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Profitability in line; yields on ARR assets flat sequentially

* 360ONE’s total revenue grew 6% YoY to INR4.4b in 3QFY24, in line with our estimate, mainly driven by a 9% QoQ jump in ARR income (in line) to INR3.4b. However, TBR income fell 13% QoQ to INR1b.

* Total opex rose 24% YoY to ~INR2.3b, which was 6% higher than our estimate. Increased employee costs (6% above estimate) led to higher opex in 3QFY24.

* Employee costs jumped 30% YoY. Total ESOP cost came in at INR120m (up 109% YoY and up 33% QoQ). During the quarter, 360ONE’s cost-toincome ratio increased ~760bp YoY to 52.5% (vs. our estimate of 48%).

* PBT for the quarter was broadly in line at ~INR2.4b. PAT grew 13% YoY to INR1.9b in 3QFY24.

* For 9MFY24, Revenue/PAT grew 9%/12% YoY to INR12.7b/INR5.7b.

* Total AUM rose 32% YoY to INR4.54t, led by a continued focus on scaling up the ARR assets. ARR AUM was up 33% YoY to INR2.21t.

* The board has approved an interim dividend of INR4 per share.

* We have revised down our EPS estimates by 3.4%/1% for FY25/FY26 to factor in higher cost on account of additional headcount (including senior level hires) in the ultra HNI segment and cost relating to new business initiatives (mid-market segment and global platform). We retain our BUY rating on the stock with a one-year TP of INR770 (based on 25x Mar’26E EPS).

ARR asset yields stable

* On a closing AUM basis, ARR assets grew 33% YoY to INR2.2t. TBR assets increased 31% YoY to INR2.3t.

* AUM for 360ONE plus (IIFL ONE) grew 90% YoY and 22% QoQ to INR675b, led by a sharp rise in non-discretionary AUM (up 177% YoY and up 37% QoQ) to INR488b. However, discretionary AUM declined 11% YoY and 2% QoQ to INR97b.

* Retentions on ARR assets stood at 64bp in 3QFY24 vs. 78bp in 3QFY23. Retentions on ARR assets for wealth management stood at 60bp (vs. 75bp in 3QFY23) and for asset management segment they stood at 72bp (vs. 83bp in 3QFY23).

* Retentions in IIFL-ONE were flat QoQ to 19bp (27bp in 3QFY23) as retentions on non-discretionary AUM came in at 17bp (27bp in 3QFY23).

* Retentions in AIF improved sequentially to 93bp (104bp in 3QFY23) as retentions on Listed Equity AUM improved sequentially to 149bp.

Highlights from the management commentary

* The next six to nine months is going to be an investment phase for 360ONE WAM. The company recently added 35 new hires to its wealth sales team. Typically, wealth sales teams mature and achieve breakeven within 15 to 18 months. 19 January 2024 3QFY24 Results Update | Sector: Financials 360ONE WAM 23 January 2024 38

* The company expects CIR to reduce to 47-47.5% by the end of FY25 from the 49% currently. Furthermore, from FY26, the CIR is projected to decrease further to 45%.

* The launch of the HNI proposition for the new businesses is progressing as planned. This initiative has the potential to contribute INR 100b (65-70% from HNI and rest from global platform). Yields from these new businesses are expected to fall within the range of 70-75bp

Valuation and view: Decent 3Q performance; reiterate BUY

360ONE is looking to diversify its presence in terms of client segment (mass affluent) and geography (lower tier cities). It is also building a global platform. Resultant investments into team building has kept the costs at elevated levels. The benefits of these investments are likely to be back ended. We retain our BUY rating with a oneyear TP of INR770 (based on 25x Mar’26E EPS).

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