Edelweiss Financial Services

(saumya) #102

Just wanted to point out that vakrangee was top holding for Edelweiss.
Though they exited the fund just before this fiasco.
Check D.Muthukrishnan tweets and CEO radhika gupta reply for details


good to see the ARC division mastering the art of asset resolution.

(Sunday) #104

If we are to compare the financial performance of Companies which have multiple verticals, which ratios/values does one need to take into account for the different verticals under the Consolidated parent business.

Any pointers would be quite helpful. I need to compare Edelwiess, JM financials and Aditya Birla Capital.

(MD RH) #105

To consider of Edelwiss valuation , Why EX Insurance ROE (22%) need to be consider ? Why not actual ROE (17%)? When the Book Value will Increase , it will increase as per actual ROE right? After QIP ,it’s BV is 70 , so company is quoting at 4 P/B already for 17% ROE Business.It seems upside limited. Correct me if I am wrong.

(us121) #106

Insurance business is a long gestation period business. it takes 8 to 10 years to turn around. Therefore, if one wants to compare company performance with past years than best is to do ex-insurance to understand the trend of performance.
Technically, yes all business should be considered for RoE, but in practice one aligns the parameter based on what s/he wants to see and derive. Different perspectives serves different purpose. And hence this approach.

(Amit Mehta) #107

Brilliant presentation by Rashesh Shah on Edelweiss growth story

(yudiagg) #108

Thanks for sharing. It was a great learning. I will hold on to Edelweiss
for as long as possible irrespective of market volatility.

(MK) #109

One thing that I m concerned about low Promotors stack. Can any senior please clarify.
Disclosure :Invested

(Amit Mehta) #110

What I particularly like about them is that sow several seeds, way in advance, and few of them take care of next phase of growth.

(Gary) #112

That’s quite true for Edelweiss. They have a highly entrepreneurial culture and each of the businesses are run by CEOs with fair degree of operational freedom. Of course RS calls the shot eventually.

(Alok Bhola) #113


ET analyses scalability of ARC business. The news also mentions JM Financial’s ARC Business.

Am unable to find the ASSOCHAM-CRISIL Study “ARCs headed for a structural shift” (Wrongly mentioned as “ARC of Change” in the news report). That will be a good report to study further the scope of ARCs.

(1.5cr) #115

It is not possible to study a finance company without finding out the exact loan book. And then studying the people/cos to whom loans/financing have/has been advanced. Then Studying their capability to pay back. This is an almost impossible task. So when betting on a financial services company/bank the bet is always on the banker. Rashesh shah is a solid guy and the bet is on him as well as the edelweiss brand and Indian economy. But mostly on Rashesh shah.

(Gary) #116

I remember analyzing edelweiss in some detail almost 3 years back when they were getting off on ARC business and the question on my mind was why others are not doing…this seems like a good business to be in.

So, essentially RS has had not just the foresight but right managerial skills ( directly and through his second rung) to build these businesses bottom up.

(1.5cr) #117

I would like him to scale the amc and wealth management division aggressively. As I see huge opportunity in the financialisation of savings theme.


Edelweiss has alloted close to 62.7lac shares as ESOP during FY18 so far. Value of the same at current price is close to 160cr (~0.7%). Don’t know what is the benchmark of alloting ESOPs like this. I am certainly not happy as a shareholder since this is not a tech company where we need to retain mission critical employees. Not averse to giving it to key leadership teams. Quite a few verticals witin Edel’s offerings are generic in nature. I am just worried if it becomes compensation tool in place of retention tool avoiding true reflection of employee costs.

Disc: Invested

(phreak) #119

Is the actual cost only 160 Cr? 160 Cr is today’s value of the stock. By the time it is exercised, it might even be 3x or 5x that. 160 Cr is about one-third of the total employee cost as well. So in addition to making EBITDA and PAT look better, it also skews the valuation. I remember reading a complete chapter on the real cost of ESOPs in Munger’s Poor Charlie’s Alamanack. It is fascinating how these small accounting trickery can make the P/L look rosy and make the EPS go up little by little while the real cost is hidden from plain sight.

(ranjan rakshit) #120

How EPS will go up by providing ESOPs?Is not the number of existing shares also got increased which eventually decrease eps?

(phreak) #121

1,09,29,038 is the total number of ESOPs allotted during FY18. This is a staggering number (not so staggering if you see previous years) and is more than the 160 Cr by value pointed to by another boarder. I got this number by adding the numbers from BSE filing. If we take average price of stock as Rs.250 in fY18, this adds up to a staggering 273 Cr.

Number of shares is increased due to the dilution but the EPS increases because of the increase in EBITDA/PAT due to decrease in employee expenses. The increase in contribution of this to the PAT offsets the % of dilution. For eg. in Edelweiss, EBITDA will reduce by about 270 Cr if we expense ESOPs at current stock price. Since PAT is about 1/6th of EBITDA for EDEL, PAT will reduce by about 45 Cr roughly. which means TTM PAT will be 767 Cr instead of 812 Cr. Now number share of shares as of FY17 was 83.26 Cr. 767/83.26 = Rs.9.21 is EPS without ESOPs. Current TTM EPS with dilution is 812/(83.26 + 1.09) = Rs.9.64 is EPS with ESOP. You can see how EPS is higher with ESOP dilution magic by about 5%.

I have expensed the ESOPs based on current stock price but if you expense it higher, the difference will be even more! Expensing it at 2x for eg., will make the EPS 8.67 which is 11% higher! This is not even an unrealistic case since stock price has doubled from FY16 to FY17 and again between FY17 and FY18. The detrimental effects of this creative accounting will get even more deleterious when you use a P/E of 30 on the 90 Cr PAT difference, essentially making the stock 10% more valuable by just moving some numbers around.

(Gary) #122

You clearly haven’t understood how Edelweiss operates.

First, the organization is focused on joint ownership and there is no rulebook that says only tech companies can give ESOP. It is one of the core tenets for RS. Each Edelweiss business unit is effectively a company in its own stead run by a CEO or equivalent…

Second, I hope you realize that it’s ESOP not RSU and employees make money only if stock price at time of exercising the option is higher than at time of allotment.

Third, this is something you should have seen before investing. As you said, it’s not a new phenomenon.

Finally, remember that financial services is highly competitive industry. And talent is EVERYTHING!!!