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Dalal Street Investment Journal - - EQUITY ANALYSIS -

Edel­weiss Fi­nan­cial Ser­vices Limited (EDEL), in­cor­po­rated in 1995, is a di­ver­si­fied fi­nan­cial ser­vices group. Since its in­cep­tion, the com­pany’s to­tal rev­enue has grown at a CAGR of 85 per cent up to FY17. Here, at DSIJ, we present an ex­clu­sive anal­y­sis of Edel­weiss Fi­nan­cial Ser­vices Limited, a lead­ing fi­nan­cial ser­vices group in India.

COM­PANY OVER­VIEW:

Edel­weiss Fi­nan­cial Ser­vices com­prises three scal­able busi­ness seg­ments, namely, credit, fran­chise and in­sur­ance.

The credit busi­ness of Edel­weiss con­sists of re­tail credit, cor­po­rate credit and dis­tressed as­sets res­o­lu­tion busi­ness (DARB). Its fran­chise busi­nesses in­clude wealth man­age­ment, as­set man­age­ment and cap­i­tal mar­kets. The com­pany has a client base of about 1.1 mil­lion, which it serves through more than 6900 em­ploy­ees based out of more than 275 do­mes­tic and in­ter­na­tional of­fices in more than 125 cities. The com­pany also has a net­work of over 4500 sub-bro­kers and au­tho­rized per­sons.

Over the years, Edel­weiss has ex­panded its busi­ness from cap­i­tal mar­kets to credit, as­set man­age­ment, life in­sur­ance and as­set re­con­struc­tion (ARC). Al­though Edel­weiss re­mains a niche player in the credit busi­ness, it is among the mar­ket lead­ers in as­set re­con­struc­tion, wealth man­age­ment and do­mes­tic cap­i­tal mar­kets. It is also one of the fastest grow­ing life in­sur­ance com­pany in India over the last three years. So far, the credit busi­ness has been the ma­jor con­trib­u­tor to the bot­tom­line. How­ever, the non-credit busi­nesses have im­proved and will soon start to make a mean­ing­ful con­tri­bu­tion to the bot­tom­line of the com­pany. The com­pany’s board has re­cently ap­proved rais­ing up to ₹2,000 crore through var­i­ous modes, in­clud­ing bonds, rights is­sue or qual­i­fied in­sti­tu­tional place­ment (QIP). Re­cently, CRISIL as­signed the rat­ing of 'CRISIL A1+' to the two pro­posed short term debt is­sues of the com­pany hav­ing is­sue size of ₹3000 crore each.

RE­TAIL CREDIT BUSI­NESS TO IN­CREASE

The com­pany’s credit book has grown at a three-year CAGR of 46 per cent. In FY17, the credit busi­ness con­trib­uted 73 per cent to the com­pany’s con­sol­i­dated profit. At the end of June 2017, Edel­weiss had an out­stand­ing credit book of ₹299 bil­lion. Cur­rently, about 49 per cent of the credit book com­prises of cor­po­rate credit. Over the next few years, the com­pany plans to in­crease the share of re­tail seg­ment in its credit book. In Q1FY18, re­tail loans formed 34 per cent of to­tal credit, which is likely to in­crease fur­ther. Main­tain­ing credit qual­ity is the key to sus­tain­able growth in the credit busi­ness. The com­pany fol­lows con­ser­va­tive risk man­age­ment prac­tices and fo­cuses only on col­lat­eral lend­ing. We ex­pect growth trends to re­main strong given the com­pany’s low share in the credit mar­ket and pres­ence across niche prod­uct cat­e­gories.

CAP­I­TAL MAR­KETS BUSI­NESS

Edel­weiss is a for­mi­da­ble player in the cap­i­tal mar­kets busi­ness and also a lead­ing do­mes­tic broking house. It en­joys a size­able mar­ket share in the broking and in­vest­ment bank­ing busi­nesses. In FY17, the com­pany’s rev­enue from the cap­i­tal mar­kets busi­ness grew by 22 per cent YOY to ₹556 crore, while the profit grew by 69 per cent YOY to ₹115 crore. Given the buoy­ant out­look for the In­dian cap­i­tal mar­kets, Edel­weiss is well placed to gain.

AGRI SER­VICES BUSI­NESS TO EX­PAND

Edel­weiss is ex­pand­ing its wings in the agri-ser­vices busi­ness. Cur­rently, the com­pany pro­vides ware­house and agri-credit ser­vices. As of March 2017, Edel­weiss op­er­ated about 435

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