IIFL Wealth Management Ltd
NSE:IIFLWAM
IIFL Wealth Management Ltd
NSE:IIFLWAM
Price:
429.6 INR
0.21%
Market Closed
Updated:
May 3, 2024
Section:
Earnings Call Analysis
Summary
Q1-2024
Q1-2024
Revenue Steady Amid Advisory Shift
The company anticipates a slight roll-on effect across full-year advisory and non-discretionary PMS revenues, projecting a potential reduction of 5 to 6 basis points. However, this is expected to be offset by an additional INR 7,500 crores in Tailored Brokerage Recommendations (TBR). AUM figures are projected to remain solid, with expected operating margins within guidance. Employee costs are estimated at around 32-33% and other expenses at 11-12%, leading to a cost-to-income ratio of approximately 44-45%.
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Good afternoon, ladies and gentlemen, and welcome to 360 ONE WAM's Q1 FY '24 Earnings Call. As a reminder, all participant lines will be in listen-only mode. There will be an opportunity for you to ask questions after the management shares their thoughts. [Operator Instructions] Please note, this conference is being recorded.On the call today, we have with us Mr. Karan Bhagat, Managing Director and CEO; Mr. Anshuman Maheshwary, Chief Operating Officer; and Mr. Sanjay Wadhwa, Chief Financial Officer.I now hand it over to Sanjay to take this conference ahead. Thank you.
Thank you, Anil, and a very good afternoon to everyone on the call today.Public market sentiments saw a significant improvement in Q1 as against our second half of last financial year. The benchmark indices is all time high boosted by strong FII flows and encouraging market indicators. The global risk and growth continues to remain cautious on the back of uncertainty related to Global Central Bank's policy updates. However, in India, we did strong domestic drivers is expected to show continued resiliency and growth recovery. On the current quarter at 360 ONE WAM, our diversified portfolio mix heads the net flows and our focus on recurring revenue streams continue to hold us in good stead. We saw growth across key matrices such as ARR, assets, net flows, retentions which led to strong rise in profitability. The business and financial performance is in line with our FY '24 guidance.Before we deep dive into financials, we would like to highlight that we have announced an interim dividend of INR4 per share. This is our second interim dividend for this fiscal, taking the total dividend to INR8 per share.Now coming to the financials. Starting with AUM. In line with our focus on ARR assets, the total ARR AUM increased to INR1,90,390 crores, up 33.3% Y-o-Y; this growth was driven by strong net flows of INR12,975 crores during the quarter. Our wealth ARR AUM stood at INR126,285 crores, up 42% Y-o-Y while AMC AUM stood at INR64,105 crores, up 20% Y-o-Y. As noted in all our previous calls, our focus remains to increase ARR assets and high-quality revenue generated from them.Now coming to revenue and retention. Our recurring revenue increased by 7.1% Y-o-Y and 15.5% quarter-on-quarter to INR323 crores. As a percentage of operating revenue, recurring revenues now comprise 80%. As stated in our previous call, we have now moved to accrual method of accounting for carry income. The accrual is based on conservative fair value estimates of the carry income in the funds which are close to maturity in the last 18 months of their life cycle. The carry income is not included in the recurring revenues. During the quarter, we have approved INR40 crores of carry income. To reflect this change, we have restated the numbers from the previous quarters in our Q1 disclosures. This change will bring in steadiness and predictability in carry estimations. Hence, just to repeat the carry income is now part of ARR revenues.Our total revenues for the quarter were up 17.6% Y-o-Y and 12.7% quarter-on-quarter at INR434 crores, driven by growth across business segments and higher other income. Our retentions on ARR assets have remained strong at 73 basis points as against 70 basis points in Q4 FY '23, the wealth ARR retentions being at 70 basis points and asset management at 80 basis points.Now coming to expenses. For the quarter, operating costs rose by about 25% to INR210 crores for the quarter due to strengthening of sales team and some higher marketing and sales promotion expenses. Cost to income ratio stood at 48.4% versus 48% in Q4 FY '23. We expect this to moderate over the year as the current quarter included certain one-time marketing expenses.Coming to profitability, PAT stood at INR181 crore, an increase of 13.4% Y-o-Y and 16.9% quarter-on-quarter. Importantly, our tangible return on equity, which is ROE excluding goodwill and intangibles continue to remain strong at 28.6% for the year. This is a result of prudent capital management and regular dividend payouts.With that, we come to the end of financial highlights. I will now hand it over to Anshuman to cover key business and strategic highlights.
Thanks, Sanjay. Good afternoon, everyone.The last four to five quarters have been interesting for the industry as well as us both in terms of equity market movements and business trends. In this period, 360 ONE WAM has been able to showcase agility, resilience and steady growth in contrasting periods of weak momentum as well as new market highs. We strongly believe that we have significant growth opportunities given the outlook on India as well as our leadership positioning in select business segments. The competitive moats that we have built through our sharp focus on wealth and asset, leading proposition, deep client relationships, continuous product innovation and robust risk and governance position us uniquely for the opportunities ahead. Accordingly, as you would have seen in this quarter's Investor deck, we have provided a summary of our view on the medium to long-term assessment of the addressable market opportunity and our focus areas.On Wealth, we see a $1 trillion market opportunity doubling over the next five years. Firstly, our core Wealth proposition focused on the UHNI segment is at $800 billion market across 30,000 to 35,000 households currently. The growth in Wealth is expected to be the highest in this segment, combined with increased professional wealth management penetration. Our focus for this segment remains on, first, deepening our current relationships and increasing our share of wallet of existing and future wealth of these clients. Secondly, continuing our geographic expansion across domestic cities as we expect this phase of growth in Wealth to be far more dispersed across India. Third, selectively expanding in offshore locations as we expect a global presence to become increasingly important for this segment of clients. And lastly, continuously sharpening our advisory proposition and product platform to cater to the emerging client requirements.The second aspect of wealth management, our ability to address the next segment of HNI clients opens another 160,000 to 170,000 households for us. We are excited by the prospect of being able to take a sharp and unique wealth proposition and all the strengths of our current platform to this segment of clients. The business build including significant digital developments for being able to address the requirements of these clients effectively is progressing well and we are on-track for going to market towards end of quarter three beginning quarter four of this financial year. On Asset Management, India remains a relatively nascent market with tremendous growth potential. At about $600 billion of AUM, we are only at about 15% to 20% of GDP, while the global average for Asset Management AUM is 70% plus of GDP. Specifically for us, at over $7 billion AUM and with a high single-digit market share, we have unparalleled leadership on the alternate space in India. Our build-out in each key strategy, which includes listed equities, private equity, private credit, infra and real estate is playing out well with strong traction from ultra-high net worth, high net worth clients, family offices as well as increasing domestic and institutional interest. We expect alternates to remain the fastest growing segment within Asset Management and we will continue to gradually add strategies and further ramp-up our investment teams.Mutual funds remains an interesting market opportunity. We have successfully built-out selective equity products with strong sustained top decile performance and will continue to be on the look-out for differentiated offerings. Our distribution reach specifically with individual MF distributors is also getting build-out well and we maintain the optionality of growing our presence further in this market.So overall, while we have leadership presence in our core wealth and alternates business segment, and these will continue to be the bedrock for our growth in the near future, it's important to note that we have a potential addressable revenue pool of over INR50,000 crores growing at double digits annually. We are excited by our positioning and ability to tap into this expanded revenue pool and are confident of being able to drive strong double-digit growth in AUM, revenues and profits over the next few years.With that, I would like to open the session for Q&A and I'll invite Karan to come on as well.
Thank you, Anshuman. [Operator Instructions] We'll begin with Prayesh Jain. Could you unmute yourself and ask your question?
Just a few questions. Firstly, I think on the 360 ONE Plus, I think we saw very strong inflow in this quarter. Could you highlight as to what was the differentiating factors that played out in this quarter? And is there anything specific one-off out there or do we see the momentum sustaining there?
So I think from 360 ONE Plus, I think it's kind of been a special quarter for us because obviously there were three, four large public market listings where effectively there were a few promoters who ended up doing an offer for sale. In addition, the level of market activity in terms of secondary sales of even unlisted business continued to gain traction. I think it's not a one-off in that sense, but we ended up having a fairly large kind of market share in the new wealth creation over the last quarter. And it's safe to say I think 65% to 70% of the larger clients who ended up with a secondary liquidity event, we were able to convert in the last quarter. Having said that, obviously, a large amount of conversions have happened through the quarter. A lot of these flows will get invested over a period of time. And with some of these clients, we've not yet kind of finalized the final fee structure. So in the yield, you see in fact, only of around about half of these mandates, the remaining half are going to be finalized as we speak over the next quarter or so. But yes, our general market share and conversion of new clients, especially for secondary sales either through IPOs or otherwise has been phenomenally high in the previous quarter.
So Karan, is it fair to assume that the AUMs on this business will improve in the second half and a bunch have finalized, because --
For sure. I think the yields will definitely improve. I think it's a combination of three things, the yields improving. One obviously I think close to around about INR3,500 crores on our non-discretionary PMS become fee payable more or less starting second half of this year, which is effectively stocks which we are carrying in basket for the last 2.5 years because their products done in the previous regime pre-2019, where we received distribution commissions and hence we are not able to charge any fees. They automatically become largely fee bearing from the second half of this year. INR5,500 crores under the advisory are not still fee bearing at all. And in addition, I think even on the remaining assets, I think we had fixed fees slightly earlier. I think there will be a slight bit of pickup there also. So overall, definitely, I think towards the second half of the year, not necessarily for the -- you will definitely see a largest pickup in the yield. Maybe only for that quarter and subsequent quarters, the yield pickup may not be large enough to make-up for the first two quarters, but definitely, there will be a substantial pickup in yield in quarter three, quarter four.
On the alternate investment side, like we have been discussing about the flows should move towards credit and beyond listed equity is a space that you would look to garner higher flows. But honestly, we haven't seen any differentiated traction out there. So could you throw your outlook there?
Actually the traction incurred has been quite good, to be honest during the last couple of quarters. It's just that it's got shaved off by 1,000 and 1500 per outflow on our Special Opportunities funds which have come-up for redemption, the funds we have raised in 2018, 2019. And obviously, for book value this kind of appreciated and broadly I think INR6,000, INR6,500, INR7,000 crores we have collected, we have returned maybe approximately the same amount or slightly more back to clients and we've got another INR4,500 crores, INR5,000 crores return to clients. A large part of it has happened in quarter four and also in quarter one and we've got another INR2,500 crores and INR3,000 crores to return. So I think from a return perspective, I think this year we will see a little bit of pre-planned outflows on private equity, but I think in the real assets and the credit category there'll be enough amount of inflows to make-up for that. And I think supplemented by listed equity flows are expected to be substantially better in current quarter or next quarter, but credit itself has done fairly well over the last two quarters, including credit and real assets. But it's been a little bit offset by the automatic redemption in the Special Opportunities Funds.
Okay. There's a couple of book-keeping questions. Firstly, the restatement of the carry income that's only there in the AIFPs and nothing on the PMS, right, is that understanding correct?
Yes, that's correct.
Okay. Secondly, on the employee cost front, so is this a sustainable rate?
Sorry, on which one?
Employee cost.
Employee cost is sustainable. That's pretty much as per budget. I think we've been INR5 crores, INR10 crores over-budget on the admin side. We had a large employee event for the first time after COVID and we had a 15-year completion. So we had a large employee event and we also did a similar client event in quarter one. So it's kind of -- that's added to round-about maybe INR5 crore to INR6 crores out of that INR10 crores and the remaining INR3 crores, INR4 crores was driven by specific tech initiatives. But outside of that, it's pretty much in line not really something which we are really concerned about showing up every quarter.
Okay. And lastly, is there any -- beyond the reclassification on the carry income, there is no other reclassification across the P&L statement, right?
No. And reclassification also has an impact on a Q-on-Q basis of around about or rather on a year-on-year basis, the impact will be fairly negligible. I think last year, our carry, if I remember correctly, it was around about INR80 crores to INR85 crores. I think the amount will be fairly maybe 10%, 15% higher. So it'll be around about INR100 crores for the entire year. I don't expect to be dramatically different from previous years.
Okay. And no change in targets, which you've highlighted for FY '24, no change there, right?
No. As of now, pretty much as per plan. I don't see any reason for any change. I think, the only thing which we would kind of be a little fungible about INR75 odd crores, without a change in the headline and the bottom line number INR7,500 crores fungibility between ARR and TBR will be there. But outside of that, I don't see any change in the headline, topline and bottom line there.
Next in line, we have [Jolly]. Kindly unmute yourself and ask your question. Jolly, could you unmute yourself and ask your question? We'll get them back on the line.
I think he's on mute.
Yeah. He's on unmute. So I'll request Bhavin Pandey.
Just wanted to understand what would be your guidance on this cost to income going forward. As sir mentioned that it might come down a little more, so how much are we looking at?
In the same region of 40%, 43.5%, 44% to 45%, like we guided.
Okay. And secondly, as we mentioned that we had strong inflows because of the large listings or wafers by promoters and benign secondary market. So can you give us the breakup with the INR120 billion inflow that we had. Out of that, how much was this?
Around 70%, 72% would be this, 25%, 28% would be transfer of accounts from other wealth managers and increase in wallet share.
Okay. And just one last thing, as you mentioned that mutual fund is an interesting opportunity and the performance has been in top decile, but aren't we concerned about yields as compared to what we have in our alternate space?
So I think Bhavin, what we've done on the mutual fund space, as of now, we've been conservative in our distribution payout to our distribution partners. We have kept these kind of retentions closer to the 50 basis points even for the mutual fund business. On the PMS side and alternate side, obviously, it's closer to 80 to 90 basis points. And I'm just talking about listed right now. And on the SME side, which is the larger institutional mandates, it comes off to around about 35, 40 basis points. So I think as a combination of these three, I think we'll continue to try to be around 65, 70 basis points. And we are in no hurry to grow the mutual fund side by sacrificing yields and retentions. We are fairly confident that we'll be able to grow steadily there with decent performance at the 45 to 50 basis points retention. Alternates PMS will continue at the 75, 80 basis points, and the institutional mandates at 40 basis points. So I think the listed space on a combination of these three will continue to be in and around the 65, 70 basis points.
Okay. And just one last thing. How do we sort of, over the next five-year period look at our sales for expanding the relationship managers that we are looking to add?
I think I'll try and kind of give as comprehensive an answer as I can. But some things keep evolving. I think of our relationship managers salesforce, I would kind of divide it largely between three big verticals.I think the first large vertical really is [Technical Difficulty] I can hear somebody here. So one large vertical is largely going to be the for the lack of a better word, the senior private banker. The private banker who has the ability to originate and manage large clients on an advisory asset allocation basis and pretty much good managers on book in some cases assisted by a couple of junior bankers or in some other cases, he also runs a team of five to six junior bankers. I think these individuals in our system are close to earn about 60 to 70 or rather 70 to 75 and make-up the core of our wealth management business in terms of origination of large clients.The second set are essentially relationship managers who -- so this team including the junior bankers for the lack of a better word, I saw all the junior bankers obviously very senior with 15, 20 years of experience, but I'm just talking from a role perspective. This will make up around about 160, 170 people across the firm for us. We have another 60, 70 bankers who are currently that's relatively slightly fresh more focused on the distribution part of the business and may not have the seniority or the expertise to be able to manage clients on the broad asset allocation advisory business. I think those relationship managers today as we speak will play a very pivotal role for us to expand our urban market stroke high net worth business as we go along.And third, I think where we need to really add to our sales force is on the asset management side. I think we have got a really good experience feedback with response for our set of products and ideas across the board from individual mutual fund distributors or others and we have a lot more confidence in our ability to have external facing distribution partners. And therefore we need to expand our sales team a bit. We are around about, if I'm not wrong, 20 to 22 people on the asset management side. We've kept our sales team very, very tight and conservative in building-out our AUM of INR65,000 odd crores on the asset management piece. I mean that's something which we look forward to expand as things go wrong over the next 6 to 12 months.So if I look at the sales team, I think the other three places which will kind of build out and I see expansion in all three. Having said that, the profile of people along with their strengths and capabilities which we're looking at recruiting across these three verticals are quite disparate and quite unique in their own ways.
And just one last thing before we conclude. The guidance stays intact for yield, blended?
Yeah. I think as I said earlier, I think the guidance I am quite comfortable with. The only thing I would say is, depending on the pace of the ARR and the adoption of fees, I think approximately INR7,500 odd crores maybe INR75 crores swap between TBR and ARR might happen, but that's really a function of the pace of the flows and the quantum of flows and which month it comes in. So I think that's the only thing we'll have to balance out between INR75 crores to INR100 crores, but outside of that pretty much in line.
Next, we have Mohit Mangal on line. Mohit, kindly unmute yourself and ask your question.
So I've got three questions. First is, if I look at your PPT, you have included a new line item, the registered investment advisors, RIA. Okay. So basically that has increased from INR214 billion to INR345 billion. So wanted to know if I have to bifurcate between the MD PMS and RIA, what would be the number?
Do you have the exact number? I think it will be approximately, 60% would be MD PMS, 65%, 35% would be RIA, but what we've done Mohit is something slightly different. So now a lot of the new advisory wealth clients are also coming on the RIA. So these are essentially clients on RIA who are coming in a similar format to MD PMS, which is consult, kind of clients who are coming in RIA on the corporate treasury side, we started reporting them separately because they really come at a very different yield from the core wealth business. So the second line item outside of the engagement being MD PMS or RIA really has no impact either from an yield perspective or from a segment of client perspective. So both are exactly the same.
Okay. So if I see MD PMS is running around 20 bps and if I'm not wrong, historically reached to around 35 basis points on that. So are they coming at a discount?
No. There is nothing to do with pricing, it's just a function of time. Both have the same pricing, same model of engagement. There's really no difference between the two, there is no difference on account of pricing whether somebody is coming on MD PMS, somebody is coming on RIA. It's just that we started with MD PMS. And now, we started taking clients on RIA also. That's the only difference. And the reason there is a difference in yield is what I said earlier, because the newer clients and who come in in the last quarter around INR5,500 crores, INR6,000 crores. I think exactly INR5,500 crores, INR6,000 not yet shown in the fee structure. That's the only difference. There is no difference in yield because of the engagement model being RIA concerned, both are exactly the same. The only difference of corporate treasury which you've taken out as a separate line.
All right. And if I look at the discretionary PMS within the 360 ONE that has remained flat. So is there any outflow in that?
There is an outflow in that. There's one single client who had about $100 odd million as an outflow. Outflow is not really on account of either performance or anything else, so that the client needed liquidity for one of its businesses. So we expect it to come back over the next six odd months. But there is an outflow of INR100 million there, slightly more than -- INR125 million.
INR125 million. Now coming to alternative flows, I think we saw this quarter having around INR600 crores of [indiscernible]. And if I look at seven to eight quarters, we saw pretty uneven kind of it, some quarters, we have INR500 crores to INR600 crores [Technical Difficulty] kind of the flows within this alternative space?
Actually, to be fair, the flows are not that patchy. What is patchy is the outflows. Maybe from next time, we will start reporting gross sales and net sales, because if you see the gross sales numbers, they're quite consistent. I think what becomes [completely] patchy, the net sales because of the outflows happening only in a few quarters without happening in the other quarters. So I think a couple of quarters through the year have outflows because of maturity of the redemptions. And for that specific quarter, the net flows look slightly tepid. But I think from a gross flows perspective, it has been pretty consistent every quarter.
Perfect. My last question is towards the transaction revenue. So if you see beyond around INR80 crores, INR82 crores this quarter and that considering the market was pretty good, do you think the syndication income lagged this quarter?
Mohit, I think we're making a conscious effort to try and move as much income stream as possible from even the syndication income and trying to see how they can be converted into packaged products, pool ideas, which last over a longer period of time. So from our side, I think the effort will be sequentially over a period of next two, three years, all things being equal. I think if I am trying to reduce this bucket to the minimum possible, which would mean not, there are certain forms of income, which can only be booked in the form of brokerage and upfront transaction fees, which I think would be around about INR200 crores a year, around INR50 crores a quarter. The rest obviously I think depending on how you package the product, how you format it, how you kind of offer it to the client, it can be potentially turn into long-term income. So I think our effort perpetually is to try and move everything outside that INR200 crores into a longer-term engagement with the client. Having said that, obviously, we will continuously balance the requirements between the two.So I think all things being equal, I think, we would like -- I think that number is unlikely to exceed INR375 crores, INR400 crores for the year and unlikely to be below INR300 crores, but that's the number. I think in a span of maybe 12 to 24 months unless we start some new business in terms of business which kind of contribution to transaction income. I think on the current set of businesses I think INR200 crores as long-term transaction income provided we can shift the rest to long-term annuity is the place we wanted to be here. But that's something which is immediate. I think where we are right now, I think the right number is going to be between INR80 crores to INR100 crores a year. I think from a three-year perspective, potentially, we will see the same income as INR50 crores to INR60 crores. And one, the remaining INR40 crores, INR50 crores also to be turned into annuity income.
Next on line, we have Anirudh Agarwal. Kindly unmute yourself and ask your question.
Yeah. So first one was on our own asset management side. So we've spoken about the expected outflows on the private equity side, but on the listed equity side, do you now see flows resuming with the market performance? So first quarter there would have been some profit booking et cetera by certain clients. How do you look at the outlook on the listed side going ahead?And secondly, just to close on the asset management side, do you see opportunities on the private equity side also opening up later half of the year with this kind of sentiment.
No. I think quite bullish on both. I think we are already seeing lots of positive tailwinds on the listed side, especially given the performance of all the three products, which are pretty much ranking among the top three schemes in every category. So I think listed you'll definitely see a fairly large pickup in flows over the next three to six months.On the private equity side, obviously, I think we had a fairly good year last year where we ended up collecting a large chunk of money last year and towards the quarter four of the year before that. We typically need to give it a 12 to 18 months breather because we need to invest at least 60%, 70% of the money was collected before we can go out to the market for any new large fund. I think quarter three is the time where we can really go out to the market for a large fund and that's really where I think quarter three, quarter four is when the flows on the private equity will pick up but listed equity will start seeing definitely largish improvements inflows from this quarter itself.
Got it. And where would be it on the institutional mandates that we were targeting on the listed equity side?
So I think we are in discussion with a few. We missed a few on account of pricing. I think not really on account of selection or performance. I think it's a fine balance between pricing and getting the right mandate. Obviously, with our existing four large investors, we have a commitment not to go below a certain price and we're going to stick to that. Within that mandate of having the right price, I think we are in close discussions with a couple of institutions. I think over this period of next nine-odd months we would expect at least couple to come through.
Got it. Just on the cost side, I mean could you quantify what part of the employee cost increase was standard increments versus just the cost to roll out the new team.
I think half-half broadly, just the delta of increase.
So INR10 crores odd would be the new team.
That's right. Approximately I think INR10 crores and INR8 crores would be the right -- yeah, that's broadly the right number.
Okay. And just to re-confirm, on the admin cost side essentially we will broadly stick to our guidance for this year.
I think maybe INR10 crores off or INR15 crores off, but not INR10 crores a quarter off. So effectively what we had is 200-mile endeavor to 210 or maybe maximum 212, 213, but unlikely to exceed beyond that. Yeah.
And last question was on the cash balance. So we will have certain cash balances that gets released through the course of this year, right. The money that was invested in our own AIFs. Essentially any plans on that, anything on the inorganic side, I know we made a couple of small ticket sort of acquisition taking in some states, but anything that you're seeing?
Honestly, nothing immediately. So hypothesis on acquisitions typically, it's been around saying that this should definitely add a new segment or a client base, which we can't go after otherwise. Honestly, I think we believe that given our entire product depth and our ability to add people across 8 or 9 times out of 10, we are able to get access to the client. We really don't want to spend too much money on acquisitions to get that access too fast. I think they're able to get that. Having said that, we would want to kind of make some bit of investments to see how to kind of cement our franchise a little bit more in some areas and some specific cities, but it's more likely to be through acquisition of teams other than acquisition of businesses. I think we would also need to invest a bit in building out our -- a little bit of our sales teams in Singapore and Dubai because those two markets are kind of emerging as very, very large Indian hubs in that sense. So while our domestic and investment expertise will continue to be focused on India investments, our ability to have some bit of an outreach in these two locations will also become important. So though I really won't call it wiring a business, I think we would end up investing a bit in terms of acquiring the right teams to build platforms both in some cities as well as in a few overseas locations specifically, Singapore and Dubai.
Got it. Just on the other income, the INR30 crores other income is just on mark to market or is there anything else?
No, just the mark-to-market.
So is there a case wherein other income this year would be materially higher than that INR30 crores that we guided for, for the full year or most it is in knowing.
All things being equal if markets are broadly at similar levels, I think we might end up with a slightly higher number. We might end up with INR70 crores, INR80 crores. But just from a conservative perspective, it's really something out of our control. So we have kind of modeled that INR30 crores to INR40 crores. But yeah, all things being equal might end up at INR70 crores to INR80 crores.
Next in line, we have Abhijeet Sakhare. Abhijeet, kindly unmute yourself and ask your question.
So first question, full slide on the HNI mid-market numbers. So the question was that it seems like from the commentary, we've been gaining good share on the ultra HNI side. So looking out, let's say, three, five years, what's your sense on the kind of growth we can deliver from this space itself? And then further on, how are you looking at uplift to growth numbers coming from the mid-market side?
I think in that sense, I think the three factors really I think and with that also kind of comes out clearly in that slide. First, I'll refer to the 30,000, 35,000, 40,000 people on the ultra high net worth side, right. So, I think, my sense is, obviously, we have active wallet shares from around about 2,800 to 3000 families on the ultra high net worth side. My sense is, we are in touch with another 3,500, 4,000 of these families. So I think we have a site to around about 15% to 20% of this client base and maybe potentially a market share of dealing with 6% to 7% of this client base. Now obviously from a tailwind perspective, there are three things which are happening here, right. So obviously, the growth of wealth of these set of clients is slightly disproportionate compared to the rest of the triangle. So we see wealth for these clients itself maybe potentially grow by 10% to 15% as opposed to the 7% to 8% growth across the broader economy.And the second parameter which I'm seeing right now is maybe the most important. I think the acceptance of having professional wealth managers is definitely on the rise. I think we would put that number closer to maybe half the set of 35,000, 40,000 people. I think but that number is going to progressively increase definitely, therefore that kind of increases are comfortable market based in that sense.And third, obviously, is our own ability to increase our market share both in terms of new clients as well as in terms of wallet share. So I would like to believe if the base level growth is 10% to 12% multiplied by half which is effectively the reachable client base, improve that half a little bit and then factor in wallet share growth as well as our own market share growth. I would like to believe we should be able to grow. The entire industry is growing at 11% to 12%, we should be able to grow at 15% to 18% number for sure on the ultra-high net worth piece itself.On the mid-market, again, if I look at the current business maybe around about 15% to 20% of our current business is really already coming from this segment and 80% to 85% of our segment is in the ultra-high net worth. So as we build out the -- what we're calling the high net worth or the mid-market segment and we'll get to the right branding and so on and so forth over the next two, three months before we launch, but if I look at that segment, I think we'll have a bit of a [Technical Difficulty] wealth managers for that segment. And I think the most important vote of confidence you really have is a combination of our brand with this segment as well as our ability to be able to map-out the right set of products and ideas.So I think we should be able to make a mega progressive show of strength in that segment. I think we may start off slightly slow over the first six, nine months. But I'm quite confident, a similar market share of maybe potentially 7% to 8% to 10% is what we can get to over next three to five years in that segment.
Just a small follow-up on the mid-market side. I think what you're picking up generally is that it seems like the product platform has lot more importance on the mid-market side, but parallelly, the challenge also seems to be that it's also tougher to get the right RMs or probably tougher to retain them. So in that context, I mean how are you kind of --
I think it's a fair point. I think the persistency ratios for both plans and relationship managers are unlikely to be as high it's on the ultra-high net worth side. But what we see on the ultra-high net worth side is practically impossible to repeat on the high net worth side because if you see the persistency ratios of both clients as well as relationship managers, they'll be in the high 90s, right. So I think virtually impossible to repeat that on the high net worth side. But I think it'll still be better than on the asset management business where you see persistency ratios [indiscernible] for very good performing products, for products which our average you see it dropping between the mid 70s. I think the high-net-worth segment would be somewhere in the late 80s or the early 90s. But I see it quite repeatable and quite in some senses having a lot of I would say equal weightage to [Technical Difficulty] and equal weightage access to last mile. I think on the ultra-high net worth side, I would put a little bit of higher weightage to access to last mile as compared to products, I would put another 60-40 ratio whereas on the high net worth side or the mid-market side, I would practically say it's equal. We need both, we need access to the last mile, as well as we need a good combination of products.On the asset management, I think obviously it moves a little off, it goes to maybe 40% access to last mile and 60% product innovation. So I think that's the split. So yes, you're right. I think persistency ratios as well as in partners to last mile will be slightly low. But that's the opportunity for us also. If we can get the right amount of product standardization, adoption and distribution along with the right set of trading tools for our relationship managers, I think we might be able to bridge the divide which is there currently.
Next I invite Dipanjan Ghosh, kindly unmute yourself and ask your question.
So few questions. Karan, just going back to that point on RIA versus MD PMS. You have given some numbers on last quarter and this quarter. Some triangulation and again there can be differences in calculation based on daily AUMs, but it seems that the yields on IRR are a bit lower than the MD PMS or if you can give some color on why are the clients incrementally getting onboarded more than RIA than MD PMS or compared to, let's say, some other DPMS or distributed managed accounts. It seems that clients are gradually do more of the low-yielding advisory platform. So from a medium-term perspective, how do you see this really shaping up out there?
So I'll try and get you the exact numbers. Maybe I'll have it mailed to you or something like that after the call. But it's not really a function of the yields or the client wanting more function or our push towards on the portfolio management side having more discretionary setup and on the RIA side having more advisory setup. So basically the non-discretionary portfolio management regulations and the RIA regulations are practically merged. Now in some senses, both from a client perspective as well as a firm perspective. And there's really no difference between offering the client and non-discretionary PMS platform or an RIA platform. The only thing is, in the case of a non-discretionary PMS platform, we'll have to obviously have a portfolio manager involved and we'll have to have second license entity involved, in the case of an RIA as long as the relationship managers cleared as advisory exam see himself can handle the client. So preferably going on the medium to long term, we would like to onboard non-discretionary clients on an RIA license as opposed to the non-discretionary PMS license. And clients who are giving us the discretionary mandate would obviously come in the discretionary license on the PMS side.See globally, the RIA license actually itself covers discretionary and non-discretionary. In India, there is kind of split it into two licenses, PMS and RIA. So we have to kind of have both the segments handled differently, but between non-discretionary PMS and RIA, there's obviously no difference. No impact or reason for the yield to be different, apart from the fact that our initial advisory clients effectively on-boarded on non-discretionary PMS and more or less over the last four to five months have got on-boarded on the advisory side. But really no difference as you go ahead between the two yields.In terms of triangulation on data, I think non-discretionary PMS will be slightly higher. I think it would be close to somewhere between 50% to 60% of that number. I don't have the exact number and 40% to 50% would be advisory. The current yield on non-discretionary PMS will look higher, but that's not because of the segment or both of them being different. It's just because they were on-boarded at a different time and RIAs got onboarded more over the last three to four months. Exactly after six months both deals look more or less similar.
Second, on your cost targets, but given that you're expanding geographically onboarding new teams. You also plan to get some senior leaders in your offshore locations, and also the mid-market is ready. So how confident are you on the cost trajectory from a near-term perspective?
So actually quite confident, but obviously if you're not recruiting a very large team or building out the new business altogether, I think employee cost in the region of 5% to 6% can potentially change, but those are obviously fairly large recruitment decisions, which would be immediately outside the ambit. And mostly by the time these people join, it will be towards quarter four of the current year, unlikely to happen prior to that. But outside of that, don't see any large risk to costs. But in the event of us getting some large team either on the wealth management side or on the asset management side which is strategic in nature and allows us to build one of the newer initiatives, I think we pretty much have cost under control here.
And lastly, on the product pipeline, you'd given some color in 4Q, has there been any change to that?
Product pipeline continues to be fairly exhaustive. I think on the alternate side we're well planned for the current quarter and the next quarter because it needs around about six months of planning. I think on the mutual fund side we launched one new product of Flexicap fund, which has started off with a good small size of INR300 crores, INR400 crores in the current quarter.And on the institutional mandates, I've already spoken. On the wealth management side, obviously, we had a very good quarter, last quarter off in terms of distribution of new products and ideas including mutual funds alternates as well as PMS. So I think product-wise, fairly well set for most of the year. Obviously, as we go along, we keep innovating along the way. But even outside of that, I think we are fairly well set from a business plan perspective for the year.
Next, we'll move to Rahil Shah. Rahil, if you could unmute yourself and ask your question.
Just given everything you spoken, just if you can provide perspective on that revenue and operating margins for this year. Like, how do you see it shaping up, broader view.
I think honestly, I think, obviously, I think there'll be a roll-on effect for the full year for advisory and non-discretionary PMS, a little bit. So I think, it might be 5, 6 basis points lower. But I think it will kind of get complemented with the INR7,500 crores of TBR extra which I've already spoken about. So I think that's the only change from a revenue perspective. I think all the other line items more or less remain the same. Even there I think, our AUM numbers will be well maintained. The EUs will potentially take a lag three to six months in terms of conversion. Operating margins, again, I think pretty much within the guided numbers I think employee costs largely in the region of 32%, 33%. And other expenses largely in the region of 11% to 12%. So I think that's the broad numbers. I think 1%, 2% here or there fungibility will be there, but approximately 32%, 33% on the employee cost and 11% to 12% on the other costs, and therefore 44%, 44.5%, 45% on cost to income. I think that's broadly the numbers you would be looking at.
Next in line, we have Bhuvanesh back. Bhuvanesh, could you unmute yourself and ask your question?
Most of my questions have been answered, just two, three things. Firstly, about our ARR inflows, so INR13,000 crores in our ARR influence, how much of it would be a shift from TBR and what would be net new money in the company?
Yeah. I think less than 20% would be TVR shift of 15%. I think 80%, 85% would be net new flows.
Okay. And what would be the net new money in the company. I mean I see some decline in our transactional AUM from INR1.07 lakh crore to INR1 lakh crore. So just want to understand that overall company --
Actually, that's just a reclassification TBR in custody. So there is no decline on the TBR side also. There were some [Technical Difficulty] AUM, which has got reclassified from TBR to custody. TBR also has seen round about net inflow after adjusting for that around INR2,000 crores, INR3,000 crores.
And secondly on your yield, so what would be your steady state yield in RIA model or MDPS model. So what would be a steady state yield there?
So I think steady state discretionary is maybe 5 basis points lower than what we've historically looked at. We would still want to be in the region of 50, 55 basis points. And non-discretionary will settle down at the 35, 40 basis points number.
Thank you ladies and gentlemen for joining us this afternoon. We look forward to hosting you for the next quarter results. Thank you.
Thank you.