director and Chief Executive Officer; Mr. Vijay Saraf -- I'm sorry, it's Mr. Ajay Saraf, Executive Director; Mr. Harvinder Jaspal, Chief Financial Officer; Mr. Vishal Gulechha, Head Retail Equities; Mr. Kedar Deshpande, Head Retail Distribution, Product and Services Group; Mr. Anupam Guha, Head Private Wealth Management; Mr. Ketan Karkhanis, Head Digital Client Acquisition and Co-Head New Solutions Group; Mr. Nilotpal Gupta, Head Data Science Unit; Ms. Nidhi Kajaria, Head Human Resources; and Mr. Sangeet Sinha, SVP, Business Technology.[Operator Instructions] Please note that this conference is being recorded. The business presentation can be found on the company's corporate website, icicisecurities.com, under Investor Relations.I now hand the conference over to Mr. Vijay Chandok, MD and CEO, ICICI Securities. Over to you, sir.
Thank you. A very good evening to all of you, and welcome to the ICICI Securities Quarter 4 as well as the full year earnings call for fiscal 2023. I'm sure, and I certainly hope that by now, you would have seen through our investor presentation, which was, as mentioned, uploaded on our website.Let me start with industry highlights and then take you through some of the key aspects of our performance. I'm going to keep this whole commentary, very brief. When I look at the financial performance of FY '23, I think it's fair to say that after a strong '21, strong '22 across parameters, FY '23 was a mixed bag, because the industry experienced headwinds led by the increase in interest rates globally on account of high inflation and also geopolitical issues that we are all aware of.The positives of FY '23 as far as the industry is concerned, where fundamentally to, I would say, continued growth in the derivative volume and continued momentum on systematic investment plan flows in the mutual fund. On the flip side, 3 standout points, the euphoria and the retail market participation as well as activities moderated, new client additions, NSE active, all of these numbers declined in the industry. Cash volumes are also in a downward trajectory throughout the year. And equity capital markets, the fundraising markets where all muted in FY '23 as compared to FY '22.As far as quarter 4 is concerned, the environment of the business remained very similar to the full year trends that I just explained about. In addition to all these developments in the industry, there was several new regulations that were announced during the years, which we believe will eventually benefit the industry in the medium-term because behind the skin of all these regulations, you are basically safeguarding retail investors interest as well as ensuring that you reduce systemic risk. So all these, we believe are very good for the industry in the medium term.In the backdrop of this operating environment, I'm going to focus on the key high points of the performance for the quarter that just ended. The first point I want to highlight is that our efforts towards diversification of revenue continued. And this diversification has helped us reduce dependence on cyclical components, which essentially is cash equity broking. Now when you look at the quarter, the proportion of cash equity broking in the overall revenue decreased to 20%. And if you recollect, a few years back, this was more than 50% of our total revenue.Derivative broking revenue has now been increasing for the last 7 quarters and currently stands at about 15% of the total revenue stack. Allied revenue stands in at about 26%. Distribution revenue has crossed 20%, now at 22%. So overall, the revenue has diversified. And as a result of this diversification, despite a very weak cash equity market, our retail revenue actually grew by about 5% on a Y-o-Y basis and 4% on a quarter-on-quarter basis. The revenue for the quarter, however, remains flat, primarily because of a weak institutional side of the business.The second high point I want to bring to your attention is the story on market share. I think we witnessed a steady growth in retail market share. 1% on the cash equity side during the year. It stood at nearly about 11%. The retail derivative market share increased by 30 basis points on a Y-o-Y basis, standing in the region of around 3.6%. Commodity market share increased by 2%, 200 basis points on a Y-o-Y basis and it crossed 6%, it's at about 6.1%. MTF and mutual fund market shares remained broadly stable at about 23% and 1.7%, respectively. So MTF remained in the ballpark of 23% and mutual fund in the ballpark of around 1.7%.We continue to focus on quality clients, and that is what has helped us either grow or maintain our market share on all parameters, which are actually revenue impacting. This is despite all the headwinds that we have seen in the industry during the year that has ended and the quarter that has ended. The third standard point for us was that the customer assets continued to witness growth. And this is, again a testimony of our relationship and ability to get clients to commit funds into the markets. The AUM as a result of this grew by about 4% on a Y-o-Y basis to about INR5.9 trillion.We spoke in the last call about the growth levers of the company. So I will now talk about each one of these growth levers that we had highlighted in brief. The first growth lever was the wealth management business. Here, I would bring out the fact that the total number of clients now has increased, stands at about 78,000 customers who qualify as the wealth -- in the wealth segment, which means that at least INR1 crore of AUM being placed with us. During the quarter, we added 2,000 new clients. And during the whole year, we added 10,000 new clients.The assets of these customers now stand at about INR3.2 trillion, increasing by about 13% on a Y-o-Y basis. Revenue from this segment during the quarter grew by 1 percentage on a Y-o-Y basis to about INR255 crores. And revenue for the full year now crossed INR1,000 crores and stood at about INR10.1 billion, increasing by about 9%. What was also noteworthy is that in the wealth segment, the proportion of recurring income now has become 2/3 as against 60% compared to the quarter 4 of last year.So growth lever #2 was derivatives. Now derivatives, as I just mentioned, the segment has seen a revenue increase now for 7 continuous quarters. And for this quarter, the revenue came in at about INR117 crores, registering a growth of 37% on a Y-o-Y basis. Market share increased by about 30 basis points, and this was accompanied by improvement in underlying parameters of number of customers, number of orders, number of lots. Some of the new launches in this segment, which includes cash trade, algos, APIs, OptionPLUS, all these products and tools that we launched during the course of the year are clearly seeing traction since their launch, and we do believe that as we increase communication has we increase promotion of these tools, these products, we will continue to see greater traction in times forward.The third growth lever was identified as the distribution of loans. We distributed a total of about INR3,750 crores of loans for FY '23, recording a 66% growth on a Y-o-Y basis. Loan distributed in quarter 4 alone stood at about INR1,250 crores, which is the highest that we have done in any quarter so far. During this quarter, we forged and executed the partnership with Tata Capital, and this arrangement with Tata Capital went live for loan against shares as well as personal loans towards the last part of the quarter. So we should start seeing some traction on loan against shares and securities as well as personal loans in the current quarter onwards.As far as the fourth growth lever is concerned, it was identified as insurance business, distribution of insurance. In this insurance business, the revenue for the full year went, crossed INR100 crores for the first time, and it came in at about INR101.8 crores. This was up 45% on a Y-o-Y basis. And quarter 4 revenue was up by about 85%, coming in at about INR48.2 crores. During the quarter, the premium number of policies, all of them grew. Premium grew by 46%, number of policies by 60%. This is -- and we've seen growth across not just the life business, but also the non-life business.With the general insurance business now getting digitized and gaining traction, we expect further growth specifically in this segment in the year that has just started. The recent regulatory developments from the IRDA side, which you might have been aware of will be favorable to us increasing the revenue. So I would say that as a result of the diversification that I spoke about, as a result of the market share gains I spoke about, as a result of increase in customer assets that I spoke about, and also as a result of traction on the growth levers that we had identified and we -- I just spoke about.Our revenue for the quarter remained stable at about INR880 crores. This is despite a decline in the cash equity segment, which used to be a major proportion of our revenue traditionally and historically, as well as in the specific quarter, there was a decline in the ECM business, both in the quarter as well as the year. And therefore for the quarter, PAT came in lower at about INR263 crores for the quarter. The -- despite a flat revenue, a decrease in PAT is attributable to 3 fundamental reasons.Reason #1 is that there is a onetime INR16.1 crore cost pertaining to a provision made towards the penalties, which were passed on to the client from October '21. So it's a past period item to November '22 on account of margin shortfall. The second reason is that the cost of funds for our margin finance book went up, and we decided not to pass on entirely the cost increase. So that, to an extent, had an impact on the PAT. And the third reason is that there was some increase in spend on what we believe our franchise enhancing spend specifically in the domain of technology to harness the growth opportunities.When I look at the full year, revenue remained stable at INR3,430 crores, and PAT came in at lower than last year at about INR1,118 crores. The reasons for the decline is already explained about precisely for the same reasons. The return on equity came in at about 42%. The Board of Directors also approved the final dividend of INR9.25 per share for taking the full year dividend to about INR19 per share. The dividend payout ratio came in at about 55% for the full year.So in conclusion, I would reiterate the continued diversification that we've been driving, which has now taken root in the company's business model. As this is happening, we are becoming more of a structural play on the India opportunity. And as we look back and look ahead, we see that we are on track to achieve our stated aspirations that we have shared with you in the past. We continue to strongly believe that the medium and the long-term story of the industry remains intact, and we are very well-positioned, very well-placed to harness this opportunity, and we continue to make relevant investments in key focus areas for growth.I'm going to end my commentary and throw it open for questions that you may have. Thank you very much.
[Operator Instructions] The first question is from the line of Swarnabha Mukherjee from B&K Securities.
So 2, 3, questions from my side. First one, wanted to understand on the derivatives market share. So sequentially, there has been a slight decrease. What led to that? And what would be the steps that we'll take to get that back in the subsequent quarters? That would be the first question, sir.And my second question would be in terms of the client acquisition side of the story. So basically, this quarter haven't seen client acquisition rates go up very materially. And still the OpEx number looks has gone up actually quite a bit. So what would be the reason for that? And also the prime customer number is very marginally down. So what has happened there?So these are the first 2 questions, sir. And I also have a couple of more. So maybe I'll ask you after if you answer this first 2.
This is Harvinder here. So let me take the first question. First question was pertaining to derivatives market share. So there are 2 parts to this. One is for the quarter, yes, we did see a bit of a line. That was primarily attributable to some outages that we faced in the month of Feb. And they have been fixed, and we've seen a recoup in the month of March. But yes, we did see an impact for a couple of days, which did impact our market share in Feb and for the quarter.On an overall basis, if you would follow what we are trying to do over here is that we have worked, as Vijay also explained in his opening remarks, on a variety of products and experiences for the customer. We believe that we have a product which is comparable and even better than what is available in the street. What we are now wanting to do, and you will see that more of in the coming quarters is a more communication drive towards these features and bringing more familiarity. We expect that with that, we should be able to increase traction.Although even in the current phase over the last 7 quarters, we have seen revenues going up. Over the last 6 quarters, we have seen the number of customers and the activity levels when measured by way of either number of orders, lots or whatever metric you put added, they have been going up every sequential quarter. We have to start growing at a rate ahead of the market, and these are the things which we believe will help us. That was the first part.Your second --
Yes. So I'll just add to what Harvinder stated. When we look at the Q4 market share, the 2 important parameters, which are guiding factors in terms of number of orders, number of active customers, volume, revenue, I think all parameters were better than the last month. The only exception was the Feb month market share, otherwise for Jan and Feb, we were almost at par with what we did previously. So we are -- I mean, we have seized all those issues. And going forward, I mean, we see much more stability on the platform side also.I'll come to the prime question --
Sir, just a follow-up on that, sir. So, if I understand correctly, then in the month of March, our market share [indiscernible] better than what we have done in Jan, or say in the Q, in the third quarter. Would that be a right assumption, sir?
Yes. We were kind of at par with what we did in Q3, because we were regaining some grounds, which we lost in the month of Feb. However, we are pretty comfortable in terms of number of orders, the revenue unique customers participating. So it's a little trend, but we are very much in line with what we did in Q3 any of the months.Now coming to the prime, I think the overall count will sit at about 11 and [ off late ] customers. Your observation is correct that there are fewer subscriptions in Q4, and that is largely because of the dropouts, which are happening in 299 plan. The focus -- company's focus has been to promote with high intensity, the high-value prime. And I'm happy to share that we clocked ever highest high-value prime subscription in the quarter, and it's higher than -- I mean, it's considerably higher than what we have done previously. This number is of tremendous significance now, because in high-value prime, which is a lifetime prime, where these subscriptions are not happening. It's only the new customers which you are bringing in the system, or few of the old customers who -- I mean, who still were in the older plan, they have now subscribed to the new plant. However, the large part of the lifetime subscription has now come from the new customers. So that way, even the prime fee, which we collected, it's very much in line with what we have been doing for the previous quarter and before that.The lifetime benefit is directly seen. We see the quality of the customer, and there are many other opportunities beyond collecting prime fee from customers. So that is what our objective is.
All right. So just to clarify, your -- I mean, 299 plan customers have renewed to higher value plan, but then I mean, [indiscernible] the number should have been same or even with new customers signing up will increase slightly. I just wanted to understand the very marginal drop out that has happened. So where were those customers [ come from ]?
Yes. So not many have moved from 299 to high-value prime. So largely, the focus is to get lifetime customers or the high-value prime customers from a newer set of customers. Few dropouts. I mean, in the retail business, few customers will take a pause, because it has a resubscription condition. But I mean they come back eventually. We keep track of such dropouts, and we reach out to them. And in most of the cases, we find that customers, they come back as and when they start taking interest in the market.
Sure, sir. Actually, 1 question has not yet been answered. So, I was just asking on that.
Yes. Quickly, I'll take that. I just request maybe 2 questions per participant. But just quickly to answer the third question, if I understand correctly, you're asking that the client additions have been slow, but the operating expenses have gone up sequentially. Have I got your question, right?
Yes, sir.
So the increase in operating expenses what Vijay explained, it is not because of increase on account of client addition, it is on account of for the onetime provision of about INR16 crores that we have taken on margin. That sits in operating expenses. So that is the reason of INR70 crores to INR84 crores. The marketing expenses, which are pertaining to client addition that has been flattish quarter-on-quarter.
The next question is from the line of Prayesh Jain from Motilal Oswal.
A couple of questions. Firstly is on wealth management business. The INR250 crore revenue run rate in the quarter or the full year basis, whatever, if you can split it up for us in terms of how much is from broking, how much is from mutual fund distribution, how much is from interest income? And what of these are recurring in nature? And how much of these are transactional? That is question #1.And second is on the insurance premium. Could you break it down, how much is from Life, and how much is from general? And generally, if you also could highlight the procedure in terms of getting this insurance premium, whether it's -- how do you kind of go about doing this, whether you call up the customers, so how many -- so just the entire process, how does the sale of insurance products happen at year-end?
Yes. This is Anupam here. I take the [indiscernible] questions.
Anupam, could you be a bit louder, so we can barely hear you.
Yes. Is it better now? Is it now better?
Much better, much better.
Okay. Yes. Perfect. So in terms of the overall new numbers, we lost INR255 crores for the quarter. And for the year, for the first time, we have crossed the INR1,000 crore mark. So that's been a big milestone for us. On the split of revenue, it is currently 66% on recurring income and 34% of the revenue is it from transactional income. Equity broking would be a part, subpart of this 34%.
Okay. Could you quantify this?
Yes. I will -- yes. So maybe I'll just bring it a more granularity in terms of what to recurring income and transactional income be? So the transactional income would include equity broking. It would have fixed income. It would have products which do not give sale income like some part of AIF Cat II, and some other unlisted transactions that one typically does in private banking. On the recurring side, we would have all the trail giving AUM, which could include mutual funds, it could include hopefully, management services, AIF CAT III, which are trail giving ESOP MTF. So this is basically recurring.
Okay. Got that.
And our focus has been, yes, to kind of continue to grow the recurring 5 more, which over quarter-on-quarter, we've been able to demonstrate.
Got it.
I'll just comment for the insurance piece. So insurance, largely the premium pertains to life insurance. General insurance is relatively new, but picking up. In terms of number of policies, it will be almost [ half-half ]. But in terms of premium, it is predominantly life insurance. Also, the manner of sourcing insurance. So we have primarily 2 source. One is our relationship managers, wealth managers, they have a deep engagement with clients. And as a part of the financial portfolio, insurance, whether be it on the production side or retirement planning side or savings side is a fundamental part of their overall portfolio. That's point #1. We have about 1,300-odd RM on ground. They engage with the customer. So that's method #1.Method #2, specifically for general insurance and health insurance, we have launched a fully digital journey where we do digital end-to-end fulfillment with the help of a technical partner as well. That has started seeing traction. Part #3, we also have a low-touch model, whereby with the help of a calling setup, we do reach out to customers based on an analytics-driven profile. We have a base of about 8 million customers with the help of our analytics, we reach out to customers who have high propensity of buying any of these insurance products. And those are channelized into, let's say, [ E ] or a low-touch relationship manager over call for digitally enabled products. So these are predominantly the 3 methods that we follow.
The next question is from the line of Bhuvnesh Garg from Investec Capital.
Sir, in your distribution revenue, loan distribution revenue. So what would be the yield that you earned on home loans? And what would be the yield on non-home loans that you earn? Yes, that's my question.
Yes. So on the loans bit, we act as a referral and we work on an open architecture model. Currently, the way our loans are distributed, we have almost 65% of loans which are mortgages. And typically, in mortgages, you have 2 parts. One is home loans, the other is [ LAP ] or loan against property. Mortgages, typically the market is broadly close to 1% and LAP, et cetera, is at 1.4%.And then you have the other part, the other part of business will constitute of 2 parts. One would be business loan where we engage with promoters, MSME, owners, et cetera, on their borrowing needs. And it also has a component of digital loans, which is typically on a loan against shares, loan against mutual funds. And we are now setting up the entire stack on personal loan, et cetera, which is really not yet started. So on a blended basis, because a personal loan has not kicked in, our average will be close to 65-odd basis points.
65 bps on other loans, right? Other than home loan.
On the overall piece, on the overall piece.
On the overall. Okay.
And once personal loan kicks in, the yields will improve further.
The next question is from the line of Sahej Mittal from HDFC Securities.
So firstly, so on this new regulation on the newer streaming, on your streaming of client funds. So the impact of lower margin, lower margin availability to a broker on bank guarantees. So will this also impact our finance cost [indiscernible] broker the finance cost is expected to shoot up once the regulations kick in? What was that?
No, Sahej. Not for us. We don't do bank guarantees. So this regulation largely would not -- is not expected to have any material impact from us.
Right, right. And one clarification on employee expense. So employee expense looks a bit lower in the last quarter. So have we already recorded variable pay provisions in fourth quarter? Or is it expected to be recorded in Q1? Because I mean last to last year in Q4 FY '20 and Q4 FY '21, fourth quarter was a soft quarter, whereas in Q1 employee fortunately shoot up. So how are you expecting this and the run rate?
Yes. We have reported the variable pay for the year. Normally, in Q4, it always gets screwed up to whatever is the year-end assessment. So it's not in Q1, it will be in Q4. Q1 sometimes is relatively higher because obviously, you will have [ incremental will ] come through. And therefore, Q1 is slightly higher than Q4. But right now, we've recorded it in Q4, as always, and it is also lower on account of lower variable pay provisions.
And the run rate for the next year would be maybe 5% -- 5% to 10% higher, fair assumption?
Sahej, we do expect some bit of expansion next year. We have -- as we've been continuously guiding that we do want to invest in some opportunities that we are seeing, specifically --
So we'll be expanding our digital team, I mean, on the employee side, I'm trying to understand.
Yes. So there are a couple of areas that we are investing in. One is in our relationship management deals, wealth, feet on street, et cetera. Second is technology and digital, yes, that's another area that we're looking at. And third is the no-touch connect that I spoke about, whereby a combination of analytics, cross-sell and calling kind of a relationship manager is helping us define our customer base. So these are the 3 areas of investments.
And on the loan distribution front --
Sorry to interrupt, sir, we request you to please rejoin the queue for further questions. The next question is from the line of [ Zinnia Garg from Navat Investments ].
So my first question is, what is the perspective on the interest rate hike and it's impact on the finance cost. And the second question would be like what is the projected [indiscernible] growth perspective for the 5 years?
Yes. So interest cost, I mean, it's a call that we love to together kind of conjecture. If you believe that we are at a peak of interest rate hikes than we have had, let's say, if I take a last 4-, 5-quarter journey, we have had an increase of about 272 bps, that's increase in cost of funding that we have witnessed of which, going forward, I mean, if it is flat, then this is where from this year's base, this is where it is expected to be. We have passed on about 1/3 of that to our customers consciously.Going forward, MTF, we do enjoy a healthy market share of upwards of 22%. Our network, balance sheet and financial capability allows us to grow this book. This -- we do not have any target in mind, but we do have capacity to go up to at least INR15,000 crores from a financial capability and borrowing limit perspective that our shareholders have approved for us. Not giving a target number, but we do want to increase penetration because it's a good, great full product that we have seen in our customers like it.
We have the next question from the line of Aejas Lakhani from Unifi Capital.
I have 3 questions. My first one is on brokerage rates, both retail and institutional. So the question is really that compliance costs, given all the new regulations in FY '23 have really gone up significantly on the -- especially on the retail side. And so the question is that is there a scope for increasing rates from where they are because we're at rock bottom. And also on the institutional side, the sub-regulation states that the brokerages -- the brokerage charges can be inserted into [ TR ]. So if that regulation comes through, could that put pressure on institutional yields? This is the first question.
This is Vijay. Yes. So on the first part, whether there is scope, we certainly believe that there is scope, but the question is whether the people who are supposed to increase rates will increase or not. So we do believe that there is a scope because it is going to certainly put pressure on margins as you correctly said, given the regulatory developments as well as the fact that many of them are dependent on e-funding, which is also becoming difficult to come by. So you have a dual pressure. So there are every indications or every -- I would say the fabric is set for a sort of a potential rate increase. But whether it will happen or not is anybody's sort of guess and the right people will be the people who would hike the rate.The second part of your question was on the institutional side, right? Yes, the TR. Yes, the TR, indeed, if TR still in discussion stage, so we don't know in what form, shape and amount, it will come out. But we have seen that whenever there is a TR increase, it does have a near-term impact in terms of impairing or depressing the revenue flow. But there is an experience and maybe over a period of time, this tends to sort of catch up as volumes go up. So there could be a near-term impact. How much is the impact, we don't know. Because it will depend on finally what the regulations and extent of it comes because there are still ongoing discussions. So we don't know whether it will come, not come, if it will come in what shape and form. So these will have to keep watching.
Got it. Sir, my second question is on the prime fees and other charges. And this is more from a reflective standpoint of how we should look at it in the year ahead. So one of the pivots we've made in the prime fees has been from -- during the year that we've made is from charging it on an annual basis to a lifetime free basis. And there will be some customers who are transitioning. So how should we be thinking about the entire cohort of prime fees going forward? And how should we also think about the block of other fees and charges, which you've really been able to hold up very well in FY '23?
Yes. See, as far as prime fee is concerned, as I said then, there are 2 components. There are 2 plants where the renewals are still happening. And more than 50% customers are there in those plants, right? Whereon every year basis, they come and they pay the fee. So largely, I mean, we would see the stability in this book. We don't see much reduction. However, on the high-value prime, as I stated earlier, the focus is largely on getting new customers. So as far as the migration from the lower value plan to higher value plan is concerned, I mean, I would say that largely, it has happened. Now the proportion is much lesser than the new customers who are joining and taking the higher value plan. So the focus will continue to be on getting new customers and keeping the existing set of customers in a lower value plan intact, so that this subscription can happen [Technical Difficulty]
Just to add to what Vishal has said that the base is stable, the extent of growth will depend on how the market is going to move. We've seen a very weak market last year. If we believe that the market will sort of start getting better from here and participation in equities from the retail segment and the HNI segment is going to increase. Then of course, we will be a beneficiary there. But if it continues to remain similar, then it will be more stable with marginal improvement directional. So it can -- it will really depend on how the newcomer participation is playing out in the current year -- coming year.
Got it, sir. And sir, just finally, on the start, you mentioned that last quarter, we didn't pass on the interest rate increase to clients to cushion them from the impact, and we were probably considering to defer it a little slightly and ensure that there's no [ major ] reaction so that the book doesn't run off. But the pass-through seems to be much lower. And I just wanted to know your thinking and thoughts regarding the same element. And also I appreciate the additional information that you started to disclose on the NIMs. So the NIMs at 3% for the quarter. I think historically, you had slightly higher NIM. So how should we really be thinking about NIMs for '24?
So 2 things have happened in quarter 4 as far as the NPA book is concerned. There have been 2 rate hikes that we have passed on. And this is together about 50 basis points. And because it's happened in quarter 4, you would appreciate that the impact -- the financial impact doesn't really get visible in a matter of days, it'll -- it needs that period of time to play out in a quarter. So that is one development of quarter 4.The second development again towards the fag end of quarter 4 is that our cost of funds have started showing a kind of a flattening to a declining trend. So these 2 -- as we enter into Q1, we are entering with 2 sort of actions of quarter 4, reducing cost of funds and a 50 basis points increase in the yield, which was implemented in quarter 4. And we are also -- because of this approach we have taken, we are ending this quarter with a higher number of clients than what we had at the beginning of the year and beginning of the quarter. So base is bigger. Rates have gone up on the lending side and the cost has flattened to start coming down in the sort of borrowing side. That's the color with which we have entered Q1.
On the NIM side for '24?
Is it kind of gives you a direction. It's already stabilizing at 3% that we've seen now. Our strategy has been to give a bit of cushion and not pass on the voluntary to our clients, I think that is working. And we are expecting a stabler regime on the factors that we just spoke about. Difficult to give a number. We will be pretty agile in our thinking as we have been. So -- but our feeling is that -- I mean, it's stabilizing right now at 3%, and with a possible upward bias.
Got it. That's clear. And then what about the provisioning on the penalty is, is that going to be like collected from the clients in the subsequent quarters?
No, Aejas, it's already collected and there is -- it's an industry-wide aspect, which is getting discussed at regulatory levels of whether any kind of a refund is required. We have right now on a conservative basis, made the provisions should a refund be required in the future. But engagement is on. And the events of either a regulatory clarification, et cetera, would need to be watched for to see whether this -- how would the provision [ matter ]. So we do not have to have any more collection from the customer.
Got it. Adequately clear. And when does the new total go like, I mean, the new sub-brand of ours?
Compare during this year, Aejas.
The next question is from the line of Piran Engineer from CLSA.
Sir, firstly, so 65% of our retail revenues are coming from prime. Is it fair to say that bulk of the others is coming from neo? Or is there a significant proportion of revenue still coming from nonprime, non-neo customers?
Yes. So just clarifying, this 65% is within the broking set up, that they are coming from prime customers.
So, Piran, I'll just place it in context, you are not -- it's not the total revenue. It is only the broking revenue. And broking revenue --
Yes, INR265 crore -- the INR265 crore number, right?
Yes, which is about 35% of it straight away, 15% can be taken out for F&O. So you're effectively left with 20%. So 20% of our income is what we are having a discussion. So with that context, Harvinder will elaborate.
Yes. So, Piran, the remaining within equity. So I hope that is clear that 35% of the overall company's revenue is coming from any kind of retail brokerage, of which 15% is coming from F&O brokerage, 20% is coming from cash brokerage. Prime is a product which is relevant for cash brokerage. So of that 20%, 2/3 is coming from prime customers and the remaining 1/3 is coming from nonprime regular plan. That is the -- that has been the mix, which is quite stable for the last, at least 4 quarters. Neo is sitting on the other side, which is in the F&O segment. There, again, in terms of volume, it's about 75% contribution. And in terms of revenue, it's about 30% to 35% -- 30% contribution, of the 15%. I hope that's clear.
Yes. Okay. No, I -- but then if I come to think of it, if I just do the math, the nonprime customers are paying a meaningful amount in -- it will come to like INR500, INR600 per quarter in broking charges. Why don't they just take a prime plan, switch to the prime plan and lower their own charges?
Yes. So we keep sending them messages to do that, but they still choose to stick on. There is a tendency to remain sticky. It's a customer sort of a trade. There are a bunch of customers who just don't want to change anything. They just say that we are okay with whatever we are doing. We keep sending them periodic sort of nudges to change, upgrade, et cetera, but they remain where they are.
Okay. So then it's fair to say that if they remain where they are, next year, our revenue growth will largely be in line with the cash and F&O ADTO growth, because this -- while ADTO growth has been better, our revenue growth has lagged in both cash and F&O due to lower yields. And last time we spoke, it was due to migration to neo and prime plans. Now that, that is over or hopefully over. Would we see both the revenue and ADTO growth similar?
Yes. So from company's approach to putting focus on growth drivers, we have said that there are 4 growth drivers. One important growth driver is F&O. So clearly, F&O is an engine that we will press the pedal both from a market share point of view as well as the market growth in ADTO, which has been happening virtually on a secular basis for the last decade now or probably even longer. So that is growth engine #1.So the second growth engine would be all distribution back off revenue, which we've spoken about the insurance loans specifically. And the third growth engine would be -- rather the fourth growth engine would be the wealth management growth engine. As far as cash equity is concerned, I think we've sort of in a sense hitting a market share of about 11%. Our endeavor and attempt would be to ride the market swing as and when and if it happens, I think we will definitely get an advantage. Whether the market swing will happen, not happen, I cannot speculate. We'll have to wait and watch.But I think the firm is very well positioned, and we have historically seen whenever the swing happens in terms of market growth, we become beneficiary because we are revenue salient on volumes. Some of the other discount players are indifferent, but that's not the case for us. We are revenue salient on volumes. So if there is an improvement, certainly, that will be an added swing. But from our mind, those are things we cannot control. So we focus on what we can control, which is market share and growing the businesses, which I just mentioned about. So growth -- our management focus will be on these 4 areas.
Got it. That answers it. And my second question is on risk to the MTF book. You know, now that the market has also been like [ the disease ] have been largely range bound in the last 1.5 years. And I'm sure customers who are borrowing at 10%, 12%, 15% are losing money on their investments. What kind of risk do you foresee to this INR7,000 crores, INR6,500 crores, INR7,000 crore MTF book? Assuming the market stays where it is?
Yes. So if you really see what has happened this whole of this last year market has been actually quite weak. But when you look at what happened to the MTF book, it has actually increased from, I think, [ INR4,500 crores ] at the beginning of the year to about [ INR6,500 crores, INR6,400 crores ] currently. It is one of the reasons why that has happened is some improvements there in market share in the second, I would say. It has also been our -- what should I say, our considered strategy not to insulate the customer from market rate movement, interest rate movement, because anyway, there are uncertainties with the capital markets. We didn't want to add another dimension of uncertainty and pain in form of rates. It was very deliberate.As a result of it, 2 things we have played out. In the most difficult last quarter, we did not lose volume, [Foreign Language] [ INR6,400 crores remain INR6,400 crores ]. That was one. And number of customers actually increased. So the story is becoming broad-based because penetration is still very, very low in terms of the number of customers who are doing this. So, if you ask me, as of strategy, we do not pursue a target on MTF. It is not a push product. It is a full product. We do not believe that it should be aggressively pushed. It is dependent on the customer's view on the market. We fortunately have not received a single misselling complaint on this, which I think we value a lot. We want customers to be happy and eventually make money, because that's the way everyone wins in the market.So what are the risks? I think we have been very conscious about the risks and therefore, not used it as a push product. We'll continue to keep it that way. And we are backing our MTF book with research support so that customers are actually taking considered calls to try and minimize the risk. Will it sort of come down? I think the answer in some sense, if you could impute to what happened in quarter 4, despite tough quarter, it didn't come down. It is to be seen -- the recent behavior seems to suggest otherwise.
Okay. That's helpful. Can I squeeze in one data question?
Yes, Piran, go ahead.
No, just the other, which used to be INR40 crores, INR50 crores is like suddenly gone up to -- or not suddenly, but steadily in the [ last quarter ] gone up to INR90 crores. Just wondering is there a one-off simply because overall volume activity has not really increased. Why would margin money and consequently interest income on fixed deposits go up so much?
So, if I have got your question right, you're talking about other fees and charges, right, [ within elite ]. You're talking about that.
Yeah. I'm talking about the INR92.4 crores other revenue number, which a year back was just INR52.7 crores. So it's almost doubled.
Yes, yes. So this is largely pertaining to only the fixed deposits and what we have with exchanges and the interest on that. So one of this is also yield expansion, because 1 year back, we were having FDs at about 4.7%, 5%. Now we are having FDs at 7%. So that also is one of the factors. And second is obviously the volume FD -- volume, et cetera has also gone up. So it's a mix of all in that.
So there are no [indiscernible] over there?
It's primarily yield increase and FD quantum increase.
The next question is from the line of Dipanjan Ghosh from Citi.
Just 2 questions from my side. First, on the cost bit. If you can give some color on how prolonged do you think this period of elevated investments or investments in franchise expansion, some of these things will continue. From what I understand some of the other players in the market, your competitors are also focusing on expanding the [ product bouquet ] or client acquisition. So in terms of how do you see the competitive dynamic shaping up and your own cost ratio for investments are shaping a move from our medium-term perspective?Second, if I look at your cross-sell ratio number that seems to be on a declining trend. So if I look at it on a, let's say, 4 to 8 quarter lagged basis, just wanted to get some sense of how the lifetime value of customer quality of the new customers that have been acquired in the, let's say, the last 12 to 24 months or 30 months really looking like, since you're trying to gradually scale up the product distribution and the wealth business. But from a 3- to 5-year perspective, how do you see this new client acquisitions fairly shaping up? And last, if you can just direct me question, if you can just mention by the yields in the insurance business for 4Q were high. Some color on the mix maybe within the Life segment.
You've asked 6 questions. So we'll go one by one.
Hi, Dipanjan. So yes, let me attempt to answer one by one. Your first question was --
On the cost bit.
The expenses and the color of that, right? How long is the expense and investment going to last. So we have guided that we need about a year, which is 4 quarters more. So FY '24, we expect it to be elevated. And we have guided that over a period of FY '25, we do want to come to a lower cost-to-income ratio. In fact, there is a slide that we have included in our presentation on our aspiration. These are very conscious investments and it has been our continuous guidance for almost about 5, 6 quarters now that we expect about 8 quarters then and now 4 quarters, so 4 quarters. That's the answer.Competitive landscape, yes, it is a slightly difficult market right now with what Vijay made a reference to a declining customer additions.
Actually, more than competition, it is actually market conditions. Competition in a way, and I think it's probably peaked off. In fact, competition is under relative pressure compared to the past. So it is more the market condition that one is watching rather than competition right now.
On the second one, you spoke about cross-sell ratio and why is that declining? So I'll just give you 2 separate metrics. One is the cross-sell ratio, which is the number of customers holding 2 products. This is a function of growth of new client adds. So the proportion of new client adds have been higher as compared to, let's say, 3 years back. So proportion of clients which are still in their first and second year is relatively higher as compared to what it was about 2 years back. And it is a bit difficult to kind of engage the clients in the first few years. But over a period of time, we have seen that the vintage, the cross-sell ratio improves to almost 3 with, let's say, a 10-year vintage, that's the kind of improvement that we have experienced in the past. We'll have to see how do we engage these customers and get to that.I would also point you to another metric that we do measure internally, which is basically how many customers from our base of, let's say, 8 -- 9 million customers? How many customers are holding 2 or more product relationships? And when we say product relationships, it's not product variance, it's a fundamentally new product category. So, if an equity investing customer has taken a mutual fund or an insurance, he has engaged with us for a new need of financial need. So if you take all of these as distinct product categories, then we have about 1.2 million customers who have 2 and more. And when I say more, actually, there is a cohort of customers, which go up to even 3 or 4 such relationships, and that also keeps on increasing with vintage. This number, which is a more representative number on the entire base has been growing, although at a lower rate because it's on the entire base, but -- and it stands at about 1.22 million customers.
On the question on [ at NCA ] or acquisition of customers on the wealth management side. See, our fundamental model is that we believe that this entire business of private wealth is all about getting good quality clients and growing their AUM. And these are the 2 metrics where we believe that we will continue to grow significantly. This financial year, we've added some 10,000-odd customers, and we believe that we will intensify this with more focus on wealth, as Vijay also mentioned wealth being our focus area.In terms of acquisition, we have 2 broad models of acquisition. One is we have our existing base of customers of ICICIdirect. And through smart data analytics today, we are able to kind of find out through what we call it as wealth markers, who are customers with high potential. And there, we are able to target sharply through smarter data analytics and the team that we have. And a large part of our client acquisition happens through this base, which are high potential, but haven't really given us the AUM or do business with us. And the second bit of clients is through open market sourcing. So both in terms of AUM and in terms of clients, we would see kind of acceleration and more effort. There was one.
Last was on the insurance yields.
That answer is basically a higher proportion of new business premium in Q4 that we have got. And as you would know that new business premium has higher yields compared to renewal. So the proportion of new business was higher in Q4, partly because of also some of the income tax changes that were announced, there was a relatively higher traction that we would sense in Q4, ramping up the new business for insurance and [indiscernible].
The next question is from the line of [ Vinod Chandra Agarwal ], an Individual Investor.
Yes. My question is with regards to be like F&O brokerage side. Can you share like some sort of the insight like how many customers or how many percentage of the customers are profitable like on a year-on-year wise? I mean, I just want to get a sense of that, how long they would be able to taken like to give us their continuous revenue for the F&O segment?
You'll have to refer to the SEBI report on that. I'm sorry, we'll not be able to share any further data beyond what is reported by the SEBI report.
[Operator Instructions] The next question is from the line of Pallavi Deshpande from Sameeksha Capital.
I just wanted to again know on this -- on the MTF book the -- what should be -- like I understand about the market share, but what should our targets for next year on this book?
No, as I mentioned, you cannot -- you should not run with an MTF target, because you land up misselling it. It is a full product. Customers have an idea, we make MTF available to them. We make it very simple. We make it available literally while he's buying the stock, and that's how we've grown the business, that's how we've gained market share. So like I said earlier, I'm saying, again, there is no real market share -- there is no real target we have set for MTF.
So would that be a target of a percentage of the total clients, how many can brought to an MTF on that side?
No, we're not running with a target in mind. We do want to --
Actually, again and again, I'm saying there is no target on MTF. There is no target on number of customers. It is a consequence of what customers want. We are focused more on making products available, making it easy and getting more customers onto our platform.
Secondly, on the wealth management side, like you mentioned about the increase in [indiscernible] INR1 crore to INR5 crore bucket is what you're targeting. Would that be a cross-sell to some ICICI Bank customers? Or I mean, how does that work?
So our wealth management practices, if I were to just give you our model, our model on wealth management is really targeting the grown rich Indian. And if you see the opportunity, there are some 800,000 Indians with more than $1 million. And for us, we believe that if we build a strong proposition on a platform with a strong brand that we are supported by the relationship team, we can build a business of scale. So from our perspective, any customer, the definition of an HNI customer for us is any customer who's given us INR1 crore and above. While our sweet spot is typically between INR5 crores to INR25 crores client, but we have the entire spectrum of products and services to really cater to an HNI, including the family office.
The next question is from the line of Sanketh Godha from Avendus Spark.
Most of my questions are answered. Actually, I just need a data keeping question. Given you clearly highlighted that the growth is giving the number of MTF customers. It will be great if you can quantify that number. I believe that number last quarter was somewhere between 80,000 to 90,000 people taking MTF loans. So that number, what it would be currently?
Approximately 3%, 4% growth on that.
Ladies and gentlemen, we will be taking 2 more questions. The first from the line of Swarnabha Mukherjee from B&K Securities.
I just had one question on the borrowing side. So while our MTF side of the business has remained stable in the book size, but borrowing has increased, and it also mentions that the borrowing has been done from other than debt securities. If you could provide some color on what was the reason for this borrowing and the choice of instruments? That will be my only question.
Yes. No. So our borrowing is primarily and only on account of commercial people. And it -- from the balance sheet perspective, Swarnabha, it goes to fund 2 things; one is the growth in MTF, which as you rightly said, has been flattish. The second is with the help -- with the increasing trading volume, we need to keep higher FDs at exchanges. So part of that gets funded through borrowing. So these are primarily the 2 reasons. On a balance sheet to balance sheet, you'll see a INR1,000 crores increase from INR7,900 crores to INR8,800 crores. This is broadly the reason.
The next question is from the line of Prayesh Jain from Motilal Oswal.
Just a couple of questions. First, [ could you react as to ] how do you kind of amortize the lifetime plan prime in terms of revenue?
It's not amortized. It's on cash, it is accounted as income, because it is lifetime.
Okay. So the quarter in which they kind of give you the licensees [ subscribed terms of in ] that quarter.
That's right.
Okay. And second is, could you also give some insight on what is the share of variable pay in the employee benefit expenses?
Roughly 70-30.
So, 70 will be fixed and 30 will be variable?
Yeah. That's right.
I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Yes. Thank you very much. Thank you, gentlemen, for taking time and asking us questions. I'm sure there could be follow-up and after thoughts and after questions, please don't hesitate calling and we'll be happy to respond to all your questions. Looking forward to continued interaction and support. Good night, and good luck.
Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.