edelweiss [1]
TRANSCRIPT
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Strictly Private and ConfidentialStrictly Private and Confidential
July 2010
Edelweiss Capital
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Contents
1. Edelweiss Overview
2. Business Overview
3. India: Growth Opportunities & Edelweiss Strategy
4. Edelweiss Strengths
2
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Edelweiss Group- Introduction
Leading diversified financial services organization
Incorporated in 1995 as an investment bank focus on Private
Equity Syndication
Key businesses now: Investment Banking, Brokerage - Institutional
and Retail, Asset Management, Financing and Treasury
FY10 Revenue of`9,778 mn, PAT of`2,292 mn)
11 year CAGR for Revenue 80% and for PAT 75% upto FY10
Group net-worth of` 25.4 bn as on June 10 (including Minority)
Total employee strength of ~1300, Anagram acquisition adds ~1300
employees
3
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Institutional Equities
+ International Long
Investment Banking+ Project Finance, DCM
HNI Businesses
+ Wealth Management
2007 - 2010
Financing
+ ESOP, LAS
Treasury
+ Fixed Income, Comm.
Asset Management
Alternatives + AMC
Retail Broking & Dist.
Broking, IPO Distribution,Anagram acquisition
Evolution
4
Investment BankingPE Syndication
1996 - 2000
Treasury
Equities Arbitrage
Institutional Equities
Equity Derivatives
Investment Banking+ M&A Advisory
2000 - 2005
Institutional Equities
+ MFs and Insurance
Investment Banking+ ECM
Treasury
+ Special Situations
HNI Businesses
Broking
2005 - 2007
Financing
Sponsor and IPO
From an Investment Banking firm to a Diversified Financial Services Organization
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Market Presence Strategy
5
Growth Levers
Presence in adjacent markets across products,
asset classes and client segments
Products
Alternative AssetManagement
Domestic AssetManagement
Financial ProductsDistribution
CollateralizedLoans
Asset Classes
Equities &Derivatives
Fixed Income
Commodities
Currencies
Distressed Assets
Client Segments
Institutions
High Net-worthIndividuals
Mass Affluents
Retail
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-
500
1,000
1,500
2,000
2,500
3,000
FY99 FY01 FY03 FY05 FY07 FY09
Profit After Tax`mn
-
5
10
15
20
25
30
FY99 FY01 FY03 FY05 FY07 FY09
Net Worth`bn
-
200
400
600
800
1,000
1,200
1,400
1,600
FY99 FY01 FY03 FY05 FY07 FY09
Average no. of Employees
-
2,000
4,000
6,000
8,000
10,000
12,000
FY99 FY01 FY03 FY05 FY07 FY09
Total Income`mn
Track Record
6
FY10FY10
CAGR 80% CAGR 75%
CAGR 95%
FY10
CAGR 60%
FY10
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Consolidated Results
` Million FY11 FY10 FY10 FY10Q1 Q4 Q1 Annual
Fee and Commission Income 934 1,172 671 3,504
Income from Treasury Operations 562 339 790 2,455
Investment and Dividend Income 40 1 83 342
Interest Income 1,257 1,083 682 3,389
Other Operating Income 47 29 20 88
Total Revenues 2,840 2,624 2,246 9,778
Operating and Other Expenses 637 804 652 2,763
Employee Cost 498 465 391 1,622
Financial Expenses 776 569 311 1,943
Depreciation 37 39 28 122
Total Expenses 1,948 1,877 1,382 6,450
Profit Before Tax 892 747 864 3,328
Tax Expenses 237 184 249 879
Profit After Tax 655 563 615 2,449
Share of Minority Interests in Profits 41 40 32 157
Profit After Tax and MinorityInterest
614 523 583 2,292
Diluted EPS (` Qtly not annualized) 7.92 6.69 7.58 29.37
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Revenues`2,840 mn (`2,246 mn for Q1FY10)
Fee & Commission Income` 934 mn (`671 mn)
Income from Treasury Operations` 562 mn (`790 mn)
Interest Income#` 1,257 mn (`682 mn)
Profit After Tax and Minority` 614 mn (`583 mn)
PBT Margin 31% (38%)
PAT Margin 22% (26%)
Diluted quarterly EPS` 7.92 (`7.58) (not annualized)
(#)comprises interest on Loans and Working Capital Assets
Q1FY11 Consolidated Unaudited Results at a Glance
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Fee & Commission Income`934 mn (Q1FY10:`671 mn)
Broking Revenues`542 mn, Clients Broking ADV`18.7 bn,
Yields 4.60 bps
Fee Income`392 mn, I-Banking handled 10 Deals (3 in Q1FY10)
Income from Treasury Operations`562 mn (`790 mn)
Average book size ~`
15 bn, Gross Yields 15% and Net 9.7%
Interest Income `1,257 mn (`682 mn)
Interest on steady state loans`820 mn, average loan book
~`21 bn, yields of 15.6% (quarter-end loan book`25.6 bn)
Q1FY11 Revenue Segments Highlights
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Balance Sheet size as on June 30, 2010`71.75 bn
Group Networth`25.38 bn (including Minority Interest`2.17 bn)
Total Borrowings`46.37 bn, gearing 1.8x, average cost of
borrowing in Q1FY11 is 7.6%%
Loan book of`25.62 bn
Treasury assets of ~`16 bn
Working Capital assets ~`20 bn including Cash and Bank
Balances`14.74 bn
Corporate, Fixed and other assets ~`9.50 bn
Balance Sheet Highlights
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Businesses
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Institutional Equities
Investment Banking
HNI Businesses
Financing
Treasury
Asset Management
Retail Broking & Dist.
Business Portfolio
12
Agency Businesses
Capital Businesses
NewBusinesses
GrowthBusinesses
EstablishedBusinesses
Balanced Business Portfolio across
Agency and Capital
Established, Growth and New Businesses
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One of the widest product portfolios among the investment banking
franchises in India
Broad range of services from Capital Markets (ECM - IPOs, FPOs,QIPs, Rights, Open Offers, Buy Backs and DCM) to Advisory (PE
Syndication, M&A, Structured Finance, Infrastructure Advisory)
Strong franchise with emerging and mid market companies, gaining
traction with large corporates
Strong presence among both Public and Private Sectors
Fixed Income Syndication reached top 10 of the league tables in itsfirst full year of operation; ranked 2nd in Short Term Bonds placementand 3rd in Commercial Papers issuances in Q1FY11 (Source Prime Database)
10 deals across ECM, Advisory and DCM in Q1FY11 (3 deals in Q1FY10,33 deals in FY10)
Investment Banking
13
InstitutionalEquities
InvestmentBanking
FinancingAssetManagement
Treasury HNI BusinessesRetail Broking& Distribution
Edelweiss is ranked 2nd in QIPs and overall 3rd in ECM (QIPs, IPO/FPOs and Rights Issues) in FY10#
#By number of deals: Source Prime Database
A B i T ti Q1FY11
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Agency Business Transactions Q1FY11
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Institutional Equities
One of the Leading players in Institutional Equities
market share of ~5%
Wide client coverage across investor types and geographies
Robust technology platform and strong execution capabilities
178 stocks under coverage - one of the largest Research coverage universe
Strong positioning in Thematic Research - identifying large structural themesacross sectors
India 2020 Seeing Beyond Sizing the superstructure over the next
decade our landmark Report
Thought leader in alternative research
over 15 regular products ex. pair-trading strategies, corporate action
tracker
15
InstitutionalEquities
InvestmentBanking
FinancingAssetManagement
Treasury HNI BusinessesRetail Broking& Distribution
R h C S l R t
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Research Coverage Sample Reports
I di 2020 Th I di G th St
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India 2020 The Indian Growth Story
17
* Edelweiss released its landmark research report
India 2020 Seeing beyond in March 10
* India's GDP expected to quadruple from FY09 level
to`205 Tn (USD 4.5 Tn) by FY20 (Nominal growth
rate of 13% p.a.)
* Key sectors outperforming GDP growth:
* Savings led: Banking, Insurance, Capital markets
* Consumption led: Education, Healthcare, Urban
Housing, Media & Entertainment, Organized
Retail, Automobiles
* Infrastructure led: Power, Roads, Railways,Irrigation, Water Supply & Sanitation
InstitutionalEquities
InvestmentBanking
FinancingAssetManagement
Treasury HNI BusinessesRetail Broking& Distribution
Fi i
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Financing
Primary offering: loan products such as Sponsor Funding, Loan Against
Shares, Loan Against ESOPs & IPO Financing
Sponsors of Mid-to-large corporates constitute key clientele strong
origination capabilities
Loan book of`25.6 bn as on June 10; Typical collateral covers range from
2x to 3x
Received NHB approval for Housing Finance subsidiary
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InstitutionalEquities
InvestmentBanking
TreasuryAssetManagement
Financing HNI BusinessesRetail Broking& Distribution
Financing Collateral Cover
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Financing Collateral Cover
19
Current collateral cover at ~2.65 times loan book size
Minimum cover at ~2.5 times
InstitutionalEquities
InvestmentBanking
TreasuryAssetManagement
Financing HNI BusinessesRetail Broking& Distribution
1.5
2.0
2.5
3.0
3.5
Q1FY09
Q2FY09
Q3FY09
Q4FY09
Q1FY10
Q2FY10
Q3FY10
Q4FY10
Q1FY11
Collateral Cover
Treasury
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Treasury
Strong focus on capital preservation and liquidity
no negative quarter since 2001, no negative month since 2005
ample liquidity impacting equity arbitrage yields
~80% of the book can be liquidated within 3 days with less than 1%
impact costs
Origins in Equity and Equity Derivatives, now one of the few truly multi asset
class treasury operation in India
equity and equity derivatives, fixed income, commodities and currencies
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InstitutionalEquities
InvestmentBanking
TreasuryAssetManagement
Financing HNI BusinessesRetail Broking& Distribution
Treasury returns correlation with India Equity returns
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Treasury returns correlation with India Equity returns
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Low correlation between market returns and treasury performance
No negative quarter over an 8 year period
*Treasury returns are at gross level; transaction and other costs average around 30-35% of the returns
InstitutionalEquities
InvestmentBanking
TreasuryAssetManagement
Financing HNI BusinessesRetail Broking& Distribution
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Q1
FY08
Q2
FY08
Q3
FY08
Q4
FY08
Q1
FY09
Q2
FY09
Q3
FY09
Q4
FY09
Q1
FY10
Q2
FY10
Q3
FY10
Q4
FY10
Q1
FY11
Nifty Qtrly Returns (LHS) Treasury Qtrly Returns (RHS)
Asset Management
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Asset Management
22
Alternative Asset Management
Current focus largely on offshore institutional investors
Product Portfolio includes
Hedge Fund Arbitrage, Long-Short (planned)
Special Opportunities Fund, Real Estate (existing domestic fund),
Distress Asset Fund (planned, ARC approval in place)
AUMs/AUAs of USD 264 mn equivalent as on June 10
Traditional Asset Management
Current focus on expanding the product portfolio and building
investment track record
Have 10 schemes across equity and debt funds
InstitutionalEquities
InvestmentBanking
TreasuryAssetManagement
Financing HNI BusinessesRetail Broking& Distribution
HNI Businesses
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HNI Businesses
23
Wealth Advisory and Investment Services
HNI is a large growing market opportunity
India has an existing base of nearly 0.5 m individuals with
greater than USD 0.5 m investible assets, expected to grow at
~15-18% per annum
Differentiated product offering with focus on
Asset Allocation
High quality execution and reporting
InstitutionalEquities
InvestmentBanking
TreasuryAssetManagement
Financing HNI BusinessesRetail Broking& Distribution
Retail Broking & Distribution - 1
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Retail Broking & Distribution 1
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Retail Broking
New growth initiative at Edelweiss targeting the mass affluent
Centralized model of online (www.edelweiss.in) and tele-calling basedbroking
Client base of over 60,000 as on June 10
Decentralized model of branch and franchise based broking through
Anagram Capital
Minimal overlap with our existing retail businessesAdds nationwide network of 139 own offices, 122 franchise led
offices, over 1300 sub-brokers and more than 207,000 Retail clients
Strong product offering based on delivering services based on client
profile
High quality execution platform with best in class reporting
One of the widest Research offering for individual clients
InstitutionalEquities
InvestmentBanking
TreasuryAssetManagement
Financing HNI BusinessesRetail Broking& Distribution
Retail Broking & Distribution - 2
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Retail Broking & Distribution 2
25
Retail Distribution
Started in 2007 with initial focus on Equity Initial Public Offerings
(IPO distribution)
Have a network of 5000 distributors across 320 cities
For Q1FY11, ranked 3rd in HNI category (market share 13%) and 4th
in Retail category (market share 7%) by amount mobilized for IPOs#
Expanding into other products MF, Corporate Debt and Insurance
distribution
Unique web-offering to provide access to channel partners
InstitutionalEquities
InvestmentBanking
TreasuryAssetManagement
Financing HNI BusinessesRetail Broking& Distribution
#Source Prime Database
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India : Growth Opportunities & Edelweiss Strategy
India: A Structural Shift in Growth
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-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
FY
70
FY
72
FY
74
FY
76
FY
78
FY
80
FY
82
FY
84
FY
86
FY
88
FY
90
FY
92
FY
94
FY
96
FY
98
FY
00
FY
02
FY
04
FY
06
FY
08
27Source: CSO, Edelweiss
India: Annual GDP Growth
1st phase of economic
reforms
Structural shift propelled
by services growth and
reforms
Nominal GDP at USD ~1.3 tn (FY09)
Witnessing a structural shift in the growth trajectory from 4-5% in70s and 80s to 7%+ in the current decade
5 Yr Moving Average of GDP growth
GDP to Savings Flow
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Household Savings
USD 340 bn
26%
Physical Savings
USD 150 bn
Financial Savings
USD 190 bn
Banking (60%)
USD 115 bn
Insurance(20%)
USD 40 bn
Capital Mkt(5%)
USD 10 bn
45% 55%
GDP
USD 1.3 tn
Others (15%)
USD 25 bn
Physical assets represent 45% of the total Household Savings
Banking and Insurance account for 80% of the Financial Savings
Source: Internal estimates 28
Flows reflected in the size of the industry verticals
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29
Figures in brackets indicate revenue size in USD bn
Source: Internal estimates for FY10
Non Banking FinancialInstitutions
(10.0)
Banking
(55.0)
Banking & OtherLending
Insurance
~USD 65 bn ~USD 43 bn
Capital Market
~USD 9.4 bn
Life Insurance
(37.5)
Non Life Insurance
(5.0)
Retail Capital Markets
(4.8)
Wholesale Capital Markets
(4.6)
Retail accounts for ~50% of Capital Markets
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Figures in brackets indicate revenue size in USD bn
Source: Internal estimates for FY10
Investment Banking(Advisory, ECM) (0.6)
Capital Market
Treasury (1.0)
~USD 9.4 bn
Institutional Equities (0.8)
Retail(Broking and Distribution) (4.0)
Traditional Asset Mgmt (0.8)
Financing (0.7)
Alternative and OffshoreAsset Mgmt (1.5)
Retail
(4.8)
Wholesale
(4.6)
Edelweiss Growth Strategy - 1
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Diversifying into adjacent markets, newer client segments, newer
asset classes within the capital market industry
Have used this strategy to establish strong businesses in wholesale
capital markets
Expanding the footprint to retail capital markets
Retail broking platform www.edelweiss.in
Anagram acquisition
Retail distribution
Asset management
Edelweiss Growth Strategy - 2
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Insurance initiative - JV with Tokio Marine Holding Inc.# to expand
beyond capital markets and tap large Indian household savings
Edelweiss Housing Finance Limited received NHB approval
Asset Reconstruction Company received RBI approval
This will require ongoing investments in building new businesses
while continuing to benefit from scale up of existing businesses
# subject to regulatory approvals
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Edelweiss Strengths
Edelweiss Strengths
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Culture
Risk
Management
Cost
Flexibility
Growth with
Profitability
Diversified
Revenue
Streams
Strong Balance
Sheet
34
Growth with Profitability
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-
2,000
4,000
6,000
8,000
10,000
12,000
FY99 FY01 FY03 FY05 FY07 FY09
Total Income`mn
11 year Revenue and PAT CAGRs of 80% and 75%
Approach: growth through adjacent markets; through widening the
product mix in existing businesses
35
Culture
Risk
ManagementCost
Flexibility
Growth withProfitability
Diversified
Rev. Streams
Strong
Balance Sheet
-
500
1,000
1,500
2,000
2,500
3,000
FY99 FY01 FY03 FY05 FY07 FY09
Profit After Tax`mn
FY10 FY10
CAGR 80% CAGR 75%
Strong Balance Sheet
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Strong balance-sheet
Group net-worth of ~` 25.4 bn (including minority)
Gearing of 1.8x, ample capacity to lever
Liquid balance sheet
Liquid balance sheet with ~40% in Cash and Cash Equivalents
Total Treasury Assets account for ~50% of the total assets
Asset-side duration of less than 9 months, Liabilities at ~120 months
36
Culture
Risk
ManagementCost
Flexibility
Growth withProfitability
Diversified
Rev. Streams
Strong
Balance Sheet
Diversified Revenue Streams
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3%
Fee & Commission Treasury Interest Investment & Others
37
4,438
2,171
3,493
(In`million)
Q1FY11
20%
44%
934
562
1,257
33%
Balanced mix of revenues across three key operating revenue streams
FY09
28%
37%
8%
2,441
2,512
3,315
27%
4%
FY10
25%
35%
3,504
2,455
3,389
36%
Cost Flexibility
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~50% of total costs are variable in nature
Variable employee compensation varies from 30% to 50% of the
total employee costs
Operating costs - Direct variable costs incl. STT and Transaction costs
account for 40 to 50% of the operating costs
Financing Costs (linked to yield asset book size) Short term financing
costs account for nearly half of the total Financing CostsReflected in ability to maintain PBT margins across cycles
38
Culture
Risk
Management
Cost
Flexibility
Growth withProfitability
Diversified
Rev. Streams
Strong
Balance Sheet
Risk Management
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Four tier oversight on risk covering key risk buckets financial,
operational, compliance and corporate governance
Business level Risk
Centralized risk group
Executive committee
Board committee
Strong internal framework for risk assessment backed by robust
technology and processes, and benchmarked to best practices
39
Culture
Risk
Management`
Cost
Flexibility
Growth withProfitability
Diversified
Rev. Streams
Strong
Balance Sheet
Culture
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Ownership
Employees (incl. key management) own over 50% of the company
One of the largest ESOP pools in the financial services space
~600 employees covered through the ESOPs
Leadership
Four tier leadership pool covering over 10% of the organization
Continued emphasis on training and developing leadership
100 seater training center operational at Alibaug (near Mumbai)
Innovation
Reflected in leadership in new product and asset classesand new client segments
40
Culture
Risk
Management
Cost
Flexibility
Growth withProfitability
Diversified
Rev. Streams
Strong
Balance Sheet
Safe Harbor
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This presentation and the discussion that follows may contain certain words or phrases that are forward - lookingstatements, based on current expectations of the management of Edelweiss Capital Ltd. or any of its subsidiariesand associate companies (Edelweiss). Actual results may vary significantly from the forward-looking statements
contained in this presentation due to various risks and uncertainties. These risks and uncertainties include the effectof economic and political conditions in India and outside India, volatility in interest rates and in the securitiesmarket, new regulations and Government policies that may impact the businesses of Edelweiss as well as the abilityto implement its strategy. The information contained herein is as of the date referenced and Edelweiss does notundertake any obligation to update these statements. Edelweiss has obtained all market data and other informationfrom sources believed to be reliable or are its internal estimates, although its accuracy or completeness can not beguaranteed.
This presentation is for information purposes only and does not constitute an offer or recommendation to buy or sellany securities of Edelweiss. This presentation also does not constitute an offer or recommendation to buy or sellany financial products offered by Edelweiss. Any action taken by you on the basis of the information containedherein is your responsibility alone and Edelweiss or its directors or employees will not be liable in any manner for theconsequences of such action taken by you. Edelweiss and/or its directors and/or its employees may have interestsor positions, financial or otherwise, in the securities mentioned in this presentation.
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