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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 Q3 and 9 Months 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.
Thank you so much. Good afternoon, everyone. Thanks for joining us for the conference call of earnings of the third quarter and the first 9 months of this financial year. Along with me, I have Mr. Rakesh Rawal, who is our CEO; Mr. Jugal Mantri, who is our Group CFO; Rajesh Bhutara, who is our CFO; Mr. Chethan Shenoy, who is our Head of Product and Research. And I'm also joined by Vishal Sanghavi, who's our Head of IR, Investor Relations; and also the SGA team, who is our Investor Relations Advisers.
To begin from the quarter perspective, we have delivered a strong performance in the third quarter on all 3 businesses: the Private Wealth business, the Omni Financial Advisors channel business and also the Digital Wealth business. Our consolidated AUM has risen to INR 38,517 crores, which is a 20% growth year-on-year and a 7% quarter-on-quarter. This, of course, is a testimony to our emphasis on providing uncomplicated, holistic and standardized solutions to our clients, which deliver the most efficient risk-reward portfolios.
Our flagship Private Wealth business has grown its AUM by 20% year-on-year and 7% quarter-on-quarter to INR 37,500 crores. Though on an industry level, the net flows in equity mutual funds degrew by 55% in the quarter 3, we have grown by about 74% instead of the degrowth, which is what you've seen on the net flows on equity mutual funds. And our overall equity -- overall net flows have grown by 94% for the said period of 9 months, and that's been -- that stood at about INR 3,715 crores.
Indian HNIs, of course, have started moving money from physical assets to financial assets, and we have tried to capitalize this process by using mathematics to express the differential performance between physical and financial assets. And in the last 9 months, we've added clients that is about 1,151 clients, as against 801 clients in the same period. That's a good 25% growth and above on the client addition rate. And also one very, very important thing for a business like ours, which we are very pleased to announce, that we have had zero-regret attrition for this quarter 3. Regret attrition, any RM greater than INR 40 crores we classify as a regret attrition, has been 0, astonishingly so.
Now coming to the Digital Wealth business. I would like to highlight that our Digital Wealth business AUM has grown by about 24% year-on-year and has moved up above the INR 1,000 crore mark, INR 1,017 crores, in terms of AUM. The client set has grown by about 15%. It is 4,076 clients now. That's on the Digital Wealth piece.
OFA business, which is a SaaS platform, has added about 600 [ IPs ], give or take. And the assets under reporting has almost touched a INR 1 lakh crores.
Before I hand it over to Mr. Mantri, I would also like to highlight that our long-term commitment of growing the assets under management by 20%, 25% remains intact, and we are very positive that this number indicated from a long-term year-on-year perspective is a conservative number, given the fact that by the virtue of time, we -- and client portfolios' growth of 10%, 12%, we should be able to deliver the differential 13%, 14% by effort.
And now I hand it over to Jugal, sir. Jugal, sir, can you take it forward from here?
Thank you very much, Feroze. Let me begin with extending new year wishes to all the participants, that may 2023 brings tons of joy, happiness and prosperity to each one of you.
Now coming to the company performance. Despite the short-term volatility, the mid- and long-term outlook for the Indian capital market seems highly promising. We have delivered strong performance across all 3 verticals. Our consolidated revenue for the quarter ended 31st December 2022 stood at INR 140 crores as against INR 109 crores in Q3 FY '22, registering a growth of 29% Y-o-Y, while revenue for 9 months FY '23 stood at INR 412 crores as against INR 311 crores in 9 months ended FY '22, registering a growth of 32% year-on-year.
Our profit before tax for the quarter stood at INR 58 crores, registering a growth of 36% Y-o-Y, whereas profit before tax for the 9 months stood at INR 169 crores, registering a growth of 37% Y-o-Y. Profit before tax margin is slightly better at 42% in Q3 FY '23 and 41% 9 months FY '23.
Our profit after tax for the quarter stood at a healthy INR 43 crores, registering a growth of 35% Y-o-Y as compared to INR 32 crores in Q3 FY '22. Profit after tax for 9 months FY '23 registered a growth of 37% Y-o-Y, which stood at INR 126 crores. Profit after tax margin is quite healthy at 31% in Q3 FY '23, which is the same for the 9 months ended FY '22.
Earnings per share for the quarter 3 FY '23, stood at INR 10.4 per share and, for the 9 months, stood at INR 30.2 per share.
For 9 months FY '23, our flagship Private Wealth vertical's revenue grew by 33% year-on-year, which stood at INR 397 crores while trail revenue grew by 27% Y-o-Y, which is stood at INR 135 crores.
Profit before tax for 9 months FY '23 on a stand-alone basis was at INR 168 crores, registering a growth of 37% Y-o-Y, while PBT margin stood at 42%. Profit after tax for 9 months FY '23 stood at INR 125 crores, registering a growth of 37% Y-o-Y, while PAT margin stood at 32%.
The return on equity of our flagship Private Wealth vertical as on 31st December 2022 stood at -- healthy at 40%. Given the favorable long-term macroeconomic climate for India and the rise of local millionaires and billionaires, we believe there is significant untapped market for the wealth solution providers like us.
With this, we will now open the floor for question and answer. Thank you.
[Operator Instructions] We have our first question from the line of Rohan Mandora from Equirus Securities.
Congrats on a good set of numbers. Sir, if you could share what kind of gross inflows in 3Q and if we can split the net inflows of INR 1,240 crores into between equity MF, debt MF and MLD?
Sorry, Rohan, you wanted net flows, yes?
Yes. Net inflows of INR 1,240 crores that was in 3Q. It was split between equity, debt MF and MLD.
Correct. So you want a split of the INR 3,715 crores or the quarter 3 number?
The quarter 3 number.
The quarter 3 number. Rajesh, did you have that number?
Yes, yes. The equity mutual fund and debt, which was put together, it was INR 818 crores; for MLD, INR 165 crores and INR 258 crores in other products. That sums up to INR 1,241 crores.
And sir, what is the quantum of MLDs that are expected to mature in FY '24? Any number that you have handy?
Right now, it is not handy, but we can provide you, Rohan.
Rohan, approximately, it is INR 2,700 crores.
INR 2,700 crores, okay. Fine. And sir, just trying to understand on the trajectory on the employee expenses. If you look at employee by total revenues -- [ employee cost by total ] revenues, that thing has come down from around 46% to around 43%, 44% in the last 2 quarters. So how should we look at it for the full year? Will there be an uptick there? And also, what were the quantum of RMs, which have not broken even on cost right now?
So Rohan, when it comes to compensation for RMs, it works on a total comp concept. So the provisions of bonuses are larger, which is about INR 55 crores for the first 9 months, which is about INR 8 crores greater than the same period last year. So we work on a total comp concept, which has not been modified [indiscernible]. So provisions on the bonus side are higher, which are not reflected in the statement you made. Does that answer, Rohan?
No. So actually, the employee expense per total revenue has been coming down in the last 2 quarters. So are we...
Rohan, I'll just add, see the [ advantage ], what Feroze bhai has explained to you is the compensation for the RM fraternity. But besides RM fraternity, there is a team which is like operation, product monitoring and the finance accounts team. And that is where you get the advantage of operating leverage because that cost more or less remained flat. So that is why when you see the revenue goes up, you will see in percentage term that the employee cost will come down because that cost, which is the nonoperating or nonvariable costs, that remain more or less flat. There is a slight increase, and that is where you'll see that the employee cost will keep on coming down when the revenue grows for...
Got it, sir. And just the second part of this question on how many RMs are yet to break even on cost.
So if you -- we can give you that precise number, Rohan. If you look at breakeven, as just the physical cost, I think it should be less than 10%, 12%. Okay? Because a breakeven of [indiscernible], infrastructure costs, all loaded, it could be different, but we'll give you the precise number.
Sure. And just one on the [indiscernible]. How has been the MLD issuances from [ Nuvama ] this quarter? Has there been any debt fund issuances on that side or a change in direction?
The requirement of capital was lesser. So Jugal, sir, can give you the precise numbers if we have them handy.
So in case, if you look at it, Rohan, now the ratio is tilting towards the outside or external agencies. As of now, when we talk around 13% of MLD outstanding, that is from the external agencies. So the ratio, which used to be 100% from the same group entity, now that is going in favor of [indiscernible]. So in this year, almost about 20% of the MLDs are issued by the external entities.
[Operator Instructions] We have a question from the line of Pallavi Deshpande from Sameeksha Capital.
Just following up on the previous question about the RMs. We've seen a lower addition in this quarter. Is that anything to do with the market conditions? Or how should we look at the RM addition going ahead?
And just put in my second question also, with regards to the market share on the -- you mentioned in the previous call, about 1% equity inflows, taking that up to 3%. So what would be the time line on that?
Yes. So let me answer the first one, which is the RMs trend. The RMs trend, generally, it happens by training and promoting AMs. So we have gone a little slow because we have to make sure that the person who is becoming an RM from the AM, the probability of successes have to be immense. So that's why you see a little slower addition. It's got not too much to do with the market potential in terms of market sentiment. But the good news is we have the next 30, 40 already slated who have spent about 2.5 years as an AM and under the -- as an apprentice under seasoned private bankers already. So that number should see a large update soon.
And what was your next question? Sorry, I missed that.
Yes. It was with regard to the market share. So we've spoken about our equity market share at 1%, and I'm taking that up to 2% to 3%. So any time lines you can share on that, sir?
Yes. So we are looking at the market share increase, like you might have heard me just a few minutes back, that the net flows have reduced by 55% on equity mutual fund and ours have gone up by 74%, which is a large dispersion to what the industry has got. It's because we are looking at numerically establishing our credibility in mutual fund recommendation.
And I'll come to the time line, which is your pointed question. So in the last quarter, we analyzed 109 equity mutual fund portfolios worth INR 1,000 crores outside with other distributors, transaction by transaction. And we realized that Anand Rathi's recommendation has been more profitable. And now that we have started being very numerical about our value add, to come to your point of question, I think getting to a 3% market share will take about 4, 5 years because that's -- as the market also will increase, and that's the target.
Right. You mentioned -- just to get this right, 109 mutual funds were analyzed that were outside the current universe. Is that right?
No. Let me explain that a little more in detail. Now if there's a prospective client we meet, we take the transaction-wise information and try and see whether the person externally has beaten Nifty or our model portfolio. The 109 is not mutual funds. Those are 109 unique HNI investors' external mutual fund portfolios, which we analyze and see whether we have beaten those portfolios, which were managed by other distributors. And heartening -- it has been heartening for us to see that 95 out of the 109 analyzed last quarter, our model portfolio would have kept them richer. And with this piece of audited information, the propensity for a client to give us a change of broker for mutual fund has gone up reasonably. Does that answer?
Yes, sir. Just another one, if I may. On the CapEx side, like we've seen a little uptick in depreciation. And any distinct guidance on that side?
Jugal, sir, will be very well equipped to answer that. Jugal bhai, can I request you take that one?
Yes, yes, there is no CapEx item on the P&L where you've...
No, I'm not talking about the uptick in depreciation that you've seen, slight uptick in depreciation.
So that is because of the Ind AS 115 that, otherwise, there is no CapEx expenditure over this CapEx-light company in the industry.
Right, right. And sir, lastly, if I could just have -- would it be possible to share a breakup between -- on the income side between the mutual fund and the MLD, the other segment?
That is already there in the presentation.
Not the AUM. I meant the revenue.
Even the revenue breakup is also there. If you look at the Page 29 of the presentation, you will find the breakup. Okay? But I'll just repeat for you, for Q3, the mutual fund revenue was INR 50 crores as against INR 42.5 crores in the corresponding Q3 last year. And the distribution of financial products is INR 86 crores, and other IT-enabled and other services was about INR 3.4 crores.
Right. No, sir, that's what I meant. Within this distribution, if you could have how much was the MLD and how much was mutual fund?
Largely, it is MLD.
Pardon?
Largely, it is MLD only. Okay?
Let me just add one point to Jugal's first comment. The long-term target of trail income to total income is 50%, and we are headed there. If you see the last 1 year, Nifty from December to December has hardly moved 1%, 2%. And you still see a trail revenue increase of 27%. Once the tailwind of the market movement comes, you will see a substantive change in these proportions because markets have to deliver at a point in time, not in this year. But in spite of that, we've had a 27% increase.
Right. Got it. So the 30% target, like you said, would be probably matching with your 3- to 5-year term for that, sir?
Yes. Yes, absolutely.
[Operator Instructions] We have a question from the line of [ Dhaval ] from IIFL.
Good afternoon, sir. Thank you so much for...
[ Mr. Dhaval ], I'm sorry to interrupt, but your volume is very low. Can you use your handset, please?
Am I audible, right?
Yes.
Sir, just one question from my side. Can you please provide the quantum of gross inflows in the MLD during the third quarter and also the split between the primary and the secondary?
Yes. Sure. INR 1,151 crores gross in primary, INR 277 crores in secondary.
INR 277 crores in the secondary, right?
Yes.
We have a question from the line of Aditya Shrimankar from Ishti Advisors.
I wanted to ask what is the average yield on MLDs during this quarter and how it has fared year-over-year?
So -- I'm sorry. I missed your name. I'm so sorry.
This is Aditya.
Aditya, yield by virtue of that nomenclature implies the per annum yield. So let me tell you what's the yield of all the matured products. In an MLD, if you look at the yield per annum, we've made 1.17 in products which are matured. One is because yield is per annum on market value when it comes to mutual funds. On the model portfolio of mutual funds, we make 1.11. On the matured products, which you can backward calculate, the yield has been 1.17. Having made that point that the yields on both these instruments per annum on market value are identical, if not equal, almost.
Now coming to what you make. We recognize this revenue upfront. So on a 3-year basis, we make about 5.5%. On a 5-year basis, we make about 7% to 8% because in mutual funds, the trail income comes on market value, but this is recognized on face value, and all upfront, that's trading income, right?
[Operator Instructions] We have a question from the line of [ Prashant ] from Motilal Oswal.
Just a couple of questions. Firstly, on the expense side, other expenses, they have been kind of trending higher, [ is that right ]? The run rate used to be around INR 11 crores, kind of reach INR 17 crores. So what are building on -- one of the questions alluded that a large portion of the expenses are fixed in nature beyond expenses of -- and beyond the salaries or bonuses of RMs. So then what is this increase pertaining to? That is question number one.
Secondly, on the mutual fund book, what would be -- do we have any SIPs? And if so, what would be a share of SIPs in our mutual fund and AUM?
Got it. So let me take the second one, and I'll toss the first one to Jugalji. The SIP book is about INR 32 crores, INR 33 crores.
Okay. Okay. Has that been trending monthly? Or is the total AUM [indiscernible]?
This is monthly, monthly because we deal with HNIs. HNI savings come in lumpier chunks. So -- because if somebody saved about INR 10 lakhs, INR 15 lakhs, INR 20 lakhs, in a quarter, he gives you that money at INR 40, INR 50 lakhs. That's the general trend. But still having said which, the SIP number is marginally higher than INR 30 crores per month.
And for the first question, other expenses, of course, when we spoke of the expenses, it was pre-COVID levels. So I will ask Jugalji to give you some color to the other expenses [indiscernible].
As you may recall that because of the COVID, there was no physical off-site visits, which we used to have on a quarterly basis, the strategy meets and all that. So this year onwards, all these activities have started, and these expenses pertains to the off-site business strategy need as well as the traveling expenses, which were lower in FY '22, more particularly when you are comparing with the December quarter vis-Ã -vis -- this December quarter last year vis-Ã -vis the current December quarter. The expenses are on account of -- increased expenses are on account of traveling off-site and strategy meetings.
Okay. And just one more on the -- you mentioned that 20% of the MLD sourced in the current year are outside. So what is the kind of commission you made on those?
Same. It was [indiscernible].
Marginally higher. Marginally higher from the [ Nuvama ]. So 1st April, if there is a sourcing of about INR 616 crores, for the same period kind of an MLD, it's marginally higher.
We have our next question from the line of Dipanjan Ghosh from Citi.
Three questions from my side. One is a follow-up to the question asked by the previous participant in terms of the SIP flows. Could you give some color on the redemptions you're seeing in the portfolio or any quantitative number on gross-to-net ratio?
My second question is on the distribution yields that the debt of incremental flows that are going into the existing yields of mutual funds and whether the incremental distribution yields have changed YTD or Y-o-Y, if you can give some color on that.
And lastly, we have seen a list of NFOs happening during the current quarter or even the current year. So just wanted to get some color on how is that shaping up between FY '22 and [indiscernible] year YTD '23? And also, are you able to lock in the yield on the NFOs for 1 year? Or is it like -- is it for a longer period of 2 or 3 years? Those are my questions.
Mr. Ghosh, your audio wasn't so clear. If you can again go one by one, it will be helpful because I could barely hear you in terms of -- it was a little muffled.
So is it fine now?
Yes, if you can pick up your headphone, if you're not using it, do something. Yes. So if you can again go again with your first question, SIP number, you were saying something?
I just wanted to get some color on the SIP redemption trend and any color on the gross-to-net ratio in SIP.
Gross-to-net ratio, if you're looking at SIP redemptions or SIP stoppages, I don't think there have been too many stoppages because HNI is not so -- so to answer your point on question, it should be negligible. I don't have a precise number to that currently.
Sure. My second question was on the incremental distribution yields that you're getting into -- that you're getting on fresh flows into equity schemes of mutual fund players and how that has changed, let's say, between March and December or [ just this December ] an incremental [ floating ] rate to existing schemes of mutual -- actively managed equity mutual funds.
So when we recommend mutual funds, we recommend a very pointed portfolio for most of our clients. And over a period of time, money moves there. So like I told you, it's been 1.11% yield on the [ 11 schemes' ] weighted average as per our recommendation. It remains -- it has gone up by about [ 2 ], same period December. December end last year, we were at 1.09. Now it is 1.11 for this [ 11 schemes ]. And we have our suppliers, which are mutual funds, competing with the other for our market share. So we don't see any stress on any reductions there.
Got it. Perfect. My last question was on the NFO side and over the last 6 to 8 months and even prior to that in FY 2022, we have seen there has been significant amount of flows in NFO and also the NFO payouts to distributors have been quite strong. Just wanted to get some color on incremental trends during the quarter and also YTD. And are you able to lock in the NFO yields for, let's say, more than 1 year?
No. We don't do any such advancement of yields because we don't recommend NFOs. Since I don't buy an NFO, so I don't recommend it to my client. So NFOs have been sold over the last 8, 9 years. So because if there is 570 equity mutual funds, out of which active ones are about 250, 280, and the best and the worst one have a 44% difference, and there's a lot of constituents, which are already there and there is an established fund manager with a philosophy, from a client-centric organization standpoint, selling an NFO, I don't see any merit to hurry into buying an NFO if it does not have a 3-year track record. So any equity open-ended fund requires a basic 3 years for us to be able to analyze behaviors of fund managers and its right-to-wrong ratios and stuff.
So no NFOs sold, and that's been the philosophy. Unless there is some NFO which addresses a gap in the future, we'll be agile enough to adapt if it is something which makes [ merits for both ] client's risk-reward standpoint.
We have our next question from the line of [ Warshish Shah ] from Envision Capital.
Am I now audible?
Yes. [ Warshish Shah ], did I pronounce your name right?
[ Warshish ]. So I was just wondering like what kind of reaction are you getting from the clients with regards to the whole active versus passive investing? Are any of your HNI or UHNI clients questioning you about an advisory versus distribution model or [ why active or passive ] and entire the value-add that we do in the process? And is there any slowdown also in our client addition? Because I also see in this quarter, your client addition has slightly slowed down from [indiscernible].
Got it. So let me answer this question in 2 parts. One is, [ Warshish ], the [ active versus passive ] debate. Ironically, in the industry is happening without numerical measurements of their own portfolios. So what we do is if the client is debating in active and passive, he needs to or she needs to first compute transaction-wise alpha or underperformance to a benchmark, which is missing. So what we do is we calculate transaction-wise alpha. People generally go by perceptions, and we go with narratives. Now there's one client, let me give you an [indiscernible], little bit more casual note on a serious call.
I met a client who wanted to move his INR 22 crores to an ETF. Then I said, okay, you can't read newspapers and decide that. Why don't you first check transaction by transaction what is the alpha you've generated over the last 5 years? 966 purchases, 36 exits. If you take Nifty transaction by transaction, he himself had beaten Nifty by 2.7% per annum. So if somebody is not able to make alpha, it doesn't mean that you are not making alpha, but get your own number. Mathematics measurement is the first step of management, and that doesn't seem to be happening. Most people who believe that they don't even have their transaction-wise alpha on their direct equity, on their mutual fund, on their PMS.
So that's point one. So we don't see any risk on ETF. And the model portfolio, which we have used all regression in all [ global ] price running formulas for the last 9.5 years from 1st June 2013, has generated 3.17% extra over Nifty after all costs.
So if these numbers are there and they are mathematically accurately measured, people are guided not by narratives but by actuals. For them, one size fits all doesn't work in wealth management, in our opinion and a strong one.
All right. And on the client addition, is there any slowdown in [indiscernible]?
Client addition is not a slowdown. What happens is we measure clients -- not all of them. We measure them if they have more than INR 50 lakhs with us. Mark-to-market brings some of them in the bucket, some of them outside the bucket because there's no point counting at INR 10 lakh clients. We count INR 50 lakh plus who has INR 4 crores, INR 5 crores as total assets.
Now coming to the -- so there will be some volatility in quarterly numbers of client addition and subtraction because there's also subtraction possible. If somebody came back and took away INR 5 lakhs from INR 52 lakhs, he will no more be in this client list because it's only fair to account for clients who have, at a point in time, greater than INR 50 lakhs with me. That's why you see a larger number last quarter. But to eliminate this volatility, you have to look at 9 months to 9 months. 9 months last year was 801. 9 months this year is 1,120, which is 320 more clients in the same 9-month period. So there is a client addition rate being increased, point one.
And the second is we also try and measure the quality of client acquisition in terms of the first check. The first check average has gone up by about 70% to 80%. So after listing, which is a very credible thing for a business which is -- which requires some degree of branding from -- because people are parting with their money, has resulted in people trusting us at the beginning with more money than they used to before we were listed last December. Does it answer?
Yes. Sorry, please go ahead.
Did it answer or you want some more clarification for it?
Yes. So have you seen more [indiscernible] go up?
Yes, yes. Yes, we have. And some clients have given us outrageous starting values as well, which is a great indication of what is -- what lies ahead for a listed wealth management [ outlook ].
We have our next question from the line of Sagar Jethwani from Phillip Capital.
Yes. [indiscernible]
Mr. Jethwani, you're not audible.
So I just, have one question. Do we plan to expand into B30 cities? And what are the typical ROICs in long term if you expand the branches there? This is my only question.
Thank you for your question, Sagar. Our strategy to expand into the full [ product ] has been planted a few years back. So we are hiring [ patterns ] of our current RMs, our top 100 RMs. There are about 27, 28 of the 100 RMs who belong to unique B30 towns, B -- smaller towns, Tier 2, Tier 3. Because we have a very strong principle of client centricity and a culture, which Rakesh has built over the last 15 years, to protect that, starting a peripheral unit by itself is something which may not be the most advisable. So these 27, 28 people may choose to go back to their cities, which they belong, where their parents live, where they're brought up, they know the regional language, they're able to relate to the fraternity there. So that's our strategy.
So in that process, we have started a Coimbatore unit. We have [indiscernible]. We have [indiscernible]. We have now started Ahmedabad. These are smaller units, which may not be called units but those are supposed to be built brick by brick with 1, 2 people who understand and who are our top RMs who go back to set up a business there. And they are already breaking even from day 1 when they reach their home location. And that has a lower cost of building a unit and would-be infrastructure cost in every city in India. In fact, I would say all Tier 2 cities, for sure, have at least 100, 200, 300 HNIs. And to go there, you can't send an English-speaking, golf-playing guy and expect the people will be able to relate to him.
So that's the answer, Sagar, from a strategy standpoint. And I'm sure Rakesh bhai can add a lot on this account because all of it is being tried.
Yes. On the -- yes.
I'll just ask for a comment from Rakesh bhai.
You covered this beautifully. I think the idea is to sow a seed, which we are doing in a lot of cities and will continue to do so. And we know that how it sort of grows. So like in Vizag, we have 1 RM, and now we are -- she's already trained a second person over there, and therefore, soon, we'll have 2 RMs over there. So in smaller cities, you have to organically sort of grow, and we have plans to grow it in a lot of smaller cities in the future.
But then last -- I mean, if you -- what are the typical ROICs in, suppose, say, 4, 5 years once you set up the branch? Just trying to understand that because the penetration is relatively slower in B30 cities. So that's what -- that's where I was coming from.
No, I don't think that is true. I think that, for example, the AUM in Vizag that this lady is handling is about INR 120-odd crores. She's taken about 3 or 4 or 5 years to get there. In the big cities also, it takes an RM -- takes 4, 5 years to get to INR 120 crores. So I don't see that being any different. You have the advantage of not too much of competition there. You also have a little bit of disadvantage that not too many rich people are floating around. So it balances up.
So I don't think that the narrative that ROIs are going to be lower is very valid. The costs pertaining to office, et cetera, et cetera, are very, very marginal compared to the rest of it. So for example, with INR 100 crores, you'll have a revenue of INR 1.2 crores, INR 1.3 crores. What kind of cost do you think will be there for having a small office? Mostly a thousand, INR 20,000, INR 30,000, INR 40,000 per month. So I don't believe that your margins are going to be significantly different in smaller towns.
We have our next question from the line of [ Abhijit ] from Kotak.
So I'm not sure if I'm reading the numbers right, but it looks like you don't sell much of other alternate products like PMS or AIF. So any thoughts if that's the right reading. And a related question would be any thoughts also on getting into investment management as well.
Hello?
Hello, sir?
Yes. Can you hear me?
[ Abhijit ], I'll take this question. The last part I missed, but let me answer your first part. We don't sell -- currently, we don't sell PMSs and AIFs because the standard deviations of PMSs are significantly more. We have analyzed several PMS portfolios, which have 6, 7, 8 PMSs, but our model portfolio on the mutual fund side, transaction by transaction, has beaten them. So currently, we don't sell PMSs and for the last 7, 8 years as well, almost 10 years now.
Why? Because there's tax inefficiency and several other reasons. We have a certain filter process to have a product line approved. And without that, our client objective of 11% to 14% is being met. If you look at the daily standard deviations of most PMSs operate at about 50%, 60% more than the corresponding mutual fund peers. That's one of the reasons because we -- our objectives for the client are not just return-based. They're also risks, which we measure. A 3-year standard deviation of generally non -- which should not be double digit. So infusing PMSs results in increase in the standard deviation.
Secondly, AIFs also have long-only ARFs. We believe that alternate investment fund should be truly used for alternate as an instrument. Equity common stock is the most [indiscernible] that being housed in an AIF is something which we disagree with. And we have an AIF license. We will use it appropriately when you are actually doing something which cannot be housed in a mutual fund or a PMS platform regulatory. Does that answer the first part, [ Abhijit ]?
Yes, yes, it does. Look, I think it also answers the second one, which was around getting into doing these businesses in-house as an investment management firm. I think your strategy or your thoughts on that, anyways, answers the second question as well.
Yes. So in fact, an MLD can be always housed in an AIF. We will explore that in the future.
We have a next question from the line of [ Sadanand Shetty ] from [ Taurus Equity Advisors ].
My question has been asked. Thank you.
We have a follow-up question from the line of Senthilkumar from Joindre Capital Services Limited.
Am I audible?
Yes.
So firstly, congratulations for a good set of numbers, especially for the realized AUM guidance. And my question pertains to the correlation between net client addition and the Private Wealth AUM growth. Actually, I see 40% -- nearly 40% degrowth in net client addition and sequential basis. But as we have reported a 10 -- 11 percentage growth in Private Wealth AUM. And how should we read this, sir? Your color on this, please?
Sure. Let me answer that. I missed your name, sir.
Senthilkumar.
Senthilkumar, thank you so much for your wishes. And thanks for the question as well. Firstly, AUM, so client addition has not reduced. If you see 450 for the quarter 2 and 270-odd for this quarter, which is quarter 3, it will look like a reduction. It is not that the clients -- some clients get added or subtracted because of movements in market or small redemptions which come through. So whenever you look at client additions, you have to look at a longer period because mark-to-market can move some clients up or down. Does that answer, Senthil, first part? Yes, you have to look at 801 and compare it with 1,120. So in 9 months, I've added 320 more clients than what I added in the first 9 months. Is that clear?
Yes, clear.
Okay. So it's not a reduction in the pace at which clients are being added. So that's a wrong conclusion.
That second part is AUM. AUM is like a photograph. It is on a specific date, okay? So like June end -- sorry, September end, the Nifty was not at great levels. So net addition of inflows and outflows will give you a better picture of how much money we are getting from marketplace. The last 9 months have not been great sentiment. In spite of that, we got INR 3,715-odd crores from clients, new clients and existing clients giving us more money. When times are bad, we look better to several of our clients because in good times, everyone is making money.
So when, in bad times, clients give you more references and more AUM and they consolidate their portfolios with us, it is because a relative comparison. People don't do when everything is doing very well. People will buy a PMS and double their money, then they will not be so worried. But when they underperform elsewhere is when they start getting [ concerned ]. So INR 3,715 crores of net mobilization is a better number to look at in terms of new money which came in, which was 94% greater than the previous year, same 9 months.
Senthil, you had another part also to the question. Sorry, I missed it.
No, that's it, sir. That's it.
We have our last question from the line of Pallavi Deshpande from Sameeksha Capital.
Just following up on that, like you said, in the rough times, we look even better. So what would be outlook given the rough time, [ which is continuing ]?
Sorry. Can you use your handset, please?
Yes. So I just continue on the previous question on when you said that in the tough times, we look better. So given the current environment, tough times seem to be continuing. So can we assume still allow performance going forward? And yes -- on the net inflow side.
Thanks, Pallavi, for your other questions. So I'll make one comment and give the last word to Rakesh, sir.
So will -- are we doing enough and more to make sure that our long-term guidance of 20%, 25% holds? 2023, in our hope, is going to be better than 2022. So irrespective, growing at 20%, 25%, we think is a conservative guidance clearly. And for 2023, we are definitely attempting to beat that.
And Rakesh, sir, if you can give an elaborate answer to Pallavi madam's question, if you can please.
I think you've given the direction. Our belief is that 2023 would be far better than 2022. And you're already starting to see the results of companies that are coming on. And our belief is that, say, companies do well, then the markets will catch up, sooner or later. And similarly, companies do well when the opportunities increase. The GDP grows at 5%, 6%, 7%. There's opportunities for companies to grow. And therefore, I'm not a believer of many of the people who say, "Hey, massive recessions are coming, et cetera, et cetera." So having said that, I think that there will be good quality growth in terms of the AUM per se created by market.
The second part is net flows, yes. Net flows is a function of client additions and penetration. There's so much that we are doing to increase penetration of existing clients as well as acquisitions. I think Feroze mentioned the entire audit program that we have started, that when you audit the assets lying outside and show to the client mathematically that those assets are not very efficiently placed, there is a large tendency of the client to bring those assets for the better and more efficient management with us.
So I think exercises like this, whether it is audit of mutual funds, audit of insurance policies, audit of real estate and so on, so forth, which gives them clearly that say what they are making there and what they can make here. So this exercise brings in depth of penetration. So we believe that these exercises will lead to the net flows having a very robust momentum next year.
Yes, that's what I wanted to say. Does that answer, young lady?
Yes, sir.
Thank you, Rakesh, sir, for that answer. Pallavi, if we look at this business has got a vintage advantage. As you progress, RM vintage and client vintage helps. If you look at the client vintage segment-wise on a year-on-year basis, if you look at the 5-year plus clients, have on average AUM which is 4x more than 1 to 2 years. So if I just extrapolate time passage and the average is remaining identical, then we are looking at growth greater than what has been indicated without client addition as well.
Right. If you just...
Pallavi, sorry, you're not audible. Your voice is cracking.
Yes. It's just -- if I may just squeeze in one last one on the MLD side. You could have some -- you have some quite a few bunching of MLD maturing during June 2023, if would that cause any volatility in MLD flows for FY [indiscernible].
Sorry, which FY? You're speaking of FY '23, '24?
I'm speaking of June '23 [indiscernible].
Your voice is very [indiscernible], Pallavi. I'm missing...
The June '23 MLDs, those maturing in June 2023, will that cause volatility for FY '24 inflows of MLD?
No, no. We have extrapolated our maturities, and that's a reasonably smooth curve. I can tell you that. And I don't know why you're specifically asking June 2023. Is there a particular reason, Pallavi, in asking June 2023? Because...
MLDs, some of them are bunched up [ 2 years ].
So we have a very well placed maturity profile and for reasonable periods of time. And our rates of reinvestments are driven by the client allocation decision. And when the reinvestment comes, there is hardly any conversation because there are gaps in the allocation. They automatically get reallocated. So for a reinvestment of INR 100, there -- in most cases, we don't even have to discuss more than 5, 10 minutes with the client because there is an allocation already decided. So reinvestment, just like the mutual fund industry, used to have an [ SMP as a format ]. [ SMP ] used to measure. They used to get rolled over. That's the kind of principle.
So to answer your pointed question, Pallavi, there is no -- it's a reasonable smooth curve of maturity, an 80%, 85% reinvestment, which is decided by the allocation and not by individual conversations that maturity is the nature of the business.
We have a question from the line of Sunil Shah from Turtle Star.
Feroze and team, we really need to appreciate the culture that you cultivated in this organization. I guess we are strictly at now 4 different products of 11%, 12%, 13%, 14% return for the client. And it's really good that long-term compounding is actually what will roll out for the organization because of the stickiness of the client. So my point is the uniqueness that we do is the MLD product, which does not work easily from the wealth management side available unless focused on what we want to do.
So would MLD involve any amount of risk at maturity for any client? Because now we are going to almost 20% from outside of our organizational concern. So I just wanted to make sure about the risk in the MLD part. Could you just give me confidence actually?
Yes, Mr. Shah. As you rightly pointed out that we are very positive about our culture and the client centricity. We -- of course, the organization aspires that, and so do we, and we are very positive about that. And the culture built has a lot of inspiration from Rakesh's experience for about 10, 12 years.
Now coming to your pointed question, MLD, the reason why we used to have 100% of MLD in an entity, which was other group entity, is because we stopped selling Edelweiss and Reliance Capital MLD, which we used to sell previously. We have a team in the research, which identifies credit risk and is reasonably ahead of the curve. That's why Reliance Capital, which was a AAA-rated NBFC, which issued MLDs, we quit Reliance Capital 2 years before. Some of the mutual fund companies [ didn't quit till default ].
Now coming back to -- unless we are very comfortable, we don't give away credit risk management to any other company. [ Nuvama ], of course, we've got the comfort with a 54% holding by [ Nuvama ]. That's why you see close to INR 600 crores have gone there. But MLDs, as long as the money, like the group entity also, Jugalji is the best person to tell you, and I think my NBFC is also overlooked by our group CFO, who has been with the group from since '93, '94, the kind of management stability there and the money allocated and very prudently deployed unlike most NBFCs. We are an asset-backed NBFC rather than a liability-backed -- liability-backed NBFC than an asset-backed NBFC.
So probably, we can take this question off-line, and I can give you more information for the lack of time since we have gone to 1 or 5 minutes already.
No, no issue. I get the point.
Rajesh, do you want to add something?
As you rightly said, we can have off-line discussion.
We have our last question from the line of Rohan Mandora from Equirus Securities.
Just wanted to touch base on the employee -- sorry, client addition discussion again. So because in this quarter, the explanation that you are giving that if the AUM is going below a certain threshold, we are not counting them in the number of client count. So would it be fair to assume that most of these are due to redemptions in this quarter? Because MTM, it may not be there this quarter. And if so, like what would be the quantum of clients who would have completely executed the relationship?
What -- Rohan, right? What happens is Q2 number might have been inflated because of Q1 number because June quarter was very depressed. The rate of addition in gross, there's something called upgrade, downgrade of clients and net additions. If I look at net addition, that has marginally gone up. I will give you precise numbers. Redemption as a trend is not influencing this much. The client attrition number is very low. And if your RM attrition is very low, client attrition further goes down. But you will have to allow us some time to give you precise numbers. Your question is very valid. We'll give you that data, for sure.
I would now like to hand the conference over to management team for closing comments. Over to you.
Jugal, sir?
Yes. Thanks, friends. I take this opportunity to thank everyone for joining on the call. I hope we have been able to address all your queries. And on 2 points where we have suggested off-line discussion, I will request Mr. Vishal Sanghavi and our SGA team to have the meeting or call arranged and the queries addressed. In case if you have any further information, requirement or any further query, kindly get in touch with our IR Head, Mr. Vishal Sanghavi; our CFO, Mr. Rajesh Bhutara; or our adviser -- Strategic Growth Advisors, our Investor Relations Adviser. Thank you very much.
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.