Edelweiss Financial Services Limited · NSE:EDELWEISS
Edelweiss Financial Services — Q1 FY20 Earnings Presentation
64 slides from Edelweiss Financial Services's earnings presentation, Aug 14, 2019
Slide 1: Cover letter to National Stock Exchange
EW/Sec/2019/233 August 14, 2019 National Stock Exchange of India Limited Exchange Plaza, . Bandra Kurla Complex, Bandra (E), Mumbai- 400 051. Dear Sirs, Ref.:- Symbol: EDELWEISS Sub: Investor Presentation Please find enclosed the Investor Presentation on Earnings Updates for the first quarter ended
Slide 2: Edelweiss Financial Services Limited Q1FY20 Earnings Update
Edelweiss Financial Services Limited Q1FY20 Earnings Update
Slide 3: 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 4: Quarterly Performance Highlights – Q1FY20
Quarterly Performance Highlights – Q1FY20
Slide 5: 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 6: 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 7: Financial Snapshot – Q1FY20
Financial Snapshot – Q1FY20 INR Cr EOP Equity Profit after Tax RoA RoE Total Pre Minority 8,804 134 Credit including BMU 7,281 178 1.4% 10.1% Advisory 167 68 Insurance 1,011 (86) Corporate 345 (26) Minority Interest (MI) 1,056 2 Total Consolidated Post MI 7,748 132 1.0% 6.8% Total Ex-Insurance Post
Slide 8: 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 9: Q1FY20 Overview
Q1FY20 Overview 6 BMU losses which includes cost of liquidity management stood at INR 38 Cr 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 • Stren
Slide 10: Conservative Leverage Maintained at 3.7x
Conservative Leverage Maintained at 3.7x D/E (Excluding Treasury Assets) 5.2 5.0 5.0 4.4 3.7 FY16 FY17 FY18 FY19 Q1FY20 9
Slide 11: Key Actions Taken – Liquidity and Asset Quality
Key Actions Taken – Liquidity and Asset Quality Liquidity is being managed very closely • Overall Liquidity maintained at ~INR 8,800 Cr • Overnight Liquidity of ~INR 1,600 Cr; Available Liquidity of ~INR 5,700 Cr • Undrawn Bank lines of ~INR 1,500 Cr • Liquidity management costs of ~INR 30-35 Cr per
Slide 12: Relatively Steady Pre-Credit Cost PBT
Relatively Steady Pre-Credit Cost PBT Pre-Credit Cost PBT (INR Cr) 2,530 2,287 2,149* 1,492 933 733 537 FY15 FY16 FY17 FY18 FY19 Q1FY20 Contribution from Advisory businesses have steadied pre-credit cost profit 11 All figures are Ex-Insurance; *Annualized
Slide 13: PAT Distribution Across Businesses
PAT Distribution Across Businesses EOP Equity (INR Cr) Q1FY19 Q4FY19 Q1FY20 Post MI Q1FY20 Total Consolidated Post MI PAT 264 232 132 7,748 Credit including BMU 250 257 135 6,726 Advisory 81 60 68 151 Insurance (46) (55) (50) 568 Corporate (21) (30) (21) 303 Total Ex-Insurance Post MI PAT 311 287 18
Slide 14: 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 15: Capital Light Businesses Contribute Substantially to PAT
Capital Light Businesses Contribute Substantially to PAT Business Segments (INR Cr) Q1FY20 Pre MI PAT % Contribution Retail Credit 47 21% Corporate Credit 33 15% Distressed Credit Business 98 45% Wealth Management and Asset Management 54 25% Capital Markets 14 6% Corporate (26) (12%) Total Ex- Insur
Slide 16: Steady Growth of Customer Assets
Steady Growth of Customer Assets As on 30th June, 2019 (rounded off to nearest 100) INR Cr YoY Growth Customer Assets 2,02,800 14% Assets Under Advice (Wealth Management) 1,06,600 11% Distressed Credit (ARC Assets) 38,800 5% Funds under Management (Asset Management) 35,300 12% Assets under Custody &
Slide 17: 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 INR 3,000-4,000 Cr • Recoveries will lead to a reduction in Distressed Credit book by
Slide 18: 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 ~INR 120-140 Cr for the year Capital Base • Strengthen our capital base to INR 12,000-13,000 Cr by end of FY20 • D/E to remain in the range of 3.5x-3.8x Ass
Slide 19: Business Performance Highlights: Credit
Business Performance Highlights CREDIT Retail Credit – Corporate Credit – Distressed Credit
Slide 20: Credit Business Mix
Credit Business Mix Capital Employed As on 30th June, 2019 % (INR Cr) Retail Credit 16,981 40% Retail Mortgage 8,726 21% Blend of loans to home owners and home buyers SME & Business Loans 3,844 9% Under-served and highly scalable market, key focus area ESOP and Margin Financing 3,998 9% Catering to
Slide 21: Credit Business at a Glance
Credit Business at a Glance Credit Business (INR Cr) Q1FY19 Q1FY20 Capital Employed 45,206 42,599 Average Interest Yield 16.4% 16.2% Average Cost of Borrowing 9.6% 10.1% Net Interest Margin 8.0% 7.7% Net Revenue 858 823 Cost to Income 38% 36% Pre Credit Cost PBT 532 526 Credit Costs 110 248 PAT 282
Slide 22: Credit Business Performance Snapshot
Credit Business Performance Snapshot Q1FY20 (INR Cr) Total Y-o-Y Retail Y-o-Y Corporate Y-o-Y Distressed Y-o-Y EOP Capital Employed 42,599 (6%) 16,981 (8%) 16,987 (16%) 8,631 32% EOP Equity 6,631 8% 1,762 (3%) 2,711 (10%) 2,158 62% Net Interest Income 823 (4%) 238 (6%) 381 (16%) 204 33% PAT 216 (23%
Slide 23: Asset Quality at a Glance
Asset Quality at a Glance As on 30th June,19 (INR Cr) Q4FY19 Q1FY20 Credit Book 36,130 32,328 Of which Stage 3 677 752 ECL Provision 815 836 Of which Stage 3 377 352 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 Dis
Slide 24: Retail Credit
Retail Credit Capital Employed SME Retail Mortgage (INR Cr) Secured Unsecured HL LAP Average Yields % 14% 21% 11% 12% 18,075 16,981 Median Ticket Size (INR) ~1 Cr 7 lacs 15 lacs 19 lacs 16,188 Average LTV ~75%-85% - ~50%-60% RoA 1.50% - 2.00% 1.00% - 1.50% Locations (#) 108 97 Loan Book - Geographic
Slide 25: Corporate Credit
Corporate Credit Capital Employed Structured Wholesale (INR Cr) Collateralised Credit Mortgage Average Yields % 15% - 17% 17% - 19% RoA 1.75% - 2.50% 2.50% - 3.00% Portfolio Granularity 71 accounts 162 projects 19,525 18,055 16,987 Average Collateral cover 1.8x Typical Ticket size INR 100-125 Cr Exp
Slide 26: Distressed Credit
Distressed Credit Capital Employed ARC Recoveries (INR Cr) (INR Cr) 8,631 7,380 1,433 6,297 1,076 563 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
Slide 27: Business Performance Highlights: Advisory
Business Performance Highlights ADVISORY Wealth Management – Asset Management – Capital Markets
Slide 28: Advisory Business Performance Snapshot
Advisory Business Performance Snapshot Wealth Asset Capital Q1FY20 (INR Cr) Total Y-o-Y Y-o-Y Y-o-Y Y-o-Y Mgmt Mgmt Mkts Net Revenue 279 (18%) 147 (20%) 56 22% 76 (30%) PAT 68 (16%) 39 (10%) 15 13% 14 (43%) Cost to Income 66% - 64% - 64% - 73% - PAT Yield 15 bps 16 bps - Assets under Assets under As
Slide 29: Wealth Management
Wealth Management Assets Under Advice As on Number of AUA Number of 30th June’19 Clients (INR Cr) RMs (INR Cr) Ultra High Net ~2260 82,600 181 Worth Individuals 1,06,000 1,06,600 Affluent Investors ~5,01,500 24,000 815 90,100 Wealth AUA Breakup 11% 27% 26% 30% 29% 96,300 89% 73% 74% 70% 71% FY18 FY1
Slide 30: Asset Management
Asset Management Alternative Assets (INR Cr) Alternative Assets AUM as on 30th June’19 Distressed Credit Fund 25,600 25,400 24% Structured Debt Fund 17,700 39% Infrastructure Fund INR 25,400 Cr Real Estate Credit Fund 16% Multi Strategy Funds 10% 11% and PMS FY18 FY19 Q1FY20 Mutual Funds AUM (INR Cr
Slide 31: 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 (INR Cr) (INR Cr) 2,600 (2,000) 101,100 (685) (15) 1,06,000 1,06,600 37,000 36,300 Opening AUA Net New Market Closing AUA Opening AUM Net New Market Closing AUM Money Movemen
Slide 32: Capital Markets
Capital Markets Key Equity Capital Market & Advisory Transactions Fund Raise Fund Raise from CDPQ IPO INR 2,514 Cr ~INR 1,800 Cr INR 1,345 Cr 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
Slide 33: Business Performance Highlights: Life Insurance
Business Performance Highlights Life Insurance
Slide 34: Life Insurance Performance Snapshot
Life Insurance Performance Snapshot (INR Cr) Q1FY19 Q1FY20 Y-o-Y Growth Net Premium Income 119 153 29% Investment Income & Other Income 32 103 219% Total Business 151 256 70% Profit After Tax (69) (74) - Minority (34) (36) - Edelweiss’ Share in PAT (35) (38) - Net Worth 1,059 904 121 branches and 44
Slide 35: 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 36: Life Insurance Scaling Rapidly
Life Insurance Scaling Rapidly Collected Individual Annual Premium Equivalent CAGR growth since FY17 • Collected Individual Annual Premium Equivalent 36% (APE) for Q1FY20 stood at INR 48 Cr 22% 23% • Gross premium at INR 164 Cr; growth of 31% • Launched 2 new products during the quarter Edelweiss To
Slide 37: Liquidity Management
Liquidity Management 3 Edelweiss Ideas create, values protect
Slide 38: Maintained Sufficient Liquidity
Maintained Sufficient Liquidity INR Cr FY 16 FY 17 FY 18 FY 19 Q1FY20 Assets Liquid-able in 4,000 5,800 10,600 10,100 8,800 less than 120 days Balance Sheet Size* 27,400 36,900 51,800 51,900 50,700 Liquidity % 15% 16% 20% 19% 17% 37 * Excludes Asset Specific Borrowings (ASB)
Slide 39: Cash Flow Plan to Q4FY20
Cash Flow Plan to Q4FY20 Particulars (INR Cr) Q2FY20 Q3FY20 Q4FY20 Opening Available Liquidity (A) 8,800 8,000 7,600 Inflows Asset EMIs and Repayments 2,000 2,000 2,800 Securitization 1,200 1,000 1,000 Fresh Borrowings 1,500 2,000 2,000 Total Inflows (B) 4,700 5,000 5,800 Outflows Total Borrowings R
Slide 40: Assets in each Tenor Range Adequately Covering Liabilities
..With Assets in each Tenor Range Adequately Covering the Liabilities Assets Liabilities Gap Upto 1 year 16,100 15,000 1,100 1-3 years 17,400 15,500 1,900 3 years+ 17,200 10,400 6,800 Total gap represents our equity base 39 3 years+ liabilities exclude Equity; Assets and Liabilities don’t include AS
Slide 41: Balance Sheet Highlights
Balance Sheet Highlights oO Edelweiss Ideas create, values protect
Slide 42: Diversified Borrowing Profile By Instruments
Diversified Borrowing Profile By Instruments… 40% 44% 44% NCDs 57% 57% Bank Loans 31% 29% 39% CPs 40% 42% 29% 27% 17% 3% 1% FY16 FY17 FY18 FY19 Q1FY20 Total Borrowings 23,034 31,581 44,761 43,201 40,859 (INR Cr) Gradually reduced reliance on CPs which is now 1% of total borrowings 41 Borrowings excl
Slide 43: …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 23,034 31,581 44,761 43,201 40,859 (INR Cr) Increasing focus on retail borrowings in the total liability mix 42 Borrowings exclu
Slide 44: 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 45: 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 46: Comfortable Capital Adequacy Ratio
Comfortable Capital Adequacy Ratio Capital Structure as on 30th June, 2019 (INR Cr) Core Equity Tier I 8,295 14.3% Additional Tier I 345 0.6% Capital Adequacy Ratio Tier II 2,614 4.5% 19.4% Total Capital 11,254 Risk Weighted 57,917 Assets 45 Capital Adequacy Ratio is based on RBI norms for NBFCs
Slide 47: Debt to Equity Ratio Reduced Further
Debt to Equity Ratio Reduced Further Capital Structure as on 30th June, 2019 (INR Cr) Total Debt 40,859 Less: Treasury Assets 4,570 Net Debt (Ex-Treasury Assets) 36,289 Equity 9,844 D/E ratio (Ex- Treasury Assets) 3.7x 46 Total Debt excludes ASB ; Equity includes CDPQ investment of INR 1,040 Cr
Slide 48: 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 49: 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 50: 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 51: 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 52: ESG at Edelweiss
ESG at Edelweiss
Slide 53: 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 54: 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 55: EdelGive Partners
EdelGive Partners HT Parekh Foundation & CDPQ have recently partnered with EdelGive 54
Slide 56: 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 57: Strategic Investment in Our Advisory Business
Strategic Investment in Our Advisory Business
Slide 58: 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 59: 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 (~INR 875 Cr) of growth equity in the Group comprising: • $75 mn (~INR 525 Cr) of compulsorily convertible instrument into EGIA before FY22 year-end (subject to completion of identi
Slide 60: 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 61: 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 62: 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 63: 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 64: 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
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