Nuvama Wealth Management Limited analyst Q&A

Thank you very much. The first question is from the line of Vivek Ramakrishnan from DSP Mutual Funds. Please go ahead.

Congratulations on a very good quarter, and there was a rating upgrade in the quarter also, which is excellent. What I wanted to ask you was on , whether there is any client concentration in revenues? Is there any top 5 clients account for a significant proportion of your revenues or profitability? And if so, if you can give us a number, that will be nothing like it. If so, what are you doing to reduce this concentration? That's my only question.

So, Vivek, we have multiple lines of businesses. If I were to aggregate everything and then look at top 5 clients, I think it will not even be more than 5-10%. If I look at specific businesses, then it could change because top 5 clients of each business may have different types of contribution to each of those businesses' revenues and profitability. But what we continuously keep seeing is that whether the top 5 is constant or they keep changing. And in most businesses, except maybe the domestic part of our institutional equities business, which is largely dominated by domestic mutual funds and where the revenues are driven by the size of the mutual funds, I think in most of the businesses, the composition of top 5 keeps changing.

Yes, I needed it on a consolidated basis and your answer is completely okay. Wish you good luck.

The next question is from the line of Naresh Naiker from Systematix Shares.

Sir, given the recent developments on Jane Street till date, can you please elaborate on the potential impact we may have on Asset Management business and the market share? Approximate what kind of revenue and earnings impact we can see going forward?

Not Asset Management, Naresh, Asset Services. Yes. So , I think Jane Street was one of the clients which have right now not resumed and they may post their engagement with the regulator, may resume any time because regulator has given them a go ahead to resume. But having said that, even if we assume 0 revenue from the day, let's say, the regulator gave out the notice to them, on a full year basis in Asset Services, we will still end up getting a reasonable amount of growth, maybe early double-digit kind of a growth. Had they been there, it could have been more like late teens. This could be more early teens. There would be some impact in Q2. But given the run rate which we are seeing both from our existing clients ramping up their balances and the new client pipeline, which we have, by maybe end of October or middle of November, we will come back to the same levels where we were assuming Jane Street is 0. So on a full year basis, we will still end up with a decent amount of growth.

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

Sir, two questions. So , one on the Asset Services itself. So in this particular quarter, we have seen some 17% decline in the AUM. what led to that? And also the retentions are like high. Earlier, we were guiding like the retentions on a steady-state basis should be around 1.8%, so is this the new normal?

Lalit, sorry, I'm cutting you because last time when we actually discussed on this, I had mentioned 2 things. One, that till Q3 of last year, in our Asset Services business, we also had a representation of our Wealth Management business clearing activity happening there, which we shifted to what we said was self-clearing. When we shifted to self-clearing, we pointed out that the yields will now go up because that was a slightly lower yield business. And in our view, depending on where market interest rates are, we should be more around 1.95% to maybe 2.3%-2.4% range over a period of time. That is point number one. So, yield on a steady-state basis in line with market interest rates should be in this range. And maybe this year, it may be slightly higher also from 2.1%. Second, again, last quarter, I had mentioned that in the clearing assets, there is a composition of cash and noncash or cash and G -Sec. And depending on the client size, depending on what trading volumes they do on the equity -- on the derivative side, these compositions can change. And maybe when the reduction happens, let's say, when you said reduction in the AUM has happened, the earning assets can still go up within that, which is the cash component. And last point is that don't look at quarter end, end of period. You should ideally look at the averages because end of period may not be a full reflection of how people deploy their money. There are trades for which collateral comes and then goes away. So average is the right reflection, which you should see within which there are moving parts on cash, noncash. So that's why you see even if the AUM has gone down, the yield has gone up and the income fall is barely anything. It's from INR198 crores to INR193 crores.

Right, sir. Secondly, could you also break up the cost between the asset services and IB & IE business.

So we've always maintained that overall cost to income there, let's say, is about 40%. Asset Services operates anywhere between 30-33% and IE, IB is 50%-plus percent range. So you can do a math and arrive at a rough blend.

Sure, sir. and sir, just lastly, on data -- so in this particular quarter, we have seen an increase in the overall debt for ourselves. So what would be that related to, like the net debt?

So about INR1,000 crores of net debt has been added, INR500 crores, if you see is the loan book increase. And about INR300 crores is the working capital, which is payable/receivable difference. Balance is client facilitation trade and some margin at the exchange. So it's split between these 3-4 items. 50% has gone to, let's say, loan book increase, about 30% is working capital increase.

The next question is from the line of Vikram Raghavan from Moon Capital.

Congratulations on a good set of numbers. I wanted to ask if the current run rate of operating margin is sustainable.

So broadly, if you see, in our wealth cluster, the cost to income between the 2 put together is order of magnitude, say, 67%. And in capital markets, it's maybe lower at around 40 -45%. Though wealth will go down by the end of the year because in Private, where we ended at 69%. On a full year basis, our assessment is that we should end at 65% with growth cost embedded. And Wealth, which is Nuvama Wealth, which is at 66%. That will also be maybe 100 basis points lower. So that reduction will happen. And maybe there could be a slight increase in the capital markets side. So, if you aggregate both, we should end up at the same level.

The next question is from the line of Abhijeet Sakhare from Kotak Securities.

Abhijeet, this is not like the regular KFintech and CAMS, which basically services the large mutual funds. This would be mostly for our custody clients, which is PMSs and AIFs because there, we feel that they need a one -stop shop. Most of the new ones which start out, they need the trustee, they need the RTA. A nd some of our peers have started it, and it has helped them get better market share in new registrations. When new AIFs and new PMSs come, if you can offer them a one-stop proposition, then your market share in that base increases. So we've actually been working on this for the last 1.5 years and evaluating on whether we can partner or we should build. Finally, we concluded that it's best built. And we have seen a demonstration of it in one of our peers, and it has helped them in rea sonable gain of market share. So I think it will be reasonably accretive to the overall business. And costs are not much in this.

Understood. And sir, second one is that if I go back to the Nuvama Wealth business, I don't know if you clarified this, but the fall in MPIS revenues sequentially, if you could point out what's causing that?

Largely Q4, Abhijeet, has heavy insurance. So that is the only thing. So if you see -- I can give you the specifics about INR27 -28 crores insurance has fallen, and rest of the streams have gone up by INR17-18 crores. So there's a INR10 crores movement there. So that catch-up will happen as you move to Q2, Q3, Q4 because Q1 is the weakest in insurance and Q4 is the strongest in insurance.

Okay. And then again, within this, I'm guessing like the managed product part of it is more trail driven and investment solutions is where you'll have something like debt placements and insurance sales?

Yes.

So then in that context, first, the breakup between these 2 segments? And then how does this move in line with the net flow number that we kind of report on a quarterly basis?

So managed products if you look at it from a revenue color perspective, 3 products, which is AIF, PMS and MF. The only nuance is within AIF where a CAT II and a CAT III pays us differently. In a CAT II, you earn slightly higher in the first year and then it falls down, the trail falls down, and CAT III is full uniform. So depending on the salience of sales in a quarter, that component could slightly move up or down in both Private and Wealth. So that's how it moves. I think overall sales, if I look at the INR2,900 crores, about 77-78% is net new money and about 23% is your investment solutions. But the right way to look at investment solutions is actually gross sales because you earn, like you rightly said, right, on the transaction. So there will be some fixed income, which will get redeemed during the quarter and people will roll or buy fresh. So net new money is only a reflection for, let's say, the trail products, which is your Managed Products. And Investment Solutions revenue is a combination of gross sales, I mean, which is the net plus whatever rollover has happened.

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

So basically, my first question is in terms of the Private business. So we saw that the number of clients increasing from around 4,250 to around 4,400 plus. Can you tell me how many of these have an AUM of more than INR25 crores?

See, overall, if you see about 1/3 of our clients have AUM of more than INR10 crores. And I think if I remember correctly, I'll have to look at the number. I think more than 50 -60% have INR5 crores. Now AUM with us is a different concept versus the potential of the client. If you are asking whether each of these clients have a potential to invest INR25 crores plus, the answer is yes. Most of them would have a potential to invest INR100 crores plus. But you will appreciate and understand that the AUM builds over a period of time. It takes 2 -3 years for it to build. Maybe the first transaction can be a INR1 crores transaction, a INR2 crores transaction, but the client can be a INR500-crores guy? So whenever we onboard a client, what we need to ensure that whether the potential of the client is above INR25 crores, and if that is your question, the answer is 100% of those clients will be more than INR25 crores.

Understood. No, that is helpful. Now my second question is in terms of the net flows in the Private division. So what we saw is that we saw a very big steep decline in that. And I assume we saw in one of the quarters in '25 also, the number was insignifica nt, and we saw it will be bouncing back. So do you want to give any guidance in terms of flows in the Private division?

So broad math, if you want to use, it will range between 25% to 30% of the opening ARR assets. And if you see the opening ARR assets, it would be order of magnitude of INR42,000-43,000 crores. So if you take a 25 -30%, so anywhere between INR11,000-12,000 crores is where we land. There could be quarters where it could be slightly higher, and there could be quarters where it could be slightly lower. What happened last year was in Q1, there was a large inflow because we had acquired one of the investment banking clients who had sold their business to a private equity, that entire flow came in the first quarter, which itself was some INR2,000-2,500 crores. So the total net inflow was, I think, INR4,800 crores, out of which 50% was this one client, which was 17 families, I mean, 17 different accounts. Now that whichever quarter it comes, it will just jack up. But if you remove that and see, then it's fairly uniform in that sense. And sequentially also, it has moved up over Q4.

Understood. No, that is helpful. My last question is on the Asset Services. I think you broadly told different scenarios and growth. But do you think that this division is kind of being very clouded by the regulatory thing and maybe tomorrow, more and more such companies come into the radar, we can have variations in the revenue. So if you can just give us something that is this kind of a little concentrated to the top clients? Or how does this division work, that would be very helpful.

So broadly, you have to break Asset Services into 2 units. One is international clients and second is domestic clients. And if you look at our overall revenue stream, I think depending on which quarter we are talking about, between 70-75% comes from international and 25-30% comes from domestic. Domestic is fully granular. It's spread across a large number of PMSs and AIFs through which we earn. So now coming to international. International, the set of clients which we have would be more than 150-200, and they are at different stages of evolution. Out of that, 50-60 will be very large internationally, and they continue to test their strategies in India and whichever strategy works, then they start to increase their exposure. I think this incident which has happened will be helpful for the market because I don't know which direction it will go because it's right now under regulatory subjudice, so I can't comment much, but it is between the client and the regulator, interactions are happening, and it will take its own course. But I think from a signalling perspective, others will be more careful. So it will be a more inclusive market. What we've heard from most of the other proprietary traders or HFTs, both in domestic and international side that now the profit pool has expanded and is available to a larger number of players. So yes, people will be tentative as to what the regulator will say. But as long as they are careful in how they are deploying their strategies, I don't see a problem. However, having said that, we should also be mindful that derivatives in general is a topic which bothers regulators because of the losses, which retail segment makes. Now on that, I mean, your guess is as good as mine as to what is going to happen. But in my view, as long as there is derivative trading that is happening, you will see market makers, you will see liquidity providers, you will see proprietary funds, you wi ll see hedge funds, high - frequency trading funds because all these also add to giving volume to the market, which help your regular long -only hedgers, arbitrage funds also to operate. If they go away, I mean, the depth of the market will completely collapse.

Understood. But I think my question was that we don't have any concentration of top 5 or top 10 clients, right, in this division.

That's what I said, no. So it keeps changing. If I look at my book today, maybe in the international business, the top 10 would contribute 30-35%. But that is the nature of the business. At any point in time, it will always remain like that. But it's not like top 5 is 90% of the business.

Ashish, this movement of assets from asset clearing to self -clearing in wealth, how much it impacted the overall AUM at the asset clearing?

INR10,000 crores.

Okay. INR10,000 crores. And I'm assuming that was meaningfully low yield, and that's the reason why the yield bumped up in...

Yield went up. Yes, yes.

Okay, okay. Got it. And second thing with asset clearing, I just want to check is on the deposit, RBI being on the path of doing rate cuts? And if it remains for a little longer period, like 12 -18 months or 18-24 months, then is it fair to say this 2.1% yield what you're trying to guide will hold up or it could come off or you have measures like extra cash taking to keep it at the 2.1% kind of a number?

So I think we could see if, let's say, there is a further fall from here of interest rates of maybe another 30-50 basis points across the yield curve, then maybe this 2.1% can fall to 2% because we also have laddered maturity. And like you said, we will increase the cash component and so on and so forth. So it doesn't fully go because this is a combination of Gsec and cash. So full doesn't translate to us.

Got it. Got it. Got it. And two more questions, sorry. One, just wanted to check is that last year in IB, we had a lumpy deal. So, on overall, it looks minus 10 percentage. So just wanted to segregate the growth into IE and IB, point number one, for the quarter. And second, given Jane Street impact is there in IE, too. In your view, how you see IE growth to play out? Or you think this IPO pipeline coming back can still help you to report at least flattish kind of a trend in the full year?

So if I take IE plus IB and I take Q1 over Q4, so let's say, there is a jump of revenue of some maybe INR18-20 crores, largely has come from IB and mostly from the fixed income side because you know that on the ECM side, it was reasonably dry in the first quarter, and IE was largely flattish in Q1. I don't think if, let's say, the Jane Street impact on IE, if we run the analysis and we look at the scenarios and let's say, if what you said, if the ECM activity picks up, then maybe we will go through a INR15 -20 crores PAT impact for the full year. And if it doesn't pick up, maybe slightly higher. But this is assuming reasonably low volume growth on the IE side. If the markets were to recover and if some volume comes back, then I think a part of it will be made over.

Understood. Understood. And one more, on the cost, I just wanted to check. See, the other opex on a sequential basis has come down on non -employee cost. So anything to read there because we reported INR126 crores in fourth quarter and it's INR105 crores in Q1. Year-on-year also, it looks a little muted compared to the top line growth, relatively lower. So just wanted to understand how it will trend out going ahead.

So if you remember, Sanketh, last quarter when we did the call, we clearly pointed out that there is a INR15-20 crores extra in Q4, and there were multiple items like we did the CNBC deal, so there was a payout on that and charging on that. All our offsites got bunched. Our institutional equity conference happened. And I clearly mentioned that in next year, again, Q1 to Q4, we will have INR105-110 crores per quarter kind of an opex range and which is where we should end up at. So these were largely Q4 related items, which don't happen in Q1. So that is the fall which you have seen.

Okay. Then Q4, again, it should go back to that INR125-130 crores level in the current year?

This year, we will not have the CNBC and some of the expenses. So full year basis, you can basically take a 7-8% jump over the last full year.

Got it. Got it. Perfect. Perfect. And lastly, on net flow guidance, which you told last time will be around INR19,000-20,000 crores. So we should assume that number you will be confidently delivering given we are at INR5,000 crores of ARR flow in the current quarter?

Looks like because if I take, let's say, about INR32,000-33,000 crores of assets in MPIS in Wealth and take about 30% of that. So that should give INR7,000-8,000 crores and Private should give another INR12,000 crores. So INR19,000-20,000 crores looks at this point in time, reasonably confident that we should be able to deliver.

The next question is from the line of Shyam Sampat from MSA Capital Partners.

I just have one question. I wanted to ask if you can give some color on our view on the SIF and when do we start applying for it?

So we've already applied for the license for MF because we don't have MF license and only MFs can do SIFs. Our first round of SEBI inspection has happened. And so it is basically progressing. So as and when we get the license, I don't know how much time it will take, maybe a quarter or maybe 4 -5 months. Because from a strategy perspective, from the team perspective, from performance track record, everything is in place. The day we get the license after that, whatever logistics is required to file the scheme, get the approval is the time that wil l be taken, and we will be up and running.

The next question is from the line of Ashish Agarwal from Oaklane Capital.

I have a question. So overall, there is an expectation that wealth management industry will grow from here given there are tailwinds. So based on what I understand is that overall pie should definitely expand from here. But there are more players coming in, which means that there will be more pieces of the pie. So how are larger players like Nuvama placed? And if the market share gain happens for these players, like players like Nuvama and other players, will it happen at the cost of unorganized players or how it will be going forward?

I think largely, you hit the nail on the head. So there are 2 things. One, the size of the pie grows, I don't think people are really able to comprehend how big it will become. I mean in the last 2 years, if you see, the MF asset book has grown by 50%. INR50 lakh crores has become INR75 lakh crores. That is order of magnitude, INR25 lakh crores, right? And now on this, when it starts compounding, the effect will be huge. Similarly, if you take PMS, AIF, if you take each component and just compound it at 10 -12% and then calculate the pie and then look at the penetration today, the formal penetration of all of us, all of us put together is not more than 15%. If that doubles in the next 10 years, I think the overall size grows by 8x to 9x. So in my view, everyone who is currently operating, in the next 10 years, their market share will actually fall, but they would have still grown by 20 -25% compounded for 10 years because newer players are needed. The size will become very, very large.

Sir, that is there. I agree, sir. The pie will definitely expand for all players. But someone will lose market share, right? So who is that?

The unorganized, which is your insurance agents, the sub-brokers and the IFAs because they are monoline products. So for a particular client segment, which is a certain threshold and above, and as Tier 2, Tier 3, Tier 4 start becoming more and more mainstr eam, you will see that they will either move or fold into the larger players who will be aggregators in some sense and give a multiproduct platform, but they will cede market share to the more organized players.

The next question is from the line of Vedant Sarda from Nirmal Bang Securities Pvt Ltd.

Can you please tell like what kind of bottom line is currently contributed from the clients who are deploying derivative strategy?

For us, in our wealth management side, our total broking revenue, if you take in a year, is about order of magnitude INR240 crores. In that, about 40% comes from F&O, 60% comes from cash. So maybe INR100 crores of revenue comes from F&O for us.

These include like the clients like Jane Street?

No, no, no. That is institutional equity. So there, about another, let's say, INR180-200 crores would come from F&O on the institutional side.

The next question is from the line of Manoj from Kivah.

As you said, we can grow 20 -25% of the industry for the next 10 years. Can I assume we are also aiming for the same for our net profits for the next couple of years?

And so even whatever everybody is trying to ask and not ask in the straight way, even with that, we can aim or aspire for the similar 20% growth as we've done in the past for the next couple of years as well, sir?

So that event can have a bearing on this year, maybe to some extent, so it will not impact Wealth Management, Asset Management, or Investment Banking at all. So they will grow at the pace - - and Wealth Management, both the businesses, I think, will grow faster than what we grew last year. Asset Management also will be faster. The only area that impacts is Asset Services where, again, basis the scenario analysis, which we have done, we will end up with growth and not negative. So that leaves only one line item, which is Institutional Equity, where we will see some impact, where I mentioned about maybe INR15 -16 crores of PAT impact in the current year. Once the base is set, then you again start growing.

I think things are looking great, sir. So no impact on the news we've been hearing about a private equity deal. So the current scenario should not impact that as well, those talks...

I mean, we don't get involved in that because that is a shareholder matter. And if anything happens, I mean, you would also come to know, I'll also come to know the same time. So I mean, I have nothing more to add on that. Whenever it happens, it happens. But that has no bearing on the company performance or the growth prospect, the way we see it.

Ladies and gentlemen, due to time constraints, we would take that as the last question for the day. And I now hand the conference over to the management for closing comments.

Thank you. I think it was a reasonably engaging session. Thank you once again for taking time out. We'll look forward to meeting all of you again in quarter 2. Thank you, moderator.

Thank you. On behalf of Nuvama Wealth Management, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.