UTI Asset Management Company Ltd

NSE:UTIAMC

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, good day and welcome to UTI Asset Management Company Limited Q2 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; and Mr. Sandeep Samsi, Head - Investor Relations and Corporate Communications.

[Operator Instructions] 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, 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. Thank you and over to you, sir.

[Imtaiyazur Rahman, executive]

Thank you very much. Good afternoon, everyone. I would like to thank all of you for joining this earning call for the second quarter and first half of the financial year 2022-2023. I am delighted to share with you another quarter of operational progress and financial growth for UTI Asset Management Company Limited.

Friends, it has been a proud moment for all of us when our country surpassed United Kingdom as the 5th-largest economy in the world as per IMF. The latest change based on the quarterly GDP figure in current dollars for the period ending December 2021 is an extraordinary achievement and highlights India's resurgence and emerging superpower. To discuss UTI AMC's quarterly performance, I have with me my distinguished colleagues, Mr. Surojit Saha, CFO of the company; Mr. Vinay Lakhotia, Head - Operations of the company; and Mr. Sandeep Samsi, Head - Investor Relationships of UTI AMC.

Let me share with you about the global and Indian economy. I would like to touch upon the situation and the growth trajectories globally and for the Indian economy. As we all might be aware, the global economy is going through a difficult phase with the central banks raising the interest rate to tackle record-high inflation. The inflationary environment in all markets, escalating geopolitical tensions and energy crisis in Europe are affecting global growth with various rating agencies forecasting a [ stark inflation ] risk.

Back home, the interest rate scenario has pushed the Reserve Bank of India to raise the interest rate back to pre-COVID levels. The repo rate now stands at 5.9%. However, the situation does not seem to be blooming as India continues to emerge as an outlier as per the financial markets' experts. So far Indian equity market is concerned, during the second quarter, the Indian equity market recovered from the correction which was witnessed in the last quarter. The benchmark indices closed up by around 8.3% each with Sensex closing at 57,427 points, NSE ending at 17,094. Indian mutual fund industry, with the second quarter witnessing inflows and market recovering from the lower sales in June, the quarterly average AUM of the mutual fund industry as of September 30, 2022, grew from INR 37.7 lakh crore as on 30th June 2022 to INR 39.1 lakh crores, up by 3.5%. The number of folios rose from INR 13.47 crore as on 30th June 2022 to INR 13.61 crores as on 30th September 2022, up by around 2.5%.

Now I hand over to Mr. Sandeep Samsi, Head - Investor Relations, who will update you with the UTI MF performance. Sandeep?

[Sandeep Samsi, executive]

Thank you, sir. I'll start with UTI Mutual Fund performance. Following the rally seen in the equity market during the quarter, UTM Mutual Fund saw AUM growth for the second consecutive quarter. For this quarter, UTI Mutual Fund quarterly average AUM as of 30th September 2022 stood at INR 233,595 crores, up by 11.8% year-on year. As of 30th September 2022, our market share stood at 5.98% as compared to 5.94% for the quarter ended June '22, and 5.83% for the quarter ended March '22. On closing AUM basis, our market share has increased by 15 basis points to 6.04% as on 30th September 2022 from 5.89% as on 30th June 2022. Our equity quarterly average AUM market share is 4.99% for the July to December 2022 quarter.

Our equity quarterly average AUM for the quarter ended September '22 stood at INR 71,717 crores, rising by 13.5% as compared to the quarter ended September '21. The quarterly average AUM for index and ETFs recorded a year-on-year growth of 36.6% to INR 72,465 crores for the second quarter.

Net sales for UTI Mutual Fund for the Q2 FY'23 stood at INR 6,612 crores, while the overall industry saw inflows of INR 47,278 crores. UTI Mutual Fund contributed 14% to the industry's net sales during the June to September quarter. While for the gross sales, UTI was able to capture market share of 8.2% of the industry.

The total assets under management for UTI Group registered a growth of about 14.5% over the corresponding quarter of previous year and stood at INR 14.4 lakh crores as on 30th September 2022 as against INR 12.63 lakh crores as on 30th September 2021. During the quarter under review, the number of life folios at INR 1.21 crores as on 30th September 2022 from INR 1.20 crores as on 30th June 2022.

During the quarter, our number of SIP accounts rose by 5%, taking the total number of life folios to INR 23.8 lakh as of September '22. The new SIPs registered during the quarter was 2.58 lakhs. Our SIP AUM witnessed a growth of 18.26% over the corresponding quarter of last year, reaching to INR 20,565 crores as of 30th September 2022 from INR 17,389 crores as on September '21.

The SIP inflow for the quarter stood at INR 1,589 crores, rising by 2.53% over the first quarter of the current financial year. The SIP gross inflows witnessed a year-on-year growth of 32.9% as against the industry growth of 26.52%, with the average ticket size being INR 3,289 for September 2022. 22.8% of our monthly average AUM for September '22 came from B30 cities, while the industry stood at 16.9% in terms of the B30 AUM -- monthly average AUM. 108 out of our 166 UFCs are in the B30 cities. Weighted average AMC yield stood at 38 bps for the quarter.

UTI AMC financials. During the second quarter, the company posted a consolidated net profit of INR 201 crores as against INR 199 crores during the corresponding period in the last year, reflecting a growth of 1% year-on year and growth of 114% quarter-on-quarter as against INR 94 crores during the last quarter. The consolidated core net profit for this quarter stood at INR 85 crore. For the first half of financial year '23, the consolidated core net profit stood at INR 189 crores, up by 12% year-on year as against INR 168 crores in the corresponding period during the last year.

The operating profit margin as a percentage of AUM for Q2 of FY'23 was 16 bps. There is a growth in the core profitability of the UTI Group. For UTI AMC Limited standalone, the net profit or UTI AMC Limited for the quarter stood at INR 119 crores, reflecting a slight decline of 1% year-on year from INR 120 crores in Q2 of last year and a growth of 17% quarter-on-quarter from INR 102 crores in Q1 of this financial year. The core net profit for UTI AMC Limited stood at INR 69 crores, whereas the core income is at INR 235 crores in Q2 FY'23, growth of 2% from Q2 of last year's FY, that is INR 230 crores and 0.4% quarter-on-quarter from the first quarter, which is INR 234 crores.

For UTI Retirement Solutions Limited, the AUM for UTI Retirement Solutions has achieved 16.5% on closing basis to INR 217,515 crores from INR 186,717 crores in Q2 of financial year '22. PAT for UTI RSL is at INR 11.9 crores, an increase of 3.5% compared to the corresponding quarter of the last year. UTI International, UTI International has an AUM of INR 25,105 crores as of 30th of September 2022. The management fees of UTI International is at INR 33 crores, an increase of 13.8% year-on year from INR 29 crores in Q2 of last financial year.

One of our flagship funds, the India Dynamic Equity Fund domiciled in Ireland has an AUM of $1,140 million. J. Safra Sarasin Responsible India Fund and ESG-compliant India fund has an AUM of $89 million. UTI India Innovation Fund, which was launched in the first quarter of this financial year has an AUM of $18 million.

UTI Capital Private Limited, UTI Capital has an AUM of INR 1,509 crores as on 30th September 2022. UTI Capital has made a net loss of INR 1.2 crores in the Q2 of financial year '23. UTI Structured Debt Opportunities Fund called as SDOF Fund, has an AUM of INR 239 crores and is currently in exit mode. UTI SDOF II with an AUM of INR 507 crores is currently raising funds and investing. It has a well-designed ESG strategy. UTI Multi Opportunity Fund launched in March '22 is currently in investing stage and has an AUM of INR 763 crores.

Employee cost of the Group. Employee cost of the Group in Q2 of the financial year was INR 103 crores, witnessing an increase of 3% year-on year as against an amount of INR 100 crores in the Q2 of last financial year.

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

[Imtaiyazur Rahman, executive]

Thank you, Sandeep, for sharing operational and financial highlights. I would like to emphasize that our continued focus on growing high yield assets and fortify our commitment to our people, process and performance, which has been the backbone of our operation since long. As we enter the festive season this weekend, I wish you, your family and fellow citizens, a very Happy Diwali and good health.

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

[Operator]

[Operator Instructions] The first question is from the line of Sahej Mittal from HDFC Securities.

[Sahej Mittal, analyst]

Sir, a couple of questions from my side. Sir, firstly if you could talk about the operating expenses, operating expenses have shot up quite materially, 2Q sequentially. So what have caused such a sharp value, because this becomes quite volatile and continues to become a drag on the margins, on the EBITDA margins. So if could throw some color on this? Secondly, on the employee expenses, so where are we in terms of the journey to moderate our expenses? So can we expect INR 100 crore run-rate, quarterly run-rate for the second half and how should we look at the FY '24 employee expenses, if you could give us some outlook on that? And thirdly was on the International business. So even in the International business, the yields have improved quite materially. So what has [ been altered ] for such an improvement?

[Sandeep Samsi, executive]

In respect of the other expenses, other expenses we would like to tell that some of the expenses for which the figure of INR 15 crores increased for Q2 FY'23, is firstly INR 3.5 crores is in respect of the fund management fees of UTI International. UTI International has seen a substantial growth in respect of revenue from -- if you see from INR 55 crores to INR 65 crores. So accordingly, as you know in respect of the International business, the trail fees is being paid by the company and not by the schemes. And then INR 3 crore is in respect of the membership and subscription fees which we have to pay for the Asia Index Fund, that is all BSE, Bombay Stock Exchange related funds we have and also the National Stock Exchange.

Because if you see the passive fund which has increased by almost INR 20,000 crores from INR 52,000 crore to INR 72,000 crores on a year-on year basis. And lastly, we have done some investments in respect of our various IT initiatives, that is website development and mobile application app in respect of which we had to also do certain expenses which though it's a capex nature, but we have charged up and its benefits will be over the period.

These are all customer-facing initiatives we have taken, and on those initiatives also we had to do some agile quality management study which also has some expenditure. And the other routine expenditures in respect of [ TFR/BFEs ] traveling expenses and because of the normalization of the business activities which has led to higher travel costs and costs related to the different initiatives.

So we feel around INR 4 crores to INR 5 crore is 1 time expenses, which has happened in this quarter, so our run-rate which I told in the last quarter will be around INR 50 crores, if you remember, I feel it should be around INR 54 cores, INR 55 crores.

And in respect of the employee cost, I feel the run-rate for the quarter will be around, last quarter it was around INR 101 crores. This quarter it is INR 103 crores. We feel it will be in this range only. And lastly, in respect of the…

[Sahej Mittal, analyst]

For FY '24?

[Sandeep Samsi, executive]

Employee cost for the Q1 FY '23 was around INR 101 crores and this quarter it is around INR 103 crores, so we expect the run-rate to be in this range only.

[Sahej Mittal, analyst]

Even in FY '24?

[Sandeep Samsi, executive]

Yes, next year also, next year we feel there should be a little reduction because of the other retirement and all which is on the pipeline. And in respect of the International business, while year-to-date FI outflows from India have been around $22 million, but our offshore funds have marginally positive inflows over this period. We have launched an Innovation Fund a few months back, which speaks to invest in the technology-led business across different sectors in India. The endeavor will be to create a strong track-record so that we can distribute this fund at a much wider scale. Apart from that, we have plans to strengthen the retail distribution in the Middle East, increase coverage of South Asian institutional segments from Indian equity. In Europe, we are trying to build an interest in our G-Sec ETF given the likely inclusion of India in the global fixed-income indices, also exploring our options in the U.S. for the Indian equity funds.

And definitely why you have seen the yield has increased, because if you see the September '21, our was AUM INR 34,536 crores and there is a redemption of our low yielded AUM, which is UTI Phoenix Fund and UTI Chronos Fund, which is around INR 10,000 crores, but we have garnered even in UTI India Dynamic Equity Fund around INR 1,300 crores and other equity funds around INR 700 crores, and because of which our yield has improved in the international market.

[Sahej Mittal, analyst]

Got it. And on the staff, just one follow-up. So for FY'24 on the staff expenses, in absolute terms are we saying that doesn't see a similar run-rate, INR 100 crores? Or are we seeing a downward trajectory of that in FY '24 in absolute terms?

[Sandeep Samsi, executive]

Yes. See, there will be a downward trend because of the retirements are in the pipeline, but anyway normal increment and with respect to the, if at all, we perform in respect of the business, where variable pay will play an important role, but the core employee cost will definitely be on the down trend.

[Sahej Mittal, analyst]

The absolute employee costs will be on a downward trajectory, okay. Got it.

[Operator]

The next question is from the line of Lalit Deo from Equirus Securities.

[Lalit Deo, analyst]

So just 2 questions. So firstly, on the SIP side, it seems like in this quarter we have lost market share marginally. So just wanted to understand, so how is the market share trending across channels in the SIP segments, like in the banking, and could you shed some light on that?

[Imtaiyazur Rahman, executive]

Sandeep?

[Sandeep Samsi, executive]

Yes. Sure. So we are seeing improvement in our market share across categories for the FinTechs as well as for the other channels, for the bank channels. I'm happy to inform you that for the FinTech channel, our market shares has improved. Now our -- the total SIP market share for the new SIPs has increased -- for the FinTechs has increased to 3%, 3.01%. Sometime back it was around 2%, which has now improved to 3%. Similarly for the banks, it has gone up. Now we are at around 1.51% of our -- that is the share of wallet of our AUM across the bank. So we are seeing improvement across channels and as you know, the spend that we have and the other distributors apart from the bank and the FinTechs is very strong.

[Lalit Deo, analyst]

Sure. And one more if you can, on the retirement side, like we have been highlighting that in the last 3 quarters, we have been receiving inflows of about 33%. I mean, that thing is not getting reflected in the AUM market share. There we are seeing a sequential decline. So what would be the major reasons for that?

[Imtaiyazur Rahman, executive]

Now RSL influence, if you see the increase in the -- so what is the question, can you come again with your question?

[Lalit Deo, analyst]

Yes, sir. So we have been highlighting that our inflows in the RSL business are now at about 33%. But then in terms of AUM market share, that thing is on the declining trend, and it has again declined in this quarter so.

[Imtaiyazur Rahman, executive]

So I'll answer that. I think while in the public sector, the inflows is around 33% but there is a private sector also. So are you taking the combined exposure? Because of that, it could be on a declining trend. But on the public sector, we are receiving around 33% inflows.

[Vinay Lakhotia, executive]

And so far as private sector is concerned, as we had informed all of you, we had the [ stages of BCG ] last year. We had business plan in-place. We are in the process of putting a team to target the -- we applied for a POP license, we have a POP license, we have returned to the other regulators. And accordingly, we will be marketing very aggressively in the private sector as well. We are investing in building the team and infrastructure. We have hired quite a number of people and in next few quarters we will ensure that we witness growth in our market share in the private sector as well.

[Operator]

[Operator Instructions] The next question is from the line of Viraj from Banyan Tree Advisors.

[Viraj Sanghavi, analyst]

So, in the International business, we are seeing the profitability going down on absolute basis, so what is the reason for this, is my first question. Second question is on the NPS business, incrementally how much are we getting and what is our market-share over there? And third question is on the buyback. The overall buyback in loan, so what is our planning with this?

[Sandeep Samsi, executive]

Firstly, in respect of the International business, we have said that we are opening a new office at Paris, so there are some restructuring going on in the International business. For that, the cost has slightly increased, but it will have -- long-term basis, definitely there will be a growth in the revenue with the new schemes being launched and the new equity inflows which has happened currently. So we are definitely, we expect it to be a material contribution to the consolidated profitability.

[Imtaiyazur Rahman, executive]

So far as buyback is concerned, we are still exploring, but we need to be mindful that when we do the buyback there are various other factors which need to be considered, and we are working in this direction. But I can't give any assurance so far as buyback is concerned.

[Viraj Sanghavi, analyst]

And the other question related to NPS business.

[Imtaiyazur Rahman, executive]

NPS business?

[Vinay Lakhotia, executive]

What was the question Viraj on the NPS side?

[Viraj Sanghavi, analyst]

So incrementally, how much area are we getting versus the other years, other [indiscernible]?

[Imtaiyazur Rahman, executive]

We are getting around 31% on regular basis so far our PSU is concerned. And as I mentioned to you that we are building a team to aggressively market in the private sector.

[Operator]

[Operator Instructions] The next question is from the line of Yash from Citigroup.

[Unknown Analyst]

One question on the ESOP expense for the standalone business for the quarter, if you can share the number?

[Sandeep Samsi, executive]

Yes, this quarter it is INR 3.85 crores. And I can give you the number for the subsequent quarters also, it will be INR 7.25 crores and INR 5.70 crores.

[Unknown Analyst]

So that would be for the third and fourth, right?

[Sandeep Samsi, executive]

Yes. So total this year, it will be INR 21.52 crores.

[Unknown Analyst]

Sure. And sir, the other was on the lines of the yields in our domestic business crashed. So we understand that the ETF mix has increased and liquidity replacing debt funds. But active equity mix has also increased sequentially. So why did the equity crash so much on a sequential basis?

[Vinay Lakhotia, executive]

As I said earlier, the fresh inflow is coming in at a lower yield, so that's why there has been a reduction of around 2 basis-point as far as the equity yield is concerned. Also, this particular quarter our inflows under the ETF and the liquid category has been at a much higher rate as compared to the industry. Because of that it has an impact on the overall lead number. But as the guidance that have been given in the earlier calls as well, as compared to the previous year yields of around 41 basis points, we do see a reduction of around 2 to 3 basis points of yield in the current financial year and that guidance holds good for the remaining part of the financial year as well.

[Unknown Analyst]

Okay. And sir, distribution mix for SIPs, channel-wise, how has it changed during the quarter?

[Sandeep Samsi, executive]

Yes. So Yash, a major part of the mix which is coming for the SIP is from the direct business and we see a large part being played by the FinTech. Apart from that, the mix of SIP is very similar to the mix that we have given in our presentation on the overall equity mix. So if you see my presentation, there is about 60% which is coming from direct.

[Unknown Analyst]

Okay. And just if you can throw some light on the product pipeline if you have?

[Imtaiyazur Rahman, executive]

Product pipeline, Sandeep?

[Sandeep Samsi, executive]

Yes. So during this quarter, this is the third quarter, we have the plans to launch the Gold ETF Fund of Fund, which is live right now and we'll be closing shortly. Apart from that, we have a plan to launch a fixed term income fund, the Series 35. That we are planning to launch in the month of November. We have received approval from the regulator and that will be launched shortly. Apart from that, we have the approval from the regulator for UTI Multicap Fund. We are looking at appropriate time to launch that and we have approval for another FTI Series 35-II and 35-III. Those dates have to be decided, but we have received the approval and it's at our end now to launch it at an appropriate time.

[Imtaiyazur Rahman, executive]

So mostly it will be on the fixed income and on the passive side of the equity business.

[Unknown Analyst]

Sure. Got it. And sir just lastly, was there any trail fee for the international business this quarter?

[Imtaiyazur Rahman, executive]

No, nothing as such. There is low yielded funds like Phoenix and Chronos, which I said in my past answer, they have got redeemed. But it got refurbished by good equity content from IDEF and other equity funds. So overall the revenue has improved.

[Vinay Lakhotia, executive]

So basically, low yielding asset has actually redeemed and has been replenished by high-yielding assets. Because of that these are slightly spiked.

[Operator]

Next question is from the line of Prayesh Jain from Motilal Oswal.

[Prayesh Jain, analyst]

Just a couple of questions. Firstly, out of our ETF and next one, what was the share of ETF money?

[Vinay Lakhotia, executive]

Share of ETF? ETF I think should be close to around 75% to 80% of our total ETF business.

[Prayesh Jain, analyst]

Okay. And that should be similar for the industry?

[Vinay Lakhotia, executive]

I think because ourselves and SBI actually received money from EPFO. The 2 are the biggest player. For the other AMCs, I'm not very sure about that. But as far as ETF is concerned, SBI and UTI only receive money under the ETF category.

[Prayesh Jain, analyst]

Okay, okay. And secondly, just extending that point on the base rank. We have seen that where competitors have declared results, has the benefit share of rising share of equities benefiting them and yield has improved. Why is it that for us the things are different, and the yields on the equity are declining? What's different for us?

[Vinay Lakhotia, executive]

I'm not very sure about competitors, this thing is happening. But what we can show that we have been receiving substantial inflows under the equity categories over the last 6 to 7 quarters, and that's the trend we see continuing it. So as earlier explained in the con-call, in earlier con-call as well, the yield on the fresh inflows is at a lower pace, and so there are other factors that the older AUM is also getting redeemed, which has an overall impact on the equity yields. Plus, as I said earlier, for this particular quarter, our overall liquid and ETFs percentage of sales has actually improved substantially, because of that there is a marginal impact as far as the yield numbers are concerned.

[Prayesh Jain, analyst]

Could you give some yields on each of the asset classes, what are the current yields and particularly on equity, if you can explain as to what would be the yields on the new asset and what will be the yields on the back-book?

[Vinay Lakhotia, executive]

So, I can give you the stock AUM yield. Stock AUM for equity and hybrid fund is close to around 80 to 83 basis points, for ETF around 5 basis points. Income Fund will be closely around 30 basis points and liquid fund around 8 to 9 basis points. On the fresh inflows, we don't provide any yield number, because again it depends on which channel, which geography this particular business is coming. As stated earlier also, the ratio of distribution with the distributor is closely in the range of around 50% to 80%, 50% being with the lower end of the spectrum, which is IFL, and 75% to 80% with banks and national distributor. So very difficult to give a single number as such, but that's the distribution mix ratio that we have been sharing in the past as well.

[Prayesh Jain, analyst]

So how is the sharing of the difference between the individual distributors and national distributors and bank?

[Vinay Lakhotia, executive]

So, as I said, 50% will be shared with individual financial distributor, 50% to 60%, and with the national distributor and bank, it would be in the range of around 75% to 80% of the total distributable expense ratio.

[Prayesh Jain, analyst]

Okay. Got that. And last question, sir, on the ETFs, do we have any plans to launch smart beta ETFs that can give us better yield?

[Vinay Lakhotia, executive]

Yes. So I think we already launched sometime last year with the momentum in that fund, which is actually a smart beta product, and yes, most of the ETF launches in next due course of time, I think will be in that range. This should provide some fill-up to our yield number, maybe Sandeep can share some of those ETF category? Sandeep?

[Sandeep Samsi, executive]

Yes, so we have yet to receive the approval, so we have -- as we mentioned, we have a long list of funds which we want to launch, including some of the active/passive, which are the Nifty's 100 enhanced ESG index funds and the other funds which we want to launch. So these are all filed. However, we are yet to receive the approval.

[Prayesh Jain, analyst]

Okay. And on the debt side, do you see the yields going higher, going ahead now that the money should start moving towards longer duration from 30 bps you mentioned, can it move by the end of this year towards more like 35 bps?

[Vinay Lakhotia, executive]

It could happen very well, yes, because most of the product, I think the demand should come in a longer duration product, where the yields could be slightly better. So yes, there could be some few basis-point incremental management fees as far as the income fund is concerned.

[Operator]

Next question is from the line of Nirmal Bari from Sameeksha Capital.

[Technical Difficulty] Nirmal, sorry but your voice is breaking. May I request you to come in a better reception area, please.

We will move to the next participant. The next question is from the line of Krunal Shah from Enam Investment Services.

[Krunal Shah, analyst]

Yes. I have 2 questions. First is, in the half year, we had a net CapEx of around INR 29 crores in property, plant and equipment. So could you elaborate on what was the nature of this CapEx? And the second question is regarding the competitive intensity, if you could share some light on the competitiveness in market in terms of mutual funds?

[Imtaiyazur Rahman, executive]

Yes, regarding the CapEx, it is in effect of the building we have done some initiatives as well as IT initiatives which have been taken, these are the 2 major reasons why the CapEx has improved.

[Sandeep Samsi, executive]

Yes, Kunal, on the competitive intensity, I think the mutual fund industry remains competitive. We are as a longstanding player of the industry, we have built our relations with our partners, the key mutual fund distributors or the bank or even the newest partners like FinTechs. So we continue to work on our relationship. We don't take anything for granted and we realize the fact that as the market grows, the competitive intensity will also grow. Wo we have to always work on what we have and build on our strength, so that's what we look at, Kunal.

[Krunal Shah, analyst]

Okay. Just a follow-up on the CapEx part. So how long do you think the INR 40 crore kind of run-rate, annual run-rate that we will be doing, how long will that sustain, because in the end you don't require too much capital in this business?

[Imtaiyazur Rahman, executive]

No, no, these are all because of the last 3, 4 years we have not done any CapEx investment in terms of our IT initiatives, so those are mainly -- it is in respect of the information technology upgradation for the customer facing initiatives which UTI is taking forward.

[Krunal Shah, analyst]

Okay. And the building part, what was the CapEx, if you could elaborate a little bit?

[Imtaiyazur Rahman, executive]

Building, we don't have -- already what is on the cards as of March '22, it is there. We are not taking any other buildings as a CapEx. But the renovation is going on and we have 2.5 floor more to renovate. It is a very old building and that needs a serious revamping of the infrastructure to provide employees a good place to work. And our goal is to have -- to be an employer of choice and therefore we need to provide a good work environment. So we have renovated, we are in the process of renovating the entire building. We have completed the renovations in new cafeteria, which is work-free.

We are renovating the other 2.5 floors and there will be some cost for this financial year and as well as first half of the next financial year. And there will not be any further capital investment in building. So far as IT infrastructure is concerned, you know it is the need of the day and we need to continuously invest in the IT infrastructure. We will stay competitive and make UTI completely digital organization. And that expenditure is not expenditure, it is an investment for future business and that will help us to reduce/optimize the costs and enhance the profitability and productivity.

[Operator]

[Operator Instructions] The next question is from the line of Raghvesh from Premji Invest.

[Unknown Analyst]

I have 2 questions. The first one was on the tax provision that you had mentioned, substantially increased the percentage of PBT. Sir, can you give some color on how to estimate that going forward? The other thing, can you elaborate on how the PMS income, the dynamics, how can we look at it going forward and what were the major components you're saying?

[Vinay Lakhotia, executive]

Yes. In respect of the effective tax rate for this particular quarter, you have to see the effective tax rate for the full financial year. Even in the last quarter if you see, it was different. For the full year, it will be around 22 bps to 23 bps. And this particular quarter it is more, because as you know in the last quarter there was a INR 37 crores loss, M2M loss. And this financial year, there is a gain. And because of the dividend, we had to do a repurchase. So there is a realized gain also has come into the books. And because of this, the tax rate has increased. But for the full financial year, it will be around 22 bps to 23 bps, which we will be maintaining for March '21 as well as March '22.

[Unknown Analyst]

Okay. And on the PMS?

[Vinay Lakhotia, executive]

Yes PMS is, as you know, throughout the last 12 months year-on year, it's around INR 13 crores of PMS fees. It Is less than 1 bps, as you all know, and we have mentioned in all the earlier calls. So it's a volume game. Once the AUM increases, it will be contributing, but it will not be a very substantial contribution to the revenue.

[Operator]

The next follow-up is from the line of Sahej Mittal from HDFC Securities. Sahej?

Due to no response, we move on to the next participant. The next question is from the line of [ Amay ] from Metaverse Equity Fund.

[Unknown Analyst]

So I would like to know your thoughts on impact of interest rate on fixed-income part of the business in coming financial year, as well as this financial year?

[Vinay Lakhotia, executive]

What is your question, come again, please?

[Unknown Analyst]

The interest rate on fixed income side of revenue impact?

[Imtaiyazur Rahman, executive]

Interest rate? Yes, I think for fixed income, the right person to speak on this particular subject and I have no comments to offer as a CEO of the organization. But as you know, it is nearly coming to the settled down situation and there may be some small hike in installation. But I'm not the right person to speak on this particular subject. If you need to know, we can send you the notes separately, and so you can send your request to Sandeep and we will send you the reply, appropriate reply.

[Operator]

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

[Kunal Thanvi, analyst]

So I had 2 questions. One was on the number of employees that got retired this quarter, and how many of them will get retired this year -- for current financial year? And of that, how much cost reduction we are expecting this year? Like, we had mentioned some numbers last quarter, are we maintaining those numbers? That is question number one. Second on the international business, you said that we have invested some money this quarter in terms of opening of offices et cetera, which led to reduction in operating profits. How should one look at for this whole financial year? Like in the first quarter, we did our operating profit of around INR 15 crores and this quarter we did some INR 6 crores? Like, we'll be maintaining the INR 6 crore run-rate or we'll go back to INR 15 crores run rate from the next quarter? Yes, these are 2 questions.

[Imtaiyazur Rahman, executive]

On question number 2, we are not expecting any further expenses so far as the Paris office opening is concerned. The expenses is done. And so far as your first question is concerned about how many people retiring, Surojit?

[Surojit Saha, executive]

Yes. So for '22, '23, around 60 people will be retiring and there will be a saving of around INR 7 crores to INR 8 crores. And this was the figure we have mentioned earlier also. And for '23, '24, it will be around 50 people and the saving will be around INR 8 crores.

[Kunal Thanvi, analyst]

Sure. And 1 more question on the hybrid side. Like 2, 3 quarters back, you had said that we don't have a product on the hybrid category as such because we had some ULIP product and we were trying to solve the issue with SEBI. Any update on that?

[Imtaiyazur Rahman, executive]

We have taken up the matter with SEBI and the work is in progress. And we are also planning to file and seek the approval first from the Board and the trustees and plan for that. But it is a work-in-progress, and I can't give any forward-looking statements about the time line.

[Kunal Thanvi, analyst]

Sure, got it. Just last one if I can squeeze in was on -- one of the comments you had mentioned about hiring new employees for other initiatives, like in terms of what we understand is in last 2 years, we have hired people across the teams. We have strengthened our team. Where we are in that journey? Because what has happened is at one side we have been reducing employees, another side we have hiring more people to strengthen the team. So hence the cost benefit is not reflected in the financial. Now in terms of strengthening the team, where we are in journey across department functions?

[Imtaiyazur Rahman, executive]

Good question. In the various department, let me give you the first of all investment. In investment, we don't need any further addition of the manpower. We are sufficient number of professionals to take the company forward. In the sales and distribution, at the senior level, we don't need any further hiring. But at the junior level, relationship managers, as you know, the attrition is also very high. But we will continue to expand. We are seriously working to rationalize our branch office costs and that process will continue. We don't have any plan to hire the folks or employees in any other functions so far as the operation is concerned or HR is concerned. Whoever retires from non-managerial staff, we are not rehiring folks. We're only hiring for the managerial staff.

On the subsidiary side, yes, we will -- we are building the competencies in UTI Capital. We have the team, and we will have some more folks and the associates in UTI Capital. UTI International, as Surojit mentioned to you that we have launched our U.S. strategy. We will be building a team in U.S. We will be expanding our network and our team in Middle East. So we may have -- we will witness some adds. And those investments will yield very significant results in the years to come. And the corporate office, there will be a continuous reduction so far as the manpower is concerned.

To summarize, the Class III, Class IV and non-managerial staff, whoever is retiring, there is no substitution, going one for all. So far as the investment is concerned, generally we will do only the replacement and no further addition. Sales, we need to build A-Class distribution team and wherever is required at junior level, we will hire the folks.

[Kunal Thanvi, analyst]

Sure. Got it. So in terms of our absolute cost structure when we look at both employee and non-employee, how should one look at it? Like, is there any possibility that we'll see absolute cost reduction or it will be stable the way it is? Because in the past, we had also indicated that the employee costs would reduce on absolute basis. But now commentary seems like that it will be there where it is, that is INR 100 crore run-rate. Any thoughts on absolute reduction of cost over next 2 years would be helpful.

[Imtaiyazur Rahman, executive]

Very good question. I think you need to see the cost in a different way. You need to see how much is the ESOP cost. If you take out the ESOP cost, then there is a downward trend. Throughout, there is a downward trend and this trend will continue. And therefore, Surojit can give you the information, one is the employee cost and the ESOP cost. So if you see separately, the segmentation of the implied cost, you will find a downward trend. But ESOP cost, as you know, it is not the cash cost, it is a book entry, and we need to continue to issue the ESOP for our team to ensure that we are in a position to retain the talented people, particularly the investment. Our ESOP policy is building the case, 100 plus persons of our investment team will get the ESOP. So this is important from -- and your question is very relevant. We had given the guidance and we are committed to take the employee cost on the downward trend.

Detailed information, we will give you separately, breakup. Surojit, you have the information ready, or you want to give separately?

[Surojit Saha, executive]

We have. We can tell.

[Imtaiyazur Rahman, executive]

Yes, please tell.

[Surojit Saha, executive]

Yes. If you see the June '22, our actual employee cost -- core employee cost was around INR 75 crores, INR 76 crores. It has come down to INR 73 crores in quarter -- September '22. And only the variable cost will depend obviously on the business we garner and how our sales team and the investment team perform. But the core employee cost will show a downward trend in future.

[Operator]

Participants, we will take the last question from the line of Prayesh Jain from Motilal Oswal.

[Prayesh Jain, analyst]

Sorry to labor on this employee cost again. You mentioned that in the next couple of years, this year and next year included, you will have around 110 kind of employees retiring and that will lead to a saving of INR 16 crores, right?

[Imtaiyazur Rahman, executive]

No, the saving will be more than that, but you also need to give increase in salaries to the employees year-on-year. So this is a net effect. And then after giving them salary increase, we are saving the money. You need to see that from that particular angle. As employee, all of us are entitled for the salary increase and it's a competitive market where the skilled staff are in scarcity. We need to give a salary increase year-on year. But still we are seeing a downward trend.

[Prayesh Jain, analyst]

The INR 16 crores saving will be net of increment given? Variables are different, variable pay is…

[Imtaiyazur Rahman, executive]

That's correct.

[Operator]

As there are no further questions, I will now hand the conference over to Mr. Imtaiyazur Rahman for closing comments.

[Imtaiyazur Rahman, executive]

I would like to express deep gratitude and thanks to all the participants for participating at this particular point of time despite your busy schedule. I know a lot of calls are there. Thank you for participating. I would like to thank all our partners, my colleagues and everyone for actively participating to take UTI to the new high. I now once again extend my deepest greeting on a personal behalf, on behalf of UTI to our partners, to all the participants here and to the entire country men and women for a Happy Diwali and festive weeks ahead. Thank you so much and good luck. Stay safe and stay healthy, bye-bye.

[Operator]

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