Edelweiss Financial Services

Nuvama also has AIF funds. In fact Nuvam’s owner is one of the top AIF manager in the Asia.
Before demerger Edel has two AIF- through Nuvam and their own AIF.

I think AIF is remunerative for a funds as it offers good returns much better than lending and requires less capital (in some funds Edel has placed 5% of the capital).

Based on their last week’s release, they want to separate AIF funds (sooner or later) so it is good move by MF subsidiary to go for their own AIF.

Additionally AIF market is nacent and huge run way, but needs time to get a real rewards (e.g carry income).

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Crisil has given some more clarification wrt Piramal Enterprise, but it is bit generic and is relevant for Edelweiss.

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6063386a-619a-4e17-84ef-4877fb4aef4f.pdf (159.0 KB)
It feels like govt is trying to get something from them

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some clarity related to AIF regulation in rating updates by Careedge

disclaimer- not a buy or sell recommendation

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Unlike Mutual Funds, AIFs lack transparancy. Each MF declares its portfolio every month. The daily NAV and performance is clearly published. SEBI needs to come up with some disclosure norms for AIFs. They should be required to publish their portfolio at least quarterly. If this is not done more and more poor-quality papers/stocks will be pushed into these funds and the extent of the problem will be known only after some investors lose big money. Only transparancy can ensure quality

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Edelweiss has fully existed AIF exposure at par value with no impact on profitability/provision as per latest filing.

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Rookie investor here. What I don’t understand is in the quarter of September company had PAT for insurance business. But there are multiple places in the earnings call(September) and ppt where we discuss insurance business to break even by 2027. What am I missing. Isn’t it already profitable ?

Nuvama has displayed excellent numbers in Q3. Wealth Management cos have all displayed good growth and profitability. This sector is clearly a sunrise sector with a long runway!

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Why is Anandrathi enjoying premium valuation to Nuvama?? is it just because they do not have debts unlike Nuvama which has capital market business also???

I think that’s it. It is the capital markets business - effectively Investment Banking which is more cyclical, hence should have a lower multiple.
However there is some value to a joint offering if you can offer a promoter wealth management services for their personal wealth and capital market services for their business - so the flywheel is stronger.

And to add, I don’t think you can pencil any multiple expansion here but earnings growth will be durable and strong. In a couple of years they should probably institute a significant dividend as well (as a % of PAT)
You don’t need a lot of capex and operating leverage will be very good. This is effectively a 100%

Capital Allocation is one to look out for, you don’t want them going further down on the income/wealth range and you don’t want a lot of acquisitive growth.

I expect similar situation with the Alts business for Edelweiss - probably worth the whole market cap here.

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They probably do make an economic profit but the way the insurance business works GAAP profits are away.

In layman terms - you acquire a customer at t0 for 100 and over T1 to t5 you’ll make 120 NPV from them. However you must charge the entire CAC today to the P&L. so it shows up as a loss today.

My concern is that these businesses are subscale and the market is large though fairly competitive.

Probably best to sell them as they’re on the verge of making money since these are fairly capex hungry and will be for a while.

Even asset reconstruction business is also scalable. currently alts and reconstruction both looks good, while agency books are in de-risking mode

Disagree on ARC.

Look at ROEs on that one. It is mediocre at best.
This used to be a very good business 5-7yrs ago. Now there’s restrictions on ownership structures and leverage - that makes this a lot less attractive.