NPA looks optically high due to change in NPA recognition period from 120 to 90 days.
Because of insurance and ARC business, I think Edelweiss goes beyond normal NBFC/AMC business and becomes truly financial powerhouse. It could act as a double edged sword, so execution would be key here. But if they can handle 30%+ kind of growth in multiple areas without slippage, they can easily become compounding machine like Bajaj Finance
Discl - invested post demonetisation and thinking of adding more on dip
What are your views on the ARC business? has they made any progress yet?
Uday Kotak, who commands good respect, thinks like this as below.
Edelweiss already has the largest and the most profitable ARC, so can we say this about Edel too?
Disc: Invested with high allocation
Edelweiss acquires Religare securities business
any indication on the deal value and means of funding?
Deal value is 250cr. They gave the IP on this deal. It has further details.
I guess funding is from recent fund raising that they did from different sources.
Another line of income to get started… though the gestation period for profitability may be high.
Insurance Regulatory & Development Authority of India (IRDA) has granted its approval and has registered “Edelweiss General Insurance Company Limited”, a wholly owned subsidiary of the Company, to commence its business in General and Health Insurance in India.
assign zero value also to insurance biz, the company still looks fairly valued looking at the growth and 3 year forward earnings. Edelweiss are a firm that will stand strong even during a bear market as earnings growth will protect downside.
When you say “3 year forward earnings”, assuming FY18 ends at 30%, what is the estimated growth forecasts for FY19 and FY20?
While this move is good in the long term, it will be additional hangover for the earnings in the next 5-7 years. Life Ins. was supposed to break even in Fy22 and now the whole insurance segment will be pushed back by few years.
For these valuations to sustain, we need edelweiss to grow at 30-40% CAGR. This will happen as costs will fall for their amc business. That is a high ROE business. Insurance business give us visibility past FY2020. That business after breaking even in itself should add huge earnings growth going forward. As the float from that business starts generating returns as well. Only worry is the lending side as bond yields rise. They are s teong franchise and even during a bear market should command a 20-25x multiple. That coupled with earnings growth will protect downside.
If they dont grow at that rapid pace then one should contemplate trimming the position. With this market we never know. I would value edelweiss at 200-220 bucks. But in this market they could commandeven a 50PE who knows!
I agree with you.
When I plug in the following numbers in my sheet, from the current CMP of 290 I get a CAGR of 5% by FY20. Which according to me makes the current level a difficult level to enter as it reduces my margin of safety.
FY18 Growth: 30%
FY19 Growth: 25%
FY20 Growth: 20%
Conservative PE: 25
Of course, market might continue giving Edelweiss a higher PE (around 30ish) if it continues with the growth of 30% in FY19 and FY20. In which case the CAGR till FY20 from current levels jumps to 20%.
Edelweiss Q3FY18 Highlights… Super results…
- Total Revenue INR 2,085 cr (INR 1,609 cr for Q3FY17), up 30%
- Profit After Tax INR 236 cr (INR 155 cr for Q3FY17), up 52%
- Profit After Tax excluding insurance INR 272 cr (INR 187 cr for Q3FY17), up 46%
- Return on Equity excluding insurance for Q3FY18 is 22.5% (20.9% for Q3FY17)
- Balance Sheet Assets INR 48,800 cr, up 31% YoY
- Assets under Management and Advice: INR 1,61,200 cr
- Total Assets INR 2,10,000 cr
- Group Gross Net worth INR 7,595 cr; Net worth excluding insurance INR 6,186 cr
- Total Revenue INR 5,999 cr (INR 4,689 cr for 9MFY17), up 28%
- Profit After Tax INR 642 cr (INR 439 cr for 9MFY17), up 46%
- Profit After Tax excluding insurance INR 728 cr (INR 508 cr for 9MFY17), up 43%
Q3 Results: http://www.bseindia.com/xml-data/corpfiling/AttachLive/b752bb6e-6c6d-4d0f-8599-31e8682edadb.pdf
Q3 Investor Presentation: http://www.bseindia.com/xml-data/corpfiling/AttachLive/38139100-0584-4322-87cd-2c9f83f10578.pdf
Yes, super results continues. One good things is retail credit book is growing stronger at around 50% and forms 39% of loan book now
The EPS which Irani said in 18/18 looks very much feasible now http://www.moneycontrol.com/news/business/18-for-18-top-stock-ideas-for-2018-2469973.html
Surabhi: Your next pick is Edelweiss. Now already up 200 percent, so I want to understand what do you think is the biggest driving factor. Is it simply a growth play?
Irani: I think it has been very consistently positive on Edelweiss. I think CNBC was a channel where I had recommended first time at maybe around Rs 120. Rs 120 became Rs 300. A colleague in the office told me, you are being greedy by recommending this stock all over again. I said yes, bond yields at the level at which they are, inflation could become a dirty word, at least in the first half of 2018, interest rates possibly the cycle could turn. Should I actually recommend Edelweiss? And my answer was 100 percent yes.
Can the stock came down by 10-15 percent? Certainly, yes. But will it be a Rs 450 stock which is my target over the next 12 months? My answer is again yes. So I think Rs 290 becoming Rs 450 is happening, it will happen. And Edelweiss is not the small player in the capitals market segment which it was years ago. It has evolved itself. It has gone into lending business, started with wholesale lending, now into retail lending where it is meeting with a lot of traction.
Point number two, it is into asset management business, wealth management business, but the biggest trigger is the stressed asset business where the company is number one by a big distance over the number two and number three player. As far as insurance business goes, I think the losses should peak out over the next 12 months and the biggest contributor apart from the asset reconstruction, stressed assets business over the next two years according to me could come from the wealth management business, the advisory business and the asset management business. Earning could show an exponential growth over the next 2-3 years. It is difficult to quantify it. Current year should be Rs 10 EPS which should possibly become maybe Rs 20 in the next two years, I do not rule it out.
So Rs 290 looking at it, like you rightly said, Rs 100 becomes Rs 290, should I buy into it. The answer is if it becomes Rs 450, why should I possibly bother of Rs 230-250 coming again. I would put it that way. It is very difficult to time stocks like Edelweiss which is showing exponential growth. So I will stick to it and recommend it as one of the best picks of mine for 2018 also.
I don’t know what to read into this : “This year, Edelweiss will get slightly less of his attention, but he says, “We’ve a lot of leaders there. It’ll be good for Edelweiss. I’ll spend my time on reviews and customer meets.”"
The way I see is one does not ve promoter concentration risk.The levers of leadership have been led in the organisation not in the promoter or his family which has its own merits. Also, it reflects that he believes in delegation of responsibility based leadership than micro managing . I think this kind of leadership is very important when businesses need high scalability . Friends well learned on leadership types can throw more light. FICCI will keep him more occupied that before for sure but if he has picked right leaders n does not micro manage which does not look like case here ,hopefully, this should not have an issue