Speaking to CNBC-TV18 at the Motilal Oswal 20th Annual Global Investor Conference, Sesharaman noted that despite some redemptions, around 40-50% of gross SIPs remain as net SIPs, supporting healthy growth in the mutual fund industry.
Sesharaman said their assets under management (AUM) has expanded, with over a 30% growth in the last quarter and more than 20% over the past year.
Soumendu Ganguly, Deputy COO of CAMS also shared his outlook on the mutual funds industry.
CAMS reported a consolidated net profit of ₹108 crore for April-June 2024, a 42% growth year-on-year.
The current market capitalisation of the company is ₹21,967.89 crore.
This is the verbatim transcript of the interview.
Q: How have SIPs been performing over the past year?
Sesharaman: We are seeing a narrative of continuous growth in SIP from a gross perspective, on a month-on-month basis. So it’s driven by, obviously, the higher retail participation that we are seeing, and it’s good for the entire industry because all of this is going to a long-term capital formation.
On a net basis, yes, we do see some amount of redemptions are happening from SIP. But over the last two years, we have seen a constant between 40% and 50% of the gross SIP staying out as SIP. So from our overall perspective, AMFI numbers, it was around ₹23,000 crore of gross that came in in the last month. And almost 40-45% is staying back as net SIP. This is still healthy growth that we are seeing from an overall MF perspective. And adding to the valuation gains that you are seeing, the assets under management (AUM) have seen a very healthy growth. Over the last quarter, we had more than 30% growth in assets, and the last year was more than 20%. So all very good underlying metrics for the industry for future growth.
Q: You have also undertaken a strategic partnership with Google Cloud to redesign your RTA platform. Now, of course, this is a long gestation project, which could take somewhere around four to five years, as you have mentioned in the past, but how would you transition to this? What would be the incremental benefits as well as the cost that you will incur, and what would be the subsequent impact on the margins?
Ganguly: We are seeing retail participation increasing in MF. We also understand that the retail investor has very different expectations set compared to what a normal investor would see. And as the retail investor also experiences Zomato and Swiggy and services like that, their expectations from mutual fund business are also becoming similar.
So we understand that as retail participation increases, volumes grow. The ability of the current platform to scale, to deliver to those expectations may get limited, and that is the reason why we have undertaken this initiative where we are rebuilding the entire RTA platform, ground up on cloud. So that is where Google comes in, and how we are thinking about it is in phases where there are parts of my transaction platform, where I first accept a transaction and then do validations, unit allocation, I do communication.
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So we’ll do it in phases, where the platform onto the cloud, I still continue to process and give gains the front end of the hand, also the time and latency benefits that I get from the cloud. It will have significant costs. The net cost of the project will be within ₹100 crore in over the next five years. The impact on margin will be very limited.
Q: Let us also discuss your non-MF business. It has been outpacing the growth in the MF business. Do you expect this to continue, and which part of the non-MF business is expected to drive this growth going forward?
Ganguly: On the non-MF side, we have majorly six businesses. We see that the top two ones, which are the KRA business and the payments business, have been growing very nicely over the last three or four quarters. KRA has posted 100% year-on-year (YoY) growth. Payments are also growing because of the retail participation increase in mutual funds. CAMSPay is a leader in the UPI auto pay segment and fueled by SIP growth, we are seeing a very healthy growth percentage in the CAMSPay business. So those two businesses will continue to do very well.
Alternative Investment Fund (AIF) has been posting steady growth rates of close to 15% YoY and we believe that that will also continue.
The other three businesses, which is our insurance repository business, account aggregator and NPS. Out of that insurance repository business has been doing well, and we have just launched a service layer on top of the entire insurance repository offering where we believe that it will see large retail participation and thus should be accretive to the revenue numbers as well as the margins.
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Account aggregator is in the very initial stage of growth. The entire market is trying to figure out how account aggregators will be used, and what are the different use cases that account aggregators can be used for. So I think that that business will take a little more time to mature. So while it has started producing revenues, upwards of a crore a quarter, it will take a lot a little more time to mature and scale in terms of revenue.
NPS, the last of these six businesses, will take a little longer to scale.
Sesharaman: The non-MF business has been outpacing the MF growth and what was a sub-10 % share of the overall revenue last year has now crept up to more than 13.5% of the overall revenue. The stated objective of CAMS is that over the next three years, this will get to 20% of overall revenue – this is on the back of healthy growth that we expect from a mutual fund perspective also. So we do have high expectations of the businesses that Ganguly spoke about, which should get us to a stage of 20% of overall revenue over the next three years.
Q: Help us understand the margin differential between the MF and the non-MF business that is there currently, what non-MF businesses are yet to breakeven, and how would margins on a consolidated basis look like in FY25 and beyond that?
Sesharaman: There are six businesses that we are tracking in non-MF business, the MF plus six strategies, and all of them are not homogeneous businesses. They have different market drivers. They have different customer, go-to-market strategies, etc.
But just for simplicity of understanding, suppose I put them all in a single bucket, and we were in an investment phase on the non-MF business for the last three years.
We invested heavily in platform building, sales capabilities and the go-to market. We have come to a stage where they have reached where revenue has started to come in on all these businesses.
For individual businesses, KRA is a very profitable business, and so is CAMSPay and AIF is reasonably profitable. We are close to breakeven on an insurance repository and the account aggregator is probably more than a few quarters away in terms of breakeven.
But the margin profile on a whole for the non-MF, which was less than 10% in the last year, has crept up to close to 15% and given that none of these is labour arbitrage businesses, they’re all platform-based businesses which showed an increasing trend in profitability as and when the revenue scales up. We are confident that, in the next couple of years, the steady-state margin will be upwards of 25% for the non-MF category.
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