(Kotak) 18sep19 - IIFL Wealth PDF

Company Report
Diversified Financials NEUTRAL

IIFL Wealth
September 18, 2019
RE-INITIATING COVERAGE
BSE-30: 36,481
IIFL Wealth: Recurring revenues to create wealth. IIFL Wealth’s strong client
franchise in the Indian UHNI segment, an innovative, diversified product offering and
superior execution, make it a good play on the niche wealth management space. We
look through near-term earnings pressure due to shifting focus on more recurring
revenue streams that provide more predictability to its long-term earnings. While
volatility in capital markets will constrain near-term AUM growth, a promising
advisory offering, AMC business focused on alternatives and a synergistic NBFC will
underpin yields. We reinitiate coverage with fair value of Rs1,050.
Reinitiate coverage of IIFL Wealth with fair value of Rs1,050

INSIDE
We reinitiate coverage on IIFL Wealth with fair value of Rs1,050/share i.e. market cap of Rs90
Strong growth in
bn. At our fair value estimate, the business will trade at 19X EPS or 2.7X book September
2021E.
UHNIs over medium-
term ........... pg7
IIFL Wealth has a strong presence in the niche UHNI space
Shifting focus to
IIFL Wealth is a niche wealth management franchise focusing on the rapidly growing ultra HNI
recurring revenues
segment in India. It was ranked #3 on AUMs (as of 2018) by Asian Private Banker; the
company managed Rs1.4 tn of ex-custody AUMs in March 2019, on the back of 26% CAGR .................. pg20
during FY2017-19. Gradual financialization of savings across Indian UHNIs, reducing market
presence of foreign players and a wide array of innovative and alternative products will help Revenues to
the company deliver strong long-term growth though near-term growth may be moderate moderate owing to
(17% AUM CAGR during FY2020-22E), constrained by volatility in capital markets. business transition
.................. pg30
IIFL Wealth transitions to more stable revenue streams
IIFL Wealth is migrating its business model to focus on stable and steady income streams like
trail and advisory income. We expect share of recurring income to increase to 70% of income
by FY2022E from 62% in FY2020E and 35% in FY2018 on the back of strong recurring AUM Nischint Chawathe
nischint.chawathe@kotak.com
growth at 44% CAGR during FY2019-22E. Mumbai: +91-22-4336-0887
In the pursuit of stable income streams, the company has been aggressively marketing its M B Mahesh, CFA
flagship advisory platform, apart from scaling up its AMC business and driving synergistic mb.mahesh@kotak.com
Mumbai: +91-22-4336-0886
lending through an in-house NBFC. A diversified and dynamic product offering, in addition to
strong client relationships, will enable it to improve its realizations even as clients typically tend Dipanjan Ghosh
to be bit guarded in paying high advisory fees. dipanjan.ghosh@kotak.com
Mumbai: +91-22-4336-0888
An exit from large upfront commissions earned in the past will likely lead to 15% yoy decline
Shrey Singh
in revenue and 26% decline in earnings in FY2020E; a low base and gradual built up in trail- shrey.singh@kotak.com
earning and advisory AUMs, will drive 24% revenue and 38% earnings CAGR during FY2020- Mumbai: +91-22-4336-0895
22E. Venkat Madasu

venkat.madasu@kotak.com
Risks: IIFL Wealth must manage volatility in capital markets; execution of new business model Mumbai: +91-22-4336-0889
We find three key challenges for IIFL Wealth at the current juncture (1) sustaining inflows in
the backdrop of volatility in capital markets, (2) improving commissions in the new advisory
model and (3) alignment of employee incentives to lower but more stable levels.
Kotak Institutional Equities

Research
Important disclosures appear

at the back
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Diversified Financials IIFL Wealth
TABLE OF CONTENTS
Business overview ................................................................................... 3
Valuation section: Reinitiate coverage of IIFL Wealth with FV of Rs1,050 4
Wealth management: IIFL Wealth poised for strong growth ................... 7
IIFL Wealth: Shifting focus to recurring revenues .................................. 20
Key risks: Volatility of inflows, execution of new model ........................ 29
Near-term pressure on earnings owing to business transition ............... 30
IIFL Wealth management: Background ................................................. 39
The prices in this report are based on the market close of September 17, 2019.
2 KOTAK INSTITUTIONAL EQUITIES RESEARCH

IIFL Wealth Diversified Financials
BUSINESS OVERVIEW
Exhibit 1: Key financial highlights for IIFL Wealth
March fiscal year-ends, 2017-2022E
AUM (ex. Recurring Cost-to Tax Payout
PAT EPS BVPS ROE custody) income Yields income rate ratio
(Rs mn) (Rs) (Rs) (%) (Rs bn) (Rs mn) (bps) (%) (%) (%)
2017 2,640 34 195 19.2 859 2,390 0.98 51 31 NA
2018 3,690 46 232 21.8 1,124 3,670 1.04 54 23 21
2019 3,840 45 342 16.1 1,366 4,440 0.82 50 28 22
2020E 2,823 33 355 9.5 1,577 5,568 0.58 55 30 60
2021E 3,899 46 374 12.5 1,827 7,382 0.62 50 30 60
2022E 5,404 63 400 16.2 2,150 9,643 0.66 44 30 60
Source: Company, Kotak Institutional Equities estimates
Exhibit 2: Financial summary for IIFL Wealth

2018 2019 2020E 2021E 2022E
Key growth rates (%)
Revenues 32.7 2.3 (15.5) 22.8 24.8
Recurring 53.6 21.0 25.4 32.6 30.6
PMS and advisory 300.0 350.0 219.5 135.2 85.2
Non-recurring revenues 41.2 (12.5) (49.1) 5.5 13.0
Operating expenses 41.1 (6.4) (5.9) 10.3 10.9
PAT 39.8 4.1 (26.5) 38.1 38.6
AUM excluding custody 30.9 21.5 15.4 15.9 17.6
Recurring AUM 50.2 29.9 48.7 46.0 37.5
Non-recurring AUM 25.6 12.9 (9.4) (13.9) (14.9)
Key ratios (%)
Recurring revenues to total revenues 35 42 62 67 70
Cost-to-income 54 50 55 50 44
ROE 21.8 16.1 9.5 12.5 16.2
Yields (bps)
Overall AUMs 104 82 58 62 66
Recurring revenues 98 86 77 69 64
Fees on PMS and advisory 41 35 40 45 50
AUM excluding custody (Rs bn)
Overall AUM 1,124 1,366 1,577 1,827 2,150
Recurring AUM 449 583 866 1,265 1,739
PMS/advisory 17 87 200 401 601
Funds managed by IIFL AMC 134 208 266 345 436
Mutual funds 205 192 250 288 345
Managed accounts/alternatives 25 47 95 170 290
Loans 67 48 55 61 67
Non-recurring AUM 861 972 881 758 645
Profit and loss statement (Rs mn)
Revenues 10,430 10,670 9,020 11,073 13,824
Recurring revenues 3,670 4,440 5,568 7,382 9,643
PMS and advisory 40 180 575 1,353 2,505
Funds managed by IIFL AMC 518 800 1,302 1,679 2,147
Mutual funds 960 1,018 1,217 1,345 1,583
Managed accounts/alternatives 92 222 462 862 1,496
ROA on loans 2,060 2,220 2,012 2,144 1,912
Non-recurring revenue 6,620 5,790 2,946 3,109 3,512
Other income 140 440 506 582 669
Operating expense (5,660) (5,300) (4,988) (5,503) (6,104)
Employee expense (3,960) (3,370) (3,637) (4,017) (4,499)
PBT 4,770 5,370 4,032 5,570 7,720
PAT 3,690 3,840 2,823 3,899 5,404
Balance sheet (Rs mn)
Loans 70,561 49,665 55,177 60,695 66,764
Investment 11,112 30,526 32,052 33,655 35,337
Net assets 95,666 97,802 101,830 110,697 120,652
Total liabilities 77,037 68,698 71,597 78,649 86,102
Shareholders' equity 18,629 29,104 30,233 32,048 34,550
KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

VALUATION SECTION: REINITIATE COVERAGE OF IIFL WEALTH WITH FV OF RS1,050

We reinitiate coverage on IIFL Wealth with fair value estimate of Rs1,050 i.e. market cap of Rs90 bn. At our
fair value estimate, the business will trade at 19X EPS or 2.7X book September 2021E. Its near-term earnings
will likely remain volatile (with sharp earnings decline in FY2020E and catch up from FY2021E) due to
migration of its business model to trail-based revenue streams from upfront revenues booked till FY2019.
Reinitiate with FV of Rs1,050/share i.e. 19X September 2021E

We reinitiate coverage on IIFL Wealth with a fair value estimate of Rs1,050; at our fair value
the stock will trade at 23X March 2021E and 19X September 2021E earnings. The stock will
be listed later this week and we will assign a rating after the stock price stabilizes post listing.
IIFL Wealth is a niche wealth management business with a strong distribution in the ultra
HNI segment. Higher profitability of the ultra HNI business, strong relationships of its RMs
and a dynamic platform that offers a wide array of products are its key strengths. We expect
the company to deliver 16% AUM CAGR during FY2019-22E, lower than 26% during
FY2017-19. Earnings will decline by 15% yoy in FY2020E due to transition to a trail model
but will pick up on a low base at 38% CAGR during FY2020-22E.
We don’t find any direct comparable for IIFL Wealth. Wealth management businesses are
currently unlisted and embedded in large banks and NBFC stocks. The closest possible
comparable in India are asset management businesses viz. HDFC AMC (41X FY2021E
earnings) and Reliance Nippon AMC (22X FY2021E earnings, Exhibit 5). Both the entities
operate mutual funds with wide retail distribution and negligible presence in
alternatives that generally tends to be more profitable for both distributors and asset
managers.
Charles Schwab is the global comparable listed wealth management firm. It trades at 14.9X
earnings and 2.4X book CY2021 for 4.8% EPS CAGR during CY2019-21E (Exhibit 4). The
company has delivered 8.2% CAGR in client assets during CY2016-18, leading to 36% PAT
CAGR during the period. It earned a yield of 39 bps on its advisory AUMs and 20 bps on MF
and ETFs.
We consider PV of core business and add surplus capital to arrive at our FV

Our fair value of Rs1,050/share is derived from a combination of present value of its core
business and addition of surplus capital.
IIFL is a unique model with a combination of agency (distribution and advisory business) and
a fund-based business. Its in-house NBFC involves borrowing from its clients in the form of
structured bonds and lending to other customers for various purposes including short-term
business loans and loans against shares (all loans are backed by liens on clients’ investments).
The lending business is hence integral to the core business model of the company.
Exhibit 3 shows our valuation model. We discount core earnings of the company, adjusted
for working capital changes. In our calculation of core earnings, we are deducting notional
interest on excess capital, which is otherwise boosting its reported PAT. After the calculation
of discount PV, we are adding back excess capital to calculate overall fair value of IIFL.
At our FV of Rs1,050, the stock will trade at 19X earnings and 2.7X book September 2021E.

Exhibit 3: We value IIFL Wealth at Rs1,050 per share

DCF-based valuation of IIFL Wealth, March fiscal year-ends, 2018-2036E
2018 2019 2020E 2021E 2022E 2023E 2024E 2025E .. .. 2038E 2039E 2040E 2041E
AUM (Rs bn) 1,124 1,366 1,577 1,827 2,150 2,558 3,019 3,532 21,897 24,524 26,977 29,674
YoY (%) 22 15 16 18 19 18 17 12 12 10 10
Yields (bps) 86 61 65 70 69 68 67 54 53 52 51
Overall revenues 10,430 10,670 9,020 11,073 13,824 16,128 18,826 21,786 110,912 121,900 132,665 143,099
YoY (%) 2.3 (15.5) 22.8 24.8 16.7 16.7 15.7 9.9 9.9 8.8 7.9
Core PBT 3,877 2,185 3,511 5,549 6,313 7,180 7,873 26,775 29,428 32,026 33,830
Tax expense (1,104) (656) (1,053) (1,665) (1,894) (2,154) (2,362) (8,032) (8,828) (9,608) (10,149)
Core PAT 2,772 1,530 2,457 3,884 4,419 5,026 5,511 18,742 20,599 22,418 23,681
Tax rate (%) 22.6 28.5 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0
Core PBT margin (%) 36.3 24.2 31.7 40.1 39.1 38.1 36.1 24.1 24.1 24.1 23.6
Working capital changes 3,558 (437) (685) (800) (933) (1,080) (5,498) (6,043) (6,577) (7,094)
Core PAT post working capital changes 5,088 2,020 3,199 3,619 4,093 4,431 13,244 14,556 15,842 16,587
Discounted core PAT 1,899 2,658 2,658 2,656 2,542 1,524 1,481 1,424 1,318
Discount year 0.5 1.5 2.5 3.5 4.5 17.5 18.5 19.5 20.5
Key highlights
Risk free rate (%) 7.0
Cost of equity (%) 13.2
Discounted core PAT (Rs mn) 41,166
Terminal core PAT (Rs mn) 1,318
Terminal growth rate (%) 6
Terminal value (Rs mn) 18,431
Business PV (Rs mn) 59,596
Excess capital (Rs mn) 29,969
Fair value (Rs mn) 89,565
Fair value (Rs) 1,053
Notes:
(1) We are deducting notional interest on excess capital in our calculation of core earnings.
Exhibit 4: Global wealth and asset managers trade between 5-16X FY2021 earnings
Valuation comparison for select companies, calendar year-ends, 2018-2021E
EPS CAGR
CMP Market cap AUM Mcap/AUM EPS ($) (2018-21E) PER (X) PBR (X) RoE (%)
($) ($ bn) ($ bn) (%) 2018 2019E 2020E 2021E (%) 2018 2019E 2020E 2021E 2018 2019E 2020E 2021E 2018 2019E 2020E 2021E
Region-USA
Blackrock 435.7 67.8 5,976 1.1 26.9 27.5 30.6 33.1 7.2 16.2 15.8 14.2 13.2 2.1 2.1 2.0 1.9 13.4 13.2 13.8 18.5
Blackstone 53.5 64.0 472 13.5 2.3 2.3 3.1 3.4 14.7 23.6 23.4 17.4 15.6 5.6 6.1 8.9 8.6 23.7 21.7 24.7 26.1
Charles Schwab Corp 43.6 57.0 3,252 1.8 2.5 2.7 2.7 2.9 5.8 17.7 16.4 16.2 14.9 3.3 2.9 2.7 2.4 19.9 19.0 18.0 17.3
KKR 28.3 23.8 195 12.2 2.1 1.7 2.0 2.0 (1.9) 13.2 16.5 13.8 14.0 1.9 1.5 1.4 1.3 14.8 9.9 10.5 8.9
T Rowe Price 116.9 27.5 962 2.9 7.4 7.9 8.2 8.5 4.7 15.8 14.8 14.3 13.7 4.5 4.1 3.8 3.7 30.0 29.1 27.1 25.7
Region-Europe and UK
DWS Group GMBH & Co KGAA 30.7 6.1 758 0.8 2.3 2.7 3.0 3.2 11.6 13.3 11.5 10.4 9.6 0.8 0.8 0.8 0.8 6.1 7.2 7.9 8.3
Schroders PLC 39.0 10.6 519 2.0 2.4 2.4 2.6 2.8 4.0 16.0 16.5 15.1 14.2 2.4 2.4 2.2 2.1 14.3 14.8 15.1 15.3
Standard Life Aberdeen PLC 3.3 7.8 703 1.1 0.4 0.2 0.3 0.3 (11.1) 8.4 14.0 13.1 12.0 0.9 0.9 0.9 0.9 10.2 5.4 7.6 7.5
Source: Bloomberg, Company, Kotak Institutional Equities estimates
Exhibit 5: IIFL Wealth will trade at a discount to HDFC AMC and a premium to RNAM at our fair value estimate
Valuation comparison for select Indian peers, March fiscal year-ends, 2018-2021E
EPS CAGR
CMP Market cap AUM Mcap/AUM EPS (Rs) (2018-21E) PER (X) PBR (X) RoE (%)
(Rs) (Rs bn) (Rs bn) (%) 2018 2019 2020E 2021E (%) 2018 2019 2020E 2021E 2018 2019 2020E 2021E 2018 2019 2020E 2021E
Indian peers
HDFC Asset Management 2,575 547.4 3,459 15.8 34.5 43.9 54.7 62.8 22.1 74.6 58.7 47.1 41.0 24.1 17.8 15.5 13.6 37.7 35.0 35.4 35.5
Reliance Nippon Asset Management 228 139.8 2,279 6.1 7.6 7.9 9.0 10.6 11.6 29.9 28.8 25.4 21.5 5.9 5.4 5.4 5.1 21.7 19.7 21.5 25.5
IIFL Wealth Management 1,050 89.4 1,366 6.5 45.9 45.1 33.2 45.6 (0.3) 22.9 23.3 31.7 23.1 4.5 3.1 3.0 2.8 21.8 16.1 9.5 12.5
Notes:
(1) We have considered KIE fair value as CMP for IIFL Wealth.
(2) AUM is MAAUM for 2019 for HDFC and RNAM.
(3) IIFL’s AUM excluding custody assets (FY2019).
Source: Bloomberg, Company, Kotak Institutional Equities estimates

Exhibit 6: Volatile earnings growth for IIFL

PAT and AUM, March fiscal year-ends, 2017-2022E (% yoy)
PAT yoy AUM ex. custody
60
40
56
20 45 40 38 39
31
22 16 18
4 15
0
(26)
-20
-40
2017 2018 2019 2020E 2021E 2022E
Exhibit 7: Improvement in revenues over medium-term

Revenues, March fiscal year-ends, 2016-2022E
(Rs bn) Revenue (LHS) YoY (RHS) (%)

15 80
12 60
54.4
9 40
32.7
6 20
22.8 24.8
3 0
2.3
5.1 7.9 10.4 10.7 9.0 11.1 13.8
0 (15.5) -20
2016 2017 2018 2019 2020E 2021E 2022E

WEALTH MANAGEMENT: IIFL WEALTH POISED FOR STRONG GROWTH

Increase in UHNIs, penetration into newer geographies and expanding product bouquet will drive strong
growth trajectory for wealth management industry over the medium-term. Domestic firms with wide
offerings and strong client relationships are well placed to capitalize on growth in Indian UHNIs, that is
surpassing other developing economies. Most companies will continue to expand product bouquet and
penetrate into untapped markets as financialization of savings increases over time. Volatility in capital
markets can however hinder near-term growth.
Strong growth of wealth assets in Asia

Increase in wealth assets in emerging economies within Asia and Africa, saturation in
developed markets and rise in the number of millionaires coupled with better return on
invested assets will drive growth in the wealth management industry in these geographies.
Among emerging economies, India, China, Philippines, Thailand and Vietnam will witness
maximum growth in the number of millionaires and UHNIs creating a platform for robust
growth in the wealth management industry.
 Emerging economies will drive growth going ahead. Overall investible assets
increased at a sharp pace of 11% CAGR over FY2013-18 in Asia as compared to global
average of 6% (Source: BCG Wealth report 2019, Exhibit 8). The market share of this
region will further increase by ~300 bps to 28% by FY2023E driven by robust 9% CAGR
during the same period (compared to industry average of 6%). While overall wealth
assets >$1 mn is lower in this region (38%) compared to global average (50%), strong
growth of ~11-12% CAGR over FY2018-23E compared to industry growth of ~6-8%
CAGR will lead to a robust increase in the number of millionaires (Exhibit 9). Additionally,
saturation in developed economies (net new money as % of AUM declined 0.7% in
2018, up 2.3% in 2017 and 1.2% in 2016 compared to increase of3.7%, 7.4% and
3.6% respectively in growing economies) and lower realization in these regions will push
wealth managers to increase focus on developing economies (Exhibit 10). As such, Asian
markets will contribute significantly to the development of the wealth management
industry over the next few years.
 Wealth managers will increase focus on affluent population. While the affluent
population (assets of $250,000 to $1 mn) contributes ~17% of AUM for wealth
managers, the share of these clients is high at 65% (Exhibit 12). Overall investible assets
of the affluent is low at 15% and market share of Asian affluent population (in terms of
investible assets held) is lower at ~10% (Exhibit 11). However, strong growth in the
number of affluent in this region (number of affluent individuals will grow at 10% CAGR
over FY2018-23E) will drive 9% CAGR in overall investible assets compared to global
average of 6% during the same period. Affluent segment will remain a key area of focus
for wealth managers over the next few years. Competition from multiple players is quite
high in this segment as compared to upper-affluent or high net worth segments (Exhibit
13).

Exhibit 8: Strong growth of investible assets in emerging economies like Asia and Africa over medium-term
Global wealth break-up across geographies, 2013-2023E
Investible assets Non-investible assets
Assets ($ tn) CAGR (%) Market share (%) Assets ($ tn) CAGR (%) Market share (%)
2013 2017 2018 2023E 2013-18 2018-23E 2018 2023E 2013 2017 2018 2023E 2013-18 2018-23E 2018 2023E
North America 38 48 48 66 5 7 39 40 35 43 42 52 4 4 50 49
Latin America 2 3 3 4 8 7 2 2 1 2 2 4 11 9 3 4
Western Europe 19 22 22 27 2 4 18 16 17 22 22 27 5 3 27 25
Africa 1 1 1 1 10 11 1 1 0 1 1 1 6 9 1 1
Eastern Europe and Central Asia 1 2 2 3 11 7 2 2 1 1 1 1 6 8 1 1
Middle East 2 3 3 4 5 7 2 3 0 1 1 1 8 8 1 1
Asia 18 29 31 47 11 9 25 28 4 6 6 11 11 12 7 10
Japan 10 11 11 12 1 2 9 7 5 5 5 5 1 (1) 6 5
Oceania 1 2 2 2 7 7 1 1 2 3 3 4 7 6 3 3
Global 92 120 121 166 6 6 100 100 67 83 84 106 5 5 100 100
Notes:
(1) Non-investible assets include Life insurance and pensions, unlisted equity, and other equity.
(2) Investible assets include equity, bonds, investment funds, currency and deposits, and other smaller asset classes.
Source: BCG Global Wealth Report 2019
Exhibit 9: Sharp increase in millionaires in Asia over medium-term

Wealth assets mix across geographies, 2018-2023E
Wealth assets mix (%) CAGR (%)

2018 2018-2023E
$0-$1 mn $1 mn-$20 mn $20-$100 mn >$100 mn $0-$1 mn $1 mn-$20 mn $20-$100 mn >$100 mn
North America 35 50 8 7 3.6 5.7 9.6 6.9
Latin America 51 12 5 31 7.8 8.6 9.2 8.5
Western Europe 59 19 6 16 3.8 3.9 4.0 3.8
Eastern Europe 55 12 5 28 7.0 8.2 8.1 8.5
Middle East and Africa 55 15 7 23 8.1 7.2 6.8 7.3
Asia Pacific 62 16 6 16 7.8 10.8 12.1 12.6
Japan and Oceania 76 17 4 4 2.2 1.8 2.6 3.4
Global 50 31 7 12 4.8 5.9 8.6 7.7
Exhibit 10: Higher inflows in growth markets

Net new money in mature and growth markets, 2014-2018
Net new money (% of AUM)

2014 2015 2016 2017 2018
Mature markets 3.2 2.8 1.2 2.3 (0.7)
Growth markets 9.9 8.7 3.6 7.4 3.7
Notes:
(1) Mature markets are defined as weighted average for North America and Western Europe wealth managers.
(2) Growth markets are defined as weighted average for Asia, Eastern Europe, and Latin America.

Exhibit 11: Sharp rise in share of affluent in Asia over the next few years
Global wealth held by affluent individuals, 2013-2023E
Investible assets held by affluent individuals Affluent individuals

Assets ($ tn) CAGR (%) Market share (%) Number ('000) CAGR (%) Market share (%)
2018 2023E 2018-23E 2018 2023E 2018 2023E 2018-23E 2018 2023E
North America 8 12 7 46 47 41,635 50,979 4 54.63 54
Latin America 0 0 10 1 1 599 918 9 1 1
Western Europe 2 3 5 13 12 9,026 10,697 3 12 11
Africa 0 0 11 1 1 230 373 10 0 0
Eastern Europe and Central Asia 0 0 9 1 1 498 781 9 1 1
Middle East 0 0 5 2 2 1,025 1,265 4 1 1
Asia 3 5 9 18 20 7,624 12,226 10 10 13
Japan and Oceania 4 4 3 20 17 15,575 16,992 2 20 18
Global 18 24 6 100 100 76,213 94,232 4 100 100
Notes:
(1) Affluent individuals are defined as those with assets of $250,000 to $1 million.
Exhibit 12: Affluent clients (65% of overall clients) contribute 17% of AUM for wealth managers
Wealth mix based on ticket size for wealth managers globally, 2018
Clients AUM Revenues
>$5 mn, <$0.25 mn,
12 <$0.25 mn,
4
4 $0.25-$1
$0.25-$1
mn, 13
mn, 13
<$0.25 mn,
$1-$5 mn, 43
23
$1-$5 mn, $1-$5 mn,

22 >$5 mn, 22
>$5 mn,
61
61
$0.25-$1
mn, 22
Notes:

Exhibit 13: Private banks focus on HNIs while robo advisors, online and retail banks focus on the retail and the mass affluent
Competition from different players in affluent segment, 2018
Notes:
Strong growth in UHNIs will boost growth of wealth management industry in

India
The number of UHNIs in India will grow at a robust pace over the next few years driven by
increase in income levels, rise in number of entrepreneurs and increased urbanisation. The
growth in the wealth management industry will be further fuelled by rise in financial savings
including investment in AIFs, PMS, etc. Domestic firms have increased at a sharp pace over
the past few years on the back of strong relationships with existing customers, widening
bouquet of products, lower attrition among employees and focus on smaller geographies.
 Robust growth of millionaires and UHNIs in India. As per ‘GlobalData Wealth Insight’
report, the number of millionaires and UHNIs (>$30 mn) will increase at a sharp pace in
India, China, Philippines, Vietnam and Thailand (Exhibit 14). Total Indian millionaires
increased at a sharp pace of 5.4%CAGR over FY2013-18 (compared to global average of
~2-3% CAGR) and will further ramp up at 6.1% CAGR over FY2018-23E (compared to
global average of ~4%). The number of UHNIs increased at 4.3% CAGR over FY2013-18
(compared to global average of ~2-3%) and will increase at a faster pace of 6.7% CAGR
over FY2018-23E (compared to global average of ~4%). As per ‘Kotak Top of the
Pyramid 2017’ report, the number of individuals with net worth of Rs250 mn (mapped
over a period of ten years) has increased at 12.3% CAGR over FY2013-18 to 1,60,000
and will further increase at 16% CAGR over FY2018-23E to 3,30,400 individuals. An
interesting observation is the increasing wealth per UHNI to Rs1,065 mn in FY2023E from
Rs953 mn in FY2018 and Rs852 mn in FY2013 (Exhibit 15). This poses significant
opportunity for the wealth management business to grow at a steep pace over medium-
term. The number of individuals with gross income of >Rs5 mn who file tax returns have
increased at 20% CAGR over FY2013-18 while the overall income has increased at 18%
CAGR during the same period (Exhibits 16 and 17). The dichotomy in income of tax
payers to UHNIs is owing to assets held by different vehicles including trusts for
UHNIs/HNIs.

 Domestic firms gain market share. AUM managed by domestic firms (among top 20
wealth managers in India) has increased at 47% CAGR compared to 17% growth in
foreign firms over FY2015-18 (Exhibit 19). The market share of these players (among top
20 players) has increased to 77.5% in FY2018 from 63.8% in FY2015. Increase in AUM
has been led by strong addition of relationship managers (at 54% CAGR). With
continued focus on increasing penetration into newer geographies and increasing share
of wallet for UHNIs/affluent individuals, domestic firms will grow at a relatively higher
pace compared to foreign firms and continue to gain dominance in the home market.
 IIFL is a key player in the Indian wealth management industry. With AUM of ~$21.4
bn, IIFL Wealth is one of the top three players in the wealth management industry in India
(as on March 2018, Source: Asian Private Banker). The overall growth in AUM at >35%
CAGR during FY2015-18 is broadly similar to other key players. Smaller players have
increased at a steep pace on a low base. While the number of relationship managers has
increased at 15% CAGR over FY2015-18, the average AUM/RM has grown at 18%
CAGR (Exhibit 18). The average AUM/RM at $71 mn is however significantly lower than
industry peers at >$100 mn.
 Scope for IIFL Wealth to increase penetration in smaller geographies. Most

domestic wealth managers will increase focus on penetration into newer geographies on
the back of rising competition in major cities, growing wealth in smaller cities and also
the scope to offer localised offerings. Contribution of wealth from UHNIs beyond top 10
cities is ~23%. While IIFL Wealth’s market share is marginally higher at 1% in top 4 cities,
it is lower at ~0.6% in other cities (Exhibit 20). There is significant scope to increase
penetration in these geographies.

Exhibit 14: Sharp surge in wealth of individuals in Asian nations going ahead
Country-wise distribution of individual wealth, 2013-2023E
Millionaires CAGR (%) UHNI (>$30 mn) CAGR (%)
2013 2017 2018 2023E 2013-18 2018-23E 2013 2017 2018 2023E 2013-18 2018-23E
Argentina 35,000 31,868 32,547 37,903 (1.4) 3.1 483 434 444 525 (1.7) 3.4
Australia 302,000 318,737 329,643 389,303 1.8 3.4 2,740 2,951 3,062 3,675 2.2 3.7
Austria 108,900 120,443 125,043 153,181 2.8 4.1 1,429 1,653 1,722 2,150 3.8 4.5
Brazil 194,300 180,531 179,628 188,674 (1.6) 1.0 4,122 3,775 3,754 3,962 (1.9) 1.1
Canada 422,000 447,046 459,319 528,249 1.7 2.8 4,248 4,645 4,785 5,580 2.4 3.1
Chinese mainland 1,279,800 1,469,846 1,535,473 2,017,514 3.7 5.6 7,905 9,487 9,953 13,429 4.7 6.2
France 555,000 587,977 610,831 745,324 1.9 4.1 3,800 4,320 4,505 5,605 3.5 4.5
Germany 1,326,200 1,466,121 1,530,348 1,904,069 2.9 4.5 11,392 13,401 14,047 17,854 4.3 4.9
Greece 66,100 65,757 65,821 69,869 (0.1) 1.2 721 703 704 751 (0.5) 1.3
Hong Kong 189,234 213,504 223,223 280,374 3.4 4.7 2,469 2,880 3,010 3,821 4.0 4.9
India 251,000 307,700 326,052 438,779 5.4 6.1 1,576 1,827 1,947 2,697 4.3 6.7
Indonesia 37,000 41,205 43,118 55,353 3.1 5.1 626 719 756 995 3.8 5.6
Ireland 59,100 75,042 77,984 95,817 5.7 4.2 811 986 1,029 1,289 4.9 4.6
Italy 259,000 273,020 282,580 337,863 1.8 3.6 3,650 3,932 4,083 4,968 2.3 4.0
Japan 2,150,000 2,292,204 2,326,522 2,558,032 1.6 1.9 16,450 18,234 18,534 20,570 2.4 2.1
Kenya 8,400 9,176 9,482 11,584 2.5 4.1 110 121 125 155 2.6 4.4
Malaysia 26,000 28,210 29,272 37,315 2.4 5.0 557 611 636 830 2.7 5.5
Mexico 145,000 154,409 158,901 192,393 1.8 3.9 2,540 2,692 2,778 3,427 1.8 4.3
Monaco 10,975 12,069 12,261 13,494 2.2 1.9 200 219 223 247 2.2 2.1
New Zealand 45,000 53,539 55,792 68,907 4.4 4.3 1,050 1,235 1,292 1,629 4.2 4.7
Philippines 21,000 23,059 24,162 32,363 2.8 6.0 171 204 215 296 4.7 6.6
Poland 28,400 31,848 33,205 41,760 3.2 4.7 487 563 589 757 3.9 5.1
Romania 19,800 22,639 23,713 29,935 3.7 4.8 172 204 215 278 4.6 5.3
Russia 159,600 153,959 163,176 198,524 0.4 4.0 1,292 1,407 1,500 1,861 3.0 4.4
Saudi Arabia 48,000 50,348 51,360 58,510 1.4 2.6 851 929 950 1,097 2.2 2.9
Singapore 149,446 164,230 171,559 206,782 2.8 3.8 3,124 3,458 3,598 4,393 2.9 4.1
South Africa 48,800 51,110 52,926 61,474 1.6 3.0 594 636 661 780 2.2 3.4
South Korea 157,000 177,254 185,257 234,825 3.4 4.9 1,565 1,803 1,893 2,456 3.9 5.3
Spain 225,000 250,691 261,435 323,920 3.0 4.4 3,475 3,926 4,111 5,202 3.4 4.8
Sweden 170,900 193,094 200,530 245,127 3.2 4.1 3,147 3,669 3,824 4,767 4.0 4.5
Switzerland 297,000 322,245 331,686 392,959 2.2 3.4 4,137 4,619 4,768 5,743 2.9 3.8
Taiwan 118,000 130,868 135,689 166,771 2.8 4.2 1,503 1,712 1,781 2,233 3.5 4.6
Tanzania 5,700 6,216 6,429 7,616 2.4 3.4 75 85 88 107 3.2 4.0
Thailand 56,000 61,247 64,131 80,875 2.7 4.7 527 600 631 814 3.7 5.2
Turkey 94,100 85,225 83,947 86,467 (2.3) 0.6 1,923 1,723 1,695 1,752 (2.5) 0.7
UAE 48,300 52,344 53,798 61,292 2.2 2.6 625 672 693 799 2.1 2.9
Uganda 1,500 1,606 1,639 1,904 1.8 3.0 20 22 22 27 1.9 4.2
UL 675,100 735,420 759,354 905,227 2.4 3.6 10,149 12,125 12,559 15,233 4.4 3.9
USA 5,231,100 5,761,323 5,944,007 6,902,563 2.6 3.0 39,378 45,539 47,127 55,539 3.7 3.3
Vietnam 10,000 11,786 12,327 15,776 4.3 5.1 110 135 142 186 5.2 5.5
Zambia 900 938 974 1,106 1.6 2.6 15 16 17 17 2.5 -
Source: GlobalData WealthInsight
Exhibit 15: Strong growth in UHNIs will fuel growth in wealth management industry
Details of UHNIs, 2013-22E
CAGR (%) CAGR (%)

2013 2014 2015 2016 2017 (2013-17) 2022E (2017-22E)
UHNI (#) 100,900 117,000 137,100 146,600 160,600 12.3 330,400 15.5
YoY (%) 16.0 17.2 6.9 9.5
Wealth (Rs tn) 86 104 128 135 153 15.5 352 18.1
YoY (%) 20.9 23.1 5.5 13.3
Average wealth/UHNI (Rs mn) 852 889 934 921 953 2.8 1,065 2.3
YoY (%) 4.3 5.0 (1.4) 3.5
Notes:
(1) Individuals with minimum net worth of Rs250mn mapped over a period of ten years.
Source: Kotak Top of the Pyramid 2017

Exhibit 16: Tax payer individuals with gross total income of >Rs50 mn per years has increased at a robust pace over the past few years
Number of individual tax payers, March fiscal year-ends, 2013-2018
2013 2014 2015 2016 2017 2018
Income range Individuals (#) Share (%) Individuals (#) Share (%) Individuals (#) Share (%) Individuals (#) Share (%) Individuals (#) Share (%) Individuals (#) Share (%)
<1 mn 27,335,149 94.50 31,564,274 93.98 34,072,125 93.31 37,789,189 92.76 42,523,287 91.68 42,150,817 90.31
1 mn-5 mn 1,487,127 5.14 1,896,222 5.65 2,293,678 6.28 2,773,879 6.81 3,647,961 7.87 4,271,859 9.15
5 mn-10 mn 66,632 0.23 80,720 0.24 98,815 0.27 116,901 0.29 140,830 0.30 171,094 0.37
10 mn-50 mn 33,928 0.12 40,883 0.12 45,027 0.12 55,331 0.14 62,759 0.14 74,983 0.16
50 mn-100 mn 1,826 0.01 2,224 0.01 2,338 0.01 3,020 0.01 3,330 0.01 4,201 0.01
100 mn-250 mn 729 0.00 744 0.00 829 0.00 1,156 0.00 1,298 0.00 1,642 0.00
250 mn-500 mn 128 0.00 162 0.00 143 0.00 233 0.00 272 0.00 339 0.00
500 mn-1 bn 50 0.00 38 0.00 56 0.00 58 0.00 86 0.00 118 0.00
>1 bn 29 0.00 27 0.00 23 0.00 32 0.00 38 0.00 61 0.00
Total 28,925,598 33,585,294 36,513,034 40,739,799 46,379,861 46,675,114
YoY (%) 16.1 8.7 11.6 13.8 0.6
>50 mn 2,762 0.01 3,195 0.01 3,389 0.01 4,499 0.01 5,024 0.01 6,361 0.01
YoY (%) 15.7 6.1 32.8 11.7 26.6
>5 mn 103,322 0.36 124,798 0.37 147,231 0.40 176,731 0.43 208,613 0.45 252,438 0.54
YoY (%) 20.8 18.0 20.0 18.0 21.0
Source: Income Tax Department
Exhibit 17: Wealth of individual tax payers with gross total income of >Rs5 mn has increased in the past few years
Gross total income of individual tax payers, March fiscal year-ends, 2013-2018
2013 2014 2015 2016 2017 2018
Income range Income (Rs bn) Share (%) Income (Rs bn) Share (%) Income (Rs bn) Share (%) Income (Rs bn) Share (%) Income (Rs bn) Share (%) Income (Rs bn) Share (%)
<1 mn 8,155 67.16 10,218 67.56 11,735 65.81 14,189 66.68 16,354 64.80 17,578 62.40
1 mn-5 mn 2,546 20.97 3,240 21.42 3,958 22.20 4,748 22.31 6,130 24.29 7,234 25.68
5 mn-10 mn 454 3.74 549 3.63 673 3.78 800 3.76 965 3.82 1,174 4.17
10 mn-50 mn 611 5.03 733 4.85 808 4.53 1,002 4.71 1,130 4.48 1,345 4.78
50 mn-100 mn 124 1.02 149 0.99 157 0.88 203 0.96 224 0.89 283 1.01
100 mn-250 mn 106 0.88 109 0.72 122 0.68 169 0.79 192 0.76 241 0.86
250 mn-500 mn 42 0.35 55 0.36 48 0.27 81 0.38 92 0.37 113 0.40
500 mn-1 bn 35 0.29 24 0.16 38 0.21 39 0.18 58 0.23 81 0.29
>1 bn 71 0.58 48 0.32 293 1.64 49 0.23 94 0.37 119 0.42
Total 12,143 15,124 17,831 21,280 25,240 28,168
YoY (%) 24.6 17.9 19.3 18.6 11.6
>50 mn 378 3.11 385 2.54 657 3.69 541 2.54 661 2.62 838 2.97
YoY (%) 1.8 70.8 (17.7) 22.2 26.9
>5 mn 1,442 11.87 1,667 11.02 2,138 11.99 2,342 11.01 2,755 10.92 3,357 11.92
YoY (%) 15.6 28.2 9.6 17.6 21.8
Source: Income Tax Department

Exhibit 18: IIFL Wealth is a key player in the wealth management industry
Key players in the wealth management industry in India, 2015-18
AUM RM AUM/RM
2018 YoY CAGR (2015-18) 2018 YoY CAGR (2015-18) 2018 YoY CAGR (2015-18)
($ bn) (%) (%) (#) (%) (%) ($ mn) (%) (%)
Kotak wealth management 33.6 14 52 124 13 7 271 1 42
ICICI bank Private banking 25.6 NA NA 1,250 NA NA 20
IIFL wealth & asset management 21.4 21 36 300 33 15 71 (9) 18
Edelweiss wealth management 14.7 11 68 194 13 12 76 (2) 50
BNP Paribas wealth management 13.8 11 37 15 7 (8) 919 4 48
Axis bank wealth management 12.8 1 NA
Standard Chartered private bank 9.7 (9) 15 33 (11) NA 294 2
HDFC private bank 9.1 17 14 287 15 96 32 2 (42)
Julius Baer 9.0 (1) 15 40 21 5 225 (18) 9
JM Financial wealth management 6.1 23 20 52 (10) NA 118 37
ASK asset & wealth management 6.0 1 89 52 49 38 116 (32) 37
Barclays private clients, India 4.9 9 5 32 7 (5) 153 2 10
Avendus wealth management 3.9 39 57 46 119 66 85 (36) (5)
Centrum wealth management 3.6 20 34 132 32 24 27 (9) 8
Client associates 3.4 6 NA 45 15 NA 76 (8)
Karvy private wealth 3.4 16 18 267 14 NA 13 2
L&T capital markets limited 3.3 21 36 118 24 3 28 (2) 32
Deutsche bank wealth management 3.2 3 2 21 17 5 152 (12) (3)
Credit Suisse private banking 2.8 3 12 18 (5) 15 154 8 (3)
Anand Rathi private wealth 2.8 3 28 231 28 50 12 (19) (15)
Waterfield Advisors 2.2 NA NA 7 - NA 314
Motilal Oswal private wealth management 2.1 (12) 45 143 35 36 15 (35) 6
Sanctum wealth management 1.2 28 NA 40 (11) NA 29 44
Credence family office 0.6 107 NA 18 13 NA 34 84
Alpha Capital 0.6 21 44 15 7 15 38 13 26
Reliance wealth management 0.5 (37) 19 90 200 NA 6 (79)
Ambit private wealth 0.5 (29) 17 27 13 25 18 (36) (6)
WGC wealth 0.3 NA NA 88 NA NA 3
Source: Asian Private Banker 2018, Kotak Institutional Equities
Exhibit 19: Significant increase in market share of top 20 domestic wealth managers
AUM and RM market share of top 20 wealth managers in India, 2015-2018
Wealth manager indicator CAGR (%) Market share (%)
2015 2016 2017 2018 (2015-18) 2015 2016 2017 2018
AUM ($ bn)
Domestic firms 48 78 121 150 46.5 63.8 71.7 73.9 77.5
Foreign firms 27 31 43 43 17.1 36.2 28.3 26.1 22.5
Top 20 75 109 163 193
RM (#)
Domestic firms 947 1,572 1,861 3,459 54.0 1,269.4 1,447.5 1,141.0 1,791.9
Foreign firms 159 120 100 105 (12.9) 213.1 110.5 61.3 54.4
Top 20 1,106 1,692 1,961 3,564
Notes:
(1) Top 20 firms with highest AUM need not necessarily be similar to top 20 firms with highest number of
RMs. Foreign firms typically serve HNIs/UHNIs and as such have high average AUM/RM.
Source: Asian Private Banker 2018, Kotak Institutional Equities

Exhibit 20: Significant scope for IIFL Wealth to increase penetration in smaller geographies
Geography-wise AUM split of UHNIs
Top 4 cities Next 6 cities Next 20 cities Other cities

AUM split
Total assets of UHNI families ($ bn) 1,293 379 108 405
IIFL Wealth share (%) 1.00 1.00 0.40 0.20
IIFL Wealth AUM (approx.) ($ bn) 12.9 3.8 0.4 0.8
Contribution to IIFL Wealth's AUM (%) 71.9 21.6 2.4 4.1
Count of UHNI families
Number of families (#) 89,936 28,908 36,938 4,818
IIFL Wealth's share of families (%) 1.9 1.7 1.2 2.6
Number of families for IIFL Wealth (#) 1,673 480 432 125
Average ticket size ($ mn)
Overall 14.4 13.1 2.9 84.1
IIFL Wealth 7.7 7.9 1.0 6.5
Notes:
(1) Top 4 cities: Mumbai, Delhi, Chennai, Kolkata, next 6 cities: Bengaluru, Ahmedabad, Pune, Hyderabad,
Nagpur, Ludhiana, next 11-20 cities: Chandigarh, Surat, Jaipur, Lucknow, Kanpur, Jamshedpur, Amritsar,
Raipur, Indore and Aurangabad.
Source: Asian Private Banker Reports - India AUM League Tables 2016 to 2019
UHNIs moving up the product chain

While UHNIs focused on debt instruments and real estate in the past, they have diversified
into other products like equity and AIFs over the past few years. The share of AIFs has
increased to 14% in 1HFY18 from 4% in FY2013 and the share of equities has increased to
44% from 35% during the same period (Exhibit 21). Equity contributes ~2-13% of overall
income for UHNIs (Exhibit 22). Muted returns in fixed income instruments and slowdown in
real estate sector prompted further increase in investment in high-yielding products like AIFs.
Overall AIFs increased ~70% in FY2019 and at 92% CAGR over FY2014-19. Increase in
investment was higher in category II and III funds (Exhibits 23 and 24). Most funds managers
have laid emphasis on increasing products offerings based on client needs and localised
product bouquets. There is significant scope to increase share of wallet for wealth managers
as allocation of income for investment for personal wealth among UHNIs is low at 12-13%
compared to 13-17% for savings and 16-20% for investment into primary business (Exhibit
25).
Exhibit 21: Traction in equity markets led to increased investments in equities and alternate
investments
Current investment allocation of UHNIs, 2013-2017, 1HFY18 (%)
Equity Debt Real estate Alternate investment
100 4 9 9 11 11 14
80 29
29 26 28 32 26
60
20
32 24 22 16
17
40
20 45 40 44
35 38 39
-
2013 2014 2015 2016 2017 1HFY18

Exhibit 22: Contribution of equity markets to overall income of UHNIs remained low
Sources of income for UHNIs, 2017 (%)
Professional Inheritor Entrepreneur
Personal Sale of Personal Sale of
income, 5Equity, 2 primary income, 9 Equity, 7 primary
Equity, 13 business,
business,
Sale of 11 11
primary
business, 6
Personal
income, 43
Real estate,
Success in 14
business,
45
Real estate, Real estate,
24 37
Success in
Success in business,
business, 59
14
Exhibit 23: Strong trends in AIF inflows

Trends in AIF inflows and investment till the respective period, March fiscal year-ends, 2013-2019 (Rs bn)
2013 2014 2015 2016 2017 2018 2019

Amount (Rs bn)
Commitment raised 14 131 226 307 843 1,651 2,821
Funds raised 5 40 95 172 410 853 1,342
Investments made 4 32 74 140 351 614 1,098
Total 23 202 395 620 1,604 3,118 5,261
YoY (%) 769 95 57 159 94 69
Source: SEBI
Exhibit 24: Category 2 and 3 inflows witness strong growth

Trends in AIF inflows and investment till the respective period, March fiscal year-ends, 2017-2019 (Rs bn)
Commitments raised Funds rasied Investments made

2017 2018 2019 2017 2018 2019 2017 2018 2019
Category 1 206 280 335 78 108 138 58 82 109
Infrastructure fund 68 95 121 42 57 65 35 47 55
Social venture fund 10 11 13 6 4 9 5 3 8
Venture capital fund 126 171 199 29 44 63 19 31 46
SME fund 2 2 3 2 2 2 0 0 1
Category 2 517 1,058 2,054 247 504 836 211 340 681
Category 3 120 313 433 85 240 369 82 192 308
Total 843 1,651 2,821 410 853 1,342 351 614 1,098
Source: SEBI

Exhibit 25: Robust capital markets drove investment in equity markets in FY2017
Allocation of income for UHNIs, 2017 (%)
Professional Inheritor Entrepreneur
Non- Non- Non-
Others, 7 discretionar Others, 10 discretionar Others, 9 discretionar
y expense, y expense, y expense,
Charity, 6 22
23 23 Charity, 7
Charity, 8
Investment
for personal
wealth, 12 Investment
Investment for personal
for personal wealth, 13
wealth, 13
Discretionar
Discretionar y expense,
Discretionar y expense, 15
Savings, 17 y expense, 16
19 Savings, 14
Investment Savings, 13 Investment Investment
into primary into primary into primary
business, business, business,
16 17 20
PMS – stable on a higher base

While PMS AUMs increased at a robust pace from FY2015-18, it has remained flat thereafter
(Exhibit 26) likely due to correction in stocks. The share of non-discretionary products
continues to grow at a swift pace (up 900 bps over FY2015 to 255 by 1QFY20). Advisory
mix however continues to drop (Exhibit 27). Among discretionary products, investment in
listed equity has increased at a robust pace to 80% in 1QFY20 from 60% in FY2015 (Exhibit
28).
Exhibit 26: Growth in PMS has declined

PMS AUM (excluding EPFO), March fiscal year-ends, 2011-1QFY20 (%)
PMS AUM (LHS) YoY (RHS)

(Rs tn) (%)
5 52.4 60
45
4 35.9
26.1
30
20.6
3
10.0 15
4.8
0.6
2 (3.7) (2.5)
-
1.3 1.3 1.4 2.2 3.0 3.1 3.7 4.7 4.8 4.5
1 (15)
2011 2012 2013 2014 2015 2016 2017 2018 2019 1QFY20
Source: SEBI

Exhibit 27: Non-discretionary AUM has increased over the past few years
PMS AUM mix (excluding EPFO), March fiscal year-ends, 2011-1QFY20 (%)
Discretionary Non-discretionary Advisory

100
80 41 43
50 48
57 56 61 56
64 63
60
23
19 25
40 20
14 18 19
8 16
18
20 36
29 29 30 33 32
26 23 25
19
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 1QFY20
Source: SEBI
Exhibit 28: Share of investment in listed equities has increased

Break-up of discretionary AUM, March fiscal year-ends, 2011-1QFY20 (%)
Listed equity Unlisted equity Equity derivative MF Others

100
11.5
29.7 26.9 24.8 26.6 26.4 8.5
80 37.7 42.4 42.4 0.1
44.3
7.8 0.4
9.6 0.2 7.4 8.2
8.6 0.2 0.5 0.3
60 0.2 0.6 0.3
1.2 0.3
14.0 6.6 1.7
10.1 10.7 0.3
0.1 0.2
0.4 3.7
40 3.3 4.0 79.5
4.6
62.1 66.6 65.2 64.9
59.9
44.8 42.7 47.0
20 40.6
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 1QFY20
Notes:
(1) We have excluded EPFO AUM from plain debt and others category.
Source: SEBI
Realizations have started to squeeze in mature markets

With increase in competition, average realization has dropped ~4 bps in developed markets
to 76 bps in 2018 from 80 bps in 2014 (Exhibit 29). During the same period, realizations
improved in emerging markets on the back of diversification of product suite to include high
yielding products and penetration into newer geographies with lower competition.

Exhibit 29: Sharp decline in realization in developed markets

Returns in mature and growth markets, 2014-2018
Return on client assets and liabilities (bps)

2014 2015 2016 2017 2018
Mature markets 80.0 76.9 76.6 76.0 76.0
Growth markets 66.2 67.4 67.2 68.1 69.9

IIFL WEALTH: SHIFTING FOCUS TO RECURRING REVENUES

We expect IIFL Wealth to deliver moderate 15-18% AUM growth during FY2020-22E, constrained by volatile
capital markets. Its conscious effort towards shifting focus to recurring revenue-earnings assets (80% of AUMs
by FY2022E from 55% in FY2020E and 35% in FY2018) will augur well over the long run. In this pursuit, the
company has been aggressively marketing its flagship advisory platform, apart from scaling up its AMC
business and driving synergistic lending through an in-house NBFC. While IIFL’s RMs have strong relationships
with UHNIs, its diversified product offerings, focus on alternatives and superior execution will drive
profitability over time.
Moderate AUM growth in the near-term

We expect IIFL Wealth to deliver 15-18% AUM growth during FY2020-22E (Exhibit 30). We
consider the current challenging capital market scenario to reflect in moderation in its AUM
growth momentum. The company delivered 22% AUM growth in FY2019 following 31-45%
growth in FY2017-18. Its migration to a trail-based revenue model, including advisory, may
change the composition of AUMs but may not affect overall AUM growth at a margin,
unless the advisory model faces challenges in execution.
With about half its assets in debt (49% in March 2019; see Exhibit 31) that provides stability
and steadiness in AUM growth, we believe that it may not be a challenge to deliver these
growth targets even if equity markets are weak.
Net new money (inflows) were 26% of opening AUMs in FY2018 and 14% in FY2019. Its
AUMs delivered 12% and 6% MTM growth in FY2018 and FY2019 respectively (Exhibit 32).
In light of change in business composition, we are not modeling MTM and AUM growth
separately in our forecasts.
Exhibit 30: We expect moderate AUM growth over medium term

AUM excluding custody assets of IIFL, March fiscal year-ends, 2016-22E
AUM ex. custody (LHS) YoY (RHS) (%)

(Rs tn)
2.5 44.9 50
2.0 40
30.9
1.5 30
21.5
17.6
1.0 15.4 15.9 20
0.5 10
0.6 0.9 1.1 1.4 1.6 1.8 2.1

- 0
2016 2017 2018 2019 2020E 2021E 2022E

Exhibit 31: ~50% of AUM is invested in debt

AUM (excluding custody) mix based on asset class, March fiscal year-ends, 2015-2019 (%)
Debt Equity Real estate
100 5 5 5 3 3
80
46 45 53 48
56
60
40
49 50 44 49
20 39
0
2015 2016 2017 2018 2019
Source: Company, Kotak Institutional Equities
Exhibit 32: Strong addition of net new money drives AUM growth for IIFL Wealth
Movement of IIFL’s wealth AUM, March fiscal year-ends, 2018-2019,1QFY20 (Rs bn)
2018 2019 1QFY20

Opening AUM 949 1,318 1,677
Net new money 251 184 66
(% of opening AUM) 26 14 16
Inorganic growth - 107 -
Market performance 118 78 (11)
(% of opening AUM) 12 6 (3)
Forex fluctuations 0 6 (0)
Closing AUM 1,318 1,713 1,746
Shifting focus to recurring income assets

We expect IIFL’s share of recurring assets to increase to 80% of AUMs by FY2022E from 55%
in FY2020E and 35% in FY2018 (see Exhibits 33 and 34).

Exhibit 33: Recurring AUM will increase over time Exhibit 34: Gradual increase in share of recurring AUM
AUM excluding custody mix, March fiscal year-ends, 2016-2022E AUM excluding custody mix, March fiscal year-ends, 2016-2022E
Recurring AUM Non-recurring AUM Recurring AUM Non-recurring AUM

(Rs tn) (%) Double counted AUM
Double counted AUM 120
3.00
2.1 30.0
2.25 90 41.5
1.8 0.6 55.8
79.8 76.6 71.2
1.6 73.2
1.4 0.8
1.50 1.1 60
0.9
0.9 1.0 80.9
0.9 1.7 69.2
0.75 0.6 30 54.9
0.7 1.3 42.7
0.4 0.9 35.7 34.8 39.9
0.4 0.6
0.2 0.3
0.00 (0.1) (0.1) (0.2) (0.2) (0.2) (0.2) 0
(0.2) (8.8) (14.5) (16.5) (13.8) (10.8) (10.7) (10.9)
-0.75 -30
2016 2017 2018 2019 2020E 2021E 2022E 2016 2017 2018 2019 2020E 2021E 2022E
Source: Company, Kotak Institutional Equities estimates Source: Company, Kotak Institutional Equities estimates
WM businesses have mostly been focused on upfront revenues in the past

The Wealth Management (WM) business derives income from various sources viz.
distribution of mutual fund and alternatives like AIF/PMS, structured products, bond, direct
equities etc. Wealth managers have traditionally resorted to recognition of income on
distribution of investment assets i.e. upfront in the period of origination. The contribution of
trail income has been relatively low but is increasing over time (Exhibits 35 to 43).
Exhibit 35: Recurring AUM will gain traction

Recurring AUM, March fiscal year-ends, 2016-2022E
Recurring AUM (LHS) YoY (RHS) (%)

(Rs tn)
2.0 60
1.6 50.2 53
48.7
46.0
1.2 46
41.2
37.5
0.8 39
0.4 29.9 32
0.2 0.3 0.4 0.6 0.9 1.3 1.7

0.0 25
2016 2017 2018 2019 2020E 2021E 2022E

Exhibit 36: Strong uptick in PMS and advisory business Exhibit 37: PMS and advisory business will constitute 35% of
Recurring AUM mix, March fiscal year-ends, 2016-2022E recurring AUM by FY2022E
Recurring AUM mix, March fiscal year-ends, 2016-2022E
PMS and advisory IIFL AMC PMS and advisory IIFL AMC
(Rs bn) MF Managed accounts (%) MF Managed accounts
1,750 Loans Loans
67 100 3.8
6.2 8.2 6.4 4.8
12.1 15.0
290 8.1 10.9 13.5 16.7
1,400 5.4
80 5.6
61 345 22.8
33.0 28.9 19.9
170
1,050 60 67.6
51.6 45.8
288
55 436 25.1
95 27.3
700 40 30.7
48 250 345 35.6
47
67
25 192
350 266 20 29.9
36
16 205 601 30.0 31.7 34.6
154 208 401 25.8 23.1
134 200 15.0
0 89
3 17 87 1.0 3.7
0 0.3
2017 2018 2019 2020E 2021E 2022E 2016 2017 2018 2019 2020E 2021E 2022E
Exhibit 38: Drop in upfront commissions will lead to decline in transactional AUM
Non-recurring (transactional and brokerage) AUM, March fiscal year-ends, 2016-2022E
Non-recurring AUM YoY (RHS)

(Rs tn) 58.1 (%)
1.5 60
1.2 45
0.9 25.6 30
12.9
0.6 15
1.0
0.9 0.9
0.7 0.8
0.3 0.6 0
0.4 (9.4)
(13.9) (14.9)
0.0 -15
2016 2017 2018 2019 2020E 2021E 2022E

Exhibit 39: Non-recurring AUM will decline over time Exhibit 40: AUM from direct equity stock will likely be ~65% of
Non-recurring AUM (excluding custody) mix, March fiscal year-ends, non-recurring AUM by FY2022E
2016-2022E Non-recurring AUM (excluding custody) mix, March fiscal year-ends,
2016-2022E
Direct stock Structured notes and bonds Direct stock Structured notes and bonds
(Rs bn) MFs Managed accounts (%) MFs Managed accounts
1,000 100 -
12.6 8.3
15.2 17.6 18.6 14.4
181
800 126 16.5 35.0
151 80
63 27.3 28.4
31.8 32.2
104 250 125 - 36.8
600 358 60 27.1
277
226
218 205 21.2
400 187 40 39.5 27.6 20.6
178 158 16.3
65.0
189
419 48.1
200 365 20 36.0
276 317 29.6 28.4
255 25.4
174 20.7
0 0
2017 2018 2019 2020E 2021E 2022E 2016 2017 2018 2019 2020E 2021E 2022E
Exhibit 41: AUM growth will improve over the next few years
AUM including custody assets, March fiscal year-ends, 2016-22E
AUM inc. custody (LHS) YoY (RHS) (%)

(Rs tn)
2.5 60
52.7
2.0 48
38.0
1.5 36
28.1
1.0 24
15.1
12.6 13.3
0.5 12
0.6 0.9 1.3 1.7 1.9 2.1 2.5

- 0
2016 2017 2018 2019 2020E 2021E 2022E

Exhibit 42: ~80% of AUM is from the wealth management Exhibit 43: AMC assets will gather traction on a low base
business AUM (including custody) mix, March fiscal year-ends, 2016-2022E
AUM (including custody) mix, March fiscal year-ends, 2016-2022E
Wealth management Asset management
Wealth management Asset management (%)
(Rs tn) Custody assets 120 Custody assets Double counting
Double counting
4 4.7 9.9 14.9
8.8 19.1 16.5 14.6 12.7
9.8
90 10.8
12.7 14.1 16.1 17.7
3
0.3
60
0.3 0.4
2 0.3 95.0 94.0
0.3 89.2
0.3 0.3 79.7 78.4 78.5 79.2
0.2 0.2 30
0.1
1 0.1
0.1 1.9
1.5 1.7
0.0
0.1 1.1 1.3
0.6 0.9 0
(8.4) (13.7) (14.9) (11.6) (9.0) (9.1) (9.5)
0 (0.1) (0.1) (0.2) (0.2) (0.2) (0.2) (0.2)
-30
-1 2016 2017 2018 2019 2020E 2021E 2022E
2016 2017 2018 2019 2020E 2021E 2022E

Shifting focus on regular income

Increasing size of AUMs, ban on upfront commissions and current volatility in capital
markets has prompted wealth managers including IIFL to migrate to higher share of
recurring/trail income. The company stopped upfront income recognition on mutual funds
from September 2018 and alternatives from April 2019.
In this backdrop, IIFL has also launched IIFL One, its advisory platform that charges annual
fees to clients but does not earn any commissions (upfront or trail) from the investment
originator (fund management company) (Exhibits 44 to 46).
NBFC is an add-on but integrated to its core clients

IIFL Wealth also has a 100% NBFC subsidiary that is engaged in capitalizing on in-house
fund-based opportunities. The company mostly lends to its clients for business acquisitions,
regular business needs, immediate liquidity requirements, taking positions in equity trading,
investing in public offerings and exercising stock options.
Its borrowings are also sourced from its own clients in the form of structured notes. It does
not raise bank loans, NCD, CPs etc from the markets and hence is not affected by the
liquidity crises for NBFCs. As such, its NII may be reckoned as a part of its core earnings and
not really an ancillary lending activity.
Almost the entire book is collateralized against clients’ investments and has negligible
acquisition expenses. Apart from lending activity, the company is also engaged in investing
(mostly seed capital and other investments in its funds).

Exhibit 44: Robust momentum in wealth management AUM

Wealth management AUM, March fiscal year-ends, 2016-22E
Wealth management (LHS) YoY (RHS) (%)

(Rs bn)
2,000 45 50
1,600 40
29
1,200 30
800 17 16 20
14 13
400 10
590 858 1,108 1,299 1,481 1,678 1,948

- 0
2016 2017 2018 2019 2020E 2021E 2022E
Exhibit 45: Traction in PMS and advisory business will drive Exhibit 46: PMS and advisory AUM will comprise ~30% of AUM
wealth management AUM by FY2022E
Wealth management AUM mix, March fiscal year-ends, 2016-2022E Wealth management AUM mix, March fiscal year-ends, 2016-2022E
PMS and advisory MF and loans PMS and advisory MF and loans
(%) Managed accounts Equity stock
(Rs bn) Managed accounts Equity stock
Structured notes and bonds Structured notes and bonds
2,000 100
226 16.0 12.2 12.6 12.2 11.6
22.0
29.0
1,600 205 80 21.5
419 21.2 21.4 21.7
23.0
187 20.3
365 15.2
1,200 158 60 14.9 13.9 14.9
317 290 17.6
178 276 11.4 14.0 16.0
234
221 412 21.2
800 189 255 228 40 28.2
177 474 37.5
174 42.3
171 556 44.3 43.5
400 120 20 43.4
90 550
68 482 601 30.9
372 401 23.9
261 200 13.5
17 87 1.5 6.7
0 1 3 0 0.1 0.3
2016 2017 2018 2019 2020E 2021E 2022E 2016 2017 2018 2019 2020E 2021E 2022E
AMC business - synergies and stability

With the eventual objective of backward integration, IIFL focused on its asset management
business over the past few years. The AMC business will also add to the recurring income
steam.
IIFL AMC, with its differentiated position as the leading alternatives player, complements the
wealth business by manufacturing innovative products. For example: it was the first to
develop late-stage/pre-IPO as an investment class, it offers thematic equity strategies via PMS,
structured collateralized debt issuance by real estate developers to HNIs, first to launch
venture fund-of-fund in India with attractive co-investment options and was the first to
capitalize on movement of structured whole-sale corporate credit to AIFs from NBFCs.
IIFL AMC made senior fund manager hires last year, which will further scale up the business
and add to its recurring revenue. We are building in 30% yoy growth in AMC AUMs in
FY2020E and conservatively model about 18% CAGR during FY2021-22E (Exhibits 47 to 49).

Exhibit 47: Strong growth in IIFL AMC’s AUM

IIFL AMC AUM, March fiscal year-ends, 2016-22E
64 Asset management (LHS) YoY (RHS) (%)

(Rs bn)
500 65
55
50
400 52
300 39
28 30
26
200 26
100 13
55 89 134 208 266 345 436

- 0
2016 2017 2018 2019 2020E 2021E 2022E
Exhibit 48: Strong growth in AIF and discretionary business Exhibit 49: Dominant share of discretionary PMS at >30%
IIFL AMC AUM mix, March fiscal year-ends, 2016-2022E IIFL AMC AUM mix, March fiscal year-ends, 2016-2022E
(Rs bn) Discretionary PMS MF AIF (%) Discretionary PMS MF AIF

500 100
7 6
16 7 7 17 19 20 21
400 80 9 7 8
90 9 9
40
300 70 60
50 30
20 86 88
200 36 40 75 75 74 71 70
8 15 306
6 9 245
100 196 20
9 6 157
117
5 77
41
0 0
2016 2017 2018 2019 2020E 2021E 2022E 2016 2017 2018 2019 2020E 2021E 2022E
Investing in RMs and product propositions

IIFL has been one of the most aggressive players in the industry. Exhibit 50 shows the
growth in RM and AUMs over time. The company effectively capitalized on the
slowdown/withdrawal of foreign banks from the private wealth business in India. In FY2019,
the company had about 325 relationship managers (RMs) across 30 offices (25 in India). The
changing revenue model which will lead to near-term revenue pressure may prompt the
management to go slow on recruitment and even rationalize its team, if needed. IIFL
recently acquired the wealth management business of L&T Finance Holdings which will add
to employees and assets - this is not factored in our estimates.
The wealth management business, especially for UHNI / HNI segment remains a highly
customized and high touch business requiring significant investment in relationship building
and garnering client’s trust (Exhibit 51).

In order to retain an edge in distribution and wealth advisory, IIFL has over 100 employees
involved in product/advisory, along with the investor counselors and dealers, available as
resources to RMs to meet client requirements.
Investment in technology assumes importance in automation of operational processes,

transaction execution, generating on-demand investment analytics, better risk management
and reporting. The company acquired ‘Altiore’, a wealth tech start-up that helps clients track
their entire portfolio of holdings held across multiple advisors/wealth managers. It is also
evaluating pure robo-advisory models that will allow it to evaluate a foray into the mass-
affluent segment which will have simpler requirements, lower portfolio complexity and
automated execution.
Exhibit 50: RM additions to drive growth in AUM Exhibit 51: Sharp increase in new client additions
AUM and RMs, March fiscal year-ends, 2017-2019 Families serviced by IIFL Wealth, March fiscal year-ends, 2016-2019
Bankers yoy (LHS)
Net AUM (excl. custody) yoy (LHS) Relevant families (LHS) YoY (RHS)
Net AUM per RM (RHS)
(%) (Rs bn) 5,500 30
50 5.0
4,400 29 29
40 4.6
4.6 28
3,300 28
30 4.2
4.2
4.1 2,200 27
20 3.8 26
10 3.4 1,100 26
5 45 45 31 19 22 2,490 3,149 4,023 5,172

- 3.0 - 25
2017 2018 2019 2016 2017 2018 2019
Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

KEY RISKS: VOLATILITY OF INFLOWS, EXECUTION OF NEW MODEL

We find three key challenges for IIFL Wealth in the near term viz. (1) sustaining inflows in the backdrop of
volatility in capital markets, (2) client acceptability of the new advisory model and (3) alignment of employee
incentives to lower but more stable levels.
Sustaining inflows in the backdrop of volatility in capital markets

We expect IIFL to deliver 15% growth in AUMs in FY2020E and 16-18% in FY2021-22E,
significantly lower than 32% CAGR during FY2016-19. The company reported new inflows
of Rs251bn (26% of opening AUM) and Rs184bn (14% of opening AUM) in FY2018 and
FY2019 respectively.
Volatility in capital markets, leading to MTM losses for clients, often dampens sentiments,
leading to reduction in inflows. Weak capital markets can lead to lower MTM gains (or MTM
losses) even as about 50% contribution of debt assets to IIFL’s AUMs will provide some
stability. The company has been innovative and assertive in distributing alternative products
that typically carry higher fees. Clients tend to be less keen on such high-cost products
during capital market downcycles. IIFL’s ability to launch counter cyclical products and
manage higher yields in the current environment hence remains crucial.
Client acceptability of the new business model

The traditional wealth management model derives its revenue from asset managers, without
any direct fees charged to its clients. IIFL One, its advisory platform, prescribes retention fees
to its clients while the company does not earn any commissions from asset managers. As
such, the remuneration from its clients will be more direct and explicit. Typically, clients tend
to juxtapose the service of the RM with the remuneration payouts. In case of plain vanilla
mutual fund products, clients will likely negotiate hard on commission rates. The company
has hence focused on innovative product propositions like alternatives that typically
command higher yields. It has been engaging with clients for the last couple of quarters to
communicate its new product proposition.
IIFL reported retention yield of 35 bps on PMS and IIFL One in FY2019 (29 bps in 1QFY20).
Management proposes to increase its yields to about 60 bps over the medium-term even as
this will likely be the biggest AUM driver as well. The expansion will be accomplished by
improvising its product proposition and adding smaller clients (that are typically charged
higher yields).
Alignment of employee incentives

The wealth management business rewards its employees with high incentive payouts,
backed by the high upfront commissions. A migration to trail and advisory model reduces
upfront income and hence directly affects the compensation of its employees, even as the
prospects of stable income streams improve to benefit the employees in the long-run. The
company reduced variable payouts in FY2019 and may need to rationalize its wage bill in
FY2020E as revenue declines. Managing employee morale, in such sensitive times, is crucial.
Over time, IIFL and the wealth management industry in general, may not be in a position to
pay high incentives, thereby constraining its ability to attract talent.

NEAR-TERM PRESSURE ON EARNINGS OWING TO BUSINESS TRANSITION

An exit from large upfront commissions earned in the past will likely lead to 15% yoy revenue decline in
FY2020E; a low base and gradual built up in trail-earning and advisory AUMs, will drive 24% revenue CAGR
during FY2020-22E. We expect share of IIFL’s recurring income to increase to 70% by FY2022E from 62% in
FY2020E and 35% in FY2018 as the company migrates to a more stable (trail and advisory-based) model.
While commission yields inch up to 66 bps by FY2022E from 58 bps in FY2020E with the increase in share of
income-generating AUMs, it will be lower than 82 bps in FY2019 to reflect a higher base, shift to advisory
that may put some pressure on yields and lower brokerage revenue. Near-term revenue pressure will lead to
increase in cost-to-income ratio to 55% in FY2020E from 49% in FY2019 and settle at 45% by FY2022E.
Transition in revenue composition to recurring avenues

We expect IIFL’s share of recurring revenues to increase to 70% by FY2022E from 30% in
FY2017 (Exhibits 52 to 62).
IIFL’s recurring sources of revenue are categorized PMS/advisory income (mostly IIFL One),
trail commission on mutual funds, trail commission on alternatives ( AIF/PMS), fund
management charges fees of IIFL AMC and NII on loans.
Apart from distribution of mutual funds, PMS and AIFs, the company is also engaged in
distribution of debt instruments (government securities as well as credit), structured products
like NIFTY/credit-linked instruments. These products earn the company transaction income
which may be reckoned as one-time income that is akin to brokerage. The company earns
direct equity brokerage as well. It has earned commission on distribution of loan products as
well.
In the past, the company recognized upfront income from distribution of mutual funds,
AIF/PMS. With its exit from the upfront revenue model, income from this segment will be
NIL from FY2020E.
Near-term pain; recurring income over time

IIFL moved to a trail model for all distribution commissions from mutual funds in FY2017;
the only exception to this was commissions on closed – ended funds such as FMPs on which
upfront commissions were still being received till September 2018. Thus, incrementally all
AUMs are recognized under advisory or full trail model of mutual fund/alternatives. However,
this transition will lead to a reduction in earnings in the near-term. Typically, upfront fees are
roughly about 3X of trail/advisory. As such, the company will lose a substantial proportion of
revenue in the year of distribution of the asset.
This model will lead to higher and steady trail/regular income overtime. Market sources
indicate that a typical investment has duration of about three years; as such, the entire
transition of its AUMs that have earned upfront income, will be closed /churned by about
FY2022-end.

Exhibit 52: Volatility in revenue growth due to the transition in business model
Revenues, March fiscal year-ends, 2016-2022E
(Rs bn) Revenue (LHS) YoY (RHS) (%)

15 80
12 60
54.4
9 40
32.7
6 20
22.8 24.8
3 0
2.3
5.1 7.9 10.4 10.7 9.0 11.1 13.8
0 (15.5) -20
2016 2017 2018 2019 2020E 2021E 2022E
Exhibit 53: Strong traction in wealth management revenues Exhibit 54: Wealth management business constitutes 80% of
Business mix wise revenues, March fiscal year-ends, 2016-2022E revenues
Business mix wise revenues, March fiscal year-ends, 2016-2022E
(Rs bn) Wealth management Asset management
15 (%) Wealth management Asset management
100
11.4 12.1 10.8 13.9
2.7 19.9 19.9 19.6
12
80
1.1 1.5 2.2
9
1.8 60
1.0
6 88.6 89.2
11.1 87.9 86.1
0.6 9.3 40 80.1 80.1 80.4
9.2 8.9
6.9 7.2
3
4.5 20
0
2016 2017 2018 2019 2020E 2021E 2022E 0
2016 2017 2018 2019 2020E 2021E 2022E


Exhibit 55: Robust growth in recurring revenue from FY2021E Exhibit 56: Robust growth in recurring revenue from FY2021E
Revenues, March fiscal year-ends, 2016-2022E Revenue mix, March fiscal year-ends, 2016-2022E
Recurring revenue Brokerage revenue Recurring revenue Brokerage revenue

(Rs bn) Transactional revenue Others income (%) Transactional revenue Others income
15
0.7 1.3 4.1
100 5.6 5.3 4.8
0.3 8.8 9.9
2.8 2.3 1.8
12
0.1 0.4 0.6 3.3 23.6
80 26.7 33.9 25.8
0.3 46.2 29.9
0.5 35.8
9 2.9
0.8 3.6 0.3 60
4.8
2.7 20.3
6 0.5 2.8 43.2 23.9 17.3
2.2 40
1.8 9.6 66.7 69.8
1.4 61.7
1.9 7.4
3 5.6 20 41.6
2.2 4.4 30.4 35.2
3.7 21.2
2.4
1.1
0 0
2016 2017 2018 2019 2020E 2021E 2022E 2016 2017 2018 2019 2020E 2021E 2022E
Exhibit 57: Recurring revenues will gain traction going ahead

Recurring revenues, March fiscal year-ends, 2016-2022E
(Rs bn) Recurring revenue (LHS) YoY (RHS) (%)

10 9.6 125
121.3
8 7.4 100
6 5.6 75
4.4
4 3.7 50
53.6
2.4
2 25.4 32.6 25
1.1 30.6
21.0
0 0
2016 2017 2018 2019 2020E 2021E 2022E

Exhibit 58: Fees from PMS, advisory and IIFL AMC’s business will Exhibit 59: PMS and advisory fees will constitute 25% of
drive momentum in recurring revenues recurring revenues by FY2022E
Recurring revenue mix, March fiscal year-ends, 2016-2022E Recurring revenue mix, March fiscal year-ends, 2016-2022E
ROA on loans Trail fees of managed accounts ROA on loans Trail fees of managed accounts
Trail fees of MF IIFL AMC fees Trail fees of MF IIFL AMC fees
PMS and advisory PMS and advisory
(Rs bn) (%)
10 100 -
14.9 19.8
1.9 29.0
8 80 36.1
46.0 50.0
1.5 56.1 15.5
11.7
6 2.1 60 47.2 8.3
1.6 16.4
0.9 8.4 5.0 18.2
2.0 2.5 21.9
4 40
1.3 2.1 22.3
0.5 28.5 22.9
2.2 26.2 22.7
1.1 2.1 0.2 1.2 1.7 23.4
2 - 20 37.9
0.2 0.1 1.0 18.0 26.0
0.2 1.3 2.5
0.5 0.7 1.0 1.4 16.7 14.1 18.3
0.5 0.8 0.6 10.3
0 0.4 0.4 0.0 0.2 0 - 0.4 1.1 4.1
- 0.0
2016 2017 2018 2019 2020E 2021E 2022E 2016 2017 2018 2019 2020E 2021E 2022E
Exhibit 60: Shift from trail to upfront commissions will lead to a steep decline in transactional income
in FY2020E
Non-recurring revenues, March fiscal year-ends, 2016-2022E
(Rs bn) Transactional and brokerage revenue (LHS) YoY (RHS) (%)
10 105
8 70
41.2
31.7
6 35
13.0
5.5
4 (12.5) 0
2 (49.1) -35
3.6 4.7 6.6 5.8 2.9 3.1 3.5

0 -70
2016 2017 2018 2019 2020E 2021E 2022E

Exhibit 61: Drop in transactional revenues will lead to decline in Exhibit 62: Trail commission on MF and managed accounts
non-recurring revenues constituted ~70% of non-recurring revenues in FY2018
Non-recurring revenue mix, March fiscal year-ends, 2016-2022E Non-recurring revenue mix, March fiscal year-ends, 2016-2022E
Carry income/one-time total income Carry income/one-time total income
Commission on managed accounts Commission on managed accounts
Commision on MF Commision on MF
Other brokerage/syndication (%) Other brokerage/syndication
(Rs bn) Structured notes and bonds Structured notes and bonds
7.5 Direct stock 100 Direct stock
4.5 3.6 3.8 8.1 8.5 8.0 7.1
11.2 - - -
0.3
6.0 80 39.2 23.8 25.1 27.0
0.5 22.5
56.9 43.8
4.5 0.2 60
0.4 1.8 - 17.7
0.2 2.5 - 0.3 17.1
3.8 - - 10.6 52.7 50.4 49.1
3.0 0.3 0.3
- 40 6.0
0.8 0.8 0.6 - 1.0 12.1 6.2
0.8 0.7 0.8 33.4
0.6 0.3 24.1 6.9
1.5 0.4 1.7 20 24.7
1.1 0.5 1.4 1.6 1.6 10.1
1.2 0.7
10.7 10.0 10.1 15.1 16.4 16.7
0.7 0.4 0.4 0.5 0.6 6.6
0.0 0.4 0.5 0
2016 2017 2018 2019 2020E 2021E 2022E 2016 2017 2018 2019 2020E 2021E 2022E
Overall yields will remain stable – a strong product proposition is the crucial
We expect IIFL’s revenue yield to moderate to 58 bps in FY2020E from 80 bps in FY2019
and 1% in FY2017-18 (Exhibit 63). The revenue yield of previous years included large up-
fronts and carry income. With a transition to the trail and advisory model from FY2020E,
revenue will decline yoy even as non-revenue earnings assets (in which the company had
earned upfront income in previous years) will continue to remain in its reported AUMs. As
such, the overall revenue yield will decline.
We expect yield to expand to 66 bps in FY2022E, though lower than 80 bps in the past, as
the business stabilizes i.e. new revenue generating assets increase to replace the non-
remunerating ones.
Lower yield in FY2022E versus FY2016 builds in higher base, shift to advisory that may put
some pressure on yields and lower brokerage revenue. Buoyancy in capital markets will
boost brokerage flows and provide an upside.
What commands strong yields?

Over the long-term, IIFL’s superior execution capabilities, a strong proposition and advisory
team, innovative alternatives over plain vanilla mutual funds will drive its realization. While
IIFL One is yet to scale up, a strong product suit and dynamism of its platform, will be crucial
for the company to command superior yields.

Exhibit 63: We expect moderate increase in AUM yields after bottoming out in FY2020E
IIFL's asset yields across segments, March fiscal year-ends, 2017-2022 (bps)
2017 2018 2019 2020E 2021E 2022E

Recurring AUM 94 98 86 77 69 64
PMS -discretionary/non-discretionary and advisory 55 41 35 40 45 50
Funds managed by IIFL AMC 56 46 47 55 55 55
MFs 46 54 51 55 50 50
Managed accounts 137 45 61 65 65 65
Loans 611 400 386 390 370 300
Brokerage AUM 34 23 24 29 35 46
Direct stock 36 31 14 15 15 15
Structured notes and bonds 63 37 85 90 80 80
Overall AUM 98 104 82 58 62 66
Notes:
(1) Asset yields are calculated as revenue/average closing assets in the segment.
The pain of transition

We expect IIFL’s cost-to-income ratio to increase to 55% in FY2020E from 49% in FY2019
and gradually settle down to 45% by FY2022E (Exhibits 64 to 67). IIFL’s transition to a trail-
based and advisory model will lead to immediate pressure on revenues. This, in turn, will
translate into lower payouts to its team, in order to manage its expense ratio. We expect the
company to reduce its fixed compensation levels in the immediate level, while providing
visibility to employees of a more stable earnings trajectory. The acceptability of change in
composition of its employee remuneration remains crucial.
IIFL is working on curtailing its other operating expenses as well. It has acquired an office
building in Mumbai which helps it save on rentals though it will add to depreciation.
Exhibit 64: Strong cost control leads to decline in operating expenses in FY2019 and FY2020E
Operating expense, March fiscal year-ends, 2016-2022E
Operating expense (LHS) YoY (RHS)

(Rs bn) 42.2 41.1 (%)
7.5 45
6.0 30
4.5 10.3 10.9 15
3.0 (6.4) (5.9) 0
1.5 -15
2.8 4.0 5.7 5.3 5.0 5.5 6.1

0.0 -30
2016 2017 2018 2019 2020E 2021E 2022E

Exhibit 65: Sharp decline in employee expense in FY2019; will Exhibit 66: Steep drop in share of variable employee expense in
moderate from here onwards FY2019
Employee expenses, March fiscal year-ends, 2016-2022E Expense mix, March fiscal year-ends, 2018-2022E
Employee expense (LHS) YoY (RHS) Fixed employee expense Variable employee expense
(Rs bn) (%) Other operating expenses
5 60 (%)
100
45.3
41.9 27.1 27.0 26.3
4 45 30.0
80 36.4
3 30 16.5 16.7 16.9

60 5.8
24.7
10.5 12.0
2 7.9 15 40
57.7 56.4 56.3 56.8
1 0 20 45.2
1.9 2.8 4.0 (14.9)

3.4 3.6 4.0 4.5
0 -15 0
2016 2017 2018 2019 2020E 2021E 2022E 2018 2019 2020E 2021E 2022E
Exhibit 67: Cost-to-income ratio will drop to ~45% in FY2022E from 50% in FY2019
Cost-to-income for IIFL Wealth, March fiscal year-ends, 2016-2022E
Cost-to-income
60
55
55.4 55.3
54.3
50
51.0
49.7 49.7
45
44.2
40
35
2016 2017 2018 2019 2020E 2021E 2022E

Exhibit 68: Key growth rates and ratios for IIFL Wealth
2017 2018 2019 2020E 2021E 2022E

Key growth rates (%)
Revenues 32.7 2.3 (15.5) 22.8 24.8
Recurring 53.6 21.0 25.4 32.6 30.6
PMS and advisory 300.0 350.0 219.5 135.2 85.2
Fees by IIFL AMC 300.0 350.0 219.5 135.2 85.2
Others 57.2 11.2 6.7 17.9 14.7
Non-recurring revenues 41.2 (12.5) (49.1) 5.5 13.0
Brokerage revenues (4.3) 20.6 24.2 6.0 14.1
Transactional revenues 71.5 (24.9) (93.1) - -
Other income (82.1) 214.3 15.0 15.0 15.0
Operating expenses 41.1 (6.4) (5.9) 10.3 10.9
Employee expenses 41.9 (14.9) 7.9 10.5 12.0
Other expenses 39.3 13.5 (30.0) 10.0 8.0
PBT 23.9 12.6 (24.9) 38.1 38.6
PAT 39.8 4.1 (26.5) 38.1 38.6
AUM excluding custody 30.9 21.5 15.4 15.9 17.6
Recurring AUM 50.2 29.9 48.7 46.0 37.5
PMS/advisory 480.5 423.0 130.0 100.0 50.0
Fund managed by IIFL AMC 49.8 55.1 27.9 29.7 26.5
Non-recurring AUM 25.6 12.9 (9.4) (13.9) (14.9)
Loans 92.2 (29.6) 11.1 10.0 10.0
Investment (42.6) 174.7 5.0 5.0 5.0
Net assets 25.9 2.2 4.1 8.7 9.0
Borrowings 29.5 (12.2) 6.0 10.0 9.6
Total liabilities 26.8 (10.8) 4.2 9.8 9.5
Key ratios (%)
Recurring revenues to total revenues 30 35 42 62 67 70
Non-recurring revenues to total revenues 60 63 54 33 28 25
Cost-to-income 51 54 50 55 50 44
Employee expenses to total expenses 70 70 64 73 73 74
Yields (bps)
Overall yields 98 104 82 58 62 66
Recurring revenues 94 98 86 77 69 64
Fees on PMS and advisory 55 41 35 40 45 50
Funds managed by IIFL AMC 56 46 47 55 55 55
Trail commission of MFs 46 54 51 55 50 50
Trail commission on managed accounts 137 45 61 65 65 65
ROA on loans 611 400 386 390 370 300
Brokerage revenues 34 23 24 29 35 46
Direct stock 36 31 14 15 15 15
Structured notes and bonds 63 37 85 90 80 80
ROE decomposition (%)
Revenues 17.3 12.2 11.0 9.0 10.4 12.0
Recurring 5.3 4.3 4.6 5.6 6.9 8.3
Non-recurring revenues 10.3 7.7 6.0 3.0 2.9 3.0
Other income 1.7 0.2 0.5 0.5 0.5 0.6
Operating expenses 8.8 6.6 5.5 5.0 5.2 5.3
PBT 8.5 5.6 5.6 4.0 5.2 6.7
(1-tax rate) 0.7 0.8 0.7 0.7 0.7 0.7
ROA 5.8 4.3 4.0 2.8 3.7 4.7
Average assets/equity (X) 3.3 5.1 4.1 3.4 3.4 3.5
ROE 19.2 21.8 16.1 9.5 12.5 16.2

Exhibit 69: Financial summary for IIFL Wealth

2017 2018 2019 2020E 2021E 2022E

Profit and loss statement
Revenues 7,860 10,430 10,670 9,020 11,073 13,824
Recurring revenues 2,390 3,670 4,440 5,568 7,382 9,643
PMS and advisory 10 40 180 575 1,353 2,505
Funds managed by IIFL AMC 400 518 800 1,302 1,679 2,147
Trail on MF 680 960 1,018 1,217 1,345 1,583
Trail on managed accounts 200 92 222 462 862 1,496
NII on loans 1,100 2,060 2,220 2,012 2,144 1,912
Non-recurring revenue 4,690 6,620 5,790 2,946 3,109 3,512
Brokerage revenue 1,880 1,800 2,170 2,696 2,859 3,262
Direct stock 470 670 380 445 511 588
Structured notes and bonds 1,130 670 1,430 1,551 1,567 1,724
Other brokerage and syndication 280 460 360 700 780 950
Transactional revenue 2,810 4,820 3,620 250 250 250
Commission on MF 800 800 612 - - -
Commission on managed account 1,840 3,768 2,538 - - -
Carry/one-time income 170 252 470 250 250 250
Other income 780 140 440 506 582 669
Operating expenses (4,010) (5,660) (5,300) (4,988) (5,503) (6,104)
Employee expenses (2,790) (3,960) (3,370) (3,637) (4,017) (4,499)
Other expenses (1,220) (1,700) (1,930) (1,351) (1,486) (1,605)
PBT 3,850 4,770 5,370 4,032 5,570 7,720
Tax 1,210 1,080 1,530 1,210 1,671 2,316
PAT 2,640 3,690 3,840 2,823 3,899 5,404
Tax rate (%) 31 23 28 30 30 30
AUM details (Rs bn)
AUM excluding custody 859 1,124 1,366 1,577 1,827 2,150
Recurring AUM 299 449 583 866 1,265 1,739
PMS/advisory 3 17 87 200 401 601
Fund managed by IIFL AMC 89 134 208 266 345 436
Non-recurring AUM 685 861 972 881 758 645
Balance sheet
Cash and bank balance 12,751 7,452 2,774 3,329 3,797 4,339
Loans 36,711 70,561 49,665 55,177 60,695 66,764
Investment 19,343 11,112 30,526 32,052 33,655 35,337
Fixed assets 565 523 5,100 6,387 7,103 8,024
Other assets 6,634 6,017 9,737 4,886 5,448 6,187
Net assets 76,004 95,666 97,802 101,830 110,697 120,652
Borrowings 53,801 69,663 61,145 64,836 71,295 78,152
Provisions 953 117 86 100 100 100
Other liabilities 6,009 7,256 7,468 6,661 7,254 7,850
Total liabilities 60,762 77,037 68,698 71,597 78,649 86,102
Share capital 156 161 170 170 171 173
Reserves and surplus 15,086 18,468 28,934 30,063 31,877 34,377
Net worth 15,242 18,629 29,104 30,233 32,048 34,550
Net liabilities and shareholders equity 76,004 95,666 97,802 101,830 110,697 120,652

IIFL WEALTH MANAGEMENT: BACKGROUND

IIFL Wealth, founded in 2008, is among the fastest growing private wealth management
firms in India with an ex-custody AUM of Rs1.4 tn as of 1QFY20. The company has
relationships with more than 13,000 uber-rich families of India. It has a wide network
comprising over ~1,000 employees with ~325 relationship managers (RMs) operating out of
33 offices, spread across the world.
IIFL Wealth has primarily two business verticals i.e. wealth management and asset
management. Under wealth management, it serves the specialized needs of high net worth
and ultrahigh net worth individuals, affluent families, family offices and institutional clients
through a comprehensive range of tailored wealth management and lending solutions.
Asset management vertical provides a diversified suite of alternative investment funds,
portfolio management schemes and mutual funds that span public and private equities,
fixed income securities and real estate. The clientele includes global and domestic
institutions, channel partners including private banks, family offices, pension funds, and
retail investors.
As a part of the de-merger of its wealth business, IIFL has issued and allotted, on a
proportionate basis, one fully paid up equity share of Rs2 each, for every seven equity shares
of Rs2 each of IIFL Holdings with record date, i.e., May 31, 2019.
Exhibit 70: Promoter holds 24.7% in the company

Shareholding pattern of IIFL Wealth, March fiscal year-ends, September 2019
Shares held Shareholding

(# mn) (%)
Promoters 21.0 25
Nirmal Jain 10.4 12
Venkataraman Rajamani 2.9 3
Karan Bhagat 4.4 5
Yatin Shah 3.3 4
Public 64.1 75
General Atlantic Singapore Fund Pte Ltd. 18.6 22
Fairfax shareholders 16.1 19
RIMCO 2.0 2
Ward Ferry 2.7 3
Amansa Capital 1.1 1
Bank Muscat India Fund Limited 1.8 2
Others 21.7 25
Shares held by employee trust 0.05
Notes:
(1) About 46.4% shareholding (9.07% of promoters and 37.4% of public shareholding) is locked in.

Exhibit 71: Brief profile of board of directors

March fiscal year-ends, 2019
Name Designation Education Brief profile
He has approximately two decades of experience in the financial services sector. He is currently responsible for
the strategic initiatives undertaken by the company. He was responsible for establishing a customer-centric
PGDM from IIM private wealth enterprise and was responsible for introducing new offerings such as lending and estate
Karan Bhagat Managing director
Bangalore planning services for ultra HNIs. He has previously worked with Kotak Mahindra Wealth Management Ltd,
where he served as Senior Vice President. He featured in Fortune India’s ‘40 under 40’ list in 2016 and 2017
and The Economic Times ‘40 under 40’ list in 2017.
Master’s degree in He has significant experience in the financial services sector. He has previously worked with Khandwala
science (finance) from Securities Limited and Kotak Mahindra Bank Limited. He has previously been named the ‘Best Relationship
Yatin Shah Whole-time director
Cass Business School, Manager’ by Kotak Mahindra Bank and secured the ‘Best Financial Manager’ award for the best registered
London deal by the Asian Institute of Management, Manila.
He has experience in the financial services sector and the fast-moving consumer goods sector. He founded IIFL
Finance Limited in 1995 and is the current chairman of its board. Prior to this, he worked with Hindustan
Non-executive director PGDM from IIM Unilever Limited (previously Hindustan Lever Limited), where he was responsible for, among others, export
Nirmal Jain
and chairman Ahmedabad and trading in agro-commodities. He was conferred the CA Entrepreneur Leader award by the ICAI in the
year 2018 in the financial services category, Entrepreneur of the Year award at the Franchise Awards, 2012.
and the Pride of India Gold Medal by the NRI Institute in the year 2009.
He joined IIFL Securities Limited in 1999 and is currently a promoter and the managing director of IIFL Finance
Limited. He has significant experience in the financial services sector. Prior to this, he worked with ICICI
PGDM from IIM
Venkataraman Rajamani Non-executive director Limited, ICICI Securities Limited, and Taib Capital Corporation Limited. He has also served as the assistant vice
Bangalore
president of GE Capital Services India Limited in their private equity division. He has been accredited as ‘Best
CEO’ by BW Business world in the ‘large corporate’ category in 2018.
He is a senior partner at Khimji Kunverji & Co. He was previously an observer on the board of the
International Federation of Accountants and a member of its technology advisory group. He was also a
Chairman and
member of the Insurance Regulatory and Development Authority of India. In addition, he is currently a
Nilesh Vikamsey Independent CA from ICAI
member of SEBI’s Primary Market Advisory Committee and the Advisory Committee on Mutual Funds.
Director
Further, he is also a member of the subgroup formed by the audit committee of Coal India Limited and the
disciplinary committee of the CDSL.
She specialises in the areas of project, corporate, and structured finance; treasury; investor relations; and
strategic planning. She started her career with ICICI, where she worked for over 10 years in the field of
project, corporate and structured finance as well represented ICICI on the Board of reputed companies such
Geeta Mathur Independent Director CA from ICAI as Eicher Moters, Siel Limited etc. She then worked in various capacities in large organizations such as IBM
and Emaar MGF across areas of Corporate Finance, Treasury, Risk Management and Investor relations. She is
the Co-chair for the India Chapter of Woman Corporate Directors Foundation, a global organization working
towards increasing the participation of woman on corporate boards and board leadership position.
MBA (specialising in He is currently a managing director at General Atlantic. Prior to joining General Atlantic in 2012, he served as
finance) from Wharton partner and co-head of India for Apax Partners India Advisers Private Limited. He was also co – founder of
Sandeep Naik Nominee Director
School, the University InfraScan Inc. He was selected as a young global leader by the World Economic Forum and has previously
of Pennsylvania served on the global agenda council of the ‘new order of economic thinking’.
He is currently a managing director at General Atlantic, where he is responsible for investments in the
MBA from Wharton
financial services, healthcare, and retail and consumer sectors in India and Asia-Pacific. He has approximately
Shantanu Rastogi Nominee Director School, University of
14 years of experience in the fields of private equity and finance. He has previously worked as a business
Pennsylvania
consultant with McKinsey & Company.
He has 40 years of experience in the fields of economics, economic policy, and administration. He has been a
senior research fellow at the Institute of South Asian Studies, 97 National University of Singapore since 2005.
Master’s degree in
He has previously held the positions of finance and economic affairs secretary; economic advisor to the Prime
Subbaraman Narayan Independent Director physics from Madras
Minister of India; secretary in the Department of Revenue, Ministry of Finance, Government of India;
University
secretary, Ministry of Petroleum and Natural Gas, Government of India; and secretary, Department for
Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, Government of India.

Exhibit 72: Brief profile of senior management

March fiscal year-ends, 1QFY20
Name Designation Education Brief profile
He joined IIFL Holdings to set up IIFL Investment Managers in 2008. He is responsible for driving the
organization’s philosophy, mission, vision and its strategic goals and objectives. He has built a team of
experienced and talented professionals from within and outside the industry, who manage some of the most
PGDM from IIM distinguished families in India and abroad. Under his able leadership, IIFL Investment Managers has grown
Karan Bhagat Founder, MD and CEO
Bangalore from its humble beginnings to one of the leading wealth management companies in India managing over
USD20 billion in client assets. Karan has two decades of experience in the financial services industry. He
featured in Fortune India’s ‘40 under 40’ list in 2016 and 2017 and The Economic Times ‘40 under Forty’ list
in 2017. He has received the URS Asia One Global Indian of the Year award in 2018.
Master’s degree in He has significant experience in the financial services sector. He has previously worked with Khandwala
Co - Founder and science (finance) from Securities Limited and Kotak Mahindra Bank Limited. He has previously been named the ‘Best Relationship
Yatin Shah
Executive Director Cass Business School, Manager’ by Kotak Mahindra Bank and secured the ‘Best Financial Manager’ award for the best registered
London deal by the Asian Institute of Management, Manila.
He has over 17 years of experience in the financial services industry across consumer, commercial and private
banking. In his current role as Executive Director, Anirudha is responsible for the wealth advisory practice
PGDM from Symbiosis
Anirudha Taparia Executive director across business verticals and geographies. Anirudha brings to the table a rich commercial banking experience
Institute, Pune.
and strong client relationships. Prior to IIFL, Anirudha was associated with Citibank for a decade, most
recently as Senior VP and Head for North India. He has previously been part of the ICICI Group and IL&FS.
He is an Executive Director at IIFL Investment Managers and has over 18 years of experience in Corporate
Treasury and Wealth Management. He has been with IIFL IM since April 2010. In his current role, Pravin
focuses on growth across business verticals and geographies. He brings to the table extensive corporate and
Pravin Bhalerao Executive Director CA from ICAI entrepreneurial experience. Earlier, he founded Finest Wealth Managers in Pune and has previously presided
on the board of Kalyani Forge Ltd from 1988-2000. Pravin has also been an Independent Director of Rupee
Co-operative Bank, on behalf of RBI. He has also been a member of the Investment Advisory Panel of the
University of Pune.
Chief Operating PGDM from IIM He has more than 20 years of experience. He had been with A.T. Kearney since June 2001 and was last
Anshuman Maheshwary
Officer Bangalore designated as Partner and Lead, Energy & Process Industries.
He has more than 17 years of experience in the financial services industry, across wealth and asset
management. Prior to IIFL Investment Managers, he was part of Morgan Stanley India Financial Services as its
Senior Managing PGDM from Symbiosis Executive Director, International Wealth Management. He also worked in Deutsche Bank as a Director for
Vinay Ahuja
Partner Institute, Pune. more than half a decade acquiring HNIs across South India. He was instrumental in setting up its Chennai
Branch in 2005 with products such as Forex, Investments and Lending Transactions. He has also been
associated with DSP Merrill Lynch in the past.
He has more than 15 years of experience in the wealth management Industry. Previously, he was associated
Senior Managing CA from ICAI, MBA
Himanshu Bhagat with Morgan Stanley. In his capacity as the head of the wealth management business, he set up the business
Partner from Boston College
from inception and oversaw its successful exit via a sale.
Senior Managing He has more than 15 years of experience in handling operations, compliance, client servicing, and technology
Pankaj Fitkariwala CA from ICAI
Partner in the wealth management and financial industry.
Cost Accountant from He has over two decades of experience in the financial services industry across Asset Management and
the Institute of Cost Wealth Management. Prior to IIFL Investment Managers, Girish was associated with DSP Merrill Lynch Mutual
Senior Managing
Girish Venkataraman and Works Fund since 2002, where he was most recently the Head of Sales, Portfolio Management Services. He has also
Partner
Accountants of India been Head of the Southern Region as well as of Products and New Initiatives. His prior engagement have
(ICWAI) been with Deutsche Bank, ANZ Grindlays Bank and Kotak Group.
He has more than 18 years of experience in investments and wealth management. He has spearheaded
M.M.S, JBIMS -
launch of several Alternative Investment Funds (AIFs) in India and also serves on the Investment Committee of
Senior Managing Jamnalal Bajaj Institute
Umang Papneja several AIFs. He holds board positions in a couple of companies including IIFL Alternate Asset Advisors which
Partner of Management
offers customised fund solutions to ultra-high net worth families. He also served on the board of IIFL Wealth
Studies
Finance Ltd. (a systematically important NBFC) from February 2016 to November 2017.
Post-graduate in Sales
& Marketing from He has varied experience with leading names including Deutsche Bank and Barclays where he served as
Shaji Kumar Devakar Managing Partner
National Institute of Director.
Sales
Master’s in Finance &
Control (MFC),
Banking, Capital He has nearly two decades of work experience across capital markets, wealth management and lending
Himanshu Jain Managing Partner Markets, and Portfolio business. In his prior experiences, he was responsible for the setup, launch and scaling of NBFC business. He
Management and was earlier associated with organizations such as with Morgan Stanley, Merrill Lynch and Citigroup.
Corporate Finance
from Institute of
Alumnus of IIM Sandeep has more than 12 years of experience in direct client and team management with regional
Sandeep Jethwani Managing Partner Bangalore and VJTI responsibilities including setting up of new branches. As a part of the founding team at IIFL Investment
Mumbai Managers, Sandeep led the setup of offices in various locations including Mumbai, Pune, Goa and Gujarat.
Jiten has been a part of the IIFL Private Wealth team since inception in April 2008, and has over a decade of
PGDM from IIM
Jiten Surtani Managing Partner experience in the wealth management domain. Prior to IIFL Private Wealth, Jiten worked with Kotak Wealth
Calcutta
Management for over four years.
He brings over three decades of experience in capital markets with specific focus on multi-asset class
investment management and Advisory. Pramod joined the team through the acquisition of Wealth Advisors
A Pramod Kumar Managing Partner N.A
(India). Pramod co-founded Wealth Advisors (India) in 2004. Prior to Wealth Advisors, Pramod was with DSP
Merrill Lynch and ICICI Bank.

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and its securities for which the analyst is responsible in this report, (1) all of the views expressed in
this report accurately reflect his or her personal views about the subject companies and securities,
and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the
specific recommendations or views expressed in this report: Nischint Chawathe, M.B. Mahesh,
Dipanjan Ghosh, Shrey Singh, Venkat Madasu."

Kotak Institutional Equities Research coverage universe

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70%
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60%
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40% * The above categories are defined as follows: Buy = We

expect this stock to deliver more than 15% returns over the
29.9% next 12 months; Add = We expect this stock to deliver 5-15%
30% 26.0%
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10%
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0.5% 0.0% Equities Investment Research had investment ratings on 204
0% equity securities.
BUY ADD REDUCE SELL
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(Kotak) 18sep19 - IIFL Wealth PDF

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Company Report

Diversified Financials NEUTRAL

Reinitiate coverage of IIFL Wealth with fair value of Rs1,050

22E. Venkat Madasu

Kotak Institutional Equities

Important disclosures appear

Business overview ................................................................................... 3

Valuation section: Reinitiate coverage of IIFL Wealth with FV of Rs1,050 4

Wealth management: IIFL Wealth poised for strong growth ................... 7

IIFL Wealth: Shifting focus to recurring revenues .................................. 20

Key risks: Volatility of inflows, execution of new model ........................ 29

Near-term pressure on earnings owing to business transition ............... 30

IIFL Wealth management: Background ................................................. 39

2 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Source: Company, Kotak Institutional Equities estimates

Exhibit 2: Financial summary for IIFL Wealth

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

VALUATION SECTION: REINITIATE COVERAGE OF IIFL WEALTH WITH FV OF RS1,050

Reinitiate with FV of Rs1,050/share i.e. 19X September 2021E

We consider PV of core business and add surplus capital to arrive at our FV

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Exhibit 3: We value IIFL Wealth at Rs1,050 per share

Source: Company, Kotak Institutional Equities estimates

Source: Bloomberg, Company, Kotak Institutional Equities estimates

Source: Bloomberg, Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5

Exhibit 6: Volatile earnings growth for IIFL

PAT yoy AUM ex. custody

Source: Company, Kotak Institutional Equities estimates

Exhibit 7: Improvement in revenues over medium-term

(Rs bn) Revenue (LHS) YoY (RHS) (%)

Source: Company, Kotak Institutional Equities estimates

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH

WEALTH MANAGEMENT: IIFL WEALTH POISED FOR STRONG GROWTH

Strong growth of wealth assets in Asia

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7

Source: BCG Global Wealth Report 2019

Exhibit 9: Sharp increase in millionaires in Asia over medium-term

Wealth assets mix (%) CAGR (%)

Source: BCG Global Wealth Report 2019

Exhibit 10: Higher inflows in growth markets

Net new money (% of AUM)

Source: BCG Global Wealth Report 2019

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Investible assets held by affluent individuals Affluent individuals

Source: BCG Global Wealth Report 2019

$1-$5 mn, $1-$5 mn,

Source: BCG Global Wealth Report 2019

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9

Source: BCG Global Wealth Report 2019

Strong growth in UHNIs will boost growth of wealth management industry in

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH

 Scope for IIFL Wealth to increase penetration in smaller geographies. Most

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11

Source: GlobalData WealthInsight

CAGR (%) CAGR (%)

Source: Kotak Top of the Pyramid 2017

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Source: Income Tax Department

Source: Income Tax Department

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13

Source: Asian Private Banker 2018, Kotak Institutional Equities