Nuvama Wealth Management (NSE:NUVAMA) Q1 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the Nuvama Wealth Management Limited Q1 FY 'twenty seven Earnings Conference Call. As a reminder, all participant lines will remain in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I will now hand the conference over to Mr. Ashish Kehir, MD and CEO, for opening remarks. Thank you, and over to you, sir. Thank you. Thank you so much. Good afternoon, everyone, and a very warm welcome to all of you for joining us today.

0:48 As always, it's a pleasure to connect with you all. Joining me today on the call is Bharat, our group CFO, along with our investor relations adviser, SGA. We'll begin with a brief overview of our performance for the quarter. And once I'm done, Bharat takes over. And once both of us are done, we can quickly jump to take your questions. Just a quick summary. I think it was a strong beginning for us this year delivering record quarterly profits and healthy all around performance across all our businesses. This was also reflected in a significant milestone for us this quarter. Client assets crossed INR 5 lakh crores. Our quarterly revenues crossed INR 900 crores, and our quarterly PAT crossed INR300 crores, an all time high for us. ROE still stands near 30% and remains to be one of the best in the industry.

1:49 Before I discuss our business performance, let me just share some quick observations on how the industry is evolving and how we see the opportunity ahead. I think I've said some of these before, so I'll be brief. Some of you may find it repetitive, but I think nevertheless, it merits a discussion. Firstly, I think the value of full platform models is becoming increasingly evident. Across the industry, you'll witness that if someone is a stand alone wealth manager or asset manager, they are trying to build capital market capabilities. While the traditional capital market broking investment banking firms are clearly seeking to strengthen their wealth franchise.

2:35 So I think that convergence is clearly visible across the market now, which we've been talking about for five, six years that this is inevitable, this is going to happen. Second, I think Independent Wealth Management as a cluster is becoming an emerging powerful force. A lot of new entrants are coming into this business, whether it's banks bringing focus back or private equity funded players, a lot of action you're seeing in this segment. Third, I think in addition to ultra high net worth, which, of course, has been mainstream for quite some time now, the affluent and HNI segment is also emerging as a very, very attractive opportunity.

3:21 It's extremely large. It's growing. It's omnipresent across the country. And it remains structurally underserved, and it remains difficult to serve. It's not a very easy segment to crack. It takes time, but it is an attractive opportunity. And lastly, I think it merits to say that technology and more so generative AI is playing a very, very transformative role. I don't know how it is going to evolve in the next four, five years, but I think it is definitely going to bring in lots of efficiency for everybody. Some may be slightly ahead in the curve, like it happens in any technology innovation.

4:10 Initially, it is always non mainstream, a few people do it. And in two, three years, it becomes mainstream, it becomes par for course, it becomes hygiene. Most of the players have it. So I don't think people need to panic about it. We are investing around it. We are investing heavily. And I think it will benefit most of the industry because it will bring efficiency in every part of the value chain which we deal with. With that context, let me now quickly share a few highlights across our businesses, starting with Nuvama Wealth. I think we took a call long back that putting the power of choice in the hands of the client is a central differentiator to us.

4:59 And this is what this business represents. Our MPIS model is a strong reflection of this philosophy. The platform empowers clients to define their objectives and access to investment solutions across the board. It's not narrow. It doesn't confine the clients to choose from only one or two categories. It keeps it open because we understand that every client is unique and their needs are unique, and it can be fulfilled through the wide range of solutions available. Revenue from NPIs grew by about 20% year on year. Net new money, one of the highest quarters ever. We crossed INR 3,000 crores in this. And overall assets also increased by about 32% year on year, hitting INR 42,500 crores. I think one of the interesting observations which we are seeing that the year two and beyond is expanding faster.

5:53 I think now it has started contributing to more than 35% and growing even in the NPI segment. Second, I think the success in this model ultimately is driven by the quality of advice, which gets delivered to the client. And to support this, we continue to invest in our talent ecosystem, which begins by hiring the right cohort, the right seniority. And as I mentioned last time, we are doing a seniorization of the entire team. We added 14 more net relationship managers in that cohort this quarter. Third, to continue my discussion on tech, we are deliberate and intentional in investing in technology and AI across the value chain. And this business, I think, will get the most of it. We've introduced concepts like nuggets. This is a AI based chatbot with services, RMs, and our external wealth managers.

7:01 We have something called RM Buddy, which is a voice enabled AI assistant for supervisors and RMs to manage their whole life cycle client book and gives personalized insights to them as to how they can improve their performance. We have a customer profiler, which is now completely AI based. We've done a POC with about 200 people, and we'll roll out to the full team very soon. I think all this has led to significant productivity jump across NPIs, both revenue, net new money assets. We have seen more than 25% jump per annum year on year and overall revenue jump of about 17% per annum year on year. And lastly, on lending, we continue to scale the book. We had mentioned a few quarters back that the growth of the book will be in line with the overall business.

7:52 The book has now crossed INR 5,000 crores lending book. And NII growth was also about 12% Q on Q. It remains at about 20%, 22% of our overall revenues in the quarter. Moving on to Nuvama Private. First and foremost, RM edition. I think I mentioned last time that this segment is seeing some intense competition. It's not that it was not there earlier, but I think it's become more heightened now. And I shared my views around it last time. But I keep telling my colleagues that it's a good thing that we keep struggling for items because it actually shows the hypothesis that the growth is intact in the industry.

8:39 And we've made a bet long back, and I think it's playing out now. Against this backdrop, we are happy to state that we've added about 11% of our force in the last one year, and we've added about six to eight RMs in the last quarter. I think we offer one of the most comprehensive platforms for seasoned RMs in the industry. Across the entire solution spectrum, it basically allows them to serve their clients in the best possible way and also gives immense opportunity to create wealth for themselves. During the quarter, we expanded our presence both in Tier one and emerging wealth markets, adding people across Mumbai, Chandigarh, Ahmedabad and Chennai.

9:28 Moving to recurring revenue assets. We continue to see decent momentum there. Full year basis, the ARR assets grew by about 20% to 58,000 crores. And net new money into managed accounts continued to remain strong at about INR 1,800 crores. Overall, ARR flows this quarter was slightly soft on a net basis at 1,000 crores because we are in the process of weeding out some extremely low cost mandates, which were acquired long, long back. These are historical mandates, and we are in the process of cleaning them up. So I think that number is a reflection of post that cleanup. Our target for the full year still remains at 2022% of the opening assets.

10:15 We've launched an offering here for the super ultra HNI called Pinnacle. It's a very, very differentiated offering, bundling multiple things and delivering a lot of value proposition to the client. I think it will help us in garnering more ARR assets here. Talking a bit about offshore. Our focus over the last eighteen months has been to build the platform out, and I think now we are seeing the delivery happen. We have two locations, Dubai and Singapore. Dubai, we've already broken even, and Singapore will breakeven by the end of this year. Overall revenue contribution from offshore will remain between 5% to 7%, at least in this year. We are now in the process of ramping up capacity there.

11:01 It is a highly accretive ROE business because lending in this business doesn't sit on our books. Any offshore lending sits in the books of our partners. So basically, there is no capital usage, which happens. So once you breakeven, everything is straight addition to return on equity. I think overall, offshore is becoming an important element, not only to serve clients outside but also to deliver a holistic value proposition for clients in India. Clients in this segment and even in the H and I segment are, in some sense, becoming globally integrated citizens. And allocations are moving out to global assets not rapidly, but I think slowly and steadily.

11:47 And our view is that over a three, four year period, you will see a 20% maybe around 15%, 20% allocation sitting in a lot of client portfolios, which have offshore assets. And if you have a presence overseas, your ability to serve them becomes better. So I don't think offshore any longer is a luxury. It's a necessity, which every wealth manager will have to have. RM productivity here also continues to be strong. We've seen a jump of about 17% to 20% year on year. Moving to asset management. Let me start with commercial real estate. We successfully closed our first commercial real estate fund. It's branded as prime, prime officers fund. We closed at around INR 4,000 crores. We had initially launched with a target of INR 3,000.

12:41 We've completed deployment of around 40% across three to four marquee assets between Chennai, Delhi, Pune. We are on the verge of completing a few other transactions. And the target is to deploy about 70% of the AUM in the next maybe two, three months so that by end of Q3, we can launch the second fund, which we want to have around INR 4,000 crores to 5,000 again, slightly different strategy from the current one, but in the same space. And then eventually, over the next twenty four months, we are contemplating of looking at building a REIT platform because many of these assets that you are acquiring are real marquee assets, and there is no point of selling it out completely.

13:36 We can move into a REIT platform and have a source of permanent capital in this business. Moving to private equity. Last in the last call, I had mentioned we have done a change of leadership there. Under the new leadership, our objective, single sole objective remains to complete the deployment of the old funds and start returning money, which we are now doing. From first fund, we've returned about 30% of the capital. Second fund, we have returned about 15% of the capital. And we are in the process of raising our fourth fund, it's branded as Crossover four. We've done about INR 300 crores to INR $3.50 crores. We are targeting anywhere between INR 700 crores to 1,000 crores there. Moving to private credit.

14:21 Our CIO hiring was done last quarter. Now the team build out is happening. I think it may take another two, two point five months to have a basic level of team in place. And then again, middle to end of quarter three, we will see the launch of our first private credit fund. I think private credit, in some sense, will have a multiplier effect on the transactional income or also the co invest income for both the wealth businesses because credit offers significant co investment opportunity and has a decent appetite across the client spectrum, which right now, we work with the external credit fund managers whose products we offer to our clients. In addition to that, we'll also start offering our own funds going with opportunity. Opportunity.

15:10 Lastly, coming to public markets. I think there, we've seen some amount of volatility given the performance and also due to the launch of SIS, which are clearly a more superior tax vehicle. We've seen some redemptions in our absolute return fund and our long short fund. We have received the MS license as in the process of getting the SIF license. And once our SIF is launched, hopefully, we will be able to move the assets from this to that. On an overall P and L perspective on asset management, many of you have asked me in the past that when do you think it starts making money. So I wanted to tell you that at a strategy level now, commercial real estate is making money. Private equity is also making money and public markets is also making money. But because we are investing into new categories, which has a drag of one to two years, and we've taken an MF license, which needs a separate sort of team from front to back, I think that part of the investment will get over this year.

16:16 Right now, our cost run rate is between INR 30 crores to 33 crores a quarter. Our assessment is that it will peak at INR 35 crores, 36 crores a quarter. And Q4 by the end of Q4, we will start seeing the revenue inching up with the launches of new products. So this year, we will end up at a cumulative loss of around INR 35 crores, 40 crores. And subsequent to that, you will see the path to breakeven start. With that, let me move to our next segment, Asset Services. Momentum was extremely strong this quarter. There was a significant business growth of around 20% quarter on quarter. Average client assets have come back to Q1 level of last year when we had lost a very large client, and retention is continuing to be strong.

17:13 Just one word of caution, we'll see we have seen extraordinary level of growth here. I think over the coming few quarters, are not expecting a quarter on quarter growth like this. There will be some amount of moderation as new client acquisition has happened and a lot of collateral is right now sitting in cash, which will get converted between cash and GCEK. So we may see some level of moderation. But on a full year basis, we are confident that revenue growth will be more than 20%, 25% here. We are also investing and building the proposition on this business. You are aware that business is divided into two segments, international and domestic. On the international side, I think some significant initiatives are being planned right now, which will start yielding results.

18:05 Specifically, three areas of opportunities have been identified. One, subsequent to this STT coming on futures and all, single stock futures and gift have become a proposition where we are seeing few international players wanting to start activity and are asking us to support them, which we will start. Commodities is becoming important for clients. And you fundamentally can see, right now, the collateral of client is being used on Tuesdays and Thursdays because these are the two expiries. If we are able to onboard commodities, then Monday, Wednesday, Friday opens up. So it gives significant amount of efficiency and improves the return on capital for our clients.

18:52 So I think that is where we are working on. And the third area, which is also extremely important for us is trying to work on a global custodian, local custodian arrangement, where we have a strategic partnership with a global custodian who doesn't have a presence in India, and we give them the India leg, which allows us to access client segments, which, let's say, most of the other global custodians, which have a presence in India can access, which is long only funds and hedge funds. It's a new segment that will open up for us lead time. On the domestic side, I think I mentioned in the past that we'll continue to progress on our RTA offering and trustee build out. I think maybe another quarter or so, and we should roll that out. And that hopefully will lead to a further increase in our market share in that segment.

19:45 Lastly, coming to capital markets. In the equity market environment remain broadly similar to what we witnessed in Q4. Primary market activity was very, very selective. The total number of IPOs, which we saw in Q1 were eight as compared to 15% in Q4 and maybe 14%, 15% last year. And even the fund total amount of fund raise fell by around 60%, 65%, both against Q4 and last year Q1. But now we are seeing that activity come back, and there is a lot of pent up demand, a lot of documents have been filed. So I think the balanced nine months, hopefully, we should see better activity there.

20:32 On secondary market, the volumes have been steady. I think cash volumes have actually seen an uptick and derivatives have been rather flat. There is one key monitorable, which basically on the new regulations, have come around derivatives, which is STT and on intraday financing and bank guarantee collateral around these two. We've seen the numbers, we've ran through the numbers. At least we don't feel that there's going to be a very, very significant impact, but we'll closely monitor on that. In the capital market side, I think one point which we wanted to highlight, which numbers are actually showing, Our fixed income activities saw phenomenal activity in this quarter.

21:20 The most of the jump actually on the investment banking side has come from fixed income. And there was significant amount of FPI activity in this quarter initially because they were selling as rupee was depreciating and there was hardening of yields. And towards the end of the quarter, they were buying as government made the capital gains on GSEc tax free. And I think we participated wholeheartedly on both the sides and made significant amount of money. I think there is some amount of, I would say, income which may not be repeatable in the coming quarters, maybe about INR 15 crores, 20 crores, which we benefited in Q1.

22:08 With that, I think I'll come to an end, and we'll hand over to Bharat to share the granular numbers. Over to you, Bharat. Thank you. Yes. Thank you, Ashish, and good afternoon, everyone, and a warm welcome to all the participants on the call. Ashish, anyways, covered the headline numbers. Just to repeat few headline numbers, we started this year on a strong note with quarterly profit of INR 300 crore plus. Just to put this number in perspective, in FY 'twenty two full year, we did a profit of around INR $2.92 crore. And after four years in quarter one, we have done a profit of around INR 300 crore. And that is also not coming from one or two business lines. It is across the business lines. So I think that says it all in terms of that the platform strength and the multi business model is working fine for us.

22:56 Along with that, the Krishtel has also upgraded our rating from AA minus to AA positive AA stable. So that has also been reflected because of the financial strength. Now coming back to the Q1 specific numbers, so we have actually crossed the 5 lakh crore mark on the client assets and now the client assets should set around INR 536,000 crore. Obviously, it is led by the strong net new money as well as the mark to market during the quarter. There's another milestone which we have achieved. So if you look at wealth and private, we always talk about more on the MPI's asset for wealth and ARR assets for private or both to put together has also crossed the INR 1 lakh crore mark. Now NPSSS stands at around INR 43,000 crore and ARRSS stands around INR 58,000 crore. This is a strong growth of around 3221% respectively for both private both wealth and private.

23:47 In terms of the net new money, again, has been a highest ever quarterly flows for us crossing INR 3,000 crore for Nuvama Wealth in the MPS exercise. And even if you look at private ARR, as Ashish was referring to a low earning advisory kind of an AUM which we have actually let it go. Our overall net new money on an ARR has actually been INR 1,800 crore for Q1 for private. So that has been going fine. On the asset management side, we actually closed the prime fund at INR 4,000 crore. We actually initially launched it with a INR 3,000 crore target, but we actually ended up doing at INR 4,000 crore. And we have got the SEBI Mutual Fund approval as well as we have applied for our SIF license. So hopefully, starting quarter three, quarter four, we'll have lot more strategies coming up in the market and that will give that momentum to the asset management business.

24:38 Coming to the overall revenue, our revenue was at INR909 crore, which is an 18% growth. And within that, Wealth Management grew by 19%, which is almost like 50% of the revenue. Asset services, as we discussed, that has seen a very good number in quarter one of this year, around a 34% growth over previous INR260 crore. But as Ashish also referred to this, this could be not that this continue to grow at this kind of a number going forward. This will moderate to some extent, but that's where we are. It's a base effect. In terms of the capital market, our number overall revenue number is flattish versus quarter one and around INR 180 crore, but this is because the I revenue is actually dropped compared to quarter one of last year because we had a large ES client which was sitting and helping in that business, which is not there in this case. Despite that, our total number is around INR 180 crore.

25:31 And as we discussed that on the IB side, it is the fixed income business, which has actually done very good in this quarter. Again, this was led to because of there was an opportunity when the on June 7 when the government has actually made GSEIC interest income as well as capital gain tax free and including there is no withholding tax. So that led to a little bit more opportunities for the PIM market, and they obviously capitalized it because this was an opportunity. So maybe some part of this revenue may not repeat in quarter two and all. But having said that, fixed income is generally doing a pretty good job for us in terms of year on year growth in terms of actually expanding to new client segments, new revenue sources. So I think that's a pretty steady business doing well for us.

26:18 On the cost side, you will see that the quarter one cost has actually gone up by 19% and within that implied cost has increased by 17% and OpEx is up by 24%. So if I come to the employee cost in the 17%, so we have actually added almost 5% net capacity net people in over the last one year and we have actually replaced our low cost wealth RM with more senior experienced RMs. So that is playing in. Then there is an annual increment and as well as the variable cost, which is linked to the business. The data book captures in terms of the fixed cost and increase over the previous year and previous quarter. So that can give more insights to that. OpEx is actually up by 24%, but on a compared to Q4, it is down by 4%. So these are there are few seasonal expenses which comes in this quarter.

27:06 They'll be towards the marketing expenses, business promotion expenses, that will be around INR 10 crores to INR 12 crores. If I remove that, the OpEx would have grown by around 14%, 15% kind of a number, which we've always been maintaining that will grow. Our OpEx to revenue has been steady at, say, 14%, 15%. So to that extent, it is okay with us. If you look at the overall full year OpEx, I would imagine it will still be in the range of 15% to 16% for the full year. Twothree will go to the typical business related inflation related expenses and onethree will be towards the new initiatives. There is one more update on the OpEx side, which I would like to highlight is that we are looking for a new office because our current lease is coming for renewal. And as you guys know that under India's 116, when you do a lease accounting, there will always be some charge which comes upfront.

27:57 And then as the lease matures, it starts decreasing. As of now, we have not completely finalized anything, but we'll keep the investor updated on this development and we'll provide further details during our quarterly results. This cost will be over and above what I have mentioned in terms of the usual OpEx growth for the firm. So this will be there. Having said that, on a consolidated basis, our cost income ratio is around 55 and maybe for the full year, this will remain around this level only. See, if you look at from a cost perspective, there are three things which will play in. One is the operating leverage, which is coming in wealth and private. You would have noticed that wealth CI has actually dropped by 160 basis points. So to that extent, these two businesses will start giving us operating leverage. Asset management, as Ashish was also saying that we are in the process of actually this year could be a peaked out in terms of our cost for the year. And subsequent to that, this will start coming down as a cost to income ratio. And the third will be the capital market. Within that, asset services is pretty stable.

28:58 I think within capital market, when you look at I and IB, I and IB and within IB, it's mainly the ECM part. I think these two businesses are very much linked to the market activity. And hence, on a quarter on quarter basis, you may see a cost to income ratio goes up and down. But having said that, on a full year basis, we still believe that it could be closer to 55%. Maybe our quarter can be a plus percent, 1% and our quarter may be a minus 1%. So we are okay with that. And finally, if you look at our operating pad, this is at INR $30.06 crore, which is a 16% growth year on year and ROA is still close to 30%, which is a pretty, I would say, a good number to have. And that's where we are. I'll looking at the time, I will request the moderator to take the Q and A now.

29:48 Thank you. Ladies and gentlemen, we will now begin the question and answer session. Participants are requested to use their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from the line of Raeesh Jain from Motilal Oswal Financial Services Limited. Congrats on good numbers. Firstly, on the private side, the cost to income is at 70%.

30:35 We have been discussing that the overall wealth cost to income should tend towards 60%, 62% over in the near term and then in the medium term. When and how do you see this progressing, particularly on the private side? Because wealth definitely is progressing towards that mark. But on the private side, it's still kind of elevated. And what is the kind of RMA addition that you're looking forward from your year as well? So Presh, Q1 actually should not form the basis. If you look at Q1 FY 'twenty six also, it was 69,000,000 and Q1 FY 'twenty seven is 70,000,000 But overall, profit growth delivered is about 22%, right? So we also basically load the variable incentive in line with the revenue growth that happens.

31:30 Full year basis last year was around 66. I think we will be lower than that this year. And RM addition, essentially, our desire always is to basically keep adding 15%, 16% every year, provided the market allows us to do that at costs which are not upsetting to the overall business. Last twelve months, we've added about 11%, 15 RMs on a net basis. And even Q1, we've added around six I think that will continue. That won't stop. And overall, as you rightly said that 60% to 62% medium term, that target also remains over the next three years.

32:19 Got that. And on the wealth side, the retention seems to have fallen from about 90 bps to 85 bps. What was the reason for that? So, typically, q four, q one, the one biggest phenomena in that business is insurance. In insurance, q four numbers are normally higher. So your your... For a lower denominator, you get higher income, so there is a few bps uptick that happens. And second, in that business, we report the total yield. So what happens that in a quarter when the equity market has high mark to market, positive mark to market, but your overall brokerage revenue doesn't go up, I mean, in tandem, then there is a downward movement of yield.

33:14 And on the reverse, if there is a decline in nifty and broader market and your brokerage doesn't fall that much, there's an uptick in yield. So that adjustment, you'll have to keep in mind in line with the mark to market data. Got that. Got that. And, you know, on the AMCP, the ease have shot up significantly, particularly if I look at your, yield on the private market side. What kind of things have changed that kind of yield has gone up so much? So if you see, Praj, last year after Q1 in I think Q1 end or Q2, I don't remember, we had mentioned in the call that we will give a pause to the fees that we are charging on our venture debt fund because there was a change in the market condition and the yields in the market has fallen significantly and the riskiness in the deals had gone up significantly.

34:17 So we had slowed down the pace of deployment. So we said in order to not disadvantage the investors in the fund, we will forego our fees, and we will start charging it next year. So three quarters, we did not charge. And Q1, we have restarted charging. So basically, it's that difference only, nothing else. So this should sustain now? Yes. Yes. Unless we stop again, this will sustain. Okay. And last question on the capital market side, the asset services. So you mentioned that there should be some moderation and full year growth should be 2520%, 25. So in that sense, it is more it will be more driven by ease and not by flows.

35:08 Is that the right way to think and how should we think Yes, yes, that's right. So flows will continue. The yield will adjust because some amount of collateral may shift from cash to GSEc. Rajiv, just last point here, the cost to income hasn't dropped in the segment. Probably looking at the revenue growth, it was in previous quarter, it was 40%, it's not 39%. Any IE or IB, we just put in the pressure, otherwise, we would have expected much more significant improvement here. And what should we think about full year cost to income in that segment? Similar range only because we've also provided for the variable cost in line with the revenue growth.

35:57 And investment banking, at least the ECM side and a bit of IE has been under pressure, which I think as it comes out, there will be an improvement. But I think overall, full year basis, anywhere between 36% to 40% range is what will remain here. Got that. Thank you and all the best. Thank you. We take the next question from the line of Deepaan from Goldman Sachs. Please go ahead. Hello. Please change your name. I think they changed your name. Yes. Dipane. Yes. I'll just go ahead with my questions. First, in terms of Nuvama private, the NPIS and Nuvama Wealth Management, basically the managed accounts and NPIS piece in both the businesses.

36:50 Just wanted to get some color on the asset mix and the underlying product mix in these two segments and how that would have changed during this current geopolitical crisis, if there has been some change or if you can give some color on that? Second was, I think in the domestic asset servicing business, I think you mentioned that you will be going live with RTA and trust to ship business, which should kind of help gain market share. But if I were to think from medium to long term perspective, I think in your IB, IE, some other segments you might be servicing some of domestic mutual funds also. So any plans, let's say, a foreseeable future to kind of try to get into that large segment on the MS side in terms of cost of opportunity through your IT? The third question is how should one think of the ESOP cost and dilution over the next two to three years?

37:42 Yes, those are my three questions. So asset mix, don't think one or two quarters have significantly changed it. But broadly, for us, it remains in the managed account and managed products and ARR segment between 30% to 35% would be equity and 65% will be nonequity. So it's not fixed income. It will be fixed income plus alternatives like credit, real estate, infrastructure. So products that could deliver clients' returns ranging from 7%, 8%, right up to 18% to 20%, but non correlated with the equity market performance.

38:29 People typically try to say that it's fixed income. It's not necessarily fixed income. It's yield, but the range is very wide depending on the product the clients have chosen. I think now some amount of come back to equities we are starting to see once there is some adjustment in the AI trade globally and some good, I think, discussion around India is happening. So maybe in the next two quarters, the proportion of equity may go up. On the RTA and trustee, both would be targeted towards the current client segments only, which is your BMS and AIF. I don't think right now, we formed up to go behind mutual funds because their banks still continue to have a better right to win because you need some form of balance sheet, if they need interest financing to manage redemption flows and all, we would not be superior.

39:34 However, for products which are like arbitrage funds or products which are SIS, which, let's say, which involve usage of derivatives or, let's say, categories where usage of derivative and efficiency of collateral becomes a more important paradigm for AMC to improve the return delivery to their clients, we have a play. Categories which are vanilla like long only fixed income and equities, where interlay financing is the play, we are not the preferred choice. So I think it will remain like that. I think ESOP cost, important question. We've right now, it's gone to shareholders for approval. It's not actually ESOP, it's stock appreciation rights, so ESOP. So I'll just explain the difference because it significant has impact on dilution. Most of the companies in India do an ESOP, which means if you do 1,000 units and if you grant 1,000 units and people exercise 1,000 units, it's a dilution of 1,000 units.

40:44 Whereas in ESAR, what happens if you grant 1,000 units, what finally the shares which are given to people who exercise, it's only to the extent of profit. So now assume that if Nuvama price today is, say, hypothetically 1,500 or INR 1,800, and let's say, average exercise of people is that hypothetically, say, double at INR 3,600, your dilution will become half. If it is, say, 30% above the current price, your dilution will become even lower. Whereas in ESOP, the dilution is one to one, the EPS loss to shareholders is significant. So our calculation is very simple. If the stock price appreciates by 20% every year for the next five years and people exercise one year after their vesting against the 7.5% pool, our dilution will be 3%, so less than half.

41:44 The cost to the company remains same as we saw the option premium, which will get recognized over the five year vesting period. Obviously, it will be up fronted more. The profit to the employee will be same as ESOP. The dilution to the shareholders is less than half. So it's like a win win for everybody. Cost for us is typically the premium cost is around 20%. So if we grant, let's say, we end up granting options worth 1,500 crores or 2,000 crores, cost order of magnitude is 300 to 400 crores over a five year period. Slightly heavier up fronted because that's how the India's costing structure flows down. But it's a noncash cost. There is no cash outflow, and you end up saving tax of 25%.

42:33 So actually, the cost is 75% of the premium cost. That's how it plays out. And there's some bit more technicality here. Whenever the exercise happens, there is a perquisite value on which an employee gets taxed. Actually, companies have started claiming that perquisite also has cost, and you end up saving. So if you are able to do that against the total cost of 400, our net cost will be INR 150 only over a five year period. That's the sum and substance of our ESAR. Got it. Thank you, sir, for the comprehensive answer. Just one small question on the wealth business. You have previously classified I mean, previously classified your Nuvama Wealth AUM between relationship manager driven and external asset manager driven. But from a flow perspective in the ARR segment, since you categorically mentioned that a lot of flows are coming in from Tier two and Tier three, is there any breakup that we could get maybe on a rolling basis between RM and EAM from an ARR flow perspective in the Nuvama Wealth segment?

43:36 We'll have a look at it. And if we can incorporate, we will add it. But it's broadly in a similar range as AUM right now. Got it. Thank you, sir, and all the best. Thank you. We take the next question from the line of Madhu Karam from JPMorgan. Please go ahead. Hi. Hi, Ashish. Hi, Bharat. Thank you for taking my question. So you spoke about the external optionalities and you... And the business that you want to create on that side. So in particular, you spoke about the gift city option, and second was, you know, making that margin line with you on the asset services side available for other exchanges.

44:29 So on on... Specifically on the second option, can you elaborate a little bit as to, you know, what stage are we in this thinking process? Can this actually be done given, you know, certain restrictions on, you know, commodity exchanges? So where are we over here? And, also, how large can the opportunity be on the gift certificates derivatives trading business out there? So... Yeah. So any sort of guidance and and additional color on this is what I would want to know. I think, Madhuka, more clarity will evolve in the next two, three quarters, at least on the gift city because, as you know, it's right now premature because the tax the cost structure in India has created this opportunity where there is no STT in Gift City, and there is an STT on the domestic exchange.

45:30 But for any derivative market to thrive, there has to be volume. Right now, the volume is restricted to index. It's not in single stock. But there are large participants globally who have approached us that they want to they obviously run swap books globally. And those swap books can be hedged using there if they trade between themselves also. So I think that's how it will start. And right now, they want to work on a minimum commitment basis. So that's how it starts. And I think that we will see how that build out happens. It's a bit premature to talk about how the volume will evolve because we'll have to see how it goes. Commodities, on the other hand, the movement is faster, whatever APIs are allowed to do. Some of our clients have already started doing.

46:19 Specific numbers, We may we'll come back in the next quarter. But I think as a rough cut assessment, what we were seeing, it can become at least 15% to 20% of the equity market size for our relevant client segment in that sense, the way it is evolving. And the third one, which I mentioned, which actually can become very, very large is the global custodian, local custodian tie up because right now, we are precluded from targeting that client segment with where global long onlys are investing into India. We are actually closely working with two, three large global custodians who have access to global long only, but they lose out on their India mandates because they don't have any local presence. And that's what we want to fill up, so that they can pitch using our services and we get access to a new client set.

47:20 Thank you. We take the next question from the line of Sanket Gora from Avedis Park. Please go ahead. Yes. Thank you for the opportunity. So Ashish, is it fair to say that your private that is ultra HNI business? Because just want to understand from you from industry point of view that more and more people choosing advisory over trail based revenue is becoming a prominent factor, which honestly was there, but now you're feeling it will be happening more. And therefore, if you take a call of not doing the business at lower yield, is it fair to say that your heavy lifting of the incremental net flow numbers will be done more by mid market or wealth segment and maybe segment? In need to understand at what point of time you would be okay to do advisory business even if yields are lower?

48:21 Sanket, this actually, when we say lower yield, this is more like a corporate treasury type mandate, not a UHNI. UHNI, we are more than happy. And I think directionally, are heading towards advisory. Like I spoke about our pinnacle proposition, and we have our Infinity proposition. Maybe in next three, four quarters, you'll see the numbers separately coming from advisory. We are also now fundamentally clear that advisory in the current shape and form will start working. And on the overall book, the yield actually may go up. Because if you look at the combined yield today for any ultra H and I business, if you combine the transactional business and the ARR business and you take the full yield, it's not more than 30 bps, 35 bps ex of NII.

49:12 So I think that is easily achievable even through an advisory business and gives far higher stickiness in the long run. And that progression has started internally in terms of creating value proposition, creating teams and all, and numbers will eventually start flowing. So I don't think we are going to because that is the reality that is going to play and that I'm also seeing the regulatory infrastructure change because today, if we are doing advisory with an accredited investor, we can offer all distribution services also to them. Earlier, that was not the scenario. So clients are losing out, advisers are losing out. Right now, the package is becoming far more stronger. So I don't think you should take the statement of weeding out low advisory in that direction. This is more legacy account, typical corporate treasury and all, which we may want to shift to transactional business kind of category. But ultra HNI, we will progress towards advisory.

50:15 So Ashish, is it fair to say that today, last year, you were almost at 90 bps on private. In the quarter, you reported 82 bps. So on ARR, mean, so basically, this number, because advisory going up will keep on seeing little trending downwards, assuming you don't get consumer rate NII business? Not really. I think in the next two quarters, you will see the range to be again. So I've always maintained, Sanket, that between 80 to 90 at this point in time is what we are able to see. It depends on the product mix of ARR, what gets done or what proportion of product of between AIF II, AIF III, MF PMF becomes heavy in a quarter.

51:03 Let's say, we have a blockbuster product in category two AIF in a particular quarter, it could cross 1% also. I don't think right now that impact of advisory will play out. Maybe next year, we may see, but then the flows will become far larger once that happens. And of course, NII, as you rightly said, that tool remains with us. Okay. So Ashish, if you can give a color out of that INR 58,500 crores of closing AUM, what you have in ARR, how much is today advisory and how much is on trade? INR 13,013 thousand Okay. Understood. And second question, which I wanted to take is that there was a city consultation paper on PMSMS.

51:50 Do you think this is a big opportunity for us in mid market segment or segment? And I don't know whether the 2.5% fees, what you can charge will hold up or not, but any initial thoughts you have on this piece? Not the PMSMF piece because actually 50 has become 25, and we already had a product in our setup at 50, which was a PMSMF of direct plan. But I think the other measures which they have mentioned, that can have more impact for both our businesses, which is allowing for to be listed securities to be incorporated that makes PMS come at par with MF and EIF, allowing for overseas investments to be made as part of PMS.

52:47 I think that will be helpful because it will allow us to give sort of global diversification in the portfolios if clients are giving discretionary mandates on the wealth management side. I think these two measures have will have better impact than MF only. MF only was already there because people were using it. I think it is to enable others who needed higher amount of capital and all to have a vehicle, not for established wealth managers. Understood. Understood. And Ashish, one more just maybe a color on flows numbers because last year, we did around INR 20,000 crores of net flow if I include NPIS, private AR and ANC.

53:32 So any color you want to share, you will see that number to be in '27? And if you can split among the three segments, which you just mentioned would be useful. See broadly, some... And these are obviously, you know you know, indicative numbers. But the Yeah. Way we are seeing it is that between wealth and private, both 10,000 to 12,000, 10,000 to 12,000, so range of 20 thousand to 24,000. And AMC, are seeing anywhere between 3,500 to 5,500. Okay. Understood. Understood. Understood. And lastly, on this IEIB business, largely, it was driven by IE in the current quarter.

54:26 And before next year, the IPO market or the Asian markets become super active, then IE should support the incremental growth for subsequent quarters? So first quarter was a combination of institutional equities plus the fixed income part of investment banking. Fixed income part of investment banking really hit it out of the park. So let's say some bit of moderation happens there, and that will get covered up by the ECM ramp up plus more. So I think ECM, like you said, once it opens up, you will see better growth in that line from where we are because fixed income on base level has been set and IE continues to do well.

55:13 Yes, ECM was very, very bad in Q1. Understood. Understood. So basically, 180 crores kind of a run rate is more manageable number for next four quarters three quarters. Yes. Okay. Okay. That's it from my side. Thank you. Thank you. We take the next question. The next question comes from the line of Lalit Mohandeo from Experian Securities. This Lalit, we can't hear you, Lalit, at all.

55:59 Yes. Yes, sir. Is this better? Yeah. Yeah. So, sir, just one question on this lending book. So we are seeing a good growth on a sequential basis when... But when we calculate the margins now, I understand this is based on the period end numbers. But in terms of margins, we are somewhere currently trading at around 3.7, 3.8% on a period end basis. So, like, what would be the steady state margins in our lending book? And going ahead, how should we see this overall lending book both in private as well as in wealth business? So about 30, 40 bps higher than this because, like I've mentioned in few calls, our cost of debt basically moves a bit up and down because of the hedging gains and losses, which comes on our MLD book. Our overall borrowing has about 25%, which is MLD, on which we keep hedging.

56:52 On a full year basis, we are able to save around 50 basis of cost. In some quarters, you were slightly negative, in some quarters, you were slightly positive. So if you see Q4 of last year and Q1 of last year is where we saved about 60 basis 70 basis and Q2, Q3, we were slightly negative. So this year, Q1 is like the Q2, Q3. So basically blended, if you are asking me from the current level, you can add 40 basis 50 basis points from here. We take the next question from the line of Sandhya from Unicorn Assets. Please go ahead. Hi, Sandeep.

57:38 Ashish. Very good color in the opening remarks about the tech capabilities that are driving the sector right now. Would want to hear more upon how do you see in the wealth segment particularly as you see even... Say, the largest retail focus broker in the sense or the other other brokers as well, which are basically platform or technology driven. They are focusing more on the mid to lower ticket size of clients in terms of wealth management. Like, in the holistic sense, mainly driven by the technological benefits that they have. How do we see ourselves facing that? Because I think Nuvama is also in the same category. Are we competing? Are we Actually, there is a category difference in the customers which we handle.

58:27 Yeah.. Each of the segments are very, very large. So segments which can be completely or I would not say completely, I let me correct myself, that can be largely managed by technology as the end delivery channel to a customer has to be has to enable execution using very, very simple products. It can't be complex. It can't have multiple categories unlisted, off shore, AIFs, PMS. It's very easy to say that I will enable all execution online, but for a customer to consume that much and take action on it is virtually impossible. So there have to be simple products, which means the ticket size of the disposable network which the customer has has to be significantly smaller so that they don't go beyond. So you're talking about INR 25 lakh, INR 50 lakh, INR 1 crore, INR 2 crore customers, where their investable surplus is in that range.

59:34 Maybe technology can end up doing the end to end execution in perhaps the next five years because you'll reduce the product complexity maybe to only MF or MF plus, maybe maximum one more category. Beyond that, it's difficult. Globally, we have not seen it's not that technology can't do, so don't get me wrong. Technology can do everything. And if it happens, we will also offer. The customer is not in the position to consume that and to take that service using technology. That is the state and that is the and that I don't think is going to change. People who have INR 10 crores, 15 crores, 20 crores, they will have needs which will become significantly more complex and human interface on advisory will still remain.

1:00:26 Yes. You were highlighting that we are trying to reach when reaching to the clients which were not easily available earlier. Could you share more color on that? So we are going beyond tier one, but we are not changing the segment in which we are operating. So we are not going... So there is geographical distribution, and there is affluence distribution. Affluence distribution, we are not diluting. We are not saying that we are going retail or we are not saying we are going down the value curve right now because the segments in which we operate are large enough, and they are fairly well expanding. It's not that we have some dominant market share there.

1:01:11 So I think there is a lot of play available. There are segments which are below us. They are also large enough, and different types of players are suited to capture that. I I think it'll be difficult for people to cross each other. It's a different DNA, different customer set, different product set. Everything is very, very different. Do we think beyond tier one, there is enough entity for us to operate and be profitable on the large scale? Yeah. Yeah. Obviously, initially, it would be less, but then eventually, we think we can do that. Yeah. Yeah. Absolutely. Absolutely. We have no... I mean, that setup for us has worked out, and we've been now present in 65, 70 cities directly. And through our external wealth manager model, we are present in about 400, four fifty pin codes. I don't think that's a challenge anymore for us.

1:02:07 Okay. And are we setting up physical offices then? Or Not everywhere, but top 70, 80 places. Now we have physical offices. And we are actively getting registered managers in those places? Yes. Cool. That explains. On the private private business, so is there anything to read except for the few quarter four versus quarter one differences in the revenue? I don't think quarter numbers should be looked at so much. You should see it full year. And if you have to look at a quarter, you should compare with the relevant quarter in the previous year. There's nothing much to it. There's no structural change in the market space or in the margin or at a product level margin or customer behavior, nothing.

1:02:55 Okay. And on the commodity trading, whatever we were discussing, the other participant also asked, Where do the revenues end up for that business? Is it largely the asset services and the capital markets? Both. I mean, if there is... Obviously, on the wealth management side, also customers who do commodities that would sit in wealth and private, but that's smaller. When I was talking at that point in time, I was talking more on the asset services business, our international clients, they are opening up to doing systematic quant trading on commodities in addition to what they do on derivatives, equity derivatives, and that is opening up. And the key point is that their collateral, which right now sits unused on, let's say, Monday, Wednesday, Friday, will start getting used if they build on commodity. So it just for them, that return on capital today is, let's say, zero, anything they get is superior.

1:04:04 So that improves the possibility of more capital flow coming into the country and also mitigates the negative impacts that could happen on derivative tightening or or whatever. Yeah. Makes sense. Is it... And is it more linked towards now NSE also launching different commodities? It does. It does. It... That also helps. It really does help. Right? So Gift City and NCS as well? Yes. Yes. It does. Great. Great. Great. Okay. Good. Good quarter. All the best for the next one. Have a good one. Thank you. We take the next question from the line of Siddharth Nagandhi from TWC. Please go ahead. Hi. Congrats on a good quarter. Just two questions.

1:04:54 One, a clarification on on whether I got that right. You mentioned that the ARR yield net of lending would be very similar to the 35 odd bit that on advisory. No. No. What I said was that if you take the total revenue in private, which is transactional plus ARR, and divide by the total AUM. And from that, if you remove the lending, actually don't remove the lending, take the full yield, then advisory yield is actually similar. Right now, the people what people bifurcate is that transactional, you don't calculate yield.

1:05:40 ARR is the only one where you calculate yield. But when you do advisory, there is nothing called transactional. For that client, everything you earn on the full asset. So right now, it's getting bifurcated into two streams. So advisory in the end can actually become more rewarding for a wealth manager if played well. Got it. And the second question was given given the strong growth on the transaction side in quarter one, do you see there being any one offs there that that, again, like you mentioned on the fixed income side, may not come through in subsequent quarters? Not really. Even in fixed income, I'm not saying it is one off. It's a heightened level of activity.

1:06:27 And you may see a compression of some INR 10 crores, 15 crores in the coming quarters. But private, as I've mentioned, in our transactional income, about 70% to 80% is BAU, which is basically equity broking, fixed income and MLD, about 70% to 80%. 20% is opportunistic trades, which can be unlisted shares, which can be credit deals, which can be secondary deals in AIFs. So the only variation is INR 20 crores. At some times, in some quarters, you may get opportunities which are more attractive, so it will be higher. In some quarters, it will be lower. But on a full year basis, let's say, we ended up last year at around INR 300 crores, INR $30.05 crores.

1:07:19 This year, we should be anywhere between INR $3.50 crores, INR $3.60 crores. Got it. Got it. That's useful. And and I'm assuming some of the jump... Extra jump that you've seen this time is coming from that 20, 30%, which is, which is a little more variable. Yes. Okay. Clear. Thank you. Thank you, and all the best. Thank you. We take the next question from the line of Srenik Mehta from IndoAlts Wealth. Please go ahead. Srenik, please unmute your line and proceed with your question. Hi. Can you hear me? Yeah.

1:08:07 Okay. So I just wanted to ask you about the assets of the markets. This you have combined in a single $2.69 crore PBT. Within that INR $2.69 crore PBT, what is the capital market PBT in Q1 versus the Q1 of FY 'twenty three? That we don't share. Okay. And what is the absolute decline that you are seeing in the capital markets? If you can share that because your fixed income has grown two x. So there will be some But capital market, sir, listed equity and the ECM piece between q four and q one is nearly flat to marginally positive Okay. Between q four and Also q also positive growth in institutional equities and IB as well.

1:09:14 Marginally. Yeah. Marginally. Okay. Fixed income was stronger. This was marginal. All right. Thank you for this. All the best for your next coming quarter. Thank you. We take the next question from the line of Abhijit from Kotak Securities. Ashish, I had a very broad question. So in terms of your entire scale of offerings, in terms of, like, how would you... Or where you... Would you place yourself in terms of being able to, you know, capture the range of things that a client wants and the range of things that an issuer wants. Right? So basically, the wallet share both at the client side as well as at the corporate side in the range of things that you are able to offer today.

1:10:11 Client side, I think wallet share is a different question. But in terms of solution capability, I think it's 100%. Wallet share, as I've always maintained that at least in the ultra high net worth segment, clients prefer to have at least two core advisers, and then they have a long tail of other players where they may like a single product of somebody. So their order of magnitude, the share could be around 40%, 50%. But from a solution capability perspective, it will be 100%. On the issuer side, again, from a solution perspective, on the capital raise side, if we are able if we are restricting ourselves to, let's say, debt and equity, we are possibly have all the solutions today.

1:11:01 Yes, we don't have offshore fund raise capability. If somebody wants to raise the bond overseas or stuff like that, there, we say that we have offering, but I don't think we are a preferred choice partner for them. But for domestic debt capital markets or equity markets, the solution offering is today 100%. Got it. And just one more question on the wealth business. In terms of, like, following up on your comment on the advisory business, in your experience, you know, what is that rough threshold after which you actually, you know, don't mind offering the advisory services and probably below which it still doesn't make sense from a financial point of view? I think more from a client perspective, Abhijit, it's important because what we do should be aligned to what is right for the client.

1:11:57 Any client who's actually below maybe INR 100 crores, INR 200 crores, it doesn't really make sense for them to go for advisory. And anybody who's above INR 500 crores is a clear case. There is no doubt in my mind that they should move towards that because it gives them reasonable access, but many of them don't want to. The issue is many of them want to continue with this combo relationship because they want to have access to mutual funds completely free of cost. They want to have access to deals. They don't really want to ship. So I think it will never be a utopian world that all large clients are doing advisory, neither will it be a world that everybody is on a combination of transactions and distribution.

1:12:43 Neither globally, it has happened in any country. So it will be a mix. Directionally, people or clients whose preferences shift towards letting go of control, maybe second generation, third generation, there the proliferation of advisory will increase. Got it. And just last one in terms of the the talent capability on the adviser... Advisory side, any gaps in terms of, like, at the experience level or maybe geographically whether, like, you don't wanna ramp up any of those points that you can have. Advisory in that sense is slightly easier to deliver because if you look at it from a practical sense right now, okay, one is One is what we look at is the revenue model.

1:13:35 And second is the customer delivery. And typically, everybody ends up confusing between the two. Whether you are running a model of transaction plus distribution, the customer engagement is still advisory. Right? No customer, you go with a laundry list and say, okay, choose the product. Every relationship manager, at least the core job is to understand the customer, is to understand how his overall asset allocation is. And within that asset allocation, how the said product will fit in, what portfolio sizing of the said product has to be there. That all still happens. How you earn is different. Now so in that sense, our transaction cum distribution model is a fairly difficult model to execute because every adviser, every relationship manager is an adviser in his own right handling the client.

1:14:32 The minute you shift a portfolio into an advisory model, there is a central team which also has an overlay where the advice recommendation, the generation, the actions to be taken, can be done jointly between the relationship manager and the central team. So in my view, it's more easier to develop than a transaction comp distribution model at scale. Got it. That's very helpful. Thank you so much. Thank you. Ladies and gentlemen, we take that as the last question and conclude the question and answer session. I now hand the conference over to the management for their closing comments. Thank you. Thank you once again for being here. We will look forward to meeting you again at the end of quarter two.

1:15:23 Thank you. Thank you. On behalf of Nuvama Wealth Management Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.