Prudent Corporate Advisory Services Limited (PRUDENT) Q3 FY23 Earnings Concall Transcript

Prudent Corporate Advisory Services Limited (NSE:PRUDENT) Q3 FY23 Earnings Concall dated Jan. 24, 2023.

Corporate Participants:

Sanjay Shah — Chairman and Managing Director

Shirish Patel — Chief Executive Officer and Whole-Time Director

Chirag Kothari — Chief Financial Officer

Analysts:

Rohan Mandora — Equirus Securities — Analyst

Swarnabha Mukherjee — B&K Securities — Analyst

Prayesh Jain — Motilal Oswal — Analyst

Nidhesh Jain — Investec Capital — Analyst

Abhijeet — Kotak Securities — Analyst

Nilesh — Bank of India Mutual Funds — Analyst

Saptarshee Chatterjee — Centrum Portfolio Management Service — Analyst

Shubham Bhatia — Shubham Investments — Analyst

Dipanjan Ghosh — Citi — Analyst

Sameeksha — Sameeksha Capital — Analyst

Sahej Mittal — HDFC Securities — Analyst

Varship Shah — Envision Capital — Analyst

Arpit Shah — Stallion Asset — Analyst

Aahan — Trivantage Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to 3Q FY ’23 Results Conference Call of Prudent Corporate Advisory Services Limited, hosted by Equirus Securities. [Operator Instructions] I now hand the conference over to Mr. Rohan Mandora from Equirus Securities. Thank you, and over to you, sir.

Rohan Mandora — Equirus Securities — Analyst

Thanks. Good afternoon, everyone. Welcome to the Q3 FY ’23 earnings call of Prudent Corporate Advisory Services Limited to discuss the quarterly performance. To give a brief update and address investor queries, we have with us from the management, Mr. Sanjay Shah, Chairman and MD; Mr. Shirish Patel, CEO and Whole-Time Director; Mr. Chirag Shah, Whole-Time Director; Mr. Chirag Kothari, CFO; and Mr. Parth Parekh, Investor Relations.

We will begin with a brief management commentary followed by Q&A. Thank you, and over to you, Mr. Shah.

Sanjay Shah — Chairman and Managing Director

Thank you, Rohan. Thank you, and good afternoon to everybody. Let me first of all welcome you all to the earning call of Prudent Corporate Advisory Services Limited for the third quarter of fiscal 2023. So I thank you all for sparing your valuable time to join us today.

The fiscal, which has been ended, has been very, very special for us as we crossed the landmark of INR50,000 crore of assets under management. Also, as per the AMFI ranking, based on the commission on which AMFI publishes at the end of every year, for the FY ’22, we jumped our position by one notch in the ranking to become country’s second largest non-bank mutual fund distributors. So that has been very, very satisfactory for us.

So, all these efforts were reflected in the quarter’s numbers, wherein we recorded the highest revenue and the profit. I hope you have the investor presentation in front of you and handy, so — which we already uploaded on the exchange yesterday. So as we will be giving the references to these slides, while I’ll talk about the — this quarter’s numbers.

So let me start with our AUM, which is the very important parameters of our business for this quarter. So if you — I’ll just take you — all of you to go to our Slide number 36. So if you see Slide 36 of the presentation, despite having Karvy in the base quarter, as you all aware that we acquired Karvy and the entire assets of Karvy, we’re transferring our core in 28th of November 2021. So in spite of there being Karvy in our core in October, November, December of last year, our closing AUM has grew by a healthy pace of 17% Y-o-Y to INR56,138 crore from INR48,197 crore in December 2021. Further our quarterly average AUM grew by almost 32%, which is much higher than the closing AUM. This has been mainly because in Q3 of current year the Karvy’s impact was there for the entire three months, while it was only for one month in last quarter.

Also, if you see in the Slide — in fiscal 2023, we are currently running at an average AUM, which is almost 39% higher than the FY ’22’s full year average AUM. Thus, we are expecting that we will close FY ’23 with a very robust growth in topline as well as in the bottom line.

So, now, I’ll take you to — move to Slide 37. If you see Slide 37, we have given you the variable, which move the equity AUM on a year-on-year basis and on a sequential basis. So equity AUM has grown by 18% year-on-year and mainly it has been due to a decent growth in net sales, thanks to our SIP flows. Net equity sales during the nine month FY ’23 has been INR3,520 crores and we are in line with our guidance to achieve net sales of INR5,000 crore during the entire year.

On a sequential basis, also if you look at equity AUM grew by almost 6% aided by mark-to-market movement in last quarter. However, if you look at the full year mark-to-market movement, it has been little bit muted. Because, on a full year basis, mark-to-market benefit which accrued to an AUM was only about 5.3%, which is also in line with — if you look at full year earning of NSE 500 stocks of — or NSE — or probably Sensex. In Sensex, we have closed to about 5% return.

I’ll take you to Slide number 38. So if you move to that slide, I would like to point out that despite all the noise around fintechs, our market share in equity AUM without ETF has remained stable at 2.4%. On the monthly equity SIP flow for the December, which was very, very strong for us and it was at INR478 crore. If you compare the same number one year before in December 2021, it was INR371 crores. So we grew our SIP book by almost 29% on a year-on-year, which gives you a very strong traction and visibility for the inflow. And we expect that this book will definitely close at INR500 crore plus by — within this fiscal itself.

The SIP mobilized during the quarter was also at a historical high of INR1,411 crore and every second rupee which we had mobilized in the gross flow has came from SIP. So that shows that how granularity of — how granular our business is and that shows the granularity of our AUM also. SIP will continue to be a — will play a very pivotal role in our growth going ahead.

I’ll take you to Slide number 39, which is basically we want to emphasize our emerging business segment insurance. It forms around 8% of our revenue in this quarter. This vertical grew at 52% year-on-year and 80% of this vertical’s revenue during the quarter came from life insurance and the rest from general insurance. Our point-of-sales persons, POSP, network is very — is a strong 7,524 and we are relying on this channel to bring scale to the [Indecipherable].

I’ll take you to now Slide number 40, which is the summary of our consolidated earnings of Q3. It contains the details of consolidated number. So revenue from operations grew by 35% year-on-year in first nine months, led by solid growth in quarterly AUM aided by the acquisition of Karvy last year as well as change in mix towards higher yielding equity AUM.

Our operating profit grew by 41%, which was higher than the revenue growth led by operating leverage. Our operating margin has expanded by 109 basis points to 26.4%.

If you look at our profit after tax, it has grown at a tad lower than the operating profit growth, which was at 31%, mainly because of the higher depreciation and the lower other income, depreciation expense doubled led by the amortization of Karvy’s assets. As you are aware that we — when we acquired Karvy, we paid INR151 crores for that and we are going to amortize that amount over a period of 10 years and that’s a non-cash expenditure on the balance sheet. So, similarly, other income has also reduced mainly because company utilized surplus liquidity of INR151 crores for acquiring Karvy assets. If you look at our annualized return on equity in first nine months, it stood at a very healthy rate of 50%.

So this is broadly about the numbers, which we have given and it’s a part of our presentation. I’ll just try to briefly touch based on our growth outlook. So let me just tell you that there are couple of drivers, which are very, very strong and very steady for our retail wealth management business. And number one of our growth driver would be the continuation or addition of mutual fund distributors in our KT.

So, as a business strategy, we are focusing aggressively on adding more and more mutual fund distributors, which are the backbone of our business. And, as of March 2022, Prudent was having a 20.4% of overall mutual fund distributors of the country embedded with us as a business partner. In nine month of current year, which is nine month FY ’23, we have added around 3,360 new mutual fund distributors. So there is an increasing need for the mutual fund distributors to collaborate with a tech-based platform to service their clients and we are capitalizing on this opportunity.

We had a target of adding close to 5,000 people in the current year, and I’m sure we’ll be able to at least reach to that number closely. As more and more mutual fund distributors join the industry, we expect that incremental benefit will accrue to our company, which is Prudent Corporate.

Second number, which is our growth driver would be the cross-selling of other products using our strong network of mutual fund distributors. So our is now — we are moving from a single product distributors to a multi-product distribution platform, which has helped us to capitalize on our vast mutual fund distribution network. Our multi-product platform has also created a great value preposition for our mutual fund distributors who has joined us. So far, company has converted 7,524 existing distributors and their family members to point-of-sales’ persons who can also sell insurance products through our group company, Gennext Insurance.

So the third number for our growth outlook would be the strong SIP book, which we always encourage our mutual fund distributors and educate them to build for the purpose of granular flows. So ours is a very unique B2B2C platform positioning in the retail wealth management segment and it helped us to build the granular flows through SIPs.

Our monthly cumulative SIP flow for the month of December was INR478 crore and we are — and where almost second rupee of our equity new flow in last quarter came through SIP. So we believe SIP is a very robust organic growth lever for us going forward.

And, finally, number four will be the effective utilization of cash flows for inorganic acquisition, which is the another critical strategies for us. We generate significant cash flow from the operations and we are always on the lookout if something lucrative comes on our way. We generally — we generate the significant healthy cash flow also. And if you look at nine months of this year, the profit before tax and if you add the depreciation with that significant amount of cash being generated by the organization.

During this quarter, we also acquired the — all mutual fund assets of iFast. So, in October, we merged the INR517 crore of iFast mutual fund assets and we paid INR2.56 crore for acquiring these assets.

So, overall, these are the growth drivers, which I look at from the point of view of Prudent. However, let me just tell you that, overall, on the industry front also, we are very, very comfortable and we feel that the entire wealth management industry is poised for a significant growth.

I was referring to one institutional desk research report of the mutual fund industry and they are having a view that active equity assets of mutual fund industry will grow by — in next 10 years will grow from INR19 trillion — which is currently about INR19 lakh crore — INR20 lakh crores to INR77 lakh crore by FY ’32, so we are talking about next nine to 10 years, representing a CAGR growth of 15%.

If you look at historical growth of Prudent, where Prudent grew almost double than the industrial growth. So I’m sure, I think, we’ll be able to drive on this right on this way, which is going to be there as far as retail wealth management is concerned and we are immensely going to be benefited by this trend.

If you look at the U.S. as a country, U.S. witnessed a rapid rise in retail mutual fund investing from 1980 to 2000, where in the share of household owning mutual fund increased from 6% in 1980 to 45% to 46% in 2000. I think, we’ll go through a similar trajectory in the next decade and we are looking at the next decade as extremely positive for the industry as well as for us.

So, with this, I’ll just end my discussion and I’ll open the floor for the Q&A. Thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Swarnabha Mukherjee from B&K Securities. Please go ahead.

Swarnabha Mukherjee — B&K Securities — Analyst

Yeah. Thank you for the opportunity, sir, and congrats for a good set of number. So, a couple of questions. One on the iFast acquisition, so if you could talk a little bit about how the yields of that business is, because when I see you, the — after consolidation there is no discernible impact that we can see on the mutual fund business yields post this. So if you could talk about that, what is — what would be — what could be any kind of impact that you would see going ahead?

And, also, in terms of the distribution partners of iFast, what are we doing to ensure their stickiness or is there a risk there that they may move out or they are still there? That would be my first question, sir.

Sanjay Shah — Chairman and Managing Director

So if you look at iFast, probably you will not look at — you will not see a significant changes in revenue, because iFast is less than 1% of my AUM. So if you look at end of December, our total AUM was INR56,000 crore, and what we acquired from iFast was hardly about INR417 crore. And then assets got merged in — by the end of October, so November, December, these are two months where revenue has been — so the asset has been merged and revenue has been booked.

See, there is no separate reporting for iFast, but I can just give you a rough number. I think, we are going to make additionally about INR11 lakh, INR12 lakh by way of this accretion. So it’s going to be very, very remunerative for us, because we paid INR2.56 crore for acquiring iFast and I believe payback period would be less than probably two and a half or three years. So we’ll be able to recover whatever we have paid for acquiring Karvy — sorry, iFast assets. So it was number one. But, however, it’s being INR11 lakh, INR12 lakh a month, so you’ll not see a significant change in the revenue overnight.

Number two, iFast was significantly like Karvy also a business model driven by B2B. And there were a couple of partners who were working with iFast were also working with Prudent. So, all in all, we got about some 250 odd partners who were new to us, and they all have empanelled us, there might be few people who might be still in the process of empanelling. However, I believe, as far as the positioning of Prudent in B2B segment is concerned, I think, we have a very strong deliverables and value proposition for them, so anybody who will come from another platform to us would be more comfortable to work with us. So we believe we’ll be able to take care of them and I don’t see — I haven’t seen any slippages. And slippages in the form of whether he will continue to work for the additional business or not, but the business which we acquired and is a part of our AUM will definitely remain with us only.

Swarnabha Mukherjee — B&K Securities — Analyst

Okay. Okay. Got it. Now coming to the insurance side of the business, sir, if you could give me some color on how are the commissions shared between us and the distributors? And is there a possibility that since we would be having a higher scale, can we have — get a better commission structure out of the insurance companies?

And, again, the same question on the stickiness of the agents that since — in insurance the upfront is significantly higher than what would be the trail income on the renewal of the policy, could there, going ahead, be a risk of an agent getting empanelled separately with the insurance company or can they buy regulation at all if they move out as an agent of our insurance company, can they still function as a POSP if you could highlight that?

Sanjay Shah — Chairman and Managing Director

Shirish, you would like to address this.

Shirish Patel — Chief Executive Officer and Whole-Time Director

Yup. So I give the answer of last question was that the agent would become the POSP has to work only with one particular holder. So the chances of leakage of the POSP is much, much lesser. In case if he wants to move out of the next Gennext system, obviously they need the NOC from Gennext and then — and then he can get registered with some other insurance broker. So if hypothetically if there is a possibility of people going out, there is a higher possibility of people coming in, because currently we have hardly 7,000 odd POSPs wherein I think, many other competitors would be having much, much higher number in terms of POSP.

Second, why we believe that the attrition would be lower, because our focus of recruiting POSPs not the broader market but mainly our focus is to cross-sells over existing mutual fund distributors. So they don’t have only the insurance relationship with us, they ideally deal with multiple products with us and that is the reason the attrition level could be much, much lower compared to other brokers. So that is why I said, I think the chances of people coming in could be higher than the chances of people moving out. So that is the last point.

So second question what you asked is, is there a possibility of our gross yield moving up since our business is increasing. I believe that, yes, I think the insurance industry is very, very dynamic. With the volume increasing, there could be a possibility of increasing the gross yield. But in last three, four years the kind of growth what we have shown, obviously, we believe that we are almost near to the — our peak negotiation, so we don’t see that the gross yield improvement can be great going forward. Yeah, there could be, I think, 1% or 2% improvement possible, but otherwise we don’t see a great improvement in the gross yield, so that would be our second point.

Coming to the — your first question, the sharing. I think the sharing ratio continues in a similar level what it was used to be earlier. So, again, I think it’s a very, very dynamic thing. I would say, it’s volume linked, so lower the volume of a distributor lower the sharing; and higher the volume of the — per POSP, higher the sharing. So sometimes it may depend on the composition of the business, which is delivered by few people delivering more business and more people delivering lesser business. So, like in mutual funds, we have got a tiered structure, similarly we have got — I won’t say exactly the tiered structure, but higher the volume, higher the sharing kind of structure we have, but we have not seen any change in the sharing mix in last few quarters. So that practically is the same.

Swarnabha Mukherjee — B&K Securities — Analyst

So on an average, sir, if you — what would be the mechanism, because, say, let’s assume that — in last call, I think, you mentioned that the largest portion of your business is coming from non-par. So assuming that commission that an insurance company is giving, say, somewhere around 30% or so on the first-year premium, in an average, how much would a partner get? (Speech Overlap)

Shirish Patel — Chief Executive Officer and Whole-Time Director

So just and they much different product mix if I talk about on any of is that appreciating would be around 65% to 70%, but again is not up products specific I think we look at so many parameters, it is not only the product getting all also the PPT, as I’ve said, the volume of person. So but average you can call about is up 65%, 70% on average.

Swarnabha Mukherjee — B&K Securities — Analyst

Okay. And, sir, the ticket size for insurance that you had mentioned in the presentation, average ticket size I think around INR35,000 — INR33,000 or INR35,000. So, in LI particularly ticket sizes can go up significantly, so what would be the kind of steps that we had taken to improve productivity of our POSP, if you can give some qualitative commentary on that?

Shirish Patel — Chief Executive Officer and Whole-Time Director

Here, I would say two things. One the productivity and second is the quantity of the POSP. As we already shared that the number of ARN holders with us is around 26,000, out of that hardly 7,000 odd ARN holders are converted either they only or the family members. So, still, I would say there are almost 80,000, 90,000 [Phonetic] mutual fund distributors are there, who we can tap. In addition to that, also we keep on adding the mutual fund distributor and then we also try to cross-sell them to become the POSP. So that is one parameter, which always we should look at.

Second, many of the guys who we have trained for insurance business to become the POSP, definitely initially our challenge was convincing them to start the insurance business either in insurance business altogether for the first time or with us, because historically we have been known for the mutual fund business, so majority of those guys who are converted to the POSP many of them don’t have the experience of dealing in insurance in past, we actually have convinced them about the benefit of the cross-selling and everything. So, over a period of time, yes, I think we are able to convince them, we are able to guide them how to do the insurance business and their productivity also increases.

Second point, there was some — I would say, since we are mainly on the mutual fund side, those who were already dealing somewhere with the insurance business, probably for them, I think, the proven track record of Prudent or Gennext was required, but are you in a position to deliver the similar kind of services on the insurance side also or not. Now, I would say that with the decent volume, we have got a track record of around two, three years.

Now they’ve experience, they’ve experienced the service standard of their colleagues also. So, yeah, I think we don’t see a challenge in improving the productivity, but, yes, we would love to see their complete potential come out the way they are showing in the mutual fund. But, yeah, I think, as and when they are getting convinced for the insurance business, we are very, very sure that the productivity of many of those guys who’ve started insurance for the first time will improve a lot. But, I think, otherwise we don’t see any great movement or the change in that.

Swarnabha Mukherjee — B&K Securities — Analyst

Okay. And last one from my side. So among your top MFDs, if we look at the top 20% or 25% of your in MFDs, some color on how — what would be the amount of delinquencies or how many — what share you have seen historically who would have moved out from your top performing guys?

Shirish Patel — Chief Executive Officer and Whole-Time Director

So, today, we have already given you in the presentation that top 10 of our distributors contribute hardly 2.5% of our AUM and around top 50, if I take it, almost 8.5%, 9% of our total AUM which is contributed by these guys. Please understand obviously there could be some kind of leakage, but we have not seen the leakage on the guys who are already big. The reason being the majority of the top distributors who are already dealing — doing mutual fund business with us, they — their clients are on FundzBazar. So, practically, when their major — and majority of the distributors are on the retail side, we hardly have any distributors in the top segment with HNI focus. So majority of our distributors are retail focused and almost all of their businesses are happening through FundzBazar.

So, practically, we are saying that their 300, 400 clients are utilizing the FundzBazar services for the transactional purpose, for the view purpose, and for the multiple product transition and the portfolio evaluation purpose. Even if my distributor hypothetically thinks of moving out, it would not be easier for him to take that call in isolation, because he has to think about 300, 400 clients account opening somewhere else, how to move the transaction or how to move the portfolios of mutual fund to somewhere else. So it is not that easy for any distributor to move out even if he decides.

Second point, I would say that, this I’m saying if he decides, it would not be easy. But my point again would be that, why would he decide to move out. Now, as we spoke earlier also that we have got a very, very good tiered structure and that was balance, and then when the distributor becomes bigger and bigger, he gets the higher share of Prudent’s revenue. Obviously, he is not losing on the compensation side.

Second is, last three years, we’ve added many other products, even assuming that they are losing 2 basis points commission on the mutual fund product side, but they get to sell multiple products which otherwise they would not have the access to. So, obviously, they believe or they find that by doing the cross-selling to existing set of distributors their overall revenue has gone up.

Third, most important part I would say that the kind of platform what we offer FundzBazar, I think probably they also believe that it is one of the best platform. So, obviously, they need not to invest on the technology side, so they need not to invest on the servicing of their client side, so obviously they also understand the cost saving aspect while dealing with Prudent.

So one aspect I covered is why would they move out — why they would not like to move out and second even if they decide to move out, it would not be that easy for them. So, yeah.

Swarnabha Mukherjee — B&K Securities — Analyst

Yes. Got it, sir. Very helpful. Thank you so much, and all the best.

Shirish Patel — Chief Executive Officer and Whole-Time Director

Thanks.

Operator

Thank you. Our next question is from the line of Prayesh Jain from Motilal Oswal. Please go ahead.

Prayesh Jain — Motilal Oswal — Analyst

Yeah, hi, sir congratulations on a good set of numbers. Just [Indecipherable] firstly if I look at your growth in supply[Indecipherable] strong in December last year to this year. While in our last year base will also have that we in December right, but your growth in the book is higher than growth indoor overall equity AUM. So is it that we have been able to extract most sets out-of-the Karvy and what more can be really drive? The increased growth from there. that was my first question.

Sanjay Shah — Chairman and Managing Director

Yeah, Shirish.

Shirish Patel — Chief Executive Officer and Whole-Time Director

Basically, if you look at our [Technical Issues] basically if you look at our SIP book as of last year, last year Karvy acquisition would have added around INR30 crores to INR33 crores of SIP book in March ’22 number around INR30 crores plus kind of INR32 crore, INR33 crore kind of SIP book came from Karvy. So if I exclude that number, last year, probably we added the SIP book of almost INR100 plus crores. This year also, I think, as Sanjay bhai said that we’ll be ending close to INR500 crores plus in this financial year. Obviously, we are hoping to get another INR100 crores of addition in this financial year as well from the SIP book.

So, practically, when we talk about INR500 crores or INR510 crores of SIP book by March ’23, the incremental compared to March ’22 could also be around INR100 crores. Last year also it was around INR100 crores.

One point I would like to highlight here is, definitely, I would say the termination ratio of Prudent is much, much lower compared to the industry and that actually is helping us to increase our net SIP book. We said that the AUM growth percentage is not there. I would say the mark-to-market gain, I think, in the last one year is reasonably okay, reasonably subdued. I would say that is the reason the AUM growth was not there, but otherwise in terms of net sales growth, I think, we are almost on par with what we anticipated.

Prayesh Jain — Motilal Oswal — Analyst

Okay. And, secondly, on the commission split out through your distributors has gone up sequentially in this quarter, anything to read into it?

Shirish Patel — Chief Executive Officer and Whole-Time Director

No, I think, we sequentially — so probably you should not look at sequential data, because quarter-on-quarter, we might see some amount of movement in the numbers. We might see about — there is 1% of variation between last quarter to this quarter, mainly because as — see, we have a tiers, we move over partners from one category to another category. And when we move from — then from, let’s say, somebody has moved from, let’s say, silver to bronze or silver to, let’s say, gold and for that linked to that there is some payout which we do as an incentive for moving to another category, which happens once in a year. And that cost was there in the month of October, November, December, which is not there in previous quarter and that’s the reason that cost is about some INR50 lakh, INR60 lakh, which was there in last year also. So if you look at on a nine-month basis, you’ll not see the impact. But on a quarter-on-quarter basis, you might see there some impact. So probably you should look at already nine months number for the purpose of better comparison.

Prayesh Jain — Motilal Oswal — Analyst

Okay, great. The next question was on how are the kind of commission payouts coming on NFOs vis-a-vis what we had seen, say, six months back or a year back when the payouts has really gone up. And so how are the NFOs commissions trending right now?

Sanjay Shah — Chairman and Managing Director

Shirish? Yeah, Shirish.

Operator

Sir, may I request to unmute your line, please. The line for Shirish sir has dropped. Please stay connected while the rejoin him.

Sanjay Shah — Chairman and Managing Director

Okay. So, normally, if you look at probably NFO has been not that significant contributor to the business. However, for the — say, if you look at from the point of B2B, in case of NFO, the payout from the AMC side is normally higher than what they normally give as a brokerage and our sharing is also normally a little bit higher than the regular business. So there might be one or two basis point margin pressure when it comes to NFO. However, NFOs will not be that significant amount, because I think Shirish would be giving more about the exact number of mobilizations through NFO, but NFO may not be a significant part of our mobilization. And, overall, there was a significant rush at the beginning of the year in the NFO, but however it has now tapered down. So, the NFO collection is often very, very significantly larger.

Prayesh Jain — Motilal Oswal — Analyst

Okay. Okay. Okay. And, sir, my last question [Speech Overlap]

Operator

We have Shirish sir’s line reconnected to the call.

Prayesh Jain — Motilal Oswal — Analyst

Got it.

Sanjay Shah — Chairman and Managing Director

Shirish, do you want to share anything on the NFO situation?

Shirish Patel — Chief Executive Officer and Whole-Time Director

My line was disconnected, so I don’t know, but ultimately, I’m assuming that it was margin pressure due to the NFOs?

Prayesh Jain — Motilal Oswal — Analyst

So, Shirish, my question was —

Operator

Sir, sorry to interrupt you, your voice is not coming clear. Participants stay connected while we rejoin Shirish sir back to the call.

Sanjay Shah — Chairman and Managing Director

Yes.

Prayesh Jain — Motilal Oswal — Analyst

Sir, in the meantime, could you also throw some light on how are you seeing the redemptions coming through? Yeah, obviously, your AUM has gone up and your monthly revenues, but is there a pressure on I mean coming through in certain segments, of late very recently– like last couple of months, there’s been some increasing redemptions overall?

Sanjay Shah — Chairman and Managing Director

So, probably, if you look at industry as a whole and for Prudent also, I think, the last quarter has been a little bit tepid on the net flows and even the lumpsum money has also been reasonably slower than it used to be. So I don’t want to read anything for this one quarter changing the number. Overall retail sentiment is — so probably I may not be able to say anything on the category — categorization of what particular segment of the customer, because we broadly represent pure retail.

So if you look at on the net flow, I think the net flow is a bit lower. So, I think, redemption is almost about 55% to 60% for us for the last quarter. Industry is in the range of 75% to 80%, so gross profit redemption ratio. So that way we’re reasonably better.

If you look at my gross flow, gross flow has come down somewhat, but my SIP is helping us significantly, because as I told you in the presentation itself, every second rupee which came in gross flows came through SIP and that gives us strong visibility of inflow. So, you are right. I think, last quarter has been reasonably somewhat tepid as far as net flows are concerned, but I think — I feel comfortable when the retail investors redeem at the high end of the market rather than redeeming in the lower end of the market. So, that’s okay.

Operator

Thank you. Prayesh, I request you to come back in the queue. Participants, please restrict to two questions per participant. If time permits, please come back in the question queue for a follow-up question. The next question is from the line of Nidhesh Jain from Investec Capital. Please go ahead.

Nidhesh Jain — Investec Capital — Analyst

Hi. Thanks for the opportunity, sir. Can you talk about market share trends in terms of net flows, net equity flows and net — gross equity flows?

Sanjay Shah — Chairman and Managing Director

So I think both are consistently — I think, we are able to maintain our market share in spite of there being a lot of noise on the — what we call the indirect side. So, overall, if you look at, I think, on the gross sales side, Prudent market share is almost about 3.4% and similar is the story as far as SIP would be concerned. So these are the few important numbers from the point of view of participation in the SIP book and participation in the gross flows, both are significantly steady.

Nidhesh Jain — Investec Capital — Analyst

Okay. Thank you. And secondly, sir, if we think from a longer-term perspective, around five years, six years out, the trend towards direct mutual fund should continue to go up in INR — in our view. And as time progresses, the difference between regular plan and direct plan will become larger and larger because of the compounding effect. So how are we preparing? First of all, do you agree with this view? And how are — if it’s yes, how are we preparing ourselves to — for that eventuality?

Sanjay Shah — Chairman and Managing Director

So I think there is a scope for direct to grow. There is a scope for the active management also to grow significantly. There is scope for distribution also to grow significantly, because the industry itself is likely to move significantly in next one decade. So, I believe, everybody will participate in this growth story. Definitely, direct is a segment which is DIY kind of a segment or the segment which has been advised by the RIAs and they are charging fees to the customer.

So probably people look at the difference in cost structure of direct versus regular plan without taking into consideration the, probably, behavioral costs which investors paying because of DIY or the RIA fees which they pay to the Registered Investment Advisor. So if you take that into consideration, today I believe that India is not into that kind of expensive train as far as distributors distribution cost is concerned.

But all said and done, what I just wanted to communicate is that, we are definitely not a part of direct. Even if that segment will grow, we will not be able to address that. However, I — we very, very strongly believe that there is a need for advisor and advisory segment will grow significantly as far as India’s retail wealth management story is concerned. And within that, probably, MFD has to align with some platform. There also we are going to play a very huge role.

Nidhesh Jain — Investec Capital — Analyst

But internal advisory, you continue to have a model of manufacturer paid — led advisory, not a customer paid advisory, where customer pay for the above?

Sanjay Shah — Chairman and Managing Director

So the only issue, because they understand. We have 15 lakh customers with a INR56,000 crore of AUM. So average customer AUM is about INR4 lakh, right. So it’s very difficult. You cannot collect fees from 15 lakh people. You might collect fees from 2,000, 3,000 families easily, but you cannot collect from 15 lakh. So there is no very standardized, what you call, the fee collection mechanisms set in the industry. If that happens, then probably we might give a thought. Otherwise, in the current context, you can’t go and collect the fees from 15,000 — 15 lakh people.

Nidhesh Jain — Investec Capital — Analyst

Sure, sir. Understood. Thank you, sir. Thank you. That’s it from my side.

Operator

Thank you. Next question is from the line of Abhijeet from Kotak Securities. Please go ahead.

Abhijeet — Kotak Securities — Analyst

Hi. Good afternoon, sir. Sir, first one is a data question. What is the share of B-30 security assets in the AUM?

Sanjay Shah — Chairman and Managing Director

So B-30 would be close to about 25%, 22% to 23% probably. And industry is about 29%, right. So, last data — Shirish, any idea?

Shirish Patel — Chief Executive Officer and Whole-Time Director

So industry was around 23% and Prudent was around 19%.

Sanjay Shah — Chairman and Managing Director

Okay.

Abhijeet — Kotak Securities — Analyst

Sorry, Prudent is at what level, sir?

Shirish Patel — Chief Executive Officer and Whole-Time Director

Around 19%.

Abhijeet — Kotak Securities — Analyst

19%. Okay, got it. Sir, second one is that, when you onboard MFDs, is there a rework of commission payouts with mutual funds?

Sanjay Shah — Chairman and Managing Director

Shirish?

Shirish Patel — Chief Executive Officer and Whole-Time Director

Pardon, when we onboard the mutual fund distributors what?

Abhijeet — Kotak Securities — Analyst

The prevailing payout ratios with mutual funds, is there a — is there any tweaking of that which happens when MFDs join your platform or that remains intact?

Shirish Patel — Chief Executive Officer and Whole-Time Director

No, no. Our negotiations with [Technical Issues]

Operator

Sir, sorry to interpret you, once again your voice is not coming clear.

Shirish Patel — Chief Executive Officer and Whole-Time Director

[Technical Issues]

Sanjay Shah — Chairman and Managing Director

So there are — let me just address this. There are two-part of the question. One is, let’s say, when certain MFD joined us, that will not help. So what Shirish is trying to say is that our negotiation with AMC would be on the — our strength, our reach and our — what we call the distribution network, right. That is what we negotiate with them separately. So somebody joining our platform will not have a significant change.

Another thing is, when somebody merge his assets with us on that particular assets when he is merging, at that point of time, we share everything to him, because he has already created assets on his own efforts. So say, for example, tomorrow somebody comes with INR5 crore and he wanted to merge his assets with Prudent, what Prudent gets is there is a defined rule in the MCV space that the my trail rate or the incoming distributors trail rate, whichever is lower would be given to me and whatever I’ll receive will give it to him, because that’s the asset which he is already spent time and energy for acquiring. Then after his share will be or his rate would be applicable based on my prevailing rate as for the structure.

Abhijeet — Kotak Securities — Analyst

Okay. Understood. Got it, sir. Thanks a lot.

Operator

Thank you. The next question is from the line of Nilesh from Bank of India Mutual Funds. Please go ahead.

Nilesh — Bank of India Mutual Funds — Analyst

Yes. Hi. Good afternoon, and thanks for the opportunity. Sir, I had some clarification which I wanted. It’s on Slide 37, when I see the net sales for the quarter, it says that INR780 crore is the net sales for that particular quarter, but in the next slide when I see the gross equity SIP flows, which comes out to be INR1,411 crores, so the difference is the redemption during the particular quarter?

Sanjay Shah — Chairman and Managing Director

Yes. You are true. Absolutely. Yes.

Nilesh — Bank of India Mutual Funds — Analyst

Sir, second question…

Sanjay Shah — Chairman and Managing Director

So, last quarter, if you look at overall there was 70% of the redemption. So if you look at the INR780 crore of net sales and when I’m saying you that INR1,411 crore came by way of SIP, which was 51% of my gross flows. So gross flow must be INR2,800 crores and net flow is INR780 crores, so INR780 crores divided by INR2,400 crores, that’s the redemption.

Nilesh — Bank of India Mutual Funds — Analyst

Got it. Sir, my first question was broadly on the industry part, say, there’s a lot of data which is coming out on SIP being closed, just wanted to understand what trend are we observing at Prudent?

Sanjay Shah — Chairman and Managing Director

Shirish, do you want to address?

Shirish Patel — Chief Executive Officer and Whole-Time Director

Historically, we have been following the similar trend for the industry we have which are a better number. We have seen that some kinds of terminations have increased in the last [Technical Issues]

Nilesh — Bank of India Mutual Funds — Analyst

Sorry, sir, your volume — voice is not clear, I’m unable to listen to you.

Shirish Patel — Chief Executive Officer and Whole-Time Director

Yes. I think there is some network issue where I am right now. Hello? Will that be fixed? Hello? Hello?

Operator

Sir, no, sir. The voice is still breaking.

Shirish Patel — Chief Executive Officer and Whole-Time Director

Okay.

Sanjay Shah — Chairman and Managing Director

Okay, so I’ll just address Shirish. Okay, so what he is trying to say is that at the end-of-the day, we are also part of the industry. So overall, within the industry, our discontinuation rate would be much, much lower than the industry. But overall, if you look at the new SIP to the discontinuation rate, so it has definitely gone up. So if I bringing one SIP. I think the closure is about — or the other way around, I’ll tell you that, if there is one discontinuation. We bring in two SIPs. That number will be better in the previous quarters.

Nilesh — Bank of India Mutual Funds — Analyst

Okay, got it. So broadly from this point itself can we are able to understand going ahead your run machine, which is adding the more and more MFDs will have to grow at a much higher sales, so that’s closing of the SIPs, etc, should be taken care of. So this 5,000 number of annual addition, can we see a upgrade on that number considering SIP closure, etc, have started to inch up in last few months?

Sanjay Shah — Chairman and Managing Director

So in spite of there being a closer as we discussed about that, we grew our SIP move by almost 29% year-on-year, which itself is a very, very healthy growth rate and we believe that the — if you look at couple of slides, the people who has joined our platform in last two years, there are almost 50% distributors who have joined our platform. So definitely if you look at the key parameters of our growth drivers, adding more and more mutual fund distributors is a part of our growth drivers and bringing more and more SIPs from them. So there is no dispute about that. But, I believe — say, these are the cyclicality of the business. You can’t say that because three months has gone, some amount of redemption came in, so there will be a change in the trend. I believe, the SIP book is going to be very, very healthy in the next three to five years and my view is — personal view is that today industry is mobilizing INR13,000 crore a month, you will see that number going to INR25,000 crore in next three to four years. So, I think, the growth rate will be very, very healthy. Within that, some amount of hiccup would come, but definitely we will continue to focus on adding more and more distributors and educating and encouraging them to do a maximum business through SIP, which is a very, very — because that would be a significant growth driver for us.

Nilesh — Bank of India Mutual Funds — Analyst

Okay. Sir, one follow-up on this. Last question from my side. So broadly, say, today we have X number of MFDs with us. And so, out of which how many would be active? And the number of MFDs which would have added in the last one year, say one year before, say in FY ’22, say in nine months FY ’23, how many of those would be active, sir?

Sanjay Shah — Chairman and Managing Director

So basically if I give you that [Technical Issues] run rate we add almost 60% to 70% of them becomes X series. So our active destination may vary every time. So, for us, I think how we track our numbers, how we track our numbers, how many unique distributors have participated in particular month. So, on an average, if you see depending on the month, our number varies between 40% to 50%. That means if today we have got hypothetically 25,000 distributors and 10,000 distributors are active, they have contributed a new business in this particular month, that means 40% distributors are active in this particular month. So, practically, this number on the long-term average if you see, I think, varies between 40% to 50%, so this 25,000 number becoming 35,000 number, obviously, our number of distributors participating in the business in any month will increase. So — but otherwise unique how many of the new recruits we are able to active, I think, I would say around 60% to 70% of the recruitment becomes activated.

Nilesh — Bank of India Mutual Funds — Analyst

So considering this trend, say, from a long-term perspective, say, from a two to three-year perspective, can I say our retentions can actually increase considering we have tier based payout policy, where the smaller contributor would be shared less amount. So over, say, two to three years, is there a scope for improving the retention ratios?

Sanjay Shah — Chairman and Managing Director

So retention ratios are good today also. So — and definitely with added products as and when more and more distributors start distributing multiple products with us, automatically retention ratio improves. Second, I would say that, as you said, that tiered structure, obviously the person becomes bigger, his bigger share — the revenue also increases, but there also the retention ratio increases. Yes. I think you can say that with increased engagement with Prudent, with our distributors, the retention ratio improves.

Nilesh — Bank of India Mutual Funds — Analyst

Okay, got it. Yes, thank you so much for replying to the questions.

Operator

Thank you, [Operator Instructions]. The next question is from the line of Saptarshee Chatterjee from Centrum Portfolio Management Service. Please go ahead.

Saptarshee Chatterjee — Centrum Portfolio Management Service — Analyst

Good afternoon, sir. Thank you for the opportunity. My question is again on the MFD side that if you see quarter-on-quarter, there has been some reduction in MFDs. So can you please throw some light in terms of which bucket we are seeing attrition or what is — what explains this attrition, because I would have expected that MFD number should have been growing every quarter?

Sanjay Shah — Chairman and Managing Director

Yes. Shirish can address, but before that I’ll just tell you one thing that in last quarter some 928 ARN holders number would have been reduced, mainly because they have not renewed their ARN with AMC. And normally after the deadline, let’s say, 31st March was the deadline, and we give them six months’ time for them to renew their ARN. So after September, about 928 to 930 people has been terminated from the system and they will again be reactivated once they renew their ARN. So that could be one reason, otherwise we added about 3,400 people in these nine months. So that is — if you look at only number to number, you might see lower addition, otherwise we added 3,500. So, now, Shirish can take it further. Shirish?

Shirish Patel — Chief Executive Officer and Whole-Time Director

Yes, So, on the incremental side, definitely our market share in terms of new recruits is much, much higher. Sanjay bhai initially said that currently around 20% of the ARN holders are registered with Prudent. But every month or every year, the new addition to the industry, I think that has shaped — definitely would be much, much higher. Two reasons for us, I would say that we actively go out in the industry or the market. I would say, we convince people to start the career in the mutual fund distribution. So those who are currently not in the industry, we can either — we can convince them or we get them into our fold. So that is the addition, because of that our ratio is better.

Second is the existing mutual fund distributors who are already dealing in the — with the AMCs directly, that is also our market. We go, tell them about our offering and obviously because of our offering and everything, they also join us. So how many new ARN holders the industry would recruit, I think, frankly speaking, we don’t look at that number. We always try to set our numbers and we follow that numbers in terms of addition. Irrespective whether the industry would be negative or positive on these parameters, we always believe that we would be positive, we will be — we will keep on adding the new ARN holders in the Prudent’s equity.

To just give you the one potential numbers, I would say, currently in the mutual fund industry, hardly 1.1 lakh, 1.2 lakh ARN holders are there, wherein in the insurance invested 23 lakh agents are there. So, I think, if you simply look at those who are selling insurance products, actually even 50% of those guys start selling mutual funds, then obviously I think the potential market could be around 5 lakhs, 10 lakhs distributors. Even AMC, they also set a huge number focusing MFD Kare Shuru campaign. So we also believe that because of this AMC’s initiative of new MFDs recruitment, I think we’ll be one of the biggest beneficiaries of that as well. So, again, coming to this point, whether the industry adds the number or reduces the number, I think we are very, very sure that our distributor numbers will keep on increasing every month.

Saptarshee Chatterjee — Centrum Portfolio Management Service — Analyst

Understood. Thank you. And, secondly, in terms of our state wise distribution, if you can give some exposure towards which are like top three, four states for us and what would be their contribution in the AUM?

Shirish Patel — Chief Executive Officer and Whole-Time Director

So Maharashtra is the number one contributor for us and followed by Gujarat. If we add only these two particular states, our market share would be around 70%, 72%. So these are the two main contributors. The main reason because we only netted from this side. The — Gujarat, we’ve originated and Maharashtra was the second state where we’ve expanded. And that is what I think we would like to highlight the potential about this particular business. Many of the states we have just opened. I would say, I think before few months only we’ve expanded our footprint in those states. So, yeah, 70% of our market share come from Gujarat and Maharashtra followed by North and East. South still, I think, we are growing.

Saptarshee Chatterjee — Centrum Portfolio Management Service — Analyst

So 70% of the AUM mix you are saying is coming from Maharashtra and Gujarat, right?

Shirish Patel — Chief Executive Officer and Whole-Time Director

Yes.

Saptarshee Chatterjee — Centrum Portfolio Management Service — Analyst

Okay. And, thirdly, last question is, basically if you can give some understanding in terms of your customer base or your mutual fund distributor base, if you can give some number of data points in terms of traffic in your digital platforms, like the policy platform or FundzBazar, how or what percentage of clients are using your digital platform and what percentage of mutual fund distributors are using your digital spectrum, so that you can give a fair bit of understanding on the usage of your digital platform?

Shirish Patel — Chief Executive Officer and Whole-Time Director

So out of our mutual fund transactions [Technical Issues] 78% of our transactions are happening through the FundzBazar, that is our mutual fund platform. We have got two platforms. One definitely for the mutual fund transactions from the customer’s point of view and, second, for the distributor, we have there a separate log in. I would say that more than 90% of our distributors are using our digital platforms. So, obviously, I think that is where, I would say, the biggest USP of Prudent and that is where the association with Prudent continues. As we said that 78% of the transactions are on FundzBazar, remaining 22 also I would say that is keep on growing, so the number every month, I would say, that is inching up slowly and gradually. So adoption of technology, specifically post-COVID, has become very, very fast. Insurance side, yes, I think there are no dedicated portals wherein you can track or transact everything. Obviously, I think Policyworld is the platform wherein you can transact [Technical Issues]. Yes. So Policyworld is a platform wherein you can transact the insurance product, wherein we have not activated all set of insurance products, but — there, yes, the execution happens on Policyworld. Chirag, if you can give the exact percentage number, I think, to Policyworld that would be better.

Chirag Kothari — Chief Financial Officer

Yes. Percentage of total online transactions would be around — if you look at the number of policies, it could be around 25% of the total. So main reasons are the two — main two reasons are that we keep on adding integration with various company. Also, the — at the moment, lot of health insurance companies are undergoing the version change. So even if your client wants to do their online business, they have to go through insurer portal. But, currently, you can say 25% NOP, fresh NOP that are being sold through our portal.

Saptarshee Chatterjee — Centrum Portfolio Management Service — Analyst

Understood. This is very helpful. Just one last question, if I can squeeze in is, your AMC count has come down from 44 to 42, what would be the reason for that?

Shirish Patel — Chief Executive Officer and Whole-Time Director

Merger of AMCs, L&T has got merged with HSBC.

Saptarshee Chatterjee — Centrum Portfolio Management Service — Analyst

Understood

Shirish Patel — Chief Executive Officer and Whole-Time Director

So it’s a merger. No other reason.

Saptarshee Chatterjee — Centrum Portfolio Management Service — Analyst

Understood. Thank you. Thank you so much and all the best.

Operator

Thank you. Next question is from the line of Shubham Bhatia from Shubham Investments. Please go-ahead.

Shubham Bhatia — Shubham Investments — Analyst

Hi. First of all, congratulations on crossing the benchmark of INR56,000 crores of AUM. And my question was regarding the mutual funds distributors, which we’re adding and which we’ve added. So what percentage of that will be moving new distributors which have just empanelled with AMC as compared to the distributors which are transferring the existing AUM with Prudent?

Sanjay Shah — Chairman and Managing Director

Shirish? I haven’t understood the question exactly. You wanted to say that if there is a growth in AUM, what — how much is the growth because of acquiring or somebody is joining the Prudent platform, what is the organic growth of regular businesses they’re bringing in? That’s the question?

Shubham Bhatia — Shubham Investments — Analyst

Right. Yes. Yes. In terms of mutual fund distributors, so how many were already distributing…

Operator

Shubham, sorry to interrupt you.

Shubham Bhatia — Shubham Investments — Analyst

[Speech Overlap] that have empanelled with Prudent as compared to newer standards, which are the first-time distributors?

Shirish Patel — Chief Executive Officer and Whole-Time Director

Unable to understand the question exactly.

Sanjay Shah — Chairman and Managing Director

I have not understood the question.

Operator

Hello, Shubham, can we have [Technical Issues]

Shubham Bhatia — Shubham Investments — Analyst

Yes. So I was asking…

Operator

Hello Shubham. May I request you to speak to the handset, please.

Shubham Bhatia — Shubham Investments — Analyst

Sure. Hi. Am I audible now?

Operator

Yes, Thank you.

Sanjay Shah — Chairman and Managing Director

Yes. Better.

Shubham Bhatia — Shubham Investments — Analyst

So, let’s say, if we empanel a mutual fund distributor and let’s say if we empanel 10 mutual fund distributors, out of them how many were already distributing mutual funds, but have now empanelled with Prudent and have transferred their AUM versus how many people are the first-time mutual fund distributors, which — whose first-time distribution is through Prudent. So if you could clarify on that number?

Shirish Patel — Chief Executive Officer and Whole-Time Director

Yes. So…

Sanjay Shah — Chairman and Managing Director

If we are adding around 5,000 distributors hypothetically in this financial year, I would say that that mix would be almost 50:50.

Shubham Bhatia — Shubham Investments — Analyst

Okay.

Sanjay Shah — Chairman and Managing Director

So 50% of the distributors we would be adding for the first time to the industry and 50% maybe from the existing distributors, either they are active or inactive in the industry. Second point you said that when the ARN holders get merged with Prudent, they transferred the AUM, hardly any of them transfers the AUM. A majority of them do the business with that. Merger becomes very, very rare. So they start doing new business, but not the merger. So if you are saying that when they come from the industry, automatically the AUM at Prudent would increase, the Prudent AUM doesn’t increase, because they’ll start contributing new business and don’t transfer the existing AUM to begin with.

Shubham Bhatia — Shubham Investments — Analyst

Okay. Got it. And the next question was, we have two portals, two verticals, one for real estate and one for loans as well, but I haven’t seen any robust contribution to the total revenue. So are we aggressive on those verticals or how are we planning to increase those verticals?

Sanjay Shah — Chairman and Managing Director

Basically, both of these products are very, very limited to few branches. So property right now we are doing only and only to Mumbai and Ahmedabad. The revenue contribution of this business is really very, very minuscule. Loans, we actually are trying to establish the business. I think, last one and one and a half years we started creating this Creditbasket portal. We are just experimenting on the beta version only in the Mumbai market to begin with. I think once we believe that now we can take it forward to other cities, obviously we will take it. But, currently, I think there is no substantial plan to make it big on an immediate basis.

Operator

Thank you. Shubham, I will request you to come back in the question queue for a follow-up question. A request to all the participants, please restrict to two questions per participant. Next question is from the line of Dipanjan Ghosh from Citi. Please go ahead.

Dipanjan Ghosh — Citi — Analyst

Hi. Good afternoon. Just two questions. First is on your insurance business. If you can share what proportion of policies have a renewal revenue attached to it? The second question from my side is, with this industry, with the distribution industry from the mutual fund side gradually consolidating and you mentioned that your market share in incremental IFAs additions or net additions for the industry is higher than 20%. So more from a medium to long-term perspective, how does the yield negotiation with the AMCs really swing? Is the balance shifting towards the larger distributors as a whole? Those are my two questions.

Sanjay Shah — Chairman and Managing Director

So talking about the yield negotiations and incrementally more and more distributors joining Prudent, I don’t see there is just great scope available with the AMCs to offer more. So, I would say, on the mutual fund side, the current yield what we are enjoying or the current percentage sharing of the tier what we are enjoying, probably we believe that this is the peak. So I don’t see that any major improvement or any improvement on the yield side. So that is the yield. Your first question, I — actually I missed your first question. If you can repeat, please?

Dipanjan Ghosh — Citi — Analyst

Yes. The first question is, on your POSP business, what proportion of the book or incremental policies has a renewal revenue? I mean, I understand that health insurance and some of the segments will have a renewal revenue attached to it, so what proportion of the book has a renewal revenue attached to it? And, in that case, is the renewal pass through to your POSP agent decided upfront or is it renewed on a yearly or on a frequency basis?

Sanjay Shah — Chairman and Managing Director

Yes. So our average revenue contribution between health and life, if you consider this way, almost 30% of our revenue comes from the health and 70% of the revenue comes from life. Both the products have got their renewal, but yes, as you said that, health product would have a higher renewal sharing, renewal margin compared to the life insurance business. Our persistency is very, very high in the — compared to the industry standard. If you just ask that, I think, do we actually share the renewal also to the POSP? Yes, we do share the renewal portion also to the POSP and there are two portals in the industry which we have seen that many of the brokers only share higher upfront and lower renewal. I think, we have tried to purposefully keep the reasonable sharing on the first year as well as on the renewal side, because we believe that if we keep on sharing the renewal to the POSP, their intention or their consistency in bringing the renewal would be much, much higher and that is visible in our persistency. So to give you the answer, yes, we do share the revenue on the renewal as well.

Dipanjan Ghosh — Citi — Analyst

Sure. Sir, my question was more on — so, let’s say, on health — retail health products, let’s say it comes in for the next 20, 25 years, so the renewal commission paid through — I mean, passed through between the manufacturer to Prudent and then to the MFD, is that decided today at the time of policy origination or is it decided, let’s say, every year as and when the rates are renegotiated with the manufacturer also?

Sanjay Shah — Chairman and Managing Director

Majority of the component is pre-decided. Some part of the component is also dependent on the year-to-year negotiation, but, yes, majority on the health insurance are decided day one.

Dipanjan Ghosh — Citi — Analyst

Got it, sir. Thank you, and all the best.

Operator

Thank you. Next question is from the line of Sameeksha from Sameeksha Capital. Please go head.

Sameeksha — Sameeksha Capital — Analyst

Yes. Thank you for giving this opportunity. Congratulations for a good set of numbers.

Operator

Again, sorry to interrupt you. Can I request you to speak through the handset?

Sameeksha — Sameeksha Capital — Analyst

Yes, sure. Am I audible now?

Operator

Sir, there’s a lot of echo from the background.

Sameeksha — Sameeksha Capital — Analyst

Hello. Now, is it fine?

Operator

We can hear you, sir, but there’s lot of echo from the background.

Sameeksha — Sameeksha Capital — Analyst

Okay. Is it better now?

Operator

May I request you to rejoin the queue, please.

Sameeksha — Sameeksha Capital — Analyst

Yes, sure.

Operator

Yes, sir. May I request you to rejoin the queue, please. Thank you. Next question is from the line of Sahej Mittal from HDFC Securities. Please go ahead.

Sahej Mittal — HDFC Securities — Analyst

Yes. Hi. Am I audible?

Operator

Yes sir, you are.

Sahej Mittal — HDFC Securities — Analyst

Hi. Good afternoon. So, firstly, so what is the risk of our IFAs moving to some of the larger distributors like NJs of the world given that they are offering higher commissions, so what drives the stickiness of these IFAs to Prudent? That is one. And so, I mean, I do understand that the existing IFAs maybe somehow will stick to Prudent, but what is the additional incentive for the new IFA to come to a Prudent and not to go to a NJ, maybe? Yeah. That is the first question.

Sanjay Shah — Chairman and Managing Director

So, both are good platforms. So, obviously, for a new distributor, I’m sure, I think both of us would be picking in and almost similar kind of number would be going to their platform, our platform. The biggest point, I would say, what we offer is the multi-product. Compared to our competition, our product basket is better. Second point, I would say that the kind of technology offering and the kind of features what we offer to our distributors, we believe that currently our features and the technology superior to our competition. In terms of footprint, commission, sharing and everything, almost we’re similar. So obviously we both always tried to compete in terms of adding more and more features, more and more product, making our processes simpler and better, trying to provide the best of the services. So, yeah, I think we do approach all the distributors. I think many of them would be joining us, many of them would be joining our competition. So, yes, I think competition also equally good.

Sahej Mittal — HDFC Securities — Analyst

Right. I mean, so product — expanding your product basket is something, which in…

Sanjay Shah — Chairman and Managing Director

As I’ve said, product basket and the technology, I think these two points I believe that I think we are superior to them. Footprints and everything now, it’s almost at par. I think before three years, yes, you can say that their footprint was much, much higher than Prudent’s footprint. But last three years, after our expansion, what we did every year, number of branches, number of sales manpower as of now on these two parameters almost we’re similar. One parameter we — still they’re bigger in terms of number of MFDs working with them, because they came in the industry before — I think seven, eight years before than us in terms of B2B business. Because of that advantage, number of distributors currently they are dealing are a little higher than Prudent, but there — on that parameter also, we are catching up very, very fast.

Sahej Mittal — HDFC Securities — Analyst

Right. And on Slide 27, where you have shared your SIP book, SIP flow breakup, can you also give us the vintage of these books across age cohorts, across customer age cohorts? And what percentage of your…

Sanjay Shah — Chairman and Managing Director

I think, on the — if you look at page number 27, I think on the age also we have given you that — so you can able to see here also the period, otherwise age wise, we have said — is about sweet spot for SIPs — about, say, 30% of the SIPs coming from those who are in the age bracket of 25 to 35 and that is something that’s — if you look at AUM, larger AUM is with people who are above 45 years of an age. So if you look at the total AUM, about 33% and more is with people who are above 45 years. And the SIP book is more with those who are in the age bracket of 25 to 35. So new money is coming from those who are going to invest for a long period of time. Otherwise, bulk of the assets is with those who are the closer to the withdrawal stage or the retirement age.

Sahej Mittal — HDFC Securities — Analyst

Right. So of these two age cohorts, 45 to 60 and more than 60, I mean, what proportion of these SIPs and equity do you foresee that will lapse or get matured in the next maybe five — two to five years?

Sanjay Shah — Chairman and Managing Director

So I can tell you, if you look at the SIP, today more than 50% of our SIP book is perpetual in nature and where there is a defined maturity given for the SIP, I think the average age itself is about 12 to 13 years. So, I think, the stoppage of SIP before the maturity something which is very difficult for you to predict, but I believe there is a significant amount of continuity which we can foresee. I don’t see any major reason for abruptly large number of SIP being closed.

Sahej Mittal — HDFC Securities — Analyst

What I’m trying to understand is that, if you’re — if the customer is already at the age of 65, I mean, the max he can contribute to your book is until maybe — until he turns 70 or 75 tops, right. Beyond that he will not be continuing with his SIPs, so from that point I’m trying to understand, given that 55% of our book is coming from customers who are more than 45 years of age, so in the next two to five years what proportion of this book do you anticipate will fade away?

Sanjay Shah — Chairman and Managing Director

So, I think, if you look at this — Yes, Shirish. Sahej, I just wanted to say that you can probably cover — so I’m just saying you the number of live SIP above 45 is about 30% and those who are above 60 years is only 6.5%. Number of live — forget about the amount, what is important is the number of SIPs, right. So number of SIPs of those who are above 60% — 60 years is about 6% of my book. So if you assume 20 lakh SIPs, there are 1 lakh SIPs of up more than 60 years old people, which may or may not continue for more than five, six years probably. Otherwise, rest all the SIP can be of — you can average age of about 7 to 10 years, you can easily assume, that’s my understanding. Because now SIP comes with a lot of comfort and that’s the basis of investing, so we don’t see any abrupt changing — abrupt changes in the investors’ behavior. Shirish, you can just cover that.

Shirish Patel — Chief Executive Officer and Whole-Time Director

It’s the same point that you already covered. I think those who are upper of 60-year, their contribution to our SIP book is 8.75%. Even if you assume that after certain age, once his income is not there, so if they stop renewing the SIP or they don’t continue the SIP, the maximum risk what you can look at is 8.75% of our SIP book.

Operator

Thank you. Sahej, I’ll request you to come back in the question queue for a follow-up. The next question is from the line of Varship Shah from Envision Capital. Please go ahead.

Varship Shah — Envision Capital — Analyst

Yes, sir. Thank you for taking my questions.

Sanjay Shah — Chairman and Managing Director

Varship bhai, hi.

Varship Shah — Envision Capital — Analyst

Have you seen any increasing investor interest or debt or fixed income products? Can that mix change going forward?

Sanjay Shah — Chairman and Managing Director

Shirish?

Shirish Patel — Chief Executive Officer and Whole-Time Director

So, incrementally, yes. I think the behavior of investors on the debt side, I would say, is volatile. When this — the returns on the debt side, they might come — sometimes they exist because of the bad experience like 2017-2018. I think, ours is a pure retail distribution model, wherein I think many of the clients are saving by view of SIPs and then when they do SIPs, mainly it is on equity, because they believe in the wealth creation. Even if you look at the breakup of the industry on the debt side, majority of the investors are non-individual or rather, I would say, institutional. And within individual also, the share of HNI or the ultra HNIs is much, much higher on the total debt segment. The retail investors, which — their net worth is — let us assume by average AUM is INR3 lakh, INR4 lakh, INR5 lakh. Their share on the debt side is very, very minimum on the industry side also. Because they believe there are so many other options are available.

If you exclude the tax arbitrage, I think that one thing which definitely date to mutual fund would address, retail investors are not looking at tax arbitrage in a big way and that is where we believe that the share of Prudent on the debt side might not become that significant. But I would say last three, four years many of the clients who are looking at the stable retails and not the volatility of the equity. The new category, I would say, that the balance advantage category or the dynamic equity category, that is becoming popular. I would say that is somewhere in between debt and equity. And we try to replace the debt component with these kinds of categories, the equity saving category or the balance advantage category. So you can say — and that is where you would have seen that this category has got the maximum flows in last three, four years. Incrementally, also, we believe that retail investors might go to these categories rather than the debt category.

Sanjay Shah — Chairman and Managing Director

Yes. I think, debt might remain as a short-term investment parking mechanism, but for the investment purpose thing they go to the best category on the debt component.

Varship Shah — Envision Capital — Analyst

Okay. Thank you. And my second question is, this growth in SIP book to INR478 crores, I think sometime back, maybe a year back, the average ticket size for investor was maybe INR2,600, INR2,700. So is this growth in SIP book happening by — currently in this quarter is maybe around INR3,200. Is it happened by increasing ticket size or we also have — like, live customer count is also increasing at the pace at which they increased before?

Sanjay Shah — Chairman and Managing Director

So, it’s a great question. I would say both ways. [Technical Issues] I would say last six, seven months data, for instance, efforts to increase the ticket size for — from the investor. Now, before few years the sales pitch used to be, I think you should have the SIP. Last, I would say that six, seven, eight months, we changed the tone, but it changed the self-language, that you should have the decent amount of SIP. So there was a phase, wherein we need to go to the customer and convince them to start the SIP. And after I think five, six years of good experience, now I think rightfully we can go ahead and ask them to increase their SIP’s value. I think, people used to start the SIP for any amount, now I think there is a good trend of starting the SIPs based on some kind of bold planning or something. So that is where we are seeing the improvement in the average ticket size as well and that still we believe that it’s a conscious effort that industry side as well and the Prudent side also we are focusing on that. And in addition to that, yes, I think because of the new addition of the SIPs or new addition of the clients as well.

Operator

Thank you. Varship, I will request you to come back in the question queue for a follow-up question. The next question is from the line of Arpit Shah from Stallion Asset. Please go ahead.

Arpit Shah — Stallion Asset — Analyst

Hello. Hello?

Sanjay Shah — Chairman and Managing Director

Yes, Arpit.

Arpit Shah — Stallion Asset — Analyst

Yes. Just I missed your net sales number, right, in — for FY ’23 and — hello?

Operator

Yes, Arpit. Go ahead.

Arpit Shah — Stallion Asset — Analyst

Yes. I missed your net sales guidance for FY ’23 and what is the number that you’re targeting for FY ’24 for net sales?

Sanjay Shah — Chairman and Managing Director

It’s a difficult question, because I think if you have heard any of our regular communications, historically, we have been saying that in the long run our observation is that our net sales are in line with our SIP sales. Depending on the market sentiment, there could be plus or minus. In some years, it will be higher than the SIP sales; and for few years, they could be lower than the SIP sales. But if I’ll take the 10-year average, it is in line of our — actually gross SIP sales plus/minus few percentages. If I look at this year YTD, we have done almost INR3,400 crores, INR3,500 crores of net sales. Our current run rate is around INR300 crores, INR350 crores, INR400 crores, because last two, three months we have seen there is a drop in the net sales. So, as of now, I think you can assume around INR300 crores if these kind of sentiments continue. INR300 crore is the current run rate roughly. So you can see around INR4,300 crores, INR4,400 crores kind of number.

Assuming there is some market corrections, some kind of people coming back to less redemption, this number can improve and that can reach to our guidance number in the beginning of the year was around INR3,000 crore. Next year, also, since we have added the SIP book and we still will continue, the long-term or the medium-term net sales number could be in the range of around our SIP book. So if my SIP book is hypothetically INR500 crores and you can assume our net sales could be around INR6,000 crores. But, as I said, in the short-term, it varies and that so many other parameters like sentiments in the market retail also play a very, very important thing.

Arpit Shah — Stallion Asset — Analyst

Got it. And any data where you might have gained market share in the SIP book?

Sanjay Shah — Chairman and Managing Director

So I would say two good parameters. I think, this again derived number based on the industry number. I would say that, historically, every year, we are trying to — rather I would say we are gaining the market from the net sales side also. So that means our redemptions are lesser than the industry. So if you compare last year’s net sales ratio in the industry or the net sales market share and this year also net sales market share, our number has improved. Similarly, on the SIP side also, on the book side, when we look at the book side, if our market share is growing, that is nothing but the indirect way of saying that our redemptions ratios are less compared to the industry. So, on the net book side also, we are growing our market share.

Operator

Thank you, Arpit. The next question is from the line of Aahan from Trivantage Capital. Please go ahead.

Aahan — Trivantage Capital — Analyst

Hello, good afternoon. Am I audible?

Operator

Yes.

Sanjay Shah — Chairman and Managing Director

Yes.

Shirish Patel — Chief Executive Officer and Whole-Time Director

Yes.

Aahan — Trivantage Capital — Analyst

Yes. I noticed that in — your cash flow from operation has been quite strong for the last three years and you have a very strong balance sheet. And you mentioned that around 70% of your AUM comes from Maharashtra and Gujarat, where you are very dominant. So I wanted to know if you have any plans for any acquisitions to expand your presence beyond these two states in the coming years?

Sanjay Shah — Chairman and Managing Director

So, actually, if you look at, today, we have 121 branches and as Shirish said that even though our significant market share comes from Gujarat and Maharashtra, currently we cover almost 21 states, and the entire length and breadth of the country has been covered by physical footprint. So probably we believe that — what Shirish was also trying to say that today in spite of we’re having the full-scale business in the country, 70% business comes from these two states. That means there is a huge potential for us to get the business from rest of the country and which we believe gradually there is a strong amount of traction, acceptance also and people are joining us also the platform, so the growth will come from those places also.

Aahan — Trivantage Capital — Analyst

Okay. Thank you. I just had one more question. I wanted to know if — since your balance sheet is so strong, if you had any plans in the coming years to return cash to shareholders, what your dividend policy was for the next two to three years if you have any plan for that?

Sanjay Shah — Chairman and Managing Director

So the significant cash which was generated by us has been fully utilized by us for acquiring the Karvy last year. I think, we continue to believe that industry will see some amount of strong consolidation and we would love to figure this case at least for one and a half, two years and would love to scout for the opportunity and something will definitely come on the way. If we are unable to utilize significantly this case in next two, three years, then that we’ll define — we’ll go to the Board for it, regarding the dividend policy or something like that.

Aahan — Trivantage Capital — Analyst

Okay, that’s very helpful. Thank you.

Operator

Thank you very much. I now hand the conference over to the management for closing comments.

Sanjay Shah — Chairman and Managing Director

Thank you very much. I think, we could be able to address all the questions. If you have any query, you can definitely reach out to Mr. Parth, who’s handling our investor relationships or otherwise you can reach out to Equirus also. They can — they would be ready to address all your queries. Thank you. Yes, Rohan. Go ahead.

Operator

[Operator Closing Remarks]