Nuvama Wealth Management Limited analyst Q&A

Thank you very much. We will now begin the question and answer session. Our first question comes from the line of Manas Agrawal from Bernstein.

I have a couple of questions. I'll start with the relatively easier ones. ECM, there are a couple of large IPOs that are coming. How should we think about our market share on revenue for the year? Are we present -- active in those deals or not? And second, from a regulation perspective , 1st of April, Mutual funds have cut commissions. So what is the impact for the business or the consol from that perspective? On the asset services business, I wanted to just understand. On yield trajectory because I understand yields were elevated and now rates have come down. So you've seen some amount of contraction going ahead? How do we think about that? The last question is on wealth. You talked about a 25% increase in revenue per RM. Is that all AI productivity? Is that including MTM flows, et c., how to think about number of clients per RM in a steady state? Those are the questions?

So let's start with asset services first. I think broadly, when we do the numbers on yield, unless and until we have a client, which becomes extremely large and the ratio of collateral shifts, I think the yield should remain at this level. I don't think the yield will compress because we've seen a decline in the overall interest rates happen and that flow-through has largely happened. Maybe in the next 12 to 15 months Manas, we will see a reverse of this happening. If the inflation stickiness is there because of fuel prices or the war situation being there. And if the Central Bank is forced to increase the rates, then I think we will s ee further upward trend in yields that will play out as and when our deposits get repriced. On ECM side, I think our overall pipeline right now. We have about 40 to 45 live mandates across, largely across ECM and some in advisory. So the pipeline remains healthy. I think Q4 was when things got pushed a bit and which we should see the recovery ha ppen in the coming quarters. And even in advisory, we have certain large deals which are there. Hopefully, we will have a good year in investment banking this year. Fixed income anyway, continues to move at a very, very rapid pace there. On the wealth side, 25% increase in productivity is a combination of actually 2 things. One is the seasoning of the vintage of the RM. If you see last year, less than 1 year cohort was around 40-45%. This year, it's fallen to about 33%. So which means that the RMs of higher vintage have increased in terms of cohort. So that contributes some increase in productivity. And second, of course, the contribution comes from the various initiatives you've taken improving the learnability and improving efficiency of people, which is where AI plays a role. Net new money itself doesn't lead to increase. It's an outcome. It's not the cause. The causes are actually these, net new money and productivity increase is basically the outcome of that.

Understood. Any indication on the mutual fund commission cut impact?

I don't think we will go through that. I mean it's not a topic which got discussed very frankly, internally. So I'm not sure how important it is for us because anyways in IE revenues for us, mutual fund is less than 20%. And the pass -through that happened because whatever initially was proposed and what finally came through and the net margins which we get, I think, is similar to what came through. So there is hardly any impact on us.

Thank you. Our next question comes from the line of Dipanjan Ghosh from Citi.

So 3 questions. First, if I were to think of FY '27. And obviously, there's a lot of geopolitical uncertainty that still persists. Now on that backdrop, if you were to think of the transactional revenues ex of broking majorly in Nuvama Private and maybe t o a certain extent in Nuvama Wealth also. Just wanted to get some sense of the deal pipeline that you envisage or in terms of market activity, what is the sense that you're getting in terms of the transaction revenues? Because FY '26 was a relatively good year for the company on that front. My second question is on the Nuvama Wealth business. Now if I look at the 4Q yields, normally, it tends to be a little bit affected on the managed products and Investment Solutions because of the insurance revenues, but if I look at 4Q to 4Q, I mean the y ields have held up fairly well. Despite the backdrop that one was expecting maybe some moderation post the ITC changes. So just wanted to get some sense of your insurance commissions. I mean, how has that really held up or was it , or was there some upfronting of CAT I, CAT II, AIF led commissions out there? And the third question is on the overall wealth piece. Basically, if you were to look at the new incoming customers that you're getting, maybe more from the perspective of Nuvama Private and to a certain extent, maybe the high-quality customers in Nuvama Wealth. Would this be more from smaller cities, low ticket size, generational wealth or first generation customers or it will be like poaching from erstwhile bank service customers? I mean if you can give some color on the customer quality or demographics out ther e. And I have 2 data keeping questions, which maybe I can ask at the end?

So Dipanjan transactional revenue overall in FY '26 for private, the jump was about 14%. So it was significantly lower than actually the ARR revenue. ARR revenue was 32%. I think if you look at both the businesses and if you look at the decomposition of the transactional revenue for us. Like you said, broking is a large component. And then there is fixed income, which is again a flow business. Which actually improves in times when geopolitics goes through this zone. Third, so I think between these two , if we add in Nuvama Wealth, at least, this would constitute about 90-95% and 5% would be some transactions or deals, and that also, I mean, unlisted for us is reasonably small and hopefully with NSE listing for everybody, it becomes small because we've considerably reduced the exposure to unlisted over the last 2-3 years. It's not a large sum for us. So whatever deals happen, they will happen more in high yield credit transactions where we are co-investing with some fund or in commercial real estate, if any. So those are really not impacted by the geopolitics. For us, actually, except broking, which is more linked to market volumes, rest everything is reasonably insulated and actually works better when the equity markets don't do well. So both for private and wealth, we don't see that as an impact playing throu gh. I think it could only benefit. From a yield perspective, I think right now, the insurance yield impacts have been negligible for us. It has not led to that impact. In fact, the overall volume of insurance growth was also not like historically, we would grow by 50%, 50%. I think it's stabilized more to 25-30%. But the yield impact is not there. Yes, a bit of category two may be higher this year because, again, reason being that if equity markets don't do well, then more money flow will happen in yield -based products, wh ich actually sit in category 2. So there is some amount of first year commission, which is about 30% of the life commission. So about 10% extra is what you make, which can insulate the yield a bit. New customers actually remain the same. I don't think there is any change in demographic -- migration from banks is a continued phenomenon and that will continue to happen. In Nuvama Wealth, beyond Tier 1, Tier 2, actually is 35 -40% of our business. In private still, I would say the top 8 -0 cities constitute about 80 -85%, 15% would be below that because the density of this thing is still lower. I mean there are people there. But if you compare it to, let's say, Mumbai, Delhi, Bangalore, Hyderabad, Chennai, Bangalore, the density of wealth is far, far, far higher. Maybe another 2 -3 years' time that 15 -20% could reach to a 30% level.

Got it. And just 2 data keeping questions. One is for FY '26 and 4Q '26, if you can break up the IB, IE between IB and IE. And the second question is, what would be your distributed mutual funds within the overall cohort of distributed MF, PMS, AIF . I mean whether you put the overall wealth together or private and wealth segregated out there?

About INR8,000 crores to INR9,000 crores.

Sorry, sir, this would be your overall distributed MF, right?

Distributed MF. Yes, a border line INR9,000 to INR10,000, correct.

And if I can give the data on IB, IE.

Thank you. Our next question is from the line of Lalit Mohan Deo from Equirus Securities.

Sir, I have 2 questions. So firstly, if we look at the cost to income ratio for both the wealth segments for FY '26, it's remained around in the range of around 66% to 67%. So how should we look at this number for the next 2 years, incrementally given that we are seeing improvement in the RM productivity as well? And secondly, on the asset services business, if you just do a back of the envelop calculation, it suggests that our cash collateral within the asset under custody, asset under clearing has increased to more than 40% over the last 2 -3 quarters. Just wanted to understand what would have driven those things? Will that be one of the reasons why we are seeing some pickup in the yields also? And just one data keeping question, sir. Like within the MPIS revenue in the Nuvama Wealth segment for full year '26. What would be the split between recurring and the transactional revenues?

So cost to income, just quickly covering that, Nuvama Wealth, we've seen a 130-150 basis points compression this year. And that always will remain, I mean, a toggle between productivity improvement and how much we want to reinvest back in adding capacity because if we get growth I mean we could have spent that entire 150 basis points in adding more RMs, which we chose not to. But I'm saying productivity improvement led growth is 150 basis points in 1 year. In private on the other hand, whatever productivity improvement happened, we reinvested in adding capacity. So this will keep moving. But broadly, like we keep saying over a 3- 4-year period, you can see a 100 basis point reduction every year. Obviously, we can choose to change if we want to add capacity at more aggressive pace because there is growth to be had. When many such players are coming into the market and operating at a loss-making business, I think we don't want to let the field get captured by others. So we will continue to grow. And we will continue to toggle between how much of the productivity gains, which we will reinvest back into adding capacity because that gives us future growth. I think the second question was on the yield of asset services. Yes, the cash component would have gone up. That is the reason why the yield has gone up, and that is because when we launch that large client, their cash component used to be lower given the size of their collateral. That was replaced with large number of smaller clients. So their ratios would be different. As I keep saying, as the client collateral size goes up, your ratio could change and cash would come down. But broadly, you will either be at 70 -30 or 75-25 at a portfolio level. The main trend or the impact on yield going forward could be how the interest rates move if the inflation remains sticky. I you think that there is a 50% upside in, let's say, RBI will hike rates over the next 12 months. Then a flow-through of that will happen in deposit pricing, and we will see the yields go up if that happens. In MPIS, about 60% to 70% would be maybe 60% annuity and 40% transaction.

Thank you. Our next question is from the line of Abhijeet Sakhare from Kotak Securities.

Okay. So this was an industry question, taking the lead from your opening remarks. For incumbents, when we think about the ultra -HNI business, it's obviously a compensation problem, but at the same time, like you say, new entrants do not have a large platform as us. But from a client's point of view, how are they looking at all of these new entrants? Are they starting to kind of giveaway part of the wallet share and that's why the industry is kind of getting more fragmented?

So part of it, I think, will happen. That fragmentation , if you look at wealth management, is a global phenomenon. I mean even if you look at players like maybe UBS and all which are world leaders, they have a 2% market share in the global wealth management AUM. I think India will be more skewed in that sense. There will be maybe 3, 4 large players but there will always be a long tail. And what happens if you have a large platform or a multiproduct platform that you will be able to retain or you will be able to get a significant proportion of the client portfolio because they also don't want to go through the hassle of having multiple advisers unless there is some genuine value add and genuine value-add in client size could be an access to a transaction or access to a product, which, let's say, you cannot provide, but somebody else is providing. Typically, the way industry structure will evolve that large clients will have, let's say, 1 or 2 core wealth managers, where bulk of their portfolio sits. So most of the annuity income and most of the transaction -- large part of the transactional income will sit there. And then there will be smaller players who will have access to some deals, transactions where there will be a long tail. Obviously, in these smaller platforms, also there will be certain exceptional RMs who will move, they will be able to move some relatio nships. There is no question about it. But I think it will be a struggle because every large clients wants a lending line, for example, Abhijit. Now let's say, if you already have a lending line with an institution where your products which are not so easily marginable, AIF, illiquid products, it's difficult for a smaller platform to extend. There are single borrower limits, there are group borrower limits. Then to be able to set up a vehicle offshore to move money. So I mean there are significant number of investments in the platform that will be required to be done, capital investment that will be required to be done for some players to start becoming meaningful in this process. INR10,000 crores, INR20,000 crores, INR30,000 crores AUM, few RMs, a few initial client successes, one-odd unlisted deal, one-off credit transaction. All this will continue to happen and create a lot of noise but on a systematic basis to attract flows, attract people, the kind of platform and infrastructure that is needed to invest and maintain. I find it very difficult to see that all these new incumbents will be able to do it easily.

Got it. That's very helpful. The second question was -- if you could clarify on the point that you made on the GC LC tie-up. How does it play out? And what are the benefits?

So basically, when FPIs are investing globally, there are certain categories of investors, which are like large long -only funds, who then work with large global custodians, which are multi - country presence. So somebody like a State Street or somebody like a Citi will have a multi - country custodian presence, so they will be able to offer their relationships. But somebody like us who is a single country, single currency, custodian does not have appeal for such clients. So how do we counter that? We can counter that by having a strategic tie -up with a global custodian which does not have presence in India. So it adds for them a new service or a new client segment which they can go after. And for us, we get access to clients, which we would otherwise don't have. So this is something which exists globally, and we are aggressively pursuing. So we have 1 or 2 tie ups, which are in the works. Once we are able to close, that'll basically open up a new set of clients, which we were not able to access earlier.

Got it. And just one last data question. In the Ultra HNI business, around 4,500 families that we have, if you could give some further color on what is the distribution in terms of, let's say, more than INR5 crores or INR10 crores relationships?

I think more than INR10 crores, which is -- if you see the vintage and intersection AUM, more than INR10 crores would basically be, I think, the third of the clients which contribute more than 70-75% of the AUM. And this phenomenon is consistent across the top 2 -3 leading players in the market. As per our study of data, families which have spent more than 3 to 4 years, start graduating towards higher AUM per family and then that becomes a larger proportion and rest would be WIP. So I think about one-third to 40% would fall more than INR10 crores.

Thank you. Our next question is from the line of Mohit Mangal from Centrum.

My first question is to the asset management business. Now if I look at '26, we had about INR1,800 crores of net inflows, obviously distorted by public markets now in '27 you have...

INR1,000 crores, net inflows.

INR1,800 crores, right?

Okay. Understood. Now if I look in terms of '27 where your SIF and private credit is expected to be launched -- so I just wanted to know basically how do you see '27? What are the reasonable estimates that we can expect from the segment?

Let's go strategy by strategy. Private equity, we've launched our fourth fund. We are currently sitting at about INR250-INR275 crores. We target to do maybe anywhere between INR1,000 crores to INR1,500 crores. Let's take the conservative side if we end up at INR1,000 crores, 1,200 crores. So that adds up about INR1,000 crores there. Private credit, again, as I said, the launch will be somewhere around H2 and the first fund could target may be INR1,500 crores. Part of it, which will come this year. I can't certainly say how much, but maybe half of it comes this year. Commercial real estate, our next fund also gets launched this year. That would be INR3,000 crores to INR4,000 crores. Again, maybe 30-40% starts coming in this year. And on the SIF and public market side, maybe once we launch and we start seeing the flows happen. Next quarter, we could discuss the numbers. And by that time, maybe the volatility levels of the market also should settle down.

Understood. This is very helpful. My second question is towards the Wealth division. I mean, if I look at the external wealth managers. I think we have added about 1,000 over the last 12 to 15 months. Now we have about 8,000 external wealth managers. And our own RMs are pretty stable at about 1,100. So do you see this kind of business model evolving more towards EWM rather than your own RMs, although I understand the economics kind of remain the same b ut just wanted to understand the business model here?

No, not really. We will grow both and even on RM s. So what has happened in the own RMs right now is that , though the number may look steady. But as I said in my initial remarks that we're doing the process of seniorization. So your individual RM that is going out and the one that is coming in, the one that is coming in we are getting more senior variety, higher fixed pay variety. So even if the productivity level in terms of x times salary. So the way industry looks at productivity is very simple. If I give somebody a salary of INR100, what multiple of that comes in as a revenue. So let's say, if you were having an RM of INR100 and that person was generating 3x, INR300 of revenue. Now we have an RM of INR200, and he is also generating 3x, which is INR600 of revenue. The contribution to the company increases substantially because your other cost per RM do not increase at the same pace. You understood. So that phenomena also adds to productivity and operating leverage.

You don't typically lose lots of AUM because the number of hooks are large. Regret attrition in private maybe a range of 1%, 2%. And in wealth, maybe with maybe 3% to 4%.

Thank you. Our next question is from the line of Saurabh Dhole with Fyers Assets.

I just have 2 questions. First is on your private assets front, what exactly is causing the yields to kind of be so strong? I understand there is a mix component here where transactional assets versus ARR is improving. But is there any other color that you can provide for the yields? That is question number one. The second one is when you look at your ARR composition or ARR share improving to what extent do you think this is happening because some of the transactional assets are moving to ARR?

Actually, for us, the second element has still not started playing out. This is a huge opportunity, which we discuss internally, and we are yet to crack it where we basically have this mechanism of moving transactional to ARR, which will happen in somewhe re around next 12 -15 months because now we have the nondiscretionary PMS, the discretionary PMS, all the enabling vehicles are in place. We need to orient the team and start going out and demonstrating the benefits to the client so that migration will happen. Right now, that's not happening. It's purely business fresh flows that are coming into ARR. Actually, when we look at the yields, the product-wise yields, there is no change. Its basically composition led. So as I said, between 80 basis points to 1% it will range depending on the composition change on a quarter-to-quarter basis. We've looked at it multiple times. There is nothing more to read into that.

So given the fact that ARR is growing much faster than transactional, does it mean that there is more headroom to yields from here?

Actually, our yield which we publish here is only ARR yields. That's not a composite yield.

Thank you. Our next question is from the line of Sanidhya Agarwal from Unicorn Assets.

So first question is on the asset services business. So given the RBI bank guarantee norms would kick in. Do we see any impact on the yields from the services business perspective? And like do we see any changes on the ROCE basis of Nuvama capital employed? Second, so we are seeing on the capital market or asset services combined business. So we are seeing upside in the FPI derivatives turnover on BSE and the HFT contribution in terms of participation on the BSE particularly? So how do we see as a trend for our business going forward, given the incremental client addition that we are also seeing in our book and also on the exchange side, we are seeing a good momentum there? And lastly, just if you could highlight anything -- any updates on the PAG side? That would be all?

So the bank guarantee thing, we've done the incremental borrowing and all. Basically, for us, we did the math that has an impact net of deposit costs of maybe some INR10 crores, INR15 crores a year. So not much should get covered in. In terms of increase in volume, that, of course, will have a positive rub off on the asset services business because if the volumes increase, I'm assuming that the profit pool for players will increase and they will deploy more capital. Deployment of more capital basically means more collateral and therefore, more earnings come to us. On the PAG side, as we have maintained that they've spent about now 5 years with the asset, they have seen reasonable returns at -- and they are a private equity fund. So they will exit at some point in time. Right now, there is no process that is on when ever something happens, I mean, you will also come to know right now it is just as is....

Okay. And impact on ROCE basis we are seeing from the...

Not really. For with INR15 crores, INR20 crores of...

Yes, that would be negligible.

Yes.

Ladies and gentlemen, we have no further questions at this time. I would now like to hand the conference over to the management for closing comments. Over to you.

Thank you. Thank you all for coming again. I think we'll see you again after the end of Q2, hopefully, by then the geopolitical situation would have resolved, and we'll have something to cheer about. Thank you.

Thank you so much.

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