Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- First quarter consolidated PAT increased by 17% to INR 59 crores.
- Alternative asset management business has seen fee-paying AUM triple in the last 4 years.
- General insurance business has grown at 3 to 4 times the industry rate.
- Net debt has been reduced by 17% year-over-year, now standing at INR 12,700 crores.
- Customer reach has expanded to 82 lakh customers, with a 13% increase in customer assets.
Negative Points
- RBI has imposed restrictions on Edelweiss Asset Reconstruction Company and ECL Finance, impacting their operations.
- Life insurance business has seen only a 10% growth in gross premium, with expanded losses.
- Credit businesses are expected to be slower in the next couple of quarters due to RBI's orders.
- The wholesale business of ECL Finance is a non-continuing business, limiting growth opportunities.
- The company is still in the process of addressing deficiencies pointed out by RBI, which may take several months.
Q & A Highlights
Q: Congratulations for a great quarter. I had a couple of questions. Firstly, as the value unlock of Nuvama was a great success and created immense value for all of us, in the PPT as well as in the opening commentary, you talked about our plan for the next unlock. Can you throw some light on the same? And which businesses are in the pipeline as of now?
A: So as we have said, we are focusing on -- it's also -- I think it's a good question, Aditya. It's always a function of what is the right stage for the business because our idea in Edelweiss has been to nurture the businesses, grow them, bring them to a certain stage. And when there is value and when they can grow and independently continue their journey ahead, we want to share the fruits of that, the reward of that buildup with the shareholders. And we did that in Nuvama as you said. I think the next business, which is now likely to be there is our alternative asset management business that has been growing pretty well. We have announced that we will do a stake sale to establish a price and the value of that business and then look at options of unlocking value for our shareholders. As I said, our ultimate idea for all our businesses, all the 7 remaining businesses, we had 8 of them, after Nuvama, there's 7 businesses remaining, our end game over the next few years in all the 7 businesses, they should all be independent, maybe they should -- some of them will be listed. Some of them will be listed through IPO. Some of them will be listed through demerger. But our end game is that we should grow, nurture, provide all the oversight and handholding and resources for each of these business to grow. I think the next one on the anvil most obvious is the EAAA, if you look at, from the profit point of view and the ability of the business to be a stand-alone point of view, I think Edelweiss alternatives is there. Other businesses are also fairly large. Our ARC is pretty large. But given that growth in ARC is slower because it's a very cyclical business. There was -- between 2013 to '18, we accumulated a lot of bad assets because there was a buildup of bad assets in the banking industry. '18 to '24, we are still focused on recovering those focusing on that. We still have quite a bit of AUM left. I do think that the growth in that business will be when the next cycle of NPS buildup, which we are not currently seeing, and hopefully, we'll not see the same buildup has happened in the past. So I think given the business growth stage, the clarity of the story of that business in terms of being an independent company, the robustness of the management team. All of that, we look at that and say, is this company now ready to be independent? And if it is ready to be independent, what is the best way of going about it. That is the process we follow.
Q: The general insurance business has seen a robust growth with a steady reduction of losses. However, in our life insurance business, the gross premium has grown by only 10% and losses has been expanded. So my question is, are we witnessing any challenges in our life insurance business due to increased competition or by any other key factors? Are we on the track to achieve breakeven by financial year '27?
A: On the life insurance business, we are on track to achieve the breakeven as we have promised. We are hyper, hyper hyperfocused on that because the idea on the life insurance business is to get to that stage of breakeven. I think we have grown slightly slower this quarter because we've been doing some automation work transitioning. Also, there is a lot of demand for ULIP, which are not a high-margin product. So we're also very focused on the VNB margin. And since we don't use Banca a lot, I think Banca and ULIP has had a great growth this quarter. But our idea is to grow higher than the industry every year, and that is what we have been focusing. So I think this year also we will grow at slightly faster than the industry is what our internal target is. We don't want to spend too much capital behind ULIP because ULIP has its own cycle and the margins are very different. We are very focused on traditional products like the participating and nonparticipating, and those continue to be our bread and butter in our strategy.
Q: Recently, your two underlying subsidiaries, ARC and ECLF, issued RBI order. Can you please explain how did it impacted? And to what extent it impacted your businesses? What steps have we taken to address the issue? And when do we foresee that the regulator will lift the restriction?
A: So as I earlier said in my commentary, RBI orders like this have been issued to quite a few other banks and other entities also. And we have looked at it. And usually, it does take some time for you to change your processes, change your -- and prove to RBI that you have made all the changes, all the strengthening that needs to be required. We expect this process to be a continuous process where you constantly interact with RBI as we go forward and continue to showcase. So that is one. B is, it has impacted business. Both the credit businesses have become slightly slower. We have engaged with all the other stakeholders, the partner banks and all to also showcase our processes. About half the management effort is now going into strengthening those processes, interfacing with RBI, making sure whatever changes RBI wants to make them on a proactive basis on as fast as possible basis. So about half the management attention is not on the business, but on making sure that everything that is required to be done for this goes into that. So it does affect business. I do think next couple of quarters, the credit businesses will be slower than what we were earlier. But since both those businesses are relatively smaller and younger, I think it is something they can absorb. They can easily focus on making whatever investments are to be done in terms of the back-end structure automation required to satisfy RBI. So it won't affect our other businesses. This is in the credit business. In the ARC business, it will affect acquisition of new assets. But as you would have seen in the last couple of years, our acquisition had come down because there are not so many assets available to buy. As you all know, NPA in banking industry is all-time low. Corporate assets, which have gone NPA, are almost over. We were buying some retail assets here and there, about INR 50 crores or INR 100 crores a quarter, that will be on hold. So our retail asset acquisition will be on hold. Recoveries is 80%, 85% of the effort in ARC, that continues at full force. And the ARC management is also focused on interfacing with RBI and working with them, but I don't see any impact on recoveries on this. I also don't see in NBFC long-term impact on the
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
