Operator: Ladies and gentlemen, good day and welcome to Nuvama Wealth Management Limited Q2 and H1 FY27 earnings conference call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risk and uncertainties that are difficult to predict. 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 this conference call, please signal an operator by pressing star, then 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Kehair, MD and CEO. Thank you, and over to Mr. Kehair.
Ashish Kehair: Thank you, Neeraj. Good afternoon, everyone, and thank you for joining us for Nuvama's Q2 and H1 FY27 earnings call. On behalf of all of us, I would like to wish our shareholders, clients, all the analysts, investors, everybody a very, very happy Diwali. Joining me today, as usual, Bharat, our Group CFO, and SGA, our investor relations advisor. We will quickly begin with an overview of the performance and key developments, and then we can open the floor for the questions. Just to summarize, we delivered a reasonably good quarter of strong performance. Client assets now are about INR 5.5 lakh crore. Revenue was about INR 937 crore, operating PAT about INR 319, with a yearly growth of 26%, and ROE remains strong at about 29%.
Ashish Kehair: Special mention on both Wealth Management businesses now over last 3 years, both these businesses have consistently compounded at more than 20% growth across all parameters.
Ashish Kehair: This quarter, I think the performance was not only well, but also a significant contribution came from our institutional businesses, particularly Asset Services and Capital Markets, which continue to scale well across different products and customer segments. I think our integrated approach, which we have always mentioned, spanning multiple businesses within the financial services Capital Markets ecosystem across asset classes, client segments, gives us multiple growth engines and also reduces dependency on any single market product or revenue source. It basically, in a sense, makes the business more resilient to any kind of adverse impact that may happen. I think the second thing which we followed for the last couple of years that also is playing out now, in Wealth Management, we particularly said that, while many providers go and seek the equity managed assets of the clients, our view has been that asset class performances are cyclical, specifically equities.
Ashish Kehair: For the last 2 and a half years, we kept harping on the importance to the clients of allocating to other asset classes. I think that has served us extremely well, which reflects in our strong net flows despite the markets not doing anything for almost last 2 years. I think the second was a recognition that technology and what generative AI can deliver can actually be path-breaking. Technology, of course, we always knew, but when the layer of generative AI came on top of it basically opened up many new avenues, not only to improve client experience, but also to improve efficiencies within the firm. I think this is also playing out reasonably well across all our businesses now. I will move on to the business segment updates now. We start with Nuvama Wealth.
Ashish Kehair: Managed Products & Investment Solutions, which is MPIS, remains our core focus and growth engine. Client assets have now crossed about INR 46,000 crores, and net flows were very, very strong. For the last 6 months, we have had more than INR 6,000 crores, and Q2 was about INR 3,300. Revenue for Q2 may look slightly moderated, but if you look at some 7, 8 quarters, every quarter, out of these 7, 8, the revenue growth was more than 25% YoY. So this quarter, because last year Q2 had a very, very strong transactional income opportunity with our real estate fund, so that basically has had a base effect. Otherwise, there is no structural change either in flows or yields for this. Lending, we have now kept saying that this is an avenue which we will exploit for growth, and we have demonstrated this now over the last 12 months.
Ashish Kehair: Our loan book in this business is about INR 6,000 crores, growing about 60% year on year. You know that the composition is all liquid assets like LAS, ESOP financing, margin financing, or MTF, with LAS and ESOP being almost 75% of the portfolio. Yields also saw an uptick in this quarter with marginal improvement in NIM, because we have always maintained that a part of our borrowing happens through MLD, and some hedging gains and losses can lead to these changes in the NIM. For Q2, we were on the positive side of the same. On sales capacity, we have added about 90 RMs over the last 1 year and continue to strengthen the franchise with deliberate focus on senior talent. The outcomes are actually encouraging.
Ashish Kehair: You can see them in the net flows. Also, you can see them in the NPS scores, which have now reached an all-time high of 89 for us in this business. Lastly, on the technology and AI front, as I said, we continue to embed this across different parts of the value chain. We rolled out a new AI-powered client profiling and meeting prep tool for RMs in this quarter. Efficiencies for this are visible, like net new money and client assets per RM have increased by 25% to 30% year on year, and overall margins or cost income ratios have improved by about 200 basis points year on year. Now I move to Nuvama Private, and starting with our strategic focus there, the ARR assets. The ARR assets have now crossed about INR 60,000 to INR 62,000 crores. Again, very strong momentum in net new money in Q2.
Ashish Kehair: We saw about INR 5,000 crores getting added. Q1 was a bit moderated because we saw one outflow of an advisory asset which was low yielding. If I take Q1 plus Q2 put together, we are about 11% to 12% of the opening balance, and our guidance has always been that we will be between 22% to 25%, which I think we are on track. ARR now contributes about 64% of the revenue. On our initiatives to improve this even further, we spoke about Pinnacle as one of our UHNI offering, which brings together multiple things. It basically brings advisory portfolio construction, governance support, curated opportunities, reporting in one single framework, and it is meant for our top clients. It basically improves the engagement with the client significantly, which automatically leads to an increase in wallet share. I think we are seeing an impact of this now happening.
Ashish Kehair: We may, over the next two, three quarters, start reporting to you specific impact. Moving on to lending. Here also, we had said that we will leverage the lending book to improve our revenues, productivity, and yield. Here, the book has grown by about 50% on an H1 basis, and NII also has grown by about 50% on an H1 basis. Yields remain stable. I think there is still a lot of avenues available here to improve our lending book. On capacity here, we have added about 14 to 15 RMs over the last one year, or almost 10% of our base, and we will continue to remain deliberate and measured in how we add RMs in the current environment. One thing we wanted to point out, like we started reporting our ARR net flows from beyond tier 1.
Ashish Kehair: Now about 40% of that is coming from beyond tier 1, which is not a reflection that whether we are really present there physically, but it is a reflection of how we are leveraging our distribution to access even places where we are not present. Here on the AI front, we have added a liquidity events module which basically tracks all the IPOs and exits where promoters get money, and the whole end-to-end chain of tracking, allocation to RMs, and trying to convert is now moved on a digital platform, which gives us a far better cockpit view of the whole value chain as it progresses. Here also, I see the impact on the productivity improvement in terms of ARR assets and ARR revenues per RM have almost grown by about 15% to 20% year on year, and margins have improved by about 70 basis points across the board.
Ashish Kehair: On transaction banking income, you will have some questions as to why there is a dip over last quarter of Q2 FY26. Again, as I said in Wealth Management, there was a large co-invest transaction which we essentially did with our commercial real estate fund, and that revenue had a high base effect. Otherwise, INR 80 to 90 crores per quarter looks like a regular run rate because about 60% to 70% of this income is anyways recurring or reoccurring, keeps happening again and again every month, which is a combination of brokerage and equity brokerage and fixed income. Only 20%, 30% is episodic.
Ashish Kehair: We will see in both businesses improvements in our transactional income, or maybe even ARR as we launch our private credit and start building on it, our private credit fund, and as we launch our second commercial real estate fund, because they will throw up co-investment syndication opportunity. I think this is a good segue to move into Asset Management. Asset Management, starting with commercial real estate first, our previous fund is now about 50%, 55% committed. Another 2, 3 months, 70% we will reach. So it is time to now launch the second fund, which is going to get launched anytime soon, in maybe another 2 weeks or so. The target is to raise about INR 5,000 crores there. Private credit, the full team is intact, now in place, and we will launch a private credit fund also in the next maybe 25, 30 days.
Ashish Kehair: The target is to raise anywhere between This is the first fund. We will see how the progress goes, but we will go somewhere between INR 1,500 to 2,000 or 2,500 crores. Again, over the next maybe 8, 10 months, we will want to raise that money. Private equity, we have been focused on returning the money on our previous funds, and as they reach closure, we are contemplating launch of a new fund and a new strategy with a new name sometime next year. So maybe in Q3 or Q4, we will give you further update around this. On public market, we are still on the transition phase, where we continue to lose money on our AIFs because now SIFs have become far more tax efficient. Our SIF approval has come, and that launch is also expected in the next 25, 30 days.
Ashish Kehair: I think lot of action in Asset Management in the next 30 to 40 days with large part of our product rollout bunching up together, and we shall see that activity playing for the next 2 to 3 quarters. Coming to Asset Services, exceptional growth, revenues of about 50% year on year. Client assets have now crossed INR 1.6 lakh crores. Retention for H1 remain healthy at 2.7. We mentioned in the last quarter that there were some new clients which had very high cash collateral composition, and that have now normalized. So Q2, you will see yields are moderated to about 2.5. But I think if I take a full year perspective, we will be anywhere between 2.6% to 2.7%, 2.8% range. Because Q3, Q4, again, new client addition is going to happen, and we have visibility of about INR 2,000 crores of cash assets coming in.
Ashish Kehair: I think that will again give a bump up in yield, but it will remain in this zone. There is no structural change in anything. Domestic business again continues to benefit with a large number of people setting up either PMSs or AIFs, and that trend is just increasing, and we continue to gain a lot of market share there. I think 20% growth is what we expect from this business. I do not see right now any structural changes to that aspiration. Capital Markets, I think last quarter was slightly dichotomous in terms of secondary and primary markets behave very differently. In secondary market, there was impact of introduction of CAS, which had impacted derivative volumes and incomes related to derivative volume. But even the cash volume was down by about 12% QOQ. But primary market picked up. We track IPOs above INR 400 crore, from 4 to 38 IPOs.
Ashish Kehair: Q1 had about 4 IPOs, and Q2 had about 38 IPOs. So there is a massive jump. We were also able to participate effectively. Fixed income, we mentioned in Q1 that we had had an extremely good quarter because of multiple things that had happened in Q1, where FPIs first went out, then they came in, and we were able to leverage both the sides. And we said that there was about INR 20, 25 crore of extra income which we delivered in Q1, which may not get replicated. So FI therefore saw a minor dip in that sense, and now is more normalized in terms of performance. Overall, diversified Capital Markets remain strong because we have a foot in each of the pieces.
Ashish Kehair: Even from a pipeline perspective on investment banking, we have right now about 40 transactions in the pipeline, about 13 ECM, and about 10 in advisory, with a reasonably high two-digit or early three-digit revenue target on that. So overall, looks reasonably robust for the remaining part of the year. I think with this, I come to the end of the overview. I will hand over to Bharat, who can take you through the specific numbers, and then we can open the floor for questions. Over to you, Bharat.
Bharat Kalsi: Yeah. Thank you, Ashish, and good afternoon, everyone, and warm welcome to all the participants on the call. Before I start on the numbers, a very happy Diwali to everybody. So Ashish has already covered the headline numbers, so this quarter has been a very good and steady quarter for us. Our revenue for the quarter was around INR 937 crore, which is a 21% YoY growth, and our H1 revenue has also grown around 20% to INR 1,850 crore or so. The Q2 profit also was exceptionally very decent growth of 26% on the operating side with INR 319 crore of PAT. This was coming from all the businesses, so it was not very concentrated. Obviously, Asset Services at times gives you the higher profits, but it is from Wealth and Private as well.
Bharat Kalsi: If you look at the presentation, you would have noticed that there is a one-time exceptional charge of around INR 16 crore. I want to call it out upfront. This is really a one-time charge wherein we actually pre-closed our venture debt fund, which we launched sometime in FY23. This fund was with a 7-year of a tenure, but the underlying strategy for the fund was to actually deploy in combination of debt as well as equity warrants. As you know that over the last few years, the growth stage companies has got a lot of multiple ways to have a fundraise which is non-dilutive in terms of equities, like a private credit. The underlying strategy of the fund is actually not generating the expected return as we thought, and mainly because of the equity warrants. Market is not up to the mark as we thought initially.
Bharat Kalsi: What we have decided is that we will actually pre-close this fund, and we will start returning the money to the investors. That will lead to a one-time charge of around post-tax of around INR 16 crore, and this will also lead to a accelerated amount on the called-in capital, which is in the NAML business. That will be another INR 9 to 10 crore, but that will come over the next 12 months or so. There is a really one-time charge of around INR 16 crore post-tax on the overall basis because of this. Having said that, otherwise, if you look at our overall client asset, that has grown to INR 5.5 lakh crore, which is a 25% growth. Within the Wealth Management, our assets are now at INR 3.7 lakh crore.
Bharat Kalsi: As Ashish was also alluded to the fact that MPIS and ARR asset is growing much faster than what is our overall growth. It has grown to INR 1.1 lakh crore at a 27% growth. Net new money, the numbers what we discussed is that on the Nuvama Wealth, it is INR 3,300 crore, and on the Private side, it is INR 5,000 crore for Q2, but this is the highest ever also for both the businesses, and we are on full track in terms of the guidance which we gave that we should be growing anything around 20% to 25% on our focus assets. Asset Management, we again deliberated. Ashish covered a lot of things in terms of various strategies which we are launching. Currently, the asset under management is around INR 12,000 crore.
Bharat Kalsi: Asset Services at INR 1.63 lakh crore with a very strong growth if you compare it with the Q2 of FY26. Coming back to the revenues, happy to share that Wealth business, when I say Wealth business, Wealth plus Private business has actually crossed the INR 500 crore quarterly revenue mark. This is a growth of around 14%. Ashish also mentioned about the transactional revenue which was there in Q2 FY26, but otherwise crossing a INR 500 crore mark is a good achievement. On the Asset Services side, the growth is around 53% YoY and at INR 245 crore. It is mainly because of the lower base in the Q2 FY26. Capital Markets also grew by 9% to INR 175 crore, wherein the Institutional Equities grew both YoY as well as on a quarter-on-quarter basis.
Bharat Kalsi: This is despite the fact that we had a cash effect in August and September, which is expected to be over. It is kind of now over, but despite that, the quarter has actually grown. Investment banking, ECM was low in Q1, which has picked up in Q2 because of the primary market activity, and our fixed income continues to strongly grow quarter-on-quarter as well as on a year-on-year basis. Coming to the cost point, our cost for the quarter was around INR 507 crore, which is a growth of 16%. Within that, if you look at that, our employee cost has grown actually by 19% to INR 382 crore. If you look at over the last 12 months, we have almost added a 7% capacity or give and take 250 odd employees in the company.
Bharat Kalsi: 85% to 90% of the people will be in the business facing units, whether it is RMs or the investment peoples and all. That is the reason one where the cost has gone up to 19%, and obviously there is an annual increment which has happened, and the variable cost which is linked to the business performance, that is leading to a 19% growth on the employee cost. Our employee cost for Q2 also includes our new ESAR scheme, which we have actually granted sometime in the first week of September. The cost of that ESAR charge is around INR 6 crore. I am talking all numbers as pre-tax, so INR 6 crore is the OPEX charge because of that employee cost. That for the full year of FY27 will come to around INR 45 crore or a INR 20 crore a quarter charge.
Bharat Kalsi: This INR 20 crore of a quarter charge will be there for next four quarters, and from there onwards it will start tapering down, and this is as per the accounting standard. This is how this has to be accounted for. That is a INR 20 crore charge for next four quarters. After that, it will drop. Similarly, if you look at our operating expenses, there is hardly any increase. It is 9% on a YoY basis. Typically, this much expense will always increase. Two-third of it will be on account of our inflation link charges, and one-third will be towards the, say, new investments wherever we want to focus on our business. That is where the OPEX has grown by 9%. Our full year BAU OPEX should be around, give and take, INR 520 crore and INR 530 crore against our last year number of INR 464 crore.
Bharat Kalsi: As we mentioned in the last call also, we have actually finalized our new HO in the BKC. This will be, we will start our rent-free period will start from November. That typically, again, as per the accounting standard, you will have to do a ROU, right of use accounting for that, and that will lead to around INR 25 crore of charge for this year, FY27. So if I add our BAU expense as well as the new HO expense, we may close the year at anything around INR 550 crore of an OPEX for the year. This is where the OPEX growth is expected to be on the full year basis. Profit we discussed, which is at INR 319 crore operating profit, a strong 26% growth. Wealth Management also grew 22% to INR 184 crore.
Bharat Kalsi: But again, a number to look at is that our Nuvama Wealth, which is our HNI segment, has actually crossed the PBT mark of INR 100 crore in Q2. This is the first time they have actually crossed the INR 100 crore mark. Otherwise, our Asset Services and Capital Markets has actually shown a growth of around 34% year-on-year basis. One other thing which we would like to update to the investors and the community is that the board has decided actually not to declare any H1 FY27 dividend. There are a few reasons. If you look at that, our loan book, as Ashish was also mentioning, it's actually gone up by INR 2,000 crore in the first six months of this year. And we are already at a debt-to-equity gearing of around 2.9.
Bharat Kalsi: So see, basically the idea is that we will be more comfortable if our debt-to-equity is around 2.5 plus/minus few basis point here and there, but 2.5 is where ideally we want to be. Plus the way we are looking opportunities both in the lending side as well as on the syndication opportunities or Asset Management that we have to actually make investments. We deliberated internally and decided not to declare dividend for H1. However, we'll continue to look at this dividend policy as part of our annual results, which will happen obviously sometime in April 2027. With that, and one more thing within the dividend is that, see, our ROE is also at around 29%. So we can actually look back to how we utilize our capital, how much we retain, how much we actually declare, and how much we put it back to the business.
Bharat Kalsi: I think those all detailed deliberation will also happen in the yearly results, and that's where when we decide on the final dividend declaration. That's where we are. Nothing else from my side. Now I request the moderator to take over and initiate the Q&A session.
Operator: Thank you very much. We'll now begin the question and answer session. Anyone who wishes to ask a question, may press star and 1 on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handset while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and 1 to ask a question. First question is from the line of Prayesh Jain from Motilal Oswal. Please go ahead.
Prayesh Jain: Yeah. Hi, good afternoon, everyone. Firstly, a very happy Diwali to all the team, and congrats on a good set of numbers. Thanks for the explanation on the cost and the overall front. If you look at the cost to incomes on the Wealth Management side, we have seen quite a bit of improvement. Rather than talking about the cost to income, the absolute cost run rate in both Private and Wealth, have we reached a sustainable rate in terms of RM additions and everything? Similarly, if I even talk about the Asset Management, where we are building teams on SIF and everything, there too the absolute cost has come down from Q1 to Q2. So, how do you think about the cost on each of these segments and cost to income, the way we think about these three segments?
Ashish Kehair: Wealth and Private, Prayesh, is in terms of, I think, we have reached a steady state, like you said, where we know that we are going to hire a certain set of people, and obviously there will be some attrition. But on a net-net basis, like we keep saying that we want to improve by 100 basis points. So, I think in both the businesses this year over last year, we would see an improvement anywhere between 100 to 200 basis points, and that journey should continue for the next couple of years at least. Asset Management is a different story altogether, because one of the segments, which is our public markets, actually was on a path of profitability and had started making money.
Ashish Kehair: But with this change of regulation which brought in SIF, it became a bit of a detour, where we have to bring SIF, we have to see where the flows will go, and to get an SIF, you have to build an MF, which requires a separate infrastructure, pretty much everything separate is needed. So, that additional layer of cost came in. But we had no choice because we had INR 5,000 crores of assets there, which was earning revenues for both Wealth Management and Asset Management. So, we did that, and therefore you see an elevation of cost happening there. Secondly, we built the whole private credit team where revenues have not started coming in.
Ashish Kehair: I think in Asset Management, the real cost income reflection may start appearing after 12 to 15 months from now when these expenses which we have incurred are actually put to use and money comes in and we start earning on them. Right now, I think it is too premature to talk about that. But yes, of course, after Q4, when the fundraise in each of these is happening, and as and when that goes up, you will see gradually the cost income will start improving.
Operator: Prayesh, do you have any follow-up question?
Prayesh Jain: Yeah. In the Asset Management, you mentioned about private credit fund launch. Which category this will be performing credit, special situations, IG credit? What kind of fund that we are launching here?
Ashish Kehair: Between performing and special situations, not IG, and not full special situation, which is 20 plus. This will be like 15 to 18, 15 to 17, that range.
Prayesh Jain: Got that. Last question on the clearing custody business. What is the mix between the FPI, foreign money, and domestic in terms of assets or revenues, whichever way you can split it for us?
Ashish Kehair: Broadly, it ranges. In some quarters, it will be 25/75. In some quarters, it will be 20/80. But the range is, I mean, if you take on a full year basis, it is normally between 25 domestic and 75 FPI.
Prayesh Jain: Got that. Thank you, and all the best. Thanks.
Operator: Thank you. Next question is from the line of Lalit Deo from Equirus Securities. Please go ahead.
Lalit Deo: Yeah. Hi, sir. Good afternoon, and congratulations on a good set of numbers, as well as happy Diwali. Sir, just two questions. Firstly, on the AMC business. Just to understand the loss which we had recognized in this quarter as a one-time loss. Is it more because that we had assigned some returns to the investors, and probably because the strategy was not able to give those returns, so that is why we are incurring those losses? Or is it more of an operational losses that we have incurred in this? Secondly, on the clearing business, as you mentioned, sir, that for this year, the yields are likely to be in the range of around 2.6% to 2.8%. So, how should we look at the retentions for the next couple of years?
Ashish Kehair: First on the Asset Management side, it is not any committed return-related loss to investors. Basically, this fund was launched in an era where AIFs could pay upfront distribution cost. That upfront distribution cost, because you are pre-winding the fund, the unamortized portion. Let us say we raised a fund of INR 1,000 crores, out of which we called for only INR 300 crores. That balance INR 700 related distribution cost, we have to fast-forward the amort and write it off, right? That is what happened in this INR 16 crores. And what Bharat mentioned that there will be accelerated amortization of remaining, which is for the INR 300 over the next 12 months as we give money back from the previous deals, that INR 8, 10 crores will also get amortized. It is basically unamortized distribution cost and not to do with the client returns in any manner.
Ashish Kehair: On clearing assets, I think, it is a function of two things. One, it is a function of the split between cash collateral and G-sec collateral. If the cash collateral and G-sec collateral, which right now for us hovers around 38% to 40% is cash and rest is G-sec, and if the yields on the deposits remain at the place where we are with, let us say, +/– 50 basis points, then your yield should be between 2.5% to 2.8%, even for the next two years. In a scenario where some FPI becomes very, very large, then these ratios of cash to G-sec collateral breaks down, because when they become very large, they want higher G-sec, lower cash. Yield will fall, but your absolute income will still grow.
Ashish Kehair: I think it is not relevant right now to focus that much, because right now if you project an increase in collateral which is more in line with reasonable numbers of, say, 15%, 20%, 25%, then you can assume that the yield stays here. If, let us say, the collateral doubles from here, then the yield will fall because those ratios of G-sec and cash changes. I think for your purpose, you can assume the yields to remain between 2.5% to 2.8% for next two years.
Lalit Deo: Sure, sir. Thank you. That is it.
Operator: Thank you. Participants, you may press star and 1 to ask a question. Next question is from the line of Manas Agrawal from Sanford C. Bernstein. Please go ahead.
Manas Agrawal: Hi, thank you for the chance to ask a question. Just want to understand a couple of things. I think the Anugrah liability was settled in your favor. So, I assume there was some surplus capital in the clearing entity that was being carried forward. Is that now going to be released at a subsequent date, or that gets consumed in the lending business? That is question number one. Question number two, if I just look at your Asset Services, assets under custody on a QOQ basis, I see, I think, a 12% increase. Now, Q2 was the cash quarter where we saw a lot of hesitation from traders. So did you increase margin requirements, or this was just organic growth in assets under custody? That is question number two.
Ashish Kehair: Anugrah-related excess capital, Manas, was not very high because we had placed a specific bank guarantee, and bank guarantee requires only 25% cash. Let's say we had to place about INR 500 crores of bank guarantee, which was essentially earmarked for Anugrah with the clearing corporation that required only INR 125, INR 130 crores of cash. So that will get used in the business, either in the clearing business for newer clients or in other businesses. It will not create a situation of excess capital in that sense, because we had not used cash in the first place. On the increase of the collateral, I think the impact of cash was actually not felt in the clearing business at all. So this was largely organic because the clients changed their strategy and they did different stuff.
Ashish Kehair: For us, actually, we did not see any impact on any client in terms of reduction, and we did not increase the margin, of course. The margin levels were same. I think it was not led by margin increase.
Manas Agrawal: Understood. Thank you.
Operator: Thank you. Next question is from the line of Sanket Godha from Avendus Spark. Please go ahead.
Sanket Godha: Yeah. Thank you for the opportunity. Ashish, you said that your 25% of Asset Services clearing business largely comes from domestic guys, and you are aware about the fact that incrementally new domestic custodian licenses are given. Just wanted to understand from your perspective, how do you see risk to domestic business? Eventually, if these guys also get foreign licenses, maybe in couple of years, then how do you see this risk? Maybe clients will not move, but whether there will be a fair probability that your ability to demand for more cash collateral will come down, and therefore yields in this Asset Services clearing business potentially could be under pressure going ahead. That is my first question. Second question, I just wanted to give a qualitative point, just understand from Private Wealth Management or the ultra-HNWI Wealth Management business point of view.
Sanket Godha: Your attritions, if you can give bit of color there, if there are any meaningful, then any immediate slowdown in flows or growth potentially can happen in near term till you manage to get new licensing.
Ashish Kehair: So on the first one, Sanket, actually very difficult for anybody to comment because what value proposition will the competing players bring? Plus, most of the new license holders happen to be strong asset managers themselves. Whether that will lead to any kind of resistance from newer guys to open, that is point number 2. Point number 3, I think this business never had dearth of competition. I mean, even if you look at it today, there are about 18 to 19 competitors which exist, and these are not trivial names. These are names which are formidable. These are names which are very, very strong in terms of brand, in terms of their ability to give technology, in terms of their ability to leverage their balance sheet, and provide access to capital to these entities. I think it is a fair field.
Ashish Kehair: We will have to continue to up our game if we want to maintain market share. Competition is always good because it brings improvement across the board in the product quality. We feel we are reasonably ahead in the race in terms of the value proposition we deliver, because otherwise, for us to command this kind of market share in such a hyper-competitive industry would not have been possible. But having said that, I mean, we will have to wait and watch as to what others bring to the table and how we counter that. On private wealth management, attrition remains normal. There was one team movement that happened, but we were able to arrest about 75% to 80% of that. We looked at the numbers on a quarter-on-quarter basis. We will actually end up with higher number of RMs on the basis previous quarter.
Ashish Kehair: Not that much of a dent. Either we do not foresee dent in revenue flows or number of RMs.
Sanket Godha: Understood. Ashish, if you can qualitatively give our market share in Asset Clearing in domestic and FIIs, just to refresh or rather to tell a new number, it will be useful.
Ashish Kehair: In domestic, we basically track PMS and AIFs as a segment.
Sanket Godha: Yeah.
Ashish Kehair: On a book basis, on a full book basis, on PMS, I think we are around 6% to 7%, and on AIFs, we would be order of magnitude maybe around 8%, 9% of the total book. Of the new registrations that happen every year, this is not of the AUM, this is about the new players who get added every year. We are able to capture 25% of those new additions as our clients. Now, how much each of them will grow is a function of their product, their performance, and how they deliver. But of the new inflow, we are able to capture about 25%.
Ashish Kehair: FPI, very difficult to give any market share because maybe next time around we can come back with the numbers because we play in a very, very specific zone of HFTs and systematic quant funds, whereas the bulge bracket AUM sits in long only, where we are not a player.
Sanket Godha: Understood. Got it. Perfect. This is very useful. Thanks.
Operator: Thank you. Next question is from the line of Dipanjan Ghosh from Goldman Sachs. Please go ahead.
Dipanjan Ghosh: Hi. Good morning, everyone. So few questions from my side. First, on the Wealth Management business, so obviously flows have been very strong in Nuvama Private. Just wanted to understand how much of that will be led by monetization events, just specifically for the quarter, and how much would be organically from your existing clients' kitty? So that's the first question. Second, if I look at your overall yields in Nuvama Private, X of the loans piece, it seems that there have been some improvement. So was there any upfront PIA-related fee booking or fixed income transactions on that part? Can you give some color? And third piece on the Wealth Management businesses, on the both the businesses, private plus wealth put together, if you can quantify the insurance-led revenues for FY26, what would be that proportion? That would be useful. So these are on the Wealth Management businesses.
Dipanjan Ghosh: I have one question on the other business, which I maybe can ask later.
Ashish Kehair: Well, let's go one by one. We'll start with insurance, maybe that's easiest. In private, insurance is zero. In wealth, insurance would be about 12% to 13% of the revenue. That was first. In private, when we spoke about the yields, and you said there's a yield improvement, it would be largely because the proportion of category 2 AIF may have gone higher, and that is the only thing that changes the yield apart from lending. Since you're looking at ex-lending, the fixed income part gets booked in the transactional income, so it doesn't sit in ARR. The third one is the monetization impact on net new money. I don't know the numbers for the quarter, but if I look at it for the last 15 months, about 35% to 38% of our net new money came from monetization clients.
Ashish Kehair: And balance 60% would be from non-monetization, which could be a mix of existing and new clients, both.
Dipanjan Ghosh: Got it, Ashish. Maybe just one small question on your overall Capital Markets business, and especially more towards the ECM part. You gave some color in your commentary, but any quantification of on a, let's say, steady state run rate in terms of new mandates or new deals? What's your hit rate or, you know, amongst the broader industry from a revenue perspective, and how has that been tracking, let's say, for the past few quarters or years?
Ashish Kehair: I think, frankly, on the ECM side, there is a scope for us to improve. In terms of the total number of transactions, we would range between 15% to 18% participation share. So let's say out of every 100, we would be there in 18 to 20 mandates. We are not so strong in blocks, and maybe slightly better in QIPs and even better in IPOs. So that would be the range, and we are right now actively working on improving our market share on blocks. So that will be an upside which we will see. In terms of the pipeline on which we are sitting right now, as I said, we have about 30 mandates on ECM side and about nine on advisory, which can total on a probability adjusted revenue of between INR 85 crore to INR 90 crore.
Dipanjan Ghosh: Got it. And on the Asset Servicing business, I think in your presentation I read somewhere that you intend to offer more services in the ecosystem, and probably this brings back to the-
Ashish Kehair: Yeah, there is trustee. Trustee and RTA for AIFs and PMSs. Trustee services, both should go live. At least RTA will go live with minimum value proposition by end of November or December, and full-blown by March. Trustee also between Q3 and Q4 will go live.
Dipanjan Ghosh: Got it. Thank you, Ashish and the team, and all the best.
Operator: Thank you. Participants, you may press star and 1 to ask a question. Next question is from the line of Sanidhya from Unicorn Assets. Please go ahead.
Sanidhya Arora: Hi, again. Good afternoon. Such a greeting to all of you. Our question is on the Asset Services in the Capital Markets. As we see quarter-on-quarter, we see marginally flat to lower revenues on both the streams. If you could highlight the impact of cash versus the normal organic growth that we were seeing in the client additions, also on the fixed income products and others, that would be helpful.
Ashish Kehair: Yeah, capital markets, if you see, there were three vectors which were playing. In Q1, we had an exceptional quarter in the fixed income side, and we had said that there is about INR 20 to 25 crores of extra revenue in our assessment as compared to BAU run rate, and that has played out. So fixed income between the two quarters fell by that much, and now we are at a steady state basis. ECM was opposite. ECM Q1 was fully dry. There were only 4 IPOs in our target market segment across the market, and that increased to 40 IPOs, or 38 to be precise. And there we were able to capture a large number of deals.
Ashish Kehair: Obviously, revenues of some of those deals will come in Q3 also, so not everything could have been monetized, but there was more than 2.5x, 2.6x jump between Q1 and Q2 on ECM. Institutional equity, on the other hand, again divergent. We saw deal-related revenues going up because of the ECM share, but cash had an impact of at least INR 2 to 3 crores per month, which I think from December, after the old model comes in, it will get reversed. So I think these three vectors basically led to that combined number which you're seeing.
Sanidhya Arora: So cash impact would be on largely on the Asset Services part, right?
Ashish Kehair: No, cash impact was only on institutional equities, broking income. Asset Services was no impact at all.
Sanidhya Arora: Okay. Are we even seeing that quarter-on-quarter Asset Services revenue is growing because of the new client additions and the overall pipeline?
Ashish Kehair: Yeah, Q1 we had mentioned that there were some new client additions where the collateral had just come in and the proportion of cash was higher, and that gets normalized by Q2. That normalization happened in Q2. Although the assets have still gone up, but because of the normalization, that revenue came down.
Sanidhya Arora: Yeah. Now we are seeing the activity in the options market is also back to normal, and on the BSE and NSE is also catching up. Should we expect that largely from here on it should be normal growth, 4% to 5%, whatever is the normal base?
Ashish Kehair: Yeah, I think that should be appropriate.
Sanidhya Arora: Okay. On the other part, is there a private? Is there anything to read other than the few quarterly differences in the composition? This quarter ARR is higher than transactional. It says the transactional was low, so therefore the ARR looks higher, like 50.
Ashish Kehair: Yeah, I am expecting it should be normal. Between 60 to 65, it will keep ranging.
Sanidhya Arora: Okay. Lastly, on the custody business, we have 49% JV. We saw quite a decline in the revenues and profits both. Could you help me with that?
Ashish Kehair: That is a very small profit entity, and much of the revenue actually comes through referral into the clearing entity itself. It may have been related to some cost that would have been incurred in that. So, the overall quantum of profit there, which sits there, is actually minimal.
Sanidhya Arora: Do you plan to merge it or acquire the 51% out of the FPI?
Ashish Kehair: Yes, we will. As the new license regime is now changing, we will also proceed to do that. We have to first go to our board, and then our counterparty has to go to their board. All those procedures, we are talking to the regulators, but eventually, yes, it will happen.
Sanidhya Arora: Okay. Sorry, just elaborating a bit, so how do we see the opportunity overall in the custody business? Even now, the newer players are also running, so I guess Motilal also got a new license in this regard.
Ashish Kehair: I think over the next 2 years, you will see more number of licensees coming in. Mostly all financial services firms will apply and get if SEBI is liberal in giving the licenses. I think there are actually the number of licenses which are existing even today are reasonably high. So, environment will become a bit more competitive. I think the value proposition of every player will have to improve to maintain market share and to keep growing the market share. But market is also expanding substantially.
Sanidhya Arora: Yeah.
Ashish Kehair: I think over the last 10 years, if you see the market has expanded multifold, whereas the service provider have not expanded. I think it is now time for a bit of correction on that front. But we are fairly confident that we will want to keep improving our product proposition and maintain our lead.
Sanidhya Arora: I think the acquisition part would more likely drive the urge for us to even improve on what we are offering and rather gain some than lose some, right?
Ashish Kehair: Not necessarily, because that doesn't drive. The revenue capture largely happens in clearing, whereas the service is the custody service, where I think we are top-notch. I don't think that acquisition will lead to any change in our outlook or value proposition. It is just a legal adjustment of the entities. That's it.
Sanidhya Arora: Okay. Any impact we see on clearing revenue is if there is some loss in the custody part, given the competitive environment?
Ashish Kehair: No.
Sanidhya Arora: No, right?
Ashish Kehair: No, no. Right now, the licenses do not cover the FPI business, is what we understand, and it will take at least 2, 3 years more. We will see how the business evolves over the 2, 3 years, because we are also making changes and doing addition in terms of our product, which will have more client segments to reach. I think that is also happening right now.
Sanidhya Arora: Under which business segment do we declare the custody income? It is separate, right?
Ashish Kehair: Yeah, so Asset Services is where it comes, and then custody is a profit pickup, which comes because it is 49% only, so we do not consolidate line by line.
Sanidhya Arora: Thank you. Thank you.
Operator: Thank you. Next question is from the line of Sharanik Mehta from IndoAlps Wealth. Please go ahead. Sharanik, may I request you to unmute your line and proceed with your question, please? Sharanik, can you hear us? Due to no response, we move on to the next participant. Next follow-up question is from the line of Manas Agrawal from Sanford C. Bernstein. Please go ahead.
Manas Agrawal: Hi. A follow-up question. I think a couple of last con calls you mentioned that you are trying to get your Asset Services clients also engage in the commodities market. Wanted to get a sense of what the feedback has been from clients over there and how activity levels are ramping up.
Ashish Kehair: They are starting out, but overall assessment of the opportunity, what we see right now is like 7% to 8% of the size of the opportunity in equities or equity derivatives. People are keen. Out of our client set, I think four, five have started, and some are ramping up the margins also. Maybe it will take another two, three quarters to see the steady state levels.
Manas Agrawal: Understood. Thank you.
Operator: Thank you. Next follow-up question is from the line of Prayesh Jain from Motilal Oswal. Please go ahead. Prayesh, may I request you to unmute your line and proceed with your question, please?
Prayesh Jain: Yeah, sorry. It is just a follow-up question. On commodities, what you were mentioning right now, what is the kind of factors that are restricting them to go for it all out? Does a co-location is a requirement for them? What is the kind of hindrance that you are getting a feedback from them?
Ashish Kehair: I think it is just prioritization and where they want to focus first and sequencing. I do not think it is a restriction on the side of the infrastructure provided by the exchanges or India right now. That is what my sense is. Maybe I will have a detailed understanding in the next quarterly call update further. But I do not think it is right now, because whatever discussions we have had, we have not heard the team saying that, "If this happened, it can become faster." It is just sequencing and the time it takes. Because the teams are separate, they have to get those teams organized, they will take a call whether they want to set up a research team in India or not, then the infrastructure, then the algo, then the testing of the algo.
Ashish Kehair: So it is a full battery. It is not just buying and selling a single trade.
Prayesh Jain: All right. Got that. The other question was, if you look at your balance sheet now, you were mentioning about the debt-to-equity 2.9x, want to be comfortable at 2.5x. Would this restrict your possibility to grow the business on the lending side in any way? How do you think about the balance sheet? Just stopping dividends for a half a year wouldn't play a meaningful role in strengthening it. How do you think about the balance sheet from here now?
Ashish Kehair: Well, we'll have to look at the dividends and maybe see whether we overall continue with that 40% to 60% payout, because that can now become detrimental for shareholders. When we started or when we went into that dividend of 40% to 60%, we felt that it's better to give the money back than to keep with us. But with ROEs now ranging at 29%, we are getting opportunities to deploy. One way is to continue to give dividend and raise capital from the market, which personally we feel is not the correct way because people end up paying taxes on dividend and then you're going and diluting further by raising a QIP or doing stuff like that.
Ashish Kehair: Maybe a more saner approach is if you're having a more productive use of capital inside, you reduce the dividend to certain level, keep a minimal dividend, and then improve your debt-to-equity and also continue to deliver growth. I think that is a debate we are having with our board right now.
Prayesh Jain: Rajiv, does it restrict you to grow the lending book in any form?
Ashish Kehair: It will, no. We are not a corporate or a big bank-owned NBFC.
Ashish Kehair: Our peers, let's say both Motilal and 360 ONE would be at a debt-to-equity of 1.5.
Ashish Kehair: Okay? Our rating and 360 ONE rating are at the same level. Moti is one notch above. If we continue to increase the DE, it puts rating also under watch. It pulls up the covenants of banks also who have given lending. It pulls up the covenants of NCDs also. For an NBFC of our type, generally we have seen rating agencies, banks, everybody is comfortable if you are below 3, and they are very, very comfortable if you are around 2.5. If you are actually coming back to 2.5, and then if you are able to generate a profit of, say, INR 1,200 to INR 1,300 crores a year, if you give out dividend of even, say, INR 200 crores, and these are all hypothetical numbers, please, because nothing has been discussed at the board.
Ashish Kehair: On INR 1,000 crores with 2.5, you can add another maybe INR 3,000 crores. So INR 4,000 crores of expansion is available to you for the book, which on a book of, let's say, 6 plus 3, 9, or 6 plus 4, 10 right now, you still can grow by 40%. I think right now it seems like the internal accruals are enough to fund the future expansion, and we may not need to access the Capital Markets.
Prayesh Jain: Got that. Last question, anything on PAG stake sale? We keep hearing news in the markets with respect to various things. Anything that you want to kind of, that you can highlight on this call?
Ashish Kehair: Nothing as of now. I mean, that process is being done by the shareholders. As I said, if anything meaningful happens which requires us to disclose, we will immediately disclose.
Prayesh Jain: Got that. Thank you.
Operator: Thank you very much. As there are no further questions, I will now hand the conference over to the management for closing comments.
Ashish Kehair: Thank you, Nirav. I want to thank all the participants for taking time out on this extended weekend. It is the Diwali weekend, and would like to apologize for inconveniencing them. But thank you for being here. Would look forward to meeting everybody in the next quarter. Wish you a very happy Diwali once again.
Operator: Thank you so much.
Ashish Kehair: Thank you.
Operator: Thank you. On behalf of Nuvama Wealth Management Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines. Thank you.
