US $ version Edelweiss Financial Services Limited Q4FY20 & FY20 Earnings Update
Contents FY20 Overview 1 3 12 Covid Impact Management 2 - Business 13 - Liquidity 14 - Asset Quality 15 16 Key Highlights Q4FY20 3 18 - Conservative Impairments 19 - Wholesale Sell-down 20 - Strong Capital Adequacy Plan Going Forward 4 21 27 Business Highlights 5 - ECL Finance Ltd. 28 38 - Wealth and Asset Management (EGIA) 46 - Edelweiss Asset Reconstruction Company Ltd. 51 - Edelweiss Tokio Life Insurance Company Ltd. Balance Sheet, Organization, Governance 6 59 67 2 ESG At Edelweiss 7
FY20 Overview
FY20 Overview Liquidity Net Worth $ 1,133 Mn $ 1,081 Mn Customer Assets BVPS $ 27,560 Mn $ 0.92 4
Diversified Business Model Across Ten Key Entities.. Edelweiss Financial Services Ltd Wealth & Asset Asset Credit Management Insurance Reconstruction (EGIA) • Edelweiss Securities Ltd • ECL Finance Ltd • Edelweiss Tokio Life Insurance Company • Edelweiss Broking Ltd Ltd • Edelweiss Retail • Edelweiss Asset Finance Ltd Reconstruction • Edelweiss Asset • Edelweiss General Company Ltd Management Ltd Insurance Company • Edelweiss Housing Ltd • Edelweiss Finance Ltd Alternative Asset Advisors Ltd 5
..And Four Businesses % share in % share in FY20 Net Revenue Headcount Credit 32% 22% Wealth & Asset 28% 31% Management Asset Reconstruction 10% 2% Insurance 30% 45% Wealth & Asset Management and ARC together use just ~1/3rd of total capital but constitute 38% of our revenues and 33% of our headcount 6
Our Businesses Are Well Capitalized Edelweiss Financial Services Ltd Equity: $ 1,133 Mn Wealth & Asset Asset Credit Management Insurance Reconstruction (EGIA) Equity Equity Equity Equity $ 154 Mn $ 270 Mn $ 116 Mn $ 621 Mn CDPQ Tokio Marine CDPQ Strong partners, independent operations and ring-fenced governance 7
FY20 Financial Snapshot Consolidated 9MFY20 Q4FY20 FY20 ($ Mn) 1,013 261 1,274 Revenue Interest Cost 483 153 636 530 108 638 Net Revenue Expenses 348 143 491 Impairment 338 1 473 1 134 PBT 48 (374) (326) PAT 27 (298) (271) Equity 1,348 1,133 1,133 8 1 Including Covid-related impairment of ~ $ 119 Mn PAT is excluding MI
Strong, Consistent Traction in Fee Income $ Mn Q1FY20 Q2FY20 Q3FY20 Q4FY20 FY20 Wealth And Asset Management 37 33 36 38 145 Fee Income ARC Fee Income 26 29 28 23 107 Total Fee Income 64 62 65 62 252 Maintained a run-rate of ~$ 65 Mn per quarter on fee income 9
Maintained Adequate Liquidity % of Borrowings 24% 24% 23% 18% 17% FY16 FY17 FY18 FY19 FY20 Available liquidity 531 769 1,406 1,340 1,081 ($ Mn) 10
More Than Adequate Capitalization Across Entities.. Equity Entity Metric Value ($ Mn) ECL Finance Ltd 467 21.0% Edelweiss Retail Finance Ltd 61 CAPAD 29.4% Edelweiss Housing Finance Ltd 102 28.6% Wealth & Asset Management 154 Annual Fee Income $ 133 Mn Edelweiss Asset Reconstruction Company Ltd 270 CAPAD 32.5% Edelweiss Tokio Life Insurance Ltd 99 232% Solvency Ratio Edelweiss General Insurance Company Ltd 17 236% ..Despite taking conservative impairment on assets 11
Covid Impact Management
Covid - Impact on Business Digital operating model enabled seamless BAU during lockdown in our businesses Credit Impact on liquidity, asset quality and growth; Continues to be well-capitalized Fee revenue, Net New Money and number of customers continued to grow in last Wealth & Asset Management three months ARC Fee income remains robust with strong pipeline visibility Digitally enabled LI & GI outperformed the industry to remain amongst the fastest Insurance growing 13
Covid - Impact on Liquidity $ Mn Covid Impact in H1FY21 531 Mitigated by.. LTRO 133 Already closed Bank Lines 133 Based on on-going discussions under PCG Additional Based on on-going discussions 133 Asset Sales Drawn from 133 Reserve 14
Covid - Impact on Asset Quality $ Mn Credit ~66 ARC ~27 Impairment ~27 on investments Total Covid Impact ~119 ~$ 119 Mn solely for Covid-related impairment taken in advance in Q4FY20 15
Key Highlights – Q4FY20
Revised Expected Credit Loss Model Reviewed and revised our Expected Credit Loss model internally as announced in Q3FY20 taking into account changes in the market environment Commissioned an independent review by a reputed international consulting firm on our wholesale portfolio Revision of model gave a pre-Covid impairment on portfolio of ~$ 159 Mn 17
Adopted Conservative Stance On Q4 Impairments $ Mn Estimated impairment after revision of Expected Credit Loss model ~ 159 ~ 66 Additional impairment taken to facilitate sell-down ~ 119 Impairment taken on account of Covid 18
Wholesale Portfolio Scale Down Continues To Be Area Of Focus 1 ECL Finance’s wholesale loan book has come down by 43% from peak This has been enabled by organic repayments as well as asset sell-down transactions like the RE 2 completion financing platform with Meritz 3 We have also recently finalised a sell-down transaction of $ 531 Mn with two global investors 4 We intend to sell-down another $ 398 Mn of wholesale portfolio in FY21 19
Strong Capital Adequacy Even After Q4 Impairments ECL Finance Capital Adequacy 21.0% 19.3% 17.2% 16.6% 16.5% FY16 FY17 FY18 FY19 FY20 Capital adequacy supported by reduction in Credit book of ~$ 1,460 Mn in last 12 months 20
Plan Going Forward
Consolidation and Strengthening In FY21 Through.. 1 Active Covid Impact Management 2 Equity Capital Raise 3 Capital Re-allocation 4 Enhancing Productivity and Efficiencies 22
1 Covid Impact Management Will Be Key In Near Term Liquidity • Intensified customer connect to manage moratorium impact • Working with banks for funding under LTRO, PCG and other liquidity mechanisms Asset Quality • Focused on minimizing incremental Covid related slippage through active portfolio management • Ramped up collection efforts significantly 23
2 Proposed Equity Capital Raise In talks to raise $ 130-200 Mn of equity capital in Wealth & Asset Management (EGIA) Expect to finalise in the next six to eight weeks Board approval in place to raise equity, if required, of ~ $ 130-200 Mn in EFSL Expect to raise $ 200 - 265 Mn of total equity capital in FY21 24
3 Capital Re-allocation Transformation to capital-light credit model will release equity progressively through FY21 and FY22 Will prioritize capital allocation, as required, to growth businesses 25
4 Focus On Productivity And Efficiency Cost rationalization across businesses – expect to achieve efficiencies of 18-20% this year Leverage technology as businesses become more retail-oriented Simplification continues, streamlining structures and processes 26
Business Highlights
ECL Finance Ltd
ECL Finance Ltd ECL Finance At A Glance: FY20 Net Worth Loan Book $ 467 Mn $ 1,776 Mn Liquidity CAPAD $ 670 Mn 21.0% ECL Finance has ~40% of the book in retail credit assets 29
ECL Finance Ltd Business Performance Snapshot FY20 ($ Mn) ECL Finance EOP Loan Book 1,776 EOP Equity 467 Net Revenue 158 Operating Expenses 83 Credit Costs 310 Profit After Tax (188) Net Interest Margin 5.2% GNPA 3.8% Total provision cover 143% 30
ECL Finance Ltd Reducing Wholesale Assets ECL Finance Wholesale Loan Book ($ Mn) 1,956 1,900 1,855 1,827 1,783 1,559 1,113 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 31
ECL Finance Ltd Improved Capital Adequacy Even After Q4 Impairments ECL Finance Capital Adequacy 21.0% 19.3% 17.2% 16.6% 16.5% FY16 FY17 FY18 FY19 FY20 32
ECL Finance Ltd Adequate Liquidity Maintained Throughout FY20 % of Borrowings 30% 28% 26% 23% 22% Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Available liquidity 756 670 610 769 670 ($ Mn ) 33
ECL Finance Ltd FY21 Priorities Capital Light Model • Prioritizing existing customers and helping them navigate the post Covid scenario Retail Retail Credit • Use lockdown experience to improve cost efficiencies and productivity Credit • Focus on completing buildout of tech & analytics led platform • Collaboration with Banks – Co-lending, On-lending and Securitization Expedite Sell-Down, release equity • Maintain adequate liquidity until the sell-down is complete Corporate Corporate Credit • Preserve Asset Quality - Working closely with customers and monitoring cashflows Credit 34
Edelweiss Retail Finance Ltd (ERFL) Edelweiss Housing Finance Ltd (EHFL)
ERFL/EHFL FY20 At A Glance Edelweiss Retail Finance Limited Loan Book Net Worth Capital Adequacy $ 61 Mn 29.4% $ 185 Mn Edelweiss Housing Finance Limited Loan Book Capital Adequacy Net Worth 28.6% $ 102 Mn $ 574 Mn 36
ERFL/EHFL Business Performance Snapshot FY20 ($ Mn) ERFL EHFL EOP Loan Book 185 574 EOP Equity 61 102 Net Revenue 15 25 Operating Expenses 5 20 Credit Costs 10 5 Profit After Tax 0.1 0.3 Net Interest Margin 7.0% 3.8% GNPA 2.4% 1.7% Total Provision Cover 129% 54% Cover provided by provisions and collateral are adequate and monitored closely 37
Wealth & Asset Management (EGIA)
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