UTI Asset Management Company Ltd
NSE:UTIAMC
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UTI Asset Management Company Ltd
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Ladies and gentlemen, good day, and welcome to the UTI Asset Management Company Limited Q4 and FY '22 Earnings Conference Call. From the management, we have with us Mr. Imtaiyazur Rahman, CEO and Whole Time Director; Mr. Surojit Saha, Chief Financial Officer; Mr. Vinay Lakhotia, Head of Operations; and Mr. Sandeep Samsi, Head Investor Relations and Corporate Communications. [Operator Instructions] Please note that this conference is being recorded.
Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Please note the disclaimer mentioning these risks and uncertainties are on the disclaimer side of the investor presentation that has been shared earlier.
I will now hand over the conference to Mr. Imtaiyazur Rahman for opening remarks. Thank you, and over to you, sir.
Thank you very much, Azan, and good afternoon to all of you. I welcome all of you to the earnings call for the quarter and the financial year 2022, and I thank you for joining us to discuss the financial and operating performance of UTI AMC, which is having a Group AUM of INR 13.49 lakh crores. I have with me my colleague, Surojit Saha, Mr. Vinay Lakhotia and Mr. Sandeep Samsi.
Friends, in the last quarter, in spite of various challenges and the global development, the business continued with full momentum and our economy continues to grow. The Indian equity market faced volatility due to the international development and its resultant impact on global indices. However, both the benchmark indices closed about 0.6% higher during this quarter or at the end of the quarter. The Sensex as on 31st March 2022 stood at 58,568 points and Nifty stood at 17,464 points.
The Indian mutual fund industry witnessed an impressive growth in the last year. The country's AUM to GDP ratio reached all-time high of 15.9% in financial year 2022, driven by increasing financial awareness and ease of access to investing in mutual funds through various platforms. The industry witnessed a surge in the contribution from retail investors, resulting in good support to the market. The total number of folios for the industry as on 31st March 2022 stood at 12.95 crores, registering a growth of 7.7% during the quarter and robust 32.4% on a yearly basis. The quarterly average AUM for the Indian mutual fund industry stood at INR 38.38 lakh crores as on 31st March 2022, registering a growth of 19.5% during the year.
Monthly SIP contribution reached at all-time high of INR 12,300 crores. The SIP AUM for the industry rose to INR 5.76 lakh crores as of 31st March 2022, registering a growth of about 2% compared to the last quarter. The total number of SIP accounts as on 31st March 2022 were 5.27 crores.
Now I will request my colleague, Mr. Vinay Lakhotia, to share with you about UTI Mutual Fund's performance. Over to you, Vinay.
Thank you. Just to highlight with respect to the UTI Mutual Fund operations, we are pleased to inform you that for the second consecutive year, UTI Mutual Fund has continued to grow at a rate higher than the industry growth rate. The UTI Mutual Fund's quarterly average AUM for the quarter ended March 2022 stood at INR 2.23 lakh crores, registering a growth rate of 22.4% or almost INR 41,000 crores from March quarter ended 2021 number of INR 1.82 lakh crores. During the same period, mutual fund industry AUM grew by 19.5%. As a result, our market share on a quarterly average AUM basis increased by almost around 13 basis points from 5.70% for the quarter ended March 2021 to 5.83% for the quarter ended March 2022.
On a closing AUM basis as well, our market shares have actually increased by almost around 23 basis points during the financial year 2021-22 from 5.63% as on 31st March 2021 to 5.86% as on 31st March 2022. We are also pleased to inform you that our equity quarterly average market share has actually increased from 5.15% for the quarter ending March 2021 to 5.17% during the quarter ended [Audio Gap]. We have witnessed an upswing in our AUM and net sales for our equity-oriented hybrid and the ETF category lots of fund. The equity-oriented quarterly average AUM for the quarter ended March 2022 stood at INR 69,287 crores, registering an increase of almost 37% over quarter ended March 2021 number of INR 50,751 crores. The quarterly average AUM for ETF and index fund also recorded a growth rate of almost around 47% during quarter ended March 2021 and '22.
For the financial year 2021-22, the net sales number has been encouraging for UTI Mutual Fund. The total net inflows recorded across asset class stood at INR 19,428 crores as compared to an industry net sales number of INR 2.47 lakh crores. It implies almost 7 -- we have recorded almost 7.88% of the industry net sales number during the financial year 2021-22. The net sales number has actually improved significantly over the previous year by almost to the tune of around 55%.
The equity net inflows for UTI Mutual Fund amounted to roughly around 5.81% of the industry net inflow number and stood at INR 8,931 crores as compared to a net outflow of INR 309 crores during the previous financial year. ETFs and index fund continue to register an impressive inflows and our net inflows during the financial year 2021-22 stood at INR 14,200 crores, almost 10.2% of the industry net flows number. The net sales number for our hybrid categories also displayed a turnaround from being net outflows during the last 4 to 5 financial years, we have recorded an inflow of close to around INR 570 crores in our hybrid category of the fund during financial year 2021-22.
With respect to quarter ended, our market share on the gross sales of the industry stood at 9.85%. ETF and index fund recorded net inflows of around INR 3,989 crores during quarter ended Jan to March, while equity fund recorded net inflows of close to around INR 2,300 crores during the quarter 4 of this particular financial year. As a group AUM as Mr. Rahman explained, the total asset under management registered a growth rate of almost around 16.2% and stood at INR 13.49 lakh crores, up against INR 11.61 lakh crore as on 31st March 2021.
During the last financial year, we have added close to around 8.5 lakh folios, increasing our total number of folios from 1.1 crores as on 31st March 2021 to 1.19 crores. During the past 1 year, the open-ended equity-oriented schemes added close to around 9.2 lakh folios. We have done fairly well under the SIP book during the financial year. Our number of SIP accounts rose by almost around 45%, taking the number of live SIP folios to 21.5 lakh as on March -- 31 March 2022.
Our SIP AUM witnessed a growth of almost around 32% over the last year and reaching almost around INR 18,311 crore as compared to INR 13,914 crore as on 31st March 2021. The SIP inflows during the quarter stood at INR 1,489 crore, rising 10.1% over the previous quarter and almost around 67% over the corresponding quarter last year. The gross inflows for UTI Mutual Fund witnessed under the SIP -- witnessed a year-on-year growth rate of almost around 58% as compared to an industry growth rate of 30% during the same period.
With respect to the weighted average AMC yield, we have been able to charge a weighted average AMC yield of almost around 41 basis points for quarter 4 of this financial year as well as for the entire financial year as compared to a 38 basis point charge in the previous quarter and almost around 44 basis point charge in financial year 2020-21.
With this, I'll hand it over to Surojit to update on the company's financials.
UTI AMC improved on the back of strong net inflows and judicious cost control measures taken. During the financial year, the company posted a consolidated net profit of INR 534 crores and a consolidated core net profit of INR 366 crores. Core PAT excludes M2M gain, income from sale of investment and other nonoperating incomes as against INR 194 crores in FY '21, reflecting a growth of 88%. There is a growth in the core profitability of UTI Group. UTI AMC Limited -- core PAT of UTI AMC Limited in FY '22 is INR 299 crores, reflecting a growth of 61% year-on-year, whereas the core income is at INR 910 crores in FY '22, is growth of 25%.
UTI RSL -- AUM of UTI RSL has increased from 21% on closing basis from INR 166,210 crores to INR 201,919 crores. PAT of UTI RSL is at INR 42.3 crores, an increase of 1,000%. The reason being the increase in the net PFRDA fees structure from 0.5 bps to 3.5 bps.
UTI International, the management fees of UTI International is at INR 127 crores in FY '22 from INR 65 crores in FY '21, an increase of 95%. UTI Capital has made a net loss of INR 2.21 crores, which is mainly on account of reduction of management fee income due to several exits from various funds. The company has got 2 approvals from SEBI for launching schemes, hence it is expected that the company will break even in next 2 years.
The operating profit margin as a percentage of AUM for FY '22 was 16 bps as against 12 bps in FY '21. The ROE of the company on a consolidated basis is 16% from the full year ended 31st March. The PAT margin stands at 40% for the full year ended 31st March '22. The net worth of the company on a consolidated basis is INR 3,606 crores as of March '22. The Board recommended a final dividend of INR 21 per share for FY '22 as against INR 17 per share for FY '21 amounting to 63.75% of PAT as compared to 61.29% of the PAT in FY '21. The final dividend for FY '22 is subject to the approval of shareholders at the ensuing AGM.
I would like to highlight one of the concerns, the employee cost of the group. Employee cost of the group in FY '22 is INR 407 crore as against -- this is an increase of 7%, that is INR 27 crore as against the amount of INR 380 crore in FY '21. The increase is largely due to INR 17 crore of higher provision of variable pay for better performance of the sales and investment team; INR 2 crore or higher expenses on account of medical expenses for previous year being the COVID year settlement had to take place; INR 8 crore due to increase of the fixed pay of the group employees, reflecting an increase of 2-5 -- 2.5% of the total employee cost. It may be highlighted that though there is an increase in the fixed pay of employees in the range of 7% on account of the annual increment, the actual impact of INR 8 crore in terms of percentage to the total employee cost is 2%. This entails a positive impact or a saving of 4.5%, which is on account of the retirement of employees.
With this, I will hand over to Sandeep Samsi.
Thank you, Surojit. I would like to share some of the digital initiatives that we have taken. For providing a better customer experience across our digital assets like our UTI Mutual Fund app, our UTI Buddy app and our website, we are redesigning this and redeveloping this with enhanced user interface and technology upgrades. The design thinking will be mobile first and providing an e-commerce experience to our customers. This will be accessible to all of the categories of our investors and distributors.
We are working on increasing our digital distribution outreach by partnering with our distributors and third party...
[Technical Difficulty]
Ladies and gentlemen, the line for the management has got disconnected. Request you all to please stay online while we reconnect them. Thank you.
Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. Thank you, and over to you, sir.
Sorry for this. We -- I think some of the points have got covered. I will take from point number 2. We are working on increasing our digital distribution outreach by partnering with our distributors and third-party portals through API gateways for onboarding transaction and other services. We aim at driving our business goals by developing capabilities for adding customers through display and touch marketing and through targeted communication for our investors and distribution partners via multimedia campaigns on e-mail, SMS, WhatsApp and notifications.
For our investors in liquid and overnight funds, we have started a service called as Insta Statement of Accounts, where we target a turnaround time of around 5 minutes for providing this service. For our mutual fund distribution partners, we have launched a service called as Insta Pay-Insta Brokerage, which aims at commission payments on a turnaround time of 5 minutes to up to maximum of 75% of the eligible accrued and payable commission or INR 50,000 whichever is lower, based on the calculated trail commission on a daily basis.
As a knowledge sharing initiative for our investors and partners in a digital format, we have launched Symposia, which is our UTI Mutual Fund Knowledge Series, wherein we have so far done 5 events. Across these events, we have an overall registration of more than 20,000.
With this, I will request Mr. Rahman to close up.
Thank you, Sandeep. Friends, let me share with you about the performance of our subsidiaries. First, UTI International. The AUM of UTI International has increased from INR 26,821 crore to INR 28,974 crore. Our international clients are across 37 countries. They are primarily institutions, pension funds, insurance, bank and asset managers. One of our flagship funds, the Indian Dynamic Equity Fund, domiciled in Ireland has an AUM of over $1.2 billion, and it is widely recognized as the best performing fund, one of the best performing funds.
UTI International, J. Safra Sarasin Responsible India Fund is an ESG-compliant fund and has an AUM of $125 million. UTI International has also launched a UTI India Sovereign Bond ETF, which is listed on the Amsterdam Stock Exchange. We'll be shortly launching our office in Paris.
Now the UTI Retirement Solution. UTI Retirement Solution has been managing the NPS corpus for the government and the nongovernment sector. UTI RSL has crossed the AUM to INR 201,919 crores and which has raised -- and it has become a very profitable company. We have recently had the services of BCG to help us in designing the business plan for UTI Retirement Solutions to capture the market in the private sector. We are building our expertise in AIS through our subsidiary UTI Capital. UTI Capital has launched SDOF II and UTI Multi Opportunity Fund. I'm quite confident this company will do pretty well in the years to come.
I would also like to share with you key developments within the company. During the financial year, we sharpened our focus on our people, process and performance. We took measures to acquire talent and also build our internal talent pool. During the year, we appointed Head of Sales, Deputy Head of Fixed Income to provide a stewardship for our investment process across asset classes. We elevated our existing human capital in the following role: Chief Investment Officer, Head of Equity, Head of Passive and Strategies and Head of Fixed Income Reserves. We believe that these elevations we have the right framework to capitalize the growth in different asset classes and enhance performance.
During the year, we launched 3 funds, which generated gross sales of INR 2,780 crore. We will continue to launch new funds as and when the right opportunity arises. We are working on our ESG journey and has been adhering to best practices. We have adopted a formal stewardship code and a signatory to United Nations - Principles for Responsible Investment. I wish to reiterate that we will continue to focus on growing our high yielding assets and as well as our focus will continue to be on our stable process and performance.
With this, I would like to open the forum for Q&A. And thank you very much for joining us during this call. Thank you. Over to you.
[Operator Instructions] The first question is from the line of Kunal Thanvi from Banyan Tree Advisors.
So I have 3 set of questions. First was on the employee cost. So last year when we started this year out, we had indicated that for FY '22, the employee cost to be the same at the FY '21 level or it was expected to go down. But fast forward 12 months, we are seeing an increment in the employee cost worth INR 27 crores for FY '22.
Now we understand there are these variable components and other things that you mentioned. But they were also there in FY '21 number as well, right? So how should one look at the employee cost from an absolute number basis? So will there be actual reduction or it will continue to grow the way it is going now?
Yes. I think I have already explained to you the difference between the INR 407 crore and INR 380 crore, that is INR 27 crore difference, right? And going forward, yes, other than the variable component, which is the bonus component, other core employee costs will be coming down. But variable pay, of course, is in tandem with the growth in business. So that will -- obviously will increase or decrease with respect to our business growth and plans.
So when we look at, say, INR 27 crores of difference compared to last year, INR 17 crore is the [ weightable ]. So the remaining is like this INR 10 crores left, right, for the entire financial year?
Yes -- one minute, the INR 17 crore is in respect of higher provision of variable pay for better performance; INR 2 crore was a onetime cost with respect to the COVID deals, which have been settled; and INR 8 crore was due to the fixed pay income increase of the group employees. So overall, if you see INR 8 crores on INR 380 crores comes to around 2.5%. So considering that 7% increase, annual increment has happened across our group, so it was a saving of 4.5% because of the natural retirement and our cost measures.
Sure. So on an absolute basis, we should assume that numbers would be in this range only the way they are now or come down?
Yes. Obviously, the variable and bonus will depend on the growth of the business. But apart from that, other expenses, we expect it to come down.
Sure. And as per the NPS business, last year, what we have seen is in few months, the inflows for UTI were lower than the peers like LIC, SBI. And in last con call, you guys had mentioned that by the end of March, the market share would be restored. Like we'll receive the differential amount that we were receiving lower in the month of, say, October, November and December.
But when we look at the full year number, that reflection is still not there. Can you explain to us what has happened in the NPS business? And why we had lost that business? And like this year as, again, should we be building for lower numbers in NPS, if you can explain that.
Kunal, the allocation has been restored, right? So whatever the -- we were -- basically, it came down from 32% to 16%, it has been restored. Now the details, Surojit will give it to you.
Yes. As Mr. Rahman said, it has been restored. So in Q4 itself, we have seen an inflow of around INR 17,000 crores. So we expect that to -- it will be continuing for the next financial year also.
For the next financial year, if the allocation has already been normalized.
Advice.
Advice of allocation for the next financial year...
So for the few months that we have lost the flow, we didn't receive that money again, right?
Whatever the allocation was there, lower allocation for 3 months, that cannot be restored. Then thereafter, it has been restored. The fresh allocation has started.
Sorry. Got it. And...
This is the operator. Mr. Thanvi, may we request that you return to the question queue for follow-up questions.
Sure.
The next question is from the line of Yashodhan from PPFAS Mutual Fund.
So I just had a follow-up question regarding the employee cost. So I mean, we are to assume that the costs are somewhat going to be on the similar levels. But would we assume that as more of the older people with a higher pay, they resign and the newer joinees with lower pay, they joined the company. So the absolute cost would sort of reduce from these levels?
Yes, I feel your perception is right.
So in a way, we are to see the cost sort of stagnating at these levels? And obviously, the bonus I'm expelling the bonus pay for now because nobody knows how the AUM is going to be like. But apart from that, the fixed costs are going to sort of keep coming down or at least be stagnant? This is...
Yes. Yes, you are correct, the fixed cost will already -- if you see it's got stagnant for the last 2 years. From the IPO year, it has got stagnant and it's going to come down.
Okay. Okay, got it. And another question I had was on the international investments. So basically, the offshore fund, which you guys have, so is that sort of helping the -- because the remittances are sort of not allowed as per the RBI guidelines. So to some extent, is the offshore fund helping?
Come again, your question is not clear.
So basically, RBI has issued these guidelines where foreign remittances are not allowed. And the entire industry was sort of waiting on the limit extension. So you guys have also been running an offshore funds, right? So is that sort of helping to access the international investment side?
No, there are 2 different things. This remitation is the Indian money going outside. In our case, we are raising the money outside to bring in the country, right? And we have seen the growth in our AUM.
Okay. And -- so what sort of yields do you guys earn on that?
The AMC yield?
The yield is around 55 bps for International business.
55 basis. And within business, you said the yields are around 41 basis points, right? That's on a blended basis.
Correct, correct, correct.
And what it would be simply for equity funds?
For equity fund, for domestic or international?
Domestic, domestic.
Domestic is close to around 85 to 90 basis points.
Okay. Okay. And just one last question. What sort of funds do you have in the pipeline? Would it be more on the active side or passive side?
It'll be more on the passive side, maybe a smart beta kind of a product. However, we have one product gap as far as the multi-asset fund is concerned. There, we may launch sometime during this particular financial year. But apart from multi-asset fund, all the fund launches will be mostly on the passive side.
Okay. Okay. Got it. Got it. That's helpful. For further questions, I'll get back in the queue.
Okay.
The next question is from the line of Prayesh Jain from Motilal Oswal.
Three questions from my side. Firstly, on the employee cost front again. Could you give some clarity as to what number of employees will be retiring in FY '23? And what could be their current cost? That could be one.
Second would be on your OpEx, on other operating expenses, other expenses. They have seen a sharp jump. What is the reason for that? And how do we see this trending ahead?
And the last question is on the tax rate. It was significantly higher in this quarter. What was the reason for that? And what should be assumed for FY '23 and beyond?
First, I will take question number 2 and 3, or I will go in the reverse direction. Let me take the tax question first. See, if you see the effective tax rate for the full year, it's almost normal that is around 18% and 19%, right? For Q4, there is a jump because of 4 -- basically because of 3 reasons. One is the business income has been -- proportionate business income has been very high on the Q4 rather than Q3. Q3, there was an FMP income -- FMP maturity for which there is a tax rate of around 11%. So business income was more for this Q4, and the lower taxation income was nominal in Q4.
Secondly, due to the -- from deferred tax asset, a changeover to DTL because of this FMP maturity. And last reason is because of 6.75% yield in respect of actuarial valuation, the income has increased, because previous quarters, it was charged around 6.45%, 6.4%. So these are the 3 reasons basically why the tax has increased in Q4. But if you see the overall 12-month period, it's around 18% to 19%.
And in respect of your other expenses, if you go by the December figure, December figure of other expenses was INR 147 crore. So that gives us a run rate of around INR 49 crore per quarter. INR 49 crores x 4 is around INR 196 crore should have been the annual expenses, but that annual expenses is around INR 212 crore, that is INR 16 crore more. So INR 16 crore has come from 3 reasons. One is INR 7 crore interest in case of trail fees. Trail fees generally on a run rate is INR 12 crore to INR 13 crore we pay for each quarter. That in Q4 was 20 crore in respect of International business, because AUM -- new AUM has come in the Q4.
So INR 7 crore additional trail fees was paid. Apart from that, INR 17,000 crore of money came -- fresh allocation in respect of the Retirement business for which we had to pay a PFRDA charges of INR 2 crore, plus you must have heard Mr. Rahman telling that we appointed BCG. So BCG was paid a fees of around INR 2 crore in the last quarter. And the rest, around INR 4 crores is a normal expenditure of our digital initiatives, which has taken place. So that gives a reason for our difference of INR 143 crore to INR 212 crore.
And the first question was in respect of retirement figures?
Yes. Number of employees retiring in this year and what would be the cost allocated? And also tax -- could guide us a tax rate for the next year?
Yes. The tax rate for the annual will be around 18% to 20%.
Okay. And on the employee cost, employee spend, number of employees?
I'm Rahman. 96 people will be retiring, and the total cost impact would be around INR 41 crore over the period of time, 1 year.
The next question is from the line of Hiten Jain from Invesco.
Yes. Last quarter, you had said that the variable pay that you have allocated for FY '22 is around INR 35 crores.
Yes.
And this quarter, you were saying that the variable pay has gone up in line with the business. But the AUM is kind of flat Q-o-Q. So how come so much of change in variable pay in 1 quarter?
Yes. See, variable pay is based on the KRA of the full year. It is not on a particular quarter. And even the investment team as well as the sales team, they are evaluated over the full year 12 months. So I'll just give you the explanation for that difference which you are asking. The employee benefit cost of the entire group was INR 74 crore in Q4 '21. The same was increased to INR 115 crore in Q4. So it will be observed that there is an increase of INR 41 crore. During the FY '22, a budget of INR 35 crore for the year was made and a proportionate provision was made INR 8.75 crore for each quarter.
So for Q4, the impact of two INR 8.75 crore plus INR 17 crore additional provision which was made comes to around INR 26 crore. And if you remember, in December -- December '20, we made a provision of INR 45 crore, and then actual payment in March '21 was INR 38 crore. So there is a minus INR 7 crore impact. So INR 26 crore plus INR 7 crore is INR 33 crore. Apart from that, INR 2 crore for ESOP amortization, INR 2 crore for the medical expenses and INR 2 crore for the fixed pay. So overall, that gives an impact of INR 41 crores.
No. So exactly. So when you have a variable pay estimate for the full year, until first 9 months, your estimate was lower. And you had said that it will be equally spread across the year. So again, it seems like last year, again, this variable pay is really volatile for us to understand. So maybe if you can explain it better how do you -- so you plan it out for the year, right? So until last quarter, you had 9 months of performance in front of you and you would have estimated a variable pay. And suddenly, this number changes now, so which is where we are finding it difficult to understand.
Yes, you are right. So we have decided now that this provisioning -- we will do our entire provisioning of this one on the actual basis, we will do on the quarter-on-quarter basis and it will be reflected accordingly. I would like to submit that the performance of our scheme has gone up substantially and that has impacted -- and that will be calculated on a yearly basis. That is the reason for the higher variable pay.
But I'm very pleased to share with you that the stand-alone profit of UTI AMC has gone up, I mean, after providing -- this particular bonus has gone up from INR 351 crore to INR 417 crore. And I'm also pleased to share with you that the dividend payout has also increased from INR 17 per share to INR 21 per share. And it is important for us -- you will appreciate and agree that it's important for us to look after the employees because the entire industry and all sectors are facing the great [ resignation ] era. So it's very difficult to retain the team, but we have been fortunate enough to have the team -- separate team with us, both in the investment and in the distribution.
Sure. And another thing was when you were trying to explain the difference between the employee cost of full year of INR 28 crores, so you very nicely have given the breakup. But at the same time, you had an INR 17 crore of benefit also because the ESOP cost was lower this year. As per your earlier commentary, you had said that the ESOP cost for FY '22 was INR 13 crores, and last year, it was INR 30 crores. So there was an INR 17 crore of absence of ESOP cost this year. So which means if I adjust for that, then it seems like you haven't got any retirement benefit, which you have been guiding since the IPO.
Yes. See, you have to see the employee cost as a whole because there are actuarial valuations in this for gratuity, leave encashment, pension. All taken into account the overall employee cost is what you should look into because each factor has an impact on the employee cost. But the fixed pay is on the downward trend.
Sure. And just one clarification. Sir, you said that 96 people will be retiring. And you said INR 41 crore of saving over 1 year. Did I hear that number correct, because that looks quite high?
No, no, 91% is retiring. On the full year basis, it will be INR 41 crore, on a full year basis. Vinay?
Yes, yes. So the employee may retire gradually over a period of time, the total salary cost of that employee is close to around INR 41 crore. So maybe if I'm assuming that it's a linear retirement, you can very well take half of that figure actually as a saving in employee cost.
So next year, the total impact will be to the tune of INR 41 crore.
Yes.
Yes. Okay. So you continue to guide that the total employee cost, which is around INR 400 crores, it should remain the same for next 2, 3 years, given you'll have savings, which will be able to offset any potential wage hike that you have to give to keep as per the industry standards?
You are right. You are right, and we are also looking towards forward -- for the manpower rationalization. We are not in a position to give you any guidance at this particular point of time, but we are seriously working for the manpower rationalization. And probably in a couple of quarters, we may have some policy for the manpower rationalization, which will help further to reduce the employee cost and have a better productivity.
Mr. Jain, may we request that you return to the question queue for follow-up questions.
The next question is from the line of Viraj from SiMPL.
Just 2, 3 questions. First, broadly in terms of the remuneration structure, which we have. So when we started the year, the whole idea was that we have an ESOP plan. We kind of had another ESOP plan, which we kind of upgraded. And the cost itself will keep on trending down. And at the same time, there's another element of performance-linked incentive, which communication was would be in the range of INR 30 crores, INR 35 crores even in '22. Now if I look at our overall strategy and our overall payout structure as well, we have been quite aggressive lately in terms of ease as well in the marketplace. And when it comes to the employee part as well, the cost structure -- or the remuneration structure seems to be very aggressive or more attractive than what we see in the industry.
So just trying to understand what is kind of prompting you to kind of lay out such a more aggressive payout? So that is one. And when you keep on talking about the KRAs, how do you measure those KRAs? So what are the elements you kind of based on? So is profitability also one of the KRA? Or I just want to understand in that aspect. So if you can kind of give more details such all would be very helpful.
Good. Viraj, most of the questions we have answered. And if you want to have a detail on the KRAs and other fees, I think you can have one-on-one conversation with CFO and Vinay. They are there and, of course, Sandeep is there. They will give you the complete details of this.
And what I would like to submit that our incentive plan is not an aggressive incentive plan, right? It is much lower than the industry. We are not on the highest percentile of payout. We are a moderate and reasonably in line with the market. We are not aggressive and, indeed, we are not conservative. But we are not at all aggressive payout master.
And details of the KRAs, yes, profitability also is a part, but it is for the senior management team, right? For the sales team, it is mainly the share of wallet and net sales. For investment team, it is indeed the performance, the peer performance and the benchmark. But indeed, for the senior management team, all the senior management team have a profitability as a target.
But as you'll appreciate that the profit has also gone up substantially. Particularly, the core profit, as Surojit has explained, the core profit of AMC alone has gone up substantially. And these we have detailed in our investors presentation. Viraj, go ahead.
Yes. Sir, just 2 questions. Why I'm kind of emphasizing on this a little more because if you look at our cost -- employee costs in relation to our AUM and also especially in absolute basis and if we compare to all the players, especially the top 5 in the industry, there's a lot of excess cost built in into the system for us. And the -- I mean, the communication at least what it seems that this will kind of moderate in coming years. But actually, if you see it, it just keeps on moving up. So from an investor, it always seems like the cost management process not really kind of coming in place for us in terms of the projected savings, which we are hoping it to be.
Yes. Viraj, that is what, in the first answer itself, I explained that overall, if you see, there is an INR 8 crore increase in the fixed pay -- overall fixed pay, which is only 2.5% increase. And whereas our annual increment is around 7%. So anyway, there was a 4.15% savings and this will continue over the years, our fixed pay will continue to come down. That is the explanation which I gave in the initial part of it. So we are continuously monitoring it and this will -- already it is stagnant if you see from the IPO year and it's on a downward trend. Apart from the variable pay, of course, this depends on our business growth and business plan.
And Viraj, just to add the cost as a ratio is actually declining over the last 2 to 3 years. So with the growth in the average AUM, our cost ratios actually have been improving over the last 2 to 3 years, and this year is no exception. In fact, this year also, the cost ratios as a percentage to average AUM have actually improved by almost around 4 to 5 basis points.
Yes. And Viraj, if you see our cost-to-income ratio, which was point -- 67 bps in FY '21, it has come down to 59 bps in FY '22 on the stand-alone part of it.
Two more questions. One is, you said you paid a fee of INR 2 crores to BCG. So what is the scope of service in the project which we have taken the services for? And if you can just give some color on that.
That is for our company's subsidiary company, UTI Retirement Solutions. UTI Retirement Solutions currently managing mostly the government sectoral funds. We are trying to diversify to target the private sector. In order to have a proper guideline and business plan, we have the services of UTI -- the Board of UTI Retirement Solutions had the services of the BCG. So now we have got a business plan, and we are rolling it out. We have already obtained the POP license in the name of UTI Retirement Solution, and we are in the process of building the team.
Okay. And just last question was on the International business. If you see Q-on-Q, there is a sharp drop in AUM. And just want to understand why is that. And relation question is, you mentioned about in other expenses, we have paid INR 7 crores higher trail fee because we have added new funds. But when I look at the AUM for International business, it's come down from almost INR 34,000 crores, INR 35,000 crores to somewhere around INR 27,000 crores, INR 28,000 crores. So why is -- what is driving that gap drop? And when you pay the fee, how does it really work for us?
Yes, you are correct. The AUM as of December was INR 34,000 crore, it came down to INR 29,000 crore. It is mainly because of the M2M loss because of IDEV -- which is -- out of INR 29,000 crore, IDEV itself is around INR 10,000 crore fund. So M2M has impacted that. And our money has also come in Q4, for which we had to pay a trail fees, which I told you. So this is mainly because of the M2M impact.
So of that INR 29,000 crores, how much will be -- so if the IDEV right now is INR 10,000 crores and the rest INR 19,000 crores, INR 20,000 crores, how is that distribution? And same is for IDEV. How is the distribution in terms of investor base? Is it kind of the client concentration is too high, because a few years back, we had faced a similar problem? One of the large investors kind of pulled out in one of the international funds, and we have seen a sharp de-growth. So any perspective on that?
No, we have a broad investor base. These are all high net worth investors of European countries and the European banks from Switzerland, Paris, France, London. So we have a broad investor base. And this is -- and other than INR 10,000 crore, the balance INR 19,000 crore is 30% is other equity funds and the balance is debt.
Mr. Viraj, may we request that you return to the question queue for follow-up questions.
The next question is from the line of Aditya Jain from Citigroup.
If you could touch upon the operating yield, which is up Q-o-Q versus the decline that we've seen in the third quarter? So you already mentioned the equity yields on the total book, which was 85 to 90 basis points. If you could talk about the incremental yields that were observed in 3Q and versus now? And so the increase or the normalization which has happened, do you expect it to sustain going forward?
No. We have, Aditya, given a guidance that for the full year, we should be closing close to around 41 to 42 basis points. Q3 decline was on account of various reason because we have an NFO. Then obviously, even the passive fund influence has been at a substantial rate. And our ratios of gross sales to net sales has actually also increased.
So as I stated in the earlier con call as well, Q4 is normally a period where tax saving products -- where the yields are slightly higher. It's being sold very aggressively and that's why that has helped to push our overall yield close to around 41 basis points.
Got it. But incremental yield would still be below 85 to 90 basis points...
Yes, yes, that is true for the entire industry. The incremental inflows will be lower as compared to the top AUM yield of 85 to 90 depending on the sharing formula with whom we are mobilizing it. So as communicated earlier, the sharing ratio is in the range of around 50% to 80% of the total expense ratio between the IFAs and the national bank or a distributor.
Right. So then the 41 basis point guidance is based on mix change as well as maybe more share of direct. That's right to understand?
Yes. Correct.
Okay. Got it. And then just one clarification. So earlier we used to guide about INR 60 crore, INR 70 crore of savings over 3 years or so. So the INR 41 crore number that you mentioned, so essentially, a big chunk of the INR 60 crores to INR 70 crores is expected to come in FY '23 itself. Is that the right way to look at it?
No, the INR 41 crore will actually come over the entire year. So depending on the month in which the employee is retiring. So for the full impact of INR 41 crore, that will be visible in FY '23, '24 only. FY '22, '23, depending on the month ended, the employee rate retiring, the entire benefit may not accrue. It may be on a conservative estimate, you may take as a half of that INR 41 crore.
Got it. Perfect. That helps to understand. Just lastly, if you could tell us the period end numbers by asset class?
Period end number by asset class?
Yes. You want percentage...
It is closing AUM?
Yes, closing.
Yes, yes. So our closing AUM as on 31st March was INR 2.20 lakh crore. Equity and hybrid funds constitute roughly around INR 95,788 crore, ETF and index fund at INR 65,809 crore, income fund at INR 15,454 crore and liquid fund at INR 43,125 crore.
The next question is from the line of Sahej Mittal from HDFC Securities.
So sir, 2 questions from my side. First was on the tax rate that I couldn't quite understand the reasons for such a sharp increase in the tax rate for this quarter. So if you could just repeat that. And for the next 2 years, sort of a run rate should we expect on the operating cost front? If you can give some guidance given the kind of sharp increase in this quarter?
Yes. The first question was in respect of your tax rate. I will just repeat it again. The tax rate has increased for the -- for the full year, you know that it's almost 18% to 19%. But for Q4, it has increased because of -- primarily for 3 reasons. One is proportionate of business income in Q4 is much higher than the other quarters because the other 2 quarters, Q2 and Q3, a lot of FMPs have matured. So those are taxed at around 10% to 11%. But in Q4, the total income mostly was in respect of business income, which gets charged at 25%.
And the second point is that the deferred tax asset has changed to deferred tax liability in Q4. And lastly, because of the actuarial valuation is done on the current interest rate, which is around 6.75%. Earlier, it was done at 6.45%. So this also had an impact because our income has increased, and this has also resulted in an increase of taxation.
So these are the primarily 3 reasons why Q4 the tax rate was higher. But you can always see that for the full year, it was around 18% to 19%.
And in respect of your query regarding the OpEx rate, yes, we expect the OpEx rate to be around INR 52 crore to INR 53 crore because for the last 3 quarters, that is Q1, Q2, Q3, it was around INR 49 crore. And this Q4, it was more because of the reasons which I already explained. So we expect a run rate of around INR 51 crore to INR 52 crore for the next year.
So just a clarification on the FMP maturity. So where does this income get clubbed, and maybe to understand that this, so does that get clubbed in the other income? Or where do we get this fees?
Yes, yes. It gets into the other income part. The sale or service is totally AMC fees, which we receive. The M2M loss and gain on income from our treasury is part of the other income, yes.
So what I'm seeing is that there is a drop, there's a net loss on fair value change in other income. So how could that result in a higher tax rate in this quarter?
No, no. That is because of the M2M loss. The M2M loss is something different.
So where does this income gets...
That is notional. M2M income loss is totally notional.
No, but the income from this maturity of FMP, where could we see this in the financial statements...
Income from investments. See, core income is only of the fees which we received, the asset management fees. I feel in the -- if you see the investor presentation, it is clearly mentioned over there. The breakups are already given in the investor presentation.
Okay. Sure, sir. I will just check and maybe I will get back to your off-line on this.
Yes. On Page #35, it's all given. If you see the Page #35, the breakup is given over there.
Ladies and gentlemen, we will take the last question from the line of Akshay Jain from JM Financial.
Sir, I had a follow-up question on the International AUM part. So you said that your trail fees is higher by INR 7 crores because of the higher net inflows in the International AUM. So can we get the quantum of the net inflow because the MTM loss of INR 6,000-odd crores plus net inflows of, say, excess amount seems to be pretty high?
Yes. See, that is why I told you that is IDEV, which is around INR 10,000 crores plus the other equities are there, which is around INR 4,000 crore and the balance is debt. So in the last quarter, the trail fees is a continuous on the business, right? The money which has come in the month of March, you will see the accrual part of it will happen in the next year.
Okay.
So that is why if you see the -- this international fees, which was INR 65 crores in FY '21 and it has increased to INR 127 crore in FY '22.
Understood.
And it will increase next year also, right.
What should we take the run rate for the revenue next year? So this INR 127 crores, what should we build in, say? Should it go up further or this has reached its limit?
Yes. I feel it should go further because UTI International has plans to launch 2 new schemes where we have good investors lined up already. So we definitely perceive that there will be a growth in the revenue income of UTI International.
Understood. And sir, you mentioned that your trail fees has increased to, say, around INR 20 crores now because of the higher trail fee of INR 7 crores. So shall we take this run rate going ahead, this INR 20 crore will be recurring from now on?
Yes. Definitely, it depends on the business how it will be. But it -- because of the new business, it may increase also, right, because the new 2 funds, which are being launched, that also will have a trail fees. So definitely -- but it will go in tandem with the increase in revenue.
Understood. Understood. And sir, just one more question. So you said that the annual cost savings will be around INR 41 crores. So for example, for FY '23, it will be -- say, if we take that F '23 part, it will be, say, around INR 20 crores. So what is the replacement cost for these employees?
Not much. It will not be much. We already have recruited, there's a lot of management trainees and they will be in a position to supplement. I'm not expecting more than 10% as a substitution cost.
Yes. Just to add, if you listen to our earlier calls, like in March '20, we have already inducted around 150 people. And even March '21, we inducted the sales graduates and whom we have groomed up to take over these retirement cases. So we don't expect much cost to rise at all.
Understood. And sir, one last question. I missed one of the part of the other expenses you said. So there was a large component of around INR 4 crores or INR 5 crores. So what was that about?
Yes. Out of the difference of INR 16 crores, which I explained, INR 7 crore was AMC, 2 crore was in respect of fresh allocation, which we have to pay to the PFRDA as charges and INR 2 crores was in respect of BCG. And the other, INR 4 crores to INR 5 crores was in respect of the cloud and Bloomberg and other digital initiatives because in the FY '21, there was a free period for that, for which we have to pay a normal usage charges for FY '22. So that difference is around INR 4 crores to INR 5 crores.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Imtaiyazur Rahman for closing comments. Thank you, and over to you, sir.
Thank you very much. And let me give you 2 other information. One is this the allocation from the PFRDA to UTI Retirement Solutions will be for the financial '22-'23 will be 32.5%. So around 1/3 will be coming to us. And so far as the business expansion is concerned, of UTI International, we have a business plan in place. We are opening our -- very shortly, we will be opening our office in Paris and we'll be targeting more clients. And thank you very much for the active participation, and please continue to support UTI. And thank you.
Thank you. Ladies and gentlemen, on behalf of UTI Asset Management Company Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.