Good set of numbers with both revenue as well as the bottom line registering 35% odd growth. What have been the key drivers for this kind of growth?
Anand Rathi: We have seen 36% revenue growth year on year and this has been contributed by a larger number of clients, a larger number of relationship managers, larger amounts of inflows in this quarter. All these things together have obviously led to the larger revenue which is reflected in such a significant increase in profit.
The AUM this quarter has gone up 15% on a year-on-year basis but going forward what kind of growth rate should we expect and any target figure you have in mind for the assets under management?
Feroz Azeez: AUM has the four legs of growth. One is the increase in the market value whereby all underlying assets grow. That generally happens because portfolios grow by 10-12% a year that is how the assets are poised.
The second leg of growth comes when existing clients are consolidating their money with us especially during the last quarter. In the June quarter, markets have not done too well so for a good wealth distribution, it goes up and so that is the consolidation of existing client’s wallet share. That is the second leg of growth.
The third leg of growth is new clients whom we onboard as references from the existing ones which are satisfying. The last leg of growth comes from our new relationship managers (RM), which we currently train under the head of account managers who get to be promoted to be regional managers.
These are the four legs of growth. According to us, all these guns should fire. Of course, in the last quarter, the market movement has not been supportive. But despite that, we have had substantial portions of net inflows coming in from existing and new clients.
To answer your question, we are looking for 20–25% growth across all these four heads.
What is your point of view regarding the entire private wealth industry? It continues to be underpenetrated in the country. What is the number right now of penetration and how are you assessing the overall market sentiment?
Feroz Azeez: Yes, wealth management outfits are heavy as the wealth management industry has not been able to penetrate so much because we are a nascent industry, and we are in the formative years from an investment standpoint.
We, as a country, historically have had affinity towards physical assets – both real estate and gold. There seems to be a huge influx of money from physical assets to financial assets because of the kind of compounding benefit financial assets can provide, and the liquidity is being respected as we go through this paradigm shift like the emerging economies have already gone through.
The penetration numbers to my mind are very low. In the segment which we operate which is Rs 5-50 crore, I will be able to throw some light. I would be surprised if the penetration numbers are greater than double digit and so that is the kind of potential that exists. Only 10-12% of penetration exists, I think the expansion of the pie becomes a huge opportunity over years and decades for a firm like us.
Given that the new client addition and the net flows have been strong in Q1, the June equity flows saw a dip of 16%. After assessing these data points what is the outlook in terms of the trend going forward?
Feroz Azeez: From our perspective, equity flows at Anand Rathi have always been negatively correlated to the market because we seasoned our client base with the behaviour of how equity goes through.
Since the last 20 years, equity has shown peak to trough correction every single year, often just 20% if a person is seasoned to expect this when the market corrections happen there is more affinity towards the asset class and more influx comes.
Of course, the last quarter numbers have seen some dip but if you see retail money as a proxy to the sentiment SIP numbers have been very robust 16 consecutive months you have seen increases so we think this time the kind of secular money which is coming in on the back of great education which has happened because of SEBI’s great initiative which began on investor education in 2013, that is point one.
Point two, these are great opportunities to invest and that is what an investor realises especially in the pre-Covid and post Covid falls, quite a few HNIs who were very sceptical, went out of the market and then they realised their mistake and did not repeat the same mistake in the current small corrections of 12-14% which have happened over the last six-eight months.
What is the outlook on client acquisitions that is going to be the key for growth at Anand Rathi? Help us understand the client acquisition trends and what exactly the data points are suggesting?
Feroz Azeez: Yes, from a client acquisition standpoint we are now a listed company which brings in a certain degree of believability and a perception of government and the high governance and transparency that results in a larger catalyst to client acquisition that is what we see in the last quarter.
You see that there is a 30%, 40% growth rate at which we were adding clients last year to this year owing to the kind of branding which you get in this business, that is point one.
During bad times our clients are seeing very satisfied because we measure both sides of the coin risk and return when there are satisfied clients they have a tendency to refer us to their friends, who are again HNIs in our segment of 5 to 50 crore these two factors have helped us move up 30-40% at the rate of client acquisition and we hope and we are putting effort to make sure that this further goes up and is not a flash in the pan.
Anand Rathi: Additionally, we have very little loss of clients as Feroz has been saying we have really very satisfied clients so we get more references and we do not lose clients normally.