360 One Wam Ltd

Finance - Asset Management

Little Masters

CMP

Rs. 832.55

Rating:

Buy

April 25, 2024

Stock Info

BSE

542772

NSE

360ONE

Sector

Finance - Asset Management

Face Value (Rs)

Equity Capital (Rs cr)

Mkt Cap (Rs cr)

28,773.68

52w H/L (Rs)

900.95 - 398.00

Avg Daily Vol (BSE+NSE)

1,415,571

Shareholding Pattern

(as on 31-Mar)

Promoter

17.76

FIIs

63.22

DIIs

8.34

Public & Others

10.70

Source: Ace equity, stockaxis Research

Price performance

Return (%)

12m

Absolute

23.24

29.89

92.67

Sensex

1.91

3.93

22.97

Source: Ace equity, stockaxis Research

Indexed Stock Performance

360 One Wam Ltd Sensex

Source: Ace equity, stockaxis Research

New client additions and increasing share with existing clients to fuel growth

Company Profile
360 One WAM (erstwhile IIFL Wealth Management Limited), established in 2008, is one of the fastest-growing private wealth management firms in India, having a presence in more than 15 states and international footprints in five countries. The group mainly acts as a wealth manager. It provides financial products distribution, transaction advisory, asset management, portfolio management, lending, credit and investment, and trustee services by mobilizing funds and assets of various classes of investors, including HNIs and UHNIs. It specializes in mobilizing funds and assets from various classes of investors, particularly High Networth Individuals (HNIs).

Investment Arguments

Long-standing track record and established franchise
360 One WAM is among the leading private wealth management firms in India, with a consolidated AUM of Rs.4,66,909 cr as of Q4. The company serves the highly-specialised and sophisticated needs of around more than 6,800 high net-worth individuals (HNIs) and ultra-high-net-worth individuals (UHNIs), family offices, and institutional clients through a comprehensive range of tailored wealth and asset management solutions.

The wealth management business mainly comprises advisory, distribution of financial products, equity and debt broking, estate planning, and managing financial products, essentially like advisory. The asset management business mainly comprises the management of pooled funds under various products and structures, such as alternative asset funds, portfolio management, mutual funds (MFs), and related activities. Additionally, 360 One WAM is among India's largest alternate investment fund (AIF) managers with an AUM of Rs.72,248 cr as of Q4.

Pioneer and leader in alternate asset management in India
360 One WAM has demonstrated a commendable ability to operate effectively throughout varying market cycles and has successfully expanded the range of products across AIFs, PMS, and MFs. Indian alternatives market is still in its nascent phase, both in terms of strategies implemented and AUM allocated to these strategies. Given 360 One Asset’s diversified range of strategies as well as its prominent position and platform within this domain, the company is best placed to address the significant growth opportunity.

360 One WAM – One of India’s largest wealth managers well positioned to capitalize on the growth opportunities
360 One WAM is of India’s largest wealth manager servicing over 7,200 clients. The investment strategy focuses on aggressive growth across diverse wealth segments and geographical regions, supported by targeted value propositions. The goal is to strengthen the institution and alternative businesses, consolidating the leadership position in recurring revenue streams. Additionally, there is a commitment to enhancing client and advisor experiences through best-in-class technology and tools.

Aligned clients' and shareholders’ interests by successfully transitioning to high-quality annual recurring revenues
The firm has proactively adopted a Trail-based revenue model across all offerings, before the transition in the industry and enhancing trust and transparency with clients through fee-based advisory services, eliminating retrocessions and commissions. The approach to product selection is disciplined and responsible, emphasizing strong curation. The firm provides comprehensive, unbiased advice and execution capabilities for clients' financial and business wealth, succession, and legacy needs. Notably, there has been a consistent shift towards Annual Recurring Revenue (ARR) with strong pricing discipline, reflecting robust growth across various segments: 360 ONE Plus: Grew from INR 17,720 crores to INR 72,240 crores in FY24, representing a remarkable ~42% CAGR. Leading Book AUM: Increased from INR 3,536 crores in FY20 to INR 6,430 crores in FY24, demonstrating a solid ~16% CAGR. Wealth ARR AUM: Witnessed growth from INR 40,656 crores in FY20 to INR 1,55,631 crores in FY24, reflecting an impressive ~39% CAGR. Wealth ARR Revenue: Rose from INR 412 crores in FY20 to INR 847 crores in FY24, indicating a strong ~20% CAGR.

The management has reaffirmed its guidance of Rs 400 billion in annual recurring net flows for FY24 and aims to scale up to Rs 500 billion in FY25, with an additional Rs 100 billion expected from new business (65-70% from HNIs and the rest from the global business). New Business has contributed to approximately 25-30% of wealth net flows, underscoring its significant role in the firm's growth trajectory.

New client additions and increasing share with existing clients continue to be a key focus area
The investment strategy focuses on leveraging industry-leading advisory, mandate, and family office propositions, coupled with a superior platform and advisory mindset, to enhance the firm's current positioning in the Ultra High Net Worth Individual (UHNI) segment. The approach emphasizes a holistic, solution-oriented methodology, positioning the firm as the manager of choice for clients' core portfolios. There is a strong emphasis on deep investments in technology and client data security, with a focus on digital enhancements for both clients and the internal team to improve ease of use and engagement. Furthermore, the strategy includes enhancing portfolio analytics to provide deeper and more accurate insights for clients.

Expansion in domestic market coverage is expected to fuel growth in flows over the next few years
The investment strategy is based on India's economic growth potential and sustained monetization events, which are expected to expand the wealth management Total Addressable Market (TAM) beyond traditional Tier 1 cities. The firm anticipates a significant increase in the number of addressable clients, from 20 to 70, driven by a growing desire for professional wealth management services among new Ultra High Net Worth Individuals (UHNI) and High Net Worth Individual (HNI) client prospects. The firm's holistic product-service proposition is positioned as superior to currently available options in these locations, further enhancing its competitive advantage and attractiveness to the expanding client base.

Q4FY24 Financial Result Analysis
360 One WAM delivered robust earnings growth in Q4FY24. Consolidated revenues rose 46% YoY to Rs.573 crs as compared to Rs.385 cr. On the operating Profit, Consolidated EBITDA witnessed a growth of 31% YoY to Rs.273 cr. PAT saw a strong growth of 55% YoY to Rs.241 cr driven by higher transactional income. Assets under Management for 360 ONE stood at Rs 4,66,909 Crs (growth of 37% YoY), consisting of Wealth Management AUM of Rs 3,94,661 Crs an Increase of 39.7% YoY and Asset Management AUM of Rs 72,248 Crs an increase of 23.9% YoY. AUM growth was driven by healthy inflows and buoyant markets. As of March 31, 2024, ARR AUM stood at Rs 2,27,879 Crs - an increase of 36%. As of Q4FY24, Average Active ARR AUM stood at Rs 1,89,974 Crs - an increase of 28.7% YoY led by growth in assets across business segments and healthy retentions on Active ARR AUM.

Wealth Management - ARR AUM rose to Rs 1,55,631 Crs (+43%) supported by robust growth across segments. Our discretionary / non-discretionary / advisory proposition (360 ONE Plus) saw growth of 71%, while Distribution and Lending businesses grew by 26% and 20% respectively.

Asset Management - ARR AUM increased to Rs 72,248 Crs (+24%) driven by growth in AIF (+10%) and Discretionary PMS (+31%) segments, while MF AUM nearly doubled to Rs 9,580 Crs.

In FY24, 360 ONE Wealth successfully onboarded 400+ clients (with more than Rs 10 Crs ARR AUM). During this period, clients having ARR AUM above Rs 50 Crs, increased by approx. 150. Overall, the segment manages assets for approx. 7,200 relevant clients. Overall client attrition rate was 1.4% - one of the lowest in the industry. In FY24, they strengthened the Wealth Sales team through the addition of 35+ senior and experienced partners. In the last 12 months, in recognition of its premier positioning and strong brand, 360 ONE received 10 awards, including Best Domestic Private Bank - India by Euromoney Private Banking and Asian Private Banker.

Key Risks & Concerns

Goodwill risk: 360 One’s business is built on the goodwill of existing clients with new clients being acquired by word of mouth. Any change in the company’s reputation due to a customer’s bad experience can result in loss of goodwill, thereby hampering its ability to acquire new customers or even leading to attrition among existing clients.

Volatile capital markets: Volatility in capital markets persists owing to geopolitical tensions, erratic oil prices, and fluctuating corporate earnings. This could lead to abnormal losses/profits in client portfolios. Should new wealth creation drop, the pace of estimated growth in the wealth industry may slow, which may result in lower AUM growth for the company. As per management, a 20% fall in the benchmark can result in an 8-12% decline in AUM.

Regulatory issues: Several regulatory changes have been introduced over the last few years, altering the dynamics of the business (for example, the change in commission earned from upfront to trial). Any further unfavourable changes can affect the income earned by the company.

Outlook and valuation

360 One WAM delivered healthy earnings growth for the quarter ended Q4FY24. The firm is optimistic about the significant growth opportunity beyond Tier-1 cities and has outlined an expansion plan for domestic coverage. Leveraging the strength of their core platform and innovative competencies, they aim to achieve higher growth in the High Net Worth Individual (HNI) segment and position themselves as a preferred manager for global capital seeking access to India. The unique combination of macroeconomic tailwinds and their distinctive proposition continues to solidify their position as one of the leading players in India.

The company's management has guided 25-30% of recurring flows from new strategies over the medium term following stellar Q4 results. Management anticipates a visible impact on the topline starting from FY25, with even stronger growth expected from FY26 onwards. They target a retention (yield) of 70-75 basis points for both businesses, along with solid returns in the longer term. Management not expecting any pressure on yield. The firm is on track to launch HNI coverage by April 2024 (Q1 FY25) and its global platform in the first week of July. Retaining a niche positioning in the wealth management business, the firm boasts a track record of innovative products and operates on a strong team leader-driven model, resulting in low attrition at both the client and senior banker levels. Management's strategic decision to expand into new domestic geographies and target the HNI category, alongside global markets, is expected to drive the next phase of growth and positively impact the topline starting from FY25. At a CMP of Rs.816, the stock is trading at 27x FY26E. We recommend a BUY rating on the stock.

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