UTI Asset Management Company Ltd

NSE:UTIAMC

Earnings Call Analysis

Strong Financial Performance and Growth Initiatives at UTI AMC

In the first half of FY '25, UTI Asset Management Company's consolidated net profit rose 18% year-on-year to INR 493 crores, with core revenue increasing by 24% to INR 710 crores. The second quarter saw a PAT of INR 239 crores, up 31% year-on-year. The average AUMs for equity and ETFs jumped 26% and 47%, respectively. SIP AUM grew 50% to INR 39,882 crores, with inflows of INR 2,058 crores. Looking forward, employee costs are projected to rise 2-3%, yet overall costs are expected to decline in upcoming years, while net inflows are anticipated to increase significantly in the next two quarters.

Strong Operational Growth Amid Market Volatility

UTI Asset Management Company (UTI AMC) reported a robust performance in its earnings call for the second quarter and the first half of the fiscal year 2025. Despite the prevailing market volatility, UTI's market share in total gross sales for Q2 was 6.2%, and for the first half, it was 6.6%. This reflects a strategic positioning within the mutual fund industry, primarily driven by an increase in assets under management (AUM) and enhanced sales tactics.

Solid Growth in Assets Under Management (AUM)

The company's equity quarterly average AUM increased by approximately 26% YoY, reaching INR 98,638 crores. Similarly, the average AUM for Index and ETF products soared by 47% YoY to INR 1,45,135 crores. Notably, UTI attracted net inflows of INR 6,022 crores in ETFs and Index funds for Q2, suggesting a growing confidence among investors in these products.

Significant Increase in Systematic Investment Plans (SIPs)

SIPs have become a fundamental aspect of UTI's growth strategy, with their AUM witnessing a remarkable growth of 50.26% YoY, totaling INR 39,882 crores. The inflows for Q2 reached INR 2,058 crores, a year-on-year increase of approximately 25%. For the half-year period, total SIP inflows were INR 3,907 crores, indicating an 18.43% increase over the same period last year.

Financial Performance Highlights

UTI AMC recorded a consolidated net profit of INR 239 crores for Q2, reflecting a growth of 31% YoY, while the core revenue from operations increased by 28% to INR 373 crores. For the first half, the consolidated net profit reached INR 493 crores, marking an 18% increase compared to last year, while core revenue grew by 24% to INR 710 crores. The impressive growth trajectory reflects effective operational strategies and strong market demand.

Strategic Investments and Future Outlook

The management indicated that they are focused on several key initiatives, including geographical expansion, product innovation, and enhancing digital capabilities. They have set a goal for continuous hiring to augment their workforce, indicating a strategic growth-oriented vision. Particularly, the firm is investing in international markets, having established a presence in the USA and France, along with plans for expansion in Dubai and Singapore.

Tax Liabilities and Factors Affecting Profitability

In Q2, UTI AMC incurred an additional deferred tax liability of INR 12.10 crores due to changes in tax regulations, specifically a raised capital gains tax rate on equity-oriented mutual funds. Despite these challenges, the management remains optimistic, expecting operating leverage to improve PAT margins over time due to volume growth, although yield margins might experience a downward trend.

Commitment to Cost Management

Management acknowledged rising employee and administrative costs, attributed to expansion strategies. They aim for a contained employee cost growth of 2% to 3% on a standalone basis and 4% to 4.5% at the consolidated level. These increases are considered necessary investments for future growth, especially as new markets and distribution channels are developed.

Positive Market Sentiment and Growth Prospects

Overall, UTI AMC's positive performance indicators coupled with strategic plans for market positioning, robust asset management, and proactive employee strategy suggest an optimistic outlook. Expected inflows into equity and hybrid funds are anticipated to increase in the coming quarters as product repositioning and enhanced performance begin to resonate with investors, paving the way for enhanced profitability and market share growth.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day and welcome to the UTI Asset Management Company Limited Q2 and H1 FY '25 Earnings Conference Call. From the management we have with us Mr. Imtaiyazur Rahman, Managing Director & Chief Executive Officer; Mr. Vinay Lakhotia, Chief Financial Officer and Head - Corporate Strategy; Mr. Surojit Saha, Group Financial Advisor; and Mr. Sandeep Samsi, Head - Investor Relations, Marketing & Corporate Communication. We also have with us our Investor Relations team from Adfactors PR.

[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 maybe 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 the opening remarks. Thank you.

[Imtaiyazur Rahman, executive]

Thank you so much. Good morning to all of you who are joining us today as we review our operational and financial highlights for the half year ended 30 September 2024, as well as the quarter ended as on date. We have uploaded our Investor Presentation on our website as well as on the stock exchange's website. I'm quite confident these informations must have read by all of you. We all are here to clarify any doubts that you may have about our operations.

I have with me my distinguished colleagues: Mr. Vinay Lakhotia, CFO of the company and Head of Strategy; Mr. Surojit Saha, Group Financial Adviser of the company; and Mr. Sandeep Samsi, Head, Investor Relations, Marketing as well as the Corporate Communications. We will be apprising all of you about the details of the operation of our company.

I'm pleased to mention that India's economy continues its growth driven by robust domestic demand, rising private capital expenditure and vibrant service activity. Manufacturing sector outperformed in early 2024, aided by lower input costs with growth stabilizing at 6.7% in quarter 2. Though the IMF and World Bank, both projected 7% growth for our economy for the financial year 2025 supported by a rebound in agriculture and a strong private consumption. The Reserve Bank of India maintained 7.2% growth forecast of our economy. We are the fastest growing economy in the world.

Let me share with you about the mutual fund industry. Mutual fund industry is an extremely transparent industry, and the required information are already available in the mutual fund industry, our AMFI website as well as the details which we have provided in our presentation.

Let me begin. The Indian mutual fund industry has witnessed remarkable growth in the same time. Much of which can be attributed to the retail investors. The aggregate folio count as of September 2024 is INR 21.05 crores as against INR 15.71 crore a year ago, indicating an increase of 34% on a year-on-year basis. The asset under management of the mutual fund industry saw a significant increase. The average AUM of the industry as on 30th September 2024 was INR 67.09 crores, a growth of 44% over September 2023, and the figure was INR 46.58 lakh crore as on September 2023. The increased investment under SIP has helped the industry to grow. The AUM and the SIP touched a new milestone of INR 13.82 lakh crore in September of 2024. The monthly inflows under SIP is seeing a steady rise with 66.39 lakh new SIP accounts were added in September itself, taking the total count of more than INR 9.87 crores SIP holders -- SIP folio holders. The growth can be credited to various factors, including investor confidence, financial literacy initiatives and enhanced awareness, especially in the city beyond top [ countries ] and a noticeable shift from traditional savings to new investment avenues. It is pertinent here to mention that mutual fund industry is playing a very significant role in India's economic growth.

Let me share with you about UTI AMC. Our total asset under management of the group stood at INR 20.16 lakh crores as of 30th September 2024 compared to INR 16.89 lakh crore in the same period in the previous year. The UTI Mutual Funds quarterly average AUM accounted for INR 3.43 lakh crore reflecting a growth of 28% from INR 2.67 lakh crores a year ago, and INR 3.11 lakh crores as of 30 September 2024. This significant increase can be largely attributed to our focused go-to-market strategy with aggressively promoted all categories of funds. Then, in addition to our strategic focus on product categories, we have expanded our investment research universe, which has been instrumental in consistently improving the performance and competitive ranking of our various schemes, notably the fixed income category has witnessed a marked revival in recent months, which has further helped in growth of our AUM. The strategic approach has enabled UTI AMC to sustain its upward trajectory, delivering value to our all stakeholders.

Regarding launch of funds, we are also focused on launching new products as needed by our investors. During the quarter, we successfully launched the UTI Nifty 200 quality, 30 Index Fund and the UTI Nifty Private Bank Index Fund, both performing well in their respective categories. The Index reflecting investment categories. We now offer 15 products with closing AUM of INR 66,505 crores as of September 30, 2024. Geographically, our strong hold is beyond -- is in beyond 30 cities, and we are extremely strong there. Our AUM flow is close to 29% -- 21% monthly average AUM, which is higher than the industry average of 19%. To further capitalize on the emerging opportunities, there is a lot of focus on expanding our -- accelerating our distribution network. UTI has been constantly planning interventions like dedicated training and workshop to equip them with necessary knowledge and skills to navigate the evolving financial landscape.

UTI has been at the forefront of investor education drive to create awareness about the mutual fund category with our flagship program, UTI Swatantra. Within 30 September 2024, the company held 383 investors awareness program, reaching out 31,000 investors. Out of these, 115 stations were specifically for women investors engaging more than 5,000 participants. A targeted educational campaign was also conducted for teachers focusing on retirement planning.

Regarding digital assets, we are pleased to inform you that we are constantly augmenting our digital assets and processes to provide best-in-class technology with top notch safety standards across our network. UTI is known for its culture and implies well here. Many initiatives and processes have been put in place to create a conducive involvement for our team within the company -- within the country and in our overseas offices. Technology upgrades are being implemented to streamline operations, enhance performance monitoring and improve client servicing.

Let me now share with you about our subsidiaries. First of them UTI International. UTI International has opened a new office in New York. U.S. present significant opportunities offering large pool of institutional capital. Our existence in this market provides us a unique opportunity. We have undertaken significant steps for the growth of this business. This has led to higher employee and administrative costs, but these are critical steps for market expansion, operational upgrades and product development from a medium- to long-term growth perspective. I am confident that our investment would be extremely fruitful in our future growth. A dedicated push for a brand building, along with the product distribution is planned for long-term sustainability and AUM growth. These relationships will serve as catalysts for potential future inflows as our track record of India-focused investments differentiate us from other global peers. We are actively hiring professionals in key geographies to accelerate business development.

The Middle East, driven by sovereign wealth fund and institutional investors taking global diversification offers another important growth avenues. And therefore, we are upgrading our regulatory license in DIFC to give us greater flexibility to offer investment advisory services.

UTI Pension Fund Limited. The UTI Retirement Solutions Limited was renamed as UTI Pension Fund Limited at the beginning of this financial year. After obtaining the POP license of PFRDA and NOC from SEBI, we opened 16 brands of business across Bharat. We are in the process of building a strong sales and distribution team for NPS in order to grow our market share in the private sector. I'm extremely delighted to share that UTI payables fund performance during financial 2024 has been commendable. We have been ranked #1 for the central government scheme and as well as for the state government scheme. Our other subsidiary, UTI Alternatives, we intend to dive deeper into existing business territories along with expanding into new ones simultaneously.

Between financial year 2021 and half year ended September 2024, we saw high employee costs due to -- this is due to the increase in hiring of core business executives. During the same period, management fees income has also increased. Therefore, we can say with all confidence that employee costs have increased commensurately with the growth of the business as it provides a great business opportunity in the future.

Sales function in this organization will continue to operate on a lean model and we will believe really on our distribution network largely for self-support, we may also explore some tie-ups. The Scope 1 and Scope 2 expected to be fully closed existing funds which are currently in fund raising mode will be exceeding their financial goals soon. Currently at a group level, we are delighted to share that our subsidiaries are well capitalized. I would like to highlight that in UTI Group, our focus continues to be on: One, launching appropriate new products in all business lines; two, increasing our geographical expansion; three, investing in hiring and upscaling our human capital for the entire group; four, investing in digital resources for the entire group; five, enhancing the governance practices globally of the gold standard; six, having robust business processes globally; last but not the least, building a strong mechanism for strict compliance and regulation.

For further insight into UTIAMC's performance and other operations update for Q2 and H1 financial year 2025, I now invite Mr. Sandeep Samsi, Head of Investor Relations, Marketing and Corporate Communications to provide the details of our operations. Over to you, Sandeep and thank you.

[Sandeep Samsi, executive]

Thank you, sir. I will first take you through UTIAMC's performance during the second quarter and half year ended 30 September 2024. UTI had a market share of 6.2% of the total gross sales of the industry during this quarter and market share of 6.6% of the gross sales for the H1 FY '25. Our equity quarterly average AUM for the quarter ended September '24 stood at INR 98,638 crores, rising by approximately 26% as compared to the quarter ended September '23. Quarterly average AUM for Index and ETF stood at INR 1,45,135 crores, up by 47% year-on-year in the second quarter. ETFs and Index fund net inflows stood at INR 6,022 crores in quarter 2 of FY '25. UTI Mutual Fund has added 4,07,000 folios during the quarter, taking up the number of live folios to INR 1.29 crores as on 30th September 2024. Our SIP AUM witnessed a growth of 50.26% over the corresponding quarter of last year, reaching INR 39,882 crores as of September '24. The SIP inflows for the second quarter stood at INR 2,058 crores, the SIP gross inflows for UTI Mutual Funds witnessed a year-on-year growth of approximately 25%, with the average SIP ticket size being INR 3,297 on September '24. For the half year, SIP inflows were INR 3,907 crores higher by 18.43% as compared to INR 3,300 crores in the H1 of FY '24.

On UTI Financial on a consolidated basis, during the second quarter, the company posted a consolidated net profit of INR 239 crores, higher by 31% year-on-year and down by 6% quarter-on-quarter. While the consolidated core revenue from operations stood at INR 373 crores, higher by 28% year-on-year and by 11% quarter-on-quarter.

The core profit after tax for the second quarter was INR 132 crores, higher by 50% year-on-year and 14% quarter-on-quarter. For the half year, the consolidated net profit was INR 493 crores higher by 18% year-on-year, and consolidated core revenue from operations was INR 710 crores, up by 24% year-on-year. On a stand-alone basis, PAT of UTI AMC Limited for Q2 of FY '25 is INR 201 crores, reflecting a growth of 50% on a year-on-year basis and 8% on a quarter-on-quarter basis. PAT for H1 FY '25 is INR 387 crores, higher by 29% Y-o-Y. The core profit after tax for the second quarter was INR 116 crores, higher by 65% Y-o-Y and 17% Q-on-Q. The core profit after tax for H1 FY '25 is INR 214 crores, higher by 54% Y-o-Y.

On HR initiative, as part of its commitment for continuous learning, we successfully rolled out a new learning management system called as UTI Pragati. This platform provides employees at all levels with opportunity for ongoing development and savings. On tax-related matters, we would like to highlight an important aspect on the additional deferred tax liability created in Q2 of FY '25 for INR 12.10 crores. As per the Indian Accounting Standards, we mark-to-market our treasury investment every quarter and create deferred tax liability on the notional gain. Till June '24, we had created deferred tax liability at a prevailing tax rate debt, including indexation benefits. However, the capital gains tax rate has been changed in the Union Budget of '24, including the change of tax rate for equity-oriented mutual fund to 12.5% and the indexation benefits have also been removed. Accordingly, we have recomputed the deferred tax liability on all the past M2M gains at the new rate. As a result, the deferred tax liability recorded on fair value gains on the investment as of June '24 has increased by INR 12.10 crores, thereby resulting in an additional onetime charge in the net profit of the company as on September 30, 2024.

Coming to the group company on UTI Pension Fund Limited, our 100% subsidiary UTI Pension Fund Limited has recorded a growth of 24.64% year-on-year in its AUM reaching approximately INR 3.36 lakh crores as on 30th September '24, and currently, it manages 25.12% of the NPS industry's AUM. The PAT of UTI Pension Fund Limited for the first half of the year is at INR 29 crores, an increase of 16% year-on-year. On UTI International, UTI International represents our international business [ interface ] and has an AUM of INR 29,814 crores as on 30th September '24, up by 23.16% year-on-year. Our international clients are across more than 40 countries. These are primarily institutions, pensions, insurances, banks and asset managers. One of our flagship funds in India Dynamic Equity Fund domiciled in [ Ireland ] has an AUM of INR 1,136 million.

UTI International's J Safra Sarasin Responsible India fund and ESG compliance India Fund has an AUM of INR 76 million. UTI Innovation Fund launched last year has an AUM of USD 56 million.

UTI Alternatives Private Limited. UTI Alternatives Private Limited has an AUM of INR 2,856 crores. It has a very defined ESG policy and strategy. It is committed to responsible investing.

UTI SDOF II & III have a well-defined ESG policy and strategy. It currently manages the following active debt banking. UTI SDOF I, which has received SEBI approval in August 2017 and has final close in May 2019, it has a net commitment of INR 71 crores and is in the exit stage. UTI SDOF II received SEBI's approval in February '21 and has the finance close in May '22. It had net commitments of INR 467 crores and is currently in existing mode. UTI SDOF III had received SEBI approval in April '22 and has a net commitment of INR 540 crores. It is currently in fund raising and investing stage.

UTI multi-opportunities Fund I, which had SEBI approval in February of '22, has net commitment of INR 1,598 crores, it is currently in investing stage. UTI Real Estate Opportunities Fund I is currently fundraising and investing with commitment of INR 130 crores. UTI Alternatives part 4 investment portfolio managers CPM license in August '22. We have launched 2 more funds in credit opportunity -- Credit Opportunities Fund I and UTI Asset Reconstruction Opportunities Fund. We have 3 more funds registered in [ GETFs ], which will be launched soon.

Just an update, UTI Venture Fund has been renamed as UTI Financial and Investment Services Limited.

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

[Imtaiyazur Rahman, executive]

Thank you, Sandeep, for sharing operational and financial updates of the company for second quarter and the first half of financial year 2024/'25. With this, we would like to open the forum for question-and-answer session.

On behalf of UTI AMC, we wish you, your family a very happy Diwali and Prosperous New Year. We would also like to wish our partners, investors and other stakeholders and to all Indians wherever they reside, a Happy Diwali. Thank you very much for joining this call. Over to you.

[Operator]

[Operator Instructions] The first question is from the line of Dipanjan Ghosh from Citibank.

[Dipanjan Ghosh, analyst]

So just 2, 3 questions from my side. First, a data keeping question. If you can quantify the ESOP expense for the first half for the stand-alone and consolidated business.

Second, we have heard in the conference call of some of your peers that they have either treat the renewal payout structures on the back book in some schemes or incremental flows that come in, they are going for a differentiated renewal payout structure for the flows that incrementally are coming in. So just wanted to check, have you undertaken any such change either on the back book or on fresh flows? And also other philosophy, do you kind of concur with this view?

And my third question is more from the perspective of UPI Pension. So I just wanted to understand how the yield trajectory of the realizations in this segment are really structured and how do you foresee it going ahead?

[Vinay Lakhotia, executive]

So Dipanjan, on the ESOP expenses, we have expenses close to around INR 3.5 cores for half year. And for the whole of the financial year, the number should be in the range of around INR 5 crores only.

On the second question, with respect to...

[Dipanjan Ghosh, analyst]

You said the fund business, so just want to look on stand-alone consolidated basis.

[Vinay Lakhotia, executive]

Yes, it's same only.

On the stock AUM, as far as the commission is concerned, no, we haven't carried out any rationalization of commission expenses on the stock premium. On the fresh inflows, anyway, we are following marginal expense ratios or policy where only on the sharing ratio on the incremental inflow is shared between us and the AMC. So on an incremental info, that has been our policy over the last 4 to 5 years. But on the stock AUM, no rationalization has taken place.

And the third question with respect to pension fund. The gross fee is close to around [Technical Difficulty]. And as you are aware, 50% of the fees is being -- is required to be paid back to PFRDA for development of Pension Fund. So on a net basis, the incremental fees on a net basis is close to around 1.5 basis points.

[Dipanjan Ghosh, analyst]

Just wanted to follow up on the second question on the marginal sharing side. So let's say, distributor [indiscernible] some of the fund of your, let's say the gross expense ratio on the fresh inflow for the year is what say, around 1.75%. And on that, on the first year, you will have a certain payout and then you will have a certain distributor renewal payout also. But as the AUM growth, obviously, your gross expense ratio keep coming up. So what I understand you're trying to say is that it's like a proportion of sharing. So if the growth expense ratio comes down then on the year 2, year 3, year 4 onwards. Also, the percentage sharing between you and the distributor remains same and the sliding structure is followed. Is that a correct understanding on the cash flow?

[Vinay Lakhotia, executive]

So yes, that's correct. And -- but normally, it happened that the second and the third year commission in many of the cases are on a lower side as compared to the first year commission. So even those arrangements are also there. But as of now, we haven't reduced the OEM on the commission on the stock AUM. That exercise, we have not done.

[Operator]

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

[Lalit Deo, analyst]

Sir, just first question, the data keeping question, could you give us your segment prices as well as -- and also you should give that deal for us quarter-on-quarter basis like with especially [indiscernible]?

My second question is, could you also give us some color on the...

[Vinay Lakhotia, executive]

Lalit, your voice is not clear. Could you repeat your question? Segment wise what?

[Lalit Deo, analyst]

Yes, segment wise yields -- the revenue yields across equity data.

[Vinay Lakhotia, executive]

And second question.

[Lalit Deo, analyst]

Second question was more on some of the low perspective. So again, in this quarter, we have seen some outflows in our core equity scheme. So if you could give us some color on the outflows as well as trends there -- as well as on the outflow redemption side also. And third question was on the expenses side. So like what is -- how should we see how the employee expense for this year as well as next year.

[Imtaiyazur Rahman, executive]

So on the yield part, I can say for equity and hybrid fund, it's close to around 75 basis points. ETF and Index fund is roughly around 6 to 7 basis points. Cash and arbitrage is around 10 basis points and income fund at around 20 to 21 basis points.

With respect to your, I think second question, Sandeep will defy and the third question was with respect to the cost part. So the employee cost, I think what we indicated in our earlier call also, employee costs for a stand-alone, you can see a rise of just around 2% to 3% on the FY '24 number. And on the other admin expenses, the range -- the increase would be around 8% to 10%.

[Vinay Lakhotia, executive]

Funds have shown steady improvement in the performance and peer ranking over the last 6 months. And if you look at our performance on a 1-year basis, 11 out of our 18 equity funds are now in the quartile 1 and 2. And if you look at my March numbers, there were about 6. So from 6, we have moved up to 11. As mentioned earlier, many of our equity funds had a focus on quality style of investing for the portfolios, whereas the value style was preceding over quality in the last 3 to 4 years, which somehow impacted our performance. The turnaround of our fund performance would help us to build the momentum for a sustainable growth, both in terms of assets and market share. Given the current market condition in volatility, we have been following our hybrid funds as the go-to-market strategy with a lot of trust via sales campaign. This has led to some impetus to the performance. And if you look at our SIP AUM that has grown by more than 50% to INR 39,882 crores as on a Y-o-Y basis. And our gross sales of the market share was 6.2% for the quarter 2 and 6.6% for the half year.

[Imtaiyazur Rahman, executive]

So and just to add, Lalit, I think we are doing fairly well as far as the hybrid category is concerned. In fact, for the half of the financial year, we are mobilized in excess of close to around INR 2,500 crores on the hybrid category. So this is one category we are actually focusing on and receiving a good amount of crores. And that Sandeep rightly pointed out, I think, for the next 2 quarter, we should see some traction as far as the equity inflows are concerned.

[Operator]

The next question is from the line of Mohit from Centrum India.

[Mohit Mangal, analyst]

First question, if I look at the last 3 to 4 quarters, the number of branches and employees have reduced. What could be the reason for this?

[Sandeep Samsi, executive]

No. The number of branches, in fact, has increased by close to around 24 branches because last year we opened 29 branches. However, there have been some rationalization of branches where the AUM doesn't justify the branches. So we have closed 5 branches but net addition as compared to last year has been 24, we have opened new branches. Natural retirement that is happening. So because of that, the head count of employees has actually come down.

[Mohit Mangal, analyst]

Okay. But sir, are we going to sell this and will this have an impact on the employee expense, the number of employees?

[Sandeep Samsi, executive]

So already for the retirement, we have already explained earlier that we have recruited the management tenure over the last 2 to 3 years, and they are being room to take some of these leadership positions. So no new additions to the employees per se for now.

[Mohit Mangal, analyst]

And in terms of market share, I think, again, we saw a minor decline this quarter as well. So are there any immediate steps that you're taking in -- changing in response to any fund managers or something to gain more market share, especially on the equity side?

[Imtaiyazur Rahman, executive]

No. We are collectively working to increase our market share. Our fund performance is on the right side, in the right direction. We are a team, the investment CEO office as well as the distribution, we are working with our stakeholders to take our equity schemes to the market. And we are rightly placed to go to the markets of our equity schemes are concerned. And that will help us to basically containing our decline in the market share and increase in market share. You have seen in other segments, we have increased our market share. And I'm quite confident that with the -- on the backdrop of the better performance and the right product positioning with the go-to-the-market strategy, we will be an opportune to gain our market share.

[Operator]

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

[Abhijeet Sakhare, analyst]

I have 3 questions. First 1 is on the yield. Just wanted to clarify. You mentioned 75 basis points on the active equity funds, including hybrid. Just wanted to know what would this number be in the first quarter and last year full year, please?

[Sandeep Samsi, executive]

It's a very similar number. Last quarter also, it was close to around 75 -- 76 basis points and a similar quarter was around 75. So we have been able to maintain the yield number.

[Abhijeet Sakhare, analyst]

Understood. And secondly, on the cost front, sir, again, just clarifying, you mentioned 2% to 3% for employees and rest of it at 8% to 10%. But this is at the company level, right? Because I thought you mentioned for the stand-alone business. So just wanted to clarify.

[Sandeep Samsi, executive]

Let me clarify, 2% to 3% at a stand-alone level. At a consolidated level, since you are building our business base in all the 3 subsidiaries, employee costs at a consolidated level could be in the range of around 4%.

[Imtaiyazur Rahman, executive]

So Abhijeet, there are 2 costs there. One is the cost to run the operations. Another is investment in future. So we are hiring, as I mentioned in my opening remarks, that we are hiring in all geographies. We have hired now 2 people in the U.S.A. We have started our office in U.S.A. We have had more people in France. We are in the process of hiring some more people in Singapore. We have already hired 1 person in Dubai and in the process of hiring more people in Dubai. And we are also relocating our CEO from -- the Group CEO of UTI International from Singapore to Dubai. These are our investments in the future, and therefore, we need to be careful, and I don't want to quantify them as expenses.

The accounting term is expensive, but in business terms, these are the investments in the future. So by stand-alone is concerned, and I think whatever we have promised 4, 5 years back to the market, we are able to keep our commitment up as against the 7% or 8%, 11% generally has been an increase in the employee cost and in the asset management space overall. The increase is only 2% to 3%, and it will further reduce in the next few quarters so far as stand-alone is concerned. We're careful to distinguish between investment in business and cost to run an operation.

[Abhijeet Sakhare, analyst]

And again, last bit on the expense front. For nonemployee costs, you mentioned 8% to 10%, right? That's the number to consider.

[Imtaiyazur Rahman, executive]

Yes. And they are also -- just be careful about, we are investing in our digital strategies that goes out into the P&L. We have tied up with the sales force. We are revisiting our digital assets and we are also hiring in the detailed space of our employees are concerned, and this is globally applicable. We already put in place a very strong risk management processes and therefore we have had the services of the various consultants across the globe to put in place the right business processes in place. But if you see on a line item-wise, the expenses will be in the range of 5% to 6%. There are extraordinary expenses, which we are not in a position to tell the market these are the expenses. But I mentioned to you the extra expenses, which we are incurring, and these are the onetime expenses. For example, we had the services year and a half back of [indiscernible] to look into our investment processes due to cost that have been linked to this one. And also, we have the Bloomberg in place. The Bloomberg is in dollar. So any change in the exchange rate also increased our cost. So far the costs are not increased -- not so much because currencies are a bit stable.

[Abhijeet Sakhare, analyst]

The last one is on flows. I think this quarter, we've done better compared to trends in the past. So again, like going forward into next 12 months, do you really foresee overall net inflows into active equity funds to be in a positive zone. And possibly a substantial jump over the past run rate?

[Imtaiyazur Rahman, executive]

So that is the whole idea, Abhijeet, that's the thought process since -- Sandeep rightly pointed out. The uptick in performance is there, at least on the 6 months and now closer to 1 year. So we are actively pushing our equity fund. Hybrid fund, as I explained earlier, we have been doing well in this particular segment, especially with the repositioning of our multi-asset fund, and this is a 1 fund where we are mobilizing a good amount of inflows. On the equity as well as the hybrid side, yes, the management focus is there, and we should expect a good inflows in the next 2 quarters.

[Operator]

[Operator Instructions] The next question is from the line of Madhukar Ladha from Nuvama Wealth Management.

[Madhukar Ladha, analyst]

Congratulations on a good set of numbers. Most of my questions have been answered. But just on the employee expenses. So finally we are seeing that expense line getting contained. And I wanted to know, are you completely done with all the hiring for the year and this current expense of about INR 115 crores, can we take that to be your sort of normalized run rate? And then post that, in '26/'27, what sort of hikes should be building? Or how many more employees will retire over '26/'27? So what sort of cost benefit can come through from there? So that will be helpful to know. And then on a consolidated basis, what would that mean?

Second, I think earlier in this year in 2Q, your direct TRs across most equity teams went up and that would have meant about 5 basis points incremental yield. So why has that not played out? Because you're saying quarter-over-quarter your equity yields have remained stable. So is there some expense which has gone below -- gone up below the direct TR level that -- is that why this has not happened? Or what could be the reason for that? Those would be my 2 questions.

[Sandeep Samsi, executive]

Madhukar, I think we will stick to our guidance number as far as this particular financial year is concerned. At least 2% to 3% increase on the employee cost on a stand-alone basis and close to around 4% to 4.5% on the consolidated level. And the overall guidance that we have been given the 2024 -- 2028/'29, the employee cost should be on a declining trajectory. As and when we progress through the next financial year, we will provide an overall guidance. I don't want to comment on the individual number of employees. But at the beginning of the next financial year, we will provide a guidance for the full year. As we have stated earlier, that the employee cost will be on a declining trajectory even after factoring the inflation number.

Secondly, on the yield part, yes, the direct plan or yield has gone up by around 3 to 4 basis points. But obviously, we have got fresh inflows also. So equity and hybrid funds, there have been a fresh inflows of almost around INR 6,000 to INR 7,000 crores during this half year. So as you are aware, the yields are lower on the fresh inflows and the higher yield on the debt, we have been able to ensure that the overall yield at the stock level remains the same at around 75 basis points.

[Operator]

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

[Prayesh Jain, analyst]

Just 2 questions. Firstly, on the rationalization of commissions in the industry, a couple of calls that have happened of your counterparts have kind of mentioned about rationalization of commission structures linking them to the TERs industry kind of moving towards that. So do you think that even UTI would follow suit going ahead? That would be my first question.

The second one being in terms of debt, how do you see the kind of flows coming into the longer duration funds going ahead with the interest cuts likely to come through probably towards the end of the quarter -- or end of the fiscal?

And lastly, how do you see the mix between mutual funds and other businesses, say from 2 to 3 year standpoint in terms of your revenue and profitability mix? Those would be my questions.

[Vinay Lakhotia, executive]

So on the forefront, as far as the rationalization of commission is concerned, yes, we are assuring that option definitely not in this particular quarter, but maybe quarter 4 or beginning of the next financial year, we will take a call on that. As far as debt inflows is concerned, over the last 3 quarters, we have seen a significant amount of inflows are coming only in short duration product. But if the interest rate cut cycle plays out, then definitely a longer duration product will be the flavor of the season and not only UTI Mutual Fund, but the entire industry can witness a good amount of inflows as far as the long duration product is concerned. But as of now, for the last 2 quarters, the inflows are going into a shorter duration in the money market kind of a product.

On the mix side, yes as Mr. Rahman and Sandeep already pointed out, we are building our base in all the 3 subsidiaries. Alternatives, the yields are quite good, and we are building our team and expanding our capabilities and in the process of launching 3 to 4 funds. So definitely, the business volume and the yield from that particular business segment should improve on the International depends on the inflow is coming into which category, if it is coming under the equity categories and the Indian market continue to attract and arise in the foreign investor, we should see some yield improving on the international business as well.

[Imtaiyazur Rahman, executive]

So far as Pension Fund is concerned, as you know, the government of India has already announced that unified pension schemes and 10% more will be their location of the central government and as well as the state government implies that will help us tremendously in increasing our AUM and the profitability as far our pension fund is concerned.

[Prayesh Jain, analyst]

Just on this -- so in terms of scales in Alternates business, and do you think that you have -- you are at that level where incremental flows or incremental revenues will kind of flow down to bottom line and resultantly the profitability of the entire company, the core profitability can actually see a significant boost up from something like an Alternate assets.

[Vinay Lakhotia, executive]

So from the Alternate, we are quite hopeful that at least from the beginning of the next financial year, this company will turn into core PAT positive. So definitely from -- in next financial year, this company is going to add to the core PAT number of UTI AMC on a stand-alone basis.

[Imtaiyazur Rahman, executive]

This company, UTI, Prayesh, Alternative has built a very strong track record in mobilizing the money and paying back to the investors. We have not seen any defaults, and we have given extraordinary return. So this company has become the role model of our credit further concern in our country. And we are expecting a good traction in all subsidiaries of us.

[Operator]

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

[Jignesh Shial, analyst]

I just have a couple of questions. First one -- I mean, sorry if I missed out. Your other expenses had some 19% kind of -- I'm saying on constant basis, 19% kind of a Y-o-Y, and 16% kind of a sequential growth. So anything specific to read into or are any one-offs in that?

[Vinay Lakhotia, executive]

Not sure which numbers are you looking at.

[Jignesh Shial, analyst]

INR 74 crores, which is seen in other expenses.

[Vinay Lakhotia, executive]

On a consolidated level, you are saying.

[Jignesh Shial, analyst]

Yes, on consolidated level.

[Vinay Lakhotia, executive]

Yes, at a consolidated level, as we pointed out, since we are expanding our reach as far as the international business are concerned, so we are building our team. And Mr. Rahman rightly pointed out, we have opened an office in Paris as well as in the United States. So initial establishment costs as well as the rental cost of these 2 offices have come into. So on a consolidated level, these expenses have gone up. And also, we have opened 15 Points of Presence offices for our Pension Fund company. So because of that, the expenses at a consolidated level has gone up.

[Jignesh Shial, analyst]

Understood. So on a Y-o-Y basis, what -- as you're pointing out that...

[Vinay Lakhotia, executive]

8% to 10%.

[Jignesh Shial, analyst]

10% to 12%, right?

[Vinay Lakhotia, executive]

Yes.

[Jignesh Shial, analyst]

Secondly, what I'm seeing on your SIP flow, SIP flow had seen a significant improvement, but specifically, if I see your monthly gross SIP numbers, inflows, can we see the massive improvement in July, August and September this year? So anything specific that you want to highlight that the steps that you take or what is the resultant? I mean what are the reasons for such a significant improvement? And how you are seeing that SIP flow specifically in the coming months? Anything specific that you want to highlight from here?

[Sandeep Samsi, executive]

Yes. So Jignesh, as we pointed out earlier also that we have been taking efforts to improve our market share with the fintech partner as well as with all the distributors who are there with us. So banks, national distributors, fintechs are important partners who help us in our SIP count. So with the fund performance being there, improvement in the equity fund performance as well as the fixed income and the hybrid fund, we are seeing significant inflows coming in the SIP format. And as you know that SIP has now become a popular trend in the country where people -- young people who are coming into the industry are also looking at SIP as the first way of investing into mutual funds. So that's the way -- that's the reason UTI has also benefited from the SIP flows.

[Imtaiyazur Rahman, executive]

But we have a very clear plan and we are executing it well. Each and every sales team has got a target for our SIP, and that is working well for us. The investment team and the distribution team are working cohesively and they are going to the market together. So we are in a position to give a lot of confidence to the market, and I'm quite confident that going forward this number will have further improvements.

[Jignesh Shial, analyst]

Understood, sir. No, why I was asking you because obviously, the trend has been improving over the last couple of months itself. The last 3 months have seen a significant improvement. So I was wondering whether -- is it coming up from hybrid because where your market share has gained and that is the reason why there is a significant improvement on a month-to-month basis or something else to read into. But that's okay, that's...

[Vinay Lakhotia, executive]

You're right, hybrid is one category that we are focusing on. So major part of that incremental inflow is coming into hybrid.

[Imtaiyazur Rahman, executive]

Our focus in all products, right? Our focus is all products. For example, equity, we have some of the very, very good performance scheme. We have repositioned the market. We are having very focused way of selling them. We are waiting to turn now the flagship fund. And we're extremely thankful to our fund management team and as well as [indiscernible] that is seeing the turn around. And these all will help us in going forward. Our Board is extremely particular. They receive our performance and the advisers, they consult us appropriately. So that team work which is helping us to grow our presence in all sides.

[Jignesh Shial, analyst]

Understood. And lastly, just more thing is that our Index and ETFs have seen a massive improvement on the market share segment side and all. But typically, what my understanding is that these are low used funds overall. But obviously, our growth seems to be doing pretty -- I mean, relatively it looks to be far higher. So will that have any impact because obviously ETFs are anyhow getting very popular across the industry also. So will that have any impact on our revenue yields or you don't see that happening much on -- because of this -- not much impact or not. Any comments on avenues because your share and -- your market share and the growth in Index and ETFs are far higher. That's it from my side.

[Imtaiyazur Rahman, executive]

Yield is a very, very difficult indicator. So overall yield will be different, but I strongly believe the absolute profit nor there is -- if we -- and this is a volume business, [indiscernible] volume business. So if -- your yield may be the same and overall it may come down if you put a per unit basis, but the overall profit will go up. So I'm considering as the overall profit. My profit number should go up and up and up. That is a focus.

[Vinay Lakhotia, executive]

I think, Jignesh, as earlier highlighted also in the call, I think PAT margin number is one parameter, I think most of you guys should look into it. Because the kind of industry we are in, yield margin numbers are bound to come down because of asset mix [indiscernible] certain days, the difference between the yield on the stock and on the fresh inflows. So yield margins will be on a declining trajectory, but the PAT margin number is one where due to operating leverage and because of volume growth, that number should keep on improving.

[Operator]

Ladies and gentlemen, this will be our last question for today's conference call. It is from the line of Gaurav Jani from Prabhudas Lilladher.

[Gaurav Jani, analyst]

Congrats on a good quarter. Most of my questions have been answered. Just one question pertain to the net flows, right? So I understand -- or could you just clarify that the equity and hybrid net flows includes the arbitrage number, right?

[Vinay Lakhotia, executive]

No, it doesn't include arbitrage. Arbitrage, we are including in cash and liquid.

[Operator]

That was the last question for today's conference call. I would now like to hand the conference to the management for their closing comments.

[Imtaiyazur Rahman, executive]

Thank you very much once again. And again, I would like to wish all of you and your family very Happy Diwali. And thank you for joining this call. May god bless all of you. Thank you.

[Operator]

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