IIFL Wealth Management Ltd (IIFLWAM) Q3 FY23 Earnings Concall Transcript

IIFL Wealth Management Ltd (NSE: IIFLWAM) Q3 FY23 Earnings Concall dated Jan. 20, 2023

Corporate Participants:

Anshuman Maheshwary — Chief Executive Officer

Karan Bhagat — Managing Director and Chief Executive Officer

Analysts:

Sanjay Wadhwa — IIFL Wealth Management Ltd — Analyst

Mohit Mangal — Bank of Baroda Capital — Analyst

Aejas Lakhani — Unifi Capital — Analyst

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Kunal Shah — ICICI Securities — Analyst

Abhijeet Sakhare — Abhijeet Sakhare — Analyst

Sanjay Kumar — — Analyst

Dipanjan Ghosh — Citi — Analyst

Presentation:

Operator

Very good afternoon, ladies and gentlemen, and welcome to 360 ONE WAM’s Q3 FY ’23 Earnings Call. [Operator Instructions] Please note that this conference is being recorded.

On the call today we have with us Mr. Karan Bhagat, Managing Director and CEO; Mr. Anshuman Maheshwary, Chief Operating Officer, and Mr. Sanjay Wadhwa, Chief Financial Officer.

I now hand it over to Sanjay to take this conference ahead.

Sanjay Wadhwa — IIFL Wealth Management Ltd — Analyst

Thank you, Anil, and a very good afternoon to everyone on the call today. The year 2022 and the quarter gone by have been busy periods for the market as high inflation and interest rate hikes continued to persist. More recently, resurgence of COVID-19 fears in different parts of the world, added to the uncertainty. Despite the volatility and fear, Indian markets remained relatively resilient and broadly outperformed the global indices. The latest IMF estimates suggest that the Indian economy will grow at 6.1% in real terms, meeting some of the other larger economies.

Having said that, we bridge our base case on a conservative note as the sentiments continue to remain cautious on the back of these headwinds. Amidst all the challenging opportunities, we report yet another exciting quarter with robust improvements in ARR assets backed by strong net flows, thereby improving our profitability with steady retentions.

Before we deep dive into financials, we would like to highlight that we have proposed a share split and bonus issue, both in the ratio of 1:1, which is subject to shareholders approval and have also declared fourth interim dividend of INR17 per share.

Now coming to the financials, some specific financial numbers. Assets under management, our total AUM is now more than INR344,000 crore, up 4.8% Y-o-Y and 3.4% quarter-on-quarter. Excluding custody, our overall AUM increased 5% Y-o-Y and 3% quarter-on-quarter to INR275,000 crores, with Wealth AUM at INR216,000 crores and Asset Management AUM at INR59,000 crore. Importantly, our ARR assets increased 7% quarter-on-quarter and 20% year-on-year to INR166,000 crores. With this, the share of ARR assets to total AUM now stands at 61% as we continue our journey towards steadily increasing the pie of ARR assets.

Happy to share that despite the market volatility, our ARR net flows have been very robust for the quarter at INR10,386 crores. Our loan book also grew during the quarter and now stands at INR4,474 crores, which is up 4% sequentially.

Now coming to the revenues and retentions. Our total revenues were marginally up quarter-on-quarter at INR410 crores. As compared to Q3 FY ’22 our revenue from operations was up 10% Y-o-Y and 9% quarter-on-quarter at INR415 crores. Importantly our recurring revenues have increased 6% quarter-on-quarter at 12% Y-o-Y at INR276 crores. As a percentage of operating revenue, recurring revenue now comprise 66%. This quarter has also seen some good transactional revenues at INR139 crores. Our retention of ARR assets have remained very strong at 70 basis points for Wealth ARR assets and 83 basis points for Asset Management. At an aggregate level, our overall ARR retention stand at 70 basis points.

The other income this quarter includes the foreign exchange conversion loss of INR5 crores, which is arising on account of depreciation in USD as against the Singapore dollar. This is towards dollar denominated assets which are held in our Singapore entity in the form of investments in our long-short managed funds. This is getting offset by an FCTR gain reflecting in the other comprehensive income on account of the same assets getting restated in INR for consolidation purposes.

Now coming to expenses for the quarter, our cost to income ratio stood at 45.5%. Our total expenses for the quarter were up 4% quarter-on-quarter at INR186 crores. Administrative and other expenses were up 13% quarter-on-quarter at INR54 crores, which is mainly on account of rebranding costs that got incurred during the quarter and some higher technology its — related expenses.

Coming to profitability, our PAT stood at INR180 crores, an increase of 16% Y-o-Y and 4% quarter-on-quarter. Importantly, our tangible return on equity, which is ROE excluding goodwill and intangibles continues to remain strong at 28.6% for the quarter.

With that, we come to the end of the financial highlights. I’ll now hand it over to Anshuman to cover the key business and strategic highlights.

Anshuman Maheshwary — Chief Executive Officer

Thanks, Sanjay. Good afternoon, everyone. As covered by Sanjay, it has been once again an exciting quarter for us, amidst all the uncertainty and volatile environment, which we expect to stay around for a while in the near term.

Moving on from the specific financials that Sanjay spoken about, I want to speak through on our broad aggregate view on FY ’23 before sharing a few key highlights across our businesses. Overall, as you’ve seen through the last three quarters, growth remains strong and well-rounded across business segments and asset classes. Also our relentless focus on specific metrics of recurring revenue assets, cost to income and return on capital is driving sustained performance. Most importantly, ARR net flows continues to see strong traction across both Wealth and Asset Management and at over INR22,000 crores for nine months remains broadly in line with our guidance.

Delving a bit deeper into this, Wealth has seen about INR18,500 crores ARR net flows in the first nine months, nearly at our full year FY ’22 level with 45% — over 45% of this coming into IIFL ONE. Asset Management at INR3,500 crores of net flows remains healthy specifically given the external environment and planned distribution of over INR4,000 crores year-to-date from our earlier AIFs.

I want to highlight that the flows in AMC has specifically been strong in credit and real assets, ably supported by listed B and multi-asset LVFs, showcasing the strength of our well-diversified multi-strategy platform. This allows us to go through these external cycles with a significantly higher resilience.

Overall, ARR AUM is tracking at about 21% year-on-year growth, has seen a 4% to 5% impact due to low or negative MTM across the different asset classes. Our operating revenues has remained very strong through the nine months, sustained retentions of 70-plus bps on ARR assets and continued strong transactional income. The total revenue is tracking at about 3% lower than guidance, but primarily due to the impact of market volatility and the foreign exchange that Sanjay highlighted on other income. However, even with this, our focus on cost and operating leverage is keeping expenses under control and therefore the bottom line coming in at a high level.

The costs across both employee and other costs have remained in line and total to about 44% to 45% from a cost to income standpoint. Our operating PBT is tracking very strongly at about 50% year-on-year growth, given the robust core business performance and is well above guidance, with overall PAT growing marginally below the guidance due to the lower other income. Tangible ROE is also tracking at guidance of 28% and prudent capital management and dividend payouts have been sustained through the year.

Some other business updates. Rebranding, as you know, is something that we did in this quarter. As we’ve built our business over the last 14 years and spoke to several of our stakeholders and employees on how they perceive us, we felt it’s an opportune time to reinforce our approach to advice and service. This is exactly what our new brand 360 ONE symbolizes. 360 ONE is an embodiment of two words that are extremely important to us. 360 represents the holistic view we take of the one person whose interests are always first, our client.

The alignment of interest with our clients, our employees and all our stakeholders has resulted in our company emerging as a leader in the industry. Our brand purpose that has remained constant since 2008 is articulated as performance plus. Performance is objectively measured by numbers. It is the long-term performance that we provide to our clients. The manifestation of plus is different for every stakeholders. For clients, it is the extraordinary personalized care we take of each one of them. For employees, it is their career growth and the entrepreneurial culture which is core to our firm. And for shareholders, it is our ethos of value creation with stability.

The second highlight for the quarter has been on Mumbai Angels. We are excited to announce that our acquisition of Mumbai Angels was completed in this quarter. Mumbai Angels, as you all know, is a private investment platform for early-stage ventures and has a Cat-I AIF license. 360 ONE WAM Limited now holds 91% of the equity share capital of Mumbai Angels. Mumbai Angels is one of the largest players in the early investment — early-stage investment stage, and we’ll now be looking at a greater funnel of deals with a deeper penetration in the early stage startup pool.

We have just launched two new funds under its domain. The first one is an Angel fund with a target of INR1,000 crores and the second one is a VC fund of INR300 crores. In the Angel fund, each investment is treated as a separate scheme and offers unique flexibility to both investors as well as start-ups. The Category 1 VC fund operates as a blind pool and will enable investors to participate in every deal on the platform. We are very excited with this addition as this further expands our platform offering on the asset management side and increases the comprehensiveness of our proposition to our Wealth clients.

The third thing on the quarter is on the TrueScale partnership. During the quarter, we announced a transaction with TrueScale Capital, which is an emerging leader in the series B & C venture growth segment. Under this arrangement, TrueScale will transfer the funds it manages along with sponsorships to IIFL AMC. Important to note that there is no financial transaction here and it’s only a change in the investment manager and the sponsor. The TrueScale fund complements our own private equity track record and the integrated offering is well positioned to lead this important market segment.

With this, we are also glad to welcome Mr. Sameer Nath, Founder of TrueScale as the CIO and Head for our private equity strategy. The proposed transaction is subject to the applicable regulatory approvals and Sameer will be joining us after all approvals are received.

Work continues on our mid-market segment. Our work on developing a strong digital-led proposition for the next segment of Wealth clients continues. We are on track to showcase further by the end of this financial year and beginning of next quarter.

On the technology side, our significant investment again continues specifically on building a comprehensive data platform for both the Wealth and Asset businesses, reimagining our banker journeys and further increasing the robustness of Info-Sec within the organization.

Lastly, the Bain Capital transaction was completed in this quarter. They now hold 24.98% of 360 ONE WAM Limited. And with the transaction completion, Mr. Pavninder Singh and Rishi Mandawat are now part of our Board as nominee directors of Bain Capital.

With that, I would like to hand over to Karan and open the session for Q&A.

Questions and Answers:

Operator

Thank you, Anshuman. We will now open the session for Q&A. May I request you to please click on the Raise Hand icon to ask your questions. We’ll just give it a minute for the questions to come in. First on line, we have Mohit. Mohit, kindly unmute yourself and introduce your company.

Mohit Mangal — Bank of Baroda Capital — Analyst

Yes. Hi. Thanks for the opportunity. This is Mohit Mangal from Bank of Baroda Capital. So I’ve got two, three questions. First is on the flows. Also if I look at the flows on the AMC side, I think we have seen the highest since Q1 ’22, and I think growth excluding private equity has been actually very fantastic. So going forward, do we see muted private equity, whereas credit and real estate will grow further. Is that a safe assumption?

Karan Bhagat — Managing Director and Chief Executive Officer

No. So, Mohit, I think, while that’s factually correct, the only small caveat to that is we had collected a lot of private equity money in 2017, ’18 especially in the form of Special Opportunities Funds. So we’ve got a lot of those redemptions or rather payouts, which are coming through over the last nine months to 12 months. So, I think, we had collected nearly INR7,000 crores, INR7,500 crores and the current value would be close to INR11,500 crores, INR12,000 crores, of which nearly 35%, 40% we’ve already paid out to investors over the last nine months.

So while we’ve collected a lot of new money in private equity also, it’s just getting set off with the earlier redemptions. Whereas on the credit and the real assets side, they are relatively new funds over the last two, three years. So therefore, all the flows are kind of in some senses being — are coming through as net flows.

So I think, private equity will also continue to be a interesting asset class for us. But in terms of flows itself, I think for the next six months to nine months, it will be offset with the — with some of the older funds maturing. And therefore, in some senses, it will show slightly muted net flow number.

Real assets and credit, I think, will continue to be exciting. We’ve got lots of new products coming through in both the categories. So I think along with private equity, we should be — we should be seeing a strong net flow across all categories.

Mohit Mangal — Bank of Baroda Capital — Analyst

All right. One of the drag in our flows was — even the brokerage we saw INR38 billion outflow. So just wanted to know what was that exactly?

Sanjay Wadhwa — IIFL Wealth Management Ltd — Analyst

So part of it, to a small extent, approximately nearly 60% of it, 55% to 60% of it is really moving to the ARR. So in some senses, there is the incremental flow in the ARR to that extent can be moderated a little bit because it’s a shift from a TBR to ARR. So if you remember, we’ve always had a line item on the TBR where we work nearly close to $2 billion, $2.5 billion, which is not earning us any income and broadly matures through the current calendar year and the next calendar year, most of it. So part of it is kind of moved from TBR to ARR and part of it is just a normal outflow but nearly 60% of it is largely movement to the ARR bucket.

Mohit Mangal — Bank of Baroda Capital — Analyst

All right. My next question is on M2M. So you know, I mean, I remember you saying that, if the market goes up by 20%, the AM is positively impacted by 8% to 12%. If I look at, say Nifty, going from INR17,000 to INR18,000 during the quarter, which is about 6%, but M2M is actually not reflecting into that. So anything changed?

Sanjay Wadhwa — IIFL Wealth Management Ltd — Analyst

No. So, I think, the MTM, we’ll just break it up into three parts in some senses, so you’ve got the wealth management ARR bucket, you’ve got the wealth management TBR bucket and you’ve got the AMC bucket. So the wealth management ARR bucket is broadly most active managers outside the Nifty. For the last quarter, they have been in the region of broadly give or take minus 1%, minus 2% to plus 2%, 3% or plus 3.5%, 4%. It’s kind of slightly underperformed the — not slightly, for the last quarter, most active misers [phonetic] kind of significantly underperformed the index.

Second, obviously there is a little bit of mark-to-market in the last quarter on the long-term — our long-term bond funds. And thirdly, there is a little bit of flows on the Wealth ARR side, which has come towards the second half of the quarter. So on the Wealth ARR side, these three are effectively contributing a little bit towards the slight lower end.

On the TBR side, where there is a large variation in the MTM has really won financial investment of a client, which was valued at INR3,500 crores, INR4,000 crores. He just wants us to report it at book value. So that’s really — that’s the only change. That’s not really the number which is showing should be ideally adjusted for INR3,500 crores, INR4,000 crores. So it was of unlisted investment. He just wants us to reported it at a face value. So the TBR mark-to-market effectively will go up by roundabout INR2,500 crores.

And the AMC one is slightly impacted by private equity, where we follow a fairly conservative policy in valuing our unlisted Investments. So the little bit of MTM which has happened is largely on account of us using a market multiple method to kind of arrive at our unlisted investments. But to — on a broader basis, to answer your question, I think the Wealth ARR piece will kind of reflect broadly — over the longest term, it will reflect the index plus the movement on the bond side. AMC, obviously will be a little bit of a function on the composition between listed and so on and so forth. And TBR is an exceptional item this quarter, where the INR4,000 crores has got marked down to effectively, I think, INR10 crores or INR20 crores, which is the value of the investment of the client.

So all put together, I think that’s really the logic. And broadly speaking, if the Nifty does do 10%, we will be at a 6% to 8% ARR more often than not in terms of mark-to-market.

Mohit Mangal — Bank of Baroda Capital — Analyst

All right. Perfect. Got the answer. Now, if I look at IIFL ONE, you know, we saw very, I mean, brilliant growth in non-discretionary. But in discretionary we struggle. Even the yields also fell. So going into ’24, what are your expectations?

Sanjay Wadhwa — IIFL Wealth Management Ltd — Analyst

So I think, discretionary was actually a fairly good quarter for us. We got INR1,500 crores, INR1,800 crores of good flows. The only two caveats to that was, there is a large client who was on discretionary who was roundabout INR1,300 crores, INR1,400 crores with us. He had some temporary liquidity needs, which has gone out, has — going to come back next quarter. That’s impacted the flows a bit. And for the new mandate we got, basically the fee starts from 1st of January, and we’ve basically given our 30-day kind of free period till the investment happens for the — for the money to come in. So, the retentions impacted a little bit. But overall, I think, directionally, I think, quite positive on the discretionary side. In fact from a client behavior perspective, I think it’s becoming more and more acceptable. So, I think, I wouldn’t change any of my thought processes around it and even the retention should move back towards those 44 basis points, 45 basis points mark.

Mohit Mangal — Bank of Baroda Capital — Analyst

Perfect. My last question is towards the non-ARR revenues, which was very strong at INR139 crores. So safe to assume that, you know, the deal pipeline would be strong going forward in ’24 and we would earn significant amount of chunk in that as well?

Sanjay Wadhwa — IIFL Wealth Management Ltd — Analyst

So that’s always going to be a bit of a challenge and it is not going to be as predictable as the rest of the business. But obviously we have the — we have the ability and the benefit of dealing across asset classes. So, personally, if you ask me, I think the ’23, ’24 and ’20 — definitely the next 12 months, the mix of that income coming from TBR will change a bit. I think for the last 12 months to 18 months, it’s largely been around more equity — equity-denominated. I think last three months has been more debt-denominated. So I think over the next 12 months to 18 months, the nature will change a bit. It will become more fixed income-denominated. And if the markets do kind of end up seeing fairly slowed activity, I think that bucket of income can potentially see around about a 10%, 15%, 20% kind of variation. So, you know, the INR120 crores, INR129 crores per quarter might be closer to INR100 crores, INR125 crores per quarter kind of number.

Mohit Mangal — Bank of Baroda Capital — Analyst

Perfect. And wish you a successful 2023 ahead.

Sanjay Wadhwa — IIFL Wealth Management Ltd — Analyst

Thank you.

Operator

Thank you, Mohit. Next in line, we have Aejas Lakhani. Kindly unmute yourself and ask your question.

Aejas Lakhani — Unifi Capital — Analyst

Yes. Hi, Karan.

Karan Bhagat — Managing Director and Chief Executive Officer

Hi, Aejas. Sorry, Aejas, I can’t hear you.

Aejas Lakhani — Unifi Capital — Analyst

Are you able to hear me?

Karan Bhagat — Managing Director and Chief Executive Officer

I wasn’t able to hear you. Now I can hear you back.

Aejas Lakhani — Unifi Capital — Analyst

Yes. I said congratulations on very good set of numbers. So, I wanted to just get a couple of final points. One is that, the NIMs have seen a continuous expansion. So could you throw some comments around that?

Karan Bhagat — Managing Director and Chief Executive Officer

So I think, honestly, our broad brand franchise with our clients continues to be remain fairly strong. And honestly, if you ask me, we are still able to do our debentures in MLDs and so on and so forth at extremely competitive rates, maybe, 5 basis points, 10 basis points higher than all the AAA-rated NBFCs. So I think from a borrowing cost perspective, if continued to be very, very competitive, I think through the quarter, there are instances where we’ve been able to raise money at INR7.75, INR8, INR8.05, INR8.10, which is pretty much comparable to some of the — potentially the best in terms of borrowing. Second on the lending side, obviously we’ve been able to, at the same point of time, kind of, translate the 50 basis points to 75 basis points increase selectively. And that’s really helped us kind of increase the NIMs a bit here.

Aejas Lakhani — Unifi Capital — Analyst

Got it. That’s very clear. And could you speak about the ramp up in IIFL ONE that you expect and how that piece is really shaping up? And give us some more granular color on, you know, how the team building out? Like Anshuman in his opening comment mentioned that 45% of the incremental assets that wealth sort of came through — went to IIFL ONE. So could you give some granular piece of how your building this important piece of the business?

Karan Bhagat — Managing Director and Chief Executive Officer

So I think, IIFL ONE in some senses will kind of be the most important verticals on new flows over the next 12 months to 18 months, right, because all the new deals, all the new stake sales, all the new clients will really come in more often than not, they don’t want to come on the distribution side. It’s safe to say six to seven out of 10 clients above $10 million want us to work with them either as advisors or as portfolio managers, effectively either on the non-discretionary side or on the discretionary side. And three, four of them are still saying, I’ve got all that worked out; why don’t you show me some good ideas and let’s build it out from there.

So I think 60% to 70% of all net new acquisitions, okay, and therefore 40% to 50% of the net new flows will come through the umbrella of IIFL ONE in that sense. For the remaining 30% to 50% obviously and maybe that’s 20% to 30% acquisitions, those clients will continue to come on the ARR side, but on the non-IIFL ONE revenue earnings trail side.

From our perspective, I think that percentage is going to keep evolving. Maybe three years to four years back, it was 10% and 90%, not it’s maybe 60% and 40% in favor of IIFL ONE. I think, progressively, as you go forward over the next five years, it may stabilize somewhere between the 80% to 20% range, right. So there’s still that 20% trail bearing distribution assets will survive. But 75%, 80% on the new acquisitions will end up coming on the IIFL ONE side. So it’s extremely, extremely key part of the business.

Now coming to the second half of your question as to what are the levers to make their business successful. I think that’s really the — that’s really the tough part and that’s really where we spend most of our time, right. So I think, for us to be having the ability to get the client on the non-discretionary side to pay 30 basis points, 35 basis points, or 25 basis points, 30 basis points, 35 basis points; on the discretionary side pay 40 basis points, 45 basis points, 50 basis points, 60 basis points, depending on the size of the client.

You really need all the operating levers to fire, right. So you need the entire — the entire trust team, the tax team, the data advisory piece, the entire technology, architecture portfolio analytics, the constant review, the investment portfolio statement, our deep expertise on every products, plus a little bit of satellite investments, innovation on products, all of that needs to come together. And then the ability to help them through the ODI/OPI regulations.

So it’s a consolidated platform and it has to be practically — I’m not trying to kind of — but it needs a 360 view, right. So it’s kind of, in some senses, it needs a full-fledged platform and we are among the few ones who invested in the platform early. And in that sense, once you have the complete platform, we will have the ability to get the fee. So I think we need to constantly keep investing in that platform which we are doing both in terms of people and technology and research, but it has to be a simultaneous process to have the full offering with the client to be able to get to the — to get to the IIFL ONE kind of fee structure.

Aejas Lakhani — Unifi Capital — Analyst

Got it. And what was the reason for the slight softness in the discretionary piece this quarter with the reported numbers 0.41 versus 0.48, which is what…

Karan Bhagat — Managing Director and Chief Executive Officer

Yes. So as I said, one of the flows came in on — one of the large flows came in on 10%, 15%, while we’ve given a fee break to the client for our — till the time as money gets invested which is broadly for a month. So we’re not charging the fee on these pure liquid funds. So it will get adjusted in the next quarter.

Aejas Lakhani — Unifi Capital — Analyst

Perfect. Got it. And the other piece is, is there any synergies between the AMC and IIFL ONE or they’re complete Chinese walls and…

Karan Bhagat — Managing Director and Chief Executive Officer

Complete Chinese walls, but it is a great question because IIFL ONE discretionary needs to be built — the portfolio management team needs to be built with the same kind of depth and same kind of research and same kind of analytical abilities, same kind of risk processes and controls, pretty much as the — pretty much as the AMC. So in some senses, the portfolio management team could pretty much be sitting in any other asset management or our asset management firm. But the depth and ability to understand client requirements and portfolio risk metrics is similar to pretty much any other asset management business, especially on the discretionary side.

Aejas Lakhani — Unifi Capital — Analyst

Got it. Okay. So currently what I understand from your answer is that synergies could exist, but they are being built out very separately. There is no cross subsidization or…

Karan Bhagat — Managing Director and Chief Executive Officer

No. No, it’s being built out separately, yes.

Aejas Lakhani — Unifi Capital — Analyst

Got it. Okay. And you mentioned that carrying…

Karan Bhagat — Managing Director and Chief Executive Officer

Slightly — so sorry, a slightly different skill, I won’t call them skill sets, were slightly different objectives. The discretionary side, we’re focused more on asset allocation levers. Our largest products eventually will end up being ETFs, index funds, direct bonds. So on the asset management side, we are a little bit more instrument-specific, in the sense we will be looking at more direct stocks, bonds, opportunities. On the — on the Wealth IIFL ONE discretionary side, we will be looking at more pooled vehicles. So slightly — the universe we’re starting is slightly different, but this skill sets around doing diligence and finding the right vehicle is pretty much the same.

Aejas Lakhani — Unifi Capital — Analyst

Got it. Got it. And I mean, again, it’s quite exciting that you’ve built such a large platform and you are so deep in that platform. I’d probably love to get deeper in, you know, if you could somehow showcase to investors the depth of IIFL ONE sometime just as a…

Karan Bhagat — Managing Director and Chief Executive Officer

Good idea. We can maybe look at potentially putting out a separate presentation on that. We’ll — Anshuman and Sanjay will work on it. And it’s actually come out really well and we’re quite proud of it. So happy to kind of share results.

Aejas Lakhani — Unifi Capital — Analyst

Thank you so much. And lastly, you had mentioned, I think, couple of quarters back that, carry income of close to INR75 crores for the year. I think it’s trending around ballpark that same number. So should we expect carry income for the coming year as well FY ’24 or…

Karan Bhagat — Managing Director and Chief Executive Officer

Yes. So actually it’s kind of more or less included in our TBR income.

Aejas Lakhani — Unifi Capital — Analyst

Right.

Karan Bhagat — Managing Director and Chief Executive Officer

So I think the number would be somewhere between the INR70 crore, INR75 crore to the INR110 crore kind of number. I think there is a fair degree of predictability to it. It’s across lots of funds and also across asset classes, but I don’t see too much of variation to those numbers, at least for the next 12 months to 18 months, obviously after that it may increase or decrease a bit in the later stage funds depending on the — depending on the markets. And as I discussed a couple of quarters back, I think if I just look at the — today’s carry income purely on a mark-to-market basis across all our funds, it would be — the residual carry would be in the region of INR300 crores to INR350-odd crores, of which I think most of it will get accounted of INR350 crores, INR400 crores fourth year — pretty much in the next three to four years. But obviously all the funds we’ve raised in the last two years have similar structures. So they will start kind of kicking in after the fourth year.

Aejas Lakhani — Unifi Capital — Analyst

Perfect. And any thoughts or guidance on how you expect net flows to shape up for ’24? I think you called out INR30,000 crores, including custody assets for ’23, right?

Sanjay Wadhwa — IIFL Wealth Management Ltd — Analyst

So I think, we’d want to look at net flows slightly differently, just in the sense that looking at net flows on the TBR side is not really very objective in a sense, because it doesn’t really have an direct correlation to the TBR income. So in terms of calling out the net flows, we want to be much more sharper in calling out the net flows on the ARR side as opposed to be TBR side. So honestly, if you ask me for next year, I would — we would like to move towards that INR30,000 crores to INR40,000 crores of net flows, but on the ARR side. So we would — so rather than just — just getting on to the net flows purely on ARR plus TBR, we would like that number to be closer to INR35,000 crores, INR40,000 crores only on the ARR side.

Aejas Lakhani — Unifi Capital — Analyst

Got it. And the equivalent ARR number for this year, for nine months for…

Sanjay Wadhwa — IIFL Wealth Management Ltd — Analyst

It’s INR22,000 crores if I’m not wrong.

Aejas Lakhani — Unifi Capital — Analyst

Okay. Okay. Got it. Okay. And lastly just on capital allocation, any thoughts of buyback versus dividending for FY — the year ahead?

Sanjay Wadhwa — IIFL Wealth Management Ltd — Analyst

So honestly, I think there are lots of benefits of dividends. Obviously, the taxes is slightly different. Buyback taxes obviously maybe potentially 9% to 11% lower than what it’s for dividend. On an average, I mean, if I include everybody in different levels of marginal rate of tax including foreign institutions maybe dividend tax is lower, purely because people are paying anywhere between 10% to 35%, obviously for only residents, including all of us promoters, the tax rate is 9% to 11% higher. But on balance, I think, dividend gives us a little bit more predictability and our ability to do it was just kind of carrying on medium term buyback programs.

So I just find it easier and cleaner, so I think all things being equal, we would prefer the dividend route. If we ever get a special opportunity to do a larger kind of pay-out, then we can potentially look at a buyback as an episodic activity. But on a going — going concern basis every quarter, I think dividends is really where it is.

Aejas Lakhani — Unifi Capital — Analyst

Got it. Thanks a ton and wish u good luck.

Sanjay Wadhwa — IIFL Wealth Management Ltd — Analyst

Thanks. Thanks a lot.

Operator

Thank you, Aejas. Next in line we have Prayesh Jain. Kindly unmute yourself and ask your question.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Hey, hi, Karan.

Karan Bhagat — Managing Director and Chief Executive Officer

Hi, hi.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

So this is the first time we are meeting after the name change. So we’d love to hear your thoughts as to what really drove this name change and what really you aim to accomplish with this brand change, what you couldn’t do with the IIFL Wealth brand? So I would love to hear your thoughts there before and I’ll ask my questions on the business front.

Karan Bhagat — Managing Director and Chief Executive Officer

So quick answer in three parts. First, we are obviously still awaiting a few regulatory approvals for our overall branches. I think for the mutual fund, it’s still awaited. The rest of it, I think, is more or less implemented, including for the NBFC and all, most other brokerage, most other businesses. I think for the brokerage business also some small approval from NSE is pending. But those are all procedural in nature. I’m hoping we’ll get there over the next 30 days to 45 days. I think from an exchange perspective, we’ve got approval for the ticker to change from 23rd of January. So I think the name will change on the exchange from IIFL WAM to 360. 360 ONE on 23rd of January.

Now coming for the — and I don’t think the name change was so much of a binary event where we needed it to do anything we were not able to do in our earlier name. I don’t think it was that — it was that binary in nature. But the motivation around the name change really was three-fold in some senses. The first reason really was to ensure that there is a little bit of — there typically tends to be a little bit of overlap in the business activities of the three demerged entities, which is IIFL Finance, Securities and Finance. And therefore, you know, to make — to give the name a little bit more clarity in terms of the business activities we are involved in. And similarly, the client — the kind of client segments we are dealing in. So I think that was the first motivation really in terms of the name change.

The second motivation really was in some senses we were kind of a little — also passionate and driven by what the name represents as a whole. I think that’s really in some senses for us come out extremely well.

And thirdly for us in some senses, it marks the third chapter of growth in the company, in some senses, over the next five years to seven years. In terms of business activities and what we could do and what we can’t do, I don’t think so there’s anything like that. I think we had the ability to do anything we — or everything we wanted within the earlier brand of IIFL Wealth and Asset Management. And I think the same continues here. So I wouldn’t put it as a binary event, but at the same point of time, it allows us to build our identity in a more clear and distinct manner in the market.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Great. Great. Thanks. Just extending the previous participant’s question on the flow front, so is there a more challenge to get flows now, given the market situation where we are in people talking about slowing down of GDP growth, slowing down of incomes, interest rates on the higher side which could possibly put pressure on liquidity for quite a few of entrepreneurs. And also on the other hand, we have a competitive intensity in the entire industry kind of increasing within a lot of — more participants in this HNI kind — HNI segment. So do you see that incremental flows are coming at a more — in a more challenging manner and at a much lesser pricing? Or is there — I’m reading it wrong?

Sanjay Wadhwa — IIFL Wealth Management Ltd — Analyst

So three things, I think, to answer your question very quickly. I think see the macroeconomic indicators and slowness of business activity have typically come into flows with a lag. So as of now, we are not seeing it. I think the quantum of business activity in terms of mergers and acquisitions, strategic sales, especially on the unlisted side, continue to be very, very active. And whether they are two or three, four, and their actions that we call off them across the country are fairly active yet. I think obviously if things were to dramatically slowdown, we would see some bit of impact come through over the next six months, nine months, with a lot of these transactions take a fair degree of time to close.

Would I expect flows to be slightly more muted coming out of new stake sales over the next 12 months? I think just looking at the global macros potentially slightly lower, which obviously means that we slightly need to work harder in terms of getting market share and increasing the scale of wallet share from our existing, getting market share from our — from our competitors and also increasing the market share and wallet share with our existing clients.

Secondly, I think, purely from a competitive intensity perspective, I think you’re right. There are different levels of competitive intensity between different markets. But overall, we find ourselves in a fairly good place. I think, outside barring a couple of strategies, where we think we can definitely increase our presence. I think we find ourselves fairly well positioned, pretty much in most markets to get access to 60%, 70%, 80% of the deals. Obviously, I think pricing sometimes can be a little competitive at the point of stock, but we’ve seen it stabilize very well over six months, nine months, 12 months because clients really appreciate the work you’re doing. And this soon realize 30 basis points, 35 basis points, 40 basis points versus the impact on returns is not going to be really a never ending discussion to continue having.

Third, I think, on the pure activity level within net flows, I think, we’ll also have to kind of — it is going to be a function of how we approach it. So we will have to have different multi-asset classes well in store and a little bit of innovation on the product side to ensure that if markets do become flattish to negative other asset classes kind of come in too big.

So I think that’s a very big advantage we have. As wealth managers in the industry for the last 20 years, 22 years, I think we’ve seen at least three or four cycles. And the good news is clients really don’t shut out. They start looking at other opportunities and more often they are dead becomes super attractive, yield-bearing assets become super attractive and that’s really where we need to kind of be there with the client and ensure that the mix is well managed.

So I think on a balance of all of these three, I think, I feel confident about getting to that number between INR30,000 crores, INR35,000 crores, INR40,000 crores. Obviously, the numbers may trend towards the INR30,000 crore or may move towards the head of the INR40,000 crores, depending on the — on the pace and the excitement in the markets. But I think at a baseline roundabout INR30,000 crores at the more optimistic case around the INR45,000-ish crores number. We’re fairly confident we will be able to get there.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

And last question from my side will be on the — again IIFL ONE yields retentions. So, I remember a year back, you had mentioned that around three — evident three years you might — you were aiming to reach the retentions at around 40 bps. We today are at even adjusted for the — for that — for the one of the clients flows, you will possibly somewhere be around 30 bps for the overall entity, right, overall IIFL ONE. Would you still say that in the next couple of years, we can reach the 40 bps number?

Sanjay Wadhwa — IIFL Wealth Management Ltd — Analyst

No. So I would just — we have discussed this in the last earnings call. I think the corporate treasury piece has to be looked upon slightly separately, but outside of that the 40 basis points to 50 basis points number will definitely come through.

Prayesh Jain — Motilal Oswal Financial Services Ltd. — Analyst

Okay. Great. All the best.

Sanjay Wadhwa — IIFL Wealth Management Ltd — Analyst

Yes.

Operator

Thank you, Prayesh. Next in line we have Kunal Shah. Kindly unmute yourself and ask your question.

Kunal Shah — ICICI Securities — Analyst

Yes. Hi, Karan.

Karan Bhagat — Managing Director and Chief Executive Officer

Hi, Kunal. How are you?

Kunal Shah — ICICI Securities — Analyst

Yes. Hi. Congratulations for good set of numbers. So, firstly, with respect to managed assets, distribution of managed assets retention rates, that’s been on a downward trajectory and I think that piece has almost doubled, say compared to that of March. So, is it more to do with maybe the distributor and the manufacturer relationship, let’s say, Wealth and the Asset Management level and some change in dynamics out there, because in Wealth also we saw almost INR2,000 crores alternate funds flow and there would have been some distribution of that as well. So, is it more to do with that or some mix change within the managed assets is what is actually leading to this kind of…

Karan Bhagat — Managing Director and Chief Executive Officer

Yes. No. Fair question, fair question. I think of the three reasons you put out, all three can be reasons. I think there’s not really big change in the distributor-manufacturer relationship. I think that’s pretty much the way it used to be. We are — we never will — we never were and we won’t be also, I think, now the biggest — we don’t — we end up sharing — on the Wealth Management side, we end up sharing fees with the manufacturers quite liberally in that sense. So I don’t think so that equation is changing in a — changing in a hurry.

The reason for the change is really I think two things. I think the older assets which get — which move into trail are at slightly lower rates than the newer assets because they have a slightly — the older upfronts which we’ve paid were already there. So the newer — older AUM which is moving from distribution to ARR is moving at a slightly lower retention compared to the older ones.

And second, I think specifically in the last three months to six months, I think a collection on fixed income has been quite high, especially on the credit, infra as well as on the fixed income side. So there the asset class mix is causing a bit of impact. So compared to equity and private equity and alternatives, where the gross management fee will be typically in the region of 150 basis points to 175 basis points, of which we would typically get 55% to 60%. The gross fees on the other asset classes are in the region of 90 basis points to125 basis points. So effectively we are getting 60% of that or 55% of that. So effectively that’s kind of causing the change.

So I think the second and third point are really where it is. On the first point, we’ve been fairly manufacturer-friendly for a long period of time. So effectively end up sharing anywhere between 50% to 60% of the management fee. I don’t think so that’s really changed in the industry in a big way.

Kunal Shah — ICICI Securities — Analyst

Sure. And secondly in terms of what you guided with respect to say INR30,000 INR40,000 of net inflows on ARR and you said that we can ignore say on the transactional side, but there is some maybe transition which is also happening and that’s been the part of our focus area. So out of this INR30,000, INR40,000, how much would be coming from the existing transactional assets, okay, TBR, and how much would be like the real in your additions which would…

Karan Bhagat — Managing Director and Chief Executive Officer

Yes. So I think that’s — so I think see broadly out of the TBR assets which are not earning us anything, our assumption — going-in assumption is anywhere number between 50% to 60% will move into ARR. So now the pending number there would be nearly between INR10,000 crores to INR12,000 crores. So I think INR4,000 crores to INR5,000 crores, INR6,000 crores will come from that TBR into ARR. Otherwise, in some senses, maybe another INR4,000 crores, INR5,000 crores from the novel TBR, otherwise I think INR25,000 crores to INR30,000 crores will be really coming from the — in some senses, a new engagement altogether. So, to answer question 25% to 30% from the existing TBR.

Kunal Shah — ICICI Securities — Analyst

Got it. Yes. And lastly, in terms of this entire rebranding, so where do we see the maximum impact in terms of the quantitative numbers, would it be with respect to growth, with respect to retention, how should one look at it? You said maybe it’s — you highlighted in terms of the three key rationales for doing this, but on a quantitative impact and do we see in terms of increasing the guidance or something coming through because of this entire exercise?

Karan Bhagat — Managing Director and Chief Executive Officer

Not really, not really, Kunal. I don’t think so. I think there is more qualitative changes will leads to quantitative changes eventually. So I think the biggest qualitative changes would be a distinct brand, clear — clear identity in the clients’ mind, clear identity in the employees’ mind, our ability to kind of build a brand in terms of our own. When we follow our product approval committee, just ensuring a certain process and discipline to what we do and what we stand for. And therefore eventually kind of building out the brand clearly with all stakeholders, most importantly with the client and the employee is really I see as the big benefit. That obviously translates into softer factors like retention of employees and clients in the medium term and eventually it kind of leads to better quantitative numbers.

Kunal Shah — ICICI Securities — Analyst

Sure. And getting into the guidance for FY ’24 any revision which we see in any of the line items or we continue what we articulated at the end of FY ’22 earnings?

Karan Bhagat — Managing Director and Chief Executive Officer

I think broadly, broadly, broadly in line. But obviously, I think the way we wanted to do our guidance for the next two years is, maybe do it at the end of this quarter, kind of, get it by the Board approved also. And then kind of release it with our next cycle. But if you ask me today, it’s broadly in line. I don’t see too many changes there.

Kunal Shah — ICICI Securities — Analyst

Sure, sure. Thank you. Thanks a lot and all the best.

Karan Bhagat — Managing Director and Chief Executive Officer

Thank you.

Operator

[Operator Instructions] Next on line, we have Abhijeet Sakhare. Kindly unmute yourself and ask your question. Abhijeet, kindly unmute yourself and ask your question.

Abhijeet Sakhare — Abhijeet Sakhare — Analyst

Yes, hi. Good afternoon.

Karan Bhagat — Managing Director and Chief Executive Officer

Hi, Abhijeet.

Abhijeet Sakhare — Abhijeet Sakhare — Analyst

Yes, hi. So how do you see the next year pan out, like the ask rate on flows and returns likely to be higher now that cost savings will sit in the base and then probably some expected expenses towards the mid-market rollout?

Karan Bhagat — Managing Director and Chief Executive Officer

So, I think, most of these three, four things are factored in our assumptions right now. I don’t see them as an absolute new thing. Obviously, I think, from an expense perspective, we are fairly confident of our own assumptions on the employee expense side, which is really honestly representing 80% to — 75% to 80% or 85% of our expenses. I think that’s a well chartered course. I wont say we are a 100% efficient and productive there, but we’ve improved a lot. I think we still have the potential to maybe improve the productivity by 4% to 5%. But a lot of those 4%, 5% productivity gains effectively kind of get lost in some senses in terms of growth because you’re hiring your teams, you hire — build new strategies on the asset management side and you build new geographies on the wealth management side. So I would say there is 4% to 5% to 6% productivity on the employee side, which will kind of get a little bit offset with our new initiatives.

On the other expenses, I think the biggest variable honestly is technology. Outside of that, the expenses are not really a lever of the quantum of business we do, whether we look at — whether you look at rent, whether we look at all our corporate expenses. Obviously, small things like travel and all will be linear. But outside of that, the operating leverage on the expense side will be fairly high.

The only things which honestly can become a little bit more sequentially to growth and the response to the environment will be a little bit on technology. So we are quite confident we will be able to squeeze our expenses to be in the right — to be the right framework and the right number to maintain the same percentages. But honestly, the only thing which I sometimes kind of think about ensuring and kind of optimizing is tech spends. Everything else I think is something which is, in a sense, quite predictable and non-linear to growth now.

Abhijeet Sakhare — Abhijeet Sakhare — Analyst

Got that. And secondly on the IIFL ONE, now given that clients are increasingly preferring the advisory fee model, and you seem to have a good head start here. So like when you look at the numbers over the last, let’s say, 12-odd months, are you seeing that visible in terms of better market share gains on incremental flows?

Karan Bhagat — Managing Director and Chief Executive Officer

Yes, I would say — I would say, eight of ten cities, the answer is yes. If I just look at the ten big cities, two cities maybe no because we don’t have the full firepower there yet in terms of delivery. But broadly speaking, the answer is absolutely yes. But again, wherever we — where I’m saying resounding yes, we need all three things to happen. We need our entire platform in action, we need the entire team in action plus we need all of us to be able to support the team. So wherever you get all three things together, I think it’s a resounding, yes.

Abhijeet Sakhare — Abhijeet Sakhare — Analyst

Got that. And on the IIFL ONE like how does the fee curve look like across ticket sizes, let’s say INR10 million, INR25 million and INR50 million, what’s the sort of difference that you have across different sizes?

Karan Bhagat — Managing Director and Chief Executive Officer

So I think the challenge is really coming in the north of INR40 million, INR50 million where they want to cap the fees, right. So that’s really the challenge. I think, the percentages are not dramatically changing. It’s between 35 basis points to 50 basis points. But where the challenge comes is the capping on the fees. Where are the fees is exceeding, let’s say, INR10 lakhs a month broadly, that’s really where the clients are saying, you know, is it a linear function on the fee side.

We don’t face the same challenge on the discretionary side. On the discretionary side, the client is looking at us as a advisor and as a portfolio manager. So there he is willing to — really the capping of the fees are not really coming into play in such a significant way. But on the non-discretionary side, I think mentally clients are not kind of too happy about exceeding that INR1.2 crore number a year. So I think where it will become a player, if you have only clients above INR30 million, INR40 million, I think the percentage is — in term of bps, kind of looks slightly oddly.

Abhijeet Sakhare — Abhijeet Sakhare — Analyst

Got that. And lastly, like the — whatever redemptions have been happening on the existing set of clients, especially on the private equity side, have you been able to, let’s say, redirect them on to the platform or in — on to the other strategies?

Karan Bhagat — Managing Director and Chief Executive Officer

I think, broadly — broadly speaking, wherever, let’s say, IIFL Wealth has been a distributor, I think it’s — the ratios are almost 65-ish, 60%, 65%, where other, we’ve got third-party distributors broadly roundabout 35% to 40%.

Abhijeet Sakhare — Abhijeet Sakhare — Analyst

Got that. And last one, given the focus on passive strategies, any — let’s say, any initiatives there or will broadly rely on the external product providers?

Karan Bhagat — Managing Director and Chief Executive Officer

So honestly, we have lots of IPS checks on the wealth management side, where not more than 5%, 10% 15%, 20% of our portfolios then go into our own products. So typically speaking that 5%, 10% typically finds its way into more innovative ideas from our side, the more — the more ETFs and the simpler long-only products and so on and so forth more often than not would end up with third-party managers there.

Abhijeet Sakhare — Abhijeet Sakhare — Analyst

Got that. That’s helpful. Thanks a lot.

Operator

Thanks, Abhijeeth. Next on line we have Dipanjan. Kindly unmute yourself and ask your questions. Dipanjan, I think, he’s moved out of the queue. We have Sanjay Kumar [Phonetic]. Sanjay, kindly unmute and ask your question.

Sanjay Kumar — — Analyst

Hi, Karan. First question on the Tier 2 and Tier 3 piece. What would be our current footprint, how many cities are we present currently? Because in the last six months, I have been seeing commentary from, say be it, Bank of Baroda’s Wealth Management, Motilal, they’re all talking about the Tier 2 and Tier 3 piece growing faster, say Coimbatore, Vizag, Mysore, Ludhiana, even someone like Uniqlo is going to Chandigarh instead of Mumbai. So where are we on that? What is our current footprint?

Karan Bhagat — Managing Director and Chief Executive Officer

We should have been faster to be honest. I think we fully agree with the thesis. I think there’s a lot of growth happening. We’ve kind of moved from 14, 15 to 23, 24 cities very effectively. And we’ve got disproportionate gains in the next seven, eight cities. But ideally speaking, if I just looked at our own leadership map thought process, I think we had about 38, 40 cities in mind. I’m hoping to ensure that we get across to the next 48, 50 cities over the next three to six months. But to answer your question, there are clear 40 cities today where people like us with, let’s say, a require — not an requirement or any, but an aspiration to handle clients above INR15 crores, INR20 crores, 35 to 40 markets can be fairly tangible markets. For us today that number is closer over 21 to 23.

Sanjay Kumar — — Analyst

What would be the size of this 40?

Karan Bhagat — Managing Director and Chief Executive Officer

In the sense? Sorry, I don’t…

Sanjay Kumar — — Analyst

Size of the AUMs of these.

Karan Bhagat — Managing Director and Chief Executive Officer

No. So that size of the AUM broadly is available on the AMFI data, but our typical experience is if you look at the AMFI AUM and strip out the treasury AUM, that into approximately three times to four times would be the size of the market.

Sanjay Kumar — — Analyst

Okay. Okay. Thank you.

Karan Bhagat — Managing Director and Chief Executive Officer

Thank you. We’ll take one last question from Dipanjan. Dipanjan, in case you’re back, kindly unmute yourself and ask your question.

Dipanjan Ghosh — Citi — Analyst

Am I audible now?

Karan Bhagat — Managing Director and Chief Executive Officer

Yes, Dipanjan, you are audible.

Dipanjan Ghosh — Citi — Analyst

Thanks. Thanks. Thanks for the opportunity. So, just one question from my side. On the midmarket strategy and Anshuman highlighted that you will come out with more disclosures maybe sometime during the next calendar year. But just from a theoretical perspective, what are the key competencies that you really require to dominate in this market? My understanding is that there are already some players who have been operating in this market for some time and you are probably trying to enter a new segment per se in that way.

Second, from a long-term perspective — medium to long-term perspective, in terms of profitability, be it your cost ratios or yields or the way you deliver the product to the customer, how does the entire unit economics really shape up from the mid-market versus where you are operating now? And how do you think of it more from a medium to long-term perspective?

And last one question, any other organic opportunities that you are evaluating or maybe are in the final stages that you think can materialize going ahead?

Karan Bhagat — Managing Director and Chief Executive Officer

Got it. So I’ll answer your third question, first. Honestly, right now, nothing really. We are not evaluating any large inorganic opportunities. I think we are fairly focused on our two core activities and the two core engines. I think both have enough opportunities for us. And from a product and people platform perspective, I think we’re fairly well built on both the businesses. Therefore, it’s really going to be about us being able to, on the asset management side build deeper within the strategies and on the wealth management side, potentially expanded a little bit more in terms of teams and in terms of geographies. Those two would be our key focus areas.

In terms of your first couple of questions, I forgot, Anshu, what was it.

Anshuman Maheshwary — Chief Executive Officer

On the midmarket side of…

Karan Bhagat — Managing Director and Chief Executive Officer

Yes. So on the midmarket side, as Anshuman pointed out, I think obviously from a closed user group at a little bit of disclosure around strategies and stuff like that around April, May. I think you said next — beginning of next financial year, not calendar year. So effectively April, May is when we will be kind of more ready with most of our strategies. But maybe I think philosophically in terms of strategy, I’ll address the question a little bit. I think the industry is going, and when we call it mid-market, I think it has to be looked upon slightly differently. For us, the mid market would be more or less the upper end of the high net-worth segment in India. So we’re not really looking at INR25 lakhs, INR50 lakhs in that sense, we are really trying to attack the client who has a financial asset portfolio of anywhere between INR5 crores to INR25 crores. And potentially three years to five years from today, INR10 crores into INR50 crores.

See what’s happening on our Wealth Management business, as it’s becoming more and more advisory, it’s swinging a little bit more directionally towards the north of INR25 crores, north of INR50 crores client base with us. So what we expect over the next three years to five years is our core wealth management business will head more and more towards the INR25 crore, INR50 crore client base. And the mid-market business will move more towards the INR5 crore to INR20 crore to the INR10 crore to INR25 crore base. So in some sense, it is not really the conventional mid-market definition which is really there. We also expect the mid-market business and the INR5 crore to INR20 crore, INR10 crore to INR50 crore business to be slightly more product-driven. Okay. So it has to be a little bit more built around innovation and value-added services as opposed to be built around pure advice. And the high net worth individual, which is the INR50 crore plus client will more and more — or the INR25 crore plus per client today will more and more demand a full platform and advice, whereas the client just below will demand more agility of execution, innovation on the product side, and more value-added services.

So I think that’s the going in thesis. Obviously, having said that, the INR5 crore to INR20 crore population of the client is massively viewed — by all wealth management firms within banks. So we will have to have a differentiated proposition to ensure that he looks that his bank, honestly frost honestly knee as the [indecipherable] banking needs and he looks at us for his wealth management requirements. So that’s really the mystery we have to work on, on the mid-market side. And we feel we have a fairly powerful proposition, which will come through there, but not really for the INR25 lakh, INR50 lakh client, will become more — more means of servicing today, let’s say, the INR5 crores to INR20 crore clients.

Dipanjan Ghosh — Citi — Analyst

Sure. Just one small follow-up. If I understand correctly this mid segment, the INR5 crore to INR25 crore, INR30 crore, it over a period of time, let’s say, next five years to 10 years, it will be less people intensive and may derive more leverage benefits, whereas the cost will be more front-loaded. Whereas compared to your, let’s say, legacy business, which is on a going concern basis quite people intensive in a way?

Karan Bhagat — Managing Director and Chief Executive Officer

Fully right. I think from a — but at the same point of time, I think it will be platform intensive, it won’t be people intensive. So that will require constant investment on the platform. Value-added services will be very, very important. So I think you’re absolutely right. I think the INR50 crore plus business will be slightly more people managed and people intensive. The first part of the business will become a little bit more platform intensive.

Dipanjan Ghosh — Citi — Analyst

Sure, sure. Thanks, and all the best.

Karan Bhagat — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. And I think that’s all we have time for this afternoon, Karan. So on behalf of 360 ONE WAM, thank you for joining us and look forward to your participation next quarter.

Karan Bhagat — Managing Director and Chief Executive Officer

Thank you. Thank you, everybody.