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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to the Anand Rathi Wealth Limited Q1 FY '23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Feroze Azeez. Thank you, and over to you, sir.
Good evening, and thank you, everyone, for joining the earnings conference call for the quarter ended June 30, 2022. Along with me, I have Mr. Jugal Mantri, Group Financial Officer; our CFO, Mr. Rajesh Bhutara; Mr. Chethan Shenoy, Director and Head, Product and Research; Vishal Sanghavi, Head IR; and the SGA team our Investor Relations advisers.
We are one of the leading nonbank wealth solution company in India and closely work with HNIs and ultra HNIs to meet their financial goals and objectives. We facilitate their investments in financial instruments using our well researched solutions. Our performance during the last few years has helped our satisfied clients to achieve their objectives. AUM of our flagship business, Private Wealth, is INR 32,142 crores as on June 30, 2022. Our strong performance for Q1 FY '23 was backed by addition of new clients and strong net flows. Despite challenging equity capital market scenario, our net flows for the quarter stood at INR 1,355 crores, which grew by nearly 400% as compared to the same period last year. We have 7,400 plus satisfied client families, of which 58% are with us for more than 3 years and account for 77% of our AUM. The share of equity mutual funds AUM to total AUM has increased from 39% to 46%. We believe this strong performance will continue in the current financial year with a strong team of 271 relationship managers. Apart from this, the company has two new age technology-led business verticals that is Digital Wealth and Omni Financial Advisers, OFA. The DWM business is a fintech extension of the company's proposition for the mass affluent segment with wealth solutions delivered through a combination of human interface empowered with technology. OFA business is a strategic extension for capturing the wealth management landscape to service retail clients through the mutual fund distributors by using our technology platform. We believe that the wealth management sector in India holds significant growth potential, and we remain optimistic about the business potential and will continue to drive towards our vision while consistently focusing on uncomplicated solutions. With this, I will now ask Mr. Jugal Mantri to take us through the financial performance. Jugal Sir, over to you.
Thanks, Feroze bhai. Good evening and happy Guru Purnima to all. I am happy to share that the company has posted a strong financial performance for the quarter ended June 2022, backed by the accelerated growth across all important business parameters. Our revenue for the quarter ended June 30, 2022, stood at INR 133.5 crores, as against INR 98.4 crores in Q1 FY '22, registering a growth of 35.7%. Our PBT for the quarter stood at INR 52.9 crores, registering a growth of 33.6% as compared to INR 39.6 crores in Q1 FY '22. Our PAT for the current quarter June quarter stood at a healthy INR 39.7 crores, registering a growth of 33.6% as compared to INR 29.7 crores in corresponding quarter of FY '22. For Q1 FY '23, earnings per share stood at INR 9.5 while annualized return on equity stood at a healthy 42.3%. We are confident that our long-term commitment to provide our clients with the most effective wealth management solutions, along with the committed team of relationship managers will enable us to see a strong growth in the coming years. With this, we will now open the floor for question and answer. Thank you.
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Rohan Mandora from Equirus Securities. Please go ahead.
Good Afternoon, Sir. Thanks for the opportunity and congratulations for the good numbers. Sir, could you share what was the MLD issuances for 1Q FY '23?
Jugalji or Rajeshji, can you take this one?
Yes, sure. See in FY '23 June quarter, the MLD issuances, which were there from Anand Rathi Global Finance was more or less same like in the first quarter of FY '22. It was INR 690 crores and about the same amount has been issued from Anand Rathi Global Finance Limited of INR 703 crores in FY '23 quarter 1 and almost about INR 390 crores plus have been issued -- sourced from third party of the similar product.
Sure, sir. And sir, how will the yields vary between the MLD issued from Anand Rathi Global Finance and third party?
Yields on third-party products are better than what is issued -- marginally better than what is getting issued from Anand Rathi Global Finance Limited.
Marginally better? Okay, sir. And sir, what would be the quantum of MLD that would have matured for 1Q?
The maturity value of the MLD was almost about the same. If you put together INR 690 crores, INR 700 crores plus INR 390 crores. So almost about INR 1090 crores MLDs have been matured in Q1 FY '23.
Sure, sir. And sir, in terms of employee expenses, on a Q-on-Q basis, it has gone up from INR 52 crores to around INR 60 crores. So what explains this jump, if you could quantify that?
Increase in employee cost, you're asking?
Yes, sir. Employee expenses.
So it is like there are multiple factors. One thing is that there is a majority of the RMs, their expenditures or the provisioning is linked to the revenue. And if you will look at the revenue, it is -- in terms of percentage, there are hardly any change. If you look at it by given last year, the employee benefit expenses was about 45%, and it will be the same range even in this financial year. So at the absolute number, you might say that number looks higher. But if you compare it with the revenue number in terms of percentage, it is more or less the same. And besides that, definitely, there is an addition of the account managers and the employees. The team have been growing but those will have the marginal impact, largely, it is linked to the revenue.
Sure. And is the annual hike factored in this? Or will it be in the subsequent quarters, annual increments?
Annual increments, of course, it will come in the Q2. But in our case, the impact of the annual increment is very, very marginal, reason being that the majority of the employee benefits are driven by the variables. So the impact on the fixed cost is very marginal.
Sure, sir. And fixed cost for 1Q has increased by almost 17% year-on-year. So should we consider this as normal run rate for the full year in terms of fixed cost increases?
Yes, yes, definitely, Rohan. Reason being see if the fixed cost -- we have moved from COVID era to the normal era. So definitely, the cost which we are -- the savings which we are achieving because of the virtual environment now since offices are running and administrative expenses, business promotion expenses and all have come on track. So in fact, this was the normal operating first quarter post COVID era. So the rise is largely on account of this, but it will -- going forward, it will remain in -- at the same line.
The next question is from the line of Umang Shah from Kotak Mutual Fund. Please go ahead.
Congratulations to the team for very strong first quarter. Sir, my first question is on, clearly, the new client acquisition, as well as our net flow accretion during the quarter has been fairly impressive if we were to look at it in the context of a very volatile market environment. So if you could just help us, one is clearly what will be our strategy going forward as well and let's say, if markets were to stabilize and improve from here on, should we expect a similar trajectory or a better trajectory from what we have reported in the first quarter?
Yes. Umang, thanks for your question. Firstly, the net flows have been better and they've been, like you said, very healthy. It's because what happens is in good times, of course, the wealth management outfit does well. In bad times or volatile times like we've all seen for the quarter ending June. What happens is that there's emphasis placed on consolidation. When a person sees good performance relative to other outfits, then they start consolidating their money and give me a larger wallet share. That's one reason. Second is clients start giving you more references when they see relative better performance. During good times, everybody looks identical. Risk becomes an abstract word. So in bad times, it's very easy to distinguish between good advisers and bad advisers or good distributors and bad distributors. So that's one very important reason. And then what happens is, once you get a listing, there is an extent of transparency goes up, and that improves confidence. So that's acted as a catalyst or has begun to act as a catalyst. So we believe that this trajectory will improve and if markets stabilize, you will get a further lift in the rate at which net flows and clients will be added in the future.
Perfect, perfect. This is good. Is this also the reason, I mean, we are also seeing improving kind of vintage both in clients as well as the assets that we manage, which means that it's fair to assume that the assets and clients become much more stickier for us.
Client attrition is very minimal for us. And what happens is we're dealing with this segment of HNI, you're not doing absolute pure play retail in the private wealth business. You basically will influence client behavior during bad times already. Because if you speak to a person for 2, 3, 4 years and you seasoned him and prepared him for bad times, like we saw in the last quarter. When the bad times happens, they are wanting to invest more. That's why you would see net flows in equity, especially they have been beautiful. So coming to the point, whether the client net flows are going to remain as robust, the answer is yes. And what we see is when the clients have all been seasoned and in HNI you're interacting with a smaller universe so you will be able to influence their behavior with vintage.
So to answer your pointed question on vintage, the clients' vintage is increasing as time progresses. As you see, 58% of our clients have been with us for 3 years. It also implies that 42% have been added in the last 3 years alone. So we think as time progresses, vintage will happen, what I see as an opportunity is the other 42% also giving us large wallet shares as time progresses.
Sure. That's helpful. My second question is for Jugalji, picking up from the previous question. So given that the large part of our employee costs or a large part of OpEx actually becomes more revenue linked or performance driven. Is it fair to assume that as the overall AUM start expanding our -- the operating leverage starts playing out and EBITDA margins either sustain or start improving from where we are currently?
Yes. One, I think you are playing my role because the way you have highlighted all the positive side of our business, that is the great thing since all the financial veterans, they understand what we have been doing. And whether you are bank on the way we have performed in terms of AUM as well as vintage, as well as the new funds mobilization. And similarly, when you are talking about the point about the variability linked to the retail, you are absolutely right. And in fact, you can see when we -- I recall having discussed with you about the operating leverage before IPO time. At that time, the operating margin, which we had, those were like about, say, 38% of the margin which we had. And now it has already been beyond 41%.
So that is the beauty of the whole structure that when vintage starts playing, definitely, your operating cost will not grow in that tandem, and that is why the margin, whether be it the EBITDA margin or the PAT margin, are showing year-on-year growth even though it will be marginal because there is a limit to which we can reach because of the taxation and other impact. But definitely, bit by bit, we are adding to what we were doing in the past.
Understood. Great. And just last question from my end is on yields. So clearly, this quarter, we have been able to kind of optimize our yields probably because of a larger component of MLD issuances in the net flows. Now I understand that probably there could be some quarterly volatility, but assuming on a 4 to 6 quarter basis, what should we assume as base yields for the business? I mean, would we see a higher volatility? Or we believe that yields should kind of move in a narrow band going forward?
No, actually, in case if you will talk about the yield, the volatility impact the AUM, frankly speaking. But actually, the yield, there is not substantial change because the yield will remain constant and it is linked to the asset bucket. So like if I'm having the asset in equity mutual fund, the commission, which is being paid by the mutual funds, that remain same. So ultimately, the point which I'm making is that the volatility largely impact AUM. But the yield more or less, it remains same and it changes with the change in AUM or the traction in the AUM.
So if I have the increase, I'm adding to the AUM by way of increasing market capitalization or growth in equity mutual fund as well as new mobilization, the revenue amount will keep on growing. And in terms of yield, I don't see much change going forward, it will remain almost around same level.
[Operator Instructions] The next question is from the line of Arpit Shah from Stallion Asset.
Congratulations on the set of numbers. I had a few questions, very basic questions from my side. Can you just help me the market size of the MLDs in India and who would be the top issuers of this product in India?
I Couldn't hear your question. It could be a little louder, it'd be helpful, Mr. Shah.
Yes. Can you help me with the market size of MLDs in India? And who would be the top issuers of this product in India?
So. MLD market size in India is now reasonably large, but MLDs are broken into two. One are pure bonds which look like MLD, that's a very large market, and that's not -- that's the listed market. Basically, you are having MLDs from a listed debenture more or less not so much marketplace. And then you have the pure play MLDs which actually give you the market play. I would say, I would not precisely know the market size currently. But I can tell you who are the top issuers. The top issuers, of course, is ARGFL, Edelweiss now the PAG entity, you also have Centrum. You have IIFL wealth and you have from the MNC side Citi is issuer. There are several issuers, 7, 8 of them, but I've named the top one. If you look at the MLD business, pure play MLD, I would say INR 1,500 crores of net mobilization every month could be the size of the pure-play MLD business.
Got it. I just wanted to understand why our take rates in MLDs are around 2% or 3%. Because if I see other wealth products, they would be around 1% or so, maybe lower than 1%. So how do we make money on MLD products that is what I want to ask?
If you will look at any debt products, which is getting sold, okay, by any wealth distributor or any financial intermediary, you will find that the commission, if somebody is selling say NCD even or any debt product that typically the brokerages which are being paid are in the range of 1.5% to 2.5%, okay? So in fact, the commission structure, which is there on the MLD that is in line with what is being offered on the similar product in the market.
Let me add something here, Jugalji.
Yes, yes, please.
Okay. Super. See, you can look at commissions in 2 ways. MLD yield, if you calculate per annum, you will not get to 2.5%. See, what happens in MLD is you recognize it initially as trading income. Like, for example, ARGFL has had 985 MLDs maturing. If you compare it with what would you have actually earned per annum yield on market value, which is what you get paid on equity mutual funds, it will not be 2.5%, 3%. So point is, if you calculate yield like a mutual fund does, it pays you a trail commission on an annualized basis on market value. At maturity, if somebody backward calculated what did you make? You would make 10%, 15% more.
When you actually take your total gross mobilization and the money you made and divide it by AUM, the yield will look sharper and larger. So to answer your pointed question, the yield per annum is measured in the way a mutual fund based trail commission would not be twice that of mutual fund. It will be just 15%, 20% more than usual. You understood my point, right?
Yes, yes, I got your point. I just want to understand who will be the underlying borrowers of such products? What kind of businesses will be borrowing in such format in terms of MLD?
Borrowers in the sense, these MLDs are issued by the NBFC. So NBFCs are the borrowers.
Who would be the underlying borrowers of those NBFCs?
No, no, it is not necessary. Ultimately, if the money which is being raised by the NBFC, okay? It is at the discretion of the NBFC that how does they want to utilize this money which is being raised. So it is not necessary whether -- it is not a structure where these borrowings are being made to facilitate or back-to-back any borrowing arrangements are there. These are plainly the MLDs are issued on the strength of the balance sheet of the issuers.
Right. Got it. And can you split the difference between fixed and variable expenses on employees?
This is quite simple. Like anyone who is getting the fixed compensation or the fixed salary, which is coming every month, that is the fixed component. The variable component that is linked to the performance of the employees. So we have got a CTC structure where the overall compensation of every RM is determined based on his AUM and earnings on that AUM his CTC is being decided. And whatever fixed component is being paid to him that gets deducted and remaining amount is being paid as a variable payment.
So what would be the fixed amount per quarter?
Fixed amount per quarter? You were talking about at the overall aggregate level?
Yes.
That is, say, about INR 12 crores per month.
So around INR 36 crores a quarter?
INR 36 crores, INR 37 crores per quarter. Correct.
So we do get upfront fees on MLDs, right? That is what Feroze meant?
Yes, every product other than mutual fund most of the products which are being sold by financial intermediaries, they receive upfront income. And that is the case with the MLD also.
The next question is from the line of Janakiraman Rengaraju from Franklin MF.
Hi Feroze and team commendable performance. Congratulations. See one is, again, going back to that interplay between the profitability and the cost structure. Now you have gradually improved the profitability. So if you measure PBT as a percentage of AUM, I think this quarter, we almost touched about some 65 basis points. Where is the limit to this, to what level can improving efficiency in your operations, to what level can it improve this PBT metric by?
Janaki sir, according to us, see, like AUM is a photograph. Revenues [Foreign Language] margins are a movie. So June 30, AUM, if you calculate profitability as approach of the AUM captured on a specific day, that will not be a right representation of what yield would you make as a profit after tax or profit before tax. What we believe is that making festives, making an yield of 1.3% to 1.5% on AUM is something which is sustainable for good, point one. Point two making more than 40%, 42% PBT and upwards of 31%, 32% PAT is what these are the 3 numbers we look at internally. Right now, of course, it can be dissected as a percentage of AUM. But since AUM is just one specific date, if the market is 5% down that day, for example, it will distort that number. I don't know whether I'm able to articulate. So these were the 3 numbers we internally focus on and [indiscernible].
Okay. So 1.3% to 1.5% and about 42% of revenue as PBT.
Yes, sir. So sometimes, we'd like to discover further value-added services in our research and product group to spend some money to get a further lift in the revenues. So sometimes, when we go to 43%, 44%, we like to see what else value-added services can be given to clients. So we're not very ambitious to bring PBT to 45%, 47% also because then you might be missing out on several other opportunities which can give you growth. So we spend that little money and not try and get to 47%, 48%. So 40% to 44% is what we look at as a percentage, PBT as a percentage of revenue.
Right, right.
I think I'll just add to what Feroze bhai has said, Mr. Janakiraman. In fact, the one simple point, which he has made. If you compare the AUM on a point-to-point basis, definitely, there is a variation because if you see from 31st March to 30th June, the NIFTY was down by, say, about 9.5% and mid cap, small cap, they were down by 10% to 13%. So wherever the clients who have invested in different asset classes either being managed by you or anywhere else, their AUM numbers are down, but we have been getting trail on day-to-day basis, okay? So when AUM on any particular point, if it is lower, that can have a variation, if you compare on point-to-point basis. But ultimately, all three objectives, as highlighted by Feroze bhai that those are the key parameters and whatever trailer, which you have seen in the quarter, that is actually in common substance that is the picture. And these broad numbers, even whether you compare it today or after 1 year, based on the operational efficiency, it might be -- we can better it by another, say, 2% to 5%, or it can come down by 2% to 5%, whatever operating levels, which we have, that would be the end result but directionally we will be moving in the similar way.
Got it. And Feroze, when I look at the growth in AUM, how to look at that number? So you have the increase in the per ticket -- per client, the AUM side, as well as the total client count both of them contribute. So how do you see that mix working?
It's very simple. I'll just tell you how we internally look at the growth engines for AUM. So the four growth engines for AUM are as follows and all of them seem to be very consistent. One is the embedded growth of the portfolios since the asset mix of how we have deployed our AUM is priced for an expected return of 12% to 14%. We expect at least a 10% growth in AUM by the virtue of the growth in portfolios. That's first leg, which is the embedded growth which this business has unlike several other businesses. That's one.
The second engine of growth is the capacity utilization of our RMs. Our RMs today manage 28, 29 clients per head. But in our belief, before COVID itself, the capacity of an RM to efficiently manage and keep his clients and family satisfied is 50. That means as a unit, I can double or close to increase our client strength by 80% without using a new RM machinery. So that's capacity utilization vertical of AUM growth. The third is existing clients, like there are 42% of the client of the 7,400 who have come within 3 years. So they start believing us more as you start establishing credibility to what you have said, and they start giving you large wallet share. That's the third source of AUM growth. The last source of AUM growth is my 300 account managers who are currently being trained to become RMs and that's the fourth level of growth. So with this three -- four legs of growth, the first one, which is the most certain one, which is 10%, 12%, plus the other three gives us a 25% AUM growth belief over years to come, not just 1 or 2 years guidance. I would say that I personally very strongly believe 20%, 25% AUM growth is with all these four cylinders of the engine is what has happened in the past and we have. And I would say that's how we look at AUM growth on a yearly basis, 20%, 25% AUM growth in a bad quarter where market for. Like, for example, the last one. We added INR 1,355 crores, but our AUM didn't go up because markets took away from. So next quarter, if God is kind, for example, if this INR 1,300 crores, we again had INR 1,500 crores, for example, and then market gives back INR 1,300 crores, INR 1,400 cores, then you have INR 2,800 crores of AUM growth. So I'm not making a guidance. I'm just giving you an illustrative way of how we look at it.
Understood. And these are early days for Anand Rathi Wealth as a listed entity, but have you taken any decision in terms of distribution. So this is an asset-light business, so of the free cash that we generate, how do you plan to deploy that?
Jugalji, we have a dividend policy or ?
Yes, there are 2 things. One thing is that we do have very clearly spelled out dividend distribution policy, where the guidance is about 30% to 40% of that cash accrued will be distributed. And rest of the things, so as you have rightly said that these are the early days for us, and this is the first time any of the group company has been capitalized. So there are a lot of opportunities in the market and as and when those opportunities will come up so better to take [keep] certain cash on the balance sheet and scout for other opportunities which may come up in future.
[Operator Instructions] The next question is from the line of Rohan Mandora from Equirus Securities.
This was a follow-up to an earlier question on operating efficiency. Sir, in terms of the employee OpEx, employee expenses to total revenues, where do we see that in the next 2 years' time because for the RM employeee expenses, that thing would probably move in line with the growth in revenues. But how should we look at the non-RM employee expenses growth trajectory? That was one.
The second, the slide on guidance we have not given this quarter. So does the previous guidance hold or is there a change in the guidance with respect to today -- FY '23?
So very important. I'll take the first question first. In terms of like variable cost you rightly identified. In case of fixed costs, that is where you get the operating leverage advantage. The reason being that the cost of the product team, operation teams, and other support and services functions, that remains constant even and it is not directly in commensurate with the growth in your business. And we are capacitized to even like as of now, if the AUM supposed from INR 32,000, it runs up by 50% or 100%, the incremental fixed cost increase will be marginally up. It will not grow with the growth in the revenue as well as in AUM so that is the scenario with the fixed cost, okay?
And the second point, which you -- with regards to the guidance, we thought that if somebody will look at the guidance number, we have already achieved 27% in Q1 of FY '23. And normally, like the first 2 quarters are the lean period for the BFSI sector. So we thought that since we are already on the track with the guidance, and have been slightly overachieved that. So we thought there's no need to reiterate what we have given in the guidance. It is up to you people to make a sense that how we are going to fare with regard to the guidance, which have been given.
[Operator Instructions] The next question is from the line of Nityanand Parab.
Congrats on a good set of numbers, sir. I have one question on OFA platform value. So in Q1 -- so in this quarter's presentation, you have shown that you have increased the overall plans to INR 18 lakhs, but the platform value is shown INR 79,511 crores. So if I compare it to the Q3 FY '22 presentation, you have shown it INR 1,700,000 with INR 84,596 crores. So just wanted to check how we can read this. Is this the right number? Or is this a typo or something like that?
No, Mr. Nityanand, if you will see the number which has been given for OFA is that we have got INR 5,368 MFDs, which are mutual fund distributors and the assets on the platform is INR 79,500 crores at the end of June 30, 2022, which if you compare it with the June 30, 2021, at that point of time, we had 5,058 MFDs with an AUA of INR 58,586 crores.
Okay. I was comparing with Q3 FY '22. In the presentation, the figure was shown was INR 84,596 crores.
I don't have that presentation right now. But I'm giving you Y-o-Y number that what was the number at the end of June 30, 2021 and what is the number at June 30, 2022.
I will just add one point. It could also be mark-to-market. [indiscernible] 1,500 and stuff like that. This was at 15,800. And generally, retail is more equity than debt.
Okay. Got it. And the second question is related to the digital wealth AUM. So we can see that it has de-grown slightly for this quarter. So what is the outlook for this? And if you can share what will be the percentage of the digital wealth overall in terms of business for next 3 years, 5 years. So what is the overall, say, bifurcation we can have within the overall business?
So basically, like we've always stated during the IPO as well, these two businesses, which are the digital businesses, we are learning and we are making sure that we adopt to the changing environment. So what we look at from a 3- to 5-year perspective is a robust growth of 30%, 35% on a lower base like this. But since we are in the stage where we have come to have a digital business, which is not burning cash and that's something which we are reasonably clear about. I think 30%, 35% growth on a lower base of the AUM is something which is reasonable as we learn and we adopt and develop a strategy which will make it more monetizable.
And for the OFA business, of course, today, we have used it as a SaaS platform, monetizing it. We have some ideas of monetizing it very effectively but I would not like to comment and create an expectation on businesses which we are wanting to build over the future. That's why guiding -- giving a guidance of 3 to 5 years on a business where you're trying to develop something to be making sure that you capture the adjacent segments is something we should look at it on a yearly basis.
Okay. Got it. And the last question was on the guidance. The last participant has also asked. So are we -- I mean, sir, we are on the path to achieve the guidance, which we have shared in your last year, right, for FY '23. So are we going to up the guidance overall? Or what is the overall take on that?
Nitya, like Jugalji said, that if -- now you have to extrapolate in a quarter like how it has been April to June. If we have done 26%, 27%, whatever that second digit decimal penetration into the guidance. And generally, we do 22%, 23% in the first quarter. It's for you to extrapolate and these were not periods where it was as easy to breathe, right, April to June quarter. So it's for you to extrapolate and see. But we feel very, very confident about the guidance.
The next question is from the line of Ajox Frederick from Unifi Capital.
Sir, my question is again on the OFA. What quantum of revenue is coming from that particular business?
Yes. I see that as of now since in case of OFA, as it is being said that this is the IT platform and where we are charging fixed fee from these MFDs. So monthly income is in the range of about INR 40 lakh to INR 50 lakh fees, which we are collecting from these MFDs.
In total, right? Okay.
INR 40 lakh to INR 50 lakh per month.
And sir, I mean, some of our peers are using a similar model and charging the AUM, right, as a sub broker or whatever you may call it and charging 30 bps about on the AUM. So what stops us from doing that?
Mr. Ajox, the thought process is that we are -- anyway, we are the largest player and once you grow it and you penetrate the market to the fullest extreme, thereafter only you should focus on the revenue. As Feroze bhai has said that these are the experimental businesses where we are into it and initial objective is to gain the market share thereafter explore it from the revenue perspective to the fullest. So as of now, when you are building up the size, capacity and penetration, the focus is on acquiring the market share, not on generating the revenue because anyway, both these businesses are a positive contributor to the group.
Sir, just one question on the MLD. To a new customer, how is MLD being positioned as a guaranteed product? Or how is the sales pitch being done in a very generic manner.
To any customer for that matter, we look at a portfolio with a plan A and a plan B. We create portfolios, it all emanates from client objectives. If the client objective is let's assume 12%. We try and see what is the minimum 3-year standard deviation at which this can be delivered. So you -- there's a team which actually simulates several portfolio combinations as percentage of these three products, equity mutual fund, debt mutual fund, and MLD. Depending on the risk return profile, 12%, then we try and backward calculate what is the minimum standard deviation at which that can be achieved. And then we drop what is the most efficient portfolio, which can achieve an expected return of 12% and then we give a client an alternative of having a certain percentage in MLD, 10%, 20%, 30% and 35%.
If the client understands and say, it's 30% in MLD, then we tell them the standard deviation of our portfolio with this much amount of mutual funds, this much amount of debt mutual fund, equity mutual fund and MLD, this is the 3-year standard deviation, this is the beta, this is the maximum drawdown you could expect on a 3-year holding period. And then when the client signs up for that portfolio, MLD is a resultant outcome of that decision. MLD is not standalone sold.
If I went in the marketplace and if somebody said, take this crore, put it in MLD, that's not the way we work. We like to design a portfolio on the risk-return objectives and then work backwards and whatever is the MLD proportion, which gives an efficient combination. That's how MLD is sold. That's why you see such repeat buying. I'm sure a few of you would have seen during IPO presentations close to 78%, 80% of repeat buyers. The reason why it is repeat buyer, it is not being sold as a standalone product. It's a proportion on the portfolio. When there is a maturity automatically, there is a void and the void gets filled with a new fresh issuance. Does that answer, sir.
Yes, that's very helpful, sir. And sir, I'm assuming current MLDs are 3-year products, right? Whatever is being designed right now?
Both 3-year and 5-year. We issue MLDs on the basis of the probability of its success. If the markets are obscenely overvalued, then you would rather have a 5-year MLD.
So to answer your pointed question, it could be 3 years and 5 years. Proportions could be 2/3 favoring 5 years and 1/3 favoring 3 years at the moment.
The next question is from the line of Mr. Bhuvnesh Garg from Investec Capital.
Sir, first question on your digital wealth and OFA. So just want to understand the difference between these two. Because I see in your presentation in digital wealth you have mentioned that it's a partner-led distribution whereas OFA also you are having MFDs as your partners. So just want to understand what's the difference between the digital wealth and OFA. That's my first question.
Digital wealth business is actual -- it's a kind of a sub broker model, okay? To cater to firstly, the segment is different. Segment for MFDs is very retail, SIP driven. And it's a SaaS platform, OFA is SaaS platform, Software as a Service.
Digital wealth management is providing the HNI proposition to a mass affluent using the help of technology, powering the human. So the capacity of managing clients could be 150, 200 in the DWM. You're trying to make sure that the HNI proposition is delivered to a mass affluent with an internal team or an external team of relationship manager who can reach out to 3x, 4x and make it a more profitable business to go to a INR 1 crore client or 50 lakh client. That's the difference.
So DWM is an interpolation of the private wealth business to the mass affluent. OFA is a SaaS platform for a fee. MFD uses our technology and white labels it and shows it to the client. Is that clear?
Okay. So in digital wealth, if I understood correctly, the RM is your employee, right? So whereas in OFA it's again it is an MFD.
Yes. See, OFA has only technology. DWM has an HNI proposition as similar as it's possible to the mass affluent. Because if we send a conventional relationship manager who can manage only 50, 60 clients to a client who have only 50 lakhs, it's not a viable business. So for it to become a viable business, technology should have -- technology should be able to power an RM to manage 200 clients, then it becomes a viable business. That's what -- that's why we call it an experiment because you learn as you go along. A private wealth division is 20 years old, 18 years old, whatever that number is. This you are learning. So you will strategize and learn and have the agility in the initial part of the business. That's why we have been so clear that you should not extrapolate it by 10 years, unlike most technology businesses will extrapolate and then say this should be the valuation and stuff. So we are trying to learn, be a very agile in these businesses.
And here, I mean compensation for RM would be the same for your private wealth RM or...
Sorry to interrupt Mr. Garg. May I request you to join the queue again, the question queue again as there are many participants waiting for their turn. The next question is from the line of Devesh Agarwal from IIFL Securities.
I just wanted to know in your private wealth business, I see you on a sequential basis, there has been a 60% growth in the net flows. Can you share the breakup between the different products, how the flow has been?
Yes. So I can give you tentative. Jugalji will have the precise numbers or [I, Azeez] know the tentative one.
Yes, we can -- if you'll compare it like on the mutual front as against INR 15,400 crores in June 30, 2021, it has grown to INR 18,600 crores. And in case of MLD against INR 9,200 crores it is... You wanted AUM mix, sir?
No, sir. The net flows, INR 1,355 crores breakup.
Okay. I remember that number Jugalji. So INR 800 crores to INR 900 crores of equity mutual funds, INR 100 crores, INR 200 crores of debt mutual funds and other securities of another INR 200 crores. This is the break up.
Correct.
Okay. And when you say INR 200 crores of MLD flows, so the earnings -- the revenues that we made in the quarter, if I assume a 7% yield, that would imply itself INR 1,100 crores, INR 1,200 crores. So how do I tie up these two numbers?
So you are mixing them with net flow. The commission you make is on the gross flow, right, like a previous participant asked the question, what is the net flow in MLDs? Net flow in MLD, this quarter could be miniscule but there is maturity and there is reinvestment. What you earn is a percentage of gross mobilization. Does it answer?
Understood. Yes. So what was the gross number for the quarter...
So gross mobilization for MLD was about INR 1,100 crores.
And that includes your secondary sales or secondary sales are different?
No. This is primary mobilization.
And how much would be secondary, sir?
Secondary might be about, say, 40% of this.
Around 40%. Okay. And third party, the Edelweiss MLDs that you do would be one third of your overall number?
Yes...
How much?
INR 390 crores out of the INR 1,100 crores.
And one final question. If I see the portfolio mix of the AUM product mix. In last 1 year, the share of equity has gone up from 39% to 46%. This would have also helped you in your blended yields. So do you think that there could be some churn that you would be doing from equity to debt and that can have some impact on your yields going ahead?
So to answer your pointed question, the answer is no. We have different clients with different return objectives. We generally look at allocating money into equity, and 46% is a reasonable representation of what we currently aggregate recommend to our clients.
Due to time constraint, that was the last question. I would now like to hand the conference over to the management for closing comments.
Thank you. I take this opportunity to thank everyone for joining on the call. I hope we have been able to address most of the queries, but it appears that there was some pending queue. So we'll request for all the participants who have not been able to raise their questions or put up their questions, they please kindly get in touch with our Investor Relations team or Strategic Growth Adviser our investor relationship adviser. Thank you all.
Thank you. On behalf of Anand Rathi Wealth Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.