Edelweiss Financial Services Limited (EDELWEISS) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good afternoon and welcome to the first quarter F527 earnings conference call of Edelweiss Financial Services Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star 10-0 on your touch-down phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Priyadeep Chopra, President, Edelweiss Financial Services Limited. Thank you, and over to you, ma'am.

Thank you very much, Renju, and good afternoon, everyone.

A very warm welcome to our earnings call today. We have on the call with us Racheesh Shah, Chairman of Edelweiss, Ananya Senejad, Chief Financial Officer of Edelweiss Financial Services, and Amit Agarwal, who is the CEO of Alternative Asset Management Business. We hope you all had a chance to review the investor presentation that we filed. This quarter, we've also filed a deep, in-depth presentation on our alternative asset management business, and during the discussion, we will be making references to it. Please do take a moment to review the safe harbor statements in our presentation. We will be making some statements today that may be forward-looking in nature and hence may involve some risk and uncertainty. With that, I'll hand over the call to Rashish to begin the proceeding. Thank you all, and over to you, Rashish.

Hey, Priya. Thank you, and good afternoon to all of you on this quarterly earnings call. There is a lot of excitement going on in India, and I'm sure all of you have a very busy schedule. But the fact that all of you have joined on this call, you know, a few times. In the past also, and have come today, we are very thankful, and thank you once again, and a warm welcome. I'll just kick off by saying there is not much to speak about the external environment. The last one year, there has been volatility, but within that volatility, there has been stability. I think India has obviously also been affected by the global volatility, oil price, the Iran war. But within that, our markets have been stable, our economy has been stable, the government and RBI has done great work. So I won't speak too much about that. I think India continues the way it has continued for many years now. But coming to Edelweiss, we have had a good quarter. Our consolidated profit after minority interest has grown by 83% on a worldwide basis. We are at 122 crores profit after tax consolidated for the quarter. The key highlights for the business have been First, of course, is our alternative asset management business, EAAA. The CEO of EAAA, Amit Agarwal, is also on this call, and after I finish, maybe he'll say a few words, and then we will start on the Q&A. So, alternative asset management business, where we are one of the leaders, continues to grow well. Our fee-paying AUM, which is the most important metric. has grown by 27% to 48,623 crores. Quarterly profit has grown by 45%. For the first quarter, we clocked 81 crore stat for the business, and we are currently at a 29% ROE on this business. Afterwards, Amit will say a couple of words. We are obviously working towards an IPO for this business, so there is only so much we can say given the DRSP and all, but it's a very exciting phase for that business for us. Our other asset management business, the mutual fund business, has also grown equity, AUM, by 32%. We are at the end of June. We were at 96,000 crore equity AUM. After that, obviously, we have crossed that in the month of July. But again, it also has had a good growth clip going on. Our Zulu business, the general insurance, It has also had a good quarter. Our GWP increased by 58%. And we are very focused on the motor side. And the motor insurance has been growing pretty well. The other good news is that on the wholesale book, ECL Finance, We have been winding down the wholesale book, the SR that we have had, and we are now down to 600 crores from a peak of 18,000 crores. So the project on wholesale wind down is almost over. I think at 600 crores, we are very comfortable that in the next few quarters, this will go to zero. But what was 18,000 crore a few years ago is zero. So I think our wholesale scale down has been a good clip on this quarter. On our Edelweiss asset tree construction company also has started growing again. We're acquiring assets. We're seeing a lot of NPAs in the banking and the NBFC system. So we are seeing good growth. That business also has achieved a 13% annualized ROE for the quarter. So our focus on that business has been on ROE. As you know, we've been keeping along at 10 to 11% ROE, but we want to be at 14-15% ROE in that business, and the ROE improvement has also suffered. And lastly, the most important one, both our insurance businesses continue to be on the path to breakeven. We should be breakeven for the year FY27. A few of you had asked us whether breakeven will be by the fourth quarter or it will be for the year FY27. We are on path to our stated target of breakeven in the year FY27. So long as that, we continue to grow our customer franchise. Our total customer reach has now become 14 million people. It's grown by 30% YOY, and we have a total customer assets of 2.8 trillion rupees. So that has also grown by 23% on a YOY basis. I think all our businesses continue to be well capitalized, good capital advocacy, good solvency in the insurance business. On the strategic areas that we continue to remain focused on, one is EAAA listed. It is on track. We expect to do the IPO by the third quarter of this year. The Carlyle investment in Niro is progressing. We are in process of getting all the regulatory approval. We expect to close this in the next four weeks. The scaling up of the profit after tax in asset management businesses, both of them have had a good growth. EAAA profit has grown by 45% and mutual fund profit has grown by 33%. Our insurance businesses are on the path to breakeven, and our credit businesses have started scaling up very carefully. Housing finance AUM has grown by 14% YOY, and our MSME AUM has increased by 94% YOY. It's still a small book. Our AUM is only 1,700 crores, but our disbursements for the first quarter have tripled YOY basis. So, basically, on all fronts, whatever was our plan, we continue to execute on that. The other news in alternative asset management is that we achieved the full exit in our first infra-yield fund, EYIP1. It is now a full exit. All the money has been returned to investors. And the other is we continue to strengthen our operating asset management platform called Sakura. Because, as Amit will explain, in EAAA, Sakura is a very important part of the platform of managing assets. So, other than that, there is a lot of details in our presentation. All mutual fund continues to grow. ARC acquired 300 crores of retail assets in this quarter, and we recovered 304 crores in the quarter. Housing Finance AUM is now 4,900 crores. Housing Finance, we have had to readjust the strategy because the co-lending model that we were working on has undergone a change as per the new RBI rules. So we have recalibrated the strategy in that business. In the ELI, it was a general insurance. We have a gross premium of 287 crores for the quarter. We issued 9,363 policies for the quarter, and more important, our embedded value now is at 2,306 crores in that business. We still continue to remain focused on power and non-power products in the insurance business. So with that, I think I would sum up and maybe just... Hand it over to my colleague, Amit Agarwal, CEO of EAAA, to say a few words, and then we can open it up for questions. Over to you, Amit.

Thank you, Ashish.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.

The first question comes from the line of Jihl

Lunakaria with Equirus Securities. Please go ahead.

Yeah, thank you.

So, I had multiple questions. So, sir, firstly, you mentioned about the eKPRE IPO that you are planning it in the third quarter of FY27. So, looking at the current improved market condition, is there any possibility that we can expect it earlier?

So, I'll get Amit to answer that. We have started our roadshows and all that. Sorry, we are about to start our roadshows and all, and we want to do a good marketing and all. So, I think as per now, October looks like a good time for us to achieve that. So, I think August and September, we want to make sure we have time for the investor roadshows. But Amit, you want to add something?

Thank you.

Good morning, everyone.

The RSP is already filed. The RSP will be filed, Amit, by then?

So, I think it is filed as close to the listing date as possible. So, we are with the bankers, and they are guiding us, and there are councils, Rashish, who are guiding us, and we will do it in an appropriate time.

Okay, understood. Secondly, I wanted to understand regarding the products and strategies.

I just want to add, we have already filed the DRSP and it is already approved by SEBI.

Okay, okay, understood. And secondly, I wanted to understand regarding the products and strategies. So, could you tell us more about the economics of yield and income strategies of EAA? And additionally, with the age strategies that are currently across these verticals, how do you see the product suit evolving going forward? And also, you recently launched a private equity firm. So, are there any other alternate asset categories that you are exploring to enter? And also, could you share the target fee paying AUMX in the medium term?

Yeah, Amit, you want to answer that?

So, we cannot make any forward-looking statements or any target AUMs on this business. Private equity being the latest line of business that we have recently.

This is the PAT yield. So if you look at most of the mutual funds in India, the PAT yield varies from 20 basis points of AUM to 40-45 basis points of AUM at the very upper end. I think in alternatives for most of the businesses, if you look at there are others like 361 and others, the PAT yield is usually between 50 basis points to 100 basis points of

the free-paying AUM. Okay, understood.

And coming to the last question regarding the listing of Edelwise AMC. So over the past year, we have seen multiple AMC listings with SBM Usual Fund as the latest one. So is listing Edelwise AMC something you would consider over the medium term? And how should we think about the long-term capital market strategy for this business?

So I think in the mutual fund, obviously, we remain focused on, you know, growth and innovation. To just make a general statement of all our businesses, at the right time, we would like to list all our businesses. We want to not, you know, exit the business, but we would like to get them listed by selling or IPO-ing with a small stake or, you know, even looking at demergers and all that, because we have found that being listed gives a lot of strength to our business. This institutionalization, continuity, stability, governance, guardrails, all of those become stronger. Even on the Nuama front, after we spun off the business, we have seen how strong the growth has been, but how strong the platform has become. So, on all of our businesses, insurance businesses, asset management business, at the right time, we want to make sure that the IPO timing, listing timing is right for the business. But eventually, we would aspire that all of our businesses should be listed independently on the road.

Okay, thank you so much for being here. That's it from my side.

Thank you. Next question comes from the line of Rajiv Rangwani with HDFC Securities.

Please go ahead. Mr. Rangwani, please go ahead. Yeah, can you?

Mr. Rangwani, yes, please go ahead.

Sorry. So, yeah, my question is that the ROE for EAAA has improved to 29% this quarter from around 26% in FY26. So... As this platform continues to scale, how should we think about sustainable ROI over the median term? Also, FPAUM and PAT also have shown very good growth in this quarter. So, what are your aspirations for FPAUM and PAT growth over the next few years, and what will be the key factors driving this trajectory?

Again, it's hard to make any forward-looking statement on how it will grow, but our approach has been that it isn't like any other asset management company, which will have fairly good dividend payout from the profits that it makes. So, I think an ideal good... Asset management companies should distribute, say, 50% of their profits as dividend, and the balance can be retained for growth and other, because in this business also, you have to make some co-investments in your funds. So I think given all of that, we do feel comfortable that a current ROE is pretty healthy, but a good asset management business should make about 30, I think between 25% to 35% ROE is a good target for an asset management business. And our business will evolve. As you can see, we are clipping along. For us, the first most important parameter is the fee-paying AUM, which over the last few years has grown at about… You know, close to 25% if you see that, and we would be keen to maintain that growth. So, I think fee-paying, even if it grows, then most of the other economics is fairly automatic. So, I think this is a...

And following the Westbridge transaction in the mutual fund business and the proposed listing of EAAA and ongoing transaction with Nido also, what are your plans to unlock value across the remaining businesses? Given that insurance business is also expected to break even this year, are there any plans to pursue value unlocking in these businesses?

So, look at value and locking. As you know, we have two prone objectives. One is to look at recycling our capital and also reducing the corporate debt. So, you would have seen the corporate debt has come down in this quarter. We'll continue to bring it down. We, of course, have assets like office building and property and all, which can support the debt, but we want to bring down the debt. So, with the needle transaction, with the EAAA transaction, I think this year we'll get into a comfortable zone for where we want to be on the corporate debt. So, our objective number one was obviously to use the capital for reducing corporate debt. Objective number two is, as I said, to unlock value, make this business independent, and use that value to share with the shareholders of Adelwise. And we continue to evaluate that. We are in no hurry because our businesses are growing pretty well, as you would have seen not just the last year, but the last three, four years, all our businesses have maintained a pretty good growth rate. So as long as the businesses are growing and we don't need to raise a lot of capital to reduce debt, We will do it for the business strengthening and the value unlocking perspective. We keep on getting a lot of inquiries from many people on insurance and others. And we just evaluate. We are very open-minded. We evaluate everything. We have learned the importance of having good investors in the individual businesses. So we continue to evaluate. And now our focus is on Carlyle-Monido transaction and the EAAA IP1.

Okay, thanks.

Thanks for having me.

Thank you. Next question comes from the line of Shriyansh Jain with IFL Capital AMC. Please cover it.

Oh, yeah. Hi. Thank you for the opportunity, sir. Just a couple of questions. Like, Zuno delivered around 6. Year-on-year growth this quarter, with the motor segment growing nearly 20% year-on-year. So it was significant ahead of industry growth, but would you please elaborate on the strategy on this side, like driving this strong performance and also beyond the more insurance, which product categories do you see as the key growth drivers after this?

Yeah, if you know, on the Zuno, we are very focused on the motor insurance. As you know, the two large segments in insurance are motor and health. We have not focused on health because we think the others with stronger advantages and a stronger network, and because we can only focus on what our strengths are, our focus has been on motor. We have done a lot of work on innovation, data-based, underwriting. We also have products like, you know, pay as you drive and know how you drive, and we focus a lot on telematics. And just, I think, innovating products which meet the customer needs. Along with that, we also strengthen a lot of our OEM partnerships for getting distribution. And as you know, motor has been doing well for the last two quarters. The car sales in India have improved. So that car sales have given us a tailwind. But our own innovation and the OEM partnerships we have has allowed us to have this growth. So in the business. I think on the car insurance, we have maintained a 40% average growth for the last 4-5 years. So, we continue to be on that trajectory. This quarter was exceptionally good because quite a few things fell in place at the same time. But overall, we have maintained on auto insurance about 40-41% growth over the last 5 years.

And then another thing, it was relatively soft portal for Nido with a small reported loss. So could you help us understand what was the main reason behind this?

So, Nido, there were two things in this quarter. One was, as you know, the call-ending rules got changed. In the last quarter by RBI. So as a result of that, we have recalibrated. So earlier, we used to originate and sell down immediately. You know, the DA was immediately with your co-lending partner. Now we originate and we have to hold it on our books before we sell down. So that has required some amount of more capital getting allocated to holding the assets on your business until 180 days are over because we are still pursuing an asset light model. So I think that co-lending change affected the business. Along with that, we are getting ready for an expansion post-Carlyle investment. So we have opened some new branches. We have recalibrated a lot of our processes on standardizing, underwriting across branches and all that. So there has been a lot of... The organization building work that we've been doing on strengthening the business for growth in this quarter, and that coupled with no co-lending income has resulted in this, but we remain confident that once we close the Kala and deal, the additional capital comes in, the next innings of growth for this business will start.

Okay, thank you.

Thank you.

Next question comes from the line of Siddharth Shah with SRS Capital. Please go ahead. Mr. Shah, sorry for interrupting. We cannot hear you. Can you speak a little louder? Yes, please go ahead.

Yeah, hi. I had two questions on EAAA. I think in this quarter, FPAUM grew 27%, but our revenues grew 50%. And similarly, if you look at the EAAA presentation, Over the last few years, you know, revenue as a percent of FBAUM has gone from close to 2% to nearly 3% yield. So can you, for both those instances, you know, help us understand what's driving that? Is it product mix change? Is it carry income or something else?

Amit, you want to answer that?

The flywheel effect, if you see this business is built over a period of time. AEM is getting added, and the margins are quite strong and robust. So this business actually scales up over a period of time. Also, in this business, scales start giving you a lot of, what I would say, advantage over a period of time. This has happened in the U.S. over the last 30 years, where Blackstone from $3 billion yesterday became a $1 trillion plus. This has happened over a period of time. So, this is...

What happens in alternative asset management, unlike a normal mutual fund or a normal, you know, NBFC, here, when you exit a fund, you actually make a good return because a lot of the carry comes in. And as I said, in this quarter, we also exited our EYIP-1 fund. And we now have a series of funds which we had raised eight years ago, which are all now getting towards the closure, exit mode, and all that. And we have, you know, eight strategies. Every year, every quarter, there are some older funds which are exiting. So, the best time for a business like Alternatives is after 11, 12 years have passed, where a lot of your older funds have now been proven, the exits have started happening, and in the AI business, a lot of your, especially in yield and income kind of strategies, a lot of your upside really comes from the second, third fund, and when you exit the businesses. So, it's a very back-ended business. We are now getting the tailwind benefit of

this business being 14, 15 years old. Understood. That's very helpful. Thank you. Thank you.

Next question comes on the line of Sujal Jandalia with Walford PMS. Please go ahead.

Ciao. Hello, thank you for the opportunity. I have a couple of questions from my side. Firstly, what is the current mix of domestic and offshore clients in alternative asset business, and have recent geopolitical developments and market conditions impacted this mix, and are there plans to expand into new geographies? Additionally, how do you expect the mix of retail and institutional investors to evolve over time?

Yeah, Amit, you will take that? Yes.

So, as you see, we have provided this in an income we have nearly a 50-50. And not. North America, Canada, Europe, Australia, we have got multiple jobs.

So, secondly, in your life insurance business, around 80% of premiums contributed by par and non-par products. What is your view on the future evolution of the product landscape, and how are you thinking of aligning your medium-term product strategy accordingly?

So, our focus is on what we call savings product because we do believe that though there is an opportunity in things like, you know, unit-linked products and all, the margins are much better in the savings product. We also come from a very focused investment approach and earning a good return on investment on the corpus that has been there. So, our whole idea is that par and non-par is going to remain the focus area. I think we would like to keep about 70-75% of our focus, our AUM in par and non-par. We do have ULIP and terminal, but those are not really very focused on high-growth areas. We do... Oh. Want to also focus on annuities and pension as we go along, because those are also good savings products. So, our view is that insurance industry in India caters to a small need for risk, but a large need for savings to be converted into good long-term investments. So, our focus is on that. The reason we are not very gungo on ULIP is because the margins are low, and ULIP is also, I mean, that need is also being catered by through the mutual fund industry, while the long-term savings need is one where people really look to insurance. So that is our focus. That has been our focus, and we have done pretty well. We have innovated a lot on the PAR and non-PAR products.

Okay. Thank you. Thank you, sir, for a detailed answer. That's it from my side.

Thank you. Next question comes from the line of Siddesh Dharmadikari, PL Capital. Please go ahead.

Hi, thank you for the opportunity. Am I audible? Hello.

Yes, yes, you are. Please go ahead.

So, could you give us more details on the transaction with Nidoo with Karel? What is the current status of the transaction?

So, I think all the agreements are signed, everything has been done. We have applied for final approvals from RBI and NHB. The process is on. We have got a lot of clearances, and we should be able to close that deal in the next three to four weeks. As you remember, the contour of the transaction is that Kali will buy a portion from us in this. As a secondary purchase, then they will invest another 750 crores into the company now, and they will invest another 750 crores into the company in 18 months. So they will put in 1,500 crores into the company. They pay about 630 odd crores to us to buy out the stake. Right now, after the first tranche, we will be 45%. They will own 55%. After the second tranche, they will own 74%.

We will end up owning 26%.

Understood, sir. And we have seen initial sense of growth in LPS and business with MSNA disbursement tripling year-on-year, AUM nearly doubling, and asset quality improving significantly. However, profitability has remained broadly stable. As the portfolio continues to season, when do you expect this operating momentum to translate into stronger earnings? Also, if you can please share the outlook for the disbursement and EU embrace over FI 27.

So, ECL Finance, we have, you know, we had pivoted to focus more on MSME, but to be honest with you, until last year, our focus was in reducing the wholesale book, which as I very happily reported, we are now down to only 600 crores in the wholesale side of the business. So, now we have a lot of elbow room for growing MSME. We hired a new managing director, Ajay Khurana, about a year ago, and he is building out a strong MSME business for us. As you can see, the disbursements have grown almost tripled on a YOY basis. We are currently planning for a 2,000 crore disbursement for year FY27. To just give you a comparative figure, average for the last three years was about 300 to 500 crores per year. We are currently looking at about a 2,000 crore disbursement for this year, but we are also opening branches, strengthening the product portfolio we have. So I think the next two years, we will see some uptick in the profit after tax, but our focus is on growing. We have branches, growing AUM, growing disbursement, and once we get to, say, AUM of about 4,000 to 5,000 crores, which is about a couple of years away, is where we will really start seeing real ROE and profitability in this business. We have a fair amount of capital in this business. We have 2,000 crores of equity, but as you can see, the current borrowing is pretty small. We are geared around one is to one only, which in NBFC business is very low, hard to really make good profits if you are geared only one is to one. But I think we have a lot of headroom for growth. We have quite a bit of equity. We have a strong management team. And the product range and the size we are in, we are still a very small player in MSME. So we have enough.

Peaceful group. Thank you, Ms. Souza.

Thank you for my sake.

Thank you.

Thank you. Next question comes on the line of Rajesh Ganeshwar with GMF. Please go ahead.

Thank you for the opportunity. Am I audible?

Yes. Yes, you are. Please go ahead.

I have three questions. I'll quickly ask. See, the first question comes from the line of the, you know, Equity AUM and the SIF SIF book. So Equity AUM recently, Congress has crossed 1 lakh crore and the SIP book has reached close to about 700 crores. Now, the question that comes to my mind is whether these were, you know, because solely because of fresh inflows or majorly driven by MTM. And also, you know, as the franchisee, you know, continues to scale, what are the long term aspirations that the business has over the next three to five years? And, you know, as AMCs have gradually expanded their product horizon, you know, beyond mutual funds, and they have stepped into adjacent businesses such as PMSs, AIFs, and NPLs, how do you think about broadening the product bouquet over the next three to five-year time horizon?

So, to answer your first question, and thank you, I think we are very excited when equity AUM has crossed 1 lakh crores. Out there, I think our target has been to raise, to get net new money. As you know, equity markets, MTM growth has been fairly subdued in the last one year. I mean, it changes quarter to quarter, but on a year-to-year basis, there has not been much MTM growth because equity markets are flat. So, I think we are adding about currently at the current run rate, we are adding about 18-20,000 crores of new equity money every year. That is our current run rate that we are maintaining. So, I would say conservatively 15-20,000 crore addition of new equity money every year is the current expectation that we will maintain. And if you look at first quarter, that is what we have maintained also. Along with that, our MTM growth will happen if it happens for the industry as a whole. I think SIF has been a good product. We were able to innovate quite a bit on that. But our focus is on client needs. So, if the client need can be served on the mutual fund platform, on the SNF platform, we will do that. We already have an AIF business in EAAA in any case, but if there is equity AIF to be done, we will also explore that. And we have no really... Focus on product side, we are very focused on the client needs. So if there is a client need, we basically evaluate only two things. Is there a client need and have we got an ability to innovate or cater to that client need in a strong manner? If we have that, then whether it's AI, whether it's PMS, or whether it's SIF, or whether it's mutual fund, we'll explore all of that. A mutual fund will largely remain focused on listed market, and alternatives, we are largely focused,

EAAA is largely focused on the private markets. Thank you.

Thank you. This was really helpful. Speaking of EAAA, the last phrase where you ended the answer, in the recent business update, which has been filed for EAAA, there is a mention about the asset operating and management platform, Secura. Which honestly seems like a great competitive edge. Could you throw some light on what Secura platform actually is and how does it compare with similar platforms which are offered by other market participants?

Yeah, I'm happy you're asking that. I think it's a good and excellent question. Amit, do you want to elaborate on that?

Sure. So, Segura is our dedicated asset operating and management platform. This is a capability we have built over... Thank you. Similarly, on the transport side, you will have people who would have done only We have a 50-member team now having capabilities of...

I think, you know, large players like Brookfield and Blackstone also built their own platforms, the operating platforms. A lot of the Indian asset managers have... Either outsources or their partner. And there are good outsourcing companies available. You can outsource the asset management. You can partner with, you know, with an operating partner. But we have decided to do this in-house because, as Amit said, it gives us the advantage at the due diligence stage. It gives us an, you know, on efficiency, on operating management advantage. And it gives us a lot more control because when you own a road for 20 years or when you own a renewable plant for 20 by 30 years, it's actually very good not to be dependent on outsiders for operating and managing and controlling that asset.

Understood. Thank you. Thank you for the detailed answer. This is a great initiative, and I'm sure Secura will continue to do very well. One last question before I get back in the queue is, has the life insurance business taken the path on to achieving its break-even this year? And, you know, how do you see the next three or four quarters, you know, planning out? If you could throw any light on that, I think that will be all for my end.

Can you repeat that? Sorry, Eddie, do you hear that?

The life insurance business, my question is whether the life insurance business is on the path to achieving its break-even this year, and with respect to the life insurance business, how do you see the next three quarters planning out?

Yeah, I think we are on path

to breakeven, breakeven for the year as a whole, not just in the fourth quarter. The fourth quarter will be a much easier one, but we are on path for that. We have focused a lot on our productivity, efficiency, branch productivity, all of that. So I think the way we are on this current path, we remain confident of achieving breakeven in that business.

Well, thank you. Thanks a lot for answering all the questions patiently, and I hope Adelweiss Group a grand success in all the products that they are launching and the financial spaces. Thank you once again.

Thank you. Next question comes from the line of Sarvesh Gupta with Maximal Capital. Please comment.

Sir, thank you for giving the opportunity. I have two questions. So, one is on EAAA wherein you meant, I think, a participant mentioned that the yields have actually moved up from 2% to almost 3%. And you also mentioned that there can be some lumpiness because of this carry income. So what is the expected steady state yield for the revenues as well as PAT for EAAA? That is the first question. Rashish, I had one sort of observation. So, as we are looking to sort of unlock the value of our base through various investor induction as well as through IPO, you know, at some point of time, the holding company discount that we will have to suffer with would become very substantial. It would probably become maybe 30, 40, 50% of our market cap itself.

So, how and

even

that we have done a de-merger and now, you know, we are in progress for some people, how do we paint the building of this contract? Because right now we have a corporate net debt of 5,700 crores. So till that point when it is paid, till that point everything is fine because, you know, the EV conversion to equity value will happen directly. But after this is paid down substantially, you know, this holding company discount will come into picture in a big way. So if you can give some thought process and color on that.

So, we are pretty clear that we are not a holding company. We are an investment company. And as an investment company, there are a lot of options we have. Basically, you are asking, how do you narrow the discount between intrinsic value and the market value? As you know, about a couple of years ago, we did the de-merger with Nuama. And what we distributed to the Adelbuy shareholders in the Nuama de-merger is, I think, worth today more than a billion dollars. So, there are many ways of unlocking value and narrowing the discount between intrinsic value and the market value. And if you look at the discount in India, I think for a lot of investment companies, holding companies, the discount is anywhere from 10% to 50%. And I think, yeah, you correctly said 50% is very high. But unlike others, we are not a holding company, so we don't need to hold stock forever in the underlying companies, and we showed in Nuama that we can demerge and distribute and unlock value in that way also. We will have a lot of options, I mean, how to unlock value, and the good news is that we are all. At a primary level, we are shareholders. As you know, Edelweiss has a very strong ESOP culture. As you will see in the annual report also, a lot of our senior management, even at EFSL, the holding company level, have quite a bit of ESOP. So I think equity price finding its right value is important for us. You see, we have basically two objectives after we reduce our corporate debt. One is to grow the value in the underlying business. That is and will remain the primary number one focus. How do we continue to build value via growth in the underlying business? That, as you would have seen, continues and we remain very, very focused on that. And after that, the second objective is after we have built that value and we continue to build the value, how do we unlock it? How do we make sure all the shareholders of Edelweiss also enjoy and participate in that value via market price or via distributions? And on that, we have quite a few options. And as we get there, so I think next one year, our focus will still be on stabilizing corporate debt and continue to grow the business. Because we do believe that growing a business is a harder work. I think unlocking the value, there

is a lot of optionality available in that.

Understood. And if I can ask one more, I think we had some property of which you had mentioned around 1500 odd crores. So, is there any specific reason why we are sort of waiting to sort of unlock or reduce our corporate debt by sale of those properties?

No, so I think as we said, our current corporate debt is about 5,700. Out of that, once we close the Nido transaction and the EAAA IPO, we expect that our corporate debt will come down below 4,000 crores. I think our property and investments, we can sustain about 2,500 to 3,000. Our property is worth 1,500, where even if you do a sale and leaseback, we'll have an 8-9% cost. Currently, we are borrowing at about 10% cost. So, there is not much saving in taking the property off the books and paying the lease rental on that. So, I think up to 2,000, 2,500, 3,000 crore debt, we don't really want to bother, and we are getting comfortable if it is against property and investments that we have in terms of our funds and all that. So, I think from 5-7, our current target is how do we get to, we will get to under 4,000 crore pretty quickly, and then once we get to 3,000 crore is where we say that now it is earmarked against property and investments, and now we can be more strategic about it. But we have all the underlying businesses are there, as we said, with the IPO of EAAA and all. And after that, other businesses also, we own 100% of Zuno. We own 85% of AMC. We own 83%, 84% of ARC. All these are good, powerful, strong businesses where there is a fair amount of interest from investors either in the private market or through IPO that we can explore. So I think our idea would be this, as I said, a triangulation of reducing corporate debt first. Growing the underlying value in the business is first, and then looking at unlocking value and making sure the market

price and the shareholders enjoy the real underlying value as close to the real value as possible.

So I think these three, as we have said, continues to remain our focus area. Of this, if you ask me, I would continue to say growing the value of the underlying business is the most important because that is forever and continues to grow. This is for financial engineering at a particular part of time.

Thank you. Mr. Gupta, please rejoin the queue for more questions. Due to time constraints, we take the last question from the line of Rishabh Chokhani.

With all, please go ahead. Hello. Am I audible, sir? Hello. Hello.

So there are two questions. So you are in the process of listing your alternative asset. So can you give a brief color on the industry and what are, what is the market size and how the growth trends have been for years, for few years, and can you compare it with developed markets like US? What road trajectory you see going forward? And second question is on corporate debt. So your debt declines to 5,700 crores. You mentioned that you will go below 4,000 crores very quickly. So what levels you can see for F27? And what will contribute that debt reduction from where the cash flow will come? And what percentage or what proportion you want to quantify for each driver? Yes, that's it. Hello.

Okay. I'll ask Kamil to first answer on EAAA.

Sure. So, as I said, asset management, especially the alternatives, also scales up as the economy goes to a larger level. The penetration in India is hardly 3.5% of GDP, while in the U.S. it is nearly 27%. So, there is both broadening and deepening of the market that is expected in India. Currently, as we see, the alternative AUM is projected to move from 166 billion to nearly almost 276 billion in India, which is what we have mentioned. But within that, the focus that we have is on the income and yield category, and that category is expected to grow faster. And that is going to expect it to grow at nearly 18% KG at an industry level. And we do think that there are significant macro drivers, both in terms of the rise in private wealth, where the HNI and the UHNI population is expected to grow. The wealth management penetration in the family offices is also expected. to grow, which will, in turn, allow them to look for products with superior risk-adjusted returns with income and yield, and that will allow for the growth of the industry. And EAAA is a significant player in the industry, and all these tailwinds will help EAAA. And this is currently not considering all the capital that potentially domestic institutions will also look to put. They start getting more comfortable with this asset class. So again, in U.S., as U.S. economy in the last 20 years from 2005 to 2025 moved nearly two and a half times. The AUM of Blackstone moved almost 25 times in the same period. The AUM of KKR moved, and these are all public data, so the AUM there moved also more than 30 times.

The industry is, again, as I said, it's a flywheel industry where vintage and track record and client repeatability makes a lot of difference, and that will allow both the industry to grow, and we do think that we will be beneficiaries of the dealwind.

Yeah, and I would just add that, you know, what we have seen in alternatives is because there is basically alternatives is ultimately a trade-off between higher return with some kind of illiquidity because you are in close-ended funds, you are in private markets. And as you would have seen over the last 30 years in the US, a lot of the large insurance companies and pension funds and endowments slowly and the same thing is happening with H&I and the ultra-H&I industry in India. It is same thing will happen with institutional investors in India where you will trade off some amount of your portfolio, maybe 3%, 4%, 5% of your portfolio into illiquid assets. In AIFs and all, which will give you a higher yield, because if you get a 3-5% pickup in yield over a strategy that has, you know, 4, 5, 6 years. Then a lot of people are now allocating capital more and more to this, especially in India. It is currently ultra-HNI, but eventually we think insurance companies and others will also come insurance and pension funds and all. And along with that, I think the awareness and SEBI has done a fabulous amount of work on that. And in AIF, there are actually two markets. One is a growth market, which is mainly private equity. And the other is the yield market, which is mainly infra and private credit and all of that. So I think private equity has grown. Now, yield market is also growing. And a lot of insurance companies and pensions, but people who don't want P&L volatility, actually are more interested in income and yield strategies. And that is where EAAA has focused on. We have seen this market, how it has grown in the U.S. over the last 30 years, and we do think there are some similarities with the Indian market opportunity in that sense. On the corporate debt side, as I said, from $5,700, we get to under $4,000 by the end of this year. We have some investments that we can sell.

Keep on getting money. We have investment in our funds and we have investment in some wholesale assets.

That we had, which will all get liquidated. So, about 500 to 1,000 crores, we do expect will come from there also. We're also starting to get dividend income from underlying companies as mutual fund and EAAA and ARC are profitable and throwing out free cash. As you can just add up, these three businesses have a free cash flow of between, you know, 600 to 800 crores per year. So on that basis, also that cash that they throw out as a dividend also helps us reduce our corporate debt. So I think our idea is get down to 4,000, then inch it back, inch it to under 3,000, then regroup and decide whether that should remain a priority or we should then focus on unlocking or using that money for more, you know, distribution to shareholders, distribute spinoffs, demergers. I think look at all of those options also.

Thank you, sir. That was helpful. Thank you very much.

We will take that as the last question. I would now like to hand the conference back to Ms. Priyadip Chopra for closing comments.

Thank you, Renju, and thank you all for your time today. We truly appreciate you taking the time out and joining us. Please do write in to us at Edelbuyze Investor Relations for any other questions or feedback that you may have for us. Thank you, Roshesh. Always a joy to listen in to you, and thank you, Amit. Very insightful to have you on the call today. Thank you all. Have a great day ahead. Bye-bye.

Thank you very much, ladies and gentlemen, on behalf of Edelweiss Financial Services, that concludes this conference. Thank you for joining us. You may now disconnect your lines.