Aditya Birla Sun Life AMC Limited analyst Q&A

Sure. Thank you very much. The first question is from the line of Aditya Modani from Prabhudas Lilladher. Please go ahead.

I just had a couple of questions. Can you just share the blended yields for the quarter? And at what levels should we expect the same to stabilize? And what is the SIP AUMs for December 2023?

The blended yield for like the equity is in the range of around 69 – 70 basis, for debt, it is in the range of around 24 - 25 basis and for liquid, it is more or less in the flattish on 13 basis.

On SIP, Prakash will answer.

Aditya, Our SIP AUM for December is ₹ 66,741 crores.

And at what levels should we expect the blended yields to stabilize? If you could quanti fy or even in a matter of years as to how many years?

Yes, so equity may drop a little bit even in the future. Because as the size goes up, the accrual will drop. And the new sales will replace the old, which may have an impact on the yield. So maybe a couple of basis, we may see another 3 years sort of a drop in yields.

Okay. Thank you.

The next question is from the line of Nemin from Motilal Oswal. Please go ahead.

Yes. So, I think in terms of flows, of course, overall, the sales growth in the month of December was lower than the industry. But however, we are seeing some pickup coming in the month of January. Broadly, we have seen inflows in the Small and Midcap Fund, Pure V alue Fund, Digital India Fund. We have seen some bit of outflow in the ELSS scheme, which is predominantly an 80C scheme, but as it stands today, the overall momentum in the month of January, we are seeing some of our funds, which are in the top quartile performance, seeing an inflows through the online platform as well as in the offline platform, contribution has been rising, especially in the PSU Fund, Digital India Fund, Pure Value Fund and the other funds. We're also seeing some pickup in the overall SIP flows. Along with the overall pick up in the overall assets, as I speak , the numbers have crossed about 330 in the month of Jan. That is something that comes on the back of the improved performance we are seeing in the equity. And hopefully, we should see that trend continuing in the current quarter. Therefore, it reverses the trend that we have seen in the past.

Got it. So, for October and November, how were the net flows compared to industry, if you can give us some color on that as well?

Yes. Normally, we don't disclose the numbers.

We don't disclose this number. But compared to the earlier months, we have seen a positive net sale in the month of November and December and for the quarter also.

Okay, got it. This is helpful.

Also, you have to take into account that I think in the last quarter, we raised funds about ₹ 799 crores through the Transport and Logistics Fund coming from close to about a lakh of investors there.

Next question is from the line of Amansingh Anandsingh Sahajsingh from Nuvama Wealth. Please go ahead.

So, as I can see, other income for the quarter has raised significantly due to the strong capital market. So, can you break down the treasury book that we have of how much percentage have we invested in equity?

Sure. So, Hi Aman, as you rightly said, we have seen a growth in other income mainly on back of capital market doing very well plus even the debt market has done pretty well, which have resulted in a better yield on the overall treasury portfolio. Equity is in the range of around 13% of the overall portfolio, which includes one seed capital which we have to invest as per the SEBI requirement. And other is some of the seeding which we have done to the some of the themes in our equity funds, and AIF which has resulted in an overall percentage of 13% in the treasury book.

Hi Sir, good evening so firstly, on the expense side, you mentioned, if I heard correctly, some structural changes on the alternate business. So just wanted to get some color on what are the changes and what sort of expenses should be related to that. Second, when you mentioned your net flows were positive for November and December, could you give some color on which schemes this were from? And also, if you can give some color on the gross to net, I mean, in terms of how that has been shaping up over the last few quarters or months? And lastly, you gave the yield number on the blended book across segments. If you can give for the equity segment, if you can give on the net yield on the fresh business that is current or at least what is the differential between the blended book versus the fresh?

Dipanjan, what is the first question that you had, on the AIF expenses, is it?

Yes, the first question was, sir, if I heard correctly, you mentioned that there are some structural changes that you're undertaking in the alternate and PMS businesses?

Okay. Basically, on the AIF and PMS, one, of course, we are beef ing up the team with the Head of Credit being recruited . and hopefully, the person should be onboard early with the intention to offer credit opportunities funds to the growing HNI needs. That's something we'll do. Therefore, we'll have beefing of the team. And second, within the existing team, of course, giving some responsibility to people with the Head of Retail coming onboard. And to beef up that segment of the business, we're making some changes, does not lead to occurring incremental costs, except the credit guy coming onboard will have an incremental cost which coming in, in the form of salary. But revenue will start coming in later. So that's something we are doing it, given the fact that the AIF/PMS both on credit and equity have got significant potential for us to grow. And given the fact that we have very good performance track record within the PMS as based, that's something we are building up. Given again the high capability that we have in running credit fund, that's also something we plan to launch it once the person is onboard. So that's something I just mentioned about it. In terms of the sales, generally, we have been seeing flows for us coming in, Small Cap Fund and Pure Value Fund, Digital India Fund, these are some of the schemes, the PSU Fund, basically, sectoral funds we are getting money, including the Transport and Logistics Fund , I already mentioned about. We have largely seen the redemption pressure on some of the schemes getting reduced, except on ELSS schemes, where we have seen some kind of redemption, which, of course, in general, the industry has also seen some outflow in that category. But ours was a little higher than industry, given the fact that performance is not fully backing from the overall perspective. But the gross sales are generally in the range of about 5.5% to 6% that’s the range. That's something, our endeavour should improve the numbers while overall productivity increases, which we are seeing it happening in the month of Jan , in terms of improving both gross sales and net sales with increased contribution coming from the SIP as a category, which I just mentioned earlier. Also, we're seeing an improvement coming in the month of Jan. And then the last question is on?

About the yield, the fresh versus blended book?

So generally, the sharing on the fresh book is in the range of around 65 percent around. So that will be a little bit lower compared to the stock which we have. The average yield will be in the range of around 69 to 70 basis on the equity side.

Got it. And if I can have a follow -up on the second question, can you give the NFO flow that you got during the quarter?

We collected ~₹ 800 crores.

So even ex of that, you will have a positive net inflow for the quarter, right, on the existing schemes on equity? Is my understanding correct?

Yes.

The next question is from the line of Devesh Agarwal from IIFL Securities. Please go ahead.

Good afternoon, everyone and thank you for the opportunity. Sir, just continuing the yield on the new flows, you mentioned 65 precent is the sharing. Some sense if you can give, as you said, that on the book, we are earning a blended yield of 69 – 70 basis. So, can we consider 55 – 60 basis would be the yield that we have on the new flows?

Yes, it should be around that range, Devesh.

Okay. And sir, is there any possibility of this to improve the yields on the new flows based on the contracts that you have with the distributors? Is there any scope or headroom where we can reduce the payouts to them from, say, 65% to any number? Is that a possibility or very difficult?

So, it will be more in line with the market because it's a very competitive market. So, we will have to be in line with the market and it’s the behaviour based on how the market has behaved. But obviously, as we have been saying that the mix will be the longer the AUM, the sharing may drop. So that may help us a little bit. But otherwise, the sharing will be more market - driven rather than individual scheme.

One of the areas, Devesh, we are trying to build is we already built about a 30 -member team on the direct channel. We are seeing, whenever we can service customer directly, offering our products across PMS and AIF fund and fixed income and equity that we are seeing a pickup in volume. So as that size starts growing continuously may lead to a bit of better margin range protected. Though the overall margins remain the same between the distribution -driven channels and direct channels because anyway, the expense is calculated only after the distribution payouts are calculated. But however, that volume increasing would lead to marginal improvement on the profitability as time progresses. As the volumes starts coming in, we'll see that contribution coming in.

All right, sir. And sir, in terms of your distribution strategy, you did mention that you are focusing on creating direct channels. But at the same time, we also see that you have added almost 10,000 distributors to your MFD network. So, any particular strategy that you can share in terms of which could lead to a higher flow market share for us?

Yes, of course, one, the traditional channel engagement remains our core contribution to the business, which is your banking channels, ND channels and MFD channels. And MFD channel is very large for us. Therefore, one, activating them continuously. Second is reaching out to the emerging market in smaller locations and ensure a c ontribution from MFD increases. We have a separate channel to do that. And third is the verticals that we've created, which is called the virtual RM model and sales to service model. These two combinations, we have set a separate target for both the teams to ensure that we actually bring in higher contribution coming from the channel partners. While doing that, we are also, through our internal brainstorming, we've come out with a strategy called sales excellence model, which is nothing but identifying high-potential people who have been dealing with us for many numbers of years . For some reason, their growth participations may not be up to the expectations. That's something we have put a separate strategy, wherein 80% of AUM come from, say, 20% of the people. How do we ensure that those 20% of people contribute to the success . We brought in a different level of engagement program with the channel partners and showcasing the change that we have brought in the last few months and also the improved performance we are seeing in the equity with respect to the competition as well as respect to the benchmark. That something, we are going aggressive in terms of engagement program, which are my own belief is starts contributing to the overall incremental growth. And last but not the least is the direct channels, which I mentioned about. This, of course, will keep increasing the team size each year so that we are able to calibrate the cost involved nicely and at the same time, build a channel that can contribute to the overall business. And finally, the online channel platforms are purely driven by the performance. I think whoever comes the top three, they get recommended. In fact, I'm happy to share with you in the month of January, three of our funds are figuring in the list of the online channels. It's also leading to a significant increase in purchase volume from the online channels compared to the December quarter. Am assuming this trend continues, then we'll probably see increased participation coming from the online channel partners. Again, we do it with the purpose of engaging with them very closely, looking at their way of looking at fund selection and then see how we are actually figuring in their fund selection processes and therefore ensure that our funds, who are actually coming closer to their recommendation process, we ensure that it comes onboard. And that's something we've been engaging for quite some time. And you have seen the result of that as it stands today.

Yes. I think on an outstanding basis, we have around 7.5% contribution in terms of market share in the online channel. On incremental basis, probably the number would have gone up. So, I don't have the exact number right now , I mean, compared to the last month, this one number, if I have to take up, the number would be up, maybe I can share with you separately.

Sure, sir. And sir, in terms of product, are there any gaps which we are targeting? Or right now, we have a complete product suite and there will be limited opportunities for NFOs?

We have limited option as far as the options of product is concerned. We have filed one product, which is quant-based product. Given the fact that our Head of Equity has got very good capability running these quant-based funds, given his background, that's something which are there in the pipeline. I think once the team is ready, they are actually planning to do one all-day event with the distribution community in Mumbai, it's called Investment Voyage. And post that, we'll launch this product either at the end of March or beginning of April. The product is already approved and in place. And that's something we have seen as a product gap. And other product gaps right now, there is nothing which is being v isualized. We'll probably have more product launches in PMS. We'll have more product launches in passive with smart beta kind of ETFs that we will start, so we're able to charge the higher expenses. And third, we'll have some product launches in the GIFT City. One is building volume in the fund already launched that predominantly invests in Asian equity. And we'll have one or two more product launches for the GIFT City. As far as domestic concerns, we'll have very limited, one or two options could be there. One is already there in pipeline. One or two options, we have to figure out what kind of product that we can launch it as we move forward.

And sir, one final question. Within the categories that we are present, we see that in mid -cap and small caps, which are the categories which have seen a sharp growth over the last 6 to 8 months, our market share is significantly lower than the overall market share. So, any strategy to improve our market share in these categories?

Yes. So, while I'm happy to say that we have seen inflows in our Small Cap Fund and, to some extent, Midcap Fund, but Small Cap Fund has received close to about 5% of the flows for the industry. While that is a case in our fund, but of course, given the momentum t hat we have seen in the industry, huge flows have come in the return. That, of course, we take note of it. But at the same time, having internal capability on the mid- and small caps, there some changes that have happened in the investment team. Of course, some more beefing we'll do on the investment side, getting one external person on the mid-cap side. That's something which is in the pipeline. It is just to ensure that space, where we have internal talent and given the fact that one of the exits that has happened sometime back, we are able fill that vacancy in the mid -cap manager, then it will actually complete the boutique of fund management capability on our side. As a result of that, we are able to build size across all our categories.

Hi good evening, everyone. Sir, first question is again color on the channel. So, if you could provide some color in terms of across different channels, where have you seen maximum redemption pressure? And similarly, in terms of the new inflows that is coming in, is there a specific skew that you're seeing where one or two particular c hannels are driving bulk of the inflows?

So, on the new channel side, the MFD is the one who contributes the higher, then comes the NDs and banks.

See, in picking order, roughly about 5 4% comes from IFAs, MFDs, roughly about 14% will come from NDs, roughly about 12% comes from the banking channels, about 16% come from the direct channel, direct includes RIAs as well. In terms of steady state of flows that come from MFDs first, and then comes in NDs and banks. We're also seeing increased flows. It was not so much in the month of December. But I see it coming in the month of Jan uary, which is the increased flows coming from the RIA channel, which is predominantly the online platforms, which is the digital platform. We have seen an increased volume coming from that. That they can purely on the back of the schemes are being part of the recommendation list, are part of the algorithm that they may use. Some of the funds have been coming in there quite continuously. Of course, we see traction coming in that space. And definitely, I think MFD channel being one of the largest channels for us and the ND channels would be the major driver of the overall growth momentum perspective.

Got it, sir. Sir, I mean, your comment on the January sort of improvement is good to see. But generally, given the changes that you have seen, or you are anticipating in the investment team, do you see any impact of that in terms of how the channel will react to it? Or will there be like a lagged impact of these changes in terms of improvement in flow market share that you'll see maybe going into the next financial year?

I think actually, people have appreciated the changes that have come. I think people have given good feedback on the changes that we have made. And in terms of product recommendation, it remains the same. It's not affected, given the fact that we always have the continu ity factor. Irrespective of the movement of people, we always kept the continu ity factors, one of the big strengths of our AMC, by way of the structure that we have created in the investment side. That has been ensuring that the product recommendation part of the channel partners remains good. Even improvement on the performance that is being seen, also being noted. Therefore, it can only lead to an incremental volume growth coming in. But having said that, I think whenever we see any changes that we're bringing in, the resultant impact of that, it takes about 1 to 2.5 quarters, I can probably see it. Or else that is the normal trend that we are seeing, but giving the push in the market, engaging with people aggressively and warming the market is key to the success. That's something we are currently driving it. While, of course, all these such efforts will lead to improvement in the numbers and so on and so forth, but having now made changes, having created a positive impact and the feeling is also pretty decent from the distribution community, that's something that should result in as we move forward in terms of numbers improving.

Okay, sir. One question for Parag Sir, was any outlook that you can provide on the expense growth for next financial year?

So, expenses mainly will be may be inflation plus something. So, the majority cost for us is on the people side. So, people will be inflation plus something. And any growth on the alternate asset side may lead on increasing fee and commission line but which will be obviously compensated by the top line growth on the income side also. Otherwise, even the admin expenses will remain more or less inflation range only. See, what we are trying to do that, the branch expenses, we are trying to reduce by one ABC branches that may help us to a certain extent.

Got it. And one comment I missed, I think, opening remarks by Bala, sir, did you mention that you hired some senior resource on the distribution side of the business, if you could repeat that, please?

Yes. With the banking experience and also having the experience on both managing HNIs and family offices with the wealth management experience, worked in part of the bank and building retail. That's something we thought that, given the fact that we need to take business to the next level, some bit of rejig that we are doing in terms of taking into account the internal talent and aspirations as well as the external talent that can come and help in building this to the next level. There's been few areas where we need to see the next level of momentum, especially retail. So that is where we have made some adjustments. And the person that come onboard, comes with that experience of building retail and comes from the banking background.

As there are no further questions, I would now like to hand the conference back to the management team for closing comments.

Yes. Thank you everyone for joining. With this, we conclude our Q3 FY'24 earnings call. Do feel free to reach out to our IR Head, Mr. Prakash Bhogale, for any queries that you may have. Thank you.

Thank you very much. On behalf of InCred Equities, that concludes the conference. Thank you for joining us, ladies, and gentlemen. You may now disconnect your lines. This is a transcription and may contain transcription errors. The transcript has been edited for clarity. The Company takes no responsibility for such errors, although an effort has been made to ensure a high level of accuracy. ------------------------------------------------------------------- End ---------------------------------------------------------------------