Edelweiss Financial Services Limited · NSE:EDELWEISS
Edelweiss Financial Services — Q2FY19 Earnings Presentation
59 slides from Edelweiss Financial Services's earnings presentation, Oct 31, 2018
Slide 1: Cover letter to National Stock Exchange of India
EW/Sec/2018/380 October 31, 2018 National Stock Exchange of India Limited Exchange Plaza, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051. Dear Sirs, Ref.:- Symbol: EDELWEISS Sub: Investor Presentation in US Dollar Please find enclosed the Investor Presentation in US Dollar on Earnings Updates in
Slide 2: Edelweiss Financial Services Limited Q2FY19 Earnings Update
US $ version Edelweiss Financial Services Limited Q2FY19 Earnings Update
Slide 3: Contents
Contents 1 Quarterly Performance Highlights 2 Business Approach 3 Business Performance Highlights 4 Balance Sheet Highlights 5 ESG at Edelweiss 2
Slide 4: Quarterly Performance Highlights – Q2FY19
Quarterly Performance Highlights – Q2FY19 Numbers and ratios in this section for all periods are as per IndAS and Post MI
Slide 5: Overview of Q2FY19
Overview of Q2FY19 • Continued to finance high quality assets Credit • Maintained asset quality and adequate provisions Franchise & • Witnessed good inflows in both Wealth and Asset Management Advisory • Slowdown in Capital Markets business due to dampened market activity Insurance • One of the fast
Slide 6: Financial Snapshot – Q2FY19
Financial Snapshot – Q2FY19 $ Mn EOP Equity Profit after Tax RoA RoE Total Pre Minority 1,169 38 Credit 920 39 2.4% 18.0% Franchise & Advisory 23 10 Life & General Insurance 152 (12) BMU, Corp & Others 74 0.3 Minority Interest (MI) 132 1 Total Consolidated Post MI 1037 38 1.9% 14.7% Total Ex-Insuran
Slide 7: Q2FY19 Consolidated PAT
Q2FY19 Consolidated PAT at $ 38 Mn Profit after Tax ($ Mn ) Ex-Insurance PAT Consolidated PAT 44 43 43 38 32 29 31 36 38 Taper Tantrum 26 33 34 effect 21 21 23 27 29 17 18 23 14 15 21 12 12 14 19 20 8 10 10 9 9 10 17 6 7 7 13 15 5 4 5 11 11 11 12 13 7 8 8 8 5 5 6 6 6 6 4 4 Q1FY12 Q2FY12 Q3FY12 Q4FY1
Slide 8: Q2FY19 Performance Highlights
Q2FY19 Performance Highlights Consolidated PAT growth of 47% YoY Consistent growth in profits Ex-Insurance PAT growth of 56% YoY Credit business grew 54% YoY Profits Distributed across Businesses Franchise & Advisory business grew 9% YoY Consolidated RoA 1.9% Ex-Insurance RoA 2.5% Key performance Co
Slide 9: Consolidated Q2FY19 PAT Growth of 47% YoY
1 Consolidated Q2FY19 PAT Growth of 47% YoY... Y-o-Y ($ Mn) Q2FY18 Q1FY19 Q2FY19 Growth PAT 26 36 38 47% Consolidated PAT Ex-Insurance 29 43 44 56% Balance 6.6 8.5 8.2 24% Sheet ($ Bn) 8
Slide 10: Across Businesses
2 …Across Businesses… Y-o-Y EOP Equity PAT ($ Mn) Q2FY18 Q1FY19 Q2FY19 Growth Q2FY19 Total Consolidated 26 36 38 47% 1,037 Credit 22 34 34 54% 858 Franchise & Advisory 10 11 10 9% 23 Insurance (3) (6) (7) - 85 BMU, Corp & Others (3) (2) 0.1 - 71 9
Slide 11: Key Performance Parameters
3 Key Performance Parameters Key Ratios Consolidated Q2FY18 Q1FY19 Q2FY19 RoA 1.7% 1.9% 1.9% RoE 15.3% 15.2% 14.7% Cost to Income Ratio 61% 61% 61% Ex-Insurance Q2FY18 Q1FY19 Q2FY19 RoA 2.1% 2.5% 2.5% RoE 18.4% 19.8% 19.1% Cost to Income Ratio 50% 49% 47% RoA is Pre Minority Interest 10
Slide 12: Business Approach
Business Approach Numbers and ratios in this section for FY19 are as per IndAS and for prior periods it is as per IGAAP
Slide 13: Our Diversified Model Reduces Volatility
Our Diversified Model Reduces Volatility… Retail Credit • Retail Mortgage • SME and Business Loans • Loan against Securities • Agri & Rural Loans Credit Corporate Credit • Structured Collateralised Credit • Wholesale Mortgage Distressed Credit • Advisory • Broking Wealth Management • Distribution Fr
Slide 14: And Delivers Non-Linear Growth
…And Delivers Non-Linear Growth PAT ($ Mn) Balance Sheet ($ Bn) 8.2 148* 7.6 123 5.3 4.4 84 3.7 57 74 45 2.2 1.8 2.0 30 18 25 FY12 FY13 FY14 FY15 FY16 FY17 FY18 H1FY19 FY12 FY13 FY14 FY15 FY16 FY17 FY18 H1FY19 Consistently across business cycles *Annualised 13
Slide 15: Our Asset Base is a Mix of Own and Customer Related Assets
Our Asset Base is a Mix of Own and Customer Related Assets As on 30th Sept’18 $ Bn YoY Growth Balance Sheet Assets 8.2 24% Customer Assets 26.0 32% Distressed Credit (ARC Assets) 5.6 7% Assets Under Advice (Wealth Management) 13.5 28% Funds under Management (Asset Management) 4.7 55% Assets under Cu
Slide 16: Customer Assets have Helped us De-risk our Profits
Customer Assets have Helped us De-risk our Profits Customer Assets ($ Bn) RoA Ex-Insurance RoE Ex-Insurance 26.0 19.1% 2.5% 1.2% 7.3% 1.03 FY12 Q2FY19 FY12 Q2FY19 FY12 Q2FY19 Franchise & Advisory businesses have provided the RoE fillip through Capital Efficiency 15
Slide 17: Our Risk Governance Structure
Our Risk Governance Structure… Oversight by Board Risk Committee Global Risk Committee Business Risk Group Risk Enterprise Risk Management Council Corporate Controller & audit • Define Organisation Business • Implementation of risk • Review “High Impact & risk framework framework Low Probability” ri
Slide 18: 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 Operational & Technology Fraud Risk Infrastructure People Risk Process Risk Risk Risk Enterprise risk management approach : 11 Risk Framework 17
Slide 19: Business Highlights: Credit
Business Highlights CREDIT Retail Credit – Corporate Credit – Distressed Credit
Slide 20: Credit Business is a Mix of Diversified and Scalable Assets
Credit Business is a Mix of Diversified and Scalable Assets Capital Employed % As on 30th Sept’18 ($ Mn) Share Retail Credit 2,846 42% Retail Mortgage 1,189 18% Blend of loans to home owners and home buyers SME & Business Loans 600 9% Underserved and highly scalable, focus area for future Loan again
Slide 21: Credit Business at a Glance
Credit Business at a Glance Credit Business ($ Mn) Q1FY19 Q2FY19 Capital Employed 6,238 6,763 Average Interest Yield 16.0% 16.0% Average Cost of Borrowing 9.6% 9.5% Net Interest Margin 7.8% 7.7% Net Revenue 114 126 Cost to Income 36% 37% Provisions & Write Offs 15 18 PAT 38 39 RoA 2.6% 2.4% RoE 19.2
Slide 22: Asset Quality at a Glance
Asset Quality at a Glance At the end of Sept 30, 2018 ($ Mn) Q1FY19 Q2FY19 Credit Book 5,335 5,757 Of which Stage 3 93 103 ECL Provision 105 114 Of which Stage 3 54 57 Specific Provision Cover 58% 56% Total Provision Cover 113% 112% Average Collateral cover on Corporate Book 2.0x 1.9x Average Loan-T
Slide 23: Credit Business Performance Snapshot
Credit Business Performance Snapshot Credit Business Q2FY19 Total Y-o-Y Retail Y-o-Y Corporate Y-o-Y Distressed Y-o-Y ($ Mn) EOP Capital Employed 6,763 51% 2,846 75% 2,912 37% 1,006 36% EOP Equity 920 68% 278 87% 439 84% 204 27% Net Interest Income 126 58% 33 52% 67 48% 26 102% PAT 39 66% 9 37% 21 8
Slide 24: Our NIMs have been Stable across Interest Rate Cycles
Our NIMs have been Stable across Interest Rate Cycles Quarterly evolution of NIM of the Credit Business NIM Quarterly Avg. 10 Yr. G Sec. Yield 10% Declining interest rates Stable interest rates Rising interest rates 9% 8% 8.4% 7.7% 7.8% 7.7% 7.6% 7.5% 7% 7.3% 6.9% 6.9% 7.0% 6% 5% 4% Q1FY17 Q2FY17 Q3
Slide 25: Retail Credit Book sees Steady Growth
Retail Credit Book sees Steady Growth Capital Employed SME Retail Mortgage ($ Mn) Secured Unsecured HL LAP Average Yields % 13% 21% 10% 11% 2,846 Median Ticket Size ($ Mn) ~0.25 0.01 0.02 0.03 2,548 RoA 1.50% - 2.00% 1.00% - 1.50% Locations (#) 107 79 1,628 • Consolidating presence in South and West
Slide 26: Corporate Credit Calibrated Growth Q-o-Q
Corporate Credit Calibrated Growth Q-o-Q Capital Employed Structured Wholesale Collateralised Credit Mortgage ($ Mn) Average Yields % 15% - 17% 17% - 19% RoA 1.75% - 2.50% 2.50% - 3.00% 2,912 2,787 Number of Groups ~50 ~100 Typical Ticket Size $ 14 Mn – $ 21 Mn 2,120 • Incremental growth via fund st
Slide 27: Agri Credit has Seasonal Drop Q-o-Q
Agri Credit has Seasonal Drop Q-o-Q Capital Employed Average Collateral Value ($ Mn ) ($ Mn) Collateral Manager Stock Storage Stock 586 474 392 101 126 126 118 485 348 266 Q2FY18 Q1FY19 Q2FY19 68 60 • End to end business solutions in the Agri value chain • Network of 482 warehouses across 17 states
Slide 28: Distressed Credit Business on Track
Distressed Credit Business on Track Capital Employed Top 10 industry exposure% by Acquisition price ($ Mn) Steel Power 902 1,006 20% Infrastructure 21% 739 Cement Real Estate 4% Paper 4% 12% Textiles Q2FY18 Q1FY19 Q2FY19 5% Chemicals 6% ARC Recoveries ($ Mn) 9% Ship Building 6% Ports 6% 7% Some key
Slide 29: Business Performance Highlights: Franchise & Advisory
Business Performance Highlights FRANCHISE & ADVISORY Wealth Management – Asset Management – Capital Markets
Slide 30: Franchise & Advisory Business Performance Snapshot
Franchise & Advisory Business Performance Snapshot Franchise & Advisory Wealth Asset Capital Total Y-o-Y Y-o-Y Y-o-Y Y-o-Y Business Q2FY19 ($ Mn) Mgmt Mgmt Mkts Net Revenue 45 9% 26 41% 9 116% 11 (43%) PAT 10 9% 6 54% 2 124% 3 (47%) Cost to Income 66% 66% 66% 65% Assets under Assets under Assets und
Slide 31: Wealth Management AuA Remains Flat Q-o-Q
Wealth Management AuA Remains Flat Q-o-Q Assets Under Advice ($ Bn) As on Number of AUA Number of 30th Sept’18 Clients ($ Bn) RMs Ultra High Net ~1,750 10.3 172 Worth Individuals Affluent ~4,65,000 3.2 1,085 13.3 13.5 Wealth AUA Breakup 10.5 6% 11% 27% 26% 25% 23% 96,300 94% 89% 73% 74% 75% 77% FY15
Slide 32: Asset Management Continues to See Growth in AUM
Asset Management Continues to See Growth in AUM Alternative Assets ($ Bn) Alternative Assets AUM as on 30th Sept 2018 ($ Bn) Distressed Assets 3.0 27% 2.8 31% Structured Debt 1.9 $ 3.0 Bn Infrastructure Real Estate 12% 19% Multi Strategy Funds 11% Q2FY18 Q1FY19 Q2FY19 and PMS Mutual Funds AUM ($ Bn)
Slide 33: Steady Growth in Net New Flows
Steady Growth in Net New Flows Wealth AUA Movement in Q2FY19 Asset Management AUM Movement in Q2FY19 ($ Bn) ($ Bn) 0.7 0.4 0.02 101,100 (0.5) 13.5 4.9 13.3 4.5 Opening AUA Net New Market Closing AUA Opening Net New Currency & Closing AUM Money Movement AUM Money Market Movement Credit Franchise & Ad
Slide 34: Capital Markets had a Slow Quarter
Capital Markets had a Slow Quarter Key Equity Capital Market Transactions • Closed six capital market transactions in Q2FY19 • Key advisory mandates QIP: $ 383 Mn Open Offer by Wilmar Buy back: $ 23 Mn o Tata Advanced Systems BRLM Sugar Holdings Pte Ltd: Sole Manager August 2018 $127 Mn July 2018 o
Slide 35: Business Performance Highlights: Life Insurance
Business Performance Highlights Life Insurance
Slide 36: Life Insurance Performance Snapshot
Life Insurance Performance Snapshot ($ Mn) Q2FY19 Net Premium Income 25 Investment Income and Other Income 2 Total Business 27 Profit After Tax (10) Minority (5) Edelweiss’ Share in PAT (5) Net Worth 136 Indian Embedded Value 217 Credit Franchise & Advisory Life Insurance 35
Slide 37: Life Insurance – Long Term Value Creation
Life Insurance – Long Term Value Creation Product Mix Investments Capability (5 Year CAGR%) New Business Premium Q2FY19 15% Fund Benchmark 20% 14% 23% 11% 10% 9% 8% 30% 28% Traditional Par Traditional Non Par ULIP Group Equity Large Cap Bond Fund Managed Fund Fund Channel Mix Multi-channel distribut
Slide 38: One of the Fastest Growing Life Insurer in Individual APE
One of the Fastest Growing Life Insurer in Individual Annual Premium Equivalent Collected Individual Annual Premium Equivalent • Robust growth during the quarter CAGR growth since Q2FY16 42% • Collected Individual Annual Premium Equivalent 27% 24% (APE) - $ 10 Mn grew 74% YoY • Total Premium – $ 26
Slide 39: Balance Sheet Highlights
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Slide 40: Key Highlights – Balance Sheet
Key Highlights – Balance Sheet 1 Liquidity cushion at 11% of Borrowings 2 Diversified Borrowings mix 3 Matched Asset-Liability profile 4 Comfortable capital adequacy ratio at 16.01% and D/E of 5.2 x 5 Stable business model reflected in credit ratings 39
Slide 41: Liquidity Cushion – Consistently a Clear Focus Area
1 Liquidity Cushion – Consistently a Clear Focus Area Liquidity Cushion $ Mn • A well diversified liquidity cushion 745 comprising: 718 o Banking Lines: $ 290 Mn 559 290 338 o Fixed Deposits and bank 400 186 balance: $ 69 Mn 235 225 o Government Securities, Mutual 455 127 373 379 Funds etc.: $ 386 M
Slide 42: Diversified Borrowing Profile By Instruments
2 Diversified Borrowing Profile By Instruments… Total Borrowings 3.2 3.8 4.6 6.5 7.0 ($ Bn) 9% 11% 7% 12% 15% 24% 30% 38% 36% 39% 22% 20% 25% 32% 29% 27% 22% 25% 14% 17% 17% 18% 5% 7% 1% FY15 FY16 FY17 FY18 Q2FY19 CBLO CPs Term Loans NCD Others 41
Slide 43: And By Source
2 And By Source Total Borrowings 3.2 3.8 4.6 6.5 7.0 ($ Bn) 4% 5% 7% 11% 13% 14% 14% 15% 11% 17% 17% 5% 7% 17% 1% 31% 27% 30% 41% 37% 38% 42% 34% 30% 32% FY15 FY16 FY17 FY18 Q2FY19 Mutual Funds Banks Asset Specific Borrowings Retail Others Half of the Mutual Fund borrowings are long term in nature 4
Slide 44: Increasing Percentage of Long Term Borrowings
2 Increasing Percentage of Long Term Borrowings… % of Total Borrowings 58% 59% 51% 34% 36% FY15 FY16 FY17 FY18 Q2FY19 NCD public issue of $ 276 Mn in Q2FY19 has enhanced share of long term borrowing 43
Slide 45: Leading to Positively Matched ALM Profile
3 …Leading to Positively Matched ALM Profile Assets Liabilities 100% 100% % of Assets and Liabilities 70% 46% 68% 38% 26% 40% 1% 20% 16% 1% Asset Specific 0-3 Mnth 3-6 Mnth 6-12 Mnth 1-3 years 3+ years Borrowing • Positive asset-liability matching across durations • BMU manages ALM under the aegis o
Slide 46: Comfortable Capital Adequacy Ratio
4 Comfortable Capital Adequacy Ratio Capital Structure as on 30th Sept 2018 ($ Bn) Core Equity Tier I 1.1 12.8% Additional Tier I 0.05 0.5% Capital Adequacy Ratio Tier II 0.2 2.7% 16.01% Total Capital 1.4 Risk Weighted 92% of gross assets of $ 8.7 9.5 Bn Assets 45 Capital Adequacy Ratio is based on
Slide 47: Debt to Equity Ratio Remains Stable
4 Debt to Equity Ratio Remains Stable Capital Structure as on 30th Sept 2018 ($ Bn) Total Balance Sheet 8.2 Less: Equity 1.2 Less: Cash & Liquid Assets 1.0 Debt 6.1 Equity 1.2 D/E ratio (Ex-Cash & Liquid Assets) 5.2 Cash & Liquid Assets include voluntary holding of G-Secs and other high liquid asset
Slide 48: Stable Business Model Reflected in Credit Ratings
5 Stable Business Model Reflected in Credit Ratings Purpose (Debt Programme) Rating agency Rating Short term CRISIL A1+ Short term CARE A1+ Short term ICRA A1+ Long term BWR AA+ CARE revised its Long term outlook Long term CARE AA from ‘Stable’ to ‘Positive’ Long term CRISIL AA Long term ICRA AA Lon
Slide 49: Significant Institutional Ownership
Significant Institutional Ownership Key Shareholders above 1% (As on 30th Sept’18) Shareholding Pattern Name Percent Employee 1 BIH SA 4.1% Trust 2 HDFC Mutual Fund 2.6% DIIs, Non 4.8% Promoters Institutions 3 Steadview Capital Management 2.0% & Employees & Others 4 Goldman Sachs Funds 1.9% 24.2% 43
Slide 50: Detailed Financials
Detailed Financials Ge Edelweiss Ideas create, values protect
Slide 51: Consolidated Financials – P&L
Consolidated Financials – P&L ($ Mn) Q2FY18 Q2FY19 Total revenue from operations 278 366 Other income 2 3 Total Income 280 369 Expenses (a) Finance costs 131 163 (b) Employee benefits expense 45 54 (c) Depreciation and amortisation expense 3 4 (d) Change in insurance policy liability - actuarial 12
Slide 52: Consolidated Financials – Balance Sheet
Consolidated Financials – Balance Sheet ($ Bn) Q2FY18 Q2FY19 Equity and Liabilities Shareholders’ Funds 0.7 1.0 Minority Interest 0.1 0.1 Borrowings 5.8 7.0 Total 6.6 8.2 Assets Credit Book Assets 4.5 6.8 FDs and Cash & Bank Balances 0.5 0.6 Government Bonds 0.8 0.4 Other Assets 0.8 0.5 Total 6.6 8.
Slide 53: Bridge to Reported Financials
Bridge to Reported Financials Profit Before Tax ($ Mn) Profit After Tax ($ Mn) YoY YoY Pre MI Q2FY18 Q2FY19 Pre MI Q2FY18 Q2FY19 Growth Growth Consolidated 43 63 45% Consolidated 25 38 53% Ex-Insurance 49 75 54% Ex-Insurance 30 50 66% YoY YoY Post MI Q2FY18 Q2FY19 Post MI Q2FY18 Q2FY19 Growth Growth
Slide 54: ESG at Edelweiss
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Slide 55: Our ESG Framework is based on the UN Sustainable Development Goals
Our ESG Framework is based on the United Nations Sustainable Development Goals People Focused Goals No Poverty, Zero Hunger & Economic Growth Quality Education Gender Equality Planet Focused Goals Affordable & Clean Energy Responsible Consumption Climate Support 54
Slide 56: 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 57: EdelGive Foundation - Key Metrics
EdelGive Foundation - Key Metrics Employee Engagement Employee Engagement % More than 85% engaged in financial and non financial giving Man Hours spent till date 30,000 hrs Field Visits till date 80 Capacity Building – Non financial support Employees provided skills and time pro bono in over 60 proj
Slide 58: Strong and Diverse Board of Directors with Rich Experience
Strong and Diverse Board of Directors with Rich Experience 6 out of 11 directors are independent Mr. P N Venkatachalam Mr. K Chinniah • Banking sector expert and former • Served as Managing Director & Global member of the Interim Pension Fund Head Infrastructure, Portfolio, Strategy Regulatory Autho
Slide 59: Safe Harbour
Safe Harbour DISCLAIMERS: 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
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