Capitaline

Analyst Meet / AGM 30-Apr-19

Conference Call

Reliance Nippon Life Asset Management

To pass on most of the impact of revision in TER structure

Reliance Nippon Life Asset Management conducted a conference call on 30 April 2019 to discuss its financial results for the quarter ended March 2019. Sundeep Sikka, ED & CEO of the Company addressed the call:
Highlights:

The mutual fund industry faced multiple headwinds during the year such as long term capital gains tax on equity, regulatory changes, market volatility and credit events. Despite challenges, the company has continued to deliver better results. Also, mutual fund industry presents a huge untapped potential.
During the year, there have been two major changes on the regulatory front with respect to total expense ratio (TER) reduction. The impact of first change regarding reduction in exit load from 20 bps to 5 bps has been completed passed on. The company expects the impact of second change regarding revision in the TER structure applicable from 1 April 2019 to be 2-3 bps of overall AUM and 12-13 bps of equity AUM, which is will also be passed on to the extent of 80-90%.
The company has broad based AUM spread under various schemes with no scheme concentration, while no distributor contributes more than 4.5% of AUM. This has helped the company to pass on most of the impact of reduction in TER.
With regard to SEBI circular dated 22 October 2018, which has prohibited payment of upfront commission & mandated a full trail model for distributor commission. It has further mandated that all scheme related expenses including distributor commission, shall have to be paid by the schemes of the MF & not by the AMC. As a result, the AMC's expenses have decreased since the scheme related expenses are now borne by the schemes of the MF. Also as a consequence of these expenses now being borne by the schemes, the AMC fee they pay to the company have reduced.
The company has completed amortized the brokerage expense relating to open ended schemes, while the unamortized brokerage expense relating to close ended scheme are Rs 50 crore which will be amortized over a life of the assets.
The company has been witnessing stabilization of yield around 60 bps, while it expects the yield to improve ahead with the growth of equity assets and new regulatory change of TER and trail model for commission.
The company has strong focus on cost control, while it has outsourced most of non-core activities. Many expenses of the company are discretionary in nature.
RNAM has geographical presence at 300 locations pan India highest amongst AMC's, while focus on locations beyond top 30 cities as assets from small cities are more persistent and are more profitable. The cost of operation from small cities is also lower compared with larger cities.
The company is well diversified in terms of distribution with no single distributor contributing more than 4.5% of the total mutual fund AUM. Distributor count went up from 65500 end March 2018 to 73400 end March 2019.
In FY19, digital purchase transactions including new SIP rose to 10.85 lakh, registering an increase of 47%. On an average, the company processed one online purchase transaction, including new SIP, every 30 seconds in FY19. Over one third transactions are happening on Digital Assets & Integrations which is 100% growth over last year.
Reliance Capital has informed the exchange about intention to exit the stake in the company and may make any related announcement in next 4-6 weeks.
The subsidiaries of the company have contributed revenues of Rs 100 crore in FY2019.
The company has exposure reduced the exposure to ADAG group from Rs 425 crore at beginning of year to Rs 380 crore by end March 2019, which relates to infrastructure at Rs 175 crore, power at Rs 150 crore and balance to ARC. The mutual fund has also reduced exposure to ADAG group from Rs 3100 crore to Rs 1750 crore during the year, of which Rs 1000 crore is coming to maturity in next 2-3 month and the company do not expect any issue.
The company expects depreciation run rate of Rs 2-3 crore per quarter ahead.

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