Q2FY21 CCT Notes
AUM serviced and funds 19.4 Tn/ Lac Cr. 70% MS. Serviced AUM 18.4 Tn.
40 mn live investors. 4 cr.
unique investors 16.2 mn 1.6cr.
Had LOI from FT in March, signed contract in July, migration to our platform should finish by end this FY.
So, Franklin was doing this work in house. They have done this work in house globally as a philosophy. That is what they believed in many years. They have been a make company themselves, not a buy company. And if you saw the 40 mutual funds in India, we would have described it as 100% outsourced but for Franklin. Now it has become a 100% outsourced market. So, they are not stepping out of a commercial relationship they had with a third party. They are stepping out of a philosophical position of doing themselves. When they decide to do it themselves, they had to do a discovery in India. And that is how they chanced upon us. So, the migration is happening from Franklin’s own RTA operations.
So, let me start by telling you that a mutual fund in RTA operation is, is just a very deep kind of a relationship encompassing, literally, if you were to account hundreds of activities that get done across the sphere of liability side operations. And therefore, it is a cumbersome model for anyone to deal with two RTA operations. So, the migration is a one-shot wholesale lock stock and barrel migration, which means everything moves on the same day, so it is not incremental. And therefore, all the assets and all the accounts, all the folios come to us. And therefore, the entire AAuM accountability and the attendant revenue and responsibility is all ours. That happens from day one. It is not incrementally that they will do something, and we will do something else. It almost – that is one. The second thing is, and I do not think I can give you specifics. But let me tell you this, that we have built over the last many decades painstakingly very compliant quality, delivery, high investor set, low complaints, high, ironclad kind of operations, that kind of image. And therefore, we are seen as the premium provider, which is how the market share is justified, not through pricing. I would say there is just one word for it, which is performance. Sustained performance has led to the market share
myCAMS txn grew 34% QoQ. Edge360 launcehd in AUG-19, a distributor platform, offers services to intermediaries to come and transact grew 38% QoQ.
GoCorp, platform for liquid and overnight funds, used by corporates, grew MS in Txn from 19% to 23%.
And my final question was, you know, I just wanted to clarify what I heard to some previous questions’ response, was typically we’ve grown at point .75x of the industry AAuM growth when it comes to our asset based revenues. And the second piece of that answer was, you know, given our investments that we do in digital and human resources, it’s fair to assume the margins at EBITDA levels stayed around that long term 37, 38%, instead of looking to expand those margins as long as the industry is growing. So, clarification on that.
Yes you are right.
89% of rev. from MF. 80% of MF rev. is from asset based fee. Cannot give rev of individual business.
Pricing is tiered, when AUM grows fee% reduces.
So, the way it works is that the tiered structure is largely a static structure, which is agreed to at the time when we are signing up for the customer. However, there is a possibility that if the customer grows very large, then it is possible that we may do a structural conversation on any further tiering that may happen.
Paper txn are revenue yielding for us. However they are not a large source of profit as they are priced at cost + little margin.
We will keep needing investments to improve.
We will keep needing the physical infra as additional investors from smaller cities prefer physical access.
We will invest in tech CAPEX and physical CAPEX, but payout 65%.
Charge higher fee, still higher MS?
Sure. Good question. And, you know, as you gain intimacy with the business, Dushyant, over a period, you will kind of realize this better. But if I were to sum it up, it is not the license, which serves as the differentiator. There are two, three parts to this entire construct. One is like, it is a very nuanced, multilayered, detailed, complex understanding of process and regulation both. Now, that sounds like a line of English. But when you start practicing it, it is what it is. And I come from a background of outsourcing and multiple industries. And I have seen including England, India, and overseas, including healthcare, airlines, telecom, all of that. And this is extremely nuanced and multilayered. And therefore, the base of knowledge and the base of processing that we built over the last many years, and this entire workforce is a large asset, and our ability to kind of understand regulation and then build a process and execution around that. And the second, the biggest part of this is the platform, because the platform is what the business gets done on. And like you know, all the components of the platform, whether it is for processing or data keeping, long-term record keeping, brokerage computation, all of those things are being done on our central platform. That is the IP – it has taken us about two-and-a-half decades to bring that entire platform to the current level. There are no commercial sellers in India of that kind of platform. There are commercial sellers overseas but porting that platform to the needs of the Indian market is extremely tough, cumbersome, and cruddy. And some people have tried that, and it has not been successful. So, the successful RTAs that you see today have both ridden on bespoke own platforms over the last the last two, three decades. And then the third, of course, is that we have created this vast financial infrastructure, both physical and electronic. The physical infrastructure is the network of 270, branches, the 1500 people who work there, service, investors, and distributors, and the electronic infrastructure is all the linkages that we’ve created with all the other constituents, like the AMCs, the 100,000 registered distributors, payment aggregators, stock exchanges, all of those. So, if you put these three components, that is really what I would classify as the, the build, the IP part of the business, which is tough to replicate. I would not think of the license as the key component of the secret sauce.
Yeah. So, think of the marketplace as any other large B2B outsourcing marketplace, just in terms of the process. So, the way the process would work is FT is an example, but there are multiple mutual funds that typically wanted to get, which get licensed every year. They have to appoint some of these outsource partners because the industry has successfully kind of chosen that path. So, amongst the custodians, fund accountants and RTAs, bankers, the mutual fund will typically do a discovery process through an RFI or an RFP. They will invite competitive bids. They will do the site inspections etc., do client references, and at the end it is the capability and price kind of a win strategy. So that is how the entire process takes place. The contract is a perpetual contract. Just because it is almost a tied relationship, it does not mean that the client can’t move away from the RTA. But those moments are less than what you will see in other industries. So, these are long term, almost perpetual contracts with the ability to add scope as you need. So, whenever there is a regulatory change, or you want to do a service innovation, you can add scope to it. And the other thing is that there is a mechanism to kind of discuss price, which comes up every three, every four, every five years. So that is typically the mechanism, which is available, not very different to any other B2B contracting that you would see in the outsourcing space.
SIP success rate (SIP activated vs money added) used to be high 90s before COVID. Fallen now. Should get back in somtime.
Loan against MF
Used to be paper based before and used to take a week. Now can be done online in 5 mins.
Now, because this expands the amount of activity that we do digitally and also, there are embellishments that we supply to the banks in terms of various reports and intelligence on their overall portfolio, there is a small rupee fee that we charge on every registration, which means, not the registration of a customer, but on the actual lien marking process, and then we charge a rupee fee when the on marking happens, which means when the person is paid off and then the lien marking goes away. So, these are small rupee fee numbers that play out, and this market is just kind of beginning to happen. It is a few thousand cases a month kind of a marketplace right now.
SEBI reducing TER
Largely since our approach to the market has been a more collaborative partnering inside the arena approach, we have never let the market share manifest. Some of the scale of the growth continues to go to the mutual funds, which is why revenue growth is at a lag to the asset growth and not exactly equal to it. In a year when TER went down, and the entire industry was impacted, although I must start by telling you that most of that impact was either absorbed by the mutual funds or passed on to other components of the industry, some of the mutual funds did come back to us and had conversations on price. Those are, again, one-on-one conversations on what we can do in a tough year when they are facing headwinds. And then those conversations get concluded through some, some arrangement that we would enter. All of that is in the past because that happened last year. And we are about six quarters out of the time when the TER change happened in April of 2019. But yes, occasionally, in an exception earlier, that may happen.