MOTILALOFS — earnings call

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Prepared remarks

Moderator · Conference Operator

Thank you very much.

The first question comes from the line of Sagar Jethwani with Phillip Capital PMS.

Sagar Jethwani - Participant

Congratulations on a good show given the current environment.

Your first question on the Wealth Management segment, your distribution assets and broking assets have increased by 13% and 7%, respectively.

On the other hand, distribution revenues have fallen by 50% YoY.

So, what went wrong here?

Could you please explain?

Navin Agarwal, Group Managing Director: As we've discussed in the Wealth Management business, we had a high base of TBR last year, particularly in the first quarter.

We've highlighted that there will be QoQ volatility in this number.

The subsequent quarters in FY26 were muted as far as TBR is concerned.

Hence, you will see the distribution income tracking back to growth in line with the distribution assets.

Thus, higher share of TBR led by unlisted revenues have caused this decline.

Part of the Private Wealth business decline in Q1FY27 with respect to TBR is also led by the same factor.

The Wealth Management business and the Private Wealth business have had strong growth in the ARR revenues.

Yes.

And in HFC business, the credit costs have seen a sharp increase on a QoQ basis from 10 bps to 1% now.

So, what led to that?

Shalibhadra Shah – CFO: Credit cost overall for FY26 was 0.5% and also our GNPA & NNPA YoY are down.

In Q1, generally 1+ DPD, 30+ DPD, 90+ DPD numbers are marginally up.

Thus, in Q1 numbers, the credit cost is usually higher.

However, it’ll correct during the course of the entire financial year.

Our asset quality has been supreme, because in Q1, last year's GNPA was 1.4%, and currently is at 1.1%.

The delta is only because of the seasonal increase from Q4FY26 to Q1FY27.

And what sort of cost of borrowing reduction can we expect from the rating upgrade?

Shalibhadra Shah – CFO: There are two larger forms of borrowings, one is from the capital markets and other is on the bank side.

On the capital market side, our spreads have come down relative to the AAA players.

Earlier spread was at 75 bps and now it is at about 30-35 bps. Also, our bank borrowings cost has come down if one looks at last 12 months.

Hence, with the recent upgrade from CRISIL we further expect cost to rationalize by 15 to 20 bps over the course of next 12 to 18 months, considering our AA+ rating improvement.

And in the July month, the volatility has again increased.

So, could you comment on how the treasury book performance is as we speak?

Navin Agarwal, Group Managing Director: A lot can change between 24th July (today) and 30th September.

Thus, I would like to reiterate that the long-term compounded growth of treasury book at 40%, led 20% by IRR and the balance led by reinvestments of our operating PAT; this has been going on since March 2014, all the way till June 2026.

We can slice and dice smaller time periods of 5 years, 3 years, etc, and still get similar outcomes.

However, on a month-to-month basis or a week-to-week basis, these things could be quite volatile.

Absolutely.

And we have a strong IPO pipeline going ahead.

So how do we see the capital markets segment performing?

Some thoughts on that for the rest of the year?

Navin Agarwal, Group Managing Director: The pipeline is very strong.

However, this whole West Asia scenario keeps changing and is quite volatile.

Signed mandates very substantial to show a strong growth in revenue on YoY basis.

Also, the business is now reconciled to not having a one clean runway of the whole year, but having pockets of 2 months or 3 months, multiple times in a year, maybe 2 or 3 times in a year to be able to execute this signed mandate pipeline.

I'd like to guide you that mandate pipeline is very strong.

If we get a good window in any quarter, then you will see a lot of execution resulting in a very strong growth.

However, if there's a quarter where there's no such window, then this business would be quite volatile for the whole industry including us.

Hence, FY27 as a whole, we'll witness growth.

However, on a QoQ basis, it really depends on market.

And lastly, the AMC and PWM PAT is up by 45% put together.

Could you please give a split of both these segments?

How much was AMC PAT higher and PWM as well?

Navin Agarwal, Group Managing Director: PWM is flattish, up by 2% due to the lower TBR.

Hence, the growth is led by the Asset Management businesses, which comprise of both the listed equities and the unlisted equities.

I'd just like to highlight that; our average AUM last year was ₹1.57 lakh crores and currently we are tracking at nearly ₹2 lakh crores.

So, the increase in base that is driving very strong growth, coupled with operating leverage.

Also, multiple funds are crossing the 3-year vintage and they're best performing in their category along-with strengthening of SIP book.

So that's a tailwind that will benefit us.

However, importantly, as you may have seen from the Q3FY26, the alternate business in unlisted was also graduated now to having a lot of mature funds and so the accrued variable additional returns has started to build up.

That is showing up in the Q1FY27 nos., but not in the Q1FY26 nos., because the income started kicking in only from Q3FY26.

Hence, that income will be higher this year's quarters on YoY basis, but on QoQ basis it will be stable.

Even the alternate business AUM has grown strongly and the accrued carry income has started kicking in.

All these factors are contributing to this abnormally high growth.

We are hoping high growth will continue, at least for the current year.

Moderator · Conference Operator

The next question comes from the line of Nidhesh with Investec.

Nidhesh Jain - Participant

The first question is on the Wealth Management business.

So there has been a regulatory change on prop trading from 1st of July.

So, how are we seeing the impact of that change on our Wealth Management revenue and trading volumes?

Moderator · Conference Operator

The next question comes from the line of Umang Shah with Kotak Mutual Fund

Umang Shah- Participant

Congrats on a good quarter.

My question is somewhat related to what Nidhesh was asking on the alternates business.

In terms of the carry income booking, so I can see that there are a few funds, both on private equity and real estate side, which are likely to get exited in FY27. So, our carry income assumptions are contingent upon the fact that exits get completed in FY27?

Or if at all, let's say, if there is any delay because of market conditions, then there could be a spill over in FY28?

Navin Agarwal, Group Managing Director: These assumptions have been made on a conservative basis, factoring in delays.

The run rate that I articulated, which is ₹66 crores this quarter, will likely have around similar numbers for all of the quarters of this year and also for the next year.

Shalibhadra Shah – CFO: Also, only around 70% of the fair value has been recognized.

Thus, we are more conservative as remaining is recognized only on realization.

Okay.

Understood.

And from a growth perspective as well, obviously, there are a few exits and there are a few funds in the pipeline as well.

So, on a net basis, we should not see any lumpiness in terms of AUM, right?

I mean we should be able to still deliver reasonable net sales numbers for the year?

Or there is a likelihood that there could be some lumpiness for FY27/FY28?

Navin Agarwal, Group Managing Director: Because of a series of new products that we will launch, the overall income as well as ARR income of the unlisted alternates business on a YoY basis will continue to rise.

Whatever number you've seen last year, this year's number would be higher and the next year, it will be higher than this year because of two reasons o The private credit fund will see the its final closure in the Q2. The commercial credit fund will be launched after that.

And then we have a series of products to be launched even after that.

Hence, the AUMs will keep rising. o For the same product, the subsequent series is always a higher AUM.

So, if there's an outgoing AUM of the previous fund, there will be an incoming AUM, which is larger of the next fund.

And unlike in listed alternates, in unlisted alternates, you book fees or you report fees on the amount raised, not on mark-to-market.

So, we would like to guide that there should be a steady rise in both the fee income as well as the accrued carry income for this business.

Understood.

This is quite helpful.

For the mutual fund business as well, I mean, last few years, we have seen a fair amount of additions in the team as well as on the product side.

How does the product pipeline look over the next 12 to 18 months in terms of new scheme launches?

And also, are there any more additions to the team required?

Or we are pretty much done with people hiring?

Moderator · Conference Operator

The next question comes from the line of Neeraj Toshniwal with UBS.

Neeraj Toshniwal- Participant

Congrats on a good set of numbers.

So, my question first on wealth management.

I think on distribution assets, you've done a good job here steadily increasing the distribution book.

So how should one think about -- the yields have also gone up?

And the lending is obviously increasing across the board for the industry and for you guys.

So how should one think about the distribution piece going forward?

And what are we -- how the mix is changing in that the yields are also improving?

Moderator · Conference Operator

The next question comes from the line of Neha with Abakkus Investment Managers.

Neha- Participant

Most of my questions have been answered.

Just one question on the expenses side.

So, if you could please explain why the employee expenses have increased substantially this quarter.

So QoQ, there's an increase of 16%.

So, is there any one-off that is coming?

Shalibhadra Shah – CFO: QoQ increase relates to the annual performance appraisal cycle, which has been closed and the increment, which is actually effective from 1st of April of this financial year.

So, most of the portion of the increase is on account of the cost increment on the people side.

Navin Agarwal, Group Managing Director: And on a YoY basis, its headcount led.

Okay.

And sir, specifically for the AMC business also, the number has increased almost 2x.

So, is that because of the same reason?

Shalibhadra Shah – CFO: In AMC in Q4FY26, there was a one-time reversal of an ESOP line item due to lapse of options, The current quarter is a normalized cost versus last quarter reversal.

So sequentially to that extent it will look higher when compared with Q4FY26.

Okay.

So, the number that we have seen in Q1 will be the normalized number going forward?

Navin Agarwal, Group Managing Director: Not just for AMC, but also for the group.

Okay.

And sir, just lastly, on the PBT margins.

So, if you can just share some view on where do we see that going forward?

So, I think last year, it was about 52.5%.

So where do we see that?

And if the incremental increase will come, which would be the segments that will drive the expansion going forward?

Shalibhadra Shah – CFO: If we look at historically and our last few years, our margins have been around the range of 50% to 52%.

Q1 of this year is also around 52%.

We expect, historically the margins that we had to sustain over the course of current financial year.

Even the bulk of our costs are variable.

For eg. in our Wealth Management business, about 70% of the costs are variable.

To that extent, the ability to sustain our margins because of the higher portion of variable costs is also strong.

Moderator · Conference Operator

The next question comes from the line of Dipanjan Ghosh with Citigroup.

Dipanjan Ghosh- Participant

The first two questions on the Wealth Management side or the overall wealth piece.

I think in the presentation, you mentioned that the cross-sell ratio is around 18%.

Now there are two parts to this question.

One is I wanted to understand, do you include, let's say, if a customer is doing broking and let's say, MTF utilizing MTF also, do you -- would you include them as a cross-sell?

Or is it like when the customer kind of purchase any distributed products or mutual funds or PMS, then you kind of consider it as cross-sell?

I just wanted to understand the definition.

And second, in terms of this 18%, let's say, going to 20%, 30%, the other way to look at it is probably trying to understand the share of broking revenues from, let's say, the top 20% customers or top 30% customers.

I mean if you can give some color on that so that we can understand how much this 18% can increase to?

The second question is on the MTF book.

I think similar to the industry, you have also witnessed a strong increase in that book.

Just in terms of adoption rates or hit rates amongst your existing customer base, can you give some color and how much this book can further grow in terms of adoption amongst the existing customer base?

So those are the two questions on the wealth side.

Now on the -- I have one question on Capital Markets business, if you can give the IB pipeline over the next 12 months...

Ajay Menon, CEO of Wealth Management MTF is not considered in distribution.

This 18% is without considering MTF.

We only consider asset products, which are being sold as part of the distribution network.

Regarding the MTF book growth.

It's in the line of industry growth.

The potential to grow for us is much higher because we have been always into this advisory led HNI business with focus on high-quality clients where our ARPU has always been higher.

We see that there's a good scope to penetrate further in the MTF book at an overall level and that this can be a good growth potential going forward.

Any one small follow-up.

Any quantification on the current hit rate amongst your existing cash customer base from an MTF perspective?

I mean, how much of your cash customers would be utilizing MTF for the product?

Ajay Menon, CEO of Wealth Management I don't have this number immediately, but we can share it.

I think it will be around in the range of 15%.

Shalibhadra Shah – CFO: Also, on the MTF side, we have very healthy yields and spreads because our cost of fund trajectory and our overall low leverage, gives us more delta in the P&L.

While book has grown 54% YoY and the average book has also started catching up, which would result in a delta on the absolute NII growth.

Got it.

Fair enough.

On the Capital Markets business, any color on the pipeline for IB revenues over the next 12 months now that primary markets are kind of improving a little bit?

Navin Agarwal, Group Managing Director: Basically, the signed mandate pipeline is quite strong.

This quarter, we reported a strong growth as well.

Markets have been quite volatile because of the West Asian scenario.

If we get few windows of deals happening, then I think our segment pipeline is quite substantial for us to be clocking revenues.

There's a high probability that we should show a reasonable growth in this business on a YoY basis.

But if deals are not happening, then it's all contingent on execution, and not contingent on pipeline.

Pipeline is there.

Fair enough.

Just two small questions on the Private Wealth business.

One is if I look at your recurring assets on the Private Wealth business, it looks like the closing AUM is meaningfully higher than the average AUM.

I mean, compared to even the industry numbers for AUMs of mutual fund industry or something like that as a proxy.

So, is it like the flows were more back-ended?

Or is it a function of the asset mix in that particular distribution and recurring basket?

Some color on that would be useful, the divergence between closing AUM and average AUM on the recurring side.

And second, in the Private Wealth also loan book is growing quite fast.

I mean we don't get color on the book, whether it's MTF, LAPs, ESOP financing.

So yes, some color on that would also be helpful.

Ashish Shanker, CEO of Private Wealth: In Private Wealth business there is a breakup of custody assets, ARR as well as TBR assets.

The ARR assets have been going up quite steadily.

Sometimes when we get a transfer in our DP or some promoter assets, the overall AUM tends to get bumped up.

But the ARR AUMs are steadier in nature and sequentially, they've been going up gradually.

Shalibhadra Shah – CFO: Closing AUM on the ARR side is up 40% and the average AUM is up 36% which is largely in line.

So, it isn’t back-ended Navin Agarwal, Group Managing Director: But the absolute number itself is strong because the base is still small.

We've added a lot of RMs.

They are getting productive.

We would like to see this number continuing to grow strongly at similar rates in the future also.

Sure, the loan book mix in the Private Wealth business?

Ashish Shanker, CEO of Private Wealth: This would be all related to LAS & MTF meaningfully.

Very under-indexed if you compare ourselves with the other private wealth players.

It's a very, very tiny book as of now.

So, the headroom to grow is there and hence, NII forming a part of the recurring revenue base to be greater.

That is something that you should see happening over the next 2 to 3 years.

Moderator · Conference Operator

The next question comes from the line of Mohit Mangal with Centrum.

Mohit Mangal- Participant

My first question is specifically towards the private wealth management.

I think we have seen a steady growth in net flows.

So, two questions over there that first is basically, have you seen any increase in the wallet size of existing clients?

And second is, if you can throw some colour on basically the net flows of existing versus new clients, that would be helpful.

Ashish Shanker, CEO of Private Wealth: If you see even the wallet size per customer has steadily moved up, we are now closer to ₹25 crores.

And even the AUM per banker is now closer to ₹550 crores.

Thus, that number has steadily moved up.

Also, the flows from newer customers in any year would be around 20% and 80% is basically deepening from existing customers.

Yes, yes.

So, my second question is towards the RM count.

So, we have seen about 25% increase in the overall RM to 441.

And you also said that the productivity has also improved for RMs.

So, are we going to go that aggressive on hiring RMs?

Or are we going to slow down on that?

Navin Agarwal, Group Managing Director: Last year, obviously, there was a meaningful step up.

This year, the composition of RM additions will be fewer in numbers, but much higher in cost, targeted at the family offices.

Thus, the cost increase will continue to be there, but headcount increase will be lesser in FY27 compared to FY26.

Understood.

My last question is basically on the breakeven.

So, I just wanted to know basically a typical RM, how much time does it take to breakeven?

And do you also face any attrition issues in that aspect?

Ashish Shanker, CEO of Private Wealth: Typically, bankers at an aggregate level, breakeven around 2 to 3 years.

However, what we are seeing, which is quite encouraging, is some of the senior bankers that we are hiring are breaking even much faster.

I guess that's also the function of the kind of platform that we have because the platform enables the bankers to breakeven much faster than what normally happens.

Moderator · Conference Operator

The next question comes from the line of Saket Mehrotra with Tusk Investments.

Saket Mehrotra- Participant

I have a question on your data book.

See, for Private Wealth this quarter, we are reporting ₹157 crores as ARR and the distribution is ₹110 crores.

And last year, it was ARR was ₹111 crores and distribution was ₹166 crores.

So, I'm just trying to understand what is the bridge between the two would be very helpful to understand that.

Shalibhadra Shah – CFO: Yes.

The bridge between the two is actually the net interest income on the lending book of ₹4,200 crores.

And NII earned on that is the bridge because NII is also part of the ARR.

Okay.

So, your net interest income this quarter was ₹91 crores.

Yes.

So, you're saying some part of that is ARR and some part is transactional?

Shalibhadra Shah – CFO: The entire Net Interest Income is ARR.

There is no transactional in it.

Okay.

So, within distribution, there is some element of transaction?

Shalibhadra Shah – CFO: Yes, That's right.

Okay.

The second question I have is in your AMC reporting, there's a line on variable additional returns.

How does one read into it?

Is this the carried interest of your AIF investments or -- I'm sorry, like I'm not aware of how this number should be read.

So, could you just help me understand that?

Navin Agarwal, Group Managing Director: This is not pertaining to the listed equities AIF.

This is pertaining to the private equity, unlisted equities, Residential credit and going forward private credit will also have.

So, this is a globally accepted practice followed by Blackstone and everybody else.

As funds mature, they start kicking in.

It started kicking in for us from Q3FY26.

It will gradually rise as Shali explained earlier that we consider only 70% of the fair value while reporting this number.

So, there's a buffer.

We've reported ₹66 crores this quarter.

We expect around similar numbers for the next 3 quarters and a higher number for the next year.

Thus, this is consistent and stable that you will see.

Okay.

And this is a part of your ARR?

Shalibhadra Shah – CFO: Yes, that's a part of ARR.

Moderator · Conference Operator

Ladies and gentlemen, that was the last question for today.

I would now like to hand the conference over to Mr. Shalibhadra Shah for the closing remarks.

Shalibhadra Shah – CFO: On behalf of Motilal Oswal Financial Services, I would like to thank every participant for attending the Q1 FY27 conference call.

In case if there are any further questions, please do get in touch with our Investor Relations desk.

Thank you, and have a good day.

Thank you, sir.

Ladies and gentlemen, on behalf of Motilal Oswal Financial Services, that concludes this conference call.

Thank you for joining us, and you may now disconnect your lines.

Please contact [identifier removed] for any queries.

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