360 One Wam Ltd (NSE: 360ONE) Q2 2025 Earnings Call dated Oct. 22, 2024
Corporate Participants:
Anil Mascarenhas — Senior Executive Vice President, Communications
Sanjay Wadhwa — Chief Financial Officer
Anshuman Maheshwary — Chief Operating Officer
Karan Bhagat — Founder, Managing Director and Chief Executive Officer
Analysts:
Mohit Mangal — Analyst
Sanket Dange — Analyst
Abhijeet Sakhare — Analyst
Nidhesh Jain — Analyst
Himanshu Taluja — Analyst
Dipanjan Ghosh — Analyst
Neeraj Toshniwal — Analyst
Presentation:
Anil Mascarenhas — Senior Executive Vice President, Communications
Good afternoon, ladies and gentlemen, and welcome to 360 ONE WAM’s Q2 FY ’25 Earnings Call. [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 Mr. Sanjay Wadhwa to take this conference ahead. Thank you.
Sanjay Wadhwa — Chief Financial Officer
Thank you, Anil, and a very good afternoon to everyone on the call today.
Indian equities continue to remain buoyant in Q2, with benchmark indices hovering around all-time highs, supported by robust economic momentum, encouraging macro indicators and sustained domestic flows. Although geopolitical development induced some tensions and volatility, the broad outlook remains stable. We continue to believe in India’s long-term growth story, which will act as a tailwind for India’s wealth and asset management sector, supported by faster wealth creation outside traditional pockets and overall low penetration.
Coming to business and financial numbers. In Q2, our total ARR AUM increased to INR242,619 crores, up 41% year-on-year. This growth was supported by strong net flows at INR9,786 crores. With this, our overall H1 FY ’25 flows stood at INR15,335 crores as against INR4,323 crores in H1 FY ’24. We saw very healthy gross flows in the asset management business, both on the institutional side and on new fund launches in private equity AIFs, which helped us counter the overall outflows of INR3,600 crores in AIFs during the quarter.
Our wealth ARR AUM stood at INR156,849 crores, up 45% year-on-year while AMC ARR AUM stood at INR85,770 crores, up 33% year-on-year. Our ARR revenues for the quarter grew by 27.8% year-on-year at INR397 crores, led by growth in assets across business segments and healthy retentions. Our ARR revenues as a percentage of total revenues from operations stood at 67%. Total revenue from operation was up 38% year-on-year at INR589 crores for Q2 FY ’25. While ARR revenues stood strong, the quarter also witnessed higher transactional and brokerage income, mainly driven by opportunities in the private markets.
Total revenues are up 40% year-on-year at INR618 crores for Q2 FY ’25. Total costs stood at INR299 crores in Q2 FY ’25. The employee costs were INR224 crores, while other costs were INR75 crores. The variable employment costs were high during the quarter as compared to the previous quarter on account of sales incentivization arising out of certain specific product offerings. The costs also included provisioning towards bonuses related to significant senior hires done recently.
Directionally, we continue to move towards long-term incentivization in the form of ESOPs, which allows for wealth creation for the employees. Our overall cost-to-income ratio stood at 48.4% for Q2 and for the first half, it stood at 42.9%. Our operating profit grew by 36% year-on-year at INR289 crores. Once again, we are happy to report our highest ever quarterly PAT in Q2. PAT rose by 33.4% to INR247 crores, with tangible ROE at 31.2%.
With that, I would like to hand it over to Anshuman to cover the key business and strategic highlights.
Anshuman Maheshwary — Chief Operating Officer
Thanks, Sanjay, and good afternoon, everyone.
Taking the cue from Sanjay’s opening commentary on wealth and asset management industries structural growth story, I just want to highlight a few data points that helps hold our premise strong. As a country, India is still in its early stages with regard to financial investments as compared to developed countries. Only about 6% of our population can be categorized as unique investors investing in stocks versus 60-plus percent penetration in the U.S. Our MF AUM as a percentage of GDP is still as low as 15-odd percent versus global average of again 60-plus percent.
Many data points that highlight the opportunity and journey ahead for us on the overall investment landscape, despite the recent growth in asset classes and valuation concerns that may be there in the near term. Tying this up with our business, we strongly believe that our continued focus on our platform, product innovation, execution and most importantly, client interests positions both our wealth and asset management business uniquely for these opportunities.
Coming to quarter two, Sanjay has covered the financial outcomes. Let me share some of the highlights on our key input variables. The quarter saw very strong net flows at about close to INR10,000 odd crores, with flows coming in both in wealth management at about INR8,400 crores and asset management at about INR1,400 crores. Our wealth management — on wealth management, while our total client base has risen to more than 7,500 clients, importantly, we’ve successfully onboarded over 160 families with over INR10 crores AUM and over 70 families with 50-plus crores AUM in the last quarter itself.
The total number of families with more than INR10 crores AUM now stands at about 3,160, and accounts for 94% of our wealth AUM. With over INR13,000 crores of net flows in wealth for the first half of this year, we are already at about 80% of the FY ’24 flows and most importantly at over 10% of our opening ARR AUM. These flows reflect our investments made over the recent past on expansion in our senior teams as well as in geographies.
On the asset management side, our flows remain strong both on listed equity and alternates. Our overall gross flows were over INR7,000 crores, paid down for the planned distributions made primarily in private equity. We are now in the last stage of completing the planned distributions from our first set of alternate funds raised as back as 2016, ’17. Specifically, we’ve raised about INR5,000 crores in commitments through our private equity and private credit funds this quarter. Also in listed equities, very happy to share that we’ve been awarded our sixth institutional mandate, $350 million mandate from a marquee global investor. We are also witnessing rising levels of interest and engagement with global institutions for private market ideas in India. And again, with strong alternative investment capabilities in the sphere, we are well placed to benefit from such opportunities.
Additionally, in our mutual fund offerings, we’ve seen ourselves grow on the back of strong fund performance as well as strengthen sales and distribution infrastructure. Our focused equity fund, which is the flagship MF, has crossed INR8,500 crores in AUM and our Flexicap has crossed INR1,000 crores, while our Quant Fund has crossed INR500 crores. We continue to focus on deepening our channel presence on the domestic market, specifically through MFDs.
Our new product pipeline remains strong in the upcoming quarters. We understand that the present market cycles can be quite volatile, but our diversified asset classes across listed unlisted credit, RE and infra allow us to go through these cycles with a much higher resilience. On the new growth initiatives, The HNI segment is live, with our initial set of bankers getting onboarded and select new-to-firm clients getting onboarded as well. The initial response to the platform and proposition has been positive, with high appreciation for the tech build that has been done. We believe we are still in early stages and will look for learnings and refinements of our offerings as we widen the client reach out over the next few months.
The global business build has also been — the first phase of the global business build has also been completed with the required platform and EAM agreements for our initial proposition in place. We already have new flows of about $160 million in this segment and remain confident of the planned ramp up over the next few quarters. Additionally, our investments in technology and digital continues with a sharp focus on both internal efficiency related deployments as well as client-facing developments. Specifically, we are excited by the initial outputs from our work on data and analytics. We believe this could be a key differentiator for us in the coming future.
With that, I would like to hand over to Karan for his opening remarks and then follow it up with Q&A.
Karan Bhagat — Founder, Managing Director and Chief Executive Officer
Thank you. Thanks, Anshuman. Thanks, Anshuman. Thanks for the — thanks for the — thanks to everyone for joining in.
So, I just want to start off by making two, three observations on the quarter very quickly, and then I’ll quickly kind of halt for questions. Very, very quickly, I think from a business perspective, fairly exciting quarter. From a flows perspective, I think the wealth management flows is reflecting a large part of the contribution from the teams, which have joined in over the last 12 months to 18 months, especially the three teams who joined us over the last 12 months, 18 months are coming up on their own.
A large part of the — some part of the contribution which they’ve made over the last 12 months to 15 months is reflected in the growth of the AUM, but especially on the mutual fund side, most of them have come through broker code changes. So the revenue reflection would start six months post the change, but overall, I’m quite excited about the ability to attract their set of older clients onto the platform.
On the asset management side, again, we’ve had a good last four months, five months. We’ve been able to close two large funds, one on the — one small one on the credit side, but a much larger one on the private equity side with a commitment of nearly INR4,500 crores, INR5,000 crores. Obviously, the gross sales on the asset management side is a much more encouraging number. The net sales is kind of a little tepid, largely on account of these SOF series 1 to 7, reaching its maturity stage.
We had raised on about INR6,500 crores INR,7000 crores in the fund and returning around about INR14,000 crores to INR15,000 crores. Of that, nearly 90% is returned. The remaining 10% would get distributed over the next six months to twelve months. On the listed equity side, again, been a fairly encouraging quarter for us, where we were able to not only maintain our net flows, but also be able to win a couple of more mandates. So overall, from a flows and a clients’ perspective, fairly exciting — fairly exciting quarter. From a retentions perspective, I think 1 odd basis points reduction, largely on account of a few of — couple of advisory accounts, which have come in with a slightly larger weightage towards slightly lower retentions. Also a basis point reduction on largely the mutual fund assets coming through broker code change, which still doesn’t give us income because it needs a six months cooling-off period before we start getting brokerages. And another 1 — 1.5 basis points reduction on account of lower carry income and round about a 1 basis points reduction on account of net interest margin. So, slightly muted in terms of retentions, I think, combination of these three or four factors.
Of the four factors, most of them are kind of quarter specific rather than being long-term trends. So, expect the retention to kind of come back up by 2 basis points to 3 basis points. But systematically, I think from our input variables, both on the net retention — both on net flow side as well as number of families, both are encouraging for us from a last quarter perspective. From a new build business perspective, as Anshuman pointed out, I think early shoots both on the high-net worth side and the global side are encouraging. I think it’s been slightly slower from a launch perspective. Maybe be a quarter delayed, but I think we’ve got the operating principles right. And over the next six odd months, I think we should be able to catch up on most of the numbers we had kind of thought through to achieve for the current financial year.
On the cost side, I think we’ve added, obviously, a lot of resources both on the ultra-high net worth side as well as on the investment team. Little bit of optimization needed on the existing task force. So, I think we are going through a phase over the last year and in this current year where we’ll continue to be towards the late 40s in terms of cost to income. But as we optimize the existing task force, as well as add new, together with the increase in revenues, we will end up seeing our cost-to-incomes at the 46%, 47%. So, that is very well much on track. And I think towards the last quarter of the current year as well as the next whole financial year, we should be definitely closer to our cost-to-income ratios of 46% to 47%. So, I think those are the broad headlines from a business perspective. So overall, continue to be fairly buoyant on the broader trends in the market.
Questions and Answers:
Anil Mascarenhas
Thank you, Karan. We’ll now open the floor for questions. [Operator Instructions] First on line we have Mohit Mangal. Mohit, kindly unmute yourself and ask your question.
Mohit Mangal
Yeah. Hi. Am I audible?
Karan Bhagat
Yeah, Mohit. Thank you.
Mohit Mangal
Yeah. Congratulations on a good set of numbers. So, I’ve got four questions. So first is that, I mean, considering that the strong flows we had this quarter, so your full-year guidance of $250 billion to $300 billion, do you think that will be revised upwards?
The second question is that now that we have added more clients, specifically in the 10th row [Phonetic] category, would be little curious to know how is the net flows from the existing versus the newer clients? So if you can give some color on that?
Third is in terms of other income. So other income, if I look, fell sequentially in Q2. So, just wanted to know if it is purely employee movements. So, are there something else to it?
And lastly, in respect of the QIP, just wanted to know. So, two sub-questions on that. Basically any timeline when it is expected to complete and would you be tinkering with the dividend policy in that?
Karan Bhagat
Thanks, Mohit. I think we’ve covered a lot of questions for the — sorry, your second question I didn’t get.
Mohit Mangal
Yeah. So net flows from the existing versus newer clients.
Karan Bhagat
Got it. Okay. So, I think from a flows perspective, obviously, I think the INR25,000 crore to INR30,000 crores flow number for the year is a fairly — I think is a fairly reasonable number. I think just given the flows in the second quarter, I think all things being equal, obviously, it can lead to lead to potentially INR5,000 crores more for the entire year. But we should wait and see how the markets also kind of hold up for the next six months before I quickly increase the guidance. But I think, all things being equal, from a flow perspective and our attractiveness as a platform for clients continues to be very high. And therefore, all things being equal, don’t see any reason why our net flows won’t continue fairly strong. I wouldn’t want to kind of just increase the guidance very, very quickly. I think there are lot of parameters, which influence it. But I think, again, most importantly, relationship managers, attractiveness of relationship managers to our platform and attractiveness of our platform to our clients continues to be super high.
On the existing versus the net flows, I think the numbers remain similar. I think, broadly, our existing clients are contributing to around about 25% to 40% of the net flows and the new clients are contributing round about 55% to 65% of the net flows. I think that number broadly remains similar. Obviously, having said that, the new clients of 55% to 65% also have a couple of kind of mixes in the blend. One is the type of a client, obviously, who’s got a new liquidity event, and the other type of a client is a client who’s kind of transferring some part of his AUM from another institution to us. So, I think the further break of that would be round about 60% would be new liquidity and 40% would be transfer of broker code changes and so on and so forth. So overall, I would say 35% to 40% is new liquidity events. 30 odd percent would be existing clients of the firm. And the remaining 30% would be largely on account of relationship managers who kind of joined the firm from other organizations.
The other income, just a translation of mark-to-market. There’s really no other component to it as such. Obviously, I think we have round about INR1,800 crores odd exposure as sponsored, non-sponsored capital to our alternates funds. I think broadly speaking, round about — approximately, don’t hold me to that number, but approximately 10% to 12% of that INR1,800 crores is effectively — or maybe 9% of that is in NSC. And last quarter that obviously saw a fairly large revision in price going up from, I think, INR4,000 crores, INR4,500 crores, INR4,200 crores to INR5,500 odd crores. So, that’s kind of led to — last quarter led to a bit of a jump in the mark-to-market. But on the other income side, that’s largely the only component. There’s really no other component to it. So, largely reflects the mark-to-market on our sponsor investments on the alternate side.
Fourth, obviously, from a dividend policy perspective, I think in retrospect, I think just the dividends coming out of the alternates business, the profits coming out of the alternates business as well as part of the profits coming out of the lending business of the wealth management piece, I think we want to be slightly more conservative in declaring dividends from those two components. The two components where we would want to kind of continue with a relatively more liberal dividend policy would be on the listed part of the asset management business as well as the wealth management business. The wealth management business and the listed part of the asset management businesses obviously are two businesses, which don’t need too much of capital. The alternates business as well as the NBFC would continue to have some redeployment.
So, I think if you just kind of combine the mix of these four, that’s really what is going to dictate our dividend policy. So, I think just broad ballpark, if you give 70% to 85% of our profits of the wealth management as well as the listed asset management business and 20% to 30% of the profits out of the alternates in the lending business, that’s really going to be broadly the basic maths to decide our dividend policy going forward. And I think from a number perspective, it’s broadly going to come to round about 30% to 40% of the — or 30% to 50% of the overall profits of the firm. And obviously, a little bit of balancing to that number, basis other opportunities available is what we are really going to look at. So, I think, to summarize, I think, as opposed to a 65% to 80% dividend policy, we are going to be substantially, relatively more conservative and kind of get it down closer to the 25% to 40% number for the year. Lastly, for the QIP, obviously [Technical Issues], for the QIP, obviously, really can’t indicate too much on the timelines, apart from the fact that the shareholder approval from a shareholder perspective has been approved. So, effectively, we can do a QIP anytime through the next year.
Mohit Mangal
Understood. So, just one follow-up. So you said that dividend policy would be — I mean, the change in the dividend policy would only be for this year. So next year, we’d be again back to the 70% to 80%?
Karan Bhagat
No, no, no. So, dividend policy is not only for this year, it’s for — I’m saying, as a method of computation, the lending portion of profits attributable to the lending part of the wealth management business, as well as the alternates business, both of these require some degree of reinvestment back into the business. So, those would be a substantially more conservative number of profits as dividend. The listed part of the asset management business as well as the wealth management business don’t require too much of — or require very little capital to be reinvested, apart from strategic reasons. So the profits accruing out of those two businesses will be largely paid out as dividend. The profits accruing out of the lending as well as the alternates business, very conservative amount of that profits would be paid out as dividend. On a weighted average basis, today, if I was to calculate it, we would end up doing 25% to 40% of profits as dividends on a constant currency basis.
Mohit Mangal
Understood. No, that’s it from my side. Thanks, and wish you all the best.
Karan Bhagat
Thank you.
Anil Mascarenhas
Thank you. Next in live, we have Sanket. Kindly unmute yourself and ask your question.
Sanket Dange
Thank you for the opportunity. So, Karan, I have one simple question. Given yesterday, you have highlighted in the exchange that Anirudha Taparia, who is the Co-CEO and Co-Founder, has chosen to move out. So, just wanted to understand some numbers around him. How much AUM was under his management, whether it is the only person who has quit or some people around his team have also moved out? And just if you can tell me as a total percentage of the total wealth revenue, maybe his team contributed how much to our numbers? So, just to understand. And what is the succession planning for the region what he was heading? And how you are planning to fill those big shoes in that sense? That’s my first question.
And the second question is with respect to your — you said that there was a bit of broker change MF flows. So this, I wanted to understand, out of that entire flows what we had in managed/MF folios, how much came because of the broker change code?
Karan Bhagat
Got it. So, I think on the first one, Sanket, very, very quickly, I think as an organization, we follow a policy where really, I think, every client has at least four points of contact. One is the Relationship Manager. The second is the Managing Partner or the Managing Director in this case. Third is obviously the entire advisory team. And fourth is — out of the three, four of us, we are attached to every client. So, I think from a continuation and a succession perspective, typically speaking, historically, impact of Relationship Manager change over a period of three years to five years has typically impacted the book anywhere between 1% to 4% over a period of time. And I think typically in the first couple of years, it’s relatively much lower. It’s closer to 1% to 2%. And depending on the succession plan we put in place, the number can spread — can increase to 3% to 5% of the overall business.
Having said that, obviously, we don’t like change. We would love to have everybody at all points in time. But this specific change was largely a culmination of a couple of things, including us more or less kind of appointing a single head for wealth management. So, that’s going to be announced in the due course. So it was a structural change, which was kind of necessitated also. In terms of the roles and responsibilities. I think it’s fairly well covered by the team. We have a fairly large team on the wealth management side, nearly 140, 150 senior bankers. So in that sense, succession is not going to be an issue. So business impact wise, I really wouldn’t — from a wealth management revenues, I think it’ll be too large — it won’t be material enough for me to estimate a percentage impact on the wealth management revenues itself.
But having said that, I think North and East as regions, and largely, it was focused more on North as a region, contributes round about — of our wealth management revenue round about close to 12% to 13 odd percent of our — or 14% of our revenues. So, I think, relatively, even if I was to look at a short-term impact, assuming there is a consequential impact, it would not be more than 2% to 3% of our wealth management revenues. As we speak now, I think, while we still don’t have a large — we don’t have exactly — I don’t have a number to give you in terms of people who are looking to leave, but it’s fair to say that it’s a team, which has been working together for the last 15 years to 20 years. So, two or three people might be par for the course in that sense, but it’s part of natural attrition. I think out of 130, 140 bankers, two to three bankers a year is par for the course. So from a business materiality impact perspective, I don’t see it impacting much. Having said that, from a firm perspective, I would love to have everybody all the time, assuming things can fit into the structure and align and at the same point of time, kind of wish him the best in his future endeavors.
Sanket Dange
Good. But, Karan, is it fair to assume that the incremental hiring which you have done in 12 months to 18 months will be more than sufficient if there is any immediate attrition at the North region in that sense?
Karan Bhagat
No, no. I think we have enough capacity in North itself. We don’t need to hire. So, I think they are a fairly large, very mature team in North. We have roundabout out of our 3,200 odd clients above INR10 crores, we would have round about — it would not be way off, but we would have round about 12% to 14%, 15% of our clients coming from North. Of the 12% to 15%, 400, 450, we would have more than 30, 40 senior bankers in North. So, we’re very, very well covered. We don’t have any capacity issues at all.
Sanket Dange
Got it. Perfect. And the second question on broker code change, if you can quantify?
Karan Bhagat
Yeah. Sorry. Yeah. On the broker code change, I think I don’t have the exact number, but I have a very good approximate. I think it will be in the region of round about 25% of the flows. So, round about INR2,800 odd crores is the entire change. Of the INR2,800 crores, I think round about INR1,900 crores to INR2,000 crores is in mutual funds alone. INR2,000 crores to INR2,200 odd crores and INR600 to INR800 crores would be in managed accounts. In managed accounts, obviously, the trail will start faster. On the mutual fund side, the trail will only start six months after the change.
Sanket Dange
And lastly, on this broker code change, have you seen the maximum to come already in the second quarter? Do you think this flow can further continue going ahead?
Karan Bhagat
No, no. I think, hopefully, it has a long way to go because we’ve got a very, very experienced team of a lot of nearly 30 senior bankers. So, I think INR3,000 crores is a part of the exercise, not the exercise in itself.
Sanket Dange
Perfect. That’s it for me, sir. Thank you. Thank you for the answers.
Anil Mascarenhas
Thank you. Next in line, we have Abhijeet Sakhare. Abhijeet, kindly unmute yourself.
Abhijeet Sakhare
Hey. Hi. Good afternoon.
Karan Bhagat
Hi, Abhijeet.
Abhijeet Sakhare
Hey. Hi. Good afternoon. First question was on opex. So, how do we look at the opex growth over next 12 months or so? Specifically, the challenge is, how much of it is actually linked to TBR, which is where I think there is a little bit of an uncertainty how the next 12 months could look like?
Karan Bhagat
No. So, I think opex being linked to TBR, there’s no direct correlation between TBR and opex as such, okay? I think, obviously, our opex this quarter was maybe slightly higher for two large reasons. I think we had done a U.K. case settlement last quarter. By the time we paid it, there was a further forex currency translation loss of round about $1 million, which has kind of got added on to the admin and legal expenses. And we further had INR4 crores or INR5 crores of kind of legal cost on the same thing, which kind of got cascaded. So, round about INR10 crores of opex cost has kind of increased this quarter on account of the same thing. But outside of that, I think it’s fairly standard.
I think what used to be broadly a INR60 crores, INR65 crores opex cost a quarter is now more closer to the range of INR68 crores to INR75 odd crores. So, that’s really where it is. Don’t expect too much of massive variation in the opex cost coming out of any linkage to TBR. Having said that, TBR obviously has a fairly largest kind of impact on the variable cost of the firm. So the variable bonuses of the employees can kind of change quite a bit depending on the quantum of TBR. The ARR is obviously very well modeled both in terms of predictability as well as in terms of variable compensation to the Relationship Managers. But the TBR itself, while it doesn’t impact the opex, it does impact the variable bonus portion in a fairly straight line pass-through way.
Abhijeet Sakhare
Got that. The second one was on the new commitments that you’ve raised. Any sense on how much of this is insourced and what’s the realization range in these funds?
Karan Bhagat
So in these funds, obviously, it’s on our pre-IPO funds and Special Opportunities Funds, we don’t charge on the commitment. We charge on the drawdown. So while we’ve got commitments of nearly INR6,000 crores, I think what shows up in the AUM is only INR1,500 crores or INR2,000 crores because that’s the amount which is drawn down. And we are also charging fees only on the INR1,500 crores, INR2,000 crores. So, I think the remaining INR3,000 crores, INR4,000 crores comes in automatically as net flows over the next potentially 12 months to 18 months.
So, I think in that sense, only 30%, 35% of the flows and 30%, 35% of the fees is really captured potentially over the last two quarters. I think in our pre-IPO funds, our realizations are quite decent. I think just given the track record and the market leadership we have in those funds, we are able to, kind of, between our role as a manufacturer as well as a wealth manager and distributor, we are able to kind of capture around 130 basis points, 140 basis points of retention. 80 basis points, 90 basis points as a manufacturer. Potentially 50 basis points, 60 basis points as a distributor because we are kind of distributing 60% to 70% of the funds in-house.
Abhijeet Sakhare
And sorry, one last one. What we’ve seen in the last couple of years is that the client base seems to be fairly active on the TBR side as well, given how the markets have been. Just to understand your client base better, when we move to markets which are relatively more sort of sideways moving or downward drifting, how do you expect the client base to behave? And do you see some of the AUMs shift to recurring revenues from TBR?
Karan Bhagat
That’s a great question. Actually, our market share improves dramatically in a flattish market actually, a market share, so because clients typically — clients, Relationship Managers, everybody kind of typically comes back to basics. So, they want to do the investment policy statement again. They want to do the asset allocation again. They want to follow the discipline again. They want to have the right ratio between single instruments, single stocks, pool of funds and so on and so forth. And that’s really when organized players like us who are slightly more focused on asset allocation that IPOs typically see our market share go up. I think volume of activity for us also comes down like it would come down for everybody else. So, I think the TBR numbers as well as the volume of activity would definitely come down. But overall, I think, as you’re rightly saying, I think our ability to attract new clients as well as increase our market share on a relative basis will be even better as compared to a very, very active market on the TBR side.
So, I think, steady-state basis, we feel comfortable. We’ve been comfortable with round about INR100 crores to INR125 crores of TBR a quarter historically. Obviously, the TBR numbers for the last two quarters have been — or last three quarters have been substantially higher. And that to a certain extent is a reflection of the capital market activity across the country. But I think if the markets were to stay flat, drift down and stay slightly drifted down, I think we have a little advantage because we are very active across all asset classes, including fixed income, equities, commodities, and so on and so forth and alternate. So, I think we have a little bit of flex on the TBR side. But at the same point of time, would it remain the same numbers? I don’t think so. I think it would kind of be some number between the INR100 crores to INR125 crores range as a steady-state basis, which it was a couple of quarters back. And I think in absolute stress scenarios, if you see the markets kind of go down by 15%, 20%, 25%, I think the TBR numbers come towards the lower range — lower end would be absolutely at the INR75 crores, INR80 crores range. So if you really stress test the business at 20%, 25% lower markets, I think it’s fair to say with a combination of mark-to-market AUM as well as a little bit of TBR reduction, you potentially see a 10% to 15% — round about 50% of the fall when the market sees reduction in profits, obviously, which can be offset with growth in MTM on the fixed income side as well as net new flows and net new clients at that point in time. So, that’s really the way I would look at it.
Abhijeet Sakhare
Thank you so much.
Operator
Thank you. Next in line we have Nidhesh Jain. Nidhesh, kindly unmute yourself?
Nidhesh Jain
So, first question is on retention. How should we think about the ARR retention from a medium to long-term perspective? If you look at last, I think two years, three years, there has been slight gradual downward pressure on the retention on the ARR side. So from a three-year, four-year perspective, how should we think about that.
Karan Bhagat
One to two-year perspective, Nidhesh, back to the 70 to 72-ish kind of number which we were at, I think from a four-year to five-year perspective, I would say closer to the 67 basis points, 68 basis points, largely not because the headline retention is going to change. I think the headline retention is going to be more or less remain the same. So on the pure RIA advisory side, I would expect incremental business on an average at 34 basis points, 35 basis points. And as time was to go by, I would expect our retention on the advisory assets to be between 30 basis points to 35 basis points. I would expect the pure discretionary piece to be between 45 basis points and 50 basis points.
The listed piece, I think is where the retention would come down a bit. I think we are currently closer to the 64 basis points, 65 basis points that I expected to be closer to the 55 basis points, 60 basis points. Net interest margin would remain around the same. Alternates remains broadly around the same, including carry in the region of 85 basis points to 90 basis points. So if you see the headline retention of each of the components, I don’t really see too much of a reduction apart from listed equity. I think the change happens because of a little bit of — and sorry, managed accounts distribution now, which is broken up both on mutual funds and managed accounts. So, there also I see a similar trend. I think mutual funds, we are today at 45 basis points, 50 basis points and managed accounts, we are in the region of 75 basis points, 80 basis points. So, I think all of these retentions remain fairly similar apart from listed equity.
Even then, I think the headline weighted average retention drops a bit from 72-ish, 71 basis points, 72 basis points to round about 68 basis points because of the change in the mix of the business. So, three things will change from the change in the mix of the business. I think the first thing is the loan book obviously won’t grow in same proportion of the AUM. Secondly, I think the second change will be the broad mix of distribution and advice will be slightly more in favor of advice as compared to distribution today. And these two things largely will result and obviously, listed equity, there will be a little bit of reduction. So, these three things result in a little bit of reduction on a weighted average basis. On a headline basis in each of the segments, I don’t expect too much of median retention.
Nidhesh Jain
Sure. Secondly, on the transactional-based income, historically, we have been guiding at around INR100 crores of steady-state quarterly run rate on transactional income. But last three quarters, we are running at around INR200 crores. So, still on a steady-state basis, do you believe that INR100 crores is the right number or we should take that number up?
Karan Bhagat
No. I would still say round about INR100 crores to INR125 crores is the right number to look at.
Nidhesh Jain
Okay. And this quarter, how much of the transaction income is coming from NSC block?
Karan Bhagat
NSC block this quarter would not be much. INR30 crores — INR25 crores, INR30 crores. Yeah.
Nidhesh Jain
Okay. Okay.
Karan Bhagat
Approximately. It might be INR2 crores, INR3 crores off.
Nidhesh Jain
Okay. Sure. So around INR30 crores?
Karan Bhagat
INR30 crores. Yeah.
Nidhesh Jain
Okay. Okay. Thank you. That’s it from my side. Thanks.
Anil Mascarenhas
Thank you. Next in line we have Himanshu Taluja. Himanshu, kindly unmute yourself.
Himanshu Taluja
Hi, sir. Thanks for the opportunity. Just few questions, especially in terms of your transaction-based revenues, which is very difficult to project because if you look at the last three years, four years journey, broadly, we remain around INR300 crores to INR400 crores and last few quarters where we have seen a very sharp. So, can we really say probably 20% to 25% of your transaction-based AUM in a good environment get churned every year, which gives you practically 80 bps, 100 bps of the yield? And what are the other components in the transaction-based revenues?
Lastly, thirdly, in this transaction, how much is last — in last three, four years, how much is the NSC shares contributing? So if you can help me understand how one should have a realistic projection around the transaction-based?
Karan Bhagat
No. So, I think, to be honest, your first way of calculating is approximately the best way to calculate. It’s not necessarily the absolute scientific way, but I think from a TBR perspective, it’s fair to say round about the transaction AUM kind of churns once in five or six years and broadly gives a retention of 80 basis points to 100 basis points, which effectively results in that blended retention of 30 basis points on the entire transaction AUM. But is that a scientific way to look at it? I think from a reverse calculation perspective, that’s the way it works out. But broadly, I think those two assumptions are right. 15% to 25% of the AUM churns once in four years or five years, and broadly gives you 80 basis points to basis points of retention, leading to round about a 30 basis points to 35 basis points retention on the TBR AUM. On the second portion on NSC, I think broadly speaking, last three years, four years, it would be in the broad component, round about INR60 crores to INR70 crores a year, approximately INR60 crores, INR70 crores a year.
Himanshu Taluja
Okay. And what are the other components in your transaction-based revenues apart from these two?
Karan Bhagat
So, round about INR100 odd crores comes from listed equity, INR80 crores to INR100 crores. Round about INR50 crores to INR60 crores from fixed income brokerage. Another round about INR80 crores to INR90 crores from NSC, which is around about INR250 odd crores. Then you have another INR50 crores to INR100 crores from fixed income brokerage like NSC. So, we’ve done a lot of fixed income transactions over the last year, year and a half, maybe last three odd years. So its a combination of these three or four things and a little bit of INR50 crores to INR75 crores of upfront income on products distributed in the form of managed accounts and so on and so forth. And INR40 crores [Phonetic] to INR50 crores [Phonetic] referral from investment banking, M&A activities and so on and so forth.
Himanshu Taluja
Yeah. The second part of the question is around your basically lending book. You currently have a lending book of INR6,008 crores. Post that, you are also looking in terms of the capital raise, one of the primary reason you want to scale this lending book as well, how do you — how one should, if you have to think from a two years to three years’ viewpoint, how do you expect this lending book to grow?
Karan Bhagat
So, I think from a lending book perspective, I think broadly, we see it around the 2%, 2.5% AUM on the wealth management side. So, today, if you were to just look at our AUM on the wealth management side, round about, give or take, INR4 lakh odd crores, a loan book of round about INR8,000 crores to INR10,000 crores is a sustainable number. So, I think purely from a loan book growth perspective, assuming the wealth management AUM can grow at round about 20%, 25% a year, I think, broadly speaking, the loan book will kind of grow at a number of round about 2.5% to 3% of that number. Today, obviously, we are slightly maybe INR1,000 crores short. So effectively at a full matured basis, INR1,000 crores plus round 2.5 — 2% to 2.5% of the wealth management AUM growth is really the metric to grow the loan book.
Himanshu Taluja
Yes. Sir, just last one question. In terms of ARR active — AUM ARR, advisory is one of the key, in a way, to go forward in terms of the growth. But when we look in terms of your retention yields over the last eight quarters, 10 quarters, probably it has come down from 37 to date to 30. What is an ideal sustainable range in this, basically, retention yields because I believe the share of these 360 ONE assets in the overall active AUM will keep increasing?
Karan Bhagat
It will be round about 35 basis points, like I pointed out slightly earlier. So, I think the RIA fees will be in the region of 35 basis points. It can be towards 30 basis points, provided if we end up getting only large clients. But I think in the mix of large, small clients, I think it will be trending towards 35 basis points. Right now, it’s got a lot of — a little bit of maybe approximately, out of the INR40,000 crores, INR45,000 crores, nearly a third are accounts, which we’ve onboarded prior to 18 months from today and those accounts are onboarded at substantially lower fees. And that’s kind of having a kind of a drawdown impact on the retentions. But with every new incremental AUM, that impact kind of is coming down.
So, I would expect the RIA to kind of move towards the 30 basis points to 35 basis points points range, hopefully closer to the 35 basis points range depending on the weighted average AUM of the clients, or the number of clients and discretionary in the region of 45 basis points to 50 basis points. And assuming, we can have a similar proportion or a two-third, one-third proportion in favor of advisory versus discretionary, I think the mix of both will give us round about a 40 basis points retention.
Himanshu Taluja
Yes. Sir, just last question. Since you have recently set up the team to cater the mid-market HNI segment as well, how do you plan to ramp up in next, like, from next 12 months now from here? You’ve already set up the team and everything. How one should see it in terms of the flows and all?
Karan Bhagat
So, I think the big ramp up only — big ramp-up and recruitment starts from April next year. I think from our perspective right now we are doing the following three things. I think we’ve got a — we’ve set up the entire platform. The tech is set up. The operating market leaders for the four regions, the key team members, 15, 20 members are in place. We’re going to use what we call as the network effect for the top 3,500 thousand families who we are already servicing on the ultra-high network side. I think each of those families has at least three or four people around the ecosystem who are clients who fit into the INR10 crores to INR50 crores range.
Our first port of call really is going to be those 10,000 families around our existing 3,500 families. And that’s the benefit we have going a little bit from the top to the next level and for the next six months is really about 25, 30 Relationship Managers whom we’ve recruited. 20, 25 relationship managers from our existing team, which we are transferring into the high net worth business. So, first six months is really going to be about these 50, 60 people and these eight, 10 thousand families are figuring out our success parameters. Only in April is when we kind of go out and hire 150, 200 people and expand to 25, 30, 35 cities, basis our own — assessment of our own strengths and weaknesses. So, I think over the next six months you’ll see us ramp up that business, but in a fairly measured manner without disproportionately increasing the costs. And from April of 25th, you really see us kind of give a much, much larger impetus in terms of growth and recruitment to the business.
Himanshu Taluja
Sure. Thanks a lot.
Karan Bhagat
Thank you.
Anil Mascarenhas
Thank you. Next in line we have Dipanjan Ghosh. Dipanjan, kindly unmute yourself and ask your question.
Dipanjan Ghosh
Hey. Hi. Hi. Am I audible?
Karan Bhagat
Yeah, Dipanjan. Hi.
Dipanjan Ghosh
Yeah. Hi. Hi. So just a few questions, Karan. First, on the AMC side of the business, obviously, if I kind of concluded one of the institutional mandates and just wanted to get some sense of, are there more in the pipeline? Or how the team is shaping up on that front?
Second, now that most — quite a lot of your planned redemptions are done, as you said, 90% is almost complete, over the next 12 months to 18 months, how is the pipeline in terms of new product offerings stacking up on that side of the business? And what sort of gross sales do you really expect?
My third question is more from a RM-based perspective. I mean, in this first half, or specifically in second quarter, have you kind of onboarded new teams on the ultra-HNI side? And you also mentioned that three of the teams that you onboarded last year are kind of operating in steady state. So, just trying to get some color of the flows or revenue contribution that some of these teams probably have given in the last, let’s say, six months to 12 months.
And finally, on the new clients that have been acquiring over the last two quarters to three quarters, which have been quite strong, if you can give some color on, are these like new to many customers, or these are customers of existing — who are existing relationships with other wealth managers and swapping to 360 or kind of testing new waters? Just want to get some sense of the clientele quality and what if there’s a market drawdown? You mentioned that there can be market share accretion, but in terms of new money generation, how historically things shape up on that side?
Karan Bhagat
Thank you. Thank you, Dipanjan. I hope I remember all the orders in question. That order, I’ve tried to write it down, but otherwise, if I forget one, I’ll come back to you. On the asset management side, I think on the gross sales, I think you’re absolutely right. I think we had a large episodic contribution in 2018 on the pre-IPO fund. Outside of that, I think all our funds are fairly well distributed on an even basis. So it’s unlikely that any one redemption will have such a large impact. So, I think, as I said earlier, I think we’re in the last 10%, which would potentially get paid out over the next six months to eight months.
I think our overall strategy on the gross sales side continues to be fairly exciting. I think we’ve got a lot of new products in the pipeline. So, I think while our redemptions kind of ease off a bit, I think the gross sales will continue to kind of happen. And as I explained earlier, the gross sales will also be having a component of the drawdowns, which still not kind of called for because that really doesn’t show up in our AUM as of now because we don’t charge on a — we don’t charge on a commitment basis, but we charge on a drawdown basis. So overall, I think on the alternate side, without ascribing a specific number, we definitely believe we’ll be in a good position to be able to kind of grow our overall alternates AUM on a net basis by at least 10% to 12% a year as we’ve kind of indicated earlier. Obviously, that would mean a slightly larger number on the gross side, but effectively, we feel fairly confident of being able to add those numbers over the next 18 months to 20 months.
On the asset management — on the wealth management side in terms of the new team members, I would not jump to say that they are a steady state. I think they have settled in well. I think they are still fairly early days. It is less than 12 months since they’ve joined. So, I think a large part of their clients have started kind of getting onboarded with us, but they will take full time for them to kind of fully scale up and us to get a large wallet share from those clients. So, I think early offshoots are very, very positive, very encouraging. I think a large portion of the onboardings would started. Having said that, I think for the teams to fully settle in any time period between 30 months to 42 months, so we still have some time to go. And as I indicated earlier, I think purely from a numbers perspective, I think they have the potential to grow substantially larger than where they are today.
From a new client perspective, I think, again, it’s broadly a third or third or third. I think a third is old relationship of ours, which we’ve been prospecting for many years, scaling up over a period of — over the period of last year. A third is absolutely out of new liquidity events, and a third is market share gain from other competitors. So, I think to your question, if the capital markets were to slow down and liquidity events really come off, I think it has a little bit of impact on that last 35%. But the first 35%, we should be able to do equally well. So, I think, hopefully, even if the markets stay flat or slightly moves towards the downside, our input variables, especially in terms of number of new clients, we keep kind of chugging along and that doesn’t really kind of fall that much in proportion with the markets because that’s something, which firm like ours should be able to do.
I did forget the question in the middle, I’m not quite sure, but yeah.
Dipanjan Ghosh
So just one follow-up. Karan, on one of the questions asked by earlier participant, which was on the exit of one of your senior members, if I heard correctly, you mentioned that historically, over a three-year to five-year period because of any RM attrition, the book attrition is around 3% to 5%, is that the correct understanding?
Karan Bhagat
That’s right.
Dipanjan Ghosh
And your north segment is currently 12% to 14% of your revenues. So if you ever kind of do a triangulation math, it basically means that the overall impact should be kept at…
Karan Bhagat
15% of the revenue.
Dipanjan Ghosh
Yeah. 15% of your revenues. So, 14%, 15% of your revenues.
Karan Bhagat
15% is wealth management revenues. Overall revenue is less than 7%, 8%.
Dipanjan Ghosh
So in that sense, the triangulation would suggest that any significant exit should not materially alter the P&L, I mean? Is that a fair understanding?
Karan Bhagat
Honestly, I think RM exits at that level unless it’s something, which is systemic and kind of impacts the capacity of the firm or in some ways, it’s led by an event which is kind of rather brand diluting in some ways. I think from a platform perspective today, both in terms of multiple engagements with clients as well as the part of the platform to kind of attract new people as well as offer the right set of products, I think it’s not really purely, purely based on RM exits here. So the ability to do revenues, the ability to charge fees, it’s a very, very, I won’t call it a complex formula, but it’s a very complete formula, so everything needs to be there. It’s not really — I think the RM is a very, very important component of that formula, but it’s not the only component in the formula. So, I think that’s something, which we have to be kind of cognizant of.
Dipanjan Ghosh
Got it. And Karan, the question in the middle was on the institutional mandates, any more lumpy math [Phonetic] that you posted?
Karan Bhagat
Yeah, no, no. So, we continue to work on a lot of mandates, but these cycles are fairly long. I think whatever we started work on last year kind of converts after nine months to 15 months. So, obviously, at all points of time, we have a good number of mandates. Any point of time you would have any number between two to six mandates, which are at different stages of hopefully fructifying.
Dipanjan Ghosh
Got it. Thank you, and all the best.
Karan Bhagat
Thank you.
Anil Mascarenhas
Thank you. I think we’ll take one last question from Neeraj Toshniwal. Neeraj, kindly unmute yourself and ask your question.
Neeraj Toshniwal
Yeah. Hi. So, congrats on great set. So, just wanted to understand on the discretionary, non-discretionary part of the flows, we have been seeing the non-discretion has been growing quite steadily while discretionary flows have been actually got muted. So is the trend going to continue because discretionary retentions have a little better in history and does these non-discretionary clients move to discretionary at some point? Or it actually remains there?
Karan Bhagat
No, I mean, you’re absolutely right. I think left to — from a behavior change perspective also, there is a little bit of transition from non-discretionary to discretionary. I think the behavior change happens over a period of time, not only from a client’s perspective, but even from a Relationship Manager perspective, I think. And also you need a little bit of a track record in terms of performance, which we luckily have now. So, I think, overall, we would like the proportion to be closer to round about two-third to one-third, with two-third coming in advisory and one-third coming to discretionary.
Aspirationally, obviously, 50-50. But I think we are not — from a market perspective, I don’t think so we are that mature yet. But I think we are trying to move towards the two-third, one-third in terms of flows between discretionary and advisory, which is something which is going to be good, good benchmark for us to follow.
Having said that, I think, as a wealth management firm, obviously, you need a good investment in terms of building out your investment teams, asset allocation specialists, as well as a team, which can kind of boast of a fairly good track record across diversified allocations, both as multi, both as fund, practically as fund of fund managers, as well as allocation to ETFs and so on and so forth. So, I think we’re early in the game. We’ve done well for the last two and a half years, three years. The track record is really good. We are getting decent flows. We are not getting phenomenally high flows. But I think, having said that, directionally, I think we should be in a position over the next 12-odd months where 25% to 35% of our incremental flows start coming on the discretionary side.
Neeraj Toshniwal
Okay. That is helpful. Thank you.
Anil Mascarenhas
Thank you. I think that’s all we have time for this afternoon. Thank you all for joining us. And on behalf of 360 ONE, wish all of you a very happy festive season. Thank you once again.
Karan Bhagat
Thank you.