What I meant was … Look at the capital they have raised … KORA, SANAKA, CDPQ then PAG. I mean sold stakes in almost all subsidiaries including losing control / ownership of Wealth. Also sold assets of Finance arm and securitization. I mean only sell , sell and sell with no growth and no real disbursement.
Again raising money at 9%… WHAT? WHY ?
and most concerning is Rashesh Shah after every stake sale says that now we don;t need capital (both growth / surviving) for next few years … Also they have cash on BS.
Edelweiss seems to be raising 1000crs worth of NCDs again (2nd raise). Presumably the 100 Cr issuance in December-January was just to test the market. Given that they already have ~9k Cr cash on their BS, wonder what could be the rationale? Additionally, does borrowing at 9.8% make sense when interest rates are on a declining trend coupled with high credit default costs, thereby squeezing their already depressed NIMs? They seem to be doing very well in their WM and AM business with exponential GRs. They also have very good talent in this regard, can they not use this to establish their dominance in certain niche areas like alternatives, international funds, ETFs etc (a la Blackrock, Blackstone)?
Am I not able see Mr. Shah’s strategy for Edel which any of you guys do?
Mr Shah has said earlier that they are preparing for growth from Q1-FY22 onwards. May be he is seeing early sign of the growth and preparing for it.
Additionally, he also said that Edel (Holding company) has borrowed money in anticipation of receiving money from selling WM business. There could be delay and he may be preparing for it.
Other than that Edel is announcing Q3 result on next Saturday 13. As the day of result is market closed day, is Edel delivering challenging result?
I am personally not too bothered about the results as long as I see a concerted strategy towards a goal. They burnt their hands lending to wholesale and now seem to turn their attention to retail. Now given their large presence in urban areas, I don’t think they can compete with banks given the low cost of funds and the data which banks have. They can’t keep diluting their prized assets to fund the lending business. Looking forward to the Concall this coming week.
Again a loss !!..this is a frustrating wait on this stock …dont know when it will see the bright light of the day …despite mgmt quality , this continues to lag on performance !!
They have recoveries in real estate higher than provisions and 56cr is net negative credit costs. This is in line with their guidance that they would see recoveries going forward. Asset quality issue is truly behind. Now the focus should be reduction in cost of liability. They can not grow their assets unless they reduce cost of funds drastically. They also stepped up buyback of their costly NCDs and I think this should be priority going forward. In short they are facing liability cost issue now rather than asset quality issue. They have launched bond ETFs which give them very meagre revenue but it a marketing cost for them to reach larger investor pool. Results are work in progress
more than issue with their NBFC now … i am just not able to understand the profitability of other divisions - why are wealth management and amc business yielding such low profits?
Can somebody here explain?
I am also concerned with the same. What is the point of being diversified if your different business behave in a similar manner. As far as I understand, they had built scale in many businesses anticipating growth.
WM - Loan against shares was a big business almost 7-8k cr loans which had to be wound down as this was being shifted from NBFC to WM. They are demerging the same. They are raising funds in WM and have restarted the loan book in the new vertical. Should bounce back eventually. They had a big business of distributing corp. bonds to wealthy/institutional folks which got hit very badly over the last 2 years. It should also regain importance as economy recovers.
MF - It was never highly profitable. They have raised lot of debt funds to acquire customers. Only silverline is that they have got traction in equities now. They are also raising equity funds which should be more profiatble.
Alternatives - On track. Again most of these are low yielding debt funds so comparison with equity funds is not apt.
Lower profitability is also because they have very very high capital adequacy which needs to be leveraged.
Sumit - some of the things u have said makes sense.
But i think going forward we should start bench marking individual business to other listed business and see the performance. We have reasonably good listed companies to compare with.
Even the management needs to be questioned in the investor calls.
I feel unless performance is not shown. Its not worth investing.
Holding up to 2000 cr at holding company level. It costs us 200-250 cr per year. Once money received from PAG, we will reduce this.
Group level DE ratio of 3.0
Kora/Sanaka, investment, is in the form of CCPS (Compulsory Convertable Preference Shares), costing us around 200 cr per year as interest. Once they start getting converted, this shall help the company.
Asset Quality- Fairly well provide, and we are conservative in accounting for yield.
No desire to grow Balance sheet.
All business except Credit and ARC are growing.
8000 cr book and 3000 cr equity.
NBFC is about provisioning and write offs.
Mutual Funds- Assets 50% mutual fund and 50% ETF.
Total Book:15 k: 8000 cr is wholesale (51). Remaining (49) is retail. 1500cr
Securitisation. 5% of the full book-(750 cr) unsecured. Rest of credit is secured.
Wealth Management Progress. Few more regulatory approval is awaiting and progressing on expected line.
Reduced cost by 27% as compared to FY 20 basis.- Branch reduction/WFH.
Getting ready for growth.
FY21 is reset year. FY 22 onwards towards a profitable year and unlocking value for shareholder shall start.
4-5 years of growth cycle has started. May is similar of 2003-04. After lull and asset price correction, we started to profit. Think that the growth will be investment-related, not retail growth. Asset management will benefit from that.
Both asset management business started getting profitable now.
Wealth Management became profitable 3-4 years back.
Retail:
Retail credit profit shall start kick in from this year once we start increasing retail book
Although we reduce disbursement in retail, we kept the team around. Once we start disbursement, this shall also aid profitability.
Retail- Collection efficiency 95%. Not much use of covid provision.
Retail Credit growth- Disbursed 215 cr last quarter. Peak disbursement- 700 cr. It went down to 50 cr and recovering back.
ARC
Current focus on recoveries. 2014-2018 acquired lot of assets.
A couple of quarters down the line, we will start acquiring assets.
The idea was to prove that we can make recoveries.
Last quarters recovers of 2000 cr.
We have recovered around 22,000 cr in last 2 years.
Insurance- 3 business
Brokering–
Started 12/13 years back.
Two years back rather Gallagher valued and invested 250 cr and put in 30%.
100 FDI can be held that foreign partner.
2 years business has double has profitability since their investment.
Life Insurance is a growth area.
The more money you pump in, you can get more growth.
The only constraint (both insurance sectors) is your ability to invest. If we get partner willing to invest, we are happy to consider.
Life Insurance - Profitability is a function of growth. More growth more loss in early phases.
Insurance requires 9/10 years of investing before they become profitable.
Life Insurance will 10 years in 2023/24. Expect to become profitable around that time -
General Insurance-
3 years old.
Not in a hurry to become profitable.
Investing around 100 cr per year and will continue to do that. -
Life insurance business shall become profitable 2023/24 onwards. - Both insurance businesses are in investment phases for the next 4/5 years. - Each will need around 100 cr per year going forward until they become profitable.
Wholesale Credit:
Wholesale book profitability is at least 1 to 1.5 year away. But we have marked down/impairment done the book considerably.
As the market starts getting better, we shall get some flow back on the provisions we have made.
Stage 3 assets are around 10% (assets of 8000 cr). Retail stage 3 assets are 3%.
Due to separating of Wealth business, we are restructuring our business.
We expect around 15 cr per quarters for the next two quarters as restructure cost.
Most of the real estate projects were not suffering because of a lack of collateral or not viable. They were suffering because of last-mile funding.
The situation has improved greatly in the last 6 months.
We are not providing last-mile funding to the projects in which we have already invested. We are expecting to the builder to get external funding.
Stage 3 is more important.
Lot of time, even if we provided for stage 3, recoverability is high. It becomes impaired or stressed asset.
Lot of ARC- recoverability is higher than what bank has in their books.
Housing Finance
Home loans- Why loss? - > This was first quarters after ending supreme cost- Hence we have provided for.
We were expecting a spike in that area and provided conservatively.
55% Home Loan and 45% LAP portfolio.
-As per NHS we need to be at least 51 Home loan at least
In future, there can be two types of NBFC: 1- Bank like- proving low rates, competitive 2- Bank partner
HFC has 800 cr equity, and Retail has 500 cr of equity.
If we can work with and grow business with bank then we do not need to raise equity.
It can be 15-16% ROE and 18-20 % Growth business, and we do not need to raise equity for growth.
We have 3000 cr of equity in Wholesale already.
As we reduce wholesale, part of equity will be released and will be provided to other business to grow.
BMU
We have now wholly restructured the group. Part of the cost - restricting is at the group level. As this gets completed, BMU shall become profitable. -
BMU- 2000 to 2500 cr of excess liquidity at holding company.
Expect in next two quarters shall at least become break even.
BMU also contain restructuring cost. - Profitability - ECL Finance- Steady-state profitability in next four quarters. BMU after 2 quarters
Alternatives-
When you deploy money, your profitability improves. However, when you exit profitability improves even further (carry income).
Deployed only 50% of the assets.
Expect a yield of 20-25 points for Mutual funds and Asset management in next 4-6 quarters.
We shall see an uptick in profitability from next years onwards as we saw in Wealth Management.
Assets management has started getting into profits.
Focus is on deployment. Dry powder of 15,000 ready to deployment. The focus will be on disbursement.
30 cr Asset in AIF/ARC(?). Out of that, only half is deployed.
A lot of dry powder.
Liquidity Improvement:
This is the first time in the last 2 years we are saying no to bank credit. Earlier, we used to take whatever banks give at whatever cost.
We are able to borrow—borrowed retail NCD (100cr). The objective was to test the market.
Bond Buying- buying back bonds due to mature in the next few quarters (around 2000 cr). We are already holding liquids for bonds if they are due in next 4/5 quarters.We are buying these kinds of bonds. - We have enough liquids in hand for whatever repayment we have to make in next 4 Q.
Co-Lending with banks (Home loans and SME):
This is not a fully fin-tech. If your loan book is less than 5-10 lakhs, then fin-tech work fine. However, more than 5- 10 lakh you need physical presence as well.
Serving can be digital- Recoveries requires physical presence.
Profitability:
Two year of work Corporate Book and BMU:
Corporate Book (CB ECLF) shall start profitable from 2023 onwards.
Wealth Management has been scaling profitability.
ARC still in investment mode, but managing the profitability business.
ARC 1.5 has around the levered sheet. We are talking about 350-400 cr profit before tax in the next few years.
Asset management business profitability started to kick in now.
Divest Stake or Retain Control
As we advance, we will do what is right for business. If parter can grow faster if the client invest. If the business can do better and grow faster, we are happy to do that.
We prefer value creation and then value unlocking rather than control.
If any business can grow faster and better and create value for our stakeholder. We are more than happy to consider giving up control of the business.
I was trying to find out when this cost will be reduced. Found this snippet from Q2-Fy20 (Nov 2019) call. Looks like it part of the cost can be reduced in Q4, but not sure CDPQ conversion may take a bit longer. Can someone point how much is the amount they are paying interest on?
Detailed interview from Rashesh Shah from a couple of months back. Answers a lot of questions on asset quality, NCD issue, PAG deal, balance sheet strengthening and growth strategy. He sounds bullish on multi-pronged growth over the next few years
