Amit Jeswani on Edelweiss
PwC has resigned. They have already appointed S R Batliboi (Indian member firm of E&Y) as their auditor.
Clearly some slowdown in capital market activity hurting their broking and IB revenues. Higher than expected losses in insurance is a non-event while they decided to invest in expanding capacities in retail and asset management. Let’s see what do they have to say in the concall tomorrow.
@sumi00, in the Q1 result, can you anyone explain what the item 10 “Other comprehensive after tax” negative 31.84 Crores? This really got the net profit down.
yes, I agree with @sumi00.
Rest all part of the businesses ( Ex- Insurance) , especially on lending side, ARC etc are firing all cylinders.
I was listening to Rashish Shah interview. He mentioned figure saying “ex-insurance”. I see the same in a comment above also.
Why are we seeing numbers ex-insurance? Aren’t losses from the insurance business real losses? Or is the case that they will get off-set against the future profits of the insurance business.
They are notional losses. Not real losses. That is how the insurance business works. It should breakeven by 2021. It will mimick a J curve…
Notional losses also need to be provided for, right?
Lots of insights here. Something to learn about diversified businesses and India Opportunity
The various components of our business move in a slightly different tandem but in that context, having a diversified business approach allows us to maintain overall consistency and stability while individual businesses can have their different paces of growth.
Read more at:
A diversified business
I think Bajaj Finance is the top retail creditor today. Since the opportunity size is huge, edelweiss may also get a pie.
Not an accounting expert but other comprehensive income is mostly non-operating and a way of adjusting changes in valuation etc. Edel has given this explanation of OI in their earning release. This will keep fluctuating qoq depending on the market condition and nothing much to worry unless it becomes too big a part of PAT.
“Other Comprehensive Income primarily includes impact of fair valuation of quoted non-current
investments not held for trade (other than subsidiaries, joint ventures and associates), effect of foreign
currency translation on consolidation and re-measurement gains/losses on actuarial valuation of post
employment defined benefits”
The company gave breakup of different businesses in extra slides. Every biz line is doing extremely well except capital markets which is inline with what IIFL and ICICI Sec have reported. This is getting unnecessary stick for market conditions.
Anyone who attended earning call, kindly summarise the key points.
Thanks in advance.
More comprehensive presentation. I am happy as it corrects though. 3-5 year down the line, it makes a huge difference. [Investor ppt]
Does anyone have insight into why there is drop to consolidated RoE and RoA on YtY comparison. Q1FY19 RoE is dropped to 15.2 v/s 17.0 in Q1FY18 ?
Highlights of Q1 FY19 results
- Consolidated Profit grew by 31 % to 264 Cr YOY and Ex-Insurance PAT grew by 37 % to 311Cr which is both in life insurance and general insurance business
- Credit business grew very strong in the quarter in both retail and wholesale . In retail company is still in investing phase and opening more branches, more sales people.
- In wealth management business company was able to add capacity. In wealth management company have four income streams :- broking , Credit ,Advisory and Distribution fees. Broking was little slow but then also wealth management business grew by 37 % on yoy basis on topline and profit grew by 67%
- Capital market was slow especially from the investment banking side and slightly slower institutional investment business . so Capital market has a (-25 %) yoy growth.
- Franchisee business grew by 27 % , company had 87 Cr PAT for Q1 FY19.
- Asset fund advisory grew by 46 % to 96,300 Cr , Asset Under Management stood at 32,500 Cr which is a growth of above 65 %.
- In retail credit business asset grown by 80 % to 18,465 Cr, ROE in Retail Credit business stood at 14.3 %. It was slightly lower because company is continuing investing the SME business . Company opened many branches and hired many sales people for the SME credit business and now company is also starting to work on the agri-credit panel on the retail part.
- In Corporate lending company had a good quarter with growth of 39 % on book side and 88 % growth in the profit. NIMS stood at 9.4 % . Cost to income stood at 35 % that is steady. ROE is steady at 19.4 %. Book overall has grown by 27 % on yoy basis. Distress book will also go by 20-25 % in next 2-3 year. NIM stands at 9.9 % and Cost to income stand at 27 % with ROE of 45 %. SO overall profit growth of 70 % so there was strong growth in the credit business. ROE all together stood at 19.2 %.
- In Insurance business company was the fastest growing insurance company in the quarter and recorded 94 % growth in the life insurance business in individual API . Persistency also improved and stood at 79 %. Company has also started a general insurance business. Company expect the life insurance business to break even by 2021-2022 and general insurance business break by 2023-24.
- Credit cost is now close to 1 % which was 1.8 % last year. After moving to IND-AS company Q1 credit cost is 100 basis points. Network has grown up by 87 Cr and profit was up by 4 Cr
- On the PBT level company insurance business has vanish to 21 % yoy basis and consolidated minority PAT has grew by 31 % on yoy basis. Ex-Insurance PBT was 27% and the Ex-Insurance PAT post minority is 37 % .
- Credit cost Expected credit given loss will stood to 20-25 %
- Company expect its treasury to make 1 % ROA close to make revenue of 1000 Cr every year and make 60-80 Cr profit on that ideally company is at 20 % profit per quarter. There was a 20-25 Cr partly impact on that portfolio which affected the cost to income ratio.
- Because of volatility the Cost to Income ratio may go up by 100-200 basis points but that is not a matter to worry.
- Company will continue to invest in the business , increase in relationship manager , increase in credit managers which will be followed by the number of branches.
- Total revenue grew by 19 % to Rs 2481 Cr yoy
- PAT grew by 31 % to 264 Cr yoy and 203 Cr as per IND-AS.
- ROE stands at 19.8 %
- EX-Insurance PAT grew by 37 % to 311 Cr from 286 Cr last year same quarter
- Balance sheet grew by 43926 Cr to 61785 Cr as of Q1 FY19.
- In Credit business
o PAT grew by 94 % to 243 Cr yoy
o Retail book particularly accounts for 41 % of the total loan book compare to 39 % QOQ.
- In Franchisee and advisory
o Business grew by 25 % yoy at 81 Cr this business include fee based business like wealth management asset management and capital market.
o Ex-insurance cost at the quarter stood at 49 %. , credit cost remain well under control across NPA at 1.75 % and Net NPA of 0.74 % at end of quarter. Corporate book remain well cover at 2X LTV on the retail book stands at 45 %
- Consolidated ROA stood at 1.98% and EX-Insurance ROA at 2.5 %.
- Consolidated ROE stood at 15.2 % and EX-Insurance ROE at 19.2 %
- Fund Income grew by 23 % to 1759 Cr
- Fee and commission were flat at 525 Cr
- Life Insurance continue to grew by 85 % to 118 Cr premium.
- On borrowing side the cost increase to 38036 Cr from 30609 Cr
- Total finance cost grew by 21 % and average cost of Debt improve to 9.1 % in the quarter
- NIMS continue to be stable at 7.8 %
- Headcount stands at 10846 compare to 7341 a year ago shows employee growth of 20 %.
- Operating expense grew by 22 % to 362 Cr from 342 Cr yoy
- Capital adequacy ratio stood at 15.63 %
- Successfully raised 2000 Cr in NBFC business by the public issue of retail Bond.
- Debt to equity remain stable excluding treasury remains stable at 4.9 %
- It has not materially impacted the company financials
- IND-AS Networth and PAT stand at 8223 Cr and 8264 Cr respectively
- Increase in the Provision of 762 Cr under IND-AS due to provision scheme at stage-1 and stage-2.
- Out of total credit losses expected of 762 Cr , 373 Cr related to stage-1 and stage-2 which is as per standard asset that company was carrying with the conventional Indian Gap. Further company is carrying an ETF provision of Rs 389 Cr which is same provision that company had carried on the ECL in stage-3 . Company continue to hold 55-60 % provision cover on a conservative basis.
- Total credit business stands at 45206 Cr up 15 % yoy , Retail credit book comprising of home loan , SME , LAP and Agri-finance continue to grow rapidly. Retail credit book grow by 18465 Cr up 80 % on yoy basis.
- Asset quality has been in control with GNPA of 1.75 % and NNPA of 0.74 % under the ECL model company will carry a total provision of 762 Cr .
- Capital deployed in the distress credit business stands at Rs 6545 Cr with a AUM of 43636 Cr and cost to income ratio remains stable around 36 %.
- Franchisee and Advisory Business
o Wealth asset under advisory grew by 46 % to 96300 Cr yoy.
o Over the year company has increase the proportion of Advisory AUM also the net new money added during the quarter amounting to 3527 Cr
o Asset management business grew by 69 % 32500 Cr on yoy basis
o Capital market business remain pioneer and the business leader. Total asset value manage by company worth 1.78 lakh Cr.
o Insurance business net premium at the end of the quarter went up by 85 % to stand at 118 Cr. Edelweiss Tokyo Life Insurance has a Net worth of 1059 Cr as on June 2018. The Embedded value in the life insurance business stands at 1593 Cr.
- What is company view on IND-AS provisioning under CCL ?Did the process of resolution of company under NCLT has slow down much and company outlook on real-estate sector ?
o Company will be more conservative on provisioning rather than being aggressive with extra provisioning reserves and banks are also doing counter cyclical provisioning which is over and above the marginal provisioning that require.
o In NCLT yes it is taking a bit longer time because it is still tested out and company had heard about new IBC amendment coming out. So there is a delay of about 3-4 months but because of this the actual realization are going higher by 10- 20 %. It will get recover in 3-4 months.
o In real estate sector the sales are soaking off and the launches has come down. Stress in the segment due to GST and Demonetization has started to go away. Liquidity is still tight and remain to be tight for the next 2-3 quarters because customers who were paying 30 % upfront are now paying only 10 % for booking the flat. Now builder has to follow up Customers to get the installments. Prices are also getting reach up by 3-4 %. So prices are stronger , sales are stronger but liquidity remain weaker for next 4-6 quarters.
- 13 % capital contribution only from Tier-1 which is lower in term of NBFC trend so does company is comfortable with this number or how soon company will hit a market again from capital raise ?
o Regulatory capital that require is about 15 % while company is still to close to about 17 % and company have other kind of instrument that help company to show up tier-1 capital and company is open for capital issue in sometime later. Credit book has grown much faster from the average loan book growth. So there is lot of growth available in the system with other NBFC also mainly because of the credit crunch in the system while the economy is coming back. Company is comfortable at current Tier-1 capital till march.
o Company have a option to raise money in credit subsidiary itself instead of raising money in holding company and company get some private equity interest there.
- In Median ticket size for SME has doubled from 1 Cr to 2 Cr so is it a different segment company is trading ? At what rate wholesale credit book will grow ?
o Smaller amount have a much higher credit risk and credit loss so when company was doing 30-40 lakh secured loans than the risk-reward parity was not suitable so what company find is that larger ticket size secured SME which is another form of LAP makes lot of sense. So company seems business loans from larger customer.where there is huge demand from PSU bank customers so the larger one have the security so it is safer compare to small one where 5-20 lakh rupee unsecured range where risk return is also very good because company get a high interest rate so company do it for the larger customer who have a property and larger track record in property.
o Company take both commercial as well as residential property usually it is self occupied for commercials or for residential. LTV can be in range of 60-75 % depending on the credit score of that company. Company treat it as a business loan with property as a secondary product. If it only LAP then the yields might be 11-12 %.
o Wholesale credit book will grow at 10-15 % per annum.
- Which the model going forward for distress asset management ?
o On average when company buy a 100 rs Loan company buy it at 40 Rs and till now large part of book was under 80-85. So when company buy at 40 rs company put 6 Rs as own money in that and other 34 Rs is the bank capital and securities received . So now company have AUM of 40 rs and capital invested of 6 rs. On that 40 company get fee and some interest also . On total 6 Rs that company invest there company end up by getting 1-1.10 rs as annual return which is about 16-17 % current normal yield on the money that company have invested. So this is company standard base line model. Then if company recover more only 30 rs out of 40 rs and make a loss of 10 rs than company yield fall down from 16-17 % to 11 %. If 40 rs come down to 20 rs than the yield come down to zero. On the upside if company buy at 40 rs and settle at 50 rs then company will get an incremental IRR of about 3-4 % and if company settle at 60 rs then company will get another 3-4 % of IRR. So if company buy at 40 and settle at 40 than company get 16-17 % , if settle at 50 than 20-21 % , if settle at 60 than get 25 % IRR.
- Kindly give some guidance on life and general insurance business and what kind of accounting losses company is making over the next two-three years ? Give brief on different kind of assets under advisory ? Does company is comfortable with 1 % ROA ?
o Company share of loss in life insurance was 35 Cr and expect this year could be 150-180 Cr range. On General Insurance company expect to loose 40-50 Cr in current year so both together company expect 200-225 Cr loss for this year on an overall basis and it should be 10-12 % average of PBT than it will be stable for 3-4 years.
o On wealth management company assets are across Mutual Funds , equity shares because about 40 % of company topline is coming from brokerage revenue . So on total 1000 Cr of AUM that company have the general break up between distribution and general advisory about 10 % would be AIF or alternative assets which is about 10,000 Cr another 30-40 % will be in equity assets balance would be mutual fund , structure products should be around 5-7 thousand Cr. Company also sell lot of credit products to customer so there is less dependency on equity.
o Company have 68000 of yield which will use to manage treasury , ALF , manage interest rate risk. Company had made 1 % ROA on that from last 10 years.
PwC was appointed as the auditor last yr for a period of 5yrs. However, they resigned within a year.
Does anybody know why they resigned before the completion of their term??
PWC has been charged in the Satyam case. Not allowed to audit for 2 years for anyone.