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Getting the strategy right to meet customer needs

* In its FY22 Annual Report, IIFLWAM outlined the emerging growth opportunities in the Wealth Management industry in India. The growth in the number of HNIs along with increasing wealth of existing HNIs unfolds a huge potential for growth ahead. The ensuing wealth transfer between generations will provide ample scope for existing players having preparedness to adopt technology at a fast pace.

* IIFLWAM will focus on expanding its customer base by adding INR50-250m networth customers. Currently majority of its customers have networth in excess of INR250m. The company has roped in BCG to take advise on the expansion strategy and is expected to launch an offering by the end of FY23 or early FY24.

* Also, IIFLWAM is looking to diversify its geographic presence from the top cities and metros to lower tier cities. For which, the company has identified 8-9 new cities and is looking for a low-cost expansion.

* In FY22, the company strengthened its leadership position in the AIF segment through the launch of several new products spread out during the entire fiscal. Also, in the MF space, the company decided to scale its IIFLfocused Equity Fund, wherein, strong performance attracted robust inflows.

* The core to IIFLWAM’s growth has been its ardent focus on the five Ps of wealth management: People, Proposition, Platform, Process, and Pricing. Within each of these elements, the management has brought in best industry practices with customer centricity.

* Keeping customer interest at the core, IIFL One has devised customized strategies. Also, the company does not earn from the manufacturer and earns from a fixed fee charged to the customer. Within this, the company has signature and bespoke offerings. In FY22, IIFL One saw strong inflows of INR35b in spite of a volatile environment for investments

Valuation and view

The revenue growth in the ARR segment is likely to moderate, led by a decline in retentions on AUM under its AMC. AUM under IIFL-ONE is expected to trend higher on rising share of discretionary PMS. TBR yields are likely to see a significant fall as transaction volumes normalize from its elevated levels of FY22. We expect a significant improvement in profitability on the back of a marked reduction in employee costs, due to: 1) completion of the soft landing needed to retain RMs during this business transition, and 2) one-time payments in FY22 to attract new talent. Scale benefits will also help improve PBT margin to 56.1% in FY25E from 43.9% in FY22. The stock currently trades at an attractive FY25E P/E of 18.5x, given its strong earnings CAGR of 16% over FY22-25E. We reiterate our Buy rating with a one-year TP of INR2,300/share

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