This interview clearly mentions. Don’t know if mr market do not want to believe or knows better than his own business.
" We have a retail credit business, SME loans and all all those are not affected. So, we have a fairly well diversified P&L and a balance sheet. Out of the Rs 11,000 crore, the book is spread over 160-odd projects and we have that in our investor presentation also. We have highlighted that this book is fairly granular because it is spread over 160 projects.
Out of that 160 projects, all along for the last 8-10 years, about 10 to 20% of your portfolio is always under watch because of some intervention, some help, some handholding is required to make sure the project execution happens and those parameters have not worsened. They have been the same for the last 10 years. One of our core capability has been to make sure we provide oversight and liquidity to get the projects completed because that is the only panacea that if the project gets completed, your risk can be fairly contained."
Yes, last quarter concall companies expects impairment to be around 700-800 crores for this FY after having an account-by-account verification.Impairment declared in Q1 was around 248crs, so we can expect another 500-550crs write-off as per management commentary.
It is futile to carry out any valuation exercise without knowing Mr market’s mind which is building a bankruptcy scenario… BTW CDPQ paid 10k cr valuation for NBFC and Kora paid 8-10k cr for advisory business. Leave aside loss making insurance business for the time being. Meanwhile by paying 7.3k cr one can get following businesses.
Largest ARC with 5% RoA
3rd Largest Wealth manager
Largest Alternate Investment Manager
among the Largest in institutional Equities
among the Largest in Investment banking
Largest debt issues arranger and manager - very high market share
Largest player in LAS (70% market share) with low NPA
among the largest in warehouse financing for agri sector in the organised sector
Among the fastest growing life insurance with one of the highest New business margins
forget real estate and retail lending business which is not liked by the market anyway.
But the rout is continuing for weeks now. Is there anything that we are missing which the market is trying to price? I am looking to add because it looks like a bargain but what if there are skeletons in the closet waiting to come out?
P.S.- I am a novice and do not have a very good understanding of NBFC business. Would be glad to get your two cents on the topic.
My take is real estate exposure is not as bad as it is perceived to be. At least once the project gets complete there is still substantial value that one can derive out of it which is not in the case of a steel/cement sector exposure in which the asset funded is also depreciating in nature. Also, in a residential project once the prices gets reduced by 5-10% then a lot of takers can be found for it. However, completion of the project remains the key aspect as these days consumers does not wants to pay both Rent & EMI.
Agree that Mr. Market seems to think Edel is facing a solvency issue; agree also that none can predict his mood swings.
However, for an existing investor in the present scenario, having a rough idea of value clarifies decision-making: sell, hold or add? For me, the only substantial negative surprise over the last few months was the pre-money valuation at which Kora invested – in the COMBINED Advisory + ARC. Even given this, the decline in price seems disproportionate.
The benefit of posting the valuation in this forum is that it can alert me as to where and how I have gone wrong, and hopefully, learn along the way.
I have asked many folks inside and outside the org. about any big negative news as such but no luck so far. Everybody who is in doubt is waiting for some negative news and living in fear. Some folks give liquidation of Edel’s pledged shares as a big reason for selloff and some others forced selling by few FIIs. I have absolutely no doubt about corp governance here. These guys are aggressive for sure but very calculated risk takers. I am mentally prepared for zero valuation for the NBFC in case it is all linked to real estate but the fee based income is substantial and could generate 1k cr PAT on its own in the coming year or so. It is trading at 0.7x FY 20 P/B.
“We expect the current dislocation will unwind gradually over the next three to four quarters led by easy liquidity”
Too long to go as per Rashesh Shah! Hence, i follow wait and watch no hurry to buy or sell! Will take further decision after Q2 result!
Current Market Cap is ~7,000 Cr. with Insurance Business with embedded value of ~1,500 Cr. net of that we are getting other business for ~5,500 Cr.
Even if we assume NBFC goes down to ZERO (highly unlikely) - Assuming Real Estate Book has a NPA of 25% and they are not able to recover ANYTHING they still would be sitting with probably a write off about 2,000 - 3,000 Cr in equity which is 0.75x book value.
Fund Management Business should give 1,000+ Cr. of profits in next 2 years.
Edelweiss would easily start making 5-6% dividend yield for investment at this juncture in next 2-3 years.
How? They reported PAT of 68+ cr in last quarter for Advisory, and insurance at -86 cr and corporate -26 cr. So, net PAT without credit business (assuming retail and ARC compensates for wholesale provisions in worst case) is ~ -36 cr. All the fund business profits are eaten by insurance and corporate. I really wish Rashesh sells his insurance instead of diluting stake in Asset business.
Please check the latest update on BSE in which they have made 166cr PAT in their advisory biz during Q1 . PAT of 1k cr in 2 yrs is a fair estimate and even Rashesh Shah has indicated the same. It does assume normal capital market environment.
@deeps2884 yes, this is what I thought too. Additionally, the book value will be 10k cr by the end of FY20 and even if all RE book goes down the drain, it won’t show up in a single year. Consolidated PAT will be enough to write down for 2-3 yrs at least. However, we need to keep in mind that their actual losses from RE book has been negligible so far.
@amey153 You did good data analysis on PEL. Could you please share similar data analysis and valuation for Edelweiss. It will be great to learn from you!
Assuming profits to be 0 for next 3 quarters. It is available ~ 12PE FY 21 taking into consideration Advisory business post MI. Any equity dilution / pledging / high NPA / share price fall (as it is financial) are risks. I really wish they report some bad numbers. With 11k developer book most of which are not completed, NNPA should go up in coming quarters.
We cannot believe any promoter during bad times. Rashesh Shah told during oct 2018 growth should come back by FY 20. Now, he says FY 21. No one is financing these developers (Edel, yes bank, IDFC First every one wants to move away from whole book to retail. Not to say about retail oriented banks. State banks are the only hope). I believe this bad loan book is here to stay for some time, the market will move on with growth stories.
Note : Took a tracking position today, will wait for Q2
They never imagined that this tight liquidity and risk aversion would continue for so long. We have one large HFC/NBFC collapsing every quarter and the trust factor is absent. There is no point in growing the book in this environment. Check Sundaram Fin interview on CNBC, they are also not interested in growing the book currently. I find it strange that CRA, analysts and investors all view moratorium on principal payments for RE borrowers in the negative light these days. Yes, cash inflow and principal repayment will be delayed but it will be ring fenced in case of a project. Another option is to fund a developer at the group level and take unlimited and unknown risks. I was watching Mr. Sobti’s interview on CNBC and he is saying the same thing that you have the freedom to structure the debt you like in case you are the sole financier for a RE project. This is exactly the situation with Edel and to a large extent PEL. Only time will tell but Edel’s actions have been prudent so far. This is the only NBFC which raised capital twice and is now marking whole RE portfolio down by 5% this year especially when 2/3rd of your project going to be completed in 18-24 months.
