– Edelweiss Financial Services

Q2 Con Call Notes – 10 Nov 2022

General

Now, getting reading ready for growth and profitability in the next few years (saying it for some time now).
The balance sheet is shrinking, but customer assets are increasing as we are focusing on advisory
AIF- Invested 20k. Like to invest the remaining 20k in 2 to 2.5 years.
Plan: Next 2/3 years focus on Asset Management, AIF. Currently no specific plan for further demergers.

Wholesale

Credit business has started growing.
We choose to take impairment first and do not expect more impairment in the wholesale book.
Loans are getting repaid. Not doing any more disbursement as a result wholesale book is reducing.
Based on the cash flow we are seeing, this book should zero in 3 to 3.5 years.
Can we reduce wholesale in one go (8500 cr book)?
- PE/ARC funds want IRR of 18-20%. If we reduce the book to one shot, it will be fair expensive for us.
- It may cost us 1000 to 1500 cr .
- When we see cash flow visibility for the next 18 to 24 months, it is better to reduce the book organically.
Out of 8500 books- 5000 cr is borrowing, and 3500 cr is equity.
Real estate market is increasing, so we might see the upside.
So far, we have 4000-5000 cr through AIF/Sales.

NBFC

Housing Finance- We will work/consolidate in Co-Lending, affordable housing business mode strongly validated in the next four quarters. Then we will look for the next course of action.

AIF

Most of the Private debt.
- Private credit started in India 3/4 years back, and we are a leader.
- Large space with many strategies.
Deploying around $1 billion per year.
Carry comes when your funds are 3/4/5 years old.
Next year onwards, carry income shall start kicking in
The way to analyze AIF
- How much is AUM?
- How is Fee paying AUM?
- What is the vintage of AUM?

Wealth

Wealth Management- 28% growth- H1 profit 138. Q2 profit 84 cr.
Expect NCLT approval in Feb and listing in around four weeks. So listing shall happen sometime in March.
We operate to affluent ++ to Ultra HNI- Which gives us large number of clients
Take a long gestation period business.
Focus on building more comprehensive products. This allows more value to the client.
We also have an investment banking business. Helps are promoter level. We also work with them on an aspiration level, as when they monetize their business, we help them in wealth management.
Blesses with a sectoral tailwind.
Stock of wealth composing 10 CAGR.
Money which we manage shall safely grow by 18 to 20. Any other products which we launch or innovate, we do on top of that. AIM is to 22 to 25 AUM growth.
90% of the transition is done. Another two-month rest of the things shall be overs. This results in our costs going higher as it leads to duplication. This will fall off next year.

MF Business

Life Insurance

Some partnerships related to distribution (e.g Bank).
IRDA has increased the number of partners banks can have from 3 to 9. So we would like to go in that direction. That will be value unlocking. It may take a year to unlock.
Likely to be profitable by 2026 then we can think of listing.
Embedded value breakeven – next four quarters.
Accounting breakeven around 2026. Same for GI business.
Do not need a partner for capital infusion. We have allocated capital for both insurance businesses for the next 3/4 years.

General Insurance

Very competitive business.
We are the first company in Asia to be cloud-native. We could do it because we were late entrant.
Wait and watch for the next 2/3 years.
Industry will grow 18 CAGR for 4-5 years
That industry is getting disrupted very quickly
Differentiator-
– Product innovation that meets customer needs. We may launch small products, which others may find not interesting.
– Customer experience

Note- Invested.

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