Buy 360ONE WAM Ltd For Target Rs. 1300 by Motilal Oswal Financial Services Ltd
Healthy ARR trends; strategy execution remains key
* 360 One WAM (360ONE) reported operating revenue of INR6.5b (11% beat), reflecting growth of 14% YoY, largely due to a 41% YoY growth in recurring revenue. For FY25, revenue grew 32% YoY to INR24.5b.
* Total AUM rose 25% YoY to INR5.8t (in line), driven by a 23% YoY growth in ARR AUM to INR2.5t (in line) and 26% YoY growth in TBR AUM to INR3.3t (in line) during the quarter.
* Opex grew 11% YoY to ~INR3.3b (in-line), reflecting a cost-to-income ratio of 51.3% in 4QFY25 (vs. our estimate of 54.6%). Strong growth in revenue resulted in 7% beat in PAT at INR2.5b (+4% YoY). For FY25, PAT grew 27% YoY to ~INR10.2b.
* Management aims to achieve an annual ARR flow growth of 12-15% and an MTM growth of 8-10%, targeting an overall AUM growth of 20-25%. This is expected to translate into revenue growth of 15-20% and PAT growth of 20-25%.
* The strategic collaboration with UBS will support 360ONE’s global business, enhance its domestic wealth proposition, and provide global distribution opportunities for its AMC products.
* We adopt an SOTP approach to build in the optionality of inorganic initiatives such as B&K acquisition and UBS collaboration. Additionally, we build in potential profits from the utilization of funds raised through the warrants issued to UBS as part of the arrangement. We assume full-scale utilization by FY29, and hence, the PAT is discounted to FY27 using a 13% discounting rate. We reiterate our BUY rating with a one-year TP of INR1,300.
Multiple synergies from strategic collaboration with UBS
* 360ONE has entered into an exclusive collaboration with UBS AG, benefiting Indian and global clients of both companies.
* The transaction involves: 1) strategic collaboration between both institutions, providing clients with access to onshore and offshore wealth management solutions; 2) acquisition of 4.95% stake by UBS for INR2.1b via the issue of warrants; and 3) acquisition of UBS India onshore wealth management business for a consideration of INR3.1b.
* This collaboration will unfold global investment opportunities for 360ONE clients through UBS, while offering UBS clients access to India’s domestic ecosystem. 360ONE AMC’s products will benefit from global distribution through UBS’ platform.
PAT beat driven by better-than-expected ARR yields
* 360ONE’s ARR AUM at INR2.5t (in line) grew 23% YoY, driven by net ARR inflows of INR40b in 4QFY25. While wealth management ARR net flows declined 42% YoY due to outflows in the distribution business, AMC net flows grew 256% YoY, largely contributed by AIF and MF products.
* Wealth Management ARR AUM grew 27% YoY to INR1.62t, driven by 39%/19%/36% YoY growth in 360 One Plus/ Distribution/ Lending AUM.
* Wealth management ARR retention grew to 80bp (76bp in 4QFY24), driven by an improvement in discretionary and non-discretionary yields, the activation of previously non-active AUM, and stable lending yields.
* Asset management AUM grew 17% YoY to INR844b, driven by 29%/9%/20% YoY growth in discretionary/AIF/MF AUM.
* Asset management yields improved significantly to 90bp (74bp in 4QFY24), driven by carry income (INR497m in 4QFY25) and an improvement in AIF yields.
* The significant improvement in yields resulted in a 41% YoY growth in ARR income to ~INR5.0b (17% beat). During FY25, recurring revenue grew 28% YoY to INR17b, with yield improvement to 76bp (72bp in FY24).
* TBR income declined 31% YoY to INR1.5b (5% miss) owing to a slowdown in market activity. However, fixed income and real estate transactions helped mitigate the decline in transactional income. For FY25, TBR income grew 44% YoY to INR7.4b.
* Employee costs grew 13% YoY to INR2.5b (11% higher than estimate) and other admin costs grew 7% YoY to INR804m (13% below our estimate). ? Other income came in at INR65m.
Highlights from the management commentary
* 360ONE recorded its highest-ever annual PAT, with a cost-to-income ratio improvement to 45.9% for FY25. Management anticipates a gradual improvement in this ratio over the coming quarters as new business initiatives become more productive.
* The inbound wealth management opportunity through UBS is substantial, according to the management. 360ONE’s own NRI book exceeds USD2b, despite not having an NRI sourcing office. The inward bound market is large, particularly for the alternates segment, and with growing awareness of GIFT City, the potential of achieving 3x growth in AUM in the coming years is high.
* Of the INR21b proceeds from the stake sale to UBS, INR3-3.5b is expected to be utilized for the UBS collaboration, INR2-2.5b for enhancing B&K capabilities, INR8-9b toward lending book, and the remaining amount directed toward addition to the alternates business.
Valuation and view
* 360ONE maintains a strong position in the industry, reflected by robust flows and consistent performance. The company’s plans to diversify across client segments (mass affluent) and geography (lower-tier cities) are gaining traction, while the global business is expected to boost performance on the back of UBS collaboration. With investments focused on new business segments, the improvement in productivity will bode well for the company’s profitability. While we have not factored in incremental revenue from the B&K acquisition and UBS collaboration, both transactions are likely to be value-accretive.
* We adopt an SOTP approach to build in the optionality of inorganic initiatives, such as B&K acquisition and UBS collaboration. Additionally, we build in potential profits from the utilization of funds raised through the warrants issued to UBS as part of the arrangement. We assume full-scale utilization in FY29, and hence, the PAT is discounted to FY27 using a 13% discounting rate. We are positive on the overall wealth management space in India. As a leading player, 360ONE is well-placed to benefit from industry tailwinds. However, with multiple projects underway—including mid-segment HNI business expansion, global business growth, ET Money acquisition, B&K acquisition, and UBS collaboration—execution will be crucial. We reiterate our BUY rating with a one-year TP of INR1,300.
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