Aditya Birla Sun Life Amc Ltd

NSE:ABSLAMC

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Aditya Birla Sun Life Asset Management Company Limited Q4 FY '23 Earnings Conference Call hosted by InCred Equities. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Jignesh Shial from Incred Equities. Thank you, and over to you, sir.

[Jignesh Shial, analyst]

Yes. Thank you, [ Nirav ], and good afternoon, everyone. On behalf of Incred Equities, I welcome all to Aditya Birla Sun Life Asset Management Company Limited conference call to discuss the financial results of Q4 of FY '23. We have along with us Mr. A. Balasubramanian, Managing Director and CEO; Parag Joglekar, Chief Financial Officer; and Mr. Prakash Bhogale, Head of Investor Relations. On behalf of Incred Equities, we are thankful to the management for allowing us this opportunity.

I would now like to hand it over to Mr. A. Balasubramanian, Managing Director and CEO of Aditya Birla Sun Life Asset Management Company Limited. Over to you, sir.

[A. Balasubramanian, executive]

Yes. Thank you for introduction. Good evening to everyone. I hope you all had the opportunity to go through the earnings presentation, which is available on the stock exchange on our website. Let me quickly begin giving the outlook on economy and the major industry and [indiscernible] update [indiscernible] performance for the quarter ending Q4.

The global economy and our own belief is continues to remain uncertain and the recent developments in the financial markets of advanced economies on [indiscernible] sentiment, high inflation, financial tightening, [indiscernible] monetary policy. We expect to limit the global growth. Certain banks worldwide led by referral reserves have shifted away from the ways to accommodative monetary policy and rise interest rates to go inflation level. And this move has prompted investors and businesses and market to reevaluate and adjust their expectations accordingly.

The collapse of a couple of banks, I relate to a turmoil in the banking systems and also advance economies, [indiscernible] financial condition, but the effective measures by respective policymakers have largely helped containing its impact.

The Indian economy, as you know, has remained resilient, supporting global uncertainty and headwinds. India's real GDP is expected to grow about 7%. And India is a growth impulse have also been supportive by way of using of supply chain and rebound economy activities.

Easing inflationary pressures in March '23 is the positive sign as driven by the softening of food and cold inflation, which help to a 6-month low. India's financial system has remained strong, led by robust banking industry, adding further stability to the domestic economy.

We've also seen robust tax collections in the GST, taking about [indiscernible] crore. As a result of that, the annual collection for the full year, including direct tax collections, [indiscernible] 60%. Definitely, of course, putting the India's tax collection at robust level.

As a result of the higher tax collection, the government of India borrowing program is also being held going by the next year borrowing program has been already announced and well within the [indiscernible] limit and putting less pressure on the interest rates further momentum. RBI Forex reserves have gradually started increasing.

Now it's back to about [ Rs 578 billion ] as of March 31, 2023, is again a good sign and current account deficits have also narrowed to 2.2% from 3.7% in Q2 on account of lower merchandise rate and deficit and robust growth in service and exports, higher post development.

The development factors at the oil prices, global financial certainty an Indian monsoon season need to be considered to ascertain the future trajectory of the domestic economy as we speak. Economy is interestingly better placed mainly because of its lines on domestic demand drivers. The consumer sentiment index points to a continued recovery. And going ahead, decreased 3 growth drivers are likely to be continuously uptick on consumer sentiment and green shoots in rural recovery and commodity prices relaxing of the previous highs.

In the mean time, we believe that most of the risks are priced in, and there is not much downside in the market as expected. With valuation having got normalized, the market now should start tracking the earnings growth as we move forward.

With respect to the major fund industry, during the quarter, the Indian major industry witnessed flattish growth with the quarterly average asset management staying close to about INR 40.4 lakh crores as of March 31, 2023. In FY '23, the [indiscernible] industry witnessed major growth with inflows across various equity and index schemes.

The industry [indiscernible] grew from [indiscernible] crores as of March 2022 to [ INR 127.6 ] crores in March '23, indicating growth of about 16%. And during the year, the total -- [indiscernible] launched and raising a total of about INR 600 crores between the fixed income and equity in [indiscernible] .

As of March 31, 2023, the total number of [ major minister ] stood at [ INR 14.75 crores ], an increase of 12% year-on-year compared to [ INR 7.12 crores ] crores as of March 31, 2022. In industry national witnessed, net equity sales of [ INR 410 ] crores in Q4 '23, through new fund offerings and existing funds.

And within the existing funds, broadly the inflows have been seen in thematic category smaller mid cap and mid-cap or large cap categories, a little bit on the larger mid-cap categories that have seen inflows during the quarter. The increase in number of retail investor is also reflected in higher digital average AUM, which grew about 12% in year-on-year, contribute 40% total monthly average of AUM.

The mutual fund average AUM for March 2023 from B-30 cities also accounted for [indiscernible] remain again constant. At the same time, 40% coming from individuals and retail need to be taken into account. They fall in the institutional AUM throughout the same period.

The new asset registrations were around INR 65 lakh in Q4 FY '23. And the total number of SIP accounts as of March 31, 2023 to INR 6.36 crores. Over the past few months, the tax amendment and the anticipated regulatory changes don't impact on the mutual fund industry. And despite this, we believe that this asset class [indiscernible] will continue to remain relevant as owners alternate to a [indiscernible] for most of the investors who are looking for [indiscernible] allocation between equity and fixed income. And that we believe that will remain even going forward.

And coming to Aditya Birla AMC performance, our total average assets under management, including alternate assets for Q4 FY '23 stood at INR 2.86 lakh crores for the quarter ending March 2023, our mutual fund AUM was at [ INR 2.75 ] lakh crores remain flattish compared to Q3 of INR 4.28 lakh crores [indiscernible]. The equity mutual fund AUM remained more flat about INR 1 lakh 600 crores for the quarter ending March '23, with the overall equity mix at about 42%.

As part of the strategy for customer attraction, we added about [ 6.7 ] lakh folios in FY '23 [indiscernible] overall full year count, increasing to about INR 80.3 lakh folios full year as of March 2023. Throughout the year, we launched several initiatives ended increasing the size of our SIP book and including turbo STP, through portfolio investing and purchase SIP, targeting midsized corporate employees. And these efforts have resulted in a marginal improvement in making our SIP book to cross INR 1,000 crores, which again will sell chart up our own expectations. However, it across the milestone of INR 1,000 crores.

Our multichannel market initiatives aimed at deepening our presence. I will let the positive results, actual relations manager model has activated over 2,000 distributors and to compare our distributors onboarding initiatives panel close to about 9,000 distributors in the period.

Regarding the overall asset mix between retail and institutional customers, retail wise asset today account for abut 40% of our assets as of March 2023. As part of our overall strategy, we are also focusing on building the retail portion in both retail and B-30 market with increased contribution coming from B-30 we today stands at [indiscernible].

Our passive product offering grew by about 3x to about [ INR 2,800 crores to INR 2,200 crores ] as on March '23. Our existing passive [indiscernible] has also grown to over 41 products, and we have around 7 products in the pipeline. And overall customer base has got added in the passive category is close to about 4 lakhs 96,000 thousand folios we added to the passive category, which we believe can be used for the purpose of cross-selling of the other products as well.

On the PMS and AIF front, we have raised the commitment to the INR 7.34 crores is the first ever AIF, that we launched in the equity space and the name of India Equity Service Fund under Category 3, leveraging our multi-channel distribution footprint, we currently about INR 7.34 crores, again beginning of our building, AIF success story. We also received a semi clearance for another 3 more teams. This we hope to launch in the current financial year.

Regarding our offshore business. Though the overall asset management and offshore remained flat, we also received in-principal approval from the international financial services, which is GIFT city, for launching India ESG Engagement Fund domiciled in GIFT city.

Additionally, we are also currently in the process of launching 2 the global funds in the GIFT City for getting money -- for raising money in India domestic and global market as well as the more some of our overseas assets up soon in order to cut our cost and offer some financial response fund management services from the GIFT city self.

On the real estate front, we have successfully deploying the first investment for the Aditya Birla Real Estate Credit opportunities fund . And we are the process of doing modules of more such deals. And initial focus now has been more to create performance factor [ card ] [indiscernible] more funds in the coming years.

Now just quickly move on to the financial numbers before opening up for Q&A session. Q4 FY '23 revenue from operation is at INR 2,97 crores versus INR 314 crores in the year -- Q3 of FY '23.

Q4 FY '23 operating profit before tax stood at INR 149 crores versus INR 174 crores in Q3 FY '23. For the year ending March 2023, revenue from operations is at INR 1,027 crores as compared to INR 1,290 crores. Our operating profit before tax in FY '23 is at [ INR 607 crores ] as compared to around [indiscernible] crores in FY '22.

We're also happy to announce that the Board has proposed INR 5.25 crores per share dividend as a final dividend for FY '23. With this, total dividend declared this year per share about INR 10.25 per share.

And with this, I'd like to conclude and open the floor for any questions that you may have.

[Operator]

[Operator Instructions]

The first question is from the line of Devesh Agarwal from IIFL Securities.

[Devesh Agarwal, analyst]

Good afternoon, sir. Thank you for the opportunity. My first question is, sir, in the equity segment, although you did sell multiple things that you're doing to get the market share an increase AUM. But still, we've been losing market share. So if you can give us some sense, which are the segments or particularly which investor category are we losing market share?

[A. Balasubramanian, executive]

Devesh, thanks for this question. As far the equity is concerned, of course, our endeavor has been to one, the stop the leakages, at the same time, improve the overall momentum in the equity in terms of improving the market share. You see, we have collected close to INR 1,500 crores in the quarter of last quarter through the launch of multi allocation fund, but again, reflects the ability to actually raise funds and improve overall market share.

And second is SIP is another route through which we continuously put effort to increase the overall market share in equity. But the segment in which -- where we have seen the somewhat lower participation is in the S&I category. We have seen lowest participation in the last 1 or 2 years, especially equity sales, which we believe that we need to catch up.

Second is the category in which we are losing assets are those assets that we have seen the performance-related issues, which has witnessed in the last 1.5, 2 years in 2, 3 categories of real assets and few other categories in the equity sales, where we have seen somewhat outflow. With the change of primary responsibility in the last 6 months to 1 year, we are saying those funds now getting stabilized and coming back in terms of coming closer to the benchmark as well as coming closer to the peer group on the near-term basis.

As we see that improvement coming in, we should see those asset classes which remain relevant, and we should see the flows coming back. But as I speak today, more than losing, I think the lack of participation in the -- whatever the growth that is coming in, in the industry, which I think in sales for the whole year would have been somewhere in the range about [ INR 79 crores to INR 89 ] crores. Then the participations being saying is the one, which are leading to the market share line rather than other redemptions coming actually losing market share.

[Devesh Agarwal, analyst]

Understood, sir. And sir, if you see on the distribution side, again, I'm talking about the equity assets. We see that the share of banking channel has been going down in last 1 year, it has come down by 200 basis points. So is this a decline that we are seeing across bank or there are selected banks where our sales have slowed down?

[A. Balasubramanian, executive]

In the case of banking channels, because we have all the banking channels, whether it is the lead bank, leading banks, the private sector banks, whether HDFC, Axis, we have only seen a marginal improvement in terms of other participations, especially channels like Axis, we have seen increased participation coming in SIP's, including HDFC Bank. And these assets, largely in the -- some of these foreign banks use to get significant market share such as Citibank, with the general reduction in the mutual fund flows, and we used to enjoy very high market share from time anywhere between 14%, 16% and our market share.

We have seen a marginal dispatch. Again, I don't see a big dip. Of course, some of the banking cannot go by product recommendations. In fact, some of our products, which is not part of the recommendations temporarily would have seen a lesser participation coming from that channel compared to the other one selling would have happened.

To the extent, I would say, the shareholder. Otherwise, if we look at historically, our market share is about 48% to 50% from IFA's sales, roughly about 20% from banking channels and roughly about 20% to 24% coming on [indiscernible].

And direct channel is another channel where general flows also coming in where we have seen a flat growth in the direct channel as well. I think these are the combination of things I would say is the dynamics rather than single channel not giving infos or something.

[Devesh Agarwal, analyst]

Okay. And lastly, sir, if we see that over the last 2 years, although the share of equity has gone up in the overall mix, our yields have remained under pressure there would be some generic reasons for those. But other than that, specifically, I wanted to understand how has the distributors payout intensity change for you between say FY '21 and '23?

[A. Balasubramanian, executive]

I have Parag to answer that once again.

[Parag Joglekar, executive]

Yes. So Devesh, the distributor payout on an overall basis, as a general principle remains that we share in the range of around 65% of our overall DTR, that continues. But as we -- as you know and we have been mentioning earlier also, whenever there are NFOs generally in the first year of NFO, the payout is slightly higher than 65%.

There are 2 reasons. One is that there is a B-30 brokerage, which is there, and there are some additional payout which happened in the first year, which has had the impact of a slightly higher sharing other the normal thing. So that is the only change. Otherwise, some of the NFOs which have happened and just elevated the cost a little bit. But otherwise, on the normal BAU sales, it remains in the range of around 65%.

[Operator]

[Operator Instructions] The next question is from the line of Lalit Deo from Equirus Securities.

[Lalit Deo, analyst]

So the first question is, again, on the market share. So we have seen some improvement in our market share despite that in the [indiscernible]...

[Operator]

Lalit, sorry to interrupt you, but your audio is not very clear. May I request to speak through the handset?

[Lalit Deo, analyst]

Yes. Is this audible?

[Operator]

It is audible, but the voice is not clear.

[Lalit Deo, analyst]

Wait a second. Hello?

[Operator]

Go ahead.

[Lalit Deo, analyst]

Yes. And sir, sir, my question was on the market share. So like in terms of -- in the quarter, we have seen some improvement in our SIP market share but in terms of AUM market share, that is not being [indiscernible] and we have been losing markets there. So I just wanted to understand, in the lump-sum flows, we have seen some major dip. So what could be the reason for the sale take as we alluded to that part? And also, given that we have been done -- we are looking to launch funds in the PMS and AIF categories, for in FY '24, so like how is the OpEx trajectory look for us in the coming 2 years?

[A. Balasubramanian, executive]

The market share loss is largely on account of 1 or 2 categories in which flows have come, is what I mentioned in my speech as well, which is essentially smaller mid-cap sales and AIF category and large and mid-cap say that. .

These are the 3 spaces predominantly be close outcome for the industry. In fact, our flows in these 3 categories, except we have got money in the small and mid-cap fund, in the same period. Whereas other schemes do not get as much as flows, which normally get every year.

So to the extent our market share loss was on account of flows coming in, we saw an outflow in a few of those themes. And whatever the flows that came in, the big category like small cap, our flow was relatively lower than the industry. These are the primary reason, but these flows in the industry also come through the combination of lump-sum and SIPs. And then SIP flows in the environment capital so literally have than what we historically have seen. Therefore to the extent our deserving participations are left, which again, I would attribute to the reason I just mentioned earlier, which is what currently we have probably reversing it, which I think should help us in the next few quarters -- as we got those two to get back on track.

As far as AFI thing concers. The current things, one, we have planned lining up of product is one which are just -- we'll be closing it in the month of April. We're we plan two more AIF this financial year, both in equity and net income.

In terms of team strength that we already have to add 1%, we will add one with the long shot kind of capability. As the equity is concerned, we may add 1% on the credit side for launch of our credit funds. Otherwise, we don't see a significant addition in terms of adding people. That's the only main part that we have.

And that's the OpEx with respect to the AIF would not be anything significant, except people may have to just go for a travel to promote and protect that, which I call it as a business as region.

[Lalit Deo, analyst]

Sure, sir. And sir, on the yield side, could you highlight the difference between the stock yields on a stock basis, and the flows which we are getting, like on an overall segment particularly in equities?

[Parag Joglekar, executive]

Basically, as you know, the stock is a little lower on the sharing basis and the new money which comes that's slightly higher, which is in the range of around 65%. So the yield on the stock is higher than the yield on the new flows which is coming.

I don't have a handy number on the differentiation, but that is the case. And over maybe in the next couple of years, that will get merged. The differentiation between both of them is not very significantly -- there will be some differentiation, but that will merge over maybe next 2, 3 years period in time.

[Lalit Deo, analyst]

Sure, sir. And sir, just one data question. Can you say the SIP AUM book as of March '23? The overall SIP area.

[Parag Joglekar, executive]

51,203.

[Operator]

[Operator Instructions]

The next question is from the line of Prayesh Jain from Motilal Oswal.

[Prayesh Jain, analyst]

Just a few questions from my side. Firstly, could you give us the yield what you would have made in FY '23 on equity and debt, liquid and ETF's. Some ballpark [indiscernible]?

[A. Balasubramanian, executive]

Yes. I'll have Parag to [indiscernible].

[Parag Joglekar, executive]

So equity, more or less, is in the range of around 74-odd basis, absolute thing. On debt, debt is in the range of around 25 to 26 basis, 25-odd basis. And on liquidity in the range of around 12 basis.

[Prayesh Jain, analyst]

Okay. That's helpful. Apart from that, if I look at your expenses in this quarter, other expenses in particular, they were higher both on a sequential basis as well on a Y-o-Y basis. What was the reason for that?

[Parag Joglekar, executive]

So the main reason which has contributed to the higher expenses for this quarter is under MFO which we launched in the current quarter, the multi-asset allocation fund, which is actually we spent some of the amount of marketing and sales promotion of that MFO, which has contributed mainly for that. Other than that, there are some of the other infrastructure expenses like we open some of the new branches and all. So that has slightly gone up. Other than that, there are normal regular expenses generally in the last quarter are slightly higher than the other quarters on traveling, business promotion or any other spend on marketing. So that is the expenses which has come up.

[Prayesh Jain, analyst]

And how should we think about the expenses from a next year perspective, like what kind of growth do you envisage in expenses, both on employees and product costs and expenses. Also, you could throw some light as to about how much of the cost of staff trend was on the upfront and how do you see it in FY '24?

[Parag Joglekar, executive]

Generally, we are looking at expenses to be in line, growing below the overall AUM growth, which we will have in next year, that is the intention. Generally, it will be in the range of the inflation plus some uptake on employee cost which we will look at it. Even on the administration side similarly on the rentals or any other expenses which we may have. If there are any depreciation on rupee dollar that may have an impact on the escalation, especially on the technology side that may have a little bit impact on the overall expenses because we are highly dependent on these technology platforms and technology service providers. So that is on the expense side we are looking at.

[Prayesh Jain, analyst]

Employee cost, sir?

[Parag Joglekar, executive]

So is of plan generally it is going down because it's 40, 30, 20, 10, that is the generally hit, which we get on the ESOPs plan. Currently, this year, it was around INR 30-odd crores. So we can see some drop in the next year on the ESOPs side.

[A. Balasubramanian, executive]

These employee things have -- while we have more or less only in place with [indiscernible] further only could come in terms of employee addition, more to strengthening the team, especially on the expense side as well as on the sales and alternate investment side, which again, I guess that there will be, of course, some composition will also come in a form of realigning the response of the presence on the fourth.

But I don't see a significant increase as far as the employee is cost concern. But of course, annual increment that will normally count anywhere in an around 7% to 8% to that extent one can expect that.

[Prayesh Jain, analyst]

Okay. Okay. And Bala sir , like while there are more regulations that are out yet at some point of time, JB is going to give some clarity on what the TR's are gonna to be, what quarter going to be TR. What are your thoughts in the sense of how are you guys preparing for this?

And what will be kind of sharing mechanism this time around that would kind of -- and also on this in case the broking is kind of subsumed into the [indiscernible] what could be the strategy of [indiscernible], how would that kind of payout?

[A. Balasubramanian, executive]

The way is on, it is still under discussion stage with SBI. While most of the expect announcements have already been appearing in the [indiscernible], I presume 40%, 50% of that -- those expectations would come. And from a business point of view, our overall vision to be scale players that remains is not going to be taken away as a result of this.

And second is ensuring our product positioning, investment performance is a key for us while we are seeing improvement, but we're still more work to do, which we are currently driving that. And third is in order to increase our retail penetration, while we have been predominantly working with the B2B model, at the same time, we are stepping up our engagement in terms of direct customer connected, both through the sales as well as RVs.

And that's something we are putting in place to ensure that direct customers connect in at the top 10 markets improved quite significantly, therefore, help in building our AUMs.

And the fourth, we also identified a few more areas which could support the retail sales, which we call it as a [ PR ] model. So,, far [indiscernible] model used to be used only for the activation of IFAs. We are moving away from activation to the converting into sales. So very active IFAs are activated IFAs contribute to the success. That's something we are -- we basically are granular to ensure that we build up the overall contribution to IFA.

And energy market where we are seeing a significant into a [indiscernible] credit us about 2, 3 years back. Once again, we are stepping up our focus in terms of increasing the penetration on the [indiscernible] footprint. As far as the distribution led the economic model, I'm sure that will evolve depending upon how the NPL the new [indiscernible] factor is going to evolve.

Again, I would assume the way we currently have 65% 35% kind of model that we have. I would assume we'll have to stick to the similar kind of model to ensure when we are able to maintain some discipline. At the same time, ensure growth comes at the same time, we're able to maintain the profitability. It may not be necessarily in terms of absolute number, at least on the basis point level. That's something we will work on it.

But again, Prayesh, we have to play it as it comes too early to at this point of time. At the same time, since we broadly know that what I think would come unless we start preparing ourselves, as I just mentioned, including [indiscernible], we have been a very good active player on the MA side.

So give us an experience to be prepared for some portion of the trades could go through the market at the same time. We also believe that intermediation cannot be completely remote event from an euity point of view. Therefore, we have to do a look at the mix and mix up both the models there. But that's something we will play it as we come closer.

[Operator]

[Operator Instructions]

As there are no further questions, I will now hand the conference over to the management for closing comments.

[A. Balasubramanian, executive]

Thank you. Thank you very much, ladies and gentlemen, for tuning in. And this we conclude our Q4 FY '23 earnings call. And do feel free to reach out to Prakash Bhogale for any inquiries you may have. And all of you have nice, long weekend, and thank you.

[Operator]

Thank you very much. On behalf of Incred Equities, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.