UTIAMC — 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
Moderator · Conference Operator
Good day and welcome to the UTI Asset Management Company
Thank you very much.
We will now begin the question and answer session.
The first question is from Lakshmi Narayan from ICICI Mutual Fund.
Lakshmi Narayan
The first question is related to your institutional part.
I want to understand what kind of business traction we have seen in the last nine months?
Our debt institutional part had a significant reduction in AUM over FY18 to FY20 and now you have your steadied the ship, I just want to understand what kind of setup, what kind of organizational change has actually happened and what kind of traction you are getting?
That’s my first question.
The second question is regarding UTI international, I see that you have launched a fund but I just want to understand how the growth has panned out?
The third question is that you have X number of folios, I just want to understand how many unique investors do you have and how have the unique investors grown organically over the last three years?
These are my three questions.
Imtaiyazur Rahman
I will take the first two questions and third question Lakshmi, I will tell my colleague Mr. Vinay to answer.
So far as our fixed income team is concerned and how we have dealt with institutional clients, let me just share with you that we reviewed our entire risk management processes.
We have a board level risk management committee which is chaired by Mr. Rajeev Kakar.
Rajeev is an ex-Citibanker and has worked with Temasek; he is an IIT Delhi and IIM Ahmadabad graduate.
We have reviewed our risk management process to the level of each and every operational activity which we do.
We realized that we need to add certain more credit analyst and therefore we have hired three more credit analysts and one very senior credit analyst to review the processes.
We have reviewed each and every portfolio that we have.
We have put in place our plan and risk management processes to ensure that the incidents which happened in the past do not recur.
So far as the institutional clients are concerned, we increased our engagement ever since this situation happened in September, 2018.
We kept on engaging with our each and every institutional client.
I as a CEO of the company took the leadership and we went back and shared with them what are the new ways of investing which we have in our company.
They reposed confidence in us and I am happy to share with you, most of the clients who withdrew from us they have started reinvesting in UTI.
So far as UTI International is concerned, UTI International as you know is a marketing outfit of UTI AMC.
We now have four funds which are very active, other than the Japanese fund with Shinsei Bank of Japan.
Our active fund is our UTI Dynamic Equity Fund which has grown rapidly.
The AUM as of December 2020 is $650 million and we launched this around five years back.
It has got a remarkable track record of performance and it is being managed by Ajay Tyagi.
At the very same time we witnessed a serious outflow in our fixed income fund.
We had $350 million and that came down to almost $50 million.
We faced a serious challenge.
The fund didn’t underperform but because of one of the investment of ILFS, we faced serious challenges and we witnessed redemptions.
However, the launch of ESG fund, balanced fund and the focus on equity fund is helping us to capture the market.
I’m unable to give you any forward- looking statement but we are well in place to capture the European and other international markets.
As far as the unique investors are concerned, may I request my colleague to answer the question.
Sandeep Samsi
As an industry practice Lakshmi, we follow the folios count which is there in the industry and do de-duplication, which is a continuous process that we undertake at UTI.
Wherever we get details of the investors, we update that and we de-duplicate the folios.
As of December, we have 1, 09,30,173 folios with us across which has seen an increase of 15,000 folios from March, 2020, so that is the increase.
During this last quarter, we saw redemption, maturity redemption in two of our Focussed Equity Funds, viz.
Focused Equity IV and V where nearly a lakh of folios went out from UTI.
Imtaiyazur Rahman
Actually, during this NFO of our Small Cap fund, we brought in 87,330 new investors, new folios.
Moderator · Conference Operator
The next question is from Kunal Thanvi from Banyan Tree Advisors.
Kunal Thanvi
I have a few set of questions and since I am a new investor to the company I wanted to understand very basic things.
The first question was on the distribution strategy, can you run us through how, we as a team, after the revamp in the top management have started looking at distribution and what are the key strategies that we have implemented there?
That is point number one.
Second was on our market share In the debt segment I understand we got stuck with some papers and had to off-load them, we had to close the schemes and we relaunched them.
I understand the story behind that but if you look at the equity market share as well, while in last few quarters it has been stable but that stability is on the back of a stellar performance that our funds have seen.
Hence, I wanted to understand if we were to remove the performance part of it, how would our market share look and what is the reason for shedding the market share when we are one of the top quartile in terms of the performance?
That is question number two and third is, I wanted to understand the significant increase in the employee cost.
I understand some part of it is due to the ESOP, can you throw more light on it and by what time we should expect the stabilization in employee cost?
In the last call you had mentioned about retirement of employees, can you also throw some light on what kind of cost saving that will result into?
Imtaiyazur Rahman
I will answer the first two questions and Vinay can help me answer the market share related question.
The question pertaining to employee cost and retirement plan, our CFO Mr. Surojit Saha and Vinay will answer it better.
Let me first take your first question on distribution strategy.
Kunal, as you know, we are distributing across the length and breadth of the country using all lines of distribution.
First of all, our retail channel is very strong, extremely strong.
We are also distributing our products through our branch offices.
We have around 163 to 165 branch offices across the length of the country.
In top 15 cities, our alliances with the top performing IFAs is not very strong.
So, our strategy is to focus that in each city our team - right from the CEO office to the Head of Sales and the Zonal Manager, Regional Manager, will focus first on the top 5 cities and then the top 15 cities and in each city.
We will be focusing on top 25 IFAs, to increase our share of wallet.
I am happy to share with you that UTI team is getting a welcoming response from those IFAs and our traction is increasing.
As you know in the equity side, the industry has witnessed an outflow.
Last quarter the industry saw about INR 43,000 crores of outflow in the equity fund and hybrid fund categories but we have not seen such a drastic outflow.
I believe that so far as the market share is concerned, stability has been put in place.
Also, since our performance is very good, engagement of the fund managers and the sales team including the CEO is very deep with the top 25 distributors in each city.
I am confident that when the industry starts seeing the inflow of equity schemes, our market share will definitely be very significant in those inflows.
As you know, we are strong in the Beyond 15 and Beyond 30 cities particularly, we are doing everything possible to defend our turf there.
Let me also share the strategy part, we have Business Development Associates and they are dedicated to UTI.
We are basically sharpening their skills, reskilling and upskilling them to meet the new generation requirement.
Further we have recently tied up with Bank of Baroda, Punjab National Bank and NJ and we are seeing the traction with all these three big distributors.
In our small cap NFO as many of us know NJ, was not distributing earlier, but they distributed our NFO and as I mentioned in my initial remarks, with Punjab National Bank, our market share is around 19% gross sales and with Bank of Baroda it is around 7% of gross sales.
That is about the Retail.
Let me share with you about Institutional clients.
We have another line of distribution known as Institutional clients.
They are very strong, very good team in four cities.
In the last 3-4 months, we have made a consolidation and we are concentrating only on the top four cities dedicated to the institutional marketing clients, that is Mumbai, Delhi, Bangalore and Chennai.
Rest of the cities we have married and merged with the Retail because a strong team is present in the respective zones and our market share is reasonably high there.
Next important channel is the banks and national distributors.
As you know we are not sponsored by any bank, but I am happy to share with you that our flagship products are empaneled with HDFC bank, Kotak Bank, Axis Bank, Citibank and Standard Chartered Bank.
I had a call with the Citibank team and they are very happy with the way our performance has been and also with the way Vetri and his team is leading the conversation.
I am quite confident that our strategies, distribution strategies, the way we are working, our fund performance, our pricing and our engagement program will definitely help them, help us and help our team to grow our share of wallet with them.
It is a not forward-looking statement, but we have a plan.
We are focusing with the clients in the fixed income space, as we lost market share which you have rightly pointed out.
We have a deep concern and we are working very strongly with those clients and engaging with them.
I have on my roll top 50 clients that I interact with directly.
We are organizing a very sincere and great engagement program that may happen probably in the last week of February or first week of March, we are organizing a seminar for the top clients of our country where we are going to invite very renowned speakers.
We are all out to engage our customers and we are all out to create wealth for our investors which would indeed help us to create the wealth for the stakeholders in UTI AMC.
I will now request my colleague Mr. Surojit Saha to give light on employee cost and Vinay will say what is happening in the next five years about the retirement plan.
Surojit over to you first.
Surojit Saha
Hi Kunal.
In respect of the employee cost, if you see with respect to the last nine-months the increase is primarily because of two reasons that is because of the ESOP expenses which will be there for another next two years.
The total amount was INR 58 crores which has to be apportioned over four years with respect to the period and so in this financial year we will see a maximum hit and in the next two years there will be a proportionate impact on the financials.
Apart from that, we have been telling that on March ‘20 we had our non-managerial settlement taking place and because of that there is a marginal impact on the cost.
Also, we as a growing company are looking to increase our market share and hence we are paying variable pay or bonus to our employees which is why you see an additional impact has come in the balance sheet with our strong performance.
If you compare the nine- months these are the two-three factors which have increased our employee cost and in respect of retirement, we have already told last time that during the next five years from 2020 to 2025 there will be an impact of INR 85 crores, around 250 employees will be retiring - that will be a natural retirement and apart from that we are taking various steps in respect of reducing our employee cost.
Vinay Lakhotia
Kunal just to add on the employee cost over the next four years as we have highlighted in our road shows over 250 employees will be retiring and we see a cumulative savings of roughly around INR 85 crores over a period of next four years and post four years even after considering the replacement for these 250 employees which will be mostly in the form of a management graduates, we see our employee cost to get reduced by around 15% after a period of four years or so.
Hence, we see an annual saving of roughly around INR 65 crores in our employee cost after a period of four years.
Just to touch base upon your question which was on equity and hybrid market share, over the last quarter we have seen our equity and hybrid market share increase by four basis points and year-on-year the increase is 14 basis points.
We believe that performance is just one of the pillars to improve our market share.
We believe that there are four pillars to improve the market share for any of the mutual fund products.
These are product basket availability, performance, pricing and reach.
As far as equity and hybrid funds are concerned, we have virtually all the product in the basket that is available so we are very much on line in there.
In terms of performance, Mr. Rahman has earlier pointed out that 80% of our funds are in quartile 1 and quartile 2.
Three of our flagship funds, UTI Equity Fund, Value Opportunities Fund and Mastershare are among the top performing funds.
In terms of pricing, we do have a slightly comparative advantage as we have told in our earlier con-call as well.
Only one of our fund is in excess of Rs.
15,000 crores category and we have a slightly better advantage as far as pricing is concerned.
In terms of geographical reach, we are covering at least 98% of the pin codes and Mr. Rahman rightly pointed out that we have renewed our tie-up with most of the private sector banks and with PSU banks and our products are empanelled in most of these banks and on the backdrop of these four pillars, we believe that we will continue to increase our market share under the equity and hybrid categories of fund.
Imtaiyazur Rahman
Kunal, on the employee cost I would like to reiterate to you and to all listeners that I as a CEO have a microscopic view on this.
This is an unprecedented period, the pandemic and therefore we are not in a position to take any drastic action at this particular point of time.
As things improve, we will definitely have a strategy to reduce the cost.
Further what are we doing on employee cost?
We are making UTI as a young UTI, we have hired lot of folks from the business school in last two years and we are in the process of hiring almost 80 graduate trainees.
These people will bring in new energy and new vigor in our sales team at a very nominal cost and that will help us now going forward to reduce the cost significantly.
Numbers we have indicated to you, these are the natural separations but other separations may also happen but I can’t tell you at this particular point of time the timing of this.
I can tell you that it is not happening in this quarter, we may review it again in April 2021 in the board meeting.
Thank you Kunal for your questions.
Hope we answered the questions.
Moderator · Conference Operator
The next question is from Ajox Fredericks from B&K Securities.
Ajox Frederick
On the IFA front you mentioned about orienting and focusing on the top 25 IFAs.
What are we doing differently so that those IFAs get aligned to us?
Are we paying extra incentives? that is one.
Two, on the debt side you mentioned that some of the clients who left us have come back to us.
Can you help me with quantifying the number like how many clients have come to us during the year out of the ones who had left, that will be helpful?
Imtaiyazur Rahman
Good question.
On the IFA side what are the different things that we are doing.
One is our communication strategy.
We have revamped our communication strategies with the top IFAs in each city.
We have organized a multiple rounds of conversation between influential IFAs and our fund managers, Vetri, Ankit, Ajay Tyagi, and Swati etc. They are in continuous touch with them so far as equity schemes are concerned.
Aman and his team are continuously in touch with them so far as the fixed income schemes are concerned but above all performance speaks for itself and the performance is really a great catalyst for us to get an appointment from them, to get a welcome from them and that is helping us meaningfully.
Second point is our pricing.
As Vinay has highlighted, we have a better situation than our competitors because our fund size is not very high.
Only one fund has crossed INR 10,000 crores while rest of the flagship schemes are less than INR 10,000 crores and therefore we have some pricing advantage and we are using this pricing advantage with the key distributors, MFDs across the country.
So far as the debt side is concerned, particularly the high yielding schemes, Corporate Bond funds, Short Term Income Fund and Floater Fund etc. I will tell my colleague Mr. Vinay Lakhotia to share with you what type of traction have seen in last 6 months.
As you know for a long period, we had decided not to accept fresh applications, we didn’t close down the schemes, but we increased the exit load and we made the commission zero.
We relaunched the scheme after addressing the issues related to fixed income in the last week of June 2020 and the last two quarters have been great quarters.
Vinay over to you.
Vinay Lakhotia
Ajoy, just to give you some numbers perspective, on a year to date basis for the income fund, we have seen a positive net sales of around INR 800 crores as compared to the last year, year to date December 2019 number wherein we have seen a net redemption in excess of INR 12,500 crores.
Five out of previous six quarters prior to Quarter 3 of FY21 there were redemptions in our fixed income products.
Only post the second quarter, when we relaunched three of our flagship funds, UTI Short Term Income fund, Treasury Advantage fund and Ultra Short Term fund, some green shoots were visible in Quarter two of this particular financial year where we have mobilized net sales which are close to around INR 500 crores and I am happy to share that, that during this particular quarter, Q3FY21, we have mobilized close to around INR 2500 crores of net sales under our fixed income product and gross sale numbers are in excess of around INR 5600 crores.
Moderator · Conference Operator
The next question is from Utsav Gogirwar from Investec.
Utsav Gogirwar
Just couple of data point questions from my side.
What is the absolute ESOP cost for this quarter?
Surojit Saha
Absolute cost of ESOP for these nine months is INR 25 crores.
Utsav Gogirwar
Can you please help with me with the breakup of QAAUM into equity, hybrid, income and liquid, all the sub-segments which you have provided last quarter?
I want this quarter and the last quarter?
Vinay Lakhotia
You want of the last quarter as well?
Utsav Gogirwar
Last quarter we have I need data for Q3FY21 and Q3FY20?
Vinay Lakhotia
The QAAUM for the December quarter is INR 1,65,359 crores.
For equity and hybrid funds it is INR 64,940 crores, ETF is around INR 35,199 crores, income fund is around INR 21,258 crores and liquid fund is roughly around INR 43,962 crores.
On a quarter-on-quarter the growth is roughly around 655 basis points and year-on-year growth is roughly around 524 basis points.
Utsav Gogirwar
Similar numbers for the last year?
Vinay Lakhotia
For December 2019 quarter the QAAUM was INR 1,57,119 crores so from there the AUM has actually grown up by 524 basis points.
I will give you a breakup, equity and hybrid funds for December 2019 quarter was INR 61,043 crores, ETF and index fund were around INR 24,847 crores, income fund INR 23,037 crores and liquid funds INR 48,192 crores.
Totaling up to INR 1,57,119 crores which has increased to 1,65,359 crores for the current quarter.
Moderator · Conference Operator
The next question is from Prayesh Jain from Yes Securities.
Prayesh Jain
First question was on the PFRDA norms change that has been announced recently about raising the cap.
How do you see that benefiting you in terms of higher revenues with regards to the amount of money that you will be able to manage given the reach and second is on the distributors like NJ which is amongst the largest distributor, what is your strategy there with regards to increasing your presence with those distributors?
Imtaiyazur Rahman
I am happy to share with you that our company UTI Retirement Solutions, which manages the fund of PFRDA, has been recently recognized as Best Fund Manager in our country by Asia Asset Management.
PFRDA has floated an RFP and if my memory goes right 22nd of January was the last date of filing the RFP.
We have submitted our RFP and it may not be appropriate for me to disclose the rate which we have quoted but technically we are very sound, our performance is amongst the top two most of the time and it is going to be a very profitable business for us.
This company, as per the new RFP requirement, needs to have a capital adequacy of INR 50 crores.
The current net worth of the company is INR 42 crores and therefore UTI AMC board last night has approved the proposal to infuse further capital so that this company meets the capital adequacy requirement.
Their shares will be issued or will be subscribed by the parent company UTI AMC.
It looks like it is going to be a highly profitable business for us.
As you know we are in this business since 2007, we have established a great track record and that will help us in making a reasonable amount of profit going forward.
So far as NJ is concerned, we have relationships across the country with NJ.
Last week there was a session between Vetri our Head of Equity and Aman with their team.
Our team is continuously engaged with them to organize the training program or the engagement program across the length and breadth of the country and our products are on their platform.
We believe that our active engagement with them, our performance, our track record, our brand will help them also to sell our product and will help us to get a better market share from NJ.
Hope I answered both the questions
Prayesh Jain
Would like to have more detail into the PFRDA scheme, will we need to incur the incremental cost within that new range?
Imtaiyazur Rahman
Not much, we may have to hire couple of more people.
We already have the team in place and I am the Chairman of that particular company.
We may have to hire one of two people.
Otherwise the infrastructure is well in place.
We may have to hire one or two fund managers and research analyst to make the company completely independent.
Otherwise there will not be much cost.
Moderator · Conference Operator
The next question is from Aditya Jain from Citigroup.
Aditya Jain
The AUM breakup that you gave, the QAAUM breakup.
If you could also give us the breakup into equity and hybrid separately for this year and the last year?
Vinay Lakhotia
Equity and Hybrid fund for the current quarter is INR 64,940 crores as compared to INR 61,043 crores for the previous quarter ended December 2019.
Imtaiyazur Rahman
How much is equity and how much the hybrid?
Vinay Lakhotia
We can share that offline with you.
Aditya Jain
On the cost, if I am getting it correctly the consolidated employee expense excluding ESOP have increased from INR 73 crores to INR 91 crores QoQ.
That's a substantial increase, even other than ESOP could you help to understand what all is contributing to this?
Surojit Saha
Aditya, if you see the nine month period the consolidated employee cost has increased from INR 230 crores to INR 305 crores, that’s an increase of INR 75 crores.
The increase is mainly on account of INR 25 crores in respect of amortization of the ESOP costs and INR 12 crores in respect of the non-managerial settlement, which we did in March 2020 and INR 23 crores is on account of higher provisioning with respect to a variable pay, which we think as an investment on the employees in respect of a good performance as well as motivating them for future performance.
The INR 10 crores are in respect of increase in the managerial salary and increase in the actuarial cost.
If you see there was a fall in the interest rate, for last September it was 6.25% while this time actuarial was done on 6%.
So there was an increase in actuarial also.
These together is the main reason for INR 75 crores difference amount.
Imtaiyazur Rahman
It also includes the international cost, other subsidiary cost.
Vinay Lakhotia
Aditya, I can give you the break up for December quarter, equity is INR 43,677 crores and hybrid is INR 21,263 crores.
This is a QAAUM for December2020.
Aditya Jain
On the ESOP part, you said INR 25 crores is for 9MFY21 is it, not for Q3 alone?
Surojit Saha
Yes, for the whole year it should be around INR 30 crores.
Imtaiyazur Rahman
INR 25 crores for the nine months.
Surojit Saha
Yes it's for the nine months, because it goes according to the date, it's not a proportionate type of figure.
Aditya Jain
That bulk of the QoQ increase in cost is due to the variable pay provision, is that?
Surojit Saha
Yes exactly.
Imtaiyazur Rahman
It is an estimate.
I don't know how much will it be.
It all depends upon the year end.
Moderator · Conference Operator
The next question is from Hiten Jain from Invesco.
Hiten Jain
Just taking that question further.
So earlier you said that, the ESOP cost total is INR 58 crores and that is distributed across three years which means that INR 30 crores in FY21 and the remaining will be distributed across two years.
Is that the right understanding?
Surojit Saha
Yes, total is INR 58 crores.
We launched it on 16th December, 2019, so for the March 2020 financials we already had INR 10.5 crores, this year it will be around INR 30 crores.
Hence the balance amount for FY ‘2021- 2022 will be around INR 13 crores while the balance INR 4 crores will come in the next year FY 22-23.
It will be spread over four years, i.e. vesting period.
Hiten Jain
Another clarification on this VRS scheme, I think sir said that you will take a call on that in April right, in the board meeting?
Is that the right understanding?
Imtaiyazur Rahman
Yes
Hiten Jain
Last question from my side, can you speak about your offshore business?
Earlier you had some partnerships with Bank based in Japan where you branded with them, so what is the strategy around the offshore business at this point in time?
Imtaiyazur Rahman
We have a very strong relationship and I hope that the relationship will remain very strong with the Shinsei Bank of Japan.
We have offices in Dubai, London as well as in Singapore.
We are distributing our product and our product is now available in 34 countries across the length and breadth of the globe.
The team is fully motivated, charged and committed to expand our reach across the globe.
Our fund performance is terrific, whether it is the Shinsei India Fund or our ESG fund or our equity funds, great performance and on the back of great performance and a very good team which we have in Singapore and London, I am sure that it will help us in mobilizing more and more business.
On account of Brexit, we are having a strategy meet and discussions.
We may have to open some office in any of the European countries.
We are still deliberating on this.
I don't have a concrete plan at this particular point of time but we may open an office in any of the European countries to ensure that, Brexit does not affect us.
We'll continue to have our office in London this I can assure you, but where we will go, which country, I'm not sure about it at this particular point of time.
It’s under discussion, but we will take this call within 30 days as to which other country we will have one more office.
Hiten Jain
What is the offshore AUM as on the last quarter?
Surojit Saha
It’s INR 21,700 crores.
Moderator · Conference Operator
The next question is from the line of Sahej Mittal form HDFC Securities.
Sahej Mittal
I just want to check what is the amount of GST and other income?
What’s the component?
Can you help me with the third quarter or nine month figure?.
Surojit Saha
It is around INR 4 crores is for the quarter of December 2020 and in the last financial quarter, it was around INR 6 crores.
For nine months ended December 2020 it is INR 21 crores and for the nine months ended December 2019, it is around INR 22 crores.
Moderator · Conference Operator
Thank you, ladies and gentlemen.
Due to time constraints. that was the last question for today.
I would now like to hand the conference over to Imtaiyazur Rahman for closing comments.
Imtaiyazur Rahman
Thank you so much for attending this conference call despite Saturday being the weekend and also the budget is coming.
I would like to assure you, me and my team is fully committed towards enhancing the investors’ value, the stakeholder value and employees value.
I, the chief of UTI AMC take the full responsibility to work hard and ensure that my team works hard to create value for our stakeholders.
Thank you very much.
I need your support to take UTI to its right place.
Thank you very much once again, stay safe and stay healthy.
Thank you.
Moderator · Conference Operator
Thank you.
On behalf of UTI Asset Management Company Limited that concludes this conference.
Thank you for joining us and you may now disconnect your lines.