NUVAMA - Nuvama Wealth Management Limited Share Price

Management provided a positive outlook for Nuvama Wealth Management Limited, characterizing FY25 as a "breakout year." Key highlights from the earnings call include:

1. Growth Metrics: Client assets grew by 24% to approximately INR 4.3 lakh crores. Revenue increased by 41%, amounting to INR 2,737 crores, while profit after tax (PAT) reached INR 986 crores, a remarkable 65% increase. The cost-income ratio improved to 56% from 60%, with a return on equity (ROE) of 31.5%.

2. Client Flows: Managed products accounted for nearly 70% of net new money flows in FY25, amounting to INR 6,500 crores, with Q4 seeing INR 1,400 crores of net new money. The private segment reported INR 10,000 crores in ARR assets for the fiscal year, signaling strong momentum.

3. Investment Focus: Management emphasized ongoing investments in technology, particularly integrating generative AI into their advisory platform, aimed at enhancing client experience and advisor productivity. They foresee a gradual increase in productivity over the next few years as a result of these initiatives.

4. Capital Markets Outlook: The investment banking pipeline appears robust, with approximately 30 to 35 mandates signed for IPOs. The firm anticipates a return of activity in the IPO market as client confidence improves.

5. Lending Business: A strategic shift in the lending model is underway, targeting a 20% growth in the lending book aligned with overall business growth. NIMs (Net Interest Margins) are expected to stabilize between 4.5% and 5.5%.

6. Asset Management Growth: The firm aims to reach INR 20,000 crores in assets under management (AUM), aiming for a break-even in the asset management segment around FY27.

Overall, management's outlook remains optimistic with growth expectations across various segments, driven by strategic investments, strong client acquisition, and market recovery.

Q&A Section from Nuvama Wealth Management Limited Earnings Conference Call (Q4 FY25)

Question 1: On the Asset Services side, despite flat assets sequentially, revenues have jumped. What's the reason for this?
Answer: The increase in revenue can be attributed to a rise in average assets, particularly due to the acquisition of new clients that have a higher cash proportion compared to non-cash collateral. Additionally, yields have improved, edging towards 2%, and the full impact of our transition to self-clearing for our wealth business materialized in Q4.

Question 2: In the private segment, what contributed to robust transactional revenues of around INR90 crores this quarter?
Answer: The transactional revenue stems from a mix of fixed income, unlisted shares, and structured products. Notably, we saw heightened activity in unlisted shares and fixed income during Q4, bolstering overall transactional performance.

Question 3: When can we expect to see benefits from investments in capacity in terms of profitability in wealth and private segments?
Answer: Profitability improvements will take 2-3 years as investments in talent start yielding returns. Though we might pause hiring for a quarter or two to enhance productivity, our long-term goal continues to drive growth, so we aim to sustain our current capacity investments.

Question 4: Should we expect the cost-to-income ratio of 66% for Nuvama Private and 67% for Wealth to hold in the near term?
Answer: For FY26, we anticipate a 100 basis point reduction in cost-to-income ratios. The Q4 figures include seasonal costs that are not reflective of the entire year, so we expect improvements as talent productivity increases.

Question 5: What is the projected growth for the ARR AUM and net flows for FY26?
Answer: We target INR10,000-11,000 crores growth for ARR AUM in Private, and INR7,000-8,000 crores for MPIS net flows, contributing to a total core net flow of INR23,000-24,000 crores, maintaining around 20% AUM growth.

Question 6: What is the current status of the corporate treasury book in Nuvama Private?
Answer: The total asset size in Nuvama Private stands at approximately INR1.99 lakh crores, with the corporate treasury book being around INR10,000 crores.

Question 7: What are the anticipated NIMs for the loan book in FY26 and FY27?
Answer: We expect steady state NIMs for the Wealth business to be 5-5.5% and for Private to be around 4.5-5%. We aim for a growth of approximately INR1,800-2,000 crores in the lending book by year-end.

Question 8: Regarding asset management, when do we expect to break even at a revenue level?
Answer: We anticipate breaking even in the asset management division at around INR20,000 crores of assets, likely achieving this around FY27 while aiming for significant net inflows in FY26.

Question 9: What is the outlook for the AIF industry in India over the next year?
Answer: We expect the AIF industry to grow by at least 30-40% in the upcoming year, supported by increasing demand and a favorable regulatory environment.

Question 10: How do you see IPO activities evolving over the next two years?
Answer: While short-term activity is picking up over the next six months, predicting long-term trends over two years remains uncertain. We expect a gradual resumption of IPO activities if market conditions stabilize and investor sentiment improves.