UTI Asset Management Company Ltd

NSE:UTIAMC

Earnings Call Analysis

UTI AMC's Strong Growth and Expansion

UTI Asset Management exhibited robust financial and operational growth with key expansions. It launched four New Fund Offers (NFOs), contributing to a 14.22% increase in the domestic mutual fund business's quarterly average Assets Under Management (AUM), reaching ₹2.67 lakh crore. UTI's total AUM soared by approximately 17% year-on-year to ₹16.9 lakh crore. Equity AUM expanded by 9.2%, and passive investment vehicles like index funds and ETFs grew by 35.82%. Systematic Investment Plan (SIP) AUM increased by 29%, indicating strong investor engagement. Financially, consolidated net profit for the first half rose by 43% year-on-year, and revenue from operations grew by 27%.

UTI Asset Management Company's (UTI AMC) Resilient Growth and Expansion

Despite the global economy still recovering to pre-pandemic levels with inflationary pressures, UTI AMC exhibited a robust performance. For investors, it's important to note the company's 17% year-over-year growth in total assets under management (AUM) for the second quarter ended September 30, 2023. This signifies UTI AMC's strength within an emerging market like India, which itself is showing optimistic economic indicators and a raised GDP growth forecast of 6.3% by the IMF. The firm is actively expanding its footprint with an additional 29 offices opened, totaling to 195 financial centers focused particularly on Tier 2 and Tier 3 cities—an initiative that could foster mutual fund adoption among a broader population base.

Product Launches and Fund Performance

Concerning specific funds, the UTI SDOF II, launched in September 2020, has an AUM of INR 507 crores, UTI Multi Opportunities Fund I with an AUM of INR 763 crores, and UTI SDOF III with an AUM of INR 398 crores. These funds are currently in various stages of investment and fundraising, illustrating active management and continued product development within the company. Investors should take note of UTI Alternatives' regulatory approval for two more funds, which indicates further diversification into new financial products, and with 7 clients and 4 investors onboarded for portfolio management services, UTI is scaling its alternative investment capabilities.

Cost Management and U.S. Operations

Investors may be curious about the cost implications of UTI's growth initiatives. A sequential increase in employee benefit expense in the mutual fund business was observed, which can be linked to a normal wage increase and actuarial valuation changes. However, the newly approved U.S. operations won't incur costs this fiscal year, with expectations of some costs arising the next year. This prudent approach to international expansion could appeal to investors looking for a balance between growth and fiscal responsibility.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the UTI Asset Management Company Limited Q2 and H1 FY '24 Earnings Conference Call. From the management, we have with us Mr. Imtaiyazur Rahman, Managing Director and Chief Executive Officer; Mr. Vinay Lakhotia, Chief Financial Officer and Head, Corporate Strategy; Mr. Surojit Saha, Group Financial Adviser; and Mr. Sandeep Samsi, Head Investor Relations, Marketing and Corporate Communications. We also have the Investor Relations team from Adfactors PR. There will be an opportunity for you to ask questions after the presentation concludes. [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 will now hand the conference over to Mr. Imtaiyazur Rahman for his opening remarks. Thank you. Over to you, sir.

[Imtaiyazur Rahman, executive]

Thank you, Davin. Good evening, everyone. Thank you for joining us today to discuss our operational and financial performance for the second quarter and the first half ended September 30, 2023. It is my privilege to welcome you all. You might have gone through our press release and investor presentation available on our website as well as on the website of the stock exchanges.

The world economy is yet to reach the pre-pandemic level of growth and still witness inflationary pressure. But this has paved way for emerging markets like India to have a prominent contribution towards the global economic growth. The economic scenario in India is optimistic, continuing the momentum of last couple of quarters.

For the current fiscal, IMF has raised the GDP growth forecast to 6.3% for India. Friends, during the quarter there was another milestone achievement for the Indian capital market. JPMorgan announced inclusion of Indian sovereign bonds into its emerging market index. According to industry experts, this inclusion is likely to result into inflows of around USD 30 billion in investment into Indian debt market, which have traditionally been held primarily by bank and financial institutions.

Inclusion of Indian bonds will affect from the next fiscal with maximum weightage of 10% is a testimony of India's emerging significance in the global financial markets. Coming to the equity market, the Indian investors have well captured this optimism as is evident from the new all-time hiatus high by both benchmark indices during the quarter. This has also led to an increased participation in the Indian mutual fund industry.

I'm happy to share with you that the September 22, 2023 data from AMC reviews that the industry now have 40 million unique mutual fund investors in India. Coming to UTI, I'm happy to share with you that on 29th September 2023, we successfully inaugurated 29 new offices across the country, taking the total number of UTI financial centers to 195.

We continue to be committed to growing our presence in the beyond 30 locations and make mutual fund more acceptable to the people in the Tier 2 and Tier 3 cities in India. Friends, 134 of our UFCs are now present in these locations, staying committed to guide more and more people about mutual funds. UTI conducted 82 investor awareness programs pan-India covering 4,600 participants in the first half of financial year '23-'24.

While the geographical reach has increased, we are also working on our digital strategy and reach. We relaunched our mobile app for our investors and distributor -- distribution partners with a better user interface and have also adopted a state-of-the-art technology for our contact centers.

On the HR front, we have now new CFO, Mr. Vinay Lakhotia, who [indiscernible] and is also handling the corporate strategy function of UTI AMC. We have also elevated Mr. Anurag Mittal to be the Head of Fixed Income of UTI Mutual Fund.

Now sharing numbers for UTI Group, the total assets under management for UTI Group registered a growth of about 17% over the corresponding quarter of the previous year and it stood at INR 16.9 lakh crore as on 30th September 2023. The domestic mutual fund business witnessed a growth of 14.22% year-on-year with a quarterly average AUM as of 30th September 2023 at INR 2.67 lakhs crores.

We launched 4 successful NFOs during the first half of this fiscal: UTI Nifty, Equal Weight Index Fund, UTI S&P, BSE Housing Index Fund, UTI Balanced Advantage Fund and UTI Innovation Fund during this half year. Now I hand over to Mr. Sandeep Samsi, Head Marketing and Investor Relations, who will update all of you with UTI AMC performance in a greater detail. Over to you, Sandeep, and thank you.

[Sandeep Samsi, executive]

Thank you, sir. I will first take you through UTI Mutual Fund performance during the second quarter and the first half year ended September 30, 2023. UTI Mutual Fund performance for this period, UTI was able to capture a market share of 7.8% of the gross sales of the industry during this quarter. Our equity quarterly average AUM for the quarter ended September 2023 stood at INR 78,291 crores, rising by approximately 9.2% as compared to the quarter ended September 2022.

With passive investment gaining traction, we have witnessed a growth of about 35.82% in the quarterly average AUM for index and ETF, taking it to INR 98,421 crores for the second quarter. ETF and index fund net flows stood at INR 2,364 crores. UTI added INR 1.03 lakhs folios, taking the number of live folios to 1.22 crores as on September 30, 2023. Our SIP AUM witnessed a growth of 29% over the corresponding quarter of last year, reaching to INR 26,541 crores as of September 2023 from INR 20,565 crores as of September 2022.

The SIP inflows for the quarter stood at INR 1,648 crores. The SIP gross inflows for UTI Mutual Fund witnessed a year-on-year growth of 1.11% with an average ticket size being INR 3,140 for September 2023. Coming to the contribution from B30 cities, 23% of our monthly average AUM for September '23 came from B30 cities, while the industry average stood at 17% in terms of its B30 monthly average AUM.

Coming to UTI AMC financials. During the second quarter, the company posted a consolidated net profit of INR 183 crores. The consolidated revenue from operations for the second quarter stood at INR 404 crores. For the first half, the consolidated net profit was INR 417 crores, higher by 43% year-on-year. The consolidated revenue from operations for the first half stood at INR 872 crores, up by 27% year-on-year.

On a standalone basis, the PAT of UTI AMC Limited for Q2 FY '24 is INR 134 crores, reflecting a growth of 14% on a year-on-year basis. The PAT of UTI AMC Limited for the half -- first half of FY '24 is INR 299 crores, higher by 38% year-on-year. We are happy to inform that our 100% subsidiary, UTI Retirement Solutions Limited, has recorded a growth of 24% year-on-year in this period, reaching to INR 2.7 lakh crores in Q2 FY '24 and currently manages 26.4% of the NPS AUM. The PAT of UTI Retirement Solutions for the first year -- first half of FY '24 is INR 25.2 crores, an increase of 11.5% year-on-year.

UTI International, which represents our international business interest, has an AUM INR 24,207 crores as of 30th September 2023. Our international clients are across more than 35 countries, and these are primarily institutional centers, insurance banks and asset managers.

One of our flagship fund, the India Dynamic Equity Fund, IDEF, the [indiscernible] has an AUM of USD 961 million. UTI International, J. Safra Sarasin Responsible India Fund, an ESG-compliant India fund, has an AUM of INR 78.4 million. UTI Innovation Fund, which was launched last year, has an AUM of INR 25.6 million.

UTI Alternative -- coming to UTI Alternatives Private Limited, it has an AUM of INR 1,799 crores and has a very different ESG policy and strategy. It currently manages the following active debt part.

UTI Structured Debt Opportunities Fund, SDOF I, launched in August 2017 and closed in May 2019. It has an AUM of INR 132 crores. Currently, the fund is in exit mode and has returned 1.1x the capital invested. UTI SDOF II launched in September 2020 has an AUM of INR 507 crores as the fund is currently in investing stage. UTI Multi Opportunities Fund I, launched in March 2022 has an AUM of INR 763 crores and currently, the fund is in the investing stage.

UTI SDOF III launched in September '22 has an AUM of INR 398 crores, and the fund is currently in fundraising as well as investing stage. UTI Real Estate Opportunities Fund I is currently in fundraising stage and with a fleet of expense of INR 110 crores and net commitment of INR 30 crores.

UTI Alternatives has also received the regulatory approval for 2 more funds, UTI Credit Opportunities Fund I and UTI Asset Reconstruction Opportunities Fund I. We will be launching this funds soon. UTI Alternatives has the regulator [ nod ] for providing [ 4 ] investor portfolio management services. We have onboarded 7 clients and 4 investors since September 30, 2023.

I would now request the Managing Director and CEO, for his concluding remarks. Sir?

[Imtaiyazur Rahman, executive]

Thank you, Sandeep, for sharing operational and financial highlights for the second quarter and half year of fiscal -- financial year 2023-'24. I also would like to share with you that we are -- we have got a permission from SEBI to start our U.S. operations. With this, I would like to open the forum for Q&A.

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Swarnabha Mukherjee from B&K Securities.

[Swarnabha Mukherjee, analyst]

I have a couple of questions on the yield side. So first of all, the yield compression that we have seen in this quarter, just wanted to understand, is it only a factor of the mix sales that's coming from the ETFs or within the equity category also, there has been some compression as fund sizes increased? If you could call out also the units for individual product categories, that will be very helpful. So that is one on the mutual for business. And as well as on the international business, if I try to calculate the yield, I'll see some softening on that front as well. So what has happened there and how to think about it? So that is on the yields. And on the cost side, there has been some increase on a sequential basis on the employee benefit expense in the mutual fund business. So if you could highlight the reason and how should we think about for the rest of the year? And also related to the U.S. operations that you have mentioned, whether we should expect any kind of additional costs and what will be the quantum of that in this year and next year [indiscernible]? These are my questions.

[Imtaiyazur Rahman, executive]

Vinay?

[Vinay Lakhotia, executive]

I'll take the question on the yield part and the employee part. Let me first give you the breakup on the yield part. On equity fund, the yield for the quarter 2 is around 72 basis points; on the hybrid fund, 84 basis points.

ETF and index fund is 4 basis points. Cash and arbitrage around 8 basis points. And income fund 22 basis points. During the quarter, while the equity yields are more or less stabilized at around 72 and 73 basis points, we have seen some headwinds as far as the [ 2 ] categories are concerned. On the hybrid fund, since we launched an NFO, which is UTI Balanced Advantage Fund, there we are seeing some yield compression from 90 basis points to around 84 basis points, mainly because of the mobilization of the new fund, we're slightly at a higher cost and the yield on the new NFOs is around 30 to 35 basis points.

Also, we have reduced the expense ratios and the management fees under the ETF categories of the fund from overall expense ratio from 7 to 4 basis points. Because of that, there have been some yield compression under the ETF category of the fund during this particular quarter.

On the income front, we are witnessing both at the industry level as well as UTI, the significant imports are actually coming into a shorter duration product, where the yields are generally lower. So we have mobilized a significant amount of inflows under the income category during this particular quarter, which have been toward the shorter duration of the product, on which the management fee is actually lower as compared to a longer duration product.

Because of that the yield on the income category has also fallen from 26 to around 22 basis points. Because of that, the overall yield compression is there of around 2 basis points. However, the equity fund yield remains stabilized at around 72 to 73 basis points.

On the international business, I don't think there is any yield compression. There have been some marginal decline in the overall AUM because of some redemption under the either categories of the fund. And because of that, you might see some reduction in the management fee.

Coming to your second question on the employee cost, overall employee cost on the stand-alone basis has gone up by around [ INR 6 crores to INR 7 crores ]. There are 2 to 3 factors: first is the normal wage increase, which is in spite of reduction of the retiral benefits, the increase is around 2% to 3%.

Now there have been -- amortization cost, which has gone up as compared to the previous financial year of around INR 2 crores. And also, there has been an actuarial valuation increase of [indiscernible] onetime figure until unless the interest rate goes down, that impacted around INR 3 crores.

On the U.S. subsidiary, as of now, we don't have any approval from SEBI.

[Imtaiyazur Rahman, executive]

No, we have the approval.

[Sandeep Samsi, executive]

The operations hasn't started. But as and when, yes, we opened the offices. We expect the overall cost actually to increase.

[Imtaiyazur Rahman, executive]

This year, there will not be any cost because we will -- by the time we get a license, it will be March of 2024. We will see some costs next year, right? So this year, there will not be any cost.

[Swarnabha Mukherjee, analyst]

Okay, sir, understood.

[Imtaiyazur Rahman, executive]

Other than the legal expenses to the extent of INR 1 crore...

[Swarnabha Mukherjee, analyst]

Got it, sir. Just a couple of follow-ups. So if you could highlight why the expense ratio on the EPS side was rationalized? And I mean, 4 basis points, I think generally, what I understand is lower than most of the industry expense, I mean, yield should be on the EPS side. So some color on that would be very helpful.

[Vinay Lakhotia, executive]

So we have submitted a revised bid for the EPFO mandate. And there are competitors whose expense ratios are even lower than 4 basis points. But this is the revised bid that we submitted for EPFO. Because of that, the expense ratios and the management fees are actually coming up.

[Imtaiyazur Rahman, executive]

But ours is the best in the industry. In EPFO, ours is the best in the industry.

[Swarnabha Mukherjee, analyst]

Right, sir. And since a new -- I mean, a new player has also come in the EPFO flow. What would be our share in the incremental flow going ahead? Any color on that, sir?

[Imtaiyazur Rahman, executive]

23.5%.

[Operator]

We have the next question from the line of Mohit from BOB Capital.

[Mohit Mangal, analyst]

So 2, 3 questions. First is you said you opened 29 new offices. So what would be the impact on OpEx for that?

[Vinay Lakhotia, executive]

So OpEx for this particular financial year, we are seeing maybe OpEx can increase around INR 60 lakhs to INR 70 lakhs, especially on the rental side. Employee cost, there won't be any increase because we'll be engaging on our existing employee spend. But for this particular financial year, INR 60 lakhs to INR 70 lakhs will be an OpEx on the rental and other costs.

[Mohit Mangal, analyst]

All right. And okay, so INR 60 lakhs to INR 70 lakh increase, right. My second question is that, I mean, we did see equity having -- equity segment having net inflows, which is good. But if I look at the equity market share, you've declined around 22 basis points Q-on-Q and 75 basis points Y-o-Y. So any particular strategy to redeem the market share on the equity side?

[Sandeep Samsi, executive]

So yes, we have seen some pressure on the equity side, and we are working towards it. So as we had mentioned earlier also that some of the funds because of the performance issues and because of the strategy that we had developed, we were following the growth strategies while the market was towards the value strategy. So that has been impacting.

However, as we have mentioned earlier also, we are on the core correction, and it will see in other categories. The income categories, we have seen a good net inflow. And similarly, in the hybrid category also, we have said we have seen inflows. So we believe that the strategies that we are employing will work and will help us to flow back the market share.

[Imtaiyazur Rahman, executive]

We are repositioning some of our equity schemes, which are performing very well. So we have a very detailed strategy in place and that will help us to recapture our market share in the other category of equity scheme other than the [indiscernible] fund. We are repositioning our other equity schemes which is well performing, like hybrid equity scheme, [indiscernible], et cetera, et cetera.

[Mohit Mangal, analyst]

All right. All right. Now this is helpful. Lastly on, if I look at the SIP gross sales, it declined this quarter. And if I look at the industry, it has increased. So what could be the reason for that?

[Sandeep Samsi, executive]

Yes. So what we have done is we provide the data only for live SIP. And during that, what we mean is that SIP which has live and not false. So if there are any inflows which are not coming for the last 4 months, then we call it as a false SIP and we don't show it in our numbers. This last 6 months and this quarter, specifically, we have done a lot of exercise on [ aging ]. So we saw, whichever SIPs that false even from earlier, we were looking only which were direct. But we have also seen which are the false SIPs from distributors, and we have not shared those numbers. That is why there is a marginal decline in the numbers of SIPs for us.

[Mohit Mangal, analyst]

Okay. Fine. So you meant to say that had you been disclosed those numbers, that number would have looked a lot better?

[Sandeep Samsi, executive]

Yes, it would have looked better. But since we don't want to show all SIPs, we only want to showcase our live SIPs, that number has come down.

[Operator]

The next question is from the line of Madhukar Ladha from Nuvama Wealth Management.

[Madhukar Ladha, analyst]

Actually, frankly, most of my questions have been answered. Just on the wage increase, what would be your guidance for the year? Because frankly, you would have expected some sort of moderation. But still on a Q-o-Q basis, salary costs are up by 5%. So we expected some sort of operating leverage to play out...

[Vinay Lakhotia, executive]

Overall number, I don't see, Madhukar, increasing by more than 4% to 5% as compared to the previous year. We have some slight higher employee cost on the international business front, where opening of [ Paris PFCs ] and U.S. operation also, there could be some additional increase in salary extension.

On the stand-alone number of UTI AMC, the salary increase will not be more than 2% to 3%. At a consolidated level, it could be max to max 4% to 5% increase.

[Madhukar Ladha, analyst]

Right. Got it. And the other thing, while you explained the yield decline not being that related to sort of equity. But also, we are seeing net outflows from equity. Isn't that hurting our back book? And would that have also sort of resulted in lower equity yields, equity and hybrid yields?

[Vinay Lakhotia, executive]

Well, I think equity yields are more or less flat at around 72 to 73 basis points. But yes, the stock AUM redeemed and is being replenished by a fresh import definitely is going to impact the yield. So that has been the trend in the earlier quarter, fortunately not in this particular quarter.

But yes, going forward, if these kind of scenarios happen, if the stock AUM retaining at a faster rate, yes, yield compression might be there.

[Madhukar Ladha, analyst]

And final thing, sir. Any sort of sense of what is our stock AUM right now in equity and hybrid?

[Vinay Lakhotia, executive]

Very difficult to give any exact number, Madhukar. Because within the top AUMs itself, there are many banks and the distributors, who for the last 7 to 8 years have been working on the same commission. So it's not actually a correct number to provide that.

[Operator]

We have the next question from the line of Lalit Deo from Equirus Securities.

[Lalit Deo, analyst]

So I have a couple of questions. So first one was on our investment book. So like in this quarter's investment book, you could see there's a change -- there is a shift of investments from mutual fund to [indiscernible] and bonds. So any particular reason for the same? And also, we see that there's a [ debt ] in the equity investment book. So what will be the reason for this?

[Vinay Lakhotia, executive]

No -- maybe we have got a better [indiscernible] in term of the bond and the [indiscernible] securities. Otherwise, if you see the normal allocations, around 60% of our book is into a mutual fund unit. And yes, the allocation to bonds and [indiscernible] have slightly increased. But nothing -- no specific reason -- the incremental allocations have gone to bonds and mutual fund.

[Lalit Deo, analyst]

Sure, sir. Okay. And sir, sir, second one was on the net outflows in the core equity stream. So like this is the second quarter, where we have experienced net outlook. So just want to understand this better. Like in which of the channels we are experiencing the more pain in the outflows because like for the industry this quarter has been a good quarter for the equity net sales.

[Sandeep Samsi, executive]

So the outflows have been across. It's not specific to any channel. But if we have to pinpoint the channel, maybe banking where there is a higher churn. But otherwise, it's been across. And as Mr. Rahman mentioned, that we are now positioning our [indiscernible] products there, and those products will be able to get back our share in equity.

[Lalit Deo, analyst]

And sir, just could you also give us the gross equity sales which we have during the quarter?

[Vinay Lakhotia, executive]

Gross, you are asking for this particular quarter?

[Lalit Deo, analyst]

Yes, sir. Yes.

[Vinay Lakhotia, executive]

Close to around INR 2,000 crores.

[Operator]

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

[Prayesh Jain, analyst]

Sir, firstly, on -- if I look at your market share, so it's been falling across. It's been weak across segments, not just equity even in hybrid, in spite of the product launch that we had, we just have a flattish market share sequentially. On income funds, we have an improved market share. But the major categories still seems to have, on the cash and EBITDA, as we have a decline. So what is the strategy that we would do to improve the market share. One, I think you mentioned on the equity side. But the overall strategy, what would be the steps that you will be taking?

[Imtaiyazur Rahman, executive]

The market share is because of the 2 reasons: one, I will tell you the appreciation. Since the equity market gone up significantly. And as a result of this, the various fund houses, which is a high equity AUM, the market -- they got advantage of the improvement in the market share.

Our strategy is to -- but however, in the fixed income, we have done better, far better. We are in a position to now we have relaunched -- we have launched a balanced advantage fund. So we will be in a position to address the loss of market share in the hybrid.

In the equity front, there are 5 or 6 schemes, which we are working. We are repositioning in the market, and that will help us to regain our market share in equity, and they are highly equity scheme -- equity [indiscernible] including arbitrage. The arbitrage -- there's -- arbitrage is not a very like -- multi-asset fund. These are the few parts, which we are repositioning and hopefully, we could be in a position to recapture our market share. Vinay?

[Vinay Lakhotia, executive]

So just to add, I think hybrid and income category of fund, both on the quarterly average as well as closing average, we have actually increased our market share. Yes, under the cash and arbitrage, it's a seasonal kind of a product. In some quarter -- you increase market share in some quarters. But we are quite optimistic considering the kind of performance that we have, especially on the fixed income side, the market share should actually improve in next few quarters.

[Prayesh Jain, analyst]

Any measures on the distribution side where you plan to increase commissions or something?

[Vinay Lakhotia, executive]

No, no, no, no. I think commission, the payout factor is more or less standard. There is no thought per se of increasing payout to increase any market share. That's not the case.

[Prayesh Jain, analyst]

Just extending that point out the yield on the balanced advantage fund that was launched was much lower. And so -- and we've been hearing from your competitors that environment in the NFO market has been better than what we had seen in the last couple of years. But still our yields were much lower on that. So is that a challenge to get new funds and that you had to bring in at that rate? Or what was the thought behind keeping it at a low rate?

[Vinay Lakhotia, executive]

Even normally, if you see historically also, the yields on the new MFO is lower as compared to yield on the fresh ongoing team sales under the equity and the hybrid category. That has been the trend in the industry for the last few years, and we don't see any reversal of a particular trend.

[Prayesh Jain, analyst]

Okay. Okay. Got that. And last question was, so you have seed investments in the international funds, what is the quantum of that? And you had earlier highlighted about reducing that. So where -- how would that kind of -- where we are in that? And how should we think about it?

[Imtaiyazur Rahman, executive]

Yes. We have plans to reduce it. But this particular financial, these 6 months, we have not reduced it. So we have plans. We are waiting for the opportune moment with the sales increasing in IDEF, which -- as which is a flagship team, as you all know, IDEF, and we are constantly expanding our footprint. So we are now going deeper into the Europe. But we are -- not only Europe, we are also expanding our reach in the Asia as well as Australia. So once we improve upon the overall AUM, then we'll think of further reducing the stake in the seed capital.

[Prayesh Jain, analyst]

What is the current state?

[Sandeep Samsi, executive]

Yes, current is around $19,000 million...

[Imtaiyazur Rahman, executive]

$18 million.

[Prayesh Jain, analyst]

How much?

[Sandeep Samsi, executive]

$18,000 million.

[Prayesh Jain, analyst]

So $18 billion?

[Imtaiyazur Rahman, executive]

How much seed capital you have? $18 million.

[Prayesh Jain, analyst]

$18 million, okay.

[Operator]

[Operator Instructions] The next question is from the line of Abhijeet Sakhare from Kotak Securities.

[Abhijeet Sakhare, analyst]

Sorry, I missed the numbers on equity yields. So if you could just reiterate the numbers in terms of the stock and the flow?

[Vinay Lakhotia, executive]

Flow, there's no disclosure as such. The stock AUM yield on equity is close to around 72, 73 basis points.

[Abhijeet Sakhare, analyst]

72, 73 basis points. And would you have the numbers, let's say, a year back on the similar basis?

[Vinay Lakhotia, executive]

Yes, it would be roughly in the range of 80 basis points, yes.

[Abhijeet Sakhare, analyst]

Okay. All right. Got it. And the second one is that the 4% to 5% expense growth guidance, is that on an overall basis or only on the staff cost?

[Vinay Lakhotia, executive]

On overall basis.

[Operator]

We have the next question from the line of Dipanjan Ghosh from Citi.

[Dipanjan Ghosh, analyst]

Just a few questions. First on the international business. I mean all of the expenses are you ready to incur for the French -- for the Paris and the U.S. facility, have they been incurred? Or when can we see some lump sum expenses coming in the second half?

[Vinay Lakhotia, executive]

Yes, some legal expenses that Mr. Rahman told will come in the second half. But any major expenses, including the hiring of the employee and other establishment costs, that may come in the first quarter of the next financial year.

[Dipanjan Ghosh, analyst]

Got it. Second, on the stand-alone business, in the last 2 or 3 quarters, you have kind of increased your employee base quite significantly even while -- even in a situation where probably AUM growth has been relatively -- at least [indiscernible] has been relatively weak. So I just wanted to get some sense of where you are adding the employees and [indiscernible] your sales distribution? Or where are you adding them?

[Vinay Lakhotia, executive]

So mostly will be -- are in the distribution space. As we are aware, we opened 29 new UFCs. We also are planning to open roughly around 8 to 10 resident offices across the length and breadth of the country. So any employee increase will be mostly to our sales and distribution teams.

[Imtaiyazur Rahman, executive]

And we are also planning to go for the direct and therefore, and there are a lot of senior people who're retiring. In order to keep the base ready, we have appointed additional management trainees from the campus.

[Dipanjan Ghosh, analyst]

Got it. Sir, 2 more questions. One, on your product pipeline for the second half of the next 6 to 9 months on the equity or hybrid side?

[Sandeep Samsi, executive]

Yes. So we have approval from SEBI for 3 funds as of now: one is UTI Nifty [indiscernible]; one is UTI Nifty 10 years benchmark [indiscernible] ETF; and one is UTI Nifty 5 years benchmark [indiscernible] ETF. So as and when there is an opportune time to launch this fund, we will be launching these funds.

[Dipanjan Ghosh, analyst]

So are you telling there is no active equity sort of the fund or sectoral fund that you are starting to launch in the next?

[Vinay Lakhotia, executive]

No. Mostly on -- all around the passive side.

[Dipanjan Ghosh, analyst]

Last question, in some of your schemes where you have seen weakness in performance or at least -- on performance at least now maybe the 1-year category was in the rating, maybe gradually get reflected in 3 or 5 years, okay. Are you taking any steps out there? And if so, can you just elaborate on that?

[Imtaiyazur Rahman, executive]

I don't think I should be in a position to give any color -- we -- our fund management team is true to his philosophy and they are fully committed. We are a very competitive team led by Mr. Vetri Subramaniam and Mr. Ajay Tyagi. They continuously review their portfolio. But I don't have any idea to give you any color about this one.

These are led by our fund management team, and they have the complete authority and autonomy to decide. We do every bit in the best interest of the investors. But we are true to our philosophy, both for the growth and the value opportunity philosophy.

[Operator]

[Operator Instructions] The next question is from the line of Gaurav Jani from Prabhudas Lilladher.

[Gaurav Jani, analyst]

A question for Vinay sir. Sorry that I missed the comments on the yields. So I believe equity, we're 72 to 73 bps on a stock basis for the quarter, what may have been in the last quarter?

[Vinay Lakhotia, executive]

It was in -- the equity yields are almost flat at 72 to 73 basis points. There has been marginal decline in the yields under the hybrid category, where, as I stated earlier, because of the NFO, the yields have actually dropped down.

[Gaurav Jani, analyst]

Okay. And sir, debt you would have seen from the final yields?

[Vinay Lakhotia, executive]

Yes, yes. That also as I stated earlier, in the debt scheme, the significant inflows are coming into a shorter duration product where the yields are lower. Because of that also, there has been a 4 basis point decline on the fixed income yield on a quarter-on-quarter basis.

[Gaurav Jani, analyst]

Understood. And ETF would have been about 1 or 2 basis points?

[Vinay Lakhotia, executive]

Yes. Almost around 3 basis points on the ETF. As I stated, that's because of the revised expense ratio that we submitted to EPFO.

[Gaurav Jani, analyst]

So the 3 bps decline would be on the stock?

[Vinay Lakhotia, executive]

Yes. It's on the stock as well as on the fresh inflow.

[Gaurav Jani, analyst]

Understood. Sir, second question on the tax rate. So this quarter, again, we saw lower tax rates. So what was the reasons for that? And secondly, going far to the last year, generally, we -- after a couple of quarters of low tax rate, we see a bump up in the tax rate. So should we see similar numbers in the second half? Or how should we look at the overall tax rate for the year?

[Vinay Lakhotia, executive]

I think overall tax rate should be in the range of around 20 to 20...

[Imtaiyazur Rahman, executive]

Yes, we don't go by the effective tax rate of any particular quarter. For the overall annual -- the effective tax rate will be in the range of 20% to 21% as Vinay told. Because quarter-wise, you don't get into that because it depends on a lot of investment income and our deferred tax reason. So annually, the effective rate will be in the range of 20% to 21%.

[Operator]

[Operator Instructions] The next question is from the line of Bhuvnesh Garg from Investec Capital.

[Bhuvnesh Garg, analyst]

Sir, I just want to understand the structure of our trail commission for NFOs, recently launched NFOs. Whether it is a fixed percentage throughout the tenure of the fund? Or is it a step-down structure? For example, higher commission in earlier 1, 2 years and then later commission -- lower commission later on. And how the structure has changed in the last 2, 3 years? Just your thoughts...

[Vinay Lakhotia, executive]

Yes. Normally, the first year payout is slightly higher. And second and third year onwards, the trail commissions get reduced. So that has been the trend over the last 2 to 3 years.

[Bhuvnesh Garg, analyst]

Okay. And sir, is there any particular limit as such that how much higher commission you can pay in the first year? And how much lowest commission you can pay in the subsequent years? Is there any limit on that?

[Vinay Lakhotia, executive]

No, there is no limit -- SEBI doesn't allow -- the commission cannot exceed the distribution -- distributable expense ratio. And when I say distributable expense ratio, it's the team expense ratio minus the operating costs. That's the limit being defined at the SEBI guideline.

[Operator]

The next question is from the line of [ Sunil Shah ] from [ SRE PMS ].

[Unknown Analyst]

Sir, my question -- in fact, sorry, I joined in late. Sir, my question is more from the industry perspective. Sir, the wage regulator is addressing the expense ratio. And so the industry's volume will certainly go up over a period of time. But in between, maybe for the near term, will we see pressure for most of the AMC companies because of this regulatory thing which is there. Second being competition will increase and technology also played a big role. So all those factors will result in the NAV charge that we actually take from the customers, will that see -- will that number be shrinking overall from an industry perspective? Is not company-specific, but overall for the industry. Could you help me understand that? That is 1 part.

And second is more and more passive funds are being launched rather than active ones. There also the chance to the customer would be at a lower rate versus the direct active fund management. So will those things be right in my assumption that overall the income for the industry overall could see some kind of correction before the volumes really come in over the long term and then the market really explode, that's the second situation. But could you help me understand this better? It's my thought on the right direction?

[Vinay Lakhotia, executive]

I think industry thought process, I can say it's very, very clear, if any TER reduction come, that will be passed on to the intermediary. So AMC margin, I think most of the AMCs will try to protect the margin and the TER cut will be passed on to the intermediary on long term.

And Yes, there will be some pressure as far as the margin is concerned. But we believe that the volume growth itself to compensate with the overall revenue growth. So margin may contract a little bit because of the reduction in the TER. But overall, the AMC margin should get protected and the volume will actually play a much, much important role going forward. And as you rightly said, with the growth of the ETF and the passive funds, the overall number of the management fee is actually coming down.

So volume is one where we need to look at it. And the overall revenue number, we believe, should be improving on a year-on-year basis. And obviously, operating leverage in this part, so the costs are not going to increase substantially. The PAT margin should improve from here onwards.

[Imtaiyazur Rahman, executive]

And it is important to say we should not -- this is a business opportunity. The industry is growing. Industry is growing with a great speed. And therefore, regulation is there to help the investor. Regulation is not there to harm the investor.

So we should not see from the regulation perspective, we should see the opportunity perspective. And I believe there's tremendous opportunity for the entire industry to grow. And as Vinay has rightly pointed out, the OpEx so far as the passive is concerned, is not going to increase. It is only the volume is going to increase. And therefore, the absolute yield will be far superior for the entire industry. We are quite confident.

[Unknown Analyst]

Sure. Sir, if I can dwell up on 1 more point. Sir, given the rate at which the country itself is growing and a lot of things which are very positive, which can happen right now at India per se versus the world. So can we try to look at local investors looking at AMC as a platform through which they can get Indian exposure. Can we work towards getting money from the international market because getting money in India, perhaps I'm sorry to use this word, has become a commodity. Whereas 1 AMC differentiates something and the other AMC tries to replicate it overnight. But try to -- if we try to get money from the international market and have some presence there, is there any thought that we have within the organization on such a point?

[Imtaiyazur Rahman, executive]

Yes. No. I don't feel these are always all commoditized products. We will not be in a position to give you any color about that. India is a great destination, right? India is the only company -- country, which is now talked globally. And in every conference room, India is spoken about and discussed.

I was there in London 4 weeks back, and I see the huge amount of optimism about India. So whether the product will commoditized -- but the performance -- differentiation will be building from the performance of the fund house and the fund manager. And that's how we will be in a position to differentiate. But India will continue to be a destination despite the fact there the products are commoditized.

[Vinay Lakhotia, executive]

And we are focusing on in the international business and the testimony to path is, we have opened an office in Paris, and we are also opening an office in U.S.A. So yes, the international business focus is very much there, and we expect volume growth from that business as well. .

[Operator]

The next question is from the line of Dipanjan Ghosh from Citi.

[Dipanjan Ghosh, analyst]

Just 2 small questions. One, just repeat your point on the ETF yield and why they declined in the quarter? And second, from a fundamental perspective, when it looks like large change in your equity areas. I would presume that the gross expense ratio gets reset immediately. But do you have any flexibility on the payouts on the back book? Or is it like is it just a pass-through [ period next year ], which also declined by almost a similar magnitude? I'm just talking of the back book.

[Vinay Lakhotia, executive]

I couldn't get your second question, but I have answer for the first question. The ETF yield drop has been because we have submitted a revised proposal to the EPFO. Because of that, the expense ratios and the management fees have actually come down by around 2 to 3 basis points. And could you -- and that got effective on 29th of...

[Imtaiyazur Rahman, executive]

The EPFO came out with a revised RFP. And 4 of us were selected: SBI, UTI, ICICI and Nippon. And everybody put this revised score. Amongst all of them, we are bidding a location of almost 23.5%. But [indiscernible], our fee is the highest amongst all 4. [indiscernible]. Vinay, over to you.

[Vinay Lakhotia, executive]

Could you repeat your second question, please?

[Dipanjan Ghosh, analyst]

Yes. Sir, before that just a follow-up to the question. Can you quantify your EPS for AUM EPS based, if that's possible?

[Imtaiyazur Rahman, executive]

We can't share with you the data, right?

[Dipanjan Ghosh, analyst]

Okay, sure. And the second question, sir. Let's say when your AUM growth on the equity side or even on the hybrid side, and you see a change in flag for the TER structure. I would assume that your gross TER research immediately. But do you have any flexibility on the distributed payout on the back book? Or do they continue to remain at whatever levels they're?

[Vinay Lakhotia, executive]

Yes. Normally, we don't -- you are telling on the stock AUM?

[Dipanjan Ghosh, analyst]

On the stock, yes.

[Vinay Lakhotia, executive]

So on the stock AUM, the commission set remain as it is. And maybe in due course of time, we will correct that. But on the fresh inflows, the commission, that should get adjusted immediately.

[Operator]

Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Imtaiyazur Rahman for his closing comments. Over to you, sir.

[Imtaiyazur Rahman, executive]

Thank you, and thank you, I would like to -- our sincere thanks -- I would like to express our sincere thanks to all of you for your participation. Thank you, and good night. Have a nice weekend whenever it comes to.

[Vinay Lakhotia, executive]

Thank you.

[Operator]

Ladies and gentlemen, thank you for joining the call. In case of any queries, feel free to connect with Adfactors Investor Relations team. You may now disconnect your lines.