WF: Your business has now completed 3 financial years post integration. Looking back at these 3 years, what would you say are the significant milestones that the combined business has been able to achieve?
Kailash: FY16 marked completion of 3 years since integration - 3 years of a combined business. I think the most significant achievement has been our ability to communicate effectively in the market place about the robustness of our investment process and our unwavering focus on long term consistent returns, rather than short term league tables. This has been appreciated by distributors - big and small - and has got our products into the recommendation lists of many key distribution and advisory platforms. In the IFA segment, I am happy to share that we have added over 3000 IFAs who have started to now recommend L&T MF funds to their clients.
3 years ago, our AuM was around Rs.11,000 crores. Today, we have crossed Rs. 26,000 crores. In terms of peer set, we look at the top 1-8 as one set of players and nos 9 to 15 as the next set. We feature in the 9-15 group as of now. In the last 3 years, the top 8 delivered a CAGR of 20% in AuM growth. In the 9-15 set, the range is wide - from 7% to 46%. At 32% CAGR, we come in 2nd in our peer set. Take out the top two from this set, and the rest have grown at a CAGR of 8%. So, we are doing well within our peer set too.
More than just the absolute AuM growth, for us the satisfaction comes from the fact that we have grown by focusing primarily on our core products. Our core products are longer term equity and debt funds. We stayed away from closed ended fund launches, we had in these 3 years, only 3 NFOs - each of which is a distinctive proposition.
We've added over 2.1 lakh customers in these 3 years, of which over 1.5 lakh have come in over the last 18 months. Our SIP book has grown steadily and now has reached a level of Rs. 50 crores of input value.
And, very importantly, in a market that saw some turmoil on credit quality issues, our credit funds have grown steadily, with a lot of acknowledgement from investors and distributors about our portfolio quality.
WF: What were the key strategies that helped you turn the franchise into a profitable business?
Kailash: We turned profitable in FY 14, when we registered a marginal profit of Rs. 40 lakhs. This went up to Rs. 4.5 crores in FY 15 and further to Rs. 19 crores in FY 16.
One of the key aspects has been focus on core products - on products that bring in longer term assets. This is true for our equity as well as fixed income businesses.
Second is a big control on operating expenses. We have utilized manpower more efficiently, putting them into more productive areas as well as in customer service.
And third is a significant effort we put into enhancing our distribution engagement, which helped us win higher sales volumes, thus boosting profitability.
WF: What are the key strengths of your business, which you are looking to leverage to take your fund house into the next league? What would you say are key areas for improvement, in your quest to grow faster?
Kailash: One of our big strengths clearly is a disciplined process oriented approach to fund management. I think that has clearly put us in good position both on the fixed income and equity side. Our focus on long term consistent results helps attract long term oriented money, which allows for growth and scalability.
Second is our distributor engagement and training initiatives, which have been appreciated and which we intend building on further. From simple excel training for staff members of distributors to enhance their productivity, to social media training aimed at enhancing client engagement, we've delivered a range of training interventions that our distributors were looking for. These efforts have enabled us to forge deeper relationships, which when complemented by fund performance, enables us to enhance sales volumes.
In terms of areas for improvement, on the distribution front, I think we can do more in terms of equipping distributors with relevant technology tools to help them boost their business, and as a consequence, ours. E-KYC is going to revolutionize client onboarding, and we need to support distributors to leverage this well. Staying with distribution, I think we need to enhance our engagement with distributors from the B-30 cities and towns.
WF: Looking ahead, what would you outline as key priorities for the next three years?
Kailash: Client acquisition will be our number one focus. We would like to focus equally on new clients to L&T MF as well as new clients to the fund industry. We have over 9000 distributors who now recommend our products, working closely with them to acquire new clients enhances their business and ours. By doing this we will now need to focus on acquiring scale.
Second, taking a cue from my earlier response, digital is going to be a big focus area. And third, maintaining and building on our investor education focus is a key priority for us, as education is the best way to bring in new investors into the industry.
WF: Are you looking at inducting a foreign partner into the AMC? What would drive this decision?
Kailash: I need to rewind back a little: our chairman in one of the recently concluded Q&As had stated that for the MF business we may look at a minority foreign partner. But it will only be if that partner can value add to our growth strategy. There is no tearing hurry to get a partner, but if there is a partner who we can work with us as a minority stake holder, and can value add significantly to the business because of the international connections that the partner may bring, it could be possible that we may want to consider such a proposal in future.
As you can see from this slide, which was part of the last quarter's investor presentation of our Group holding company, the investment management business is one of the three pillars of growth for L&T Financial Services.
When we talk of maximizing value creation, in addition to what we are doing domestically, there is a potential to leverage our Indian fund management strengths to win international mandates as well as to open up distribution of our local funds globally. If this can be done through a JV partner with a minority stake, the Group is willing to consider this possibility.
WF: There is a view among distributors that the road ahead for AMCs looks bright but for distributors, looks uncertain, and that small IFAs may get left out in the coming growth surge for the industry. What is your message to your distribution partners in this context?
Kailash: Regulatory change is not new - our business has seen a lot of it in the last 8-9 years, and in this period, the industry's AuM has nearly tripled from 5 lakh crores to over 14 lakh crores. Yes, some distributors have exited, but many have also entered, and those who chose to remain have grown very well.
Distributors are the last mile connectivity to investors, and that's not going to change. What will change however is the manner of engagement in this last mile connectivity. It is quite possible that the paper and pen will be substituted by electronic transactions. I don't think we are talking about technology replacing distributors - what we need to focus on is how to help distributors to harness digital to enhance scale and reach, and improve productivity. I sincerely believe that distributors who leverage technology intelligently will see a 10x growth in the coming years.
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