Anand Rathi Wealth Limited (ANANDRATHI) Q3 FY23 Earnings Concall Transcript

Anand Rathi Wealth Limited (NSE: ANANDRATHI) Q3 FY23 earnings concall dated Jan. 13, 2023

Corporate Participants:

Feroze Azeez — Deputy Chief Executive Officer

Jugal Mantri — Group Chief Financial Officer

Rajesh Bhutara — Chief Financial Officer

Rakesh Rawal — Chief Executive Officer

Analysts:

Rohan Mandora — Equirus Securities Private Limited — Analyst

Pallavi Deshpande — Sameeksha Capital — Analyst

Dhaval Shah — India Infoline Finance Limited — Analyst

Aditya Shrimankar — Ishti Advisors — Analyst

Prayesh Jain — Motilal Oswal Financial Services Ltd — Analyst

Dipanjan Ghosh — Citigroup Inc. — Analyst

Varship Shah — Envision Capital Services Private Limited — Analyst

Sagar Jethwani — Phillip Capital India Pvt. Ltd. — Analyst

Abhijeet Sakhare — Kotak Securities — Analyst

Sadanand Shetty — True Equity Advisors — Analyst

Senthil Kumar — Joindre Capital Services Ltd. — Analyst

Sunil Shah — Turtle Star — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Anand Rathi Wealth Limited Q3 and Nine Months FY ’23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risk and uncertainties that are difficult to predict. As a reminder, all participant lines will be in listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Feroze Azeez. Thank you and over to you, sir.

Feroze Azeez — Deputy Chief Executive Officer

Thank you so much. Good afternoon, everyone. Thanks for joining us for the conference call of earnings of the third quarter and the first nine months of this financial year. Along with me, I have Mr. Rakesh Rawal, who is our CEO; Mr. Jugal Mantri, who is our Group CFO; Rajesh Bhutara, who is our CFO; Mr. Chethan Shenoy, who is our Head of Product & Research; and I’m also joined by Vishal Sanghavi, who is our Head IR, Investor Relations; and also the SGA team, who is our Investor Relations Advisors.

To begin from the quarter perspective, we have delivered a strong performance in the third quarter on all three businesses; the Private Wealth business, the Omni Financial Advisors Channel business, and also the Digital Wealth business. Our consolidated AUM has risen to INR38,517 crores, which is a 20% growth year-on year and 7% quarter-on-quarter. This of course is a testimony to our emphasis on providing uncomplicated, holistic, and standardized solutions to our clients which deliver the most efficient risk-reward portfolios. Our flagship Private Wealth business has grown its AUM by 20% year-on year and 7% quarter-on-quarter to INR37,500 crores. Though on an industry level the net flows in equity mutual funds degrew by 55% in the quarter three, we have grown by about 74% instead of the degrowth, which is what you’ve seen on the net flows on equity mutual funds.

And our overall equity — overall net flows have grown by 94% for the said period of nine months and that’s been — that stood at about INR3,715 crores. Indian HNIs of course have started moving monies from physical assets to financial assets and we have tried to capitalize this process by using mathematics to express the differential performance between physical and financial assets. And in the last nine months we’ve added clients that is about 1,151 clients as against 801 clients in the same period. That’s a good 25% growth and above on the client addition rate. And also one very, very important thing for a business like ours, which we are very pleased to announce that we have had zero Regret attrition for this quarter three. Regret attrition, any RM greater than INR40 crores we classify as a Regret attrition, has been zero astonishingly so.

Now coming to the Digital Wealth business, I would like to highlight that our Digital Wealth business AUM has grown by about 24% year-on year and has moved up above the INR1,000 crore mark to INR1,017 crores in terms of AUM. The client set has grown by about 15%, which is 4,076 clients now. That’s on the Digital Wealth piece. OFA business, which is a SaaS platform, has added about 600 IFAs give or take and the assets under reporting has almost touched INR1 lakh crore. Before I hand it over to Mr. Mantri, I would also like to highlight that our long-term commitment of growing the assets under management by 20%, 25% remains intact and we are very positive that this number indicated from a long-term year-on year perspective is a conservative number given the fact that by the virtue of time and client portfolios’ growth of 10%, 12%; we should be able to deliver the differential 13%, 14% by effort.

And now I hand it over Jugal sir. Jugal sir, can you take it forward from here.

Jugal Mantri — Group Chief Financial Officer

Thank you very much, Feroze bhai. Let me begin with extending New Year wishes to all the participants that may 2023 bring tons of joy, happiness, and prosperity to each one of you. Now coming to the company’s performance. Despite short-term volatility, the mid and long-term outlook for the Indian capital market seems highly promising. We have delivered strong performance across all three verticals. Our consolidated revenue for the quarter ended 31st December 2022 stood at INR140 crores as against INR109 crores in Q3 FY ’22 registering a growth of 29% Y-o-Y while revenue for nine months FY ’23, stood at INR412 crores as against INR311 crores in nine month ended FY ’22 registering a growth of 32% year-on year.

Our profit before tax for the quarter stood at INR58 crores registering a growth of 36% Y-o-Y whereas profit before tax for the nine month stood at INR169 crores registering a growth of 37% Y-o-Y. Profit before tax margin is slightly better at 42% in Q3 FY ’23 and 41% in nine month FY ’23. Our profit after tax for the quarter stood at a healthy INR43 crores registering a growth of 35% Y-o-Y as compared to INR32 crores in Q3 FY ’22. Profit after tax for nine month FY ’23 registered a growth of 37% Y-o-Y, which stood at INR126 crores. Profit after tax margin is quite healthy at 31% in Q3 FY ’23, which is the same for the nine months ended FY ’23 too. Earning per share for the quarter three FY ’23 stood at INR10.4 per share and for the nine months stood at INR30.2 per share.

For nine month FY ’23, our flagship Private Wealth vertical’s revenue grew by 33% year-on year which stood at INR397 crores while trail revenue grew by 27% Y-o-Y, which stood at INR135 crores. Profit before tax for nine month FY ’23 on standalone basis was at INR168 crores registering a growth of 37% Y-o-Y while PBT margin stood at 42%. Profit after tax for nine month FY ’23 stood at INR125 crores registering a growth of 37% Y-o-Y while PAT margin stood at 32%. Return on equity of our flagship Private Wealth vertical as on 31st December 2022 stood healthy at 40%. Given the favorable long-term macroeconomic climate for India and the rise of local millionaires and billionaires, we believe there is significant untapped market for the wealth solution providers like us.

With this, we will now open the floor for question-and-answers. Thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of Rohan Mandora from Equirus Securities. Please go ahead.

Rohan Mandora — Equirus Securities Private Limited — Analyst

Good afternoon, sir. Thanks for the opportunity and congrats on a good set of numbers. Sir, if you would share what were the gross inflows in 3Q and if you can split the net inflows of INR1,240 crores into between equity MF, debt MF, and MLD?

Feroze Azeez — Deputy Chief Executive Officer

Sorry, Rohan. You wanted net flows. Feroze here.

Rohan Mandora — Equirus Securities Private Limited — Analyst

Yeah. Net inflows of INR1,240 crores that was there in 3Q, if you split it between equity, debt MF, MLD?

Feroze Azeez — Deputy Chief Executive Officer

Correct. So, you want a split of the INR3,715 crores or the quarter three number?

Rohan Mandora — Equirus Securities Private Limited — Analyst

The quarter three number.

Feroze Azeez — Deputy Chief Executive Officer

The quarter three number, I’ll give you. Rajesh-ji, do you have that number.

Rajesh Bhutara — Chief Financial Officer

Yeah. In equity mutual fund and debt mutual fund put together it was INR818 crores, for MLD INR165 crores, and INR258 crores in other products. That sums up to INR1,241 crores.

Rohan Mandora — Equirus Securities Private Limited — Analyst

Okay. And sir, what would be the quantum of MLDs that are expected to mature in FY ’24? Any numbers that you have handy?

Rajesh Bhutara — Chief Financial Officer

Right now it is not handy, but we can provide you, Rohan.

Feroze Azeez — Deputy Chief Executive Officer

Rohan, approximately it is INR2,700 crores.

Rohan Mandora — Equirus Securities Private Limited — Analyst

INR2,700 crores. Okay, fine. And sir, just want to understand on the trajectory on the employee expenses. If you look at employee by total revenues, that thing has come down from 46% to around 43%, 44% in the last two quarters. So, how should we look at it for the full year? Will there be an uptick there? And also what will be the quantum of RMs which are not broken even on cost right now?

Feroze Azeez — Deputy Chief Executive Officer

Rohan, when it comes to compensation for RMs, it works on a total comp concept so the provisions of bonuses are larger, which is about INR55 crores for the first nine months, which is about INR8 crores greater than the same period last year. So, we work on a total comp concept which has not been modified from 2007’s time. So, provisions on the bonus side are higher, which are not reflected in the statement you made. Does that answer, Rohan?

Rohan Mandora — Equirus Securities Private Limited — Analyst

No, sir. Actually the employee expense by total revenues has been coming down in last two quarters. So are we…

Jugal Mantri — Group Chief Financial Officer

Feroze bhai, I’ll just add. See, what Feroze bhai has explained to you is the compensation for the RM fraternity. But besides RM fraternity, there is a team which is like operation, product, monitoring, and the finance accounts team and that is where you get the advantage of operating leverage. because that cost more or less remain flat. So that is why when you see the revenue goes up, you will see in percentage term that the employee cost will come down because that cost, which is the non-operating or non-variable cost, that remain more or less flat. There is a slight increase and that is why you will see that the employee cost will keep on coming down when the revenue grows for us.

Rohan Mandora — Equirus Securities Private Limited — Analyst

Got it, sir. And just second part of this question on how many RMs are yet to breakeven on cost?

Feroze Azeez — Deputy Chief Executive Officer

So if you — we can give you that precise number. Rohan, if you look at breakeven as just the physical cost, I think it should be less than 10%, 12% because breakeven of infrastructure cost all loaded, it could be different. But we’ll give you the precise number.

Rohan Mandora — Equirus Securities Private Limited — Analyst

Sure. And I just want to understand like how has been the MLD issuances from Nuvama this quarter? Has there been any dip in ratio on that side or changes?

Feroze Azeez — Deputy Chief Executive Officer

Yeah. Because their requirement of capital was lesser so Jugal sir can give you the precise numbers if he has them handy.

Jugal Mantri — Group Chief Financial Officer

So in case if you look at it, Rohan, now the ratio is tilting towards the outside or external agencies. As of now when we talk, around 13% of MLD outstanding that is from the external agencies. So the ratio which used to be 100% from the same group entity, now that is going into — and in this year almost about 20% of the MLDs are issued by the external entities.

Rohan Mandora — Equirus Securities Private Limited — Analyst

Sure, sir. Thanks. Thank you.

Operator

Thank you. [Operator Instructions] We have a question from the line of Pallavi Deshpande from Sameeksha Capital. Please go ahead.

Pallavi Deshpande — Sameeksha Capital — Analyst

Yes, sir. Thank you for taking my question. Just following-up on the previous question about the RMs. We’ve seen a lower addition in this quarter. Is that anything to do with the market conditions and how should we look at RM addition going ahead? And just put in my second question also with regard to the market share. You mentioned in the previous call about 1% of equity inflows, taking that up to 3%. So, what would be the timeline on that?

Feroze Azeez — Deputy Chief Executive Officer

Yes. So let me answer the first one, which is the RM strength. The RM strength, generally it happens by training and promoting AMs. So, we have gone a little slow because we have to make sure that the person who is becoming an RM from the AM, the probability of successes have to be immense. So, that’s why you see a little slower addition. It’s got not too much to do with the market potential in terms of market sentiment. But the good news is we have the next 30, 40 already slated who have spent about 2.5 years as an AM and under — as an apprentice under seasoned private bankers already. So, that number should see a large uptick soon. And what was your next question? Sorry, I missed that.

Pallavi Deshpande — Sameeksha Capital — Analyst

Yeah. It was with regard to the market share. So, we’ve spoken about our equity market share at 1% and taking that up to 2% to 3%. So, any timelines you can share on that?

Feroze Azeez — Deputy Chief Executive Officer

Yes. So, we are looking at the market share increase. Like you might have heard me just a few minutes back that the net flows have reduced by 55% on equity mutual fund and ours have gone up by 74%, which is a large dispersion to what the industry has got. It’s because we are looking at numerically establishing our credibility in mutual fund recommendation and I’ll come to the timeline, which is your pointed question. So, in the last quarter we analyzed 109 equity mutual fund portfolios worth INR1,000 crores outside with other distributors transaction by transaction and we realize that Anand Rathi’s recommendation has been more profitable. And now that we have started being very numerical about our value-add, to come to your pointed question, I think getting to a 3% market share will take about four, five years because that’s — as the market also will increase and that’s the target.

Pallavi Deshpande — Sameeksha Capital — Analyst

Right. You mentioned, just to get this right, 109 mutual funds were analyzed that were outside the current universe. Is that right?

Feroze Azeez — Deputy Chief Executive Officer

No, let me explain that little more in detail. Now if there is a prospective client we meet, we take the transaction-wise information and try and see whether the person externally has beaten Nifty or our model portfolio. The 109 is not mutual funds. Those are 109 unique HNI investors external mutual fund portfolios, which we analyze and see whether we have beaten those portfolios which were managed by other distributors and heartening — it has been heartening for us to see that 95 out of the 109 analyzed last quarter, our model portfolio would have kept them richer. And with this piece of audited information, the propensity for a client to give us a change of broker or mutual fund has gone up reasonably. Does that answer?

Pallavi Deshpande — Sameeksha Capital — Analyst

Yes, sir. Just another one if I may. On the capex side like we’ve seen a little uptick in depreciation and any guidance on that, sir?

Feroze Azeez — Deputy Chief Executive Officer

Jugal sir would be very well equipped to answer that. Jugal bhai, can I request you to take that one?

Jugal Mantri — Group Chief Financial Officer

Yes. There is no capex item on the P&L. Where you…?

Pallavi Deshpande — Sameeksha Capital — Analyst

No, I’m talking about the uptick in depreciation that we’ve seen — slight uptick in depreciation.

Jugal Mantri — Group Chief Financial Officer

So, that is because of the Ind AS 115 that otherwise there is no capex expenditure. Ours is a capex light company in the industry.

Pallavi Deshpande — Sameeksha Capital — Analyst

Right. Sir, lastly if I could just have — would it be possible to share breakup between — on the income side between the mutual fund and the MLD, the other segment?

Jugal Mantri — Group Chief Financial Officer

That is already there in the presentation.

Pallavi Deshpande — Sameeksha Capital — Analyst

Not the AUM, I meant the revenue.

Jugal Mantri — Group Chief Financial Officer

Even the revenue breakup is also there. If you look at Page Number 29 of the presentation, you will find the breakup. Okay. But I’ll just repeat for you. For Q3 the mutual fund revenue was INR50 crores as against INR42.5 crore in the corresponding Q3 last year and distribution of financial products is INR86 crores and other IT enabled and other services was about INR3.4 crores.

Pallavi Deshpande — Sameeksha Capital — Analyst

Right. Sir, that’s what I meant. Within this distribution if you could have, how much was the MLD and how much was the mutual fund?

Jugal Mantri — Group Chief Financial Officer

Largely it is MLD only.

Pallavi Deshpande — Sameeksha Capital — Analyst

Right. I’ll get back in the queue. Thank you so much.

Feroze Azeez — Deputy Chief Executive Officer

But let me just add one point to Jugal sir’s comment. The long-term target of trail income to total income is 50% as we have headed there. If you see the last one year, Nifty from December to December has hardly moved 1%, 2% and you still see a trail revenue increase of 27%. Once the tailwind of the market movement comes, you will see a substantive change in these proportions because markets have to deliver at a point in time not in this year. But in spite of that, we have had a 27% increase.

Pallavi Deshpande — Sameeksha Capital — Analyst

Right. Got it. So, the 30% target like you said would be probably matching with your three to five-year term for that?

Feroze Azeez — Deputy Chief Executive Officer

Yes, madam. Yes, absolutely.

Pallavi Deshpande — Sameeksha Capital — Analyst

Okay. Thank you so much.

Operator

Thank you. [Operator Instructions] We have a question from the line of Dhaval Shah from IIFL. Please go ahead.

Dhaval Shah — India Infoline Finance Limited — Analyst

Good afternoon, sir. Thank you so much for the opportunity.

Operator

Mr. Dhaval, I’m sorry to interrupt, but your volume is very low. Can you use your handset please?

Dhaval Shah — India Infoline Finance Limited — Analyst

Good afternoon, sir. Thank you for the opportunity. Sir, just one question from my side. Can you please provide the quantum of gross inflows in the MLD during the third quarter and also the split between the primary and the secondary?

Feroze Azeez — Deputy Chief Executive Officer

Yeah. So INR1,151 crores gross in primary, INR277 crores in secondary.

Dhaval Shah — India Infoline Finance Limited — Analyst

INR277 crores in the secondary, right?

Feroze Azeez — Deputy Chief Executive Officer

Yeah.

Dhaval Shah — India Infoline Finance Limited — Analyst

Okay. Thank you so much sir.

Operator

Thank you. [Operator Instructions] We have a question from the line of Aditya Shrimankar from Ishti Advisors. Please go ahead.

Aditya Shrimankar — Ishti Advisors — Analyst

Hi. I wanted to ask what is the average yield on MLDs during this quarter and how it has fared year-over-year.

Feroze Azeez — Deputy Chief Executive Officer

So I’m sorry, I missed your name. I’m so sorry.

Aditya Shrimankar — Ishti Advisors — Analyst

It’s Aditya.

Feroze Azeez — Deputy Chief Executive Officer

Hi Aditya. Aditya, yield by virtue of that nomenclature implies the per annum yield. First, let me tell you what’s the yield of all the matured products. In an MLD if you look at the yield per annum, we have made 1.17% in products which have matured. One is because yield is per annum on market value when it comes to mutual funds. On the module portfolio of mutual funds, we make 1.11%. On the matured products, which you can backward calculate, the yield has been 1.17%. Having made that point, the yields on both these instruments per annum on market value are identical if not equal almost. Now coming to what you make. We recognize this revenue upfront so on a three-year basis we make about 5.5%, on a five-year basis we make about 7% to 8%.

Aditya Shrimankar — Ishti Advisors — Analyst

Okay, got it. All right. Thank you.

Feroze Azeez — Deputy Chief Executive Officer

Because in mutual fund, the trail income comes on market value. But this is recognized on face value and all upfront as trading income, right.

Aditya Shrimankar — Ishti Advisors — Analyst

Got it. Okay. Thank you.

Feroze Azeez — Deputy Chief Executive Officer

Thank you, Aditya, for your question.

Operator

Thank you. [Operator Instructions] We have a question from the line of Prayesh Jain from Motilal Oswal. Please go ahead.

Prayesh Jain — Motilal Oswal Financial Services Ltd — Analyst

Yeah, hi. Just a couple of questions. First on the expense side, other expenses, they have been kind of trending higher like the run rate used to be around INR11 crores, it’s kind of reached INR17 crores. So, what — on one of the questions you said that large portion of the expenses are fixed in –beyond expenses and beyond the salaries or bonuses of RMs. So then what is this increase pertaining to? That is question number one. Secondly, on the mutual fund book, what would be — do we have any SIPs and if so, what would be the share of SIPs in our mutual fund AUM?

Feroze Azeez — Deputy Chief Executive Officer

Got it. So, let me take the second one and I’ll toss the first one to Jugal-ji. The SIP book is about INR32 crores, INR33 crores.

Prayesh Jain — Motilal Oswal Financial Services Ltd — Analyst

Okay. So that means renting, is it monthly or is total AU and [Technical Issues]?

Feroze Azeez — Deputy Chief Executive Officer

This is monthly because we deal with HNIs. HNI savings come in lumpier chunks so because if somebody saved about INR10 lakhs, INR15 lakhs, INR20 lakhs; in a quarter he gives you that money as INR40 lakhs, INR50 lakhs. That’s the general trend. But still having said which, the number is marginally higher than INR30 crores per month. And for the first question, other expenses. Of course when we spoke of the expenses, it was pre-COVID levels so I will ask Jugal-ji to give you some color to the other expenses.

Jugal Mantri — Group Chief Financial Officer

See largely if you may recall that because of the COVID, there was no physical offsite and visits which we used to have on a quarterly basis, the strategy meets, and all that. So this year onwards, all these activities have started and these expenses pertains to the offsites with the strategy meet as well as the traveling expenses which were lower in FY ’22. More particularly when you are comparing with the December quarter vis a vis — December quarter last year vis-a-vis the current December quarter, the expenses are on account — increased expenses are on account of traveling, offsite, and strategy meeting.

Prayesh Jain — Motilal Oswal Financial Services Ltd — Analyst

Okay. And just one more. On the — you mentioned that 20% of the MLDs sourced in the current year are outside NCD [Phonetic]. So, what is the kind of commission you made on those?

Feroze Azeez — Deputy Chief Executive Officer

Same. Marginally higher from Nuvama. So from 1st April if there is a sourcing of about INR615 crores, for in-period kind of an MLD, it’s marginally higher.

Prayesh Jain — Motilal Oswal Financial Services Ltd — Analyst

Okay. Thank you so much.

Operator

Thank you. We have our next question from the line of Dipanjan Ghosh from Citi. Please go ahead.

Dipanjan Ghosh — Citigroup Inc. — Analyst

Hi, good afternoon. Three questions from my side. One is a follow-up to the question asked by the previous participant in terms of the SIP flows. Could you give some color on the redemptions you’re seeing in the portfolio or any quantitative number on gross to net ratio? My second question is on the distribution yield that you get for incremental flows that are going into the existing schemes of mutual funds and whether that incremental distribution yield has changed YTD or Y-o-Y, if you can give some color on that? And lastly, we have seen a list of NFOs happening during the current quarter or even in the current year. So, just wanted to get some color on how are the yields shaping up between FY ’22 and 3Q ’23 or YTD ’23? And also are you willing to lock in that yield on the NFO flows for one year or is it like — is it for a long-dated period that you are seeing? So, those are my questions.

Feroze Azeez — Deputy Chief Executive Officer

Mr. Ghosh, your audio wasn’t so clear. If you can again go one by one, it’ll be helpful because I could barely hear you in terms of it was a little muffled.

Dipanjan Ghosh — Citigroup Inc. — Analyst

So, is it fine now?

Feroze Azeez — Deputy Chief Executive Officer

Yes. So you can pick up your headphone if you’re not using it, do something. So if you can again — go again with your first question. SIP number, you were you saying something.

Dipanjan Ghosh — Citigroup Inc. — Analyst

I just wanted to get some color on the SIP redemption trend and any color on the gross to net ratio in SIPs?

Feroze Azeez — Deputy Chief Executive Officer

Gross to net ratio. If you’re looking at SIP redemptions or SIP stoppages. I don’t think there have been too many stoppages because HNI is not so — so to answer your point in question, it should be negligible. I don’t have a precise number to that currently.

Dipanjan Ghosh — Citigroup Inc. — Analyst

Sure. My second question was on the incremental distribution yields that you are getting on fresh flows into equity schemes of mutual fund players and how that has changed let’s say between March and December or December to December on incremental flows into existing schemes of mutual — actively managed equity mutual funds?

Feroze Azeez — Deputy Chief Executive Officer

So when we recommend mutual funds, we recommend a very pointed portfolio for most of our clients and over a period of time, money moves there. So like I told you, it has been 1.11% yield on the 11 schemes weighted average as per our recommendation. It remains, it has gone up by about 2% same period December. December-end last year we were at 1.09%, now it is 1.11% for these 11 schemes. And we have our suppliers which are mutual fund competing with each other for our market share so we don’t see any stress on any reductions there.

Dipanjan Ghosh — Citigroup Inc. — Analyst

Got it. That’s great. My last question was on the NFO side and over the last six to eight months and even prior to that in FY 2022, we have seen there has been significant amount of flows in NFOs and also the NFO payouts to distributors have been quite strong. Just wanted to get some color on incremental trends during the quarter and also YTD. And are you able to lock-in the NFO yields for, let’s say, more than one year?

Feroze Azeez — Deputy Chief Executive Officer

No, we don’t do any such advancement of yields because we don’t recommend NFOs. Since I don’t buy an NFO so I don’t recommend it to my client. So, zero NFOs have been sold over the last eight, nine years. So because if there is 570 equity mutual funds, out of which active ones are about 250, 280 and the best and the worst one have a 44% difference and there is a lot of constituents which are already there and there is an established fund manager with a philosophy. From a client-centric organization standpoint selling an NFO, I don’t see any merit to hurry into buying an NFO if it does not have a three-year track record. So, any equity open-ended fund requires a basic three years for us to be able to analyze behaviors of fund managers and his right to wrong ratios and stuff. So, no NFOs sold and that’s been the philosophy. Unless there is some NFO which addresses a gap in the future, we’ll be agile enough to adapt if it is something which makes merit from a client risk-reward standpoint.

Dipanjan Ghosh — Citigroup Inc. — Analyst

Sir, completely understand. Thanks for the answer and all the best.

Operator

Thank you. We have our next question from the line of Varship Shah from Envision Capital. Please go ahead.

Varship Shah — Envision Capital Services Private Limited — Analyst

Am I audible, sir?

Feroze Azeez — Deputy Chief Executive Officer

Yes, Varship. Did I pronounce your name right?

Varship Shah — Envision Capital Services Private Limited — Analyst

Varship. Sir, I was just wondering like of what kind of reaction are you getting from the clients with regards the whole active versus passive investing. Are any like — are any HNI or new HNI clients questioning you about an advisory versus distribution model or why actives or passives and entire value-add that we do it in a process? And is there any slowdown also in client addition? Because I was seeing in this quarter client addition has slightly slowed down. So, can you help me with that?

Feroze Azeez — Deputy Chief Executive Officer

Got it. So, let me ask this — answer this question in two parts. One is, Varship, the active with passive debate ironically in the industry is happening without numerical measurements of their own portfolios. So what we do is if the client is debating an active and passive, he needs to or she needs to first compute transaction-wise alpha or underperformance to a benchmark, which is missing. So, what we do is we calculate transaction-wise alpha. People generally go by perceptions and we go with narratives. Now there’s one client — let me give you an example on a little more casual note on a serious call. I met a client who wanted to move his INR22 crores to an ETF. Then I said okay, you can’t read newspapers and decide that. Why don’t you first check transaction by transaction what is the alpha you’ve generated over the last five years; 966 purchases, 36 exits. If you take Nifty transaction by transaction; he himself had beaten Nifty by 2.7% per annum.

So if somebody is not able to make alpha, it doesn’t mean that you are not making alpha. First, get your own numbers, mathematics — measurement is the first step of management and that doesn’t seem to be happening. Most people who debate that, they don’t even have their transaction-wise alphas on their direct equity, on their mutual fund, on their PMS. So, that’s point one. So we don’t see any risk on ETF and the module portfolio which we have used all regression and all Nobel Prize winning formulas, for the 9.5 years from 1st June 2013 has generated 3.17% extra over Nifty after all costs. So if these numbers are there and they are mathematically accurately measured, people are guided not by narratives but by actuals for them. One size fits all doesn’t work in wealth management is our opinion and a strong one.

Varship Shah — Envision Capital Services Private Limited — Analyst

Alright. And on the client addition, is there any slowdown in the environment?

Feroze Azeez — Deputy Chief Executive Officer

Client addition is not a slowdown. What happens is we measure clients, not all of them. We measure them if they have more than INR50 lakhs with us. Mark-to-market brings some of them in the bucket, some of them outside the bucket because there’s no point counting a INR10 lakh client. We count INR50 lakh plus who has INR4 crores, INR5 crores as total assets. Now coming to the — so there will be some volatility in quarterly numbers of client addition and subtraction because there’s also subtraction possible. If somebody came back and took away INR5 lakh from 52 lakhs, he will no more be in this client list because it’s only fair to account for clients who are at a point in time greater than INR50 lakh with me. That’s why you see a larger number last quarter.

But to eliminate this volatility, you have to look at nine months to nine months. Nine months last year was 801, nine months this year is 1,120; which is 320 more clients in the same nine-month period. So, there is a client addition rate being increased 0.1. And the second is we also try and measure the quality of client acquisition in terms of the first check. The first check average has gone up by about 70% to 80%. So after listing, which is a very credible thing for a business which is — which requires some degree of branding from — because people are parting with their money has resulted in people trusting us at the beginning with more money than they used to before we were listed last December. Does it answer? It answered or you want some more clarification for that?

Varship Shah — Envision Capital Services Private Limited — Analyst

Yeah. So, have you seen initial ticket sizes go up?

Feroze Azeez — Deputy Chief Executive Officer

Yes, we have and some clients have given us outrageous starting values as well, which is a great indication of what lies ahead for a listed wealth management outfit.

Varship Shah — Envision Capital Services Private Limited — Analyst

Thank you very much.

Feroze Azeez — Deputy Chief Executive Officer

Thank you, sir, for your questions.

Operator

Thank you. We have our next question from the line of Sagar Jethwani from Phillip Capital. Please go ahead. Mr. Jethwani, you’re not audible.

Sagar Jethwani — Phillip Capital India Pvt. Ltd. — Analyst

Yes. Thank you. So, I just have one question. Do we plan to expand into B30 cities and what are the typical ROICs in long term if you expand the branches there? This is my only question. Thank you.

Feroze Azeez — Deputy Chief Executive Officer

Thank you for your question, Sagar. Our strategy to expand into the full Bharat has been planted a few years back. So, we are hiring patterns of our current RMs — our Top 100 items. There are about 27, 28 of the 100 RMs who belong to unique B30 towns — smaller towns; Tier 2, Tier 3. Because we have a very strong principal of client centricity and a culture, which Rakesh has built over the last 15 years to protect that, starting a peripheral unit by itself is something which may not be the most advisable. So these 27, 28 people may choose to go back to their cities which they belong, where their parents live, where they were brought up, they know the regional language, they are able to relate to the fraternity there. So, that’s our strategy.

So in that process we have started a Coimbatore unit, we have Vishakhapatnam, we have Indore, we have now started Ahmedabad. These are smaller units, which may not be called units, but those are supposed to be built brick-by-brick with one, two people who understand and who are our Top RMs who go back to set-up our business there and they are already breaking even from day one when they reach their home location and that has a lower cost of building a unit. And be it infrastructure cost in every city in India, in fact I would say all Tier 2 cities for sure have at least 100, 200, 300 HNIs. And to go there, you can’t send an English-speaking golf playing guy and expect the people to be able to relate to him. So that’s the answer, Sagar, from a strategy standpoint and I’m sure Rakesh sir can add lot on this count because all of it is his brain child.

Sagar Jethwani — Phillip Capital India Pvt. Ltd. — Analyst

Yeah. On the RM…

Feroze Azeez — Deputy Chief Executive Officer

So, I’ll just ask for a comment from Rakesh sir.

Rakesh Rawal — Chief Executive Officer

You’ve covered this beautifully. I think the idea is to sow a seed, which we are doing in a lot of cities and will continue to do so and we know that how it sort of grows. So like in Vizag, we have one RM and now we have — she has already trained the second person over there and therefore soon we’ll have two RMs over there. So, in smaller cities we have to organically sort of grow and we have plans to grow it in a lot of smaller cities in the future.

Sagar Jethwani — Phillip Capital India Pvt. Ltd. — Analyst

No. But in last call, again if you — what are the typical ROICs in suppose say four, five years once you set-up the branch. Just trying to understand that because the penetration is relatively slower in B30 cities. So, that’s where I was coming from.

Rakesh Rawal — Chief Executive Officer

No, I don’t think that is true. I think that for example the AUM in Vizag that this lady is handling is about INR120-odd crores and she’s taken about three or four or five years to get there. In the big cities also, a fresh RM takes four, five years to get to INR120 crores. So, I don’t see that being any different. You have the advantage of not too much of competition there. You also have a little bit of disadvantage that not too many rich people are floating around. So, it balances off. So, I don’t think that the narrative that ROIs are going to be lower is very valid. The costs pertaining to office, etc. etc. may be very marginal compared to the rest of it. So for example with INR100 crores, you will have a revenue of INR1.2 crores, INR1.3 crores. What kind of cost do you think will be there for having a small office? Few thousand, INR20,000, INR30,000, INR40,000 per month. So, I don’t believe that your margins are going to be significantly different in smaller towns.

Sagar Jethwani — Phillip Capital India Pvt. Ltd. — Analyst

Okay. That’s helpful. Thank you so much.

Operator

Thank you. We have our next question from the line of Abhijeet from Kotak. Please go ahead.

Abhijeet Sakhare — Kotak Securities — Analyst

Hi, good afternoon. So not sure if I’m reading the numbers right, but looks like you don’t sell much of other alternate products like PMS or AIF. So, any thoughts if that’s the right reading? And a related question would be any thoughts also on getting into investment management as well?

Feroze Azeez — Deputy Chief Executive Officer

Abhijeet, I’ll take this question. The last part I missed, but let me answer your first part. We don’t sell — currently we don’t sell PMSs and AIFs because the standard deviations of PMSs are significantly more. We have analyzed several PMS portfolios, which have six, seven, eight PMSs; but our model portfolio on the mutual fund side transaction by transaction has beaten them. So, currently we don’t sell PMSs and for the last seven, eight years as well, almost 10 years now. Why? Because there’s tax inefficiency and several other reasons. We have a seven filter process to have a product line approved and without that, our client objective of 11% to 14% is being met. If you look at the daily standard deviations, most PMSs operate at about 50%, 60% more than their corresponding mutual funds.

That’s one of the reasons because we — our objectives for the client are not just return based, they are also risks which we measure; three-year standard deviation of generally not — which not be double digit. So infusing PMSs results in increase in the standard deviation. Secondly, AIFs also have long-only AIFs. We believe that alternate investment funds should be truly used for alternate as an instrument. Equity common stock is the most — oldest financial instrument. That being housed in an AI is something which we disagree with. And we have an AIF license, we will use it appropriately when we are actually doing something which cannot be housed in a mutual fund or a PMS platform regulatory. Does that answer first part, Abhijeet?

Abhijeet Sakhare — Kotak Securities — Analyst

Yeah, it does. I think it also answers the second one, which was around getting into doing these businesses in-house as an investment management firm. So, I think your strategy or your thoughts on that I think it answers the second question as well. Thank you.

Feroze Azeez — Deputy Chief Executive Officer

Yeah. So in fact MLD can be always housed in an AI, we will explore that in the future.

Operator

Thank you. We have our next question from the line of Sadanand Shetty from True Equity Advisors. Please go ahead.

Sadanand Shetty — True Equity Advisors — Analyst

My question has been asked. Thank you.

Operator

Thank you. We have a follow-up question from the line of Senthil Kumar from Joindre Capital Services Ltd. Please go ahead.

Senthil Kumar — Joindre Capital Services Ltd. — Analyst

Hi, good afternoon. Am I audible?

Operator

Yes, please go ahead.

Senthil Kumar — Joindre Capital Services Ltd. — Analyst

Sir, firstly, congratulations for the good set of numbers especially for the revised AUM guidance. And my question pertains to the correlation between net client addition and Private Wealth AUM growth. Actually I see 40% — nearly 40% degrowth in net client addition on sequential basis whereas we have reported a 10% — 11% growth in Private Wealth AUM. And how should we read this, your color on this, please?

Feroze Azeez — Deputy Chief Executive Officer

Sure. Let me answer that. I missed your name, sir.

Senthil Kumar — Joindre Capital Services Ltd. — Analyst

Senthil Kumar.

Feroze Azeez — Deputy Chief Executive Officer

Senthil, sir, thank you so much for your wishes and thanks for the question as well. Firstly AUM, so client addition has not reduced. If you see 450 for the quarter two and 270 odd for this quarter, which is quarter three; it will look like a reduction. It is not that the clients — some clients get added or subtracted because of movements in market or small redemptions which come through. So whenever you look at client addition, you have to look at a longer period because mark-to-market can move some clients up or down. Does that answer, Senthil, first part? You have to look at 801 and compare it with 1,120. So in nine months, I’ve added 320 more clients than what I added in the first nine months. Is that clear, Senthil? So, it’s not a reduction at the pace at which clients are being added. So, that’s a wrong conclusion. That second part is AUM, AUM is like a photograph. It is on a specific date. Okay. So like June-end — sorry September-end, the Nifty was not at great level.

So, net addition of inflows and outflows will give you a better picture of how much money we are getting from marketplace. The last nine months have not been great sentiment. In spite of that, we got INR3,715-odd crores from client, new clients and existing clients giving us more money. When times are bad, we look better to several of our clients because in good times everyone is making money. So when in bad times clients give you more references and more AUM and they consolidate their portfolios with us, it is because relative comparison people don’t do when everything is doing very well. People will buy a PMS and double their money, then they will not be so worried. But when — the underperformance is when they start referring their friends. So INR3,715 crores of net mobilization is a better number to look at in terms of new money which came in, which was 94% greater than the previous year same nine months. And you had another part also to the question, sorry I missed it.

Senthil Kumar — Joindre Capital Services Ltd. — Analyst

No, that’s it, sir. Thank you, sir. All the best.

Operator

Thank you. We have our last question from the line of Pallavi Deshpande from Sameeksha Capital. Please go ahead.

Pallavi Deshpande — Sameeksha Capital — Analyst

Thank you. Just following-up on that like you said in the rough times, we look even better. So what would be your outlook given the rough times seem to be continuing?

Operator

Pallavi, I’m sorry. Can you use your handset, please?

Pallavi Deshpande — Sameeksha Capital — Analyst

Yes. Just continuing on the previous question of when you said that in the tough times we look better. So given the current environment, tough times seem to be continuing. So, can we assume similar outperformance going forward on the net inflows side?

Feroze Azeez — Deputy Chief Executive Officer

Thanks, Pallavi, for your another question. So, I’ll make one comment and give the last word to Rakesh sir. So, are we doing enough and more to make sure that our long-term guidance of 20%, 25% holds? 2023 in our hope is going to be better than 2022 so irrespective, growing at 20%, 25% we think is a conservative guidance clearly and for 2023 we are definitely attempting to beat that. And Rakesh sir, if you can give an elaborate answer to Pallavi madam’s question.

Rakesh Rawal — Chief Executive Officer

No, I think you’ve given the direction. Our belief is that 2023 would be far better than 2022 and we are already starting to see the results of companies that are coming in. And our belief is that hey if companies do well, then the markets will catch up sooner or later. And similarly companies do well when the opportunities increase. If GDP grows at 5%, 6%, 7%; there’s opportunities for companies to grow. And therefore I’m not the believer of many of the people who say hey, massive recessions are coming, etc., etc. So having said that, I think that there will be good quality growth in terms of the AUM per se aided by markets. The second part is net flows. Net flows is a function of client addition and penetration. There’s so much that we are doing to increase penetration of existing clients as well as acquisitions.

I think Feroze mentioned the entire audit program that we have started. That’s when you audit the assets lying outside and show to the client mathematically that those assets are not very efficiently placed. There is a large tendency of the client to bring those assets for better and more efficient management with us. So, I think exercises like this; whether it is audit of mutual funds, audit of insurance policies, audit of real estate, and so on so forth; which gives them clearly that hey, what they’re making there and what they can make here. So, this exercise brings in depth of penetration. So, we believe that these exercises will lead to the net flows having a very robust momentum next year. Yeah, that’s what I wanted to say. Does it answer, young lady?

Pallavi Deshpande — Sameeksha Capital — Analyst

Yes, sir. Thank you so much.

Feroze Azeez — Deputy Chief Executive Officer

Thank you, Rakesh sir, for that answer. Pallavi, if we look at, this business has got a vintage advantage. As you progress, RM vintage and client vintage helps. If you look at the client vintage segment-wise on a year-on year basis, if you look at the five-year plus clients have on average AUM which is four times more than one to two years. So if I just extrapolate time passage and the average is remaining identical, then we are looking at growth greater than what has been indicated without client addition as well.

Operator

Pallavi, sorry. You’re not audible, your voice is cracking.

Pallavi Deshpande — Sameeksha Capital — Analyst

Just one last one on the MLD side is you could have some — you have some quite a few bunching of MLDs maturing June 2023. Does that to cause any volatility in MLD flows for FY ’23?

Feroze Azeez — Deputy Chief Executive Officer

Sorry, which FY? You’re speaking of FY ’23 or ’24.

Pallavi Deshpande — Sameeksha Capital — Analyst

I’m speaking of June ’23 —

Feroze Azeez — Deputy Chief Executive Officer

Your voice is very muffled, Pallavi. I’m missing here.

Pallavi Deshpande — Sameeksha Capital — Analyst

The June 2023 MLDs those maturing in June 2023, will that cause volatility for FY ’24 inflows of MLD?

Feroze Azeez — Deputy Chief Executive Officer

No. We have extrapolated our maturities and that’s a reasonably smooth curve. I can tell you that. And I don’t know why you’re specifically asking June 2023. Is there a particular reason, Pallavi, you’re asking June 2023 because…?

Pallavi Deshpande — Sameeksha Capital — Analyst

MLDs some of them are bunched up — [Technical Issues].

Feroze Azeez — Deputy Chief Executive Officer

So, we have a very well placed maturity profile and for reasonable periods of time and our rates of reinvestments are driven by the client allocation decision. And when the reinvestment comes, there is hardly any conversation because there are gaps in the allocation, they automatically get reallocated. So for a reinvestment of INR100, in most cases we don’t even have to discuss more than five, 10 minutes with the client because there is an allocation already decided. So reinvestment just like the mutual fund industry used to have an FMP as a product, FMP used to measure, they used to get rolled over. That’s the kind of principle. So to answer your point in question, Pallavi, there is no — it’s a reasonable smooth curve of maturity and 80% 85% reinvestment, which is decided by the allocation and not by individual conversations at maturity is the nature of the business.

Operator

Thank you. We have a question from the line of Sunil Shah from Turtle Star. Please go ahead.

Sunil Shah — Turtle Star — Analyst

Thank you so much for the opportunity. Feroze and team, really need to appreciate the culture that has been cultivated in this organization. I guess we’re looking at four different products of 11%, 12%, 13% 14% return for the client and It’s really good that long-term compounding is actually what will roll out for the organization because of the stickiness of the client. So, my point is the uniqueness that we do is build the product, which is [Indecipherable] easily from the wealth manager side available and we are focused on what we want to do. So, would MLD involve any amount of risk at maturity for any client because now we are going to do almost 20% from outside of our organizational concern? So, I just wanted to make sure about the risk in the MLD part. Could you just your thoughts on that, please?

Feroze Azeez — Deputy Chief Executive Officer

Yes, Mr. Shah. As you rightly pointed out that we are very possessive about our culture and the client centricity. Of course every organization aspires that and so do we and we are very possessive about that. And the culture built has a lot of inspiration from Rakesh sir’s HUL experience for about 10, 12 years. Now coming to your point in question, MLDs. The reason why we used to have 100% of MLD in an entity, which was a group entity, is because we stopped selling Edelweiss and Reliance Capital MLDs which we used to sell previously. We have a team in the research, which identifies credit risk and is reasonably ahead of the curve. That’s why Reliance Capital, which was a AAA rated NBFC which issued MLDs, we quit Reliance Capital two years before some of the mutual fund companies didn’t quit till default.

Now coming back to unless we are very comfortable, we don’t give away credit risk management to any other company. Nuvama of course we got the comfort with a 54% holding by Nuvama. That’s why you see close to INR600 crores has gone there. But MLDs as long as the money like the group entity also, Jugal-ji is the best person to tell you and since my NBFC is also overlooked by our Group CFO who has been with the Group since ’93, ’94, the kind of management stability there and money allocated and very prudently deployed unlike most NBFCs. We are an asset-backed NBFC rather than — a liability-backed NBFC than an asset backed NBFC. So, probably we can take this question offline and I can give you more information for the lack of time since we have gone to 1 hour 5 minutes already.

Sunil Shah — Turtle Star — Analyst

Fair enough. No issues. I get the point. Thank you so much. Thanks for the answer.

Feroze Azeez — Deputy Chief Executive Officer

Jugal sir, you want to add something.

Jugal Mantri — Group Chief Financial Officer

As you rightly suggested, we can have offline discussion.

Sunil Shah — Turtle Star — Analyst

Thanks, sir. I’ll get in touch with you. Thank you so much.

Feroze Azeez — Deputy Chief Executive Officer

Thank you, Mr. Shah, for amazing comment and your question.

Operator

Thank you. We have our last question from the line of Rohan Mandora from Equirus Securities. Please go ahead.

Rohan Mandora — Equirus Securities Private Limited — Analyst

Sir, thanks for the opportunity again. Just wanted to touch base on the employer — sorry client addition discussion again. So because in this quarter the explanation that you are giving that if the AUM is going below a certain threshold, we are not counting them in the number of client count. So would it be fair to assume that most of these are due to redemptions in this quarter because MTM hit may not be there this quarter and if so, like what could be the quantum of clients who would have completely exited the relationship?

Feroze Azeez — Deputy Chief Executive Officer

What — Rohan, hi. What happens is Q2 number might have been inflated because of Q1 number which was June quarter was very depressed. The rate of addition in gross — there’s something called upgrade, downgrade of clients and net addition. If I look at net addition, that has marginally gone up. I’ll give you precise numbers. Redemption as a trend is not influencing this much, the client attrition number is very low, and if your RM attrition is very low, client attrition further goes down. But you will have to allow us some time to give you precise numbers. Your question is very valid, we’ll give you the breakup for sure.

Rohan Mandora — Equirus Securities Private Limited — Analyst

Sure, sir. I’ll touch base offline for this.

Feroze Azeez — Deputy Chief Executive Officer

Yes. Thank you.

Rohan Mandora — Equirus Securities Private Limited — Analyst

Thank you. I would now like to hand the conference over to management team for closing comments. Over to you.

Feroze Azeez — Deputy Chief Executive Officer

Jugal, sir.

Jugal Mantri — Group Chief Financial Officer

Yeah. So thanks, friends. I take this opportunity to thank everyone for joining on the call. I hope we have been able to address all your queries. And on two points where we have suggested offline discussion, I will request Mr. Vishal Sanghavi and our SGA team to have the meeting or call arranged and queries addressed. In case if you have any further information requirement or any further query, kindly get in touch with our IR Head, Mr. Vishal Sanghavi or CFO, Mr. Rajesh Bhutara or our advisor, Strategic Growth Advisor or Investor Relations Advisor. Thank you very much.

Operator

Thank you. On behalf of Anand Rathi Wealth Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.