360ONE — earnings call
The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.
Prepared remarks
− Mr. Mohit Mangal: · − Okay, and any guidance in terms of the NBFC book, it is pretty much stagnant, so just
− Okay, fine.
Now moving to NBFC, we saw that the capital employed increased from around 1130 odd crores to around 1230 crores, just wanted to know as to why we are increasing the capital employed in the NBFC business.
− Okay, and any guidance in terms of the NBFC book, it is pretty much stagnant, so just wanted to know a little bit on that front.
− Perfect, my last question is more generalized one.
So I just wanted to understand how a junior RM in your company is groomed.
Is he given a specific training or a senior RM shares some kind of portfolio with him, just wanted to get a sense as to how a junior RM is groomed in the company.
− Perfect, that's all from my side, all the best.
Questions and answers
− Thank you, Anil. · − Good afternoon to everyone on the call today. It has been a good quarter for us at IIFL
− Good afternoon to everyone on the call today.
It has been a good quarter for us at IIFL Wealth & Asset Management.
Momentum remains strong and we have been able to focus on growth, on executing well on our critical strategic initiatives and also initiating new ones, as we look to sustain the performance and continue our delivery on growth as well as shareholder value.
Most importantly I think we are proud of being able to support our clients with advice, product innovation and the required agility as they and we together with them navigate the current environment. − Let me start with a brief overview on the financial performance of the company for the quarter ended June 30th, 2021.
At the outset quarter 1 has been a quarter of key milestones for us.
We have seen our highest quarterly revenues, highest profit after tax as well as highest quarterly net flows in the history of the company.
In addition, I think importantly we have also hit our targeted 20% tangible ROE. − Some specific financial numbers - On the Assets under Management side, our overall AUM increased 14% quarter on quarter and 33% over the last year to 2.35 lakh crores with custody assets our AUM stands at 8.3 lakh crores.
I think importantly our ARR assets increased 15% over the last quarter and over 60% over the last year to Rs.
1.17 lakh crores.
With this the share of ARR assets in our total AUM stands at 50%, a critical milestone in our journey towards the recurring revenue model.
Net flows have been extremely strong as well at over 14,000 crores with growth seen across both wealth management with 9700 crores net flows as well as asset management which saw 4600 crores of net flows.
Even excluding flows from corporate treasuries Wealth Management saw very healthy 4500 crores of net flows.
While our loan book has marginally decreased to about 3350 crores, revenues have strengthened due to significant focus of the team to lower our cost of borrowings by 40-50 bps. − On the revenue and retention side our total revenues for this quarter increased by 27% year on year, and 6% over last quarter to 304 crores while our revenue from operations was up 43% over the last year and 7% over the last quarter to Rs.
283 crores.
Within revenues it is important to highlight that our recurring revenues have increased 20% quarter on quarter and 50% over the last 12 months, to 119 crores.
Share of ARR is at 67% for the first time, another critical milestone in our journey.
Also, the growth on ARR revenues has come both from the wealth management and the asset management businesses.
Both the businesses have seen about 20% recurring revenue growth in the last quarter. − On the retention side, while total retentions have largely been steady reducing by 2 bps to 55 bps on an aggregate basis, retention on ARR assets have held strong with an increase of 4 basis points over the last quarter to 71 bps. − On the expense side, our total expense for the quarter remained flat at about 153 crores, of this total employee cost increased by 4% while administrative and other expenses were down 8% over the last quarter.
This is again in line with our strategic focus on hiring and retaining the right teams in wealth as well as asset management, while sharpening our spends on administrative and marketing and other expense heads.
Accordingly, our overall cost to income ratio decreased from 53% to 50.4% for the quarter, and we expect it to sustain at the 50 to 51% level for this financial year. − On the profitability side, the operating profits increased 15% quarter on quarter and 90% over the last year, to 130 crores.
And we achieved our highest ever quarterly PAT at 119 crores, an increase of 16% over the last quarter and 42% over the last 12 months. − Here I think it is important to highlight once again the tangible ROE - which is ROE excluding goodwill and intangibles, has increased to 20% for the quarter from 17.3% in the last quarter and 12.6% a year ago – another critical milestone for us again demonstrating the continued focus on driving capital efficiency.
We remain on track in our journey towards 20% absolute ROE going into FY23. As a further mark of our focus on capital efficiency and shareholder value, we have announced a special dividend of Rs.
35 this quarter.
Our guidance on an annual payout of 75 to 80% of our annual PAT as dividend still holds. − Moving on from the specific financials, we want to share 3 key highlights across on our business front, I think firstly and very importantly at the beginning of, all of you are aware, at the beginning of 2019 we took a bold decision to transform our business model from a transactional revenue orientation to a sustainable recurring revenue based model.
And we have been speaking about it pretty much every quarter thereon.
We were the first wealth management company to initiate and attempt such an ambitious transformation in India and in many ways, this allowed us to be better prepared for many of the regulatory as well as industry changes that have happened since then.
When we initiated the journey the split between our recurring revenue or what we call ARR assets and our transactional or TBR assets was 35 to 65, 35% being the ARR AUM share, and our revenue mix between recurring revenues and transactional revenues was 40 to 60%, 40% again being the recurring revenue nature.
Today we are 27 months into this journey and our AUM split between ARR and TBR assets is equal at 50:50, and our revenue mix between recurring revenues and transactional revenues is at 67% to 33% which is very much in line with our guidance of getting to approximately 70 to 75% of revenues being ARR in nature by the end of FY22 which should be 36 months into our entire transformation journey.
Also, to highlight over the last 5 quarters about 36,000 crores or 96% of our net flows have been ARR in nature.
And we expect this momentum to continue going forward as well. − Secondly, again important to speak about IIFL-One, our momentum and focus remains very strong on IIFL-One covering advisory and our PMS both the DPMS and NDPMS propositions.
Under IIFL-One we have seen healthy growth in assets, we have crossed the 30,000-crore mark as far as AUM is concerned in this particular quarter.
The proposition continues to gain acceptance across clients and the broader industry, and we continue to sharpen our propositions very clearly to remain the market leaders in this space. − Couple of points specifically to highlight.
One on retentions, our retentions in IIFL-One has seen an improvement of 5 basis points to 33 basis points with our DPMS offering tending towards 50 bps for the quarter.
This is again in line with our expectations of IIFL-One overall yielding 40 plus bps in steady state.
The second is, I think, we continue to invest in the right sales product and advisory teams, hiring as well as up skilling of our existing teams to meet emerging client as well as industry requirements. − The third aspect of our business that I just want to highlight is our alternate focused asset management business which continues to go from strength to strength with AUM doubling over the last quarter to 44000 crores.
As we had stated earlier our focus here remains on 5 to 6 key strategies that we believe can scale to upwards of 2 to 3 billion dollars each in the medium term.
Momentum remains strong from each of our client segments, institutions, family offices and HNIs and retention continue to be strong at approximately 70 basis points.
This is also an area where we are investing significantly in each of our investment strategy teams to support the growth aspirations that we have highlighted above. − Very quickly covering two specific strategic focus areas for us, one, as you would recall we had highlighted our focus on the cost side as well as capital efficiencies.
Our focused efforts on reducing cost continues to show benefits as you can see from the lower cost to income ratio for the quarter.
It is important to highlight that we remain sharp and selective in our spends with certain spends actually going up, specifically in the areas of digital and technology, balanced with other spends where we are able to tighten and sharpen our spends space. − The second area which is a big strategic thrust for us is digital and technology, it continues to be a big investment area for us across all aspects of our business from comprehensively reimagining our client and banker journeys with the new age lens to deploying technology to drive operational efficiencies and greater integration even with our external service providers.
We continue to also explore digital first approaches to drive future growth. − With that, that summarizes our financials as well as some of our strategic thrust areas.
And with that I would like hand it over to Karan to take us into the Q&A.
Over to you, Karan, thanks. − Host: − Thank you, Karan, for joining us now.
May I remind you please tap on the raised hand icon in case you wish to ask a question, kindly introduce yourself and your firm and then proceed to ask your question.
We will give it a minute for the questions to line up.
The first question is from the line of Mr. Mohit Mangal, kindly introduce your firm and proceed with your question.
− Mr. Mohit Mangal: · − Okay, and any guidance in terms of the NBFC book, it is pretty much stagnant, so just
− Thanks for the opportunity, and congratulations on a good set of numbers.
My first question is that this quarter we saw the company earning a carry income of around 13 million which although small but was recorded for the first time in last two years.
So just wanted to know as to what schemes or strategies did help in this carry income, and how do we see this going forward in the coming quarters.