“HDFC Asset Management Company Limited Q1 FY’24 Earnings Conference Call” July 24, 2023
**systematic transaction flows has seen a healthy growth. In terms of incremental share in new folios - net new addition of new PAN, we have got a very high market share. Market share on equity across all channels, we have been seeing our market share improving.
** When we are referring to margins, it is predominantly about our equity-oriented AUM. We have mentioned it in the past and continue to say that our book margin is higher than flow margin and would lead to margin dilution with every new rupee flowing in. The impact does get further magnified when the existing low-cost AUM moves out. This is structural. Of course, the pace of dilution has slowed down meaningfully, which I mentioned earlier, due to rationalization of brokerages that has happened in market. Secondly, the TER formula does clearly entail fall in TER with increase in AUM. To make it easier to understand I have pulled-out data for our schemes in terms of AUM and the TER, the TER is regular plan TER and is completed based on SEBI’s formula. So, this is gross TER number, so no impact from distribution costs, etc. So, say, if I take HDFC Balanced Advantage Fund, for example, the AUM was approximately Rs 52,000 crores, and the TER as on 31st March was 1.5%. The AUM moved to over Rs 57,000 crores, which is a combination of mark-to-market gain as well as the fresh flows as on 30th June and the TER fell to 1.47%. So, 3 basis points fall on entire AUM due to change in the AUM. And this fall is what, if you remember, even SEBI’s Chairperson referred to in our last Board meeting interview, that the economies of scale are being passed out to investors. As we saw a rapid increase in the AUM during the quarter, the same is the case with a couple of our other larger schemes too. So that’s just to explain the impact of rise in AUM and consequent impact on the TER and the second was on the flow side. I mean, the newer flows are coming at a lower margin than the margin that we have on the book. But let me make this point very clearly that from our perspective, think about it. The example that I gave a Balanced Advantage Fund, Rs 57,000-odd crores into 1.47% gives us higher revenue as compared to Rs 52,000-odd crores at 1.5%. So clearly, I mean, a higher AUM while will lead to a margin dilution given the formula, but for us, it’s higher absolute profit. Now I’m sure somebody may ask a follow-up question then why don’t you cut the commission on the book every time this happens. So easier said than done. Also, market movement of 5%, 10% can make this swing one way or other and is not practical.
** on the merger, we have a very optimistic view of this opportunity. As you know, bank is a formidable distribution machine, and we will put in enough and more effort to capitalize on it. We already are deeply involved with them across all levels, but alignment of interest can definitely be a big tailwind for us. We are seeing material improvement in the engagement, and we’ll continue to work on strengthening it further.
**There is one NFO which we’ll have now is the transportation and logistics fund. But from an incremental product range, I think we are more or less full on the product side when it comes to equity as well as fixed income. On the passive side, where we have done lots of products over the last 2 years, idea would be to grow all of those products over a period of time.
Other income, there was a component of MTM. So, is it possible to quantify that?
**Rs 158 crores other income, is largely all MTM, it’s a function between equity and debt. Since the skin in the game circular has come into play, we have a sizable amount of our investments in equity mutual funds, and they have given returns in line with the market and based on our fund returns and the debt is largely as we explained due to the interest rate movement. This part of other income is totally market linked. I mean whatever the market will perform on the equity side, the equity funds will perform accordingly. And the debt investments in mutual funds will go in lines in with interest rate movement.
**bank deposits are Rs 180 lakh crores and when we compare that with mutual fund debt plus liquid AUM, it would be around Rs 15 lakh crores. But as an industry, what we have done on the equity side, if we do something similar on the fixed income side, and we’re just talking about the inherent benefits of debt mutual fund as an investing vehicle, there is a lot of scope for us to grow in that space as well. And particularly for us, in HDFC, given our brand and pedigree, there is a bigger opportunity for us as and when that segment starts growing faster. Madhukar Ladha: Thank you, sir for the answers. And all the best.
Your ability to gather assets in the market in terms of the strong fund performance. Whether based on your expectations, maybe four quarters, six quarters back, whether the incremental flow market share is spanning out as per expectations?
** it’s improved substantially relative to where we were. Of course, we always want a higher and higher share. Also, the percentage of new investors that we have been able to garner in this quarter, the percentage of new volumes that have got created in the industry, the share in systematic transactions, all of that are like very heartening to us. For us, our partners are very, very important. They bring like on more than 3/4 of our business. They are our face to the investors, and we ensure that, they make good margins at the same time we ensure that, we have a very healthy margin on every rupee that we gather. there is not a direct correlation between paying higher brokerages and getting higher market share. So, one of our larger funds, where we pay the least possible brokerage is seeing healthiest of the flows.
Lot of new players …any changes on the ground that you’re seeing in terms of competitive intent?
** At any point in time, there have been many competitors. the total addressable market is substantially higher. It’s a very beautiful business from a long-term profitability perspective. So, this will invite a lot of players. Having said that, I think that the way we have built in terms of our people, our processes, our product range, our presence, both physical as well as digital, the partnerships that we have built, the platform that we have built and on top of that, if I can add two more, the passion with which we are working and the deep sense of purpose that we have put for ourselves to be the wealth creator for every Indian, we believe, we will continue to do well.
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