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A mixed quarter

* PAT grew 7% QoQ to INR1.03b (8% beat) in 4QFY21. The beat was driven largely by higher-than-expected TBR income.

* Core revenue (excluding other income) was largely flat at INR9.2b and PAT was up ~87% YoY to INR3.7b in FY21. Excluding the impact of other income, core operating profit was also flat YoY at INR3.5b.

Flows rebound due to a large institutional mandate

* Following the sharp decline in 3QFY21, net new flows rebounded to INR58b. This was aided by one large portfolio management mandate of INR35b. Net flows in FY21 were INR142b. The company has guided at flows improving to INR200b/INR250b in FY22/FY23.

* Annual Recurring Revenue (ARR) assets have continued to drive AUM growth. AUM rose 3.3% QoQ/32% YoY to INR2.07t, of which ARR assets grew 13% QoQ/63% YoY to INR1.02t. Transactional/Brokerage Revenue (TBR) assets declined 4% QoQ, but grew 11% YoY to INR1.05t.

* IIFL-ONE continued to gain traction, with AUM up 8% QoQ/58% YoY to ~INR280b. However, the share of discretionary assets (which are high yielding) declined to 31% from 35% QoQ.

Strong transactional revenue; opex flat

* ARR revenue (up 4% QoQ/13% YoY) missed our estimate by 7%. This was due to a 100bp QoQ decline in NIM on loans as well as a 6bp QoQ decline in AMC yields. Yields in IIFL-ONE remains stable at 28bp.

* Strong transactional revenue (36% beat) aided overall operational revenue beat. The surprise on TBR revenue came from IB/syndication-related fees of INR600m v/s INR442m in 3QFY21.

* The management guided at a 5bp reduction in overall yields to 52bp over FY21-23E.

* Total opex remained flat QoQ and was down 6% YoY to INR1.5b.

Highlights from the management commentary

* The company is looking to increase ARR share to 70-75% over the next 12- 18 months from ~50% currently. IIFL-ONE share will rise to 50-55% of ARR by the end of FY22.

* Third-party products of INR227b, wherein commissions were received upfront (under TBR), are likely to mature in the proportion of 50%/35%/15% in FY22/FY23/FY24.

Valuation and view

Over the past decade, IIFLWAM has evolved into one of the leading wealth management franchises in India. It has also become one of the largest alternate asset managers, with unique product offerings. The AMC business has been scaling up fast and now comprises 18% of total AUM. Traction in IIFL-ONE remains healthy. However, yields are still sub-par. In 4QFY21, net flows have been encouraging. We keep our estimates largely unchanged. Buy with a TP of INR1,500/share (25x FY23E EPS).

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