UTI Asset Management Company Ltd

NSE:UTIAMC

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to UTI Asset Management Company Limited Q1 FY '23 Earnings Conference Call. From the management, we have with us Mr. Imtaiyazur Rahman, Managing Director and CEO; Mr. Surojit Saha, Chief Financial Officer; Mr. Vinay Lakhotia, Head - Operations; Mr. Sandeep Samsi, Head - Investor Relations and Corporate Communications.

[Operator Instructions] Please note that this conference is being recorded.

Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Please note the disclaimer mentioning these risks and uncertainties are on the disclaimer slide of the investor presentation that has been shared earlier. I now hand the conference over to Mr. Imtaiyazur Rahman for opening remarks.

Thank you. And over to you, sir.

[Imtaiyazur Rahman, executive]

Thank you very much. Good afternoon, everyone. It is my great honor to welcome all of you to the earnings call for the first quarter of financial year 2023. I thank you for joining us to discuss the financial and operating performance of our company, UTI AMC Limited.

It has been a momentous occasion for the country as honorable Shrimati Droupadi Murmu took the office as a youngest President of India and the first person from India's tribal communities to serve as our President. I have with me my distinguished colleague, Mr. Saha, CFO; Mr. Vinay Lakhotia, Head of Operations; and Mr. Sandeep Samsi, Head - Investor Relations and Corporate Strategy.

Friends, the global economic recovery post the pandemic is posed with challenges, following the geopolitical conflict in the Europe. Central banks around the world are tackling the surging inflation. In response to the rising headwinds, the Reserve Bank of India, through its monetary policy, has taken a stance to withdraw accommodation to ensure that inflation remains within the target going forward, while supporting the growth, with the supply outlook appearing to be favorable and several high-frequency indicators pointing to resilience of the Indian economy during the quarter. RBI expects that inflation may ease gradually in the second half of the financial year.

The Indian equity market witnessed corrections during the quarter. The benchmark indices for the equity markets closed with red, with Sensex closing at 53,019, down by 9.5%, and NIFTY ending at 15,780, down by 9.6%. Friends, over the last 2 quarters, the decline in equity market has impacted the quarterly average AUM of the mutual fund industry. The quarterly average AUM of mutual fund industry as of June 30, 2022, stood at INR 37,70,000 crores, marginally down from INR 38,40,000 crores as on 31st March 2022. Despite correction in the equity markets, number of folios rose to 13.47 crores as of June 30, 2022, from 12.95 crores as on March 31, 2022, a jump of around 4%.

In order to give you the further details on UTI Mutual Funds and AMC's performance, I now hand over to my colleague Mr. Sandeep Samsi, Head - Investor Relations and Corporate strategy, to take the discussion forward. Sandeep?

[Sandeep Samsi, executive]

Thank you, sir. Good afternoon to everyone. I will start with the UTI Mutual Fund and UTI AMC's performance. We are pleased to inform you that during the first quarter UTI AMC was 1 of the 2 mutual funds among the top 10 which saw AUM growth. As compared to the last quarter, our quarterly average AUM increased by INR 437 crores. UTI Mutual Fund quarterly average AUM as on 30th June 2022 stood at INR 2,24,279 crores, witnessing a year-on-year growth of 19.8% or by approximately INR 37,069 crores from INR 1,87,210 crores as of quarter 1 in FY '22. This has led to an increase in our market share to 5.94% for the quarter ended June '22 from 5.83% for the quarter ended March '22. On closing AUM basis, our market share has increased by 3 basis points to 5.89% as on June 30th, 2022 from 5.86% as on March 31, 2022.

Our equity quarterly average AUM market share is 5% for the April to June quarter. Our equity quarterly average AUM for the quarter ended June '22 stood at INR 66,693 crores with an increase of 23.49%, as compared to the quarter ended June '21. The quarterly average AUM for index and ETF recorded a year-on-year growth of 45.95% to INR 65,199 crores for the June '22 quarter.

Next is for UTI Mutual Fund for quarter 1 of this financial year stood at INR 3,771 crores, while the overall industry saw an outflow of INR 4,539 crores. The equity net flows for UTI Mutual Fund amounted to 4% of the industry net inflows and stood at INR 1,953 crores as compared to net flows of INR 975 crores for Q1 of FY '22, while ETF and index fund net inflow stood at INR 4,854 crores, gaining 11.8% of the industry net inflows. Hybrid funds witnessed a net outflow of INR 164 crores for the quarter.

UTI was able to capture market share of 8.5% of the gross sales of the industry during the quarter. The total assets under management for UTI Group registered a growth of about 15% over the corresponding quarter of previous year, and stood at INR 13,82,000 crores as on 30th June 2022 as against INR 12,00,000 crores as on 30th June 2021. During the quarter, UTI added 1.38 lakh folios, taking up the number of live folios to 1.20 crores as on 30th June '22 from 1.19 crores as on 31st March '22.

During the quarter our number of SIP accounts rose by 5.44%, taking the total number of live SIP folios to 22.67 lakhs as on June '22. The new SIPs registered during the quarter were 2.58 lakhs. Our SIP AUM witnessed a growth of 14.59% over the corresponding quarter of last year reaching to INR 17,788 crores as of June '22 from INR 15,523 crores as of June '21. The SIP inflows for the quarter stood at INR 1,550 crores, rising by 4.1% over the fourth quarter of the last financial year and by 53.66% from the corresponding quarter last year. The SIP gross inflows for UTI MF witnessed a year-on-year growth of 53.66% as against the industry growth of 37.08%, with the average SIP ticket size being INR 3,365 for June 2022. Keeping up with our commitment to deeper and better access to beyond 30 cities, 23.3% of our monthly average AUM for June '22 came from the B30 cities, while the industry stood at 16.6% in terms of the B30 monthly average AUM. 108 out of our 167 [ UFBs ] are in the Beyond 30 cities. The weighted average AMC yield slightly reduced to 40 basis points from 41 basis points in the previous quarter.

Now I come to the UTI AMC financials. UTI AMC continues to undertake cost control measures and improve its profitability and margins. During the first quarter, the company posted a consolidated net profit of INR 94 crores and a consolidated core net profit of INR 111 crores. This core PAT excludes mark-to-market gains and income from sale of investment and other nonoperating income, as against INR 86 crores in quarter 1 of FY '22, reflecting a growth of 29%. There is a growth in the core profitability of the UTI Group. For UTI AMC standalone, the core PAT of UTI AMC Limited in quarter 1 of FY '23 is INR 101 crores, reflecting a growth of 71% quarter on quarter from quarter 4 of FY '22 and 44% year over year from quarter 1 of FY '22, whereas the core income is at INR 234 crores quarter 1 of FY '23, growth of 9% year on year from quarter 1 of last FY and negative 2% quarter on quarter from quarter 4 of FY '22.

For UTI Retirement Solutions Limited, the AUM of UTI Retirement Solutions Limited has increased 14.5% on closing basis to INR 2,01,919 crores from INR 1,76,338 crores in quarter 1 of FY '22. The PAT of UTI RSL is at INR 10.7 crores, a decrease of 18.89% compared to corresponding quarter of last year. UTI International Limited, the management fee of UTI International is at INR 32 crores, an increase of 23% YoY from INR 26 crores in quarter 1 of FY '22. UTI Capital has made a net loss of INR 1.2 crores in quarter 1 of FY '23. The operating profit margin as a percentage of AUM for quarter 1 of FY '23 was 17 basis points as against 16 basis points for quarter 1 of FY '22.

Employee cost of the group, in quarter 1 of FY '23 was INR 101 crores, witnessing an increase of 7% year on year as against the amount of INR 94 crores in quarter 1 of FY '22. For the subsidiaries, I would provide a brief highlight on the performance of our subsidiary. UTI International has an AUM of INR 25,990 crores as of 30th June 2022. Our international clients are across 38 countries. They are primarily institutions, pensions, insurance companies, banks, and asset managers. One of our flagship funds, the India Dynamic Equity Fund, domiciled in Ireland, has an AUM of USD 970.6 million and is widely recognized internationally. UTI International's J. Safra Sarasin Responsible India Fund, an ESG-compliant India fund, has AUM of USD 93.2 million.

We have also launched a UTI India Innovation Fund during the first quarter of this year. This quarter we have commenced operations from our office in Paris, France, to strengthen our foothold in the European market. UTI Retirement Solutions has been managing the NPS corpus for the government and the nongovernment sector. As of 31st March '22, its AUM is INR 2,03,786 crores and has a share of 27.37% of the industry AUM. UTI Capital with a total AUM of INR 1,551 crores currently manages active debt fund, which includes the UTI Structured Debt Opportunities Fund I, which was launched in August 2017 and closed in March 2019 and has an AUM of INR 281 crores.

Currently the fund is an exit mode. UTI Structured Debt Opportunities Fund II was launched in September 2020 and has an AUM of INR 507 crores, and the fund is currently in fundraising as well as investing stage. UTI SDOF II has a well-defined ESG policy and strategy. UTI U.K. Multi Opportunities Fund I, which was launched in March '22 which has a AUM of INR 763 crores. Currently the fund is in investing stage. Further, UTI Capital has setup another fund, UTI Structured Debt Opportunities Fund [ drove scheme I ], which was approved by SEBI in April '22. The investment thesis of this fund being similar to SDOF I and II, this fund has now been rebranded as SDOF III and will be launched in the market by September '22 quarter.

I would now request the Managing Director and CEO for his concluding remarks. Thank you.

[Imtaiyazur Rahman, executive]

Thank you, Sandeep. Friends, I would like to reiterate that we shall continue to focus on growing the high-yield assets as well as our people, process, and performance.

With this, I would like to open the forum for Q&A and thank you for joining us on this call.

[Operator]

[Operator Instructions] The first question is from the line of Viraj from SiMPL.

[Viraj Kacharia, analyst]

So just have couple of questions. First is on the domestic mutual fund business. So if you kind of look at last few months, we have seen a very significant normalization of commission payouts by various competitors, especially the ones who have been very aggressive in the last few years in the market. But still if we can see our overall yield in the domestic market, we'll still see a pressure on the yield. So just wanted to understand what will be the drivers of that and going forward how should one understand the yield movement for us in the domestic mutual fund business. So that is one?

Second is again on the domestic mutual fund. We have seen some moderation in our domestic mutual fund market share, especially in active equities. And if you look at our performance ranking for some of our major schemes like say Flexi Cap, they have also moderated in last one year basis. But at the same time, when you look at our share of SIP, that has been quite stable around 4.5%. So just wanted to understand what is driving this moderation and how should we understand our market share play going forward. So what kind of levers you think you have to drive the market share up?

[Vinay Lakhotia, executive]

Yes. Viraj, so, first of all, I'll take the questions on the yield. As far as the competition pricing are concerned, as stated in the earlier call as well, the ratio of payout between the manufacturer and the distributor is closing the range of around 50% to 80% being the lower end of the spectrum that is being shared with the individual financial advisor and 80% to 85% in case of a normal high-end distributor like a bank and a national distributor. Things haven't changed much as far as the sharing are concerned. Yes, while the industry has witnessed lesser NFOs where the pricing structure get distorted, but as far as the open-ended schemes are concerned, the pricing ratios between the manufacturers and the distributor remains the same.

We do have some impact on our yield as well. So as compared to the last quarter, the yield -- the AMC market yield has actually fallen down by 1%. We expect some dilution in the yield going forward as well of around -- maybe around 1 to 2 basis points, primarily because of 3 factors. Firstly, as you all know, equity inflows that is actually coming -- the fresh inflows is coming at a lower yield as compared to the stocks AUM yield, which is close to around 85 to 90 basis points. So that dragged the overall yield.

Secondly, the industry has witnessed exponential growth in the ETF and the index AUM over the last 2 to 3 years. And we see that trend to continue in near future as well. And as you are aware, in ETF our AMC [ yields ] is in the range of around 5 to 6 basis points. Until we have a sizeable share of ETF AUM and with the AUM growing, it kind of drags our overall yield number. And the third reason is that we are witnessing some kind of uptick in the performance of our fixed income fund, as being demonstrated in the 1-year and the 3-year return. And our focus is to increase our market share which we have lost in the last 2 to 3 years. Since you are all aware, the AMC yield under the fixed income category is in the range of around 25 to 28 basis points. So any growth in the fixed income category and the market share may have some kind of an impact on the yield number -- overall management yield number going forward.

So, yes, this is some bit of dilution in the management yield number going forward, but as stated earlier, the core PAT yield remains at 20 basis points, and we don't see much of dilution in that primarily because of the cost reduction exercise that is happening, and we all are aware that because of operating leverage, the code should support our PAT yield number and the profit margin number actually has been improving quarter on quarter over the last 2 to 3 years.

With respect to your second question, that is on the market share, we have seen some bit of dilution or reduction in our equity scheme market share, which has fallen by roughly around 17 basis points. Actually, the overall -- the gross sales percentage, as compared to our industry, for UTI during this quarter was 4%, which was lower than our 5.2% market share which has impacted. But this is, we believe, primarily in the lumpsum redemption. In the SIP book, actually, our market share has actually improved by almost around 22 to 23 basis points as being presented in our investor presentation. So while we are seeing some bit of traction in the SIP book, because of some lumpsum redemption, the market share under the equity categories has slightly fallen. Viraj?

[Viraj Kacharia, analyst]

So just to follow up on the first part, on the yield part. So I understand there is a impact of new money coming in at a much more higher profit sharing than the old book. But last 1 year, as you rightly said, we had seen a lot of [ linear ] NFOs and the intensity was also quite high from the competition. Since that is also normalizing, one would probably think that there's avenues to increase the yield or normalize the yield back to the levels they were, say, 6, 8 months or a year back. But that is not really happening anymore. So why is that?

[Vinay Lakhotia, executive]

No, no. Viraj, you need to appreciate that the AMC margins on the NFO it is actually significantly lower rate. However for the ongoing scheme as well, the yield that the AMC is earning vis-a-vis the stock AUM there is a differential. So because of that, that downward pressure on the yield remain. Yes, I do agree the number of NFOs has actually slowed down. But still since the fresh inflows is coming at a lower yield as compared to the stock AUM yield of equity fund, which is close to around 85 to 90 basis points, there will be some kind of impact on the overall yield number as well.

[Viraj Kacharia, analyst]

Okay. Just one last and I'll come back in queue. Of the total book, especially in active equity, how much will be new versus the old book? Just any indicator, just to get a sense where this would -- when we should expect this to settle down at [ in terms of incremental number ].

[Vinay Lakhotia, executive]

No, no, we don't have that kind of numbers available, Viraj.

[Operator]

Next question is from the line of Kunal Thanvi from Banyan Tree Advisors.

[Kunal Thanvi, analyst]

So my first question was on UTI International. Can you throw some light on the AUM, it continues to be under pressure? I understand we had raised some money in the last quarter, which is not visible. But on the other side, if we look at the profitability, it has improved on the QoQ and YoY basis. So if you can throw some light both on the AUM and the profitability for this quarter and going ahead, how should one look at it?

Second was on employee cost. Again, if you see this quarter, there's, of course, a reduction QoQ basis, but that's more of a variable cost going out. So we had talked about reduction in employees and reduction in cost. So by when should one expect it playing out in the P&L. Will it be this year or next year? And yes, these are 2 question.

[Surojit Saha, executive]

Yes, in respect of the UTI International business, let me just tell in the space of India-dedicated offshore fund, UTI is the top 3 Indian AMC. This is because we started our offshore 20 years back, and we have dedicated teams in the different cities around the world and these are local people which gives us very good connectivity with the international market. While FII has sold USD 25 billion from India in last 9 to 10 months, in our offshore fund, UTI has a net positive to the extent of USD 250 million from first April '21 till date and USD 2 million from Jan '22 till date. And this mainly includes the UTI invested in the IDEF corpus. So overall we are very confident in respect of the growth in AUM of the UTI International, and we have new funds on the pipeline, and we have seen a lot of traction in respect of our good performance in the international market.

[Kunal Thanvi, analyst]

Sure. And on the profitability?

[Surojit Saha, executive]

Yes. Profitability, you must be seeing, our revenue has been continuously increasing over there, but it is mainly because of the mark-to-market loss which has happened in the respect of one of the scheme that is IDEF. And in respect of IDEF I can tell you, in the offshore business whenever we launch fund, the investors always ask us about our skin in the game. Therefore, to show our conviction about the fund, we invest in our own money as seed capital. While IDEF has shown a negative return, it has almost doubled since inception. Like today, cost wise it is INR 116 crores is outstanding [ and values of ] around INR 257 crores. Thus, we get a good fees from it. And to add to that, this is a corpus which has been invested in basically quality and growth strategy stocks portfolio, exactly same as the UTI Flexi Cap. And since the growth stocks have shown a decline in the last 6 months, the NAV of IDEF has also seen some decline, but which we feel is a temporary impairment, and we are confident of a positive impact on the fees as well as the AUMs.

[Kunal Thanvi, analyst]

No. So, yes, thanks for that, but what I meant was not MTM loss. I was more of looking at the operating profit. So if we see this quarter, we have reported [ EBIT ] of INR 15 crores versus say INR 1 crore in 4Q of FY '22. So from a operating profit point of view, how should one look at it going ahead? Because is it like with the flows coming back, the upfronting of commission, the operating profit will come down or it will continue to be the way it is in this quarter?

[Surojit Saha, executive]

The operating profit will definitely go up. You see the rise in revenue which has taken place in the last 3 months as well as in the last year and with respect to we have a operating profit of around INR 15 crores. But because of the mark to market, you are seeing a INR 16 crores negative loss in the PBT position. So we are very confident of a good performance on operating profit in the international business.

[Kunal Thanvi, analyst]

Sure. And on employee cost?

[Surojit Saha, executive]

Yes, employee cost, see, we are a little bit restructuring the UTI International business. You wanted the employee cost of the UTI Group as a whole or for the UTI International?

[Kunal Thanvi, analyst]

I mean group.

[Surojit Saha, executive]

Yes, for the group, the quarter-on-quarter employee cost, you will see a decline of 12% to INR 101 crores in Q1 FY '23 from INR 115 crores in Q4 FY '22. The annual appraisal cost was already factored in the quarter's financials. On the year on year basis, the employee cost has increased by 7% mainly on account of increase in the staff cost of UTI International and UTI Retirement Solutions due to the restructuring of the business. You all know that because of the Brexit, we have opened a new office at Paris which will be looking into the European business. And UTI Retirement Solutions, after the study done by BCG, we are doing some restructuring of the salesforce because of which the cost has increased.

The employee costs are dependent on the 4 pillars, that is core employee costs, variable costs, insurance costs, and ESOP expenses. The core employee cost is on a stabilizing spend even after considering the annual increment wage hike. The variable cost will be in tandem with the revenue growth and AUM growth. And the insurance cost should be on a declining. trend based on the increase in the interest rate movement. The ESOP expenses, however, will be dependent on the management decision. However, at this point of time, we don't have any plans regarding this. On the overall, we see a stabilizing trend in the employee cost even after the incremental annual wage hikes.

[Kunal Thanvi, analyst]

My question was more on the reduction part. We had laid down a strategy to reduce the absolute cost of employees by reducing number of employees. Are we on the same path for FY '23?

[Surojit Saha, executive]

Yes, definitely, there is a natural retirement which we have already told you in the last few calls and that is already there. And we are also rationalizing our costs to the extent possible.

[Kunal Thanvi, analyst]

Sure. The last one if I can squeeze in is on the -- if we look at our balance sheet, we have quite a sizable of cash on the balance sheet. Any thoughts on buyback at this point of time? We are deliberating different options, but we have not yet taken the decisions. On the management level, we are on the job. Sure, I'll get back in the queue. All the best.

[Operator]

Next question is from the line of Madhukar Ladha from Elara Capital.

[Madhukar Ladha, analyst]

Sir, first, again, going back on the employee costs, they continue to remain high despite employee reductions. Can you give us some breakdown of the 4 elements in this quarter?

[Surojit Saha, executive]

Yes. Madhukar, this 4 cost of employee variable and insurance cost for this quarter, variable cost we have considered around INR 11 crores. And the insurance cost is -- yes, for this quarter, it is -- managerial is around INR 47 crores and the nonmanagerial is around INR 60 crores -- sorry, INR 17 crores, and overall variable, as I told you, we have taken around INR 11 crores at the -- insurance cost is around INR 5 crores and the ESOP cost is around INR 4.5 crores.

[Madhukar Ladha, analyst]

Okay. So the core salary bill is INR 47 crores plus INR 17 crores now on a quarterly basis, INR 64 crores?

[Surojit Saha, executive]

Yes.

[Madhukar Ladha, analyst]

And this should reduce?

[Surojit Saha, executive]

Yes, definitely, with the natural retirement, which is on the pipeline during the next 9 months, this will be on a reducing trend.

[Madhukar Ladha, analyst]

And do we have this number of the core salary cost number for Q1 FY '22 and for the last quarter?

[Surojit Saha, executive]

Yes, we have it. We can share you offline. We have all that. For standalone basis, it's around INR 85 crores.

[Madhukar Ladha, analyst]

No, I think consolidated basis is better.

[Surojit Saha, executive]

Yes, I will give you in the 4 different pillars which I have informed you.

[Madhukar Ladha, analyst]

Right, okay. Then this quarter, if I do a little bit of a back-of-the-envelope calculation, then have equity yields improved on a QoQ basis?

[Sandeep Samsi, executive]

No. It's actually in the range of around 85 basis points, Madhukar, very much similar to last level.

[Madhukar Ladha, analyst]

Last quarter, right?

[Sandeep Samsi, executive]

Last quarter.

[Operator]

Next question is from the line with the Dipanjan Ghosh from Citi.

[Dipanjan Ghosh, analyst]

So just a few questions from my side. First is if you can give some color on the gross inflows that you're seeing from your top, let's say, 10 to 25 distributors and how this would have changed, let's say, over the past 1, 2 or 3 years?

The second is just a data keeping question. If you can give the number of unique investors -- unique investors and not overall accounts as of date and how it has changed YoY and QoQ?

My third question is more on the subsidiaries. If I look at their core profitability just from a ratio perspective and compare it with a standalone business, the core profitability on some of these businesses are definitely quite low compared to your standalone business. And given that a decent part of the profit stems from mark-to-market or other income on these businesses, your overall profitability for the consol entity is to some extent, you can say, volatile when we compare it with some of the other listed peers. So any thoughts on how you see this subsidiaries going ahead? What are your thought processes on some of them? And these are the 3 questions.

[Sandeep Samsi, executive]

Yes. So to reply to your first question, if I look at some of the key distributors, like the banking channels, our gross sales with respect to equity, which is the more important category because the other categories are more -- if you look at liquids, it's more direct. If you look at the bank, then in the last quarter, which was Jan to March, my share of wallet was about 2.74%, while in this quarter it has improved to -- from the bank it has improved to 3.20%. So there is an improvement which we are seeing.

Similarly for the mutual fund distributors who are the large mutual fund distributors, it has improved from 6.60% in the last quarter to 6.85% in this quarter. So these are some of the important parameters. Again, if I look at overall, it has remained steady at 3.92% in the last quarter to 3.90% in this quarter. So that is [ by ] gross sales. We have the number of the -- total number of folios, and which I mentioned that it is about 1.20 crores folios at an overall basis.

[Dipanjan Ghosh, analyst]

Sir, would you have the number of unique investors amongst that?

[Surojit Saha, executive]

No, that deduplication exercise we haven't done yet. So we are disclosing the number of folios only.

[Dipanjan Ghosh, analyst]

Sure. And just one follow-up on the first question. I was more trying to understand, given the fact that your distributor payouts will vary between smaller distributors versus larger ones. So while you get the wallet share and it is clearly showing a good picture, wanted to get some color on how the mix of flows is between, let's say, the top distributors in the MFDs versus the smaller distributors, and how that would have shaped up, both MFDs national distributors and banking channel?

[Sandeep Samsi, executive]

Yes. So if you look at the banking channel, generally, the banking channel, the payout is on the higher side. So when I give you those numbers, these are generally on the higher side because the banks are the main distributors. So there we are seeing increase in our shares of AUM as well as gross sales. And mutual fund distributor, it's a mix. But if you see the recent trend, we have seen that large distributors have been distributing a higher amount as compared to some of the smaller distributors. So there also we have seen an increase in the [ gross base ] share of wallet.

[Dipanjan Ghosh, analyst]

Sure. And on the last question on the subsidiaries. Any thought process just more from a long-term perspective on some of them, and how do you see them growing or delivering in terms of profitability or margins?

[Imtaiyazur Rahman, executive]

Good question, Mr. Ghosh. I'm Rahman. So far as subsidiaries are concerned, there are 3 subsidiaries. And the most profitable today is the UTI Retirement Solutions and margin is very good. We are further building this particular subsidiary, and we are going to develop competencies in-house for the distributions of the NPS for that. And this particular company will continue to grow and continue to contribute in a better way.

UTI International is also a very stable subsidiary, and this subsidiary makes a lot of money. But whenever there is a MTM gain or loss, it affects their profitability. Going forward, it appears -- outlook is the market volatility will also be settled down and this company will continue to have the core profit very strong.

We are building the UTI Capital and therefore UTI Capital will take couple of more years to start contributing. We have very strong business plan. We have built a very strong track record in the fixed income product, credit side, and we have built a very good team. We have very good processes. And now the team supervises our investment operations. So, therefore, I believe that going forward, UTI Capital, another subsidiary, will also be equally strong.

All subsidiaries will contribute meaningfully to the parent company as a whole. Mr. Ghosh?

[Dipanjan Ghosh, analyst]

Yes.

[Imtaiyazur Rahman, executive]

Yes, that's all from me.

[Dipanjan Ghosh, analyst]

Sure. Just one question if I can squeeze in. What is the product pipeline looking like in the standalone business for the remaining part of the year?

[Imtaiyazur Rahman, executive]

Sandeep?

[Sandeep Samsi, executive]

So if you see, we have recently launched the Gilt, 10 years of fixed maturity plan, which is fixed tenure plan which is there. Apart from that, we have filed certain papers with SEBI in various category, one for the passively managed debt index fund, then for ETF, and we are also planning to launch an international fund of funds. So these are some of the funds in the pipeline, and we will be launching them in the coming quarters.

[Operator]

The next question is from the line of Prayesh Jain from Motilal Oswal.

[Prayesh Jain, analyst]

My first question is on the yields again. So you spoke about debt yields being in the range of 25 to 28 bps. So how would they have trended in the, say, last 4, 5 years. And what I have been trying to understand is that these are possibly the lowest yields what we've seen in the past 2 years. And now with the 10-year yields kind of closer to topping out, there will be incremental flows towards higher-duration assets - in the longer duration assets. Do you think that the debt segment yields can move higher and provide some cushion to falling -- to the decline in yields? That would be my first question.

Secondly, could you give some thoughts about the other expenses line item wherein we've seen a sharp decline on a sequential basis? How to look at that number going ahead? And thirdly, if you could break down your cash investments into the compulsorily held, which you have to regulatory follow the investment and which is free or the free available cash.

[Sandeep Samsi, executive]

I'll take the first question on the debt fund yield. So debt fund yield, as I had stated earlier, currently in the range of around 25 to 28 basis point and that has been the trend over the last 2 to 3 years as well. But if you see, we believe that since the interest rate cycle is actually [ bottoming up ], there may be a scope of a higher duration yield fund where the yield on the -- AMC yield can be at a slightly higher than the 25 to 28 basis points. So the higher duration product will have a higher AMC yield of around 30, 35 basis points. But equally the market is also there for a short-term duration or the ultra-short-duration product where the yields are in the range of around 15 to 20 basis points. So overall, we do see at least for the next 6 months or so, fixed income products should be in the weighted average yield of around 25 to 28 basis point only. Surojit, you can take on the PAT.

[Surojit Saha, executive]

Yes, can you repeat your next question please?

[Prayesh Jain, analyst]

Yes. My second question was on the other expenses line wherein we've seen a sharp decline on a sequential basis, what were the reasons for this and how do we see it in terms of annual -- for the full year.

[Surojit Saha, executive]

Yes, that decline if you see is mainly because of the 2, 3 reasons. Like if you see on the last quarter, our variable pay was much more compared to what we anticipated. So because of that -- and this year we have considered in the range of INR 45 crores to INR 50 crores. And we have done -- now, as an institution, we have agreed to do actual calculation on a quarterly basis. And so that impact has come in the cost for this Q1 '23 because of the current scenario which is existing in respect of the market scenario as well as the industry scenario.

But our specific other costs, if you see the Q1 FY '23, Q1 FY '22, those are almost on the same range as well as on a consolidated basis, except on certain reasons like Q4 it was around INR 65 crores and for Q1 FY '23 it's around INR 49 crores. The difference is mainly because of the BCG expenses, if you remember, which has come in respect of retirement in the last Q4 of around INR 3 crores. CSR expenses, the MoU is in process. On the first quarter, the CSR expenses has not come to the full extent because as per Ind As we cannot accrue that CSR expenses. So that, and lastly because of the trail fees, which you remember in the Q4, the trail fees of UTI International was on the higher side and this quarter it is around INR 5.3 crores, and we expect to maintain this run rate for the financial year '22-'23.

[Prayesh Jain, analyst]

Okay. And the third question was on the PAT breakup between the requirement to maintain your investment in the funds as per the regulation, what would be that amount?

[Surojit Saha, executive]

Yes, as per the regulation, inclusive of the Riskometer, we are invested on INR 160 crores in that particular statutory requirement.

[Prayesh Jain, analyst]

Okay. And the last question is on the retirement solutions business. We are now at a market share of around 27%. If I remember correctly, it was supposed to be almost equal between the 3 government entities, and we have -- we are running lower than that. We have seen some slowdown in flows in the first half. How do you see this business? Do you see [ there is income ] in terms of market share gains, or how do we see this business in terms of growth from here on?

[Surojit Saha, executive]

No, if you see the UTI Retirement Solutions on the year on year basis, it has grown up by 14.5%. That is from INR 2,03,786 crores from INR 1,76,338 crores. And during the year on year, the inflow was from -- that is from June '21 to June '22, it is around INR 36,675 crores. On a quarter-on-quarter basis, the flow has been normalized, and we are getting like from December '21, March '22 and June '22, almost each quarter we are getting around INR 7,000 crores to INR 9,000 crores [ regularly ].

[Prayesh Jain, analyst]

What will be your share in the flows going to be?

[Surojit Saha, executive]

Come back again.

[Prayesh Jain, analyst]

What will be your share in the flows? I think the share in the flows is decided by a particular formula by the NPS authority, right? So what is your share in the flows currently?

[Surojit Saha, executive]

Share of the flow is now almost 33%.

[Prayesh Jain, analyst]

33%. Come back to 33%.

[Surojit Saha, executive]

Yes.

[Operator]

The next question is from the line of Jignesh from InCred Capital.

[Jignesh Shial, analyst]

So just going quickly first on the businesses of yours apart from mutual fund. So what will be the yields that you will be making from all these businesses? And is it part of your total revenues or it gets clubbed into other income, if you can just give me some idea on that.

[Sandeep Samsi, executive]

Can you come again with your question. Didn't get it.

[Jignesh Shial, analyst]

So the international businesses and the retirement fund, the yield that you make it out, is it part of your total revenues or it gets clubbed in other income?

[Sandeep Samsi, executive]

No, it's part of the operating income.

[Surojit Saha, executive]

Yes, it's part of the sale of service shown in the balance sheet in that line item.

[Jignesh Shial, analyst]

Understood. Secondly, just out of curiosity, you had these investment losses that you recorded, the INR 375 crores under OpEx. Currently most of the other AMCs have been doing it as a part of other income and all. So any specific reason? Because if I exclude that, then if I can see sequentially, there is roughly around 20% dip on the overall OpEx side. So anything to read about it or its general practice that we guys have ended up?

[Surojit Saha, executive]

No, see, our auditors are KPMG, and we follow the Ind As very clearly. So according to that, whenever there is income, it has to be shown in the total income, and if there are any loss, it has to be shown as a part of the expenses. So it is more of a presentation purpose followed as per the guidelines.

[Jignesh Shial, analyst]

Okay, understood. So whenever it would be -- so...

[Surojit Saha, executive]

And we have clearly mentioned it as a line item, so I don't think there is any -- there will be any problem for you as such in reading the financials.

[Jignesh Shial, analyst]

No, no, this is pretty clear. But then when we compare to the OpEx, we have to specifically exclude that line and then...

[Surojit Saha, executive]

That's why we have clearly mentioned over there that the net loss there is INR 37 crores, [ INR 78 crores ]. We have clearly mentioned. So accordingly, you can always take your judgment.

[Jignesh Shial, analyst]

Sure. And other way around also had been that -- no I understand that we have been consistently pushing hard for overall employee charge to get reduced or not. Having said that, if you see even last year numbers also, we are roughly around our total expenses 61 to 63 kind of percent charge comes up from employee side, whereas for the rest of the AMC it would be somewhere between 45% to 48% or somewhere around. So gradually do we see that we will also be able to reach out to that level so that your overall employee charge would be somewhere between 45%, 50% kind of a level of the total expense, or how do we see it up? And if that is the journey, how long do we think that the normalization of employee charge will be happening? Over a period of next 2 years, 3 years, how do we see that?

[Surojit Saha, executive]

It will be a 2- to 3-year kind of a journey at least.

[Jignesh Shial, analyst]

Okay. And this will be happening through -- majorly will be through the retiring employees will not be getting replaced and all. So overall additions would be relatively lower. Is it correct?

[Surojit Saha, executive]

Yes, correct.

[Jignesh Shial, analyst]

Okay, just lastly from my side. I do understand that old equity had been higher use and incrementally equity flows are coming up are genuinely -- granularly at a better old yields and all. How do we see that -- [ I’m specific ] for because that already you've explained that once it starts long-tenure debt coming in, we will see the debt yields will be improving. How do we see that equity yields would be improving? What will be the strategy to improve equity yields for us? Anything which is there in our mind or anything that gives us a way to see that yields will improve even on the equity side? Anything from your perspective?

[Surojit Saha, executive]

That depends on the rationalization of the commission sector across the industry.

[Jignesh Shial, analyst]

So for now, the commission -- the competition is using built-in, so it's difficult to see that the rise would be happening at least in near term. Is it a fair assumption?

[Surojit Saha, executive]

Yes.

[Operator]

Next question is from the line of Kaushik Agarwal from Haitong Securities.

[Kaushik Agarwal, analyst]

Sir, I have 3 questions. So firstly, the question is relating to Slide #27 where we are basically highlighting geographical reach across the country. So the numbers which are mentioned across the employees, core sales team, and the mutual fund distributors, these numbers are quite different or they have significantly changed from the last quarter. So how do we read this, number one.

Number two is on the debt schemes, so the composition of the debt AUM as part of my overall mutual fund quarterly average AUM has actually come down. And the only category which has seen significant decline in the AUM is debt schemes. So which kind of schemes are seeing redemption pressure?

And lastly, on the employee cost, earlier, if I remember, you had mentioned that the cumulative employee ESOP cost would be of around INR 58-odd crores. And as per my calculation, we have already booked a cumulative ESOP cost of about INR 63 crores till FY '22 and another INR 4 crores has been booked in this quarter. So how much amount is still left of this employee ESOP cost? And till what period shall we continue booking it? Yes. So these are the 3 questions.

[Sandeep Samsi, executive]

I'll just take the first question. If I come to Slide #27, if you see the total number of employees that we are giving, we have just given a qualification that these are the total number of employees, including the UTI Mutual Fund employees, which is 1,328 and which was the number we were giving till last quarter, and 55 employees of our subsidiaries. So total number of employees is 1,383, which is under the UTI AMC. And the other numbers are same. My number of [ UFBs ] were 167 in the last quarter also, mutual fund distributors keep on changing here and there. And the other sales number is also similar. So the only thing which was different was the number of total number of employees, which till last quarter was only for the standalone, and this quarter we have given for the consolidated, and we have mentioned that as a qualification.

[Vinay Lakhotia, executive]

And on the fixed income side, see, it's an industry-wide phenomena where there have been an outflow in the fixed income categories. We also lost money, but that's primarily because of the closure of the fixed maturity plan that has not actually been rolled out. So there have been a series of fixed maturity plan that has redeemed. But because of the interest rate, the fixed maturity plan are not currently that much in favor. But with the interest rate bottoming out, we believe that a longer duration product will become attractive and that is an area where we believe that our market share -- we should be able to improve our market share going forward. And on the employee cost, I'll ask Surojit to.

[Sandeep Samsi, executive]

Yes. I think your last question was regarding the ESOP cost. For '22-'23, the ESOP cost to be charged is INR 12.93 crores, out of which INR 4.72 crores has been charged in Q1. For '23-'24 it will be INR 3.78 crores, and for '24-'25 it will be INR 0.84 crores.

[Imtaiyazur Rahman, executive]

How much was the total ESOP cost? First [ tranche ] got how much? INR 27 crores? Total.

[Sandeep Samsi, executive]

Past is INR 29 crores, first one.

[Imtaiyazur Rahman, executive]

All right. Second one.

[Sandeep Samsi, executive]

Second one total is INR 12.13 crores.

[Imtaiyazur Rahman, executive]

Yes. You tell him...

[Sandeep Samsi, executive]

It's INR 16.85 crores.

[Imtaiyazur Rahman, executive]

That is to say that total cost INR 45 crores. He is saying INR 67 crores. The total cost in tranche 1 and tranche 2 is INR 45 crores.

[Sandeep Samsi, executive]

Yes. The tranche 1 will be about INR 29 crores, which has already been charged off and the balance which is for the new one which has been given in '19, that is INR 16.85 crores. Out of that INR 12.93 crores will be in '22-'23, '23-'24 will be INR 3.78 crores, and '24-'25 it will be INR 0.84 crores. And Q1, we have already charged INR 4.72 crores.

[Kaushik Agarwal, analyst]

Understood, sir. Sir, just a follow-up question on the first question which I have asked. Sir, on Slide #27, this 722 core sales team, this is part of my 1,383 UTI AMC employees number or is it different?

[Sandeep Samsi, executive]

Yes, yes, part of that only.

[Kaushik Agarwal, analyst]

Okay. Yes.

[Surojit Saha, executive]

This is not additional. This part of that.

[Operator]

Next question is from the line of Akshay Jain from JM Financial Service.

[Akshay Jain, analyst]

Sir, I have a question on your investment balance. So if I do a rough calculation, you have close to INR 3,000 crores worth of cash and investments. If I exclude, say, the fee and the offshore investments of around INR 600 crores and say INR 160-odd crores of regulatory requirement into your own schemes. And say, if even if I take, say, additional INR 500 crores to that, it still leaves around INR 1,500 crores to INR 1,800-odd crores worth of cash on your balance sheet. So a lot of investors have been raising questions that why so high cash balance on your balance sheet, rather than you can use this cash balance to say either pay out as dividends or a buyback. So we have been listening to a lot of answers that you are deliberating on this. But is there any timeline on when this cash will be utilized?

And #2 on the dividend policy. Dividend policy -- so I'm looking at the UTI consol. So the dividend payout has been in the range of around 50%, while some of your competitors are paying in excess of 60% and one competitor even paying in excess of 80%. So why not pay higher dividends? And #2m, why not utilize this excess amount of cash on your balance sheet? So these are my 2 questions.

[Imtaiyazur Rahman, executive]

Okay, so let me answer first the -- I'm Rahman. Let me answer first on the dividend. This time we have paid 67% dividend, and we have a baseline in our policy that Board may approve minimum 50%. Last year we had given 61% dividend. So there's improvement in the dividend payout, and we will be consistent in paying the dividend.

Regarding this utilization of the cash, yes, cash is it kept to have any acquisitions? That didn't work out, and B is, whether we should do the buyback. We are still exploring or the dividend payout. We will discuss this with our Board and take an appropriate decisions in due course. But we are cognizant that we are sitting on cash, and we are exploring the strategy how do we service this cash better in the interest of the shareholders.

[Akshay Jain, analyst]

Yes, sir, but if we can get some timeline on this because your cash is like around INR 3,000 crores, your market cap is INR 8,000-odd crores. It's more like around 35% to 40% of your market cap is sitting in cash. So it will. be very helpful if we can get some timeline on when this cash can be utilized.

[Imtaiyazur Rahman, executive]

Good suggestion. We'll discuss internally with the Board and hopefully the next call will be in a position to deliberate on that.

[Operator]

And I'll hand the conference over to the management for closing comments.

[Imtaiyazur Rahman, executive]

Thank you very much for organizing this call. And thank you very much indeed for your active participation. UTI AMC needs support of all of you. We are committed to serve all our stakeholders. And thank you very much once again.

[Surojit Saha, executive]

Thank you.

[Operator]

Thank you very much. On behalf of UTI Asset Management Company Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.