Edelweiss Financial Services

(Amit Mehta) #286

adding to the list
Asset management and broking is a cyclical business and with market perception on a bear market the growth in that segment could slow down as well

Disclaimer: invested and would add further

([email protected]) #287


Good update on liquidity and growth expectation. They are admitting slower growth but diverse biz to see them through

(Amit) #289

Taken from Edelweiss liquidity report

Demand for credit is steady, however, growth may taper down by around 10 -12 percentage
points for the market; NIMs likely to see an expansion.

Both Edelweiss and PEL has pointed to rise in NIMs ? Do we know why?


Shorter term liabilities (CPs, Banks loans etc) and variable rate assets get repriced faster in the rising rate environment. When they are attempting to reduce shorter term liabilities and with unchanged ability to price their assets higher means NIM expansion.

(dprashant) #291

Rashesh shah in his latest interview to business news channel has mentioned that they have already hiked the rates in anticipation of higher cost of borrowing going forward so NIM will expand.

(deeps2884) #292

Good NBFCs would be facing capital scarcity (as usage of CPs as a funding tool would reduce from current 15% of funding need to ~5% of funding needs, NBFCs have to depend upon undrawn bank lines, Medium Term Bonds and Tier 2 Bonds for their capital needs which would increase their cost of borrowing), so one way of preserving capital is by asking for better risk adjusted rates from client (currently being flush with money NBFCs were really chasing Book size more than profitable growth) and since loans are not so easily available clients would be forced to accept higher rates leading to higher NIMs (right now good projects and bad projects had virtually little Interest rate difference)

P.S - I won’t call it higher NIMs per se more like better risk adjusted returns


This is a very good development for Edelweiss ARC. They could make a killing here as they have good exposure. Just few weeks back they bought loan from HDFC Bank @60 cents to $ and now they can hope to make a full recovery.

(EBITDAX) #294

Note sure why everyone is going into a dozen interpretations, this is just classic mean reversion. Edelweiss operates a risky whole sale lending book with cyclical capital markets on top. It is not a comparable to a Bajaj Finance by any metric (which doesnt deserve a 7x P/BV as well but thats a different story…

The froth in valuation post the demonetisation liquidity boom, is just being taken off. See the rolling P/BV chart of Edelweiss and Bajaj finance below. When the P/BV hits Oct 2016 levels, we are back to sane territory

(Vivek Gautam) #295

Cud u post the link or transcript of this interview please?

(dprashant) #296

It was posted by me already. Refer the link that’s posted along with the message where during the conversation Prakash Diwan has mentioned that few days ( few days from fall of DHFL ) back only edelweiss raised funds at 11% and no one/mkt paid much attention to it etc etc

(Growth_without Debt) #297

Any thought on (1) Main reason of serious correction and not holding ? (2) Red flags

(Amit) #298

Edelweiss and US 10 yr yield. It converges on May 25th, 2018 when US 10-year yield drops below 2.8%, down from 3.13% earlier in the month. It’s clear that Edelweiss and NBFC going through de-rating in valuations as cost of funds rise in US. Definitely not IL&FS but yields in US.

Other NBFCs,

Clearly JM and Edelweiss showed more negative correlation with bond yields, less for Capital First and PEL bcoz of not being pure play NBFC has seen lesser correlation to yields rising. Bajaj finance is an outliner here rising 15% YTD.

It suggests that more risk lies on funding side on business with rising yields on edel, jm and capf and market is derating the stock to reflect future de-growth and adjusting P/BV to around 1.5-2 P/BV. Given IL&FS episode, you would see more scrutiny by RBI going forward which would increase regulatory costs.

(Growth_without Debt) #299

When we are facing flood of negative news, we must go back company “Talk and Walk” to have more confidence!

Disc - started investing below 200 levels

(timedimpulse) #300

Not sure you can confirm a correlation with 10 year yield. ALM at Edelweiss and peers is more diverse, and funding varies as per maturity bucket. Yields will also vary across tenor. Not sure what % 10 yr G-Secs are of Edelweiss funding.

Also regulatory costs are going to be set up of ALM reporting systems. RBI hasn’t clarified how/why of it but it may be similar to Net Stable Funding Ratio under BASEL III, which banks have implemented. It is a one time cost after which the ratio is reported on ongoing basis. Besides, regulations can be a positive for NBFCs as they de-risk the environment and protect the downside, as seen in NBFC-MFIs. The stronger, organized players will thrive in regulated environment.


I must admit that this is the first time I panicked after may be 2008 but no action so far. The way it is falling without any major company specific event is very unnerving. It doesn’t help when it is the largest holding. One has to give credit to Rashesh shah that he warned himself, in his last interview to CNBCTV18, that equity of NBFCs are adjusting to the new reality of tight liquidity and lower growth prospects. I still think he will outperform the industry.

(PrinceVegeta) #302

AFS and HTM Classifications are based on Ind AS. Ind AS is applicable for NBFCs from FY 19 onwards.
All NBFCs have used good old IGAAP for accounting, presentation and disclosure in Financial Statements of FY 18. IGAAP requires Investments (which are not the primary business of the entity) to be disclosed under Current and Non Current Investments. However, when an entity’s business itself is to invest in bonds and other securities - it must be shown under Stock in trade.

Now accounting policy basically states that when direct quotes are not available, there is no MTM required!

Im sure there would be a significant mark down in both Stock in trade and ‘Investments’ once the Company starts using IND AS.

(PrinceVegeta) #303

The ‘Stock in Trade’ schedule of ECL Finance offers a significant opportunity to analyze the credit quality of the RE loan book since names of the borrowers are disclosed.

Most of the borrowers are Private Limited Companies and their Financial Statements can be downloaded from MCA website by paying Rs. 100 (Wise to download after 31.10.2018 since thats the due date to upload FY 2018 financials)

Details of security cover can be accessed free of cost of checking the details and value of charges registered again on MCA website or independent websites like Zaubacorp.

Of the very few publicly available Financial Statements, I am curious to know whether the investment of Rs 155 crores in Jana Holdings is still a standard asset or classified as an NPA.

Jana Holdings is a pass through investment company having investment in Janalakshmi Financial Services Limited - aka Jana Small Finance Bank.

As per this - https://www.crisil.com/mnt/winshare/Ratings/RatingList/RatingDocs/Jana_Small_Finance_Bank_Limited_June_26_2018_RR.html and this - https://www.icra.in/Rationale/GetRationaleFile/71327~Jana%20Small%20Finance-R-03072018.pdf
Jana Small Finance Bank has a Gross NPA Ratio of a whopping 42% !

Would love to analyze the credit worthiness of more of such Borrowers after this month end!

(KunalKothari) #305

Glaring errors on page 11 of the investor day presentation, not a great document otherwise either, with a lot of macro jumbo-mumbo. I expected better.
Disc: Tracking


Kunal, Can you please explain and elaborate what do you mean by Glaring errors on Page 11?