Edelweiss Financial Services Limited · NSE:EDELWEISS
Edelweiss Financial Services — Investor Day (September 2018)
88 slides from Edelweiss Financial Services's investor day presentation, Sep 24, 2018
Slide 1: Investor Day 2018 filing cover letter to NSE
EVV/Sec/2018/327 September 24,2018 National Stock Exchange of India Limited Exchange Plaza, Bandra Kurla Complex, Bandra (E), Mumbai- 400 051. Dear Sirs, Ref.:- Symbol- EDELWEISS Sub: Investor Day 2018- Presentation In accordance with the provisions of the SEBI (Listing C)bligations and Disclosure R
Slide 2: Edelweiss Investor Day
Edelweiss Investor Day September 24th, 2018
Slide 3: Our Strategy and Approach; Our Businesses; Building a High Quality Organisation
Our Strategy and Approach Our Businesses Building a High Quality Organisation Closing Remarks 2
Slide 4: Our Strategy and Approach
Our Strategy and Approach 3
Slide 5: Who?
Who? 4
Slide 6: Our Business Model makes it Hard to Categorize Us
Our Business Model makes it Hard to Categorize Us 5
Slide 7: We Have Evolved Into a Diversified Bank-Like NBFC
We Have Evolved Into a… …Diversified Bank – Like NBFC Credit Franchise & Advisory Insurance • Retail Credit • Wealth Management • Life Insurance • Corporate Credit • Asset Management • General Insurance • Distressed Credit • Capital Markets 6
Slide 8: Why?
Why? 7
Slide 9: India is a Capital Surplus Country
India is a Capital Surplus Country 8
Slide 10: We took ~60 years to reach a GDP of USD 1 trillion
We took ~60 years to reach a GDP of USD 1 trillion India GDP USD billion 2,000 1,000 20 1947 2007 2015 However, the next trillion came in only 8 years! 9
Slide 11: Deposits and Credit growth has been strong in last two decades
Deposits and Credit growth has been strong in last two decades… INR trillion 2x every ~4.5 years Deposit 6 12 25 50 100 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Credit 4 9 19 38 75 2x every ~4 years 10
Slide 12: Household Wealth growth is also one of the fastest globally
Household Wealth growth is also one of the fastest globally … Household Wealth (USD billion) 2007 2017 CAGR U.S.A. 52,000 62,000 20% China 8,300 25,000 198% Japan 16,000 19,500 22% UK 10,000 10,000 0% 9,600 9,600 0% Germany AfrAsia Bank Global India 3,000 8,200 160% 11 Wealth Report
Slide 13: India's Golden Age of compounding has started
India’s Golden Age of compounding has started… USD billion ~500 2000 2500 5000 2000 2015 2017 2025 …Will propel India to become the 3rd largest economy by 2025 12
Slide 14: This scale up will be driven by some key trends
This scale up will be driven by some key trends… 1 Financialization of Assets 2 Democratization of Credit 3 Privatization of Financial Services …accompanied by a lot of volatility and change 13
Slide 15: Opportunities on both sides of Household Balance Sheet
…Providing ample opportunities on both sides of Household Balance Sheet 14
Slide 16: While Edelweiss is gearing itself to capture this long term growth opportunity
While Edelweiss is gearing itself to capture this long term growth opportunity… 15
Slide 17: Profits will not come at the expense of Balance Sheet
Profits will not come at the expense of Balance Sheet… 16
Slide 18: How?
How? 17
Slide 19: Diversification
Diversification 18
Slide 20: Long Term Orientation
Long Term Orientation (*)
Slide 21: Counter cyclical investments, Asymmetrical Payoffs
1 Counter cyclical investments… … Asymmetrical Payoffs 20
Slide 22: Building Platform Before Scale
2 Building Platform… … Before Scale 21
Slide 23: Organisation before Business
3 Organisation before Business 22
Slide 24: Where are we today?
Where are we today? 23
Slide 25: We have grown manifold
We have grown manifold… From FY12 to now INR Cr Profit after Tax Customer Assets 1,056* 1,78,200 35% 66% 128 7,500 Balance Sheet Retail Credit Book 61,785 18,465 28% 49% 13,289 1,535 CAGR *Annualised 24
Slide 26: PAT CAGR of 38% over 9 quarters
…Consistently across business cycles… PAT CAGR of 38% over 29 quarters 25
Slide 27: Our business verticals contribute between 6%-17% to PAT
…Without dependence on any one business… Our 8 business verticals contribute between 6%-17% to PAT 26
Slide 28: With significant focus on ALCO, ALM and liquidity
…with significant focus on… ALCO Interest rate sensitivity Liquidity cushion ALM 27
Slide 29: Becoming market leaders
…Becoming market leaders … Leadership Distressed Assets Credit Wealth Management Alternatives Capital Markets 28
Slide 30: 11,500 employees, 450 offices globally
…and expanding footprint… 11,500 employees 11,000,00 clients 450 offices globally 29
Slide 31: What Next?
What Next ? 30
Slide 32: Project Everest
Over the years, we have always had aspirational targets for Edelweiss 2004 10 by 10 2012 Asp 2020 2017 Project Everest 31
Slide 33: Project Everest is about
Project Everest is about… Continuing growth Building a respected organisation Exceeding expectations of all stakeholders 32
Slide 34: Key Aspects
Growth strategy Simplifying our structure Key Leadership alignment and succession planning Aspects Improving customer experience Continuous focus on risk management and governance 33
Slide 35: Execution is EVERYTHING
Execution is EVERYTHING Vision without execution is daydreaming.
Slide 36: Our Businesses
Our W oD) Vv) Vv) bd) = Vv) =) CO
Slide 37: Credit
Credit 36
Slide 38: Industry Landscape | Market Sizing
Industry Landscape | Market Sizing INR Tn FY04 FY18 28 168 104 9 Nominal Nominal Credit Credit GDP GDP Credit/GDP 32% 62% Source: RBI, CRISIL, Edelweiss Internal Estimates 37
Slide 39: Credit Supply
Credit Supply Pvt. Private 72% Bank FY04 27% Public 73% NBFC* 28% 59% Pvt. Private Bank FY18 57% 43% Public NBFC* 41% Source: RBI, CRISIL, Edelweiss Internal Estimates, market share excluding foreign bank 38 * including Housing Finance companies
Slide 40: Credit Market Segmentation
Credit Market Segmentation FY18 Credit 104 INR Tn Wholesale Retail ~57 ~47 Large Corp Mid Corp Auto & MSME Mortgages Others Working Capital Home Loan 4 Wheeler Used /New Project Loans Affordable Commercial – Fleet / Single Structured Lending LAP Owner Credit Card, Personal Loans, Consumer Durables,
Slide 41: RoA Range
RoA Range Consumer Durables > 3% Microfinance, Personal Loans, Real Estate Loans Affordable Housing 2% - 3% Mid Market Commercial Vehicle Loans Home Loans < 2% Loan Against Property Source: Company Annual Reports, CRISIL, Edelweiss Internal Estimates 40
Slide 42: Journey so far
Journey so far 2018 2015 Commercial lending 2012 Agri Loans 2011 SME 2010 Affordable LAP Housing 2009 Home Loans 2006 Distressed Credit LAS RE Loans Structured Finance 41
Slide 43: Diversified Credit Book
Credit Book Q1FY19 INR Cr Credit Book 45,206 Cr Retail Corporate Distressed 18,465 Cr 20,201 Cr 6,540 Cr % share of 41% 45% 14% total book Diversified Credit Book 42
Slide 44: Key Differentiators
Key Differentiators Growth with Right Diversification Risk Pricing and Monitoring Streamlining Processes Leverage Analytics & Technology Customer Understanding and Experience 43
Slide 45: We are leaders in a specialized Distressed Assets opportunity space
We are leaders in a specialized opportunity space Distressed Assets 44
Slide 46: Steady growth in Distressed Assets business
Steady growth in Distressed Assets business Capital Employed (INR Cr) 6,540 6,297 Well diversified portfolio of mostly operating assets 4,781 1,896 Domain expertise and asset 1,226 turnaround capabilities 325 FY14 FY 15 FY 16 FY 17 FY18 Q1FY19 AUM 9,200 20,300 27,100 39,500 44,100 43,700 45
Slide 47: Our Distressed Assets business model
Our Distressed Assets business model FY18 (INR Cr) Nominal value of debt acquired 93,700 Price paid @ avg. 50% discount 46,200 Capital Employed 6,300 Yield of ~16% on 833 average capital Total Income employed 192 RoA 3.6% and RoE 0f PAT 20% for FY18 Avg. expected higher recovery @ 10% 4,600 Carry on
Slide 48: What makes Edelweiss distressed assets business successful
What makes Edelweiss distressed assets business successful 1 Focus on good operating assets with weak promoters 2 Access to capital – strong parent & strong relationships with funds and institutions 3 Deep relationships – ARC has acquired assets from 51 banks 4 Industry relationships & domain knowle
Slide 49: Franchise & Advisory
Franchise & Advisory 48
Slide 50: Wealth Management: Large and growing Opportunity
Wealth Management: Large and growing Opportunity 2018 2025 GDP $2.5 T 2x $5 T Stock of wealth $5 T 2x $10 T Household Financial $3 T 2.7 x $8 T Assets Advised wealth $300 B 4x $1.2 T Demand is NOT a constraint ! 49 Source: Includes only financial assets; Source: Mckinsey, Kotak and CLSA report, inte
Slide 51: We are amongst the top players in the country
We are amongst the top players in the country Industry leading AuM growth (INR Cr) 96,300 90,100 60,300 29,500 17,700 7,000 8,900 4,800 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Q1FY19 50
Slide 52: Operating leverage has started to kick in
Operating leverage has started to kick in … INR Cr FY15 Q1FY19 Steady State AUM 18 K 96K 200K Cost to Income 90% 66% 55%-60% PAT Yield (bps) <8 ~15 ~25 51
Slide 53: Our differentiators
Our differentiators.. • More like Charles Schwaab than Merril lynch Platform led • Deep specialization: Segmentation, Productization, Organization alignment • Targeted the entire client continuum: Affluent, HNI and UHNIs Diversified client • Diversified model delivers consistency in growth & granula
Slide 54: Well recognized by clients and stakeholders
Well recognized by clients and stakeholders Best Private Bank Asiamoney Best Bank Awards 2018 Best Wealth Manager – Rising Star, India The Asset, Hong Kong, 2017 Excellence in Wealth Management India Asian Private Banker, Hong Kong, 2017 Best Consumer Mobile Service Award CMO Asia- BBC Knowledge’s,
Slide 55: Asset Management: Alternatives is becoming mainstream in India
Asset Management: Alternatives is becoming mainstream in India… INR Trn 2.0 1.1 0.7 0.4 0.5 0.2 2013 2014 2015 2016 2017 2018 Offshore India focused funds add another 2 Trn making it a large opportunity 54
Slide 56: And is large and profitable
….And is large and profitable … Globally Alternatives account for 15% of the AuM……but 40% of profit pool In India, Alternatives accounts for ~10% of the total AuM and expected to grow to 25% of the market (INR ~20 Trn) over the next 7-8 years Profit pool share of Alternatives likely to grow to ~40%-
Slide 57: Fulfilling client's need for Yield
Fulfilling client’s need for Yield…. Global demand • Globally yields have come down Alternatives • India offers superior yields ~10% - 16% Mutual Funds Return ~8% - 14% Domestic demand • There is an increased appetite for FD ~4% yield amongst domestic investors Risk Double digit return with low vola
Slide 58: We have established leadership in Alternatives
We have established leadership in Alternatives Alternative Assets - AuM • Offer full range of alternative solutions (INR Cr) • One of the top 5 Asia-based fund manager by aggregate capital raised in the last 10 20,100 years 17,700 • Raised ~3,500 Cr onshore over the last 6 11,400 months • Ability to
Slide 59: Capital Markets: Present across the spectrum
Capital Markets: Present across the spectrum PRODUCT SUB-PRODUCT OVERVIEW • Largest domestic institutional brokerage house in India Institutional Institutional • Serviced 650 FIIs and DIIs till date. Security Services Equites • Market leader in the derivatives space. • Research covering ~255 stocks
Slide 60: Awards & Recognition
Awards & Recognition etn ter nin (> ACHIEVEMENT ~~) g mtr 17. AWARDS ~O A 4 4 ‘FinanceAsia is ° \ 2017 4 “re CLIENT'S QUOTE FROMTHE Ge SURVEY INSURANCE sROKERS c>
Slide 61: Edelweiss Franchise & Advisory Differentiators
Edelweiss Franchise & Advisory Differentiators 1 Platform Led rather than person led 2 Dominant in our chosen segments 3 Client Centricity – enabled with Technology 60
Slide 62: Life Insurance
Life Insurance 61
Slide 63: Insurance opportunity space: INR 4.6 Tn
Insurance opportunity space < 5% INR 4.6 Tn Premium towards protection Annual life insurance collected premium > 95% Investment driven products Based on reported figures & internal 62 estimates
Slide 64: Life Insurance
Primary household savings flows into insurance Household Life Financial 18-20% Insurance Assets Largest chunk of household financial assets after banks 63 Source: RBI
Slide 65: Life Insurance is another form of asset management business
Life Insurance is another form of asset management business Assets under Management Life Insurance Mutual Funds INR INR 34Tn 25 Tn 64 Based on reported figures & internal estimates
Slide 66: Our structure: Edelweiss Tokio Marine
Our structure India understanding Capital Edelweiss Tokio Investment 51% Marine management Global presence 49% expertise Distribution 140 years insurance capabilities experience 65
Slide 67: Business economics: long term value creation
Business economics : long term value creation 16-18% Steady state industry IRR* 3-4% IRR kicker for Edelweiss 66
Slide 68: Business economics: long term value creation
Business economics : long term value creation Commenced operations - February 2018 Customer centric Technology Experienced team Product roll out new age player at the core in place in next 6 months 67
Slide 69: But all this requires ....
fa™ VE, But all this requires ....
Slide 70: Building a High Quality Organization
…Building a High Quality Organization 69
Slide 71: Pillars of a Quality Organisation
4 Pillars of a Quality Organisation Risk & Culture Leadership Technology Governance 70
Slide 72: Leadership & Culture
Leadership & Culture Common Ethos Empowerment & shared ownership Develop & Attract Talent Home grown & lateral 71
Slide 73: Leadership: Deep and Growing Talent Pool
Leadership: Deep and Growing Talent Pool Avg. experience in Leadership Groups Edelweiss (in years) Ex Co (10) 15 Strategic Direction Manco (including Ex Co) (56) 8 Senior Leaders (229) 7 Managerial Muscle Business Leaders (283) 6 Emerging Leaders (116) 3 72
Slide 74: Risk Management
Risk Management We are a risk is it worth it? conscious company can we afford it? 73
Slide 75: Enterprise risk management approach
Enterprise risk management approach Regulatory & Business Risk Credit Risk Liquidity Risk Market Risk Reputational Risk Physical Operational Technology Infrastructure People Risk & Process Fraud Risk Risk Risk Risk Evaluate unknown risks as well 74
Slide 76: Our Risk and Governance Structure
Our Risk and Governance Structure Oversight by Board Risk Committee Global Risk Committee Business Risk Global Risk Group Enterprise Risk Corporate Group Management Controller & Audit Committee 75
Slide 77: Technology as a strategic differentiator
Technology as a strategic differentiator Technology spends (INR Cr) Customer Acquisition 425 - 450 Scale & Efficiency 300+ 200+ 150+ Customer Experience Risk Management FY16 FY17 FY18 FY19B 76
Slide 78: Quality is not an act, it is a habit
Om Quality is not an act, it is a Wwabit. Aristotle
Slide 79: Closing Remarks
Closing Remarks 78
Slide 80: There has been a great transformation in Indian Equity Markets
There has been a great transformation in Indian Equity Markets… 79
Slide 81: It is easy to forget this amidst the volatility
It is easy to forget this amidst the volatility… Long-term trend continues to be upwards! 80 Nifty 50 data
Slide 82: Credit markets are at the cusp of a change
Credit markets are at the cusp of a change… Households looking for yields Credit Corporates short of equity is the new Retail borrowers are not afraid to borrow Equity ! 81
Slide 83: Our diversified platform is poised to benefit from these changes
…And our diversified platform is poised to benefit from these changes… Mature Scaling Up Nascent Corporate Credit Retail Credit Agri Credit Distressed Credit Wealth Management General Insurance Capital Markets Asset Management Life Insurance …As our Businesses are at different inflection points 82
Slide 84: Amundsen Vs Scott - Race to the South Pole
Amundsen Vs Scott - Race to the South Pole Amundsen’s philosophy: “You prepare with intensity, all the time, so that when conditions turn against you, you can draw from a deep reservoir of strength” “And equally, you prepare so that when conditions turn in your favor, you can strike hard” 83
Slide 85: We are preparing through Project Everest
…We are preparing through Project Everest 84
Slide 86: What can you expect from us?
What can you expect from us ? Simplicity Right kind Transparency of growth Governance hunger Exceptional People 85
Slide 87: Q&A
Q A 86
Slide 88: Safe Harbour
Safe Harbour DISCLAIMERS: This presentation and the discussion may contain certain words or phrases that are forward - looking statements, which are tentative, based on current expectations of the management of Edelweiss Financial Services Ltd. or any of its subsidiaries and associate companies (“Ed
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