Nuvama Wealth Management Ltd (BOM:543988) (Q1 2027) Earnings Call Highlights: Record PAT and ...

Negative Points

• Intense competition in the private wealth segment for relationship managers, leading to increased costs and pressure on retention.

• Net new money into managed accounts (ARR) was slightly soft at Rs 1,000 crore due to the deliberate weeding out of extremely low-cost, historical mandates.

• Asset management business is expected to incur a cumulative loss of around Rs 35-40 crore this year due to investments in new categories and the MF license, with a path to break-even only after that.

• Primary market activity was very selective with only 8 IPOs in Q1 compared to 15 in Q4, and total fundraise fell by around 60%-65%.

• Some fixed income revenue of about Rs 15-20 crore is considered non-repeatable, stemming from a one-time market opportunity related to tax-free G-Sec capital gains.

• Operating expenses increased by 24% year-on-year, partly due to seasonal marketing and business promotion expenses, and the company is also looking for a new office which could add to future costs.

Q & A Highlights

Q: What is the outlook for the private wealth business's cost-to-income ratio, and what is the target for relationship manager (RM) additions? A: Bharat Kalsi, CFO, clarified that Q1 should not be viewed in isolation, as the cost-to-income ratio was 69% in Q1 FY26 and 70% in Q1 FY27, with profit growth of 22%. The full-year ratio last year was 66%, and the company expects to be lower than that this year. The target is to add 15-16% net new RMs annually, subject to market conditions. The medium-term goal for the combined wealth and private cost-to-income ratio remains 60%-62% over the next three years.

Q: Can you provide details on the asset mix within the managed products and ARR segments, and how has it changed recently? A: Ashish Kehair, MD & CEO, stated that the asset mix has not changed significantly over one or two quarters. Broadly, 30%-35% of assets are in equity, while 65% are in non-equity products (fixed income plus alternatives like credit, real estate, and infrastructure) that deliver returns ranging from 7%-8% up to 18%-20%, uncorrelated with equity market performance. He noted that some comeback to equities is starting to be seen, and the proportion of equity may increase over the next two quarters.

Q: What is the expected dilution and cost structure of the new ESAR (Stock Appreciation Rights) plan compared to a traditional ESOP? A: Ashish Kehair explained that the ESAR plan is designed to be less dilutive than an ESOP. If the stock price appreciates 20% annually for five years, dilution against the 7.5% pool would be around 3%, less than half of a traditional ESOP. The cost to the company is similar to an ESOP (around 20% of the grant value), but it is a non-cash cost with a 25% tax saving. The plan is a win-win for employees and shareholders, with the net cost potentially being only 150 crore against a total cost of 400 crore over five years.

Q: What are the growth opportunities in the asset services business, particularly regarding GIFT City, commodities, and global custodian partnerships? A: Ashish Kehair noted that the GIFT City opportunity is still premature, but large global participants are approaching them to hedge swap books. The commodities opportunity is moving faster, with clients already starting activity, and it could become at least 15%-20% of the equity market size for their relevant client segment. The most significant opportunity is a global custodian-local custodian tie-up, which would allow them to access global long-only funds and hedge fundsa new client segment they are currently precluded from targeting.

Q: Is the company shifting its ultra-HNI business toward an advisory model, and how will this impact yields? A: Ashish Kehair clarified that the weeding out of low-yield mandates is related to legacy corporate treasury accounts, not UHNI clients. The company is progressing toward an advisory model for UHNIs, with new propositions like "Pinnacle" and "Infinity." He stated that the combined yield (transactional plus ARR) for any ultra-HNI business is not more than 30-35 bps, which is easily achievable through an advisory model and offers higher stickiness. The ARR yield is expected to remain in the 80-90 bps range over the next two quarters.

Q: What is the steady-state margin for the lending book, and how should we think about its growth? A: Ashish Kehair stated that the current margin of around 3.7-3.8% is about 30-40 bps lower than the steady state. The fluctuation is due to hedging gains and losses on the MLD book, which constitutes about 25% of borrowings. On a full-year basis, the company saves around 50 bps on cost, but this can vary quarterly. From the current level, one can add 40-50 basis points to get the steady-state margin.

Q: How does the company view competition from technology-driven platforms targeting lower-ticket-size clients? A: Ashish Kehair explained that there is a category difference in customers. Technology can manage segments with simple products and smaller ticket sizes (25 lakh to 2 crore), but clients with 10-20 crore or more have complex needs (unlisted, offshore, AIF, PMS) that require human interface and advisory. The company is not diluting its affluence distribution and is expanding geographically beyond tier-1 cities, now present in 65-70 cities directly and 400-450 pin codes through external wealth managers.

Q: What is the outlook for transactional income in the private wealth business, and are there any one-offs in Q1? A: Ashish Kehair stated that 70%-80% of transactional income is business-as-usual (equity broking, fixed income, MLD), while 20% is opportunistic trades (unlisted shares, credit deals, secondary deals in AIF). The fixed income activity in Q1 was heightened, and there may be a compression of 10-15 crore in coming quarters. However, on a full-year basis, transactional income is expected to grow from around 300-305 crore last year to 350-360 crore this year.

Q: What is the company's solution capability on the client and issuer side, and what is the wallet share? A: Ashish Kehair stated that from a solution capability perspective, the company can offer 100% of what a client wants. However, wallet share in the ultra-HNI segment is around 40%-50%, as clients prefer to have at least two core advisors. On the issuer side, the company has all solutions for domestic debt and equity capital raises, though it is not a preferred partner for offshore fundraising.

Q: At what client threshold does it make sense to offer advisory services, and what are the talent gaps? A: Ashish Kehair stated that clients below 100-200 crore may not benefit from advisory, while those above 500 crore are clear cases. However, many large clients prefer a combination of transaction and distribution. He noted that the advisory model is easier to develop than a transaction-plus-distribution model at scale, as it involves a central team overlay. The customer engagement is already advisory in nature

For the complete transcript of the earnings call, please refer to the full earnings call transcript .