Edelweiss Financial Services Limited Q2FY20 Earnings Update
Contents Quarterly Performance Highlights 1 Business Performance Highlights 2 Liquidity Management 3 Balance Sheet Highlights 4 ESG at Edelweiss 5 Addenda 6 2
Quarterly Performance Highlights – Q2FY20
Financial Snapshot – Q2FY20 INR Cr EOP Equity Profit after Tax Total Pre Minority 9,870 68 Credit 5,860 37 2,236 73 Asset Reconstruction Advisory 214 53 945 (68) Insurance BMU & Corporate 615 (26) Minority Interest (MI) 2,096 17 Total Consolidated Post MI 7,773 51 Total Ex-Insurance Post MI 7,236 93 4 Equity includes CDPQ investment in Equity Convertible instrument of INR 1,040 Cr
Q2FY20 Overview In line with our stated strategy of focusing on enhancing capital light business model: 1 • Signed co-origination agreements with SBI,CBI and PNB in addition to BOB signed last quarter • Securitized retail credit book of INR 702 Cr during the quarter 2 Asset Reconstruction business continues with sustained momentum in recoveries Customer Assets grew by 7% YoY despite dampened customer activity in Advisory business 3 Closed completion financing fund of $425 mn (~INR 3,000 Cr) for the real estate sector with Meritz 4 Group Sanaka Capital and others will be investing upto $75mn (~INR 525 Cr) of growth equity in EGIA 5 Received first tranche of $25 mn (~INR 175 Cr) from Kora Management out of the $75mn (~INR 525 6 Cr) investment commitment in EGIA Arthur J. Gallagher acquires minority stake by way of primary equity in our insurance broking arm 7 Embedded Value at INR 1,462 Cr as on 30 th Sep 2019 in Life Insurance Business; Persistency ratio 8 stood at 78% for H1FY20 5 Edelweiss Global Investment Advisors (EGIA) includes the businesses of Asset Reconstruction, Wealth & Asset Management and Capital Markets
Key Actions Taken - Liquidity, Asset Quality and Balance Sheet Liquidity • We continue to maintain liquidity at ~17% of balance sheet; No change anticipated in our stated liquidity plan • Overall Liquidity maintained at ~INR 8,400 Cr including undrawn bank lines of INR ~1,000 Cr Asset Quality • We have provided INR 446 Cr in H1FY20 as against INR 460 Cr for entire FY19 Gross NPA and Net NPA stood at 2.7% and 1.7% as of 30 th Sep 2019 • Balance Sheet • We are the only player in the industry to have raised fresh equity thrice since the crisis started • Debt to Equity (Ex-Treasury) progressively reduced to 3.4x 6
Launch of Completion Financing Platform • Launched India’s first completion financing platform for the real estate sector • Platform will house funds that will buy out existing real estate loans and provide requisite completion financing; Funds will be managed by Edelweiss’ Alternative Asset Management business • First fund of this platform of $425 mn is closed with Meritz Group • The platform is targeting to raise $1 bn over the next 12 months from similar International Institutional investors About Meritz Group • Meritz Group is a South Korean financial conglomerate with a presence in securities & broking, insurance and investment banking • Has been a pioneer in real estate investing in South Korea & globally • Renowned for its understanding and deep expertise in real estate investing both in Korea and globally The funds will combine investor capital with our operational capabilities in project management as well as workouts and recoveries 7
Fund Raise in EGIA - $150 mn Target Raise • Sanaka Growth SPV I Ltd (part of Sanaka Capital) has committed to invest ~$44 mn (~INR 308 Cr) of growth equity in EGIA in the form of compulsorily convertible instrument • We and Sanaka are in talks with other investors alongside for a further investment of ~$31 mn (~INR 217 Cr) in EGIA • Sanaka is a growth-focused private equity fund founded by Mr. Shankar Narayanan, an industry veteran with over 25 years of experience of private equity investment in India and other Asian countries • Sanaka targets to achieve capital appreciation from investing in high-quality, growth-oriented, mid-market companies led by entrepreneurial passionate teams • This is in line with our strategic plan of having separate business groups with distinct entities, ring fenced capital base and independent Board 8
We Continue to Forge Strong Partnerships Tokio Marine Allianz CDPQ Bank of Singapore We are proud to have been chosen by partners who embody the highest standards of quality and governance 9
PPOP Remains Adequate For Enhanced Credit Costs PPOP Credit costs (INR Cr) 3,000 2,530 2,500 2,287 2,000 1,820* 1,492 1,500 933 1,000 892* 733 676 456 500 319 910 160 134 446 0 FY15 FY16 FY17 FY18 FY19 H1FY20 While the enhanced credit costs will impact P&L for FY20, we do not expect any balance sheet impact on account of asset quality 10 * Annualized number; Pre Provisioning Operating Profit (PPOP) are Ex-Insurance numbers
PAT Distribution Across Businesses (INR Cr) Q2FY19 Q1FY20 Q2FY20 Total Consolidated Post MI PAT 272 132 51 37 Credit 215 111 Asset Reconstruction 34 63 44 Advisory 76 68 53 Insurance (50) (50) (42) BMU & Corporate (2) (59) (41) Total Ex-Insurance Post MI PAT 322 182 93 Balance Sheet 59,433 54,513 49,734 11
Key Profitability Ratios Q2FY19 Q1FY20 Q2FY20 Ex-Insurance PPOP 4.6% 4.0% 2.8% Credit Costs 0.9% 1.9% 1.5% RoA 2.5% 1.7% 1.0% RoE 19.1% 10.2% 5.1% Cost to Income Ratio 47% 50% 56% Q2FY19 Q1FY20 Q2FY20 Consolidated RoA 1.9% 1.0% 0.5% RoE 14.7% 6.8% 2.6% Cost to Income Ratio 61% 67% 73% Ex-Insurance RoA and RoE for H1FY20 are 1.3% and 7.7% 12 RoA is Pre Minority Interest; Pre Provision Operating Profit (PPOP) and credit costs are as a % of Average Balance Sheet
Diversified Business Model… Business Segments (INR Cr) Q2FY20 Pre MI PAT % Contribution Retail Credit 31 23% Corporate Credit 6 4% Asset Reconstruction Business 73 54% Wealth Management and Capital Markets 38 28% Asset Management 15 11% BMU & Corporate (26) (20%) Total Ex- Insurance Pre MI PAT 136 100% Insurance Pre MI PAT (68) - Total Consolidated Pre MI PAT 68 - …makes us resilient even in a tough market environment 13
Steady Growth in Customer Assets As on 30 th September, 2019 (rounded off to nearest 100) YoY Growth INR Cr Customer Assets 2,02,400 7% Assets under Advice (Wealth Management) 1,07,800 10% Funds under Management (Asset Management) 34,900 2% Asset Reconstruction (ARC) Assets under Management 38,200 (5%) Assets under Custody & Clearing 21,500 35% 14 Edelweiss contribution has been excluded from Asset Reconstruction (ARC assets) and Funds under Management (Asset Management)
Debt Equity Ratio declines further to 3.4x D/E (Excluding Treasury Assets) 5.2 5.2 5.0 5.0 4.4 3.7 3.4 FY15 FY16 FY17 FY18 FY19 Q1FY20 Q2FY20 15
Business Performance Highlights CREDIT Retail Credit – Corporate Credit
Credit Business Mix Capital As on 30 th September, 2019 Employed % (INR Cr) Retail Credit 15,111 48% Retail Mortgage 8,075 26% Blend of loans to home owners and home buyers 3,821 12% SME & Business Loans Under-served and highly scalable market, key focus area ESOP and Margin Financing 2,943 9% Catering to customers in Wealth Mgmt and Capital Markets 272 1% Agri and Rural Finance Under-served market with low competitive intensity Corporate Credit 16,178 52% Customized credit solutions with robust risk management Structured Collateralised Credit 5,144 17% systems Wholesale Mortgage 11,034 35% Project financing for primarily residential properties Total Credit Book 31,289 100% 17
Credit Business at a Glance Q1FY20 Q2FY20 Credit Business (INR Cr) 33,968 31,289 Capital Employed Average Interest Yield 15.9% 14.6% Average Cost of Borrowing 10.3% 10.5% 7.0% 5.6% Net Interest Margin Net Interest Income 619 461 Cost to Income 41% 49% 367 237 Pre Provisioning Operating Profit Credit Costs 222 181 PAT (Pre MI) 111 37 1.2% 0.4% RoA RoE 9.3% 3.2% 18
Credit Business Performance Snapshot Q2FY20 (INR Cr) Total Retail Corporate 31,289 15,111 16,178 EOP Capital Employed 5,860 2,502 3,358 EOP Equity 461 221 240 Net Interest Income 37 31 6 PAT 5.6% 5.6% 5.7% Net Interest Margin Cost to Income 49% 48% 49% RoA 0.4% 0.8% 0.1% 3.2% 6.9% 0.8% RoE 19 All figures are Pre MI; EOP Equity includes CDPQ investment of INR 1,040 Cr in equity convertible instrument
Asset Quality at a Glance As on 30 th September,19 (INR Cr) Q1FY20 Q2FY20 Credit Book 32,328 29,725 Of which Stage 3 752 810 ECL Provision 836 803 Of which Stage 3 352 317 47% 39% Specific Provision Cover Total Provision Cover 111% 99% Gross NPA 2.33% 2.73% Net NPA 1.24% 1.66% 20 Credit Book excludes assets identified for sale in near future which have been carried at Fair Value through P&L
Retail Credit SME Retail Mortgage Capital Employed (INR Cr) Secured Unsecured HL LAP 14% 23% 11% 13% Average Yields % ~1 Cr 7 lacs 15 lacs 19 lacs Median Ticket Size (INR) 20,623 ~75% -85% - ~50%-60% Average LTV 16,981 Locations (#) 108 100 15,111 Loan Book - Geographical Split 19% 15% 1% 34% 33% 43% 4% 51% Q2FY19 Q1FY20 Q2FY20 SME Retail Mortgage North East West South 21
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