NUVAMA - Nuvama Wealth Management Limited Share Price

In the earnings conference call for Q1 FY '26, management of Nuvama Wealth Management provided a positive outlook despite some external challenges. They highlighted a broad-based growth across businesses, achieving a revenue increase of 15% YoY to INR 770 crores, with profits at INR 264 crores reflecting a 19% YoY growth. Client assets increased by 19% YoY to INR 4.6 lakh crores. The Return on Equity (ROE) stood at over 30%.

Management noted that while macroeconomic conditions remain uncertain with U.S. tariffs and global trade tensions potentially impacting sentiment and Foreign Portfolio Investment (FPI), their wealth and asset management segments continue to exhibit robust performance. They anticipate strong growth opportunities due to increasing competition in these segments, as traditional brokers now enter this space.

Key forward-looking metrics include:

• Managed Products and Investment Solutions (MPIS) achieved significant net flows of INR 2,300 crores, with a growth rate of 30% projected for the fiscal year.
• The MPIS now contributes over 54% to the revenue, with a forecasted 50-60% increase in the annuity stream.
• Nuvama Private aims for around INR 11,000-12,000 crores in net flows based on a 25-30% target of opening assets, which currently stand at approximately INR 42,000-43,000 crores.
• They expect to raise an additional INR 2,000-2,200 crores for their real estate fund within 6 to 9 months.
• Management is focused on long-term growth strategies, targeting INR 19,000-20,000 crores in net flows, leveraging expansion in asset services, wealth management, and product offerings.

Overall, management expressed confidence in navigating immediate challenges to sustain growth trajectories across their business segments.

Major Questions and Answers from the Q&A Section

1. Question from Vivek Ramakrishnan:
"Is there any client concentration in revenues? Do top 5 clients account for a significant proportion of your revenues or profitability? If so, what are you doing to reduce this concentration?"

Answer:
We aggregate our revenues from multiple lines of businesses. The top 5 clients together don't exceed 5-10% of our overall revenue. Variability exists per business line; some have different contributions. We're seeing continuous shifts in our top clients, ensuring diversification in revenue streams. Only the domestic institutional equities part may show more concentration due to mutual funds, but even there, the top clients change frequently.

2. Question from Naresh Naiker:
"Can you elaborate on the potential impact of Jane Street on the Asset Management business and the market share? What kind of revenue or earnings impact do you anticipate?"

Answer:
The issue is more relevant to our Asset Services, as Jane Street hasn't resumed operations yet. Despite that, we expect early double-digit growth for the year in Asset Services, assuming zero revenue from them. By the end of October, projections suggest we will reach previous levels of performance based on new client pipelines and existing account balances, likely mitigating adverse impacts significantly.

3. Question from Lalit Deo:
"What led to the 17% decline in Asset Services AUM this quarter? Is the new retention rate (around 1.8%) the new normal?"

Answer:
The decline in AUM was partly due to shifting our wealth management clearing activity to self-clearing, which affects yields while positioning us better long-term. The steady-state yield for Asset Services will be about 1.95% to 2.4%. Retention and asset composition can vary; declines in AUM don't necessarily equate to drops in earnings. So, the focus should be on average assets across periods rather than just quarter-end figures.

4. Question from Vikram Raghavan:
"Is the current run rate of operating margin sustainable?"

Answer:
Overall, we're operating at about 67% cost-to-income in our wealth services, expecting a slight decrease by year-end. We project final ratios to be around 65%. Capital markets may see minor increases while wealth management costs are slightly lowered. So, we maintain a relatively stable operating margin, but minor adjustments will occur as the year progresses.

5. Question from Abhijeet Sakhare:
"Can you clarify the rationale behind setting up the RTA business? How does this business fit within your strategy?"

Answer:
Our RTA service aims to cater specifically to our PMS and AIF clients, offering them a comprehensive solution in one place. This countermeasure addresses market share gains by peers who've found success in bundling services. By building this capability ourselves, we improve client integration and efficiency, enhancing our market presence within specific high-growth segments.

6. Question from Mohit:
"How many private clients have an AUM of over INR 25 crores, and what are your growth expectations for net flows in the Private division?"

Answer:
Approximately one-third of our clients have AUM over INR 10 crores. All clients onboarding possess potential well above INR 25 crores. We predict net flows to be around 25-30% of the opening ARR asset base, projecting INR 11,000-12,000 crores over the year, although periodic fluctuations will occur, reflecting seasonal trends.

7. Question from Sanketh Godha:
"What impact has the transition from asset-clearing to self-clearing had on AUM, and how does it affect your yield expectations?"

Answer:
The shift has led to an approximate INR 10,000 crores in AUM transition. This transition, while initially seeing lower yields, is anticipated to enhance our profitability as we adjust to the new operational model. Should interest rates decrease by another 30-50 basis points, we might see yields fall to around 2%, though we'll strategically manage our cash allocations to maintain stability.

These responses summarize the significant inquiries and corresponding answers from the earnings conference call, encompassing financial expectations and strategic decisions.