Edelweiss Financial Services Limited

Adequate capitalization, supported by multiple capital raises

- Demonstrated its ability to raise capital from global investors across businesses, despite the tough macro environment

- The scale-down of the lending business in the past few quarters, borrowings have also come down. With this, gearing has improved to 2.8 times as on December 31, 2021 (~3 times as on March 31, 2021) from ~4 times as on March 31, 2020

Diversified revenue stream with presence in credit and non-credit segments

- A diversified financial services player engaged in the credit, capital markets and other advisory businesses. It commenced operations in the capital markets related business and established a leading position in the institutional equity broking and investment banking segments over the years

- The Group draws the advantage of a healthy fee and advisory income, which stood at Rs. 1,444 Cr (~21% of total revenue from operations) in FY2022 compared to Rs. 1,654 Cr (~18% of total revenue from operations) in FY2021

Strong presence in asset reconstruction space and capital markets

- The Group has successfully ramped up its scale of operations with EARC emerging as the largest player in the asset reconstruction business in India with AUM of Rs. 40,251 Cr as of March 31, 2022 (Rs. 40,473 Cr as on March 31, 2021), up from Rs. 9,245 Cr as on March 31, 2014

- Additionally, the Group has a stake of ~44% in the wealth management business, which reported a 30% year-on-year (YoY) growth in the assets under advice to ~Rs. 2,02,000 Cr as of March 31, 2022

Asset quality remains vulnerable

- Asset quality of the wholesale book remains vulnerable due to its exposure to the real estate segment and stressed mid-tier borrowers in structured credit

- Wholesale loan book remains concentrated with 10 largest loans constituting ~39% of the wholesale portfolio

- Sharp weakening of asset quality, specifically in the wholesale lending book, will impact profitability as well as capitalization and remains a key rating monitorable

Lower profitability than peers

- Reported net profit of Rs 254 crore in fiscal 2021, supported by one-off income as compared to loss of Rs 2,044 crore in fiscal 2020

- Around 20% of the capital (equity plus borrowings) is employed in businesses or investments that are either low-yielding or loss-making at this point

- Furthermore, the life and general insurance businesses remain loss-making, given their long gestation periods. Breakeven in the insurance business will benefit overall profitability over the medium term