Edelweiss Financial Services

A decent set of numbers for Q4 FY22. As expected recoveries are continuing in credit vertical and it is expected that the recovery momentum to continue, considering the undergoing recovery in Real estate sector. This vertical was the most feared which was questioning the solvency of Edelweiss group itself some 3 years back post the liquidity crisis (ILFS & Pandemic). So the fear in Commercial lending book is ending. Good to see NNPA under 2%. They have become so risk conscious that they have stopped growing Retail lending book too, which is why market is not valuing the company properly . Management is very optimistic about co-lending and partnered with PSU & Fintech. The returns from this business model is not known and the question is when they are going to grow this book. The most heartening to see is the operating leverage getting unlocked in AA vertical and equity book share increase in MF, even though their significant share is in passive debt. I’m very much interested in Asset management and there is very significant value going to be made in the next 3/ 4 years.

Disclosure: Significant PF holding (@Rs.81).

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The only concern which I have is what would be the conditional of EFSL stock post the listing of Edelweiss Securities (Wealth). I’m highly hopeful of a good valuation for Wealth (considering the valuation of IIFL Wealth) post the listing. Will EFSL be hammered since there is no growth visibility in Retail book, loss making insurance vertical (break even by 2025), under scale in MF business , less returns from Asset Reconstruction (with no big ticket NPA resolution pending)?

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I believe all are discounted in current price levels. Management has taken hit for insurance business for last few years and hopefully that may be a game changer in next 2 years. Reduction of NPA should definitely give comfort to long term investors and I will be looking for adding additional quantities in coming week .

P.S- Invested at 58 levels and will add only below these levels

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Net profit down, EPS down. As usual, Rashesh and the promise of future which never becomes a reality(or at least till now). I’ll wait what others here have to say abt the ER & what Mr.Market says tomorrow.

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In financial services businesses, profitability comes down to scale.
Unfortunately, except ARC - none of the other businesses are of any meaningful size and it reflects in the profitability.

That combined with continuous over promises and under delivery make Edelweiss a difficult stock to own

That said I do own it and have for a while - in hopes that ultimately you get the SOTP value as entities get listed separately. Although as we’ve seen with wealth management, the management is retaining proceeds (to potentially misallocate capital) rather than do spinoff

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Good info about Wealth Management. Likely to see more info about Wealth management in next few months as it approaches to listing time.

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Wonderful interview ,this also helps in understanding the reason why mohnish pabrai who is one the best value investor in the world has invested in edelweiss, This falls directly in his circle of competence he gets his bread and butter by investing money of H.N.I all across the world.

I hope sooner or later ,i as a investor hear him bragging about his edelweiss investment thesis in one of his youtube videos like he does for Rain and Suntech.

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Rating Update : Rating reaffirmed; outlook revised to Stable

https://www.icra.in/Rationale/ShowRationaleReport/?Id=112654