Operator: Ladies and gentlemen, good day, and welcome to Prudent Corporate Advisory Services Q2 FY27 Earning Conference Call hosted by 360 ONE Capital. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes.
Operator: Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Swarnab Mukherjee. Thank you, and over to you, Mr. Mukherjee.
Operator: Thanks, Siddharth. Good morning, everyone. Welcome to the Q2 FY27 results conference call of Prudent Corporate Advisory Services. To give a brief update on the results and address investor questions, we have the management of Prudent Corporate Advisory Services with us, represented by Mr. Sanjay Shah, Chairman and Managing Director, Mr. Shirish Patel, the Executive Officer, Mr. Chirag Shah, Non-Executive Director, Mr. Chirag Kothari, the Financial Officer, and Mr. Parth Parekh, Head-Investor Relations. Now I would like to request the management to start with opening comments. Post which, we can open the floor for Q&A. Thank you, and over to you, sir.
Sanjay Shah: Thank you, Swarnab. Good morning, everyone. I extend a very warm welcome to all of you for joining our Q2 FY27 earning call. Thank you for taking time to be with us today. I hope you have the investor presentation handy, as we will be referring to it during the course of our discussion. Now straight let us go to slide 49, which highlights our AUM growth for the quarter.
Sanjay Shah: If you look at on slide 49 on the right-hand side, we have shown the trend in quarterly average AUM. The sharpest part of market correction has came in last week of October, so after the September quarter has ended. As a result, quarterly AUM of Q2 FY27 remains strong at INR 1.43 lakh crore. This was up by 8% sequentially and 21% year-on-year.
Sanjay Shah: If you look at on the left-hand side, we have compared the average AUM for H1 FY27 with our current AUM. Historically, current AUM at this point in the year has been higher than the H1. This has usually provided a favorable base for growth in the H2. This year, sharp market correction has brought our current AUM at par with the, more or less at par with the closing AUM of INR 1.37 lakh crore.
Sanjay Shah: It is now slightly below our H1 of average of INR 1.38 lakh crore. Now let us move to slide 50. This shows the movement in our equity AUM on a year-on-year basis and on a quarter-on-quarter basis. Now let me begin with the year-on-year trend on the left-hand side.
Sanjay Shah: Equity AUM has increased from INR 1.17 lakh crore in September 2025 to INR 1.37 lakh crore in September 2026. This is a growth of 16.2% or nearly INR 19,100 crore. Around 80% of this growth came from late sales, supported by strong SIP flows. Despite the weak market environment, mark-to-market impact on our equity AUM was positive at +2.9%. Over the same period, Nifty 50 has declined by -8.1% and Nifty 500 has declined by -2.9%.
Sanjay Shah: Major reason of our outperformance is due to consistent SIP inflows, which help investors benefit from the market volatility, supported by thoughtful fund selection and portfolio construction by our distributors. Together, these factors reflect the distributors' alpha over the market by our network, which continues to deliver better for the investors. On the right-hand side, we saw the quarter-on-quarter movement.
Sanjay Shah: Despite a negative mark-to-market impact of INR 1,867 crore, our equity AUM grew by 1.7% sequentially. We recorded net sales of INR 4,137 crore in the quarter. This is the highest quarterly net sales in our history. Now please move to slide 51. It highlights our SIP performance. As of September 2026, our monthly SIP books stood at INR 1,272 crore, a growth of 17.2% over last one year.
Sanjay Shah: Our SIP collections are growing faster than the market. As a result, our share of SIP contribution has increased from 3.49% in September 2025 to 3.73% in September 2026. Our market share in equity-related AUM, excluding ETFs, has also improved. It rose from 2.59% to 2.7% over the same period. This reflects strong net sales and the distributors' alpha generated by our MFD. Now let us come to the most important part, which is the financial results.
Sanjay Shah: So let us move to slide 54. It presents our consolidated financials. On the quarterly average AUM, as I already told you, our quarterly AUM grew by 7.9% sequentially, and mutual fund revenue grew faster at 9.4%. This faster revenue growth was primarily due to one additional revenue day compared with the previous quarter. MF yield otherwise has remained very, very stable at 88 or 89 basis points during the quarter. Our insurance revenue grew by a strong 35% sequentially.
Sanjay Shah: This was supported by fresh premium growth of 54% in general insurance and 37% in life insurance. On a YOY basis, life and GI fresh premium were up by 45% and 62% respectively. Now moving to our other financial and non-financial products, the revenue of which has grew by 14% sequentially. This growth was primarily driven by our PMS vertical or distribution of PMS product.
Sanjay Shah: Average PMS AUM grew by 37% year on year, and now it stands around INR 2,020 crore. Given the strong performance across all our businesses, our revenue from operation grew by 11.8% sequentially. Operating profit also grew at a much faster pace of 15.4% sequentially on account of operating leverage and operating margin, which has been expanded by 80 basis points to 26.4%. Other income has declined during the quarter. Higher bond yield created a mark-to-market drag on the debt portfolio.
Sanjay Shah: The hybrid portfolio also saw a reversal of earlier mark-to-market gain. As a result, other income fell by around 82% sequentially from INR 20.8 crore in previous quarter to INR 3.8 crore in the current quarter. Because of that, our reported profit after tax was at INR 71.7 crore, which was down by 4.1% compared to the previous quarter.
Sanjay Shah: I would ask you to separate that from the operating performance because they tell very different story. If we set aside our other income, which is treasury line and not an operating one, profit before tax grew by 16% sequentially and 45% year on year. The operating business had its strongest quarter still. Taking the H1 as a whole, revenue from operation grew by 20% to INR 736 crore.
Sanjay Shah: Operating profit grew by 37.6% to INR 192 crore, with operating margin at 26.1% against 22.7% last year. So profit after tax for the H1 grew 39.1% to INR 146.5 crore. As we highlighted the last quarter, the MF regulatory changes which came in effect in April 2026 are prompting more distributor partner to join the Prudent platform that can support them with technology, compliance and operations. This is reflected in our onboarding numbers.
Sanjay Shah: We added around 3,541 new distributors on our platform in the H1. That is nearly 30% higher than the H1 of last year. We are also very strongly focused on scaling our SIF business. So far, 7,992 distributors across our MFD networks have obtained SIF certification, and our SIF AUM is nearly INR 900 crore. Now let me address one of the very important point, which is related to proposed regulatory changes in the institutional distributions.
Sanjay Shah: If you look at the current consultation paper, there's one change which I would like to just talk about, that regulatory is looking at entire industry from a two segment. One is the Independent Distribution Agents, which is IDA, and second is the Insurance Distribution Entity, which is IDE.
Sanjay Shah: All individual agents will fall under IDA, while every other category, whether it is corporate agent or insurance broker, they will fall under IDA and Prudent falls under IDE. Major change is related to commission as far as this segment is concerned. Under the proposal, individual agent will earn more than organized distributor like IDE. Let me just give you an example in health insurance renewal.
Sanjay Shah: Agent or IDA will earn 10% renewal commission, while IDE entities like Prudent will earn 5%. So IDE earn almost 50% less than the agent for exactly the same business. I believe industry has made a lot of representation on this, and we are getting the feedback that regulator is receptive to them. We have also sent our representation as well. What industry is asking is, at minimum, we should have a level playing field with the independent agents.
Sanjay Shah: We should be at par with them or somewhat higher. Let me explain why. At our end, we have invested significantly in claim support, technology and customer servicing, and we have large team working in this department. Whatever we earn, we need to share out of that earning with our POS team.
Sanjay Shah: I think we all can understand, right? If we do not earn, we cannot share. In the proposed format where we earn 5% and an individual agent earn 10%, it would be very difficult for us to sustain this business. That said, based on the discussions and the feedback we are getting from various association, we do definitely expect a workable middle path to emerge. Let me still address the impact.
Sanjay Shah: Assuming the regulation came through exactly as proposed, which we believe is very unlikely, the current contribution of insurance business to our profit is roughly about 12%. So that is something which probably might have the direct impact if the regulation come as it is. Now let us understand, even in this unlikely scenario, we see a potential offset and opportunity to accelerate our mutual fund business.
Sanjay Shah: If the proposal is implemented as drafted, it will affect the entire insurance distribution industry, including individual agents. With pressure on insurance income, many agents are likely to look for a second source of earnings. They can either grow their insurance volumes or add a complementary business. We believe mutual fund could become a significant part of that second income stream that create an opportunity for Prudent. Agents who want to enter mutual fund distribution will need training, technology and client servicing.
Sanjay Shah: Our Pan-India branch network, tech platform, and a team of around 700 sales employees give us the scale to support them. There is also an opportunity to raise our own productivity. Today, part of our management and the regional leadership team devotes their significant time for the insurance business. If that bandwidth is redeployed to mutual funds, it can definitely support the stronger execution, higher productivity in a business where we already have scale.
Sanjay Shah: Let me try and address another part, which is the recent regulatory changes by the regulator on the PMS front as a manufacturer. Post regulatory changes, we are in the process of applying for a PMS license. As you all are aware that we have 100% subsidiary called Prutech.
Sanjay Shah: We have just got the approval from ROC for change of name from Prutech to Prudent Asset Management Private Limited, and we are in the process of applying for the MF PMS license. The MF PMS framework is expected to become operational from April 2027. We believe we are well-placed to have required license by then. Our focus for now is on the MF PMS. We see two opportunity in this space.
Sanjay Shah: First, we can provide PMS manager with the technology and back office support they need. This would be similar to the backbone we have provided to mutual distributors. It would allow PMS managers to focus more on acquiring their clients. Second, there is an opportunity to serve HNI clients who want actively managed mutual fund portfolios. Our MF PMS offering can help address this niche.
Sanjay Shah: This is one part which I think we believe is going to be significantly large over a period of time. Second is, we also see an opportunity in the bonds. We already hold an OBPP license. Here, too, SEBI has issued a consultation paper on the clarity about the fixed income channel partner, which is just like your mutual fund distributors. They call it as FICP.
Sanjay Shah: I think consultation paper is in the process to define the FICP framework, and we are awaiting the final clarity on that before we launch it full-fledged. Once the framework is announced, we can launch and use our MFD network to expand our online bond business. This opportunity give us new ways to serve our partners and clients. They also allow us to build our existing network and capabilities. Over time, PMS and bonds can become additional growth driver for the Prudent. With that, I would now like to open the floor for the questions.
Operator: Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Prayesh Jain from Motilal Oswal Financial Services Limited. Please go ahead.
Prayesh Jain [Executive Director, Institutional Research: Hi, sir. Sir, just on the consultation paper again. There is one aspect where there is a difference between IDE and IDP is, on the IDP side, they have clearly said that the individual agents will not have any options in the sense that if they are selling a health insurance product of a multi-line player, then they cannot sell of another player, right? While on the IDE side, they have optionalities. They can sell products of any insurance company, which probably you have tied up with or their broker would have tied up with. I think there is one fundamental difference what the regulator is thinking between IDP and IDE.
Prayesh Jain [Executive Director, Institutional Research: What are your thoughts there, whether the regulator would concede to this that, you know, at least you will still have the option of multiple insurance companies and get a commission of IDP as well? That is the first one on the insurance side. Second is also on insurance, where you said as it is, if it is implemented, then you would have an impact. Do you think that this 12% contribution to earnings will be completely lost, or do you think that the POSP model will not survive at all in these regulations per se?
Prayesh Jain [Executive Director, Institutional Research: Third is, again, on the consultation paper, wherein if you think about the regulator is opening up all the other financial services distribution to all the categories under the same license, or you will have to apply for the license, but under the same entity you will be able to do it. Does that bring in more competition to your core business of mutual fund as well? Those are my three questions. Thanks.
Sanjay Shah: Shirish, you want to address all three?
Shirish Patel: First, I would like to answer the last question. Today the brokers are not allowed to do multiple businesses except insurance. If consultation paper is implemented as it is, the insurance brokers also would be allowed to sell other products. I believe many of the brokers had their other group companies dealing in mutual funds or other business earlier also.
Shirish Patel: Today, if we talk about Zenix or the insurance broker, they previously were doing the mutual fund business. Similarly, there are a few big brokers in insurance had their group companies working in third-party products. Obviously, earlier also these people were working in another entity. Now they might work in the same entity. Of course, I do feel more players may enter in the third-party distribution platform business.
Shirish Patel: Of course, I think more and more people entering in the platform business, obviously the competition will increase. But at the same time, awareness for platforms also increases. Last three, four years, we already have seen many platforms entered in the mutual fund industry. Of course, it's a competition, but I believe that more and more people have started joining the platforms.
Shirish Patel: So it's both, competition will increase, at the same time, more and more people will participate through the platform, and if you offer a better competitive advantage to the individual seller, obviously, I think you will be able to attract that share. So that is your third question. Second point you talked about, there is a revenue differential between IDA and IDE. If there is a huge revenue difference, then probably the POSP business or POSP model will not be able to survive. Here, definitely, I think one opportunity and one drawback, there is behind the board.
Sanjay Shah: Sir, your voice is a bit patchy. -Sir, your voice is a bit.
Shirish Patel: I'm--
Sanjay Shah: His voice is broken.
Shirish Patel: Better now? Is it better now?
Sanjay Shah: Yeah, it is better, but still there is a disturbance from your side, actually.
Shirish Patel: I think-
Sanjay Shah: Yeah, this is better. Please go ahead.
Shirish Patel: So coming to this problem, that is, the revenue reduction is there between IDE and IDA, then why would they work with IDE? Now the opportunity part, I would say that today an individual agent is allowed to work with one general insurance company and one standalone health insurance company. So practically, today, whatever standalone health insurance companies are there, I think many of the agents are working in the health insurance business with them.
Shirish Patel: But in the same entity, they are working with two different companies, general insurance as well as standalone health insurance. If the regulation or the consultation paper goes as it is, then obviously they have to surrender one of these license for doing health insurance business. That would be a big opportunity for any IDE for that matter. Now, tomorrow, IDA is only allowed to sell one health insurance.
Shirish Patel: Now, customers are definitely going to ask the multiple choices, multiple companies, and the individual agent might have to go to any of the IDE. So yes, of course, I think by compromising the revenue and as such. But yes, I think I would say that there is a huge difference in the payout between IDA and IDE, especially on a renewal side.
Shirish Patel: Is it going to be a big impact for a platform like Prudent or the Prudent Corporate Advisory Services like Prudent in the insurance POSP business? But I believe volume might increase, but of course, that might not justify the revenue. So that is the point 2. Point 1, I think Sandeep, I missed that point 1 now, so I don't
Sanjay Shah: Hello. No, I think the point 1 was related to Shirish. So what Shirish is trying to communicate, and I also echo that today, this particular vertical contribute 12% of the profit or PBT. So Saurabh, I don't think that this entire revenue will disappear overnight because still, let's say for example by end of this year we'll have a book of let's say INR 300 crore of book in the health side or INR 10 crore here and there.
Sanjay Shah: It might be, let's say INR 290 or INR 300 crore. Now, the overnight people may not have an option to move somewhere else because there are two things which is happening. On the IDE side, he has to decide and surrender one. See, most of the guys are already working with two health insurance companies. So first thing he has to decide is which one he has to surrender.
Sanjay Shah: And on another side, probably he has to decide which business he can move directly to his code. I think the renewal business, probably my belief is that might continue, but overall, there are two things. Whether it will come as it is, then definitely gradually it will have a huge impact, and you need to make sure that you are able to justify what you are doing. Probably better claim management, better technology, better servicing.
Sanjay Shah: The point is every IDA need to, so individual agent need to have the ID because he cannot sell every product. I do not think it is going to disappear. How much is going to adjust? Who is going to do better? How are you going to probably come to a midway? That all question will decide over a period of time.
Sanjay Shah: Second important thing would be that, say most of the guys who are doing insurance business in our system are also having the background of mutual funds, and mutual fund is growing very rapidly. Probably we believe that we will definitely be able to use them productively in our existing business also. I do not think entire 12% will disappear overnight. That is I wanted to communicate, but very clear guidance I cannot give on that particular part.
Prayesh Jain [Executive Director, Institutional Research: Sure, sir. I understand. Just a follow-up on the third question that I had asked. While the competition you are accepting that the competition is likely to increase, but does that also mean that there could be a pressure in terms of the money that you would share with your mutual fund distributors?
Prayesh Jain [Executive Director, Institutional Research: In a way, if you want to retain your distributors, you would have to share higher with them on their mutual fund business to kind of retain them so that the compensation of insurance has some bit happened on the mutual fund side, and also because there would be more competition in the system on the mutual fund business itself, there could be a pressure to share higher with your distributors. Does that also bring in a challenge for you?
Sanjay Shah: Saurabh, I think when you look at the people will look at Yes, Shirish?
Shirish Patel: Yes.
Sanjay Shah: No, I am just trying to say that when they will enter in this business, first of all, they will try to convert their POSP network into the mutual fund distribution. They will not target somebody else, because for them, let's say for example, you look at one of the large players, they have almost about 7, 8, 10 lakh, 7 lakh kind of a POSP agent they have recruited over a period of time.
Sanjay Shah: Their first target is to create the second line of revenue for them as well as for their own platform. So my belief is they will try to expand the market, and it may not be a direct competition to us. Rather, they will definitely work on the expansion of the market. Yes, Shirish.
Shirish Patel: Secondly, I think this is the servicing business. So obviously, simply by paying higher commission, you might attract people for some time, but with the higher commission payout long-term, it is very difficult for anyone to survive. And obviously, I think they have to bring down the pricing.
Shirish Patel: Last three, four years, what we have seen already, we have seen five, six new entrants in this particular business with the higher payout, merchant payout to the distributors. I think still we have maintained our margins, our payout structure, and we are able to grow. Obviously, now I believe that after two, three years of higher paying strategy, now from this year onward, they started modulating their payouts in the market. So obviously, I think no one can survive long-term with higher payout.
Shirish Patel: Of course, it could be a disturbance for a few years, but not necessarily it is going to impact our margin. Because distributors do believe that this is a very long-term service-oriented trail revenue recognition business. So obviously they need that kind of confidence that whatever the company is sharing right now should be able to continue consistently over longer period of time and that kind of trust I think our distributors and the industry has included. So we do not see a challenge, more people entering and impacting our margins.
Prayesh Jain [Executive Director, Institutional Research: Got that. Thank you so much.
Operator: Thank you. A reminder to all the participants that you may press star and 1 to ask the question. The next question comes from the line of Dipanjan Ghosh from Goldman Sachs. Please go ahead.
Dipanjan Ghosh: Hi. Good morning, everyone. Few questions from my side. First coming back to this consultation paper, I just needed numerical data. If you can give the quantum of volumes generated in the POSP business from the top, let's say 50 or 100 POSPs versus others, that would be great. My second question is on the nature of the contract with these POSPs.
Dipanjan Ghosh: Hypothetically, let's say if all of them were to or some of them were to completely defocus selling insurance, what happens to the renewal revenues that you get from the manufacturers? Are the renewal revenue passed through to the POSPs renegotiated every year, or how does that mechanism really work for you guys?
Dipanjan Ghosh: My third question is that I think in response to the previous participant's question, you mentioned that most of the PoSPs might focus on increasing volumes or changing their product mix to better realign their top line. Could you give some color on the previous regime changes, either in mutual funds or in secondary market broking or in insurance over the last two decades?
Dipanjan Ghosh: Whenever there has been a cut in expense ratios or realizations, how have the partners really responded in terms of the volume of take that you see or expect? Can you give some color on that? Last question is, in your commentary, you mentioned that the regulator has kind of listened to the voice of the industry, and there can be some middle ground that can be achieved. I just wanted to get a sense of how have the discussions really panned out, and what have been the hurdles from the regulatory stand that you perceived related to the PoSP channel?
Sanjay Shah: Shirish, you can cover initial points, then I will talk about the regulatory lastly. Yes, Shirish.
Shirish Patel: I could have been hearing completely. But the third point what he talked about probably was that in the past, there were multiple rounds of regulatory changes, how the distributors reacted during those periods.
Shirish Patel: Specifically, if we talk about mutual fund industry, when the entry load was abolished. Obviously, I think that time there was a biggest regulatory change when we talk about distribution. That time many of the distributors who were dependent on the first year upfront, obviously, they had a very big impact. Many of them have reduced their focus on the mutual fund business, and they entered in some other businesses that time.
Shirish Patel: After three, four, five years, when they realized that the industry has grown, many of them have come back in the industry. But those who continued focusing on the product wherein the commissions have reduced, I think they have grown substantially higher. After that, we have seen that in 2019 again, we saw that the TER cut has happened. Again, in April 2023, we have seen that there is a regulatory change, this time the TER has impacted the commercials.
Shirish Patel: Now, during last three, four, five years, we have seen that every year few AMCs are cutting the commissions on the historical book. In this April, again, we have seen that most of the AMCs have cut on the historical book. So multiple rounds of regulatory intervene has happened. Distributors have realized that there would be a cut in the commercial, but that is compensated by way of increasing the volume.
Shirish Patel: So unlike that entry load cut this time, last two, three years, I think whatever the last two, three times, whenever there was a cut in the commercial, we did not see any impact on our distribution business. So all these, I think now distributors are mentally prepared that over a longer run, there will be a cut in the commercial, but that will be compensated by way of increased volume.
Shirish Patel: In the insurance side also, if we look at last 3 years, we have seen that every year there was some kind of regulatory change. One was the DSC cut. When the DSC was cut, obviously the distributor's income came down by around 18%. Then we talked about our surrender guidelines. Obviously, surrender guidelines also has impacted distributor agents or PoS commissions.
Shirish Patel: Obviously, I think that also got impacted. But the focus of insurance continued by every agent. This time, probably the impact is much, much higher. But obviously, I think the impact is much, much higher. At the same time, other products, other businesses, I think are also there. Standalone insurance agents will definitely get impacted more, but those who are doing multiplying business, obviously their impact would be little lesser.
Sanjay Shah: Shirish, we lost you. Yeah.
Shirish Patel: Hello?
Sanjay Shah: Shirish?
Operator: Hello, this is the operator.
Sanjay Shah: Yeah.
Operator: I think his line has been disconnected, so let me just quickly connect him again. Or would you like to continue answering his question?
Sanjay Shah: Yeah. I think the bottom line is what he was just trying to communicate, that historical evidence says that all the regulatory changes has virtually brought the pain initially, but over a long period of time, every industry has grown. I think that is the simple hypothesis. We believe that this change, it may not be as harsh as we have projected.
Sanjay Shah: We definitely assume that there will be a lot of changes which will happen. But finally, it will bring a lot of growth in the industry. And who remain probably very focused to this with a lower margin, will get a disproportionate share out of this. That is a very important thing. Your second question was regarding the contractual understanding with the PoSPs. I think it is-
Dipanjan Ghosh: On the renewal book, sir.
Sanjay Shah: On the renewal. I think renewal also probably our remuneration will go down. I think that we will also share less to them. So if, let us say, for example, we would have said that your renewal rate would be X percentage, but if I do not earn X, I cannot give X. I think every renewal is a contractual renewal and every renewal has a different rate.
Sanjay Shah: Probably I do not see any legal hurdle there, and we can definitely change our pricing structure to them based on whatever we are earning. Your first question was top 50 PoSP contributor versus others. I do not have the data readily available because we never worked on that, but we can definitely provide you offline whenever you ask about that.
Sanjay Shah: But I think still my belief is that if you look at my MF concentration, I think it will not be significantly large because we have a good amount of people who participate in the insurance business. So I do not see a huge concentration risk there also. Shirish, you are there?
Shirish Patel: I am back.
Sanjay Shah: Yeah. I think his question was about the contractual obligation with POSP and if there is a change, will our payout to POSP also change? I just tried to say that, yeah, every contract is a renewal contract.
Shirish Patel: I think practically every year renewal contract. Whenever our receivable changes on the renewal side, our payable commission also changes on the renewal side. From April onwards, assuming that our renewal commission on the health book reduces, we will be able to pass it on that reduction to the POSPs as well. Of course, the margin will get impacted. Yes, I think, we will be able to pass it on the entire part to the customer.
Dipanjan Ghosh: Got it. Sanjay, sir, if you can give some color on the last question regarding the discussion with the regulator.
Sanjay Shah: So I think probably when we are talking to our friends in the industry, there are a lot of information which we all have shared about the, let's say, persistency kind of activity which do, the kind of effort which you provide for the claim management, kind of infrastructure which we have created. I think the regulator is looking at very, very positively. So I will tell you, for example, our 60-month persistency in life is roughly about 85%, 86%.
Sanjay Shah: Which is a very, very positive number. So regulator has looked at only 48%, which is the headline number. Beneath that, there are a lot of players who are probably doing things very, very constructively, positively. So they are mindful of this side. My point is that when you talk to them, initial reaction was that they have a very strong thing which is already decided.
Sanjay Shah: No, I think that is not the case. And they are receptive to all the information. They are probably asking more and more data. So probably what we believe is that this time we are talking about discussion with the data rather than any emotional pitch. And if you are able to substantiate it. Say, for example, I am just trying to tell you that if I earn 5%, there is a cost of administration, claim management, technology, team.
Sanjay Shah: After that, whatever is left, I can share with the POSP. Now, I think that is a very strong message which we need to give it to them with the data that out of INR 100, this is the cost which I am already absorbing, and then I have to share. So I think this information has been very, very positively looked at by the regulator.
Dipanjan Ghosh: Got it. Thank you, and all the best.
Sanjay Shah: Thank you.
Operator: Thank you. A reminder to all the participants that you may press star and 1 to ask a question. The next question comes from the line of Sanket Godha from Avendus Spark. Please go ahead.
Sanketh Godha: Yeah. Thank you for the opportunity. Sir, can you give a bit of color, like mutual fund, how much we share in insurance business with the POSP guys? I just wanted to understand how much MFDs and POSP overlap is there. The reason why I am asking this question is because that MF-
Sanjay Shah: Sorry, I think we lost you. Hello. Yeah, Sanket.
Operator: Hello. The management line got disconnected. Let me just add the management-
Sanjay Shah: No, I am there.
Operator: You are there?
Sanjay Shah: No, I am there. Yeah, I am there. I think we lost Sanket, who is asking the question.
Operator: No, Sanket is here. Mr. Sanket, can you please go ahead? Since the participant got disconnected, I will promote the next. That is Shreya Kejriwal from Moneyvesta Wealth Management. Please go ahead.
Shreya Kejriwal: Hello.
Operator: Shreya.
Shreya Kejriwal: Hello, sir.
Operator: Please go ahead.
Shreya Kejriwal: Yes, sir. My question was regarding the market share. Where is the competition becoming tougher right now, like from banks or large national distributor or online platform? As we saw that you are ranked fourth in retail AUM but fifth in retail net sales. Just want to understand, which one is taking market share from you right now?
Sanjay Shah: Suresh.
Operator: Hello, Mr. Shirish, are you there?
Shirish Patel: Hello.
Sanjay Shah: Yeah.
Shirish Patel: I think as it was shown in the presentation that we are gaining the market share in spite of competition from all these fintech platforms, banks, and also being national distributors. That says that I think our focus, our systems, our processes, our team, our distributors are working hard in the market. I think in spite of all these challenges, we are gaining the market share, I think, quarter on quarter.
Shirish Patel: Hopefully, I think we will be able to sustain in the same manner. I think what is helping us also the focus on SIP, more long-term business in nature. Probably that is also helping us. Another point I would say that the distributors are loyalty because many of our distributors, we only have got them in the industry. That loyalty also is playing an important role in this kind of business. Hence we are able to maintain the market share. Hopefully, I think, we will continue to grow in the market share.
Shreya Kejriwal: Okay. Thank you, sir.
Operator: Thank you. The next question comes from the line of Swarnab Mukherjee from 360 ONE Capital. Please go ahead.
Swarnab Mukherjee: Yeah. Hi, sir. Thanks for the opportunity. My question, first of all, on the insurance regulations side, I decided to ask you here because hypothetically, if there is some change in the regulation where maybe there is a higher level playing field between IDEs and IDPs. Just wanted to understand what would be acceptable market level for you to basically start thinking about looking at this business.
Swarnab Mukherjee: If you could give some color and maybe where is the insurance business right now in terms of margins or profitability so that we can understand on that. That is the first question. Second is, in terms of the slight yield increase this quarter, I wanted to understand what was this a function of. Is this that your mix moving to smaller entities is leading to a bit of a higher realization? If you can give some color on that.
Swarnab Mukherjee: Thirdly, given how the equity markets are performing, if you could throw some color on what kind of conversations you are having with the investors. Just to make a sense, maybe more on the direct side where there is no support from distributors, how the things might pan out.
Sanjay Shah: So let me first Shirish, you can answer other question, but I think the margin.
Sanjay Shah: So now he is saying that between the IDE and IDP, Shirish, what is the comfortable margin which you will be looking for to look at this business comfortably? So what are you expecting? For example, if they are giving renewal rate of 10% to IDE, what is the bare minimum level which we should expect so that they can do the business comfortably? That is the question.
Shirish Patel: I think whatever insurance business, probably whatever the regulation changes comes finally. If the regulation comes in the mid-term also, I think insurance margins the way it was earlier is not going to come back. That is very, very clear. If the commercials between IDE and IDP are either similar, at least IDE are paid little more, I think probably the competitiveness of any IDP can continue because all the IDEs are spending a lot on multiple things like infrastructure, technology, claim settlement, ground level support and everything.
Shirish Patel: Obviously, the IDPs are paid little, at least little higher than the IDE. This model will continue working and business can grow quite well. I think let the regulator come out with the final regulation and then probably we will be able to give the number.
Shirish Patel: Currently, speculating on what the regulator may do or what is the survival number, I think it is difficult. Whatever it would be, we are very, very confident that the insurance business has to grow. Today it is a little volume and higher margin. Tomorrow it may become higher volume and lesser margin. For us, one positive thing, there is a huge overlap between the mutual fund distributor and the POSP.
Shirish Patel: With the POSP, now if they have to select any IDE, now all the IDEs' competitiveness is the same. Whether they are working with us or other IDE, that is what they have to select. Probably they might select Prudent because for mutual fund business, anyways they are working with Prudent. On that front, we do not see a big challenge that the POSP will move to other IDEs. But yes, I think the margin definitely is going to get affected. But let the final regulation come, and then probably we will be able to tell you the exact figure.
Sanjay Shah: Yeah. On the margin side, Swarnab, I think the margin has been more or less static. If my revenue has gone up a little bit more than the average, it is because of one more working day. That is the only reason. More one revenue day. Otherwise, it is approximately 88.8 basis points. Yeah.
Swarnab Mukherjee: Okay. The last one, sir, on what are the retail conversations currently?
Sanjay Shah: Yeah, Shirish, what are the ground-level feedback of the investors on the market and overall, how you look at the sentiment?
Shirish Patel: Obviously, I think when the two years' returns are not in double digit or I think many of the cases it is negative, obviously, there would be a concern in the market. But I would say that I think this time investor behavior is much, much mature than what it used to be earlier. I think this quarter our net sales is the highest ever.
Shirish Patel: That itself says that I think the maturity has improved. I am not saying that every investor is coming in this kind of market. But at least if you look at the redemption pressure is less. Of course, the cancellation of SIP numbers have gone up. But in previous eras, whenever the market used to correct like this, we used to see the negative book in the industry. This time, at least the growth is there.
Shirish Patel: Of course, the growth pace has slowed down, but the growth is there. Investors are definitely concerned about the returns. At the same time, there is a clear-cut message that at the India level, the macro is strong. Of course, having global uncertainty, global concerns, all these things are there.
Shirish Patel: But yes, I think new money is still coming late compared to what it used to come earlier. But yes, we are trying to pacify or we are trying to give that confidence to our distributors that this could be a good time for those who are investing for long term. Anyway, I think every investor is investing at least for above five years. Probably this could be a better time. Many of the customers are getting that confidence and entering slowly in this particular market.
Shirish Patel: But yes, I think we need to address the concerns on a regular basis for our distributors and the customers.
Operator: A reminder to all the participants that you may press star and one to ask a question. The next question comes from the line of Sanket Godha from Avendus Spark. Please go ahead.
Sanketh Godha: Sorry, I got logged off. So my question
Sanjay Shah: Sanket, let me address your first question. I think we have been probably telling that in the case of insurance business, our margin is similar to the mutual fund, more or less. You might look at that. There might be different ways of expenditure which will be required for doing the businesses. But overall margin is in line with the mutual funds. That much I can tell you. Now you can ask the second question.
Sanketh Godha: Sorry. Related to that, sir, how much is the overlap between MFD and POSP guys? Are there any POSP guys or they are part of MFD family only?
Sanjay Shah: Shirish, mostly, but yeah, Shirish.
Shirish Patel: I think I already said that there is a huge overlap between mutual fund distributors and the POSP. So practically, you can say that more than 90% overlap is there between mutual fund and the POSP. Yes, it may happen that the guy who is POSP may not be the same guy who got the ARN. His family member has taken the POSP with us. But otherwise, if you consider it at family level, it is more than 90%, I can say, because we don't encourage people only working for insurance with us.
Shirish Patel: Hardly, I think anybody would come to work for the insurance business. We try to convert, we try to bring the people from mutual funds first and then for insurance. So I think without having any number in hand, but at least I can say that at a family level, more than 90% overlap would be there.
Sanketh Godha: Understood. And sir, the second question was when you spoke about PMS MS, which you intend to start from 1 April. Most likely will start from 1 April. So just wanted to understand if it goes live, whether it can potentially cannibalize your existing MFD business. Because ultimately the customers are same.
Sanketh Godha: They might end up selling PMS MS rather than doing direct plans. So, you think that will happen in those lines? And also your expectation whenever you go live on MS or PMS MS, your realization on PMS of MS will be still 90 bps which is closer to our current numbers or how do we see that number to be in the end?
Sanjay Shah: I think probably my belief is this will open up for us to attract more and more player to join the Prudent platform. Because I think this is going to be a very strong product line for you to attract the probably very high-quality distributors to join the Prudent platform. Another important thing is today a lot of people who become HNI client, probably he says that I don't want to pay you such a high fees for my large portfolio.
Sanjay Shah: I think this will probably help them to charge to the probably this variable fee structure can be decided. I don't know. Still, we'll probably figure out. That also probably will be helping us. Overall, I think this will definitely help us to expand the market.
Sanjay Shah: On the margin front, I think regulation says that you can charge up to 1% on the PMS MS as a fee. Probably that 1% itself is closer to what we are earning today, right? About 89, 90 basis point. I don't think there will be a drop in the margin is concerned. Probably it will be similar to what we are earning in the mutual fund side. But I think it's a very strong pitch. There I explained two line of revenue stream for us.
Sanjay Shah: One would be that once we create the back end for the PMS manufacturers, we will probably, what you call, provide the entire back end to fund managers also who can probably work in our platform and they can manage the customer's portfolio on their own. Entire back end will be taken care of. That is one. Second is positioning as a manufacturer from the point of view of direct fees, advisory fees, and attracting the high-quality wealth managers on our platform.
Sanketh Godha: Understood. Second question, just wanted to understand is that we gained a bit of market share in the current calendar actually, or we do better than the industry. Is it fair to say that we being very strong in small and mid cap played a role? If you can give a color out of the total AUM or total flow numbers, how much is concentrated towards small and mid cap?
Sanjay Shah: I think small and mid cap would be very strong.
Sanketh Godha: Yeah.
Sanjay Shah: Yes. No, no, you just continue please. Yes. I am saying small and mid cap.
Sanketh Godha: Sorry, sir. Yes, no problem.
Sanjay Shah: Yes, Shirish.
Shirish Patel: We are SIP heavy and SIP, obviously, I think the small and mid cap SIPs are much higher than the fresh gross flow of lumpsums. In this kind of market wherein the fresh gross flows have reduced compared to the SIP flows, and SIP being more on the mid and small cap side, obviously, I think that also might help us in gaining little market share. It is not a market share alone, I would say. Two, three reasons.
Shirish Patel: I think the net sales has increased. Net sales increase, there is only one reason, the redemptions are less. In the industry side, less people have participated in the new business. If you also look at the composition of the gross sales for Prudent and the industry. Historically, our SIP book is much, much higher.
Shirish Patel: If you look at the composition in gross sales, SIP normally contributes around 50% of our gross sales, and fresh sales also contributes around 50%. In the industry, the SIP share in the gross sales is much lesser than the Prudent share. Today, the fresh gross sales is little bit controlled, hence automatically our market share has improved.
Shirish Patel: Tomorrow, hypothetically, the engine is coming back, lot of people participating with the fresh gross sales. Probably, that may be the time we might become stagnant in terms of market share or that kind of thing can happen. But yeah, I think composition of both the things has improved in Q2.
Sanketh Godha: Understood.
Sanjay Shah: No, perfect.
Sanketh Godha: Yeah. Sir, last one, sir. If I look at your commission as a percentage of non-insurance operating revenue, that number has gone up by almost 120 basis points compared to Q1. Just wanted to understand from 61.4%, it has gone to 62.6% the way we do it. Sir, just wanted to understand the reason for that commission cost to go up.
Sanjay Shah: No, I don't think.
Sanketh Godha: Commission cost is.
Sanjay Shah: Probably, so okay. So overall, I think probably there is annual additional trail which we give to the partner based on the full-year revenue projection. If you look at first quarter projection, and after looking at the second quarter number, we felt that the current year gross sales and net sales number will be much, much better.
Sanjay Shah: I think because of that number, I think my provisioning on the additional trail has gone up by INR 2.5 crore. So that entire INR 2.5 crore has been probably about INR 1.75 crore has been booked in this quarter. That must be the only reason. Otherwise, regular payout structure has not changed.
Sanketh Godha: Understood. Perfect, sir. Yeah, thanks. That's it from my side.
Sanjay Shah: Yeah. Are you done, Prerit?
Operator: Thank you. Ladies and gentlemen, as there are no further questions, we have reached the end of question and answer session. I now hand the conference over to management for closing comments.
Sanjay Shah: Thank you everyone. Probably if you have any query or any question which is unanswered, you can definitely reach out to us one on one and we will try to give you the proper explanation. Thank you very much. Thank you.
Operator: Thank you. On behalf of 360 ONE Capital, that concludes this conference. Thank you for joining us. You may now disconnect your lines.
