Edelweiss Financial Services Limited · NSE:EDELWEISS
Edelweiss Financial Services — Q1 FY2020 Earnings Presentation
63 slides from Edelweiss Financial Services's earnings presentation, Mar 1, 2020
Slide 1: Edelweiss Financial Services Limited Q1FY20 Earnings Update
US $ version Edelweiss Financial Services Limited Q1FY20 Earnings Update
Slide 2: Contents
Contents 1 Quarterly Performance Highlights 2 Business Performance Highlights 3 Liquidity Management 4 Balance Sheet Highlights 5 ESG at Edelweiss 6 Strategic Investment in Our Advisory Business 2
Slide 3: Quarterly Performance Highlights – Q1FY20
Quarterly Performance Highlights – Q1FY20
Slide 4: Macro Environment Continues to be Challenging
Macro Environment Continues to be Challenging • After a relatively benign start to the quarter, June saw two significant credit events that resulted in further freeze in liquidity • Liquidity conditions have now remained tight for an unprecedented period of time • Consumer demand slowdown is now an
Slide 5: Edelweiss Structure Update
Edelweiss Structure Update • We had embarked on the journey of creating three separate business verticals : Credit, Advisory and Insurance in 2017 • Over time we want our verticals to: • Be self-sustaining with a ring-fenced capital base • Have strategic partners directly aligned with the business g
Slide 6: Financial Snapshot – Q1FY20
Financial Snapshot – Q1FY20 $ Mn EOP Equity Profit after Tax RoA RoE Total Pre Minority 1,277 20 Credit including BMU 1,056 26 1.4% 10.1% Advisory 24 10 Insurance 147 (12) Corporate 50 (4) Minority Interest (MI) 153 0.4 Total Consolidated Post MI 1,124 19 1.0% 6.8% Total Ex-Insurance Post MI 1,042 2
Slide 7: Q1FY20 Overview
Q1FY20 Overview 1 Credit Business had a muted quarter due to higher liquidity management and higher credit costs 2 Momentum in Distressed Credit recoveries was good 3 Customer Assets grew 14% YoY in Advisory business despite low client activity and volumes 4 Successfully executed 2 deals in Alternat
Slide 8: Q1FY20 Overview
Q1FY20 Overview 6 BMU losses which includes cost of liquidity management stood at $ 6 Mn 7 Ex-Insurance RoA at 1.7% and RoE at 10.2% 8 Debt to Equity (Ex-Treasury) progressively reduced to 3.7x 9 In a countercyclical manner, we have taken the opportunity to invest more in our organization • Strength
Slide 9: Debt Equity Ratio Declines Further to 3.7x
Debt Equity Ratio Declines Further to 3.7x D/E (Excluding Treasury Assets) 5.2 5.0 5.0 4.4 3.7 FY16 FY17 FY18 FY19 Q1FY20 9
Slide 10: Key Actions Taken – Liquidity and Asset Quality
Key Actions Taken – Liquidity and Asset Quality Liquidity is being managed very closely • Overall Liquidity maintained at ~ $ 1,277 Mn • Overnight Liquidity of ~ $ 232 Mn; Available Liquidity of ~ $ 827 Mn • Undrawn Bank lines of ~ $ 218 Mn • Liquidity management costs of ~$ 4 Mn – $ 5 Mn per quarte
Slide 11: Relatively Steady Pre-Credit Cost PBT
Relatively Steady Pre-Credit Cost PBT Pre-Credit Cost PBT ($ Mn) 367 332 312* 216 135 106 78 FY15 FY16 FY17 FY18 FY19 Q1FY20 Contribution from Advisory businesses have steadied pre-credit cost profit 11 All figures are Ex-Insurance; *Annualized
Slide 12: PAT Distribution Across Businesses
PAT Distribution Across Businesses EOP Equity ($ Mn) Q1FY19 Q4FY19 Q1FY20 Post MI Q1FY20 Total Consolidated Post MI PAT 38 34 19 1,124 Credit including BMU 36 37 20 974 Advisory 12 9 10 24 Insurance (7) (8) (7) 82 Corporate (3) (4) (3) 44 Total Ex-Insurance Post MI PAT 45 42 26 1,042 Balance Sheet 8
Slide 13: Key Profitability Ratios
Key Profitability Ratios Ex-Insurance Q1FY19 Q4FY19 Q1FY20 Pre-Credit Cost PBT 4.4% 4.3% 4.0% Credit Cost 0.8% 0.8% 1.9% RoA 2.5% 2.4% 1.7% RoE 19.8% 16.1% 10.2% Cost to Income Ratio 49% 52% 50% Consolidated Q1FY19 Q4FY19 Q1FY20 RoA 1.9% 1.7% 1.0% RoE 15.2% 12.0% 6.8% Cost to Income Ratio 61% 70% 67
Slide 14: Capital Light Businesses Contribute Substantially to PAT
Capital Light Businesses Contribute Substantially to PAT Business Segments ($ Mn) Q1FY20 Pre MI PAT % Contribution Retail Credit 7 21% Corporate Credit 5 15% Distressed Credit Business 14 45% Wealth Management and Asset Management 8 25% Capital Markets 2 6% Corporate (4) (12%) Total Ex- Insurance Pr
Slide 15: Steady Growth of Customer Assets
Steady Growth of Customer Assets As on 30th June, 2019 $ Bn YoY Growth Customer Assets 29.4 14% Assets Under Advice (Wealth Management) 15.5 11% Distressed Credit (ARC Assets) 5.6 5% Funds under Management (Asset Management) 5.1 12% Assets under Custody & Clearing 3.2 67% Balance Sheet Assets 7.9 (1
Slide 16: Plan for FY20 - Business Strategy
Plan for FY20 - Business Strategy FY20 will be a year of balance sheet composition change over asset growth • Corporate Credit book to move into privately funded model • We expect Corporate Credit book to reduce by $ 435 Mn – $ 580 Mn • Recoveries will lead to a reduction in Distressed Credit book b
Slide 17: Plan for FY20 - Balance Sheet Management
Plan for FY20 - Balance Sheet Management Liquidity • Conserve liquidity until funding environment improves • Cost of managing liquidity will be ~ $ 17 Mn - $ 20 Mn for the year Capital Base • Strengthen our capital base to $ 1.75 Bn - $ 1.90 Bn by end of FY20 • D/E to remain in the range of 3.5x-3.8
Slide 18: Business Performance Highlights: Credit
Business Performance Highlights CREDIT Retail Credit – Corporate Credit – Distressed Credit
Slide 19: Credit Business Mix
Credit Business Mix Capital Employed As on 30th June, 2019 % ($ Mn) Retail Credit 2,464 40% Retail Mortgage 1,266 21% Blend of loans to home owners and home buyers SME & Business Loans 558 9% Under-served and highly scalable market, key focus area ESOP and Margin Financing 580 9% Catering to custome
Slide 20: Credit Business at a Glance
Credit Business at a Glance Credit Business ($ Mn) Q1FY19 Q1FY20 Capital Employed 6,559 6,181 Average Interest Yield 16.4% 16.2% Average Cost of Borrowing 9.6% 10.1% Net Interest Margin 8.0% 7.7% Net Revenue 125 119 Cost to Income 38% 36% Pre Credit Cost PBT 77 76 Credit Costs 16 36 PAT 41 31 RoA 2.
Slide 21: Credit Business Performance Snapshot
Credit Business Performance Snapshot Q1FY20 ($ Mn) Total Y-o-Y Retail Y-o-Y Corporate Y-o-Y Distressed Y-o-Y EOP Capital Employed 6,181 (6%) 2,464 (8%) 2,465 (16%) 1,252 32% EOP Equity 962 8% 256 (3%) 393 (10%) 313 62% Net Interest Income 119 (4%) 35 (6%) 55 (16%) 30 33% PAT 31 (23%) 7 (26%) 9 (54%)
Slide 22: Asset Quality at a Glance
Asset Quality at a Glance As on 30th June,19 ($ Mn) Q4FY19 Q1FY20 Credit Book 5,242 4,691 Of which Stage 3 98 109 ECL Provision 118 121 Of which Stage 3 55 51 Specific Provision Cover 56% 47% Total Provision Cover 120% 111% Gross NPA 1.87% 2.33% Net NPA 0.83% 1.24% 22 Credit Book excludes Distressed
Slide 23: Retail Credit
Retail Credit Capital Employed SME Retail Mortgage ($ Mn) Secured Unsecured HL LAP Average Yields % 14% 21% 11% 12% 2,623 Median Ticket Size ($Mn) ~0.15 0.01 0.02 0.03 2,464 2,349 Average LTV ~75%-85% - ~50%-60% RoA 1.50% - 2.00% 1.00% - 1.50% Locations (#) 108 97 Loan Book - Geographical Split 19%
Slide 24: Corporate Credit
Corporate Credit Capital Employed Structured Wholesale ($ Mn) Collateralised Credit Mortgage Average Yields % 15% - 17% 17% - 19% 2,833 RoA 1.75% - 2.50% 2.50% - 3.00% 2,620 2,465 Portfolio Granularity 71 accounts 162 projects Average Collateral cover 1.8x Typical Ticket size $ 14.5 Mn - $ 18.1 Mn E
Slide 25: Distressed Credit
Distressed Credit Capital Employed ARC Recoveries ($ Mn) ($ Mn) 1,252 208 1,071 914 156 82 FY18 FY19 Q1FY20 Q1FY19 Q4FY19 Q1FY20 SRs Issued : Resolution Strategy wise Break-up SRs outstanding : Top 10 industry exposure% Steel 4% 9% Power Restructuring 27% 23% Real Estate 14% NCLT Paper 49% Enforceme
Slide 26: Business Performance Highlights: Advisory
Business Performance Highlights ADVISORY Wealth Management – Asset Management – Capital Markets
Slide 27: Advisory Business Performance Snapshot
Advisory Business Performance Snapshot Wealth Asset Capital Q1FY20 ($ Mn) Total Y-o-Y Y-o-Y Y-o-Y Y-o-Y Mgmt Mgmt Mkts Net Revenue 41 (18%) 21 (20%) 8 22% 11 (30%) PAT 10 (16%) 6 (10%) 2 13% 2 (43%) Cost to Income 66% - 64% - 64% - 73% - PAT Yield 15 bps 16 bps - Assets under Assets under Assets und
Slide 28: Wealth Management
Wealth Management Assets Under Advice As on Number of AUA Number of 30th June’19 Clients ($ Bn) RMs ($ Bn) 15.4 15.5 Ultra High Net ~2,260 12.0 181 Worth Individuals 13.1 Affluent Investors ~5,01,500 3.5 815 Wealth AUA Breakup 11% 27% 26% 30% 29% 96,300 89% 73% 74% 70% 71% FY18 FY19 Q1FY20 FY16 FY17
Slide 29: Asset Management
Asset Management Alternative Assets ($ Bn) Alternative Assets AUM as on 30th June’19 3.7 3.7 Distressed Credit Fund 24% Structured Debt Fund 2.6 39% Infrastructure Fund $ 3.7 Bn Real Estate Credit Fund 16% Multi Strategy Funds 10% 11% and PMS FY18 FY19 Q1FY20 Mutual Funds AUM ($ Bn) Deployment in Al
Slide 30: Net New Flows in Wealth and Asset Management
Net New Flows in Wealth and Asset Management Wealth Management AUA Movement in Q1FY20 Asset Management AUM Movement in Q1FY20 ($ Bn) ($ Bn) 0.4 (0.3) 101,100 (0.1) (0.0) 15.4 15.5 5.4 5.3 Opening AUA Net New Market Closing AUA Opening AUM Net New Market Closing AUM Money Movement Money Movement 30
Slide 31: Capital Markets
Capital Markets Key Equity Capital Market & Advisory Transactions Fund Raise Fund Raise from CDPQ IPO $ 365 Mn Cr $ 261 Mn $ 195 Mn May 2019 May 2019 April 2019 Left Lead GC-BRLM Financial Advisor GC-BRLM Key Debt Capital Market Transactions Pvt Placement Pvt Placement Public Issue Public Issue $ 28
Slide 32: Business Performance Highlights: Life Insurance
Business Performance Highlights Life Insurance
Slide 33: Life Insurance Performance Snapshot
Life Insurance Performance Snapshot ($ Mn) Q1FY19 Q1FY20 Y-o-Y Growth Net Premium Income 17 22 29% Investment Income & Other Income 5 15 219% Total Business 22 37 70% Profit After Tax (10) (11) - Minority (5) (5) - Edelweiss’ Share in PAT (5) (5) - Net Worth 154 131 121 branches and 44,506 PFAs acro
Slide 34: Life Insurance – Long Term Value Creation
Life Insurance – Long Term Value Creation Product Mix Solvency Ratio New Business Premium Q1FY20 219% 229% 214% 16% 18% 26% 40% Traditional Par Traditional Non Par ULIP Group FY18 FY19 Q1FY20 Channel Mix 13th Month Overall Renewal Rate Persistency New Business Premium Q1FY20 80% 83% 75% 13% 46% 29%
Slide 35: Life Insurance Scaling Rapidly
Life Insurance Scaling Rapidly Collected Individual Annual Premium Equivalent • Collected Individual Annual Premium Equivalent CAGR growth since FY17 (APE) for Q1FY20 stood at $ 7 Mn 36% 22% 23% • Gross premium at $ 24 Mn; growth of 31% • Launched 2 new products during the quarter • Embedded Value a
Slide 36: Liquidity Management
Liquidity Management Ge E Edelweiss s protect
Slide 37: Maintained Sufficient Liquidity
Maintained Sufficient Liquidity $ Mn FY 16 FY 17 FY 18 FY 19 Q1FY20 Assets Liquid-able in 580 842 1,538 1,466 1,277 less than 120 days Balance Sheet Size* 3,976 5,354 7,516 7,531 7,357 Liquidity % 15% 16% 20% 19% 17% 37 * Excludes Asset Specific Borrowings (ASB)
Slide 38: Cash Flow Plan to Q4FY20
Cash Flow Plan to Q4FY20 Particulars ($ Mn) Q2FY20 Q3FY20 Q4FY20 Opening Available Liquidity (A) 1,277 1,161 1,103 A) Inflows: Asset EMIs and Repayments 290 290 406 Securitization 174 145 145 Fresh Borrowings 218 290 290 Total Inflows (B) 682 725 842 B) Outflows: Total Borrowings Repayments 624 566
Slide 39: Assets in Each Tenor Range Adequately Covering the Liabilities
..With Assets in Each Tenor Range Adequately Covering the Liabilities Assets Liabilities Gap $ Mn Upto 1 year 2,336 2,176 160 1-3 years 2,525 2,249 276 3 years+ 2,496 1,509 987 Total gap represents our equity base 39 3 years+ liabilities exclude Equity; Assets and Liabilities don’t include ASB
Slide 40: Balance Sheet Highlights
Balance Sheet Highlights Ge E Edelweiss s protect
Slide 41: Diversified Borrowing Profile By Instruments
Diversified Borrowing Profile By Instruments… 40% 44% 44% NCDs 57% 57% Bank Loans 31% 29% 39% CPs & ICDs 40% 42% 29% 27% 17% 3% 1% FY16 FY17 FY18 FY19 Q1FY20 Total Borrowings 3,342 4,582 6,495 6,268 5,929 ($ Mn) Gradually reduced reliance on CPs which is now 1% of total borrowings 41 Borrowings excl
Slide 42: …And By Source
…And By Source Bank 36% 33% 43% 47% 49% Retail 16% 17% 12% MF 24% 28% 44% 33% 41% PF, Insurance 16% & FIs 10% 12% 13% 13% 6% 7% FY16 FY17 FY18 FY19 Q1FY20 Total Borrowings 3,342 4,582 6,495 6,268 5,929 ($ Mn) Increasing focus on retail borrowings in the total liability mix 42 Borrowings exclude ASB
Slide 43: Increasing Percentage of Long Term Borrowings
Increasing Percentage of Long Term Borrowings % of Total Borrowings (excl ASB) 63% 64% 61% 54% 44% FY16 FY17 FY18 FY19 Q1FY20 43
Slide 44: Positive ALM Across Durations
Positive ALM Across Durations Assets Liabilities 100% 100% % of Assets and Liabilities 68% 63% 37% 28% 23% 35% 7% 23% 19% 7% Asset Specific 0-3 months 3-6 months 6-12 months 1-3 years 3+ years Borrowing • BMU manages ALM under the aegis of Asset Liability Committee 44
Slide 45: Comfortable Capital Adequacy Ratio
Comfortable Capital Adequacy Ratio Capital Structure as on 30th June, 2019 ($ Mn) Core Equity Tier I 1,204 14.3% Additional Tier I 50 0.6% Capital Adequacy Ratio Tier II 379 4.5% 19.4% Total Capital 1,633 Risk Weighted 8,404 Assets 45 Capital Adequacy Ratio is based on RBI norms for NBFCs
Slide 46: Debt to Equity Ratio Reduced Further
Debt to Equity Ratio Reduced Further Capital Structure as on 30th June, 2019 ($ Mn) Total Debt 5,929 Less: Treasury Assets 663 Net Debt (Ex-Treasury Assets) 5,266 Equity 1,428 D/E ratio (Ex- Treasury Assets) 3.7x 46 Total Debt excludes ASB ; Equity includes CDPQ investment of $ 151 Mn
Slide 47: Our Risk Governance Structure
Our Risk Governance Structure… Oversight by Board Risk Committee Global Risk Committee Business Risk Group Risk & Assurance Enterprise Risk Management Council • Implementation of risk • Risk aggregation and • Define Organization risk framework for specific monitoring framework & appetite businesses
Slide 48: Ensures Prudent Risk Management and Responsible Growth
…Ensures Prudent Risk Management and Responsible Growth Market Risk Regulatory Reputational Business Risk Credit Risk Liquidity Risk Risk Risk Physical Technology Operational & Infrastructure People Risk Fraud Risk Risk Process Risk Risk Enterprise risk management approach: 11 Risk Framework 48
Slide 49: 13 Member Board Comprises Majority of Independent Directors
13 Member Board Comprises Majority of Independent Directors Mr. K Chinniah Mr. Biswamohan Mahapatra Independent Director Independent Director • Served as Managing Director & Global Head • Former RBI Executive Director, chaired various committees of RBI Infrastructure, Portfolio, Strategy & Risk Grou
Slide 50: Significant Institutional Ownership
Significant Institutional Ownership Shareholding Pattern as on 30th June, 2019 Key Shareholders above 1% Percent 1 BIH SA 4.1% 2 Pabrai Investment Fund 2.7% Employee Trust 3 HDFC Mutual Fund 2.6% 4 Wellington Management 1.7% DIIs, Non 4.8% Promoter Group Institutions 5 Vanguard Group 1.6% & Others 6
Slide 51: ESG at Edelweiss
ESG at Edelweiss Ge E Edelweiss s protect
Slide 52: Framework Based on UN Sustainable Development Goals
Our Framework is based on the United Nations Sustainable Development Goals People Focused Goals No Poverty, Zero Hunger & Quality Education Gender Equality Economic Growth Planet Focused Goals Affordable & Clean Energy Responsible Consumption Climate Support 52
Slide 53: EdelGive Foundation - Unique Philanthropic Platform
EdelGive Foundation - Unique Philanthropic Platform PARTNERSHIPS CAPACITY BUILDING IMPACT Non-Financial Support Foundations Build Stronger Organizations Organizational Capacity Towards a high impact social sector EdelGive platforms EdelGive Non-Profit Corporates Foundation Organization Enhanced Soci
Slide 54: EdelGive Partners
EdelGive Partners HT Parekh Foundation & CDPQ have recently partnered with EdelGive 54
Slide 55: EdelGive Foundation - Key Metrics
EdelGive Foundation - Key Metrics Employee Engagement Employee Engagement % More than 70% engaged in financial and non financial giving Man Hours spent till date 32,500 hrs Field Visits till date 150+ Capacity Building – Non financial support Employees provided skills and time pro bono in over 100+
Slide 56: Strategic Investment in Our Advisory Business
Strategic Investment in Our Advisory Business
Slide 57: Edelweiss Strategy and Structure
Edelweiss Strategy and Structure • In 2017, we initiated a strategic plan to separate three business Groups (Credit, Advisory and Insurance) into distinct entities, each with its own set of investors, a ring-fenced capital base and an Independent Board • Edelweiss has accomplished this for the Credi
Slide 58: Kora’s Investment Commitment of $125 mm
Kora’s Investment Commitment of $125 mm • Kora, an existing long-term investor in Edelweiss, will be investing $125 Mn of growth equity in the Group comprising: • $75 Mn of compulsorily convertible instrument into EGIA before FY22 year-end (subject to completion of identified milestones) • Conversio
Slide 59: Structure of the Advisory Business by End FY20
Structure of the Advisory Business by End FY20 Edelweiss Global Investment Advisors Institutional Client Asset Reconstruction Wealth Management Asset Management Group Company • UHNI & Family • Alternative Asset • Institutional • Distressed Credit Office Advisory Management Equities • Affluent busine
Slide 60: Advisory Business Strategy
Advisory Business Strategy • Wealth Management • Business built around client segments – Affluent, CXO with ESOPs & Entrepreneurs and Family offices • A technology driven platform to deliver superior customer experience and drive cost efficiencies • Asset Management • Continue to maintain leadership
Slide 61: Edelweiss Business Group Structure By End FY22
Edelweiss Business Group Structure By End FY22 Edelweiss Financial Services Ltd Credit Advisory Insurance Edelweiss Global Edelweiss Tokio Edelweiss ECL Finance Life Insurance General Insurance Investment Advisors • Retail Credit • Wealth Management • Corporate Credit • Asset Management • Institutio
Slide 62: About Kora Management
About Kora Management • Kora is an investment firm focused on financial services and internet businesses • Headquartered in New York, the firm invests globally, leveraging its research infrastructure in Asia, Latin America, and Russia to develop insight on emerging markets companies • With a concent
Slide 63: Safe Harbour
Safe Harbour DISCLAIMER : This presentation and the discussion may contain certain words or phrases that are forward - looking statements, which are tentative, based on current expectations of the management of Edelweiss Financial Services Ltd. or any of its subsidiaries and associate companies (“Ed
Edelweiss Financial Services — Q1 FY2020 Earnings Presentation on 6ix