Anand Rathi Wealth Limited Q4 FY23 Earnings Conference Call Insights

Key highlights from Anand Rathi Wealth Limited (ANANDRATHI) Q4 FY23 Earnings Concall

Q&A Highlights:

• [00:09:27] Lalit Deo at Equirus asked what kinds of primary and secondary MLD product issuances drove the distribution revenue during 4Q23. Jugal Mantri Group CFO replied that the markets have been flat for the full year, meaning that revenues have come primarily from MLD distribution. The company’s net mobilization on the equity mutual fund side was INR900 crores, and in the full year it collected INR2,500 crores in equity MF. ANDRATHI aims to maintain a 50-50 ratio between upfront and trail revenue in the future.

• [00:18:01] Madhu Kela with MK Ventures enquired about the tax environment impact on debt mutual funds and MLD guidelines in the past year and future outlook. Feroze Azeez Deputy CEO replied that the INR1.5 lakh crore industry which ARWL had zero share and will become non-lucrative for HNI due to the introduction of MLD. ANANDRATHI didn’t have a share, but were in the unlisted, unrated MLDs. These MLDs had an estimated impact of around INR1.35-1.4 lakh crore on the industry.

• [00:27:36] Madhu Kela with MK Ventures asked why Anand Rathi has limited international presence and is not considered when looking at Indian markets. Rakesh Rawal CEO answered that the Dubai-based investment company has had great success for the last 6-7 years. ANANDRATHI advise clients to split investments between India and abroad, and are masters in the Indian portion due to recent positive changes in India’s image. 30% of ANANDRATHI’s money comes from NRIs but said it could be more aggressive in reaching out to them.

• [00:29:11] Samyak Shah from Sameeksha Capital enquired if the increase in other financial assets a collateral against bank overdraft and what purpose does it serve. Jugal Mantri Group CFO said the interest rates on FDs shot up in Feb. and March, so ANANDRATHI made FDs of more than one year. This moved the FDs from cash and cash equivalent to other financial assets, resulting in the change in balance classification.

• [00:30:39] Samyak Shah from Sameeksha Capital asked about the bifurcation of net inflows, existing vs. new clients. Jugal Mantri Group CFO said that ANANDRATHI don’t have a classification of AUM mobilization from new and old clients, because its existing clients move from one bucket to another depending on their AUM.

• [00:32:00] Mayank Agarwal from InCred Capital queried how many of the new RMs were originally from outside and how many were promoted from AMs. Feroze Azeez Deputy CEO replied that the net addition of RMs for the full year is 22, with a regret attrition rate of 0.35%. 40% of lateral hires were internal, and 60% were external. New RMs typically add 10-14 clients in first 3-4 months, but it may take longer to reconnect with the former organization’s clients.

• [00:34:09] Mayank Agarwal from InCred Capital asked when the company expects equity inflows to return to market. Feroze Azeez Deputy CEO said wealth management companies, like ANANDRATHI, can help increase net mobilizations and performance of HNIs by encouraging them to invest in equity mutual funds when Nifty is at lower levels.

• [00:40:04] Dipanjan Ghosh from Citi enquired about cost, if there is any headroom for improvement. Jugal Mantri Group CFO clarified that The PBT margin of a business is around 42.5%. To improve the margin, increasing the volume of business and associated cost is necessary. The operating costs including employee cost make up 46-47%, with revenue-generating employees constituting two-thirds of the employee cost. There is capacity to handle an additional 50% of the current volume at semi-variable cost.

• [00:48:16] Varun Pattani from Quant asked what criteria does ANANDRATHI considers when selecting mutual fund schemes, and how it’s explained to clients. Jugal Mantri Group CFO answered that ANANDRATHI uses a regression model and proprietary formula to identify 11 variables with a significant correlation between past performance and future performance, rank 152 fund managers, and create a portfolio of 38 exits and 36 entries with 2.23% alpha over the Nifty.

• [00:52:46] Aejas Lakhani from Unifi Capital asked about the drivers of MF growth currently and going forward. Feroze Azeez Deputy CEO answered that measurement was used to show clients that regular investing was more successful than direct investing, and it did so by measuring the alpha of 239 external portfolios on a transaction-by-transaction basis. 170 outperformed Nifty while 219 underperformed.

• [00:56:49] Pallavi Deshpande at Sameeksha Capital queried what is the yield on loans from NBFCs that offer structured products, G6 derivatives, and small amount of loans. Jugal Mantri Group CFO said that on average, NBFCs are earning an 11.5% yield on loan against shares portfolios and a 13% yield on mortgage and construction finance books.