Motilal Oswal Financial Services Limited (NSE: MOTILALOFS) Q3 FY23 Earnings Concall dated Jan. 25, 2023
Corporate Participants:
Navin Agarwal — Managing Director and Chief Executive Officer
Shalibhadra Shah — Chief Financial Officer
Analysts:
Ansuman Deb — ICICI Securities — Analyst
Sahej Mittal — HDFC Securities — Analyst
Deepak Sonawane — Haitong Securities — Analyst
Vishal — ICICI Securities — Analyst
Kajal Gandhi — ICICI Direct — Analyst
Abhijeet — Kotak Securities — Analyst
Shaleen Seth — Seers Fund Management — Analyst
Vivek Ramakrishnan — DSP Mutual Fund — Analyst
Prakash Kapadia — Anived Portfolio — Analyst
Presentation:
Operator
Good afternoon, ladies and gentlemen. I’m Neerav, the moderator for this conference. Welcome to the Third Quarter FY 2023 Earnings Conference Call for Motilal Oswal Financial Services Limited. We have with us today, Mr. Motilal Oswal, Managing Director; Mr. Navin Agarwal, Director and CEO, AMC; Mr. Ajay Menon, CEO, Broking and Distribution; Mr. Shalibhadra Shah, Chief Financial Officer; and Mr. Chetan Parmar, Head, Investor Relations.
[Operator Instructions]
I now invite Mr. Navin Agarwal to make his opening remarks. Thank you and over to you, sir.
Navin Agarwal — Managing Director & Chief Executive Officer
Good afternoon everybody. It is my pleasure to welcome you all once again to the Motilal Oswal Financial Services Earnings Call for the Third Quarter ending December, 2022. I’ll take you through the key highlights of the operational and the financial performance. The operating profit-after-tax for the nine months was at INR619 crores, up by 12% year-on-year and was marginally lower for the quarter that we reported at INR217 crores.
Core businesses, starting with the capital market business reported a profit-after-tax of INR136 crores in the third quarter, up by 3% quarter-on-quarter, and for the nine month reported a operating profit of INR359 crores, which is up by 3% in terms of the nine month period. The asset and wealth business reported a profit-after-tax of INR66.9 million — INR66.9 crores and which is flat quarter-on-quarter. And for the nine month period reported a profit-after-tax of INR1.92 billion, which is 7% lower than the same-period last year.
As far as the home finance business is concerned, we’ve seen strong traction there. We reported a profit-after-tax of INR363 million, up by 9% quarter-on-quarter. And for the nine month period, we reported a profit of just over INR1 billion, which is more than two times of the profit in the same time last year. Our consolidated net-worth stood at INR6,230 crores. Our net-debt stood at INR6,330 crores, excluding home finance, our net-debt stands at INR3,850 crores. Our debt-equity is 1.5 times, and excluding the home finance business, the debt-equity stands at one time. We declared an interim dividend of INR7 per share.
I’ll now take you through more details of individual businesses, starting with the capital market business, which comprises of Retail Broking and Distribution, Institutional Equities and Investment Banking business. Revenues for this segment were at INR349 crores, up by 5% quarter-on-quarter, and at INR2,069 crores, up by 12% for the nine month period. Our profits grew by 2% quarter-on-quarter to INR1.36 crores during the quarter, led by strong volume growth of 32% quarter-on-quarter, the volume were substantially up on a year-on-year basis.
We also saw an improvement in our retail F&O market share by over 50 basis points, compared to the sequentially previous quarter. In the same quarter last year, there was IPO funding net interest income of INR46.7 crores. If you were to exclude that, the profit-after-tax would have grown by 20% year-on-year. For the nine month period, our profit-after-tax for this is at INR359 crores, which is up by 3% year-on year.
We acquired a total of 511,000 clients in the Retail Broking and Distribution business in the nine month period, led by traction in our online channels. Our NSE active clients have registered a 14% year-on-year growth at 900,000 as of December 2022 and we rank in the top 10, rank nine in terms of active clients on NSE. 60% of the brokerage in this business comes from clients which are more than two years of vintage, showcasing the stickiness of the clients.
The average payback period of the digital channel, which used to be in excess of 12 months earlier, has now come down to less than six months. And this channel has also contributed more in terms of the new client additions in the nine month year. The distribution AUM is a tad short of INR20,000 crores, at INR19,370 crores as of December, up by 17% year-on-year and the net sales for this business is at INR780 crores in nine month period. We have a very strong 53 lakh client base, which is also growing and that provides a very strong funnel for cross-selling of various financial products in the coming quarters and years.
Our interest income for the quarter was at INR211 crores, up by 27% quarter-on-quarter, led by a 14% growth in the margin trading book at INR3,320 crores. Our currency market share stands at 15%, up meaningfully from the quarter. Commodities market share stands at a tad below 7%. During the quarter, we launched the Option Store Pro for advanced trades with feature to create customized strategies, given the large predominantly options-led market. We believe that this offering should further help us boost our market share.
As far as the Institutional Equities team is concerned, they once again saw strong rankings in the Asiamoney Brokers Poll 2022 and specifically were ranked number one corporate access team, and number two sales team and execution team. The Investment Banking business completed three transactions of a raise of INR2,330 crores during the nine month period. And we are hopeful of traction in the fourth quarter, as well as the coming year.
Turning to the Asset and Wealth Management business, the total assets under management across the asset management, wealth management and the private-equity business are a tad short of INR1 lakh crores, at INR97,300 crores, and the net yield across these assets during the nine month period averaged at 74 basis points. The asset management business, AUM was flat quarter-on-quarter at INR46,500 crores. The mutual fund AUM grew by a small proportion in the quarter at INR29,500 crores. We have witnessed a improvement in the performances of several teams, a lot of them are in the top quartile or the second quartile. And we believe that this in-turn should reflect in terms of the traction.
We’ve already seen the negative net sales numbers come down by a third on a year-on-year basis from over INR600 crores to around INR200 crores. And we think that this should hopefully turn positive in the coming quarters. The revenues for the third quarter for this business stood at INR141 crores and for the nine months stood at INR424 crores. We added 67,000 new SIPs in the third quarter with traction witnessed in the active funds, which saw a SIP count addition growth of almost 20% plus during the current quarter.
Our private equity business has a fee earning AUM of INR9,540 crores across our private equity and real estate funds, in all seven of them. In the third quarter, the revenues for this business stood at about INR51 crores, which is a very strong 57% growth, and in the nine month stood at INR122 crores, which is a strong growth of 46%.
The wealth management business AUM stood at INR41,300 crores as on December, up by over 20% year-on-year. The wealth business revenues at INR578 million in the third quarter was up by 13% quarter-on-quarter and 7% year-on-year, grow to INR156.3 crore. We garnered net sales of INR4,560 crores during the nine month period. Our RM count increased as of December by 20% year-on-year from 139 to 166, and that in-turn is responsible also for a meaningful increase in the employee cost and the operating expenditure of this business.
In addition, we’ve also bolstered the leadership team, the senior management hiring to strengthen the Ultra HNI offering and our advisory capability, all of this has led to lower operating profit margins for this business. Although we plan to continue to invest in this business by adding more relationship managers in the coming quarters and years.
Overall, the Asset and Wealth Management business revenues stood at INR250 crores, up by 7% quarter-on-quarter. For the nine month period stood at INR702 crores, up by 3% compared to the same period last year. Our profits were at 69 — INR66.9 crores for the quarter and INR191.6 crores for the nine month period.
Turning to the Home Finance business, the Home Finance business reported a profit-after-tax of INR36.3 crores during the quarter and INR101.8 crore during the nine month period, both very strong growth rate compared to the low-base led by provisions in the last year. Our NII grew by 10% year-on year. NIMs expanded by 66 basis-points Y-o-Y to reach 7.8% for the nine month period. Our yield on advances in the nine month period stood at 13.8%, our cost of funds were down by 40 basis points because of the full benefit of the rating upgrade to 7.9%, resulting in an expansion of spreads to 5.9%, which is a increase of 34 basis-points.
Our RPLR increased by 50 basis points with effect from 1st of January 2023, and we expect the impact of this to show-up in the fourth quarter of the year. Our disbursements at INR640 crores for the nine month period are up by nearly 50% compared to the same-period last year. Although this is still very tiny in the context of the sizes that we had in the past, and we believe that the business is geared for a very strong disbursement growth in the next year compared to the base of the current year.
Our gross NPA stood at 2% as of December 2022, collection efficiency was 100% during the quarter. We had guided that maybe a fourth of our restructured book could slip and that is the reason why the gross NPAs are at 2%, marginally higher in the current quarter. Our gearing stands at 2.2 times. Our Tier 1 capital adequacy remains robust at 45%. And so from a capital perspective, the headroom to grow this AUM meaningfully in the next year and in the coming years exist.
Turning to our fund based businesses. This includes the sponsor commitments to our various funds in that public markets asset management business, in our private equity funds and our real-estate funds. The total investment including unrealized gain as of December 2022 stood at INR4,720 crores, the investment including alternate funds stand at INR4,320 crores as of December ’22 equity investments and the ex-IRR on these investments stand at almost 20% as far as the PE/RE business is concerned. The overall ex-IRR of all these investments actually made till-date since inception stands at about 17%.
To conclude, we have delivered reasonable performance in the third quarter despite the market headwinds. Our retail broking business continues to improve its market share through digital initiatives, and also is benefiting from meaningful market expansion and industry consolidation. Our asset management business, as I mentioned earlier, have seen improvement in performances of the various mutual fund products, which transport to L1 and 2, and is looking to improve market share and net sales in the coming quarters. Our Home Finance business has seen strong turnaround in profitability and this should follow a meaningful growth in our disbursement and AUM in the coming years. All-in-all, we remain optimistic on the opportunities offered by all our businesses.
Thank you very much. And we are now open to question-and-answers.
Questions and Answers:
Operator
Thank you very much. [Operator Instructions] First question is from the line of Ansuman Deb from ICICI Securities. Please go-ahead.
Ansuman Deb — ICICI Securities — Analyst
Yes. Hi, good afternoon sir, and thanks for the opportunity. So my question is on the broking business first. So we have gained a little bit of market share, which is quite good. Just wanted to understand the impact of the new ruling on the potential income, interest income that we have and also the strategy going ahead in terms of whether we will focus more on market share or yields and how will the overall revenue pan-out, considering that in this quarter we have gained market share, but the yields have gone down, so that is the — my first question on the broking.
Navin Agarwal — Managing Director & Chief Executive Officer
Hello? Am I audible?
Operator
Yes sir, you are.
Navin Agarwal — Managing Director & Chief Executive Officer
Hello?
Operator
Yes sir, you are audible.
Navin Agarwal — Managing Director & Chief Executive Officer
Yes, so in terms of the market-share, it is really a point about the F&O market becoming bigger and we wanted to participate in that. We have come out with specific products to align the growth strategy towards the futures and options. And we see that being built-up in the times to come with more of digital strategies. Now, as far as the yield is concerned, it has come down a bit, but I don’t think in the overall scheme of things, we are — our yields are still much, much better than what the industry average is. So in that way, we feel that the expansion can continue in the model which we are, where we have the Figital model of advisory, along with the digital products.
Coming to the point about the funds blocking, I think which consultations we did with component of SEBI. I think there are lot of regulations which has come in the last two years. We have gone through it and we have only seen overall impact being positive in the overall market. So going-forward, we’ll see the impact as it comes, but I think at the end-of-the day there will surely be some impact when the funds are moving from the bank account of the customers, but in the overall scheme of things, it will only help in improving the overall market for from a overall perspective.
Ansuman Deb — ICICI Securities — Analyst
Okay, got it. And the second question is on Wealth Management, in the sense that we have increased our RMs, and what will lead to the AUM growth and subsequent revenue growth, but the costs have also increased. So, could you just let us kind of understand the profitability in this segment, when it is expected to pick-up?
Operator
Participants, please stay connected. The line for the management dropped. Ladies and gentlemen, please stay connected while we rejoin the management back to the call.
Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected. Sir, you may go-ahead.
Navin Agarwal — Managing Director & Chief Executive Officer
Yes, go ahead, Vishal [Phonetic].
Ansuman Deb — ICICI Securities — Analyst
I can repeat the question. The question was on the Wealth Management. So there is a — obviously there will be an increase in revenue with AUM growth and RM growth and there is also cost incidents. The balance of which, in terms of profits, when you see, we can see our profitability improving gradually.
Navin Agarwal — Managing Director & Chief Executive Officer
As you’ve seen, we’ve added to the leadership team meaningfully this year. That is not a recurring — I mean that is not likely to recur in terms of increases once again next year. And we should get the benefit in the coming year. However, the RM addition count of 20% increase that you’ve seen to 166 number is something that we plan to continue to keep growing in the coming year as well. So to that extent, you will see those investments continuing. However, given the strong growth in the RM base that we’ve seen in the last two-three years, you know that as the vintage of the RMs improve, they start contributing profits from the year three. So at least the old RMs that we’ve added in the last year should contribute to improved profitability. But as of now, the limited pawn that we would like to make is that, we’d like to continue to increase this Relationship Manager base strongly at least in the next two years, and in-turn grow the AUM of the business very strongly. So, that will be the primary focus of this business.
Ansuman Deb — ICICI Securities — Analyst
So, I just wanted to understand that at some point the plus-minus would lead to a net addition in earnings, right. So what I’m trying to say that will — can that happen in next year?
Navin Agarwal — Managing Director & Chief Executive Officer
I’m not very sure about that at this point. I would — we would be focusing on continuing to grow the RM base even in the next two, three quarters. So, I don’t see the benefit of that coming even in the next year. Possibly in the year after that, that we’ll start seeing the operating leverage or the benefit of all of those.
Ansuman Deb — ICICI Securities — Analyst
I understand. I’ll get back in the queue for follow-up questions.
Navin Agarwal — Managing Director & Chief Executive Officer
Sure. Thanks, Ansuman.
Operator
Thank you. The next question is from the line of Sahej Mittal from HDFC Securities. Please go-ahead.
Sahej Mittal — HDFC Securities — Analyst
Hi. Good afternoon, everyone. Am I audible?
Navin Agarwal — Managing Director & Chief Executive Officer
Yes, you are audible.
Sahej Mittal — HDFC Securities — Analyst
Hi. So firstly, can you quantify the idle customer funds in the broking business for Q3, to understand the impact if ASBA block trade for secondary markets were to come?
Shalibhadra Shah — Chief Financial Officer
Yes, so this number would be to the tune of around INR3,000 crores to INR3,500 crores.
Sahej Mittal — HDFC Securities — Analyst
And we would be earning close to about 5.5% annualized EV on this, right?
Shalibhadra Shah — Chief Financial Officer
Yes, yes.
Sahej Mittal — HDFC Securities — Analyst
Right. And so, on this — again on this ASBA block trade regulation paper which is floating around, so what is your sense? What could be the potential implementation challenges, firstly, for the industry and for the small brokers? Would it mean that they’ll have to incur much additional cost to bring their stake up to the mark to have these kind of trades possible for their customers? Some color around that.
Navin Agarwal — Managing Director & Chief Executive Officer
So there is surely going to be lot of process requirements and I think the associations like ANME and others who are even talking to SEBI regarding the implementation challenges. And at the same time, the consultation paper talks about it being optional to start-off with. I also feel there is a UPI limitations of around INR5 lakhs, up to INR5 lakhs is the limit per customer. So again, the retail customer can be done, but what about the HNI and the bigger customers. So there will be challenges as we go by it, but I think it’s going to be a slow process of how it gets implemented and how the industry takes it from there.
Sahej Mittal — HDFC Securities — Analyst
Right. So do you expect — so if this regulation were to come, do you expect further consolidation in the industry from Top 10 brokers gaining market-share from these small brokers or given that it would be optional, we don’t anticipate much of consolidation on this?
Navin Agarwal — Managing Director & Chief Executive Officer
I think overall from the digital strategy, the way the business is moving, it is always a time that the consolidation will happen. So all these changes, which has happened in the last two-three years, there is a consolidation, which is seen in the industry and this is only going to continue. So I surely see that the consolidation can happen within the smaller brokers getting marginalized. And at our end also, in our franchisee business, which is one of the biggest business, we have been able to convert a lot of — a few of the smaller brokers as our franchisees as a strategy.
Operator
Thank you. Sir, the line for the participant dropped. We move on to the next participant. The next question is from the line of Deepak Sonawane from Haitong Securities. Please go-ahead.
Deepak Sonawane — Haitong Securities — Analyst
Yes. Hello sir, am I audible?
Navin Agarwal — Managing Director & Chief Executive Officer
Yes, you are audible.
Deepak Sonawane — Haitong Securities — Analyst
Yes, yes, thank you for the opportunity. So I have couple of questions. The first few are on non-broking. Sir, currently we have around 7,690 franchises, right, as of December ’22. So just wanted to understand, out of our 33.6 lakh gross client base, retail client base, how much percentage is contributed by the franchisee?
Navin Agarwal — Managing Director & Chief Executive Officer
It’s around 50% of the base.
Deepak Sonawane — Haitong Securities — Analyst
50% of the base. And again with an active client base of 9 lakh, will it be same?
Navin Agarwal — Managing Director & Chief Executive Officer
Yes, it will be around the same thing.
Deepak Sonawane — Haitong Securities — Analyst
Okay, okay. And sir, on your introduction call you mentioned that the payback period for retail — I mean the clients being acquired to digital channel has lowered significantly to six months as of — as compared to 12 months or a year back. So just wanted to understand out of our broking revenue, that is core brokerage revenue of around INR407 crore in Q3, what would be the contribution from the digital customers? I mean, acquired through digital channels?
Shalibhadra Shah — Chief Financial Officer
We have — that number will be around 15%.
Deepak Sonawane — Haitong Securities — Analyst
15%, okay, okay, thank you sir. And my last question is on AMC side. Sir, if you can provide us, I mean, gross and net sales for AMC in Q3, and against in nine months as well, that would be really helpful?
Navin Agarwal — Managing Director & Chief Executive Officer
Yes, for the third quarter, the gross sales is about INR1,700 crores and the net sales is a redemption of about INR800 crores. For the nine month period, my team will separately [Phonetic] give me the numbers also.
Deepak Sonawane — Haitong Securities — Analyst
Okay, yes.
Operator
Thank you. The next question is from the line of Vishal [Phonetic] from ICICI Securities. Please go-ahead.
Vishal — ICICI Securities — Analyst
Hi, sir. Thanks for the opportunity. I had two, three questions in the —
Operator
Vishal, sorry to interrupt you. May I request you to speak little louder, please.
Vishal — ICICI Securities — Analyst
Hello, am I audible?
Operator
Yes, go-ahead.
Vishal — ICICI Securities — Analyst
So I just wanted to understand two, three things in HFC. First, I wanted to understand the growth. So disbursements in this quarter has gone down. And resulting in a very — I mean, around 1% growth in the year. Just wanted to understand the disbursement growth path and that resulting in the AUM growth for the next year as well. Is the first thing that I wanted to understand in HFC.
Shalibhadra Shah — Chief Financial Officer
So as far as the disbursement quarter-on-quarter is concerned is because of the lower disbursement on the construction finance pool overall, so that is slightly lumpier, that is why you see some movement in the disbursements. But overall, the disbursement run-rate is almost last full years disbursement we have achieved in the first nine months of the current financial year, and we expect a stronger disbursement rate in quarter four and the coming periods, as highlighted earlier in the call.
In terms of the PMAY number — yes, so overall AUM has also reduced because of the PMAY subsidy which has come up, because we received almost 3% subsidy, which has reduced our overall assets under management.
Vishal — ICICI Securities — Analyst
Okay, okay, understood. Sir, should we expect like a good growth, AUM growth number for the next year? Because disbursements are going to be good.
Shalibhadra Shah — Chief Financial Officer
Yes, so as we are looking to hire more team on the sales side and enhance even the productivity of the existing team, we believe the disbursement run rate would result in a larger throughput of numbers on the retail disbursement front as well.
Navin Agarwal — Managing Director & Chief Executive Officer
Also in addition you will see us adding to the leadership team, including the CEO at the home finance company. So, as we make those announcements over the next three months time, we think that we are in a — we should be in a good position to grow the disbursements, as well as the AUM in the next year, year ending March 2024 compared to the year that is underway right now. So we’re looking at a strong buildup. I highlighted in my opening remarks that our gearing is at 2.2, 2.3 times.
So, we have cost of funds, which are very competitive. We had a rating upgrade last year, benefit of which is coming through now. Spreads are very strong. The distribution network is over a 100 branches already. We have about a tad under 500 feet on street which we expect to take-up meaningfully. So all of these initiatives combined with the leadership being in-place should provide us a very strong runway for growth over the next two to three years, including the next year ending March ’24.
Vishal — ICICI Securities — Analyst
Understood. Thank you so much on that. The next part, in HFC itself I wanted to understand that the GNPA has gone up quarter-on-quarter, but credit cost has declined. So just wanted to understand the credit cost trajectory as well. And linked to the part that you said that you’re looking to hire people in sales, so how should we think about the opex as well in HFC business.
Shalibhadra Shah — Chief Financial Officer
On the GNPA front, the marginal slippage during the quarter is mainly on account of the restructured book. So as initially we had guided, almost 25% of a restructured book could slip into the NPA, so out of that partially there has been slippage in the current quarter, which has happened. However, we have adequately provided for the restructured book at an average rate of almost 13%, so the PCR still remains on the NPA book at 49% and standard provisioning continues to be higher at almost 1.32% on the book. So marginally slippage has not reflected any further increase in the PCR, it has only been maintained.
Vishal — ICICI Securities — Analyst
Okay, understood. And on the opex front?
Shalibhadra Shah — Chief Financial Officer
On the opex front, would continue to be remain elevated, because as we have further hiring. As informed in the last question that we have further hiring at the senior-level and even at overall sales level. So opex will remain elevated overall, but because we have robust NIMs of almost 7.8% and our credit cost are now meaningfully lower in the business, we expect a good ROA moving forward in the business, despite the elevated opex, which would be in next couple of years.
Vishal — ICICI Securities — Analyst
Understood. Understood. My next question, I wanted to understand the — about the fund-based business. So your revenue in fund-based business has fallen very sharply in this quarter, which is also resulting in consolidated PAT falling sharply. Just wanted to understand how should we think about it for the Q4?
Shalibhadra Shah — Chief Financial Officer
Yes, this is actually on our investment that we have made largely into the equity assets. The book size of which is reported totally at INR4,900 crores, out of which INR4,300 crores is the equity-asset base. In this book, because this book is subject to mark-to-market accounting, so every quarter basis, the overall NAV of these funds, there will be movement in the profitability, which we report separately under that mark-to-market line item. So it’s a function of actually equity market performance, that’s how the — this book number on the P&L would know.
Navin Agarwal — Managing Director & Chief Executive Officer
And to add, we highlighted that the ex-IRR since inception, cumulatively for this book stands at 17%, so without trying to look at it from a quarter-to-quarter basis, the management expectation is that we should be able to generate on this INR4,900 crores book, some returns in that vicinity of what we’ve delivered over the last, I think, six or seven years. This is a ex-IRR over a six or seven years period and it is, I think, a good indicator of what one should expect even in the future. At least that is our expectation from the capital that is allocated to this business.
Vishal — ICICI Securities — Analyst
Okay, understood. Thanks. Just last question I had regarding PE/RE business, just wanted to understand our free earning AUM has increased quite a lot quarter-on-quarter without — and despite not new fund launches. So, wanted to understand that and also, our yields have increased. So just wanted to understand that as well. Why has that happened and how should we think about it going-forward? And lastly, employee expenses have also increased in PE/RE business. So just wanted to understand this also?
Shalibhadra Shah — Chief Financial Officer
Yes. So on the PE/RE business on the private-equity side, we had actually the closing of our fourth equity growth funds. We closed the fund at INR4,500 crores of commitments that closing has happened in quarter three of this. And that is why you’ll see a slightly bump-up of the revenues, because the final closing that happened would have impact of higher revenues of one year of fees, which would be taken from all the investors who came in the last close to make them at parity with the other investors. So that is the reason you’ll see higher revenues, which would — on account of the final closing.
And also we added the Gift City entity, which we had created few months back and that was approved by RBI and made our wholly-owned subsidiary in quarter three of this financial year. So by virtue of that, the revenues from that Gift City entity also came in, which were a lot of the earlier close in this current quarter. So overall people cost provisioning has happened because of the added revenues as well. So from this quarter perspective, it would look higher because it has impact of the earlier quarter revenues also coming in the current quarter and associated people cost thereof, so that is the reason. Overall, however, in the business, the people cost to revenue ratios will be almost same as what in the last financial year.
Vishal — ICICI Securities — Analyst
Okay, understood. Thank you so much.
Operator
Thank you. Next question is from the line of Kajal Gandhi from ICICI Direct. Please go-ahead.
Kajal Gandhi — ICICI Direct — Analyst
Hello, thank you for the opportunity, sir. Sir, two, three questions. One is on, everyone in the street is seeing decline in active clients. So how are we seeing that? We haven’t seen too much, because from September-October to now it is marginally stable. So what are we looking there? Secondly, I wanted to ask, there are certain brokers who have mentioned the Tier 2, 3, 4, like those levels also the clients are giving equally good revenues than newly-acquired clients. So, what is your take there?
Navin Agarwal — Managing Director & Chief Executive Officer
Okay, so regarding the — regarding the first question regarding the active client. Mainly it is because we have been adding clients based on quality parameters with margins. So, the entry point has been very clearly aligned with the quality which we want to get-in. So to that extent, the attrition in the client is comparatively lesser. And that is how we have been able to ensure the active client base, even in the last quarter.
Coming to the Tier 2, Tier 3 cities, surely we are also getting clients from Tier 2, Tier 3 cities as in the overall scheme of things. But at the same time, I think for us, we have got a good distribution network across all franchisees and branches. So, the mix might be much more towards the Tier 1 and the metros to that extent, but acquisition is happening on Tier 2, Tier 3 as well.
Kajal Gandhi — ICICI Direct — Analyst
Okay. So sir, what is the cost of acquisition we are seeing, any trend of lower because that is what right now is happening because most of them have stopped extra expenses on advertising and all?
Shalibhadra Shah — Chief Financial Officer
Cost of acquisition for us is INR2,500. And as you have highlighted, that our break-even has also improved on the new incremental clients that we have hired — acquired. So our break-even is now less than six months on the newly-acquired clients.
Kajal Gandhi — ICICI Direct — Analyst
Okay and sir, one more question. You have not yet shifted to the flat broker in any of the products. So what is the sense you are getting in your clients? Because still you are able to see such a huge jump-in your last two quarters F&O volumes. So what is the trend there, like because even after flat brokerage, this surge is not seen across everywhere. So what is the fall there or sense there that you’re getting?
Navin Agarwal — Managing Director & Chief Executive Officer
So as you know, we have always been based our thing on research and advise and where we have got advisory support for each of our clientele. So the overall value proposition is based on the advisory and research which we give. And we very clearly see that we will not be following the flat model. And as such, we have not seen much pressures on the yields, surely the yields have come down, but it is still far better than the flat brokerage of the discount brokers as you see, but the biggest value-add is the research and advice and along with that, the distribution network, which we see, which we have aligned for a customer. So that you could get a holistic solution to us, whether it is broking or third-party products through our advisors.
Kajal Gandhi — ICICI Direct — Analyst
But sir, still when we see your cash brokerage versus F&O brokerages. F&O has gone up from INR2.18 lack to INR2.89 lakh in sequential quarter, but accordingly been on — being on ad valorem the revenue from F&O brokerage has not surged that much.
Shalibhadra Shah — Chief Financial Officer
Yes, so that is — so one is of course on a higher-volume, our market-share is also growing higher. So there is definitely some marginal impact on the yields, which is there. So that is one of the reason where the F&O revenues definitely will be marginally lower in the mix.
Navin Agarwal — Managing Director & Chief Executive Officer
The actual revenue has surely gone up on the F&O side.
Kajal Gandhi — ICICI Direct — Analyst
Okay. With your E&L [Phonetic] there is decline in cash. So that has got impacted on your total brokerage income?
Navin Agarwal — Managing Director & Chief Executive Officer
Yes, that is there, but even quarter three, actually the overall number of trading days are also lesser and cash volumes have also come down if you look at broker parameters.
Kajal Gandhi — ICICI Direct — Analyst
Okay, okay. Thank you, sir. Thank. Thank you.
Navin Agarwal — Managing Director & Chief Executive Officer
Thank you.
Operator
Thank you. Next question is from the line of Abhijeet [Phonetic] from Kotak Securities. Please go-ahead.
Abhijeet — Kotak Securities — Analyst
Hi, good afternoon. A few questions on the Wealth business. If you can give some breakup of the recurring revenues between, let’s say, what would be advisory driven and what could be commission-driven as part of the recurring revenues?
Shalibhadra Shah — Chief Financial Officer
We don’t follow the advisory model, Abhijeet.
Abhijeet — Kotak Securities — Analyst
Okay, understood.
Shalibhadra Shah — Chief Financial Officer
So it’s all distribution revenues.
Abhijeet — Kotak Securities — Analyst
All right. And within the transaction business, just some major line items in terms of what drives revenues here on a recurring basis on a quarter-to-quarter basis?
Navin Agarwal — Managing Director & Chief Executive Officer
So the trail revenues nearly cover our entire cost is what we’ve been consistently indicating, almost 80% of the operating expenditure that we reported this quarter is covered through the trail income.
Abhijeet — Kotak Securities — Analyst
Well, I meant the transaction fees within the Wealth revenues comprising 45%. Which are the major items that drive those revenues?
Navin Agarwal — Managing Director & Chief Executive Officer
So actually alternate products are also driving the transaction revenues. So during the quarter, we had a good sales alternate revenue — alternate products, which has resulted in the upfront revenues mix.
Abhijeet — Kotak Securities — Analyst
Understood, understood. And just generally on the Wealth business, just broad thought process on what’s the aspiration here from a two-three year point-of-view. What sort of a scale are you planning to build here. Any direction and size that you’re aspiring for?
Navin Agarwal — Managing Director & Chief Executive Officer
So this business is quite under indexed for us in terms of total AUM compared to some of the leading players in the business. And so we are looking at improving our presence, including the — our relationship manager base. I mentioned in the opening remarks, it’s up by 20% year-on year, December over December last year. We would like to continue to grow this. I think over the next two, three years we would look at at least doubling RM base from the 166 odd number that we have right now. This is more indicative that external. So that’s the part that we’re on, and that’s why we’ve guided for elevated opex and cost-to-income ratios for this business.
Abhijeet — Kotak Securities — Analyst
And the target market would be somewhere close to where you are today, like around INR10 crore, INR15 crore odd sort of a segment?
Navin Agarwal — Managing Director & Chief Executive Officer
We have been present in that category already, I again mentioned in my opening remarks that we’ve also got the leadership for the Ultra HNI segment. So we would look at the same segment growth as well as adding to the segments and regions that we are present in.
Abhijeet — Kotak Securities — Analyst
Got it. This is useful. Thanks a lot.
Navin Agarwal — Managing Director & Chief Executive Officer
Thank you.
Operator
Thank you. The next question is from the line of Shaleen Seth from Seers Fund Management. Please go-ahead.
Shaleen Seth — Seers Fund Management — Analyst
Hi, congratulations team, congratulations on the great numbers and a very detailed presentation. My question is regarding to the advisory that we hold. We have close to 2,000 advisors and the average revenue given is about INR7.7 lakhs. Just wanted to have a number as to what’s the cost per advisor here?
Navin Agarwal — Managing Director & Chief Executive Officer
We will not be having — INR5 lakhs, it’s around INR4.5 lakhs, INR5 lakhs per advisor.
Shaleen Seth — Seers Fund Management — Analyst
Okay, INR4.5 lakhs, INR5 lakhs. So this becomes a big amount in terms of our revenues, about 33% odd is coming from the advisors. So what exactly does this hold in terms of advice? Is it mutual fund, distribution or the brokerage?
Navin Agarwal — Managing Director & Chief Executive Officer
It is mainly broking and but naturally the mutual funds and distribution, but broking is the big piece of the overall digital advisory.
Shaleen Seth — Seers Fund Management — Analyst
It’s a big piece. So in terms of our sourcing model, 47% is online and 33% is about — so Motilal itself is — the business is sourced through the advisors only mainly. Is that true?
Navin Agarwal — Managing Director & Chief Executive Officer
Yes, so the client has got to option to trade online, as well as talk to the advisors, that is completely synced in, that whether he trades online or whether he does it through the advisors. So the customer has got the benefit of dealing the way he prefers. Whereas the advisory is aligned to each client, so he can always give advice to the client and the client can decide the execution perspective.
Shaleen Seth — Seers Fund Management — Analyst
Okay, great, thank you. Thank you.
Operator
Thank you. Next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go-ahead.
Vivek Ramakrishnan — DSP Mutual Fund — Analyst
Hi, I have a few questions. I’ll just sequentially put in, so that it’s easier for you to answer. Number one, on the yield and advances in your housing loan book, it remains at 13.8% and you said there is 50 bps rate increase you have taken. So the question I wanted to know is, whether the customers are in a comfortable position to absorb that and whether you’ll see the yield higher in the next quarter? Because even if you see year-on-year, and I understand there’ll be book changes and it’s pretty much flat. So that’s question number one.
Question number two, how much of the book is still in the restructured category and whether you’re getting at least part payments? I can imagine there is a slippage to NPAs, but whether you are getting part payment from the clients, given the fact that the macro environment seems to be good? The third question is on the broking business. If I see the interest income growth versus interest expense growth quarter-on-quarter, because year-on-year, again there’ll be distortions due to the IPO. That we have seen that the margins have compressed a lot. So are you essentially not passing on costs in a desire to gain market-share or how does the dynamics work there? Thank you.
Navin Agarwal — Managing Director & Chief Executive Officer
Yes, coming to the first question of restructured books, so overall, the restructured book stands at INR251 crores on the total AUM of INR3,650 crores. We have actually — on the increase late front, our overall yield is at 13.8%, this does not include any impact of the R pillar increase of 50 basis. This effect has happened from 1st of January this financial year. And this — overall, the collections in last 12 months have been very stable. So if we look at this whole trend of collections and even in quarter four and the period to come, we expect that this R pillar impact would be passed on to the customers without any material impact on the overdue book.
And as far as the — what was the third question, sorry. Can you just repeat? So broking interest yield, sorry, is actually at 14% on the lending book that we earn. So that book is average of INR3,200 crores during the quarter, on which we’ve earned almost 14% cross yield.
Vivek Ramakrishnan — DSP Mutual Fund — Analyst
Sir, my question was more in terms of ability to pass-on the interest-rate hikes, because the interest rates have gone up very sharply, especially in the CDN zone of the market. So whether that is going to compress the NIMs temporary till the cycle reverses again, since — is there any ability to hike your interest charges to the clients?
Navin Agarwal — Managing Director & Chief Executive Officer
So actually NIMs have already compressed over last two quarters, because you know — so while there has been an increase of almost 175 basis in the overall cost of funds in the current financial year, out of which, almost half of that increase has been passed on to the customers and half of that has been absorbed at this juncture in our NIMs. So still we continue with a healthy on the more 5.8% on this overall book.
Vivek Ramakrishnan — DSP Mutual Fund — Analyst
Thank you very much, sir. That’s it. And wish you good luck. Thank you, Vivek.
Operator
Thank you. Next question is from the line of Deepak Sonawane from Haitong Securities. Please go-ahead.
Deepak Sonawane — Haitong Securities — Analyst
Yes, thank you for the follow-up, sir. Sir, my first question is on HFC side. If you see that, within our AUM mix, the construction finance continues at around 13% as of December, but it was almost around 11% as of September. So there is this growth in terms of AUM in this piece. But if you see that, as a ticket size wise, about 2.5 lakh — 2.5 million ticket size, it only contributed 3%, right. And what you mentioned in note as well that you’re lending to CAT A builders, right. So there should be a disbursal of very-high ticket size, right. So am I missing any catch over here?
Navin Agarwal — Managing Director & Chief Executive Officer
Sorry. So the current retail disbursements are running at a very low-rate, Deepak. And as I mentioned to you, we are looking at stepping this up, we’ve seen, I would say, two-year high monthly disbursement in the month of December and we’re looking to ramp this up in the month of — in the March quarter. But from a quarter-to-quarter basis, the CF book, which is very small proportion, may have lumpy disbursement between CRE, as smooth as buildup of the retail disbursements.
Deepak Sonawane — Haitong Securities — Analyst
What is the average ticket size for us in the CF business? I mean —
Shalibhadra Shah — Chief Financial Officer
Average ticket size of the CF business is INR30 crores. In the presentation we have not put out that, what we have put out is the — only retail average ticket size.
Deepak Sonawane — Haitong Securities — Analyst
Okay, okay. Thank you. Thank you so much.
Shalibhadra Shah — Chief Financial Officer
Thank you.
Operator
Thank you. Next question is from the line of Prakash Kapadia from Anived Portfolio. Please go-ahead.
Prakash Kapadia — Anived Portfolio — Analyst
Yes, thanks for the opportunity. A couple of questions. On the mutual fund side, how much is passive as a percentage of our AUM? And recently, there have been opening of international funds. So how is the unitholders’ interest? Are we seeing step-up? Are we seeing lump-sum investments? Are we seeing new SIPs coming in? Because I think from January we opened the investing for Global Funds.
Navin Agarwal — Managing Director & Chief Executive Officer
So the passive AUM is about 20% of our overall AUM. And because of the reopening from January, we are seeing even some of the stocked SIPs have also started renewing those SIPs or investing once again. But it’s only early days, it’s been only a few weeks, we’ll wait for how this quarter shapes up. Anyways, this is not a unlimited opening up, this is only to the tune of the redemptions that these funds have seen that you have the headroom. So I think the real growth in this offshore side will only happen, Prakash, once the overall limit has increased. Right now, even if this were to grow, it will not be very sizable.
Prakash Kapadia — Anived Portfolio — Analyst
Okay, okay so it’s — okay that amount got reduced, so only to that amount it can come back and once that comes back, again the SIP as well as the lump-sum would stop?
Navin Agarwal — Managing Director & Chief Executive Officer
Yes.
Prakash Kapadia — Anived Portfolio — Analyst
Assuming there is no limit change.
Navin Agarwal — Managing Director & Chief Executive Officer
Yes.
Prakash Kapadia — Anived Portfolio — Analyst
Okay. Secondly, on the FI side, what is the sense we are getting from our client interaction, there have been no net sellers in India in CY’22. And given where we are seeing debt returns as of now, do we think retail flows or new investors who have just entered could stop SIPs or flows could get affected because markets have been challenging last 12 to 15 months. Any sense broader you can give?
Navin Agarwal — Managing Director & Chief Executive Officer
See, again on a year-to-year basis, if you see last 20 years, most of the years foreign FIs have been investors, net investors in India. Their holding over a longer period has gone up meaningfully. On a year-to-year basis there are various factors that may [Technical Issues] in emerging markets. Now in the near-term, it could be China opening up and lot more money going there. So near-term is very noisy and very volatile, but if you look at the growth of India versus the rest of the world, earnings growth of India versus the rest of the world, the share of market cap of India in the rest of the world and the holding of foreigners in their overall portfolio of India, we are quite under-represented. So, the possibility that the flows will continue to be positive longer-term is high as far as the foreign investors are concerned.
And as far as the domestic investors are concerned, again, we’ve seen lesser volatility than we’ve seen ever before in terms of volatile markets versus volatility in domestic flows. I think the SIP book has been reasonably strong and steady. Notwithstanding what is happening to the FI flows and that has a good counterbalance at least in the last few years to the direction of the FI inflows. So I think structurally we see both of them actually, at some point, turning positive, although in the last year, we’ve seen the large selling offset by the large — large FIs selling the — offset by the large domestic buying. So near-term could be noisy, but longer-term, we would expect both these flows to be positive for India.
Prakash Kapadia — Anived Portfolio — Analyst
Sure, sure. Navin, that’s helpful. And lastly, you know, if I look at capital market-related revenues, they are approximately two-third for us on a run-rate basis, as of now. Any direction or aspirations over the next two, three years, what would you — we want to have this as percentage of our revenues?
Navin Agarwal — Managing Director & Chief Executive Officer
I mean, while growing the capital market side of the revenue for sure, given that market is consolidating, we spoke about that. Because of compliances, Visa [Phonetic], distribution, brand, a variety of reasons. We think that the capital market business itself has a lot of headroom. But having said that, we are investing and building in the wealth management business, in the home finance business. I talked about the asset management business performance picking-up. We spoke about the INR4,500 crore private-equity fourth series that we closed. We are awaiting SEBI’s approval for our next year real-estate fund launch, which will be INR1,500 crores of AUM that will be mobilized.
So we are really putting in all the building blocks in the rest of the businesses, so that we can see faster growth in those businesses compared to the capital markets business. As a first top, you can look at a 50-50 breakdown in the foreseeable future, but obviously given the annuity nature of these businesses, they have the — they have a lot of headroom or a lot of potential in IPO.
Prakash Kapadia — Anived Portfolio — Analyst
Okay. And in this era of consolidation, will pricing improve on the broking side or with some of these new-age brokers who’ve garnered more than 50%, 55% of active client share, pricing could remain muted or upward pricing could be difficult?
Navin Agarwal — Managing Director & Chief Executive Officer
I think with the ASBA coming into picture, there might be some pressures in the discount brokers to look at the overall yield. But as far as we are concerned, we are still very much ahead of the discount book in terms of the overall yield. So, we don’t see any pricing going up from our end, but not sure about the industry on a overall basis, looking at the overall discount brokers and the overall scheme of things.
Prakash Kapadia — Anived Portfolio — Analyst
Understood. Thank you. Thank you.
Operator
Thank you very much. I now hand the conference over to Mr. Shalibhadra Shah for closing comments.
Shalibhadra Shah — Chief Financial Officer
On behalf of Motilal Oswal Financial Services, I would like to thank every investor participant who attend the quarter three FY ’23 earnings call. In case if you have any further questions, please do get-in touch with us. Thank you. Have a good day.
Operator
[Operator Closing Remarks]