Release Date: May 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Edelweiss Financial Services Ltd (BOM:532922, Financial) reported a consolidated profit of INR 421 crores for the year, marking a 22% growth year-over-year.
- The company successfully pivoted from an NBFC-heavy model to an asset-light, capital-light approach, focusing on asset management and insurance.
- The alternative asset management business saw a 32% profit growth, with fee-paying AUM growing by 39% year-over-year.
- The general insurance business grew by 54% year-over-year, making it the fastest-growing general insurance company in the industry.
- The company reduced its overall debt by 20% this year, bringing it down to INR 13,000 crores from a peak of INR 40,000 crores.
Negative Points
- Household savings in India are falling, and household indebtedness is rising, posing a potential risk to the economy.
- Private sector capital expenditure (CapEx) has not taken off as expected, which could impact long-term growth.
- The company's Housing Finance business has a low ROE of around 3%, and it will take another four to five quarters to see a significant improvement.
- The corporate debt has increased by 1.8x since Q1 FY23, although it is currently manageable.
- The wholesale lending business saw a degrowth of INR 600 crores year-over-year, indicating challenges in asset sell-down.
Q & A Highlights
Q: Many asset managers have ventured into the private credit space. Do we see increasing competition in this sector, and how do we stand out from the rest of the players?
A: Rashesh Shah, Executive Chairman of the Board, Managing Director: We have a track record and strong distribution both in India and offshore. We are on our third fund in most strategies, which helps in raising larger funds. Our team is stable, and we have repeat investors, which gives us an edge in this competitive space.
Q: In the HFC sector, disbursements have doubled, but PAT and ROE remain low. When can we expect an uptick in these metrics?
A: Rashesh Shah, Executive Chairman of the Board, Managing Director: We have a lot of excess equity, which affects ROE. We are investing in backend technology and partnerships. We expect to see a significant improvement in ROE in the next four to five quarters.
Q: Deployment in the AIF business has remained stable. Any reason behind this?
A: Rashesh Shah, Executive Chairman of the Board, Managing Director: Deployment depends on deal quality. We focus on risk management and only deploy when confident. Last year, we focused on closing funds, and this year we aim to scale up disbursements.
Q: What metrics will investors look at for the valuation of the alternative asset advisors stake sale?
A: Rashesh Shah, Executive Chairman of the Board, Managing Director: Investors typically look at a percentage of AUM or profit multiples. For alternative asset management, valuations range between 10% to 20% of AUM or PE multiples of 30x to 45x trailing 12 months.
Q: How are you leveraging technology to differentiate Zuno General Insurance in the market?
A: Shanai Gosh, MD & CEO, General Insurance: We focus on customer experience, innovation, and an efficient operating model. Our motor claims are transformed by technology, with 50% of claims intimated using AI bots. We also use mobile telematics to offer personalized insurance solutions.
Q: What is your projected share of equity AUM in the next two years, and how can you achieve that?
A: Rashesh Shah, Executive Chairman of the Board, Managing Director: We aim to increase our equity AUM to at least 50% in the next two years. We will focus on scaling our non-ETF business and improving our product mix.
Q: Corporate debt has increased since Q1 FY23. What is the reason behind this, and how should we look at it going forward?
A: Rashesh Shah, Executive Chairman of the Board, Managing Director: We have been investing in our businesses and taking on corporate debt. However, we have liquid assets like Nuvama shares worth INR2,500 crores and plan to reduce corporate debt by half in the next 18 months through stake sales and other investments.
Q: Are there any new categories in the alternative asset space that you are looking to venture into?
A: Rashesh Shah, Executive Chairman of the Board, Managing Director: We are currently in private credit and infrastructure. We are exploring opportunities in private equity, real estate, and public alternatives. Building product expertise and distribution capability is crucial for these ventures.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
