U.S. Markets close in 5 hrs 7 mins
  • S&P 500

    3,257.03
    +10.44 (+0.32%)
     
  • Nasdaq

    10,757.15
    +84.89 (+0.80%)
     
  • Russell 2000

    1,462.96
    +11.15 (+0.77%)
     
  • Crude Oil

    40.06
    -0.25 (-0.62%)
     
  • Gold

    1,865.00
    -11.90 (-0.63%)
     
  • Silver

    23.02
    -0.18 (-0.76%)
     
  • EUR/USD

    1.1628
    -0.0048 (-0.4070%)
     
  • 10-Yr Bond

    0.6540
    -0.0120 (-1.80%)
     
  • Vix

    28.64
    +0.13 (+0.46%)
     
  • GBP/USD

    1.2706
    -0.0045 (-0.3558%)
     
  • BTC-USD

    10,643.08
    -117.50 (-1.09%)
     
  • CMC Crypto 200

    217.28
    -0.55 (-0.25%)
     
  • FTSE 100

    5,823.96
    +1.18 (+0.02%)
     
  • Nikkei 225

    23,204.62
    +116.80 (+0.51%)
     

Edited Transcript of EDEL.NS earnings conference call or presentation 28-Aug-20 6:30am GMT

Q1 2021 Edelweiss Financial Services Ltd Earnings Call

Mumbai Sep 1, 2020 (Thomson StreetEvents) -- Edited Transcript of Edelweiss Financial Services Ltd earnings conference call or presentation Friday, August 28, 2020 at 6:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Ramya Rajagopalan

Edelweiss Financial Services Limited - EVP of Corporate Development

* Rashesh Chandrakant Shah

Edelweiss Financial Services Limited - Chairman, MD & CEO

================================================================================

Conference Call Participants

================================================================================

* Aditya Jain

Citigroup Inc. Exchange Research - Research Analyst

* Jeetu Panjabi

* Kshitiz C. Prasad

Maybank Kim Eng Holdings Limited, Research Division - Analyst

* Kunal Shah

ICICI Securities Limited, Research Division - Research Analyst

* Mahrukh Adajania

* Subramanian Iyer

Morgan Stanley, Research Division - Equity Analyst

* Vikas Khemani

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, good day, and welcome to the Edelweiss Financial Services Limited Q1 FY '21 Earnings Conference Call. (Operator Instructions). Please note that this conference is being recorded.

I now hand the conference over to Ms. Ramya Rajagopalan. Thank you, and over to you, ma'am.

--------------------------------------------------------------------------------

Ramya Rajagopalan, Edelweiss Financial Services Limited - EVP of Corporate Development [2]

--------------------------------------------------------------------------------

Thank you, Rahman, and good afternoon, everyone. Welcome to our Q1 FY '21 earnings call. We hope you, your loved ones and colleagues are all safe and well. Today, we have with us on the call, Mr. Rashesh Shah, Chairman and CEO of the Edelweiss Group; Mr. Himanshu Kaji, Executive Director and Group COO; and Mr. S. Ranganathan, Group CFO.

During this call, we will be making references to the results presentation uploaded on the exchanges and on our website. We do hope you've had a chance to see it. Please do note that some of our statements on today's call may be forward-looking in nature, and hence, may involve risks and uncertainties. Please also read the safe harbor statements in our results presentation as well.

With that, I will now hand the call over to Mr. Rashesh Shah to begin the proceedings of the call. Thank you. Over to you, Rashesh.

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [3]

--------------------------------------------------------------------------------

Thank you, Ramya, and a very good afternoon to all of you. Thank you all for joining us on this call. Once again, another quarter is over, and what a quarter it has been. Hope all of you are keeping safe, your families and everybody is well and you are coping with this unprecedented, uncertain environment as well as all of us are trying to.

This has been a very important quarter. So many developments have happened, and we forget that this quarter is April, May, June of 2020, which was, I think, 1 of the most challenging quarters when you go back and think about how things were in April, the world looked very, very different. And it seems like we have come a long way. So while we are revisiting our performance for this quarter, it's also important to remember, that in the last few months, all of us have come a long way from this unprecedented crisis that humanity has been faced with.

Friends, today, I want to talk about 3 things: Quarter 1, obviously; the Edelweiss Wealth Management transaction that we had announced a partnership with PAG; and third, going forward, how do we see the environment and the Edelweiss strategy going forward. I'm sure all of you will have many specific questions, and we hope on this to answer that, and also get feedback and input from all of you, as we have always done in the earlier calls.

As I said, these are unprecedented times. I'm sure all of you have experienced it and coped up with it. In this quarter, obviously, the earnings still have a long way to come back. We -- overall, we are still simplifying our business because now as you would have seen in the presentation, we have 6 clear-cut businesses. We have tried various -- because Edelweiss has grown up as 1 joint family system, and we try -- we have worked with various permutations and combinations at an individual level, a lot of businesses were independent, but now we have aligned entities and businesses completely and the 6 businesses that you see in Slide #5 of the investor presentation, along with the entities, is the structure of Edelweiss; corporate credit, retail credit, wealth management, asset management, life insurance and general insurance. These are the 6 businesses. You see we are more than robustly capitalized across all these businesses. And time and again, we have shown that we can contribute capital, we can raise capital as we go along. So this quarter, we have further simplified our businesses in the 6 businesses.

Also, things have come back, but I must say the business activity is not back to 100% of normal. If you ask me, on an average, we are all at about 75% to 80% of normal activity from fee-earning and other activity point of view. So though, I think things are back as compared to April, May, where I think we were all down to 50%, 60% of activity, we are now at 75% to 80% of activity.

We continue to grapple with bringing costs under control, and there are 3 vectors on that. One is credit cost, which obviously, with COVID, we have always maintained that another 1% to 2% impairment will be there because of COVID and will continue to be there. And because we have more than adequate capital in our credit businesses, we have followed a policy of continuing to provide as much as we can so that we are much stronger when COVID phase is getting over. We have to obviously focus on recoveries and all. That is what we are strong at. So that will be the main area now.

The other area of cost control is the operating cost. We were geared for a 30%, 35% growth. In the last 2 years, as we are more focused on liquidity and equity, the focus on cost and profitability has been lower. But now that equity and liquidity have come in a comfort zone in the last 3, 4 months. Ironically, in COVID time, liquidity and equity is the area that we feel more comfortable now. Now we are focusing on cost cutting. We spoke about it last quarter also. And we have a fairly aggressive target to be able to rationalize cost using technology and streamlining businesses and processes and all, and you will see that as we go along in the next few quarters.

And the third is our cost of capital continues to be high. As you know, though bank credit flows have started getting back to normal, the bond markets are still very dislocated. Commercial paper market is very dislocated. We also hold a lot more equity, a lot more liquidity than we should be holding. I think on an average, for the last 18 months, we have held twice the required liquidity in normal times. And partly it is because of the market conditions being so bad. You are all aware how volatile the liquidity environment has been, and this higher liquidity that we are holding is also creating and continues to create a drag on earnings.

Citing lower growth, lower activity, but the good achievement in this is we have done a very transformational transaction on a wealth management business. We have become stronger on liquidity. Our NBFC has actually now enough liquidity for the next 18 months of required liquidity. As you know, we've been operating on 1 year of liquidity, now we have moved even further on that.

So overall, we remain comfortable on those accounts. And now that equity liquidity is out of the way, the time has come to focus on profitability and growth, and we think growth will come back from Q4 of FY '21. March 2021 onwards, we do think -- we hope that we can put COVID behind us and look at growth for India, for financial services as a whole.

This quarter, in spite of lockdown and all, we have done one of the fastest transactions in the wealth management space. A fairly large deal has got done in spite of work from home and everybody being in lockdown. We are very happy that PAG, which is a great private equity firm Asia wide with $38 billion of assets under management, is partnering with us, and I use the word partnership with very -- with a lot of care because we are in this business. Edelweiss will continue to own more than 40% stake in that. We expect the stake to evolve at about 51% with PAG; around 40%, 41% with Edelweiss and about 8% or so with Kora and Sanaka. They invested INR 300 crores 1 year ago. And though they have further tranches to invest, the business will not need further capital from them as we go along. So with this, we expect that Edelweiss Group will have more than 40% holding, which we eventually want to demerge and distribute those shares to the Edelweiss shareholders.

We've been speaking about this for last couple of quarters. And I think with this deal, we do simplify the business, get it very focused on wealth management. The business will become independent. The business has more than INR 200-odd crores of profit after tax, and we think a lot of growth is there in this. This business also underscores our approach.

We effectively started this business 20 years ago when we acquired Rooshnil Securities for about INR 8 crores. We paid 7.7 crores in 2000 to acquire Rooshnil Securities. And what currently has been Edelweiss Wealth Management has grown with a lot of organic growth as well as the acquisition of Anagram and all in 2011. So what we started off with INR 8 crores in 2000 is now being valued by a marquee investor at about approximately INR 4,500 crore, which is very gratifying because this underscores our, a, ability to create value. But with our plan to demerge this business and unlock the shareholder value, it also shows the commitment to shareholders that we have, that we want a lot of our shareholders to have a partnership with the business

(technical difficulty)

is to have -- Edelweiss shareholders have direct ownership in this business going forward. And we see the next 20 years a lot of growth in this business. This business is a very transformational place. We are one of the largest wealth managers in India. We have AuA of more than INR 1,25,000 crores, but we do believe the best is yet to come and with a partner who not only brings capital but brings expertise and all for us in this business and will allow us to make this business more independent, take it to its logical growth conclusion will be very gratifying.

So we remain very, very excited on this business, and we do believe that the Edelweiss shareholders will get a great upside in this business in the next few years as we unlock this shareholder value. And this capital that we get is also going to be useful for the group and for the business as a whole because, as you know, everybody is raising capital. Equity capital is very required for all financial services businesses, not just for COVID, but as you plan for growth post-COVID. So our approach has been that let's look at March 2021. And see, after that, what allows us to be strong, what allows us to grow and what allows us to continue to create shareholder value.

So -- and the last thing is going forward, we do see the environment is improving. The panic of April, May has gone away. Though COVID has not gone away, the panic of April, May has gone away. We do now think the liquidity conditions, the environment, the panic about COVID has come down. However, the bond markets are still dislocated, the bond market still need according to us another 2, 3, 4 quarters for them to come back to some sort of normalcy. And until then, it is good to be cautious and careful, but remain optimistic.

We believe our approach in Edelweiss is to build businesses. And we have a lot of vectors. Edelweiss Wealth Management is 1 of the 6 businesses we have. On the wholesale credit, we have always been clear that we want to scale back that business, use asset management as a platform for addressing the opportunity in wholesale credit and not in NBFC. And NBFC, as you can see on that Slide #5, we have more than INR 3,300 crores of equity in that wholesale credit business, which is almost 1/3 of Edelweiss equities in that business. So as we wind down the NBFC part of the wholesale credit, it will release more capital to us, but it will also give an opportunity for the asset management to launch more funds on the wholesale credit side.

On retail credit, we remain optimistic. ERFL and EHFL are the 2 entities where we address the retail opportunity. Both of them have a capital adequacy more than 20 odd percent. ERFL has a 28% capital adequacy. So we can effectively double the book size from here without needing any more equity. And these are great businesses. We are not in a hurry to grow. We want to do it carefully because we do think next 2, 3 quarters, a lot of the credit environment will change as we understand the post-COVID, post-moratorium environment, but there will be opportunities, and we are poised to grab that.

In our asset management, we now have crossed more than INR 1 lakh crores of assets under management across the verticals of alternatives, passives, mutual fund and ARC. And all over the world, we're seeing a lot of growth in asset management in both the passive side, where we are now leaders in credit passive with Bharat Bond and Bond ETFs and all. And in alternatives, we are one of the -- we are the leading player with more than $4 billion of assets under management in alternative strategies. So we do think that asset management poses a lot of growth opportunity for us.

And our last 2 businesses, life insurance, general insurance businesses have had their best quarter. April, May, June has been the best quarter in a relative sense. Our life insurance business was the second highest growing company in the industry. Very few companies in the life insurance business have clocked positive growth for the first quarter. We have grown positively in spite of the lockdown, in spite of the work-from-home. Edelweiss Tokio Life has registered robust growth in the first quarter. And the same thing for the general insurance business.

Our general insurance business was the fastest-growing insurance company in the first quarter. And both these businesses are using strong customer focus, strong technology. Our general insurance business is built like a fintech. It started about 2 years ago. So we had the opportunity to use the best-in-class financial technologies available for building a very tech-oriented digital general insurance business. So we have a lot of things to grow. This capital allows us to -- capital for a lot of our businesses, including asset management, wealth management and the insurance businesses. As we have said, our credit businesses remain adequately capitalized. There, we have to be in sync with what is happening in the credit environment, but the other 4 businesses, asset, wealth, life and general, will also benefit out of this deal with the capital availability.

And overall, at Edelweiss, our idea is to be capital surplus. At this time, you don't want to be capital adequate, you want to be capital surplus. And with this deal, even at the Edelweiss Financial Services level, we expect to have surplus capital, which can be used for various ways of creating shareholder value.

So friends, with that, I think India will come back to growth. I think this has been a very challenging year. It has been a very challenging quarter. And we, in Edelweiss, will continue to focus on simplification of our businesses. We have, last 2 years -- in fact, while the IL&FS crisis and the NBFC dislocation was going on, we have continued to simplify our corporate structure, continue to simplify our businesses, gotten some great partners, made sure we are capital surplus, liquidity surplus so that we don't have to worry about those things, and we can as and when growth comes back focus on growth again.

So I think with that, I will -- we have a lot of details in the presentation. So I didn't want to go to the financial details and all. But we will welcome inputs and questions from you after this. Thank you very much all of you, once again for being on this call.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question is from the line of Prathamesh Sawant from Trinetra Capital Advisors.

--------------------------------------------------------------------------------

Unidentified Analyst, [2]

--------------------------------------------------------------------------------

Sir, I just want to know what was the valuation of this deal that you have done with PAG? So would it be right to say it was sold at 18.6x your FY '21 earnings?

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [3]

--------------------------------------------------------------------------------

See, FY '21 earnings are still uncertain because as you see in the first quarter and all, and obviously, because the bond markets are dislocated because of the first quarter, the loan against shares book has come down. So we are not looking at FY '21. We are looking at beyond that. And we do think that the benchmark is around 20x price earning ratio for '21. But as I said, '21 earnings are going to be uncertain. But we also want to continue to invest in the business. So our focus for the next 2 years is not only going to be on earnings and PAT, but going to be more on investing in technology, investing in customer acquisition and all of that because we do think that post-COVID, post March '21, there is going to be a huge growth opportunity. And the ability to capture that growth is going to be very important. And our approach has always been that we have not been short-term profit focused, but we have been more long term. And that was one of the problem because as long as you consider Edelweiss Financial Services as one entity, although as you see in the past, we have been having a loss in the insurance business. Even our wealth management business did not make profit until 2015, but we continue to invest in that. And that is what I'm saying over the -- over last 20 years, we've built a lot of value in that.

So our idea is to focus on long-term value creation rather than profit only. So the PE multiple is not the best way to look at it. A year ago when we had done the EGIA deal, which was the asset and wealth management together 1 year ago with Kora, Sanaka, the deal was at a floor of INR 6,000 crores and a cap of INR 10,000 crores, and we had expected the valuation to be around INR 8,000 crores when it gets converted. If you remember that about a year ago, it was about INR 8,000 crores for asset and wealth put together. Our approach has always been that half that value is because of wealth and half that value is because of asset. So we consider that about INR 4,000 crores to INR 5,000 crores should be the value of the wealth management business and INR 4,000 crores to INR 5,000 crores should be the value of the asset management business, which is ARC, EAAA and our mutual fund out there.

So we remain, I think, in the last 1 year, when we did the Kora-Sanaka deal, though the markets have come down, Edelweiss stock prices is currently lower than what it was then, we think this business, the asset and wealth management business, collectively, the benchmark of INR 8,000 crores should continue, and we have approached it from that point of view.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

The next question is from the line of Jeetu Panjabi from EM Capital Advisors.

--------------------------------------------------------------------------------

Jeetu Panjabi, [5]

--------------------------------------------------------------------------------

Chief, I missed the first 5 minutes. I don't know if you talked about this. But what I'd love to understand a little better is what's the road map for -- does -- if PAG takes a stake, does this spin off has a separate company and list separately. Two, what are the -- what's the road map for the rest of the businesses? Do they stay together or they get listed separately? Just a little bit of color on what's the thinking on the listing and -- of the different entities? And what's the road map for the different entities in the business as well?

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [6]

--------------------------------------------------------------------------------

Yes. I think that's an important question. I'm sure all the stakeholders would like more color on that. So first, Jeetu, on EWM transaction, we've -- I have been very clear, we want to demerge this business and distribute the shares to the Edelweiss shareholders, and we've been focused on that. And this PAG partnership will expedite that process for us because the business will become independent much faster. But while it is becoming independent, we will continue to grow because it will have capital and focused attention from a partner like PAG. And we expect to list with this business in the near future and distribute the shares via demerger to our shareholders. So that's the plan on EWM. And we have -- and actually, that is why whether we sold 30% or 40% or 50% it did not matter because, as you know, Edelweiss is a widely held company. And for us, idea is not to have a controlling stake from Edelweiss, but we would rather distribute the shares to the shareholders of Edelweiss, which all of us are including the management and the founders also think like shareholders of the business. So this will be a value unlocking approach for the Edelweiss shareholders.

And I think a lot of shareholders have given me feedback that they will be very happy to have a direct exposure into this business as and when it gets listed, and it will be very beneficial for them. On the larger Edelweiss, our approach has been to build businesses. As I gave the example of this also, this Edelweiss Wealth Management business that is currently being carved out, that was started effectively in 2000 when we acquired Rooshnil Securities, and we acquired it for about INR 7.7 crores. So effectively, from that INR 7.7 crores, organically and inorganically with acquiring Anagram along the way and all that, we've built a business that is worth about INR 4,500 crores now. So that is very, very gratifying.

So our approach has been to keep on building businesses and then unlock the value in the best possible manner. So you have seen that in our insurance business, we have a joint venture with Tokio Marine maybe at a future that, that business may list or maybe Tokio Marine may increase their stake or buy out or some other investors can -- if we think that is the best way to unlock value for shareholders, that is -- because in financial services, control is actually very notional. Even today, when a bank owns an insurance company and the insurance company is listed, even if the bank owns 75% of that insurance company, the insurance company is an independent company. It has its own board. So whether you are listed or not listed, all financial services companies will be independently regulated, will have their own boards, and that is our approach because that is a path to the future. So our approach is that all businesses are independent. All the 6 businesses that you see they have their own investors, partners with a strong governance out there. They have their own balance sheets also because if we have extra capital in ARC, we can't use it for insurance. If we have extra money in insurance, we can't use it for NBFC.

So as it is in a good way, and I think it's a good structure India has that all businesses are ring-fenced and are not co-mingled with each other, which allows all businesses to grow independently. And having partners in each business is the best way forward. So going forward, we will be open, like in ARC also, we have got other shareholders and investors. In credit, we have got CDPQ as an investor. So whatever is the path, whether listing via IPO, whether listing via demerger or whether strategic JV partnerships, we will look at all formats that are there to create value. We don't come from control-oriented, because we don't need to consolidate earnings in Edelweiss or we don't need to keep control out there. We are very happy being shareholders and adding value as shareholders to grow the businesses. And we have seen formats like that. I think HDFC promoted HDFC Bank, and it's been a great success story. So I think that is the model in financial services going forward. So we have Edelweiss Wealth Management plus 5 other businesses, a lot of them will have its own opportunities, it's own partnership prospects to go forward.

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

The next question is from the line of Vikas Khemani from Carnelian Capital.

--------------------------------------------------------------------------------

Vikas Khemani, [8]

--------------------------------------------------------------------------------

Rashesh sir, first of all, congratulations. I think the last call you've said that will conclude in 6 to 8 weeks' time, and I think it's a great achievement, I think, in times like this. So I hope with this a lot of pain is behind in terms of at least capitalizing the business and liquidity stress. My question, which is more -- is on, I think, credit side of the business. See we had -- our problem started with concentrated exposure towards the real estate. And the real estate sector went into trouble, while most of our lending was towards the project-based lending. So as the project got stuck for us, you kind of did not get the flows and it's kind of had NPA impact on the portfolio. And that led to the whole sector had an impact, including the liquidity. Now with interest rates coming down at least the hypothesis we have, and I don't know what's your view and would love to get your view as well on that, like the real estate recovery is on the anvil, at least we are seeing that on the ground. So do you think what -- and we have provided almost close to say INR 4,000 crores, INR 5,000 crores, around the range of that number on the books. So do you see on the credit side, what was kind of putting stress on us as a company. As the environment changes, if the environment changes, the same value which got lost can come back over next 1, 2, 3 years, then that can itself recapitalize the whole business. So what's your view? I mean, it's a long question, but -- and maybe a little bit complex, your related thoughts on that.

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [9]

--------------------------------------------------------------------------------

No, it's an important question because ultimately, everything moves in cycles, and we have had cycles in almost all parts of India, and there are cycles up and down. So I think real estate and wholesale credit, whether it was project like a lot of bank NPAs happened on project financing, infrastructure financing. So basically, there were long-term assets getting funded. And because of the market environment, the economic slowdown as well as the liquidity crisis, the monetization, the servicing of a lot of those loans started becoming a challenge. So that is absolutely true. I think your assessment is absolutely right. We did see the impact of that. A lot of that even now according to us continues to be the delays that got caused because of liquidity as well as a slowdown in the economy. We are starting to see an uptick. In fact, ironically, COVID time actually, real estate has not done that badly, especially after May, June, July and August have been relatively good months for real estate when you talk to the industry people. But again, the key is on completing the projects. And for completing the projects, liquidity is very important.

So I think as interest rates have come down, as liquidity is down, one of the good things I've seen in the last 1, 1.5 months is bank funding for real estate projects has started coming back. Leading banks like State Bank and all that are starting to look at good viable projects and starting to lend to real estate projects once again. So the banks had stopped lending 4, 5 years ago, NBFCs have started -- had started last couple of years. NBFCs have stopped lending. And that also impacted there because neither banks nor NBFCs were giving credit for this industry, and housing is a big part of the economy. But in the last 1, 1.5 months, maybe because of liquidity and interest rates coming down, banks have been very open to looking at viable projects. And even the private sector banks are actually scaling up their real estate exposure.

So I think that's the good news. And I remain confident that as liquidity improves, I think the projects will get completed and will find buyers. And given that we have enough collateral cover, we remain confident on the collateral. As you very correctly said, collateral is not a problem. But servicing and cash flow has been a problem, especially in the last 2 years. We hope that maybe in the next 2, 3 quarters, that starts going away. And we are seeing actually good demand across all of that. Earlier, we were seeing good demand in the affordable segment, which was below INR 1 crores. But now even in the segment, which are INR 5 crores to INR 10 crores for a place like Bombay, we are seeing very robust demand, where people are buying INR 5 crores, INR 6 crores worths of apartments and all.

So I hope that this interest rates, affordability, all of that also leads to revival of the real estate, not only for our own sake, which obviously will help us a lot, but for the economy as a whole because real estate has a lot of spin-off linkages with the economy. So you're absolutely right. I think it will help us. But what we have done is we have anyway ring-fenced that business. So even if it -- there is a lot of capital and a lot of liquidity there. So we have holding power on that book. That if at all, instead of revival in a couple of quarters, it takes 4, 5 quarters, there is enough holding power on that, we have -- provided we hold liquidity, we have enough equity. So because that is what was required, given that everything became very illiquid. While our other businesses continue to be independent of that, and they continue to have a lot of growth prospects on that. And that is the key thing that we have simplified. We have actually made all the businesses independent. So any trouble of one business should not affect the other one or the growth of one business should not slowdown anybody else.

--------------------------------------------------------------------------------

Vikas Khemani, [10]

--------------------------------------------------------------------------------

Sir, I mean, just help me understand, that is the math correct. Suppose assume a project or loan, which we -- INR 100, we have return it down or provided for -- let's say, to $0.30, $0.40 because I think last quarter, you took a fairly large amount of hit. Now assuming that the project comes back and it starts generating cash flow, you will not only recover your principle, you will also accrue the interest. So potentially, if I were to take 2, 3 years of accrued interest, that $0.30, $0.40 have a potential to become 1 and -- 1.4, 1.45x. I mean, assuming that everything works right, I mean, nobody knows that. But I mean is that how one should understand that this works out -- this generally and potentially is possible?

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [11]

--------------------------------------------------------------------------------

See, it varies from project to project. But if you see the history of this credit cost in India, like if you look at Essar Steel and Binani Cement, the banks marked down Essar Steel from INR 100 to 0 and ended up recovering INR 80. So that is what happens in a lot of these loans. In fact, that is why we believe that wholesale credit should be a close-ended fund because over a 5- year or 7-year of a loan, you make good returns, but you make returns for the first 2 years, then if the loan goes bad, you provide for the next 2, 3 years, you actually -- as you correctly said, end up over providing credit because that is how the rules are, and that is how conservatism should work. And if things recover, you recover it back in the end. And that gives a lot of volatility to an NBFC or a quarterly kind of a format like an NBFC is for the investors because they can't see the return of a loan over a 5-year, 7-year period.

So in a way, doing this in a fund format where you have investors who are coming in into the fund, and AIF format is the best one because over 5 years or 7 years, investors will say, I have made a 14%, 15% IRR. It's not been a steady 14%, 15% over the -- over a 5, 6 years. But that is why we think wholesale credit, even infrastructure and all is a lot of opportunity, but in a close-ended fund format, in an AIF format, not in an NBFC format.

So you're absolutely right. I think we just have to wait for the next 2, 3 quarters because COVID is not yet over. So we're all getting optimistic. And I think the trends are there. The green shoots are there. So idea is to become -- to remain optimistic, but still cautious. So I think I would wait for the next 2 quarters. And if this trend, what you are seeing and I'm seeing, continues in real estate, I think it will auger very well. It might be like 2003 and '04. The last real revival I saw from really low depths of real estate in 2003 to really a big revival in 2004 was one of the fastest ones. I remember, at that time, I was slightly younger and all, but it was amazing to watch that in 1 year, the entire outlook on real estate underwent a change from 2003 to 2004. So it could be that, but I think we just have to wait for the next couple of quarters to see. And I think government stimulus and what recently Maharastra did of cutting stamp duty from 5% to 2%, all these are good moves that will only help the cause.

--------------------------------------------------------------------------------

Vikas Khemani, [12]

--------------------------------------------------------------------------------

Yes. And another follow-up I have. We have a very large asset management business, which is not part of this transaction. So almost close to INR 60,000 crores or INR 70,000 crores of assets there. So do we also plan to list that separately at some point in time so that you can have a credit vertical, asset management and advisory, all 3 of them listed. So that can also create lot of value for the shareholders because that was the size and scale business, right?

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [13]

--------------------------------------------------------------------------------

See, Vikas, we have all grown in capital markets. So I believe, I think listed entities have a lot of advantages. And I think as entities become large and independent, they should be standalone and listed because the governance focus and having this kind of analyst calls and all keeps you very focused and helps a lot to make sure all the interest of the stakeholders are protected. We do think Edelweiss is now today 25 years old. And we have been like a joint family system up till now. The first 25 years everything was integrated, we were like 1 house everybody stayed, but now the kids have grown up. Now the businesses have grown up. I mean, Edelweiss Wealth Management is INR 4,500 crore value company, which is what -- I think, which is larger than what Edelweiss was a few years ago.

So I think the businesses are becoming stronger and all, and we remain not very control-oriented. We don't believe in having a controlling stake, and there is no 1 group that controls this. Our idea is to create value, unlock value in the best possible way. So we will think like shareholders. You are correct that I think asset management, even insurance and all can be great format. But do we have to list them if tomorrow somebody comes and gives you a great price to buy 30%, 40%, 50%, 76%, maybe even 100%, somebody gives you a great price to buy a business and you think you can take that money and grow the other parts of the business as well, in the interest of the shareholders, you should consider that. But absent of that, I agree with you, we would want all the businesses to be independently listed and Edelweiss shareholders to have direct exposure in all these businesses because we don't want to be a conglomerate. It's a good way to start. I think businesses in the early days need the support of the parent, like the kids need the support of the parent in the growing years. But eventually, they have to become independent, and that is the best thing for them in the long run.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

The next question is from the line of Kunal Shah from ICICI Securities.

--------------------------------------------------------------------------------

Kunal Shah, ICICI Securities Limited, Research Division - Research Analyst [15]

--------------------------------------------------------------------------------

Yes. Congratulations, Rashesh and the entire team for the deal. So -- yes, so firstly, in terms of looking at the businesses, so obviously, the wealth management, AMC as well as ARC in the fee base, was there a discussion regarding -- maybe even the ARC and AMC as well? And from which side, maybe from PAG side, they were not seen or we were not seen on maybe selling off the stakes or maybe giving out the control in ARC and AMC?

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [16]

--------------------------------------------------------------------------------

Actually, a lot of our thinking has not been led by control. If you remember 1 year ago when we formed EGIA, it was asset and wealth combined, and at that time, the plan was to demerge that and list that also. And when we did the Kora-Sanaka deal, we expected the valuation of asset and wealth, both of them combined to be around INR 8,000 crore, between INR 6,000 crores to INR 10,000 crores, depending on the conversion formula, but we had benchmarked it at INR 8,000 crores as a value of asset and wealth. There were 2 entities, Edelweiss Asset Management, Edelweiss Wealth Management. Edelweiss Asset Management, as you see in Slide 5 of the presentation, houses ARC, AMC, EAAA, all of that.

In our mind, the valuation is about half and half between both of them, that Edelweiss Wealth is about INR 4,000 crores or INR 4,500 crores, Edelweiss Asset Management is also INR 4,000 crores, INR 4,500 crores. So we had approached it from that point. And our original plan was to list asset and wealth together. But a lot of investor feedback, analyst feedback from people like you, we got was that it is actually better to keep them both separate because that could become like another conglomerate and will not allow investors to get a pure access to a wealth management play or an asset management play.

So by unbundling the 2, it has actually -- according to us, will create -- will lead to higher value creation because especially in the last 1 year, we've realized that wealth management is a huge headroom for growth on its own. And actually firms like ISec and all have shown the path. And the same thing is true with asset management. They can do acquisitions, if they have currency and all that.

So we have realized that actually, rather than asset and wealth under one, which was slightly more complex, the way the businesses have grown in the last 1 year, keeping them both independent is very good. And we had said we want to raise about INR 1,500 crores to INR 2,000 crores. And by doing this deal in wealth management, we have achieved all those objectives. So we are not very control-oriented. We are very value-oriented. We want to build businesses. We have shown again and again. We started our ARC with INR 10 crores of capital. Today, the net worth of ARC is INR 2,000 crore. With this EWM business, we started 20 years ago, same thing, asset management, we have actually grown that very organically, and we have now crossed almost INR 70,000 crores of AUM.

So our idea is to build businesses. And then because we believe that if you build businesses, value gets created and then how you unlock it is more tactical, rather than a very formula-based approach. But how to build businesses is the core of this. Because if you can build businesses, get great management teams, identify the right opportunity, give them the right resources, handle them in the early years and give them the path to independence. I think it's the best way to harness the opportunities in which we are.

--------------------------------------------------------------------------------

Kunal Shah, ICICI Securities Limited, Research Division - Research Analyst [17]

--------------------------------------------------------------------------------

Sure. And secondly, in terms of the money that comes in. So that stays with EWM itself. And it will be within that entity. And what would be the utilization of that sum which would get in of, say, 51% stake at INR 2,200 odd crores? And the second question is on ARC. So if you can just help us understand in terms of how the resolution is going given this kind of COVID pandemic and would there be more provisioning because of the delays and all, which is being caused. So how would the ARC business gets impacted because of the disruption over the last 6 months? So these 2 questions there.

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [18]

--------------------------------------------------------------------------------

So I think on the use of capital, I think out of this, whatever, INR 2,200 odd crores that will come in about -- we expect about INR 400 crores and all will be required for the wealth management business to capitalize it. As you can see, wealth management business has about INR 1,000 crores of equity now. And another INR 400 crores will allow it to actually double from here. So that's actually the plan for that.

The other capital, we will also retire some outstanding debt in Edelweiss because over the years we have also have about INR 500,000 crores of debt that we want to retire at the holdco level because now the businesses have grown up. We had invested in the businesses over the years, but now that the businesses are independent, we can allow them to raise their own capital. And partly will be also used for asset management and insurance and other investment because if you give INR 100 crores, INR 200 crores to each of these businesses over the next few years, there is a lot of growth. We don't expect to use this capital for the credit business at all because credit businesses, as you can see, are very robustly capitalized. The capital adequacy for ECL Finance, ERFL, EHFL is more than 20%, between 21% to 28% is the capital adequacy out there, and we're going to have very calibrated growth out there. So we don't look -- we are not looking at very fast growth in the credit business. In fact, wholesale will scale down, retail will grow. So we won't need capital. In fact, over the next 3 years, we hope to release capital from the credit business. But while it happens over the 3 years, for the next 2, 3 years, this capital will be enough to now provide enough capital support to all our growth businesses and growth aspect. And the amounts are not large. We need INR 100 crores, INR 200 crores for all these businesses, and this gives us enough room for that.

And the second question you had was on impairment cost and all. I think a lot of that is dependent on COVID. We do think that some impairment costs will go up across for everybody, all credit entities, whether they are banks, whether they're NBFCs, whether they're ARCs. Between 1% to 2% additional cost will be something people should factor in. And when I say 1% to 2% of the assets is what people should factor in, but I think if interest rates remain low, if liquidity remains easy and the economy revives, I think it will be something that everybody is prepared for. People are starting to provide, people are starting to raise equity. If you look at most of the banks, they are raising equity, which is between 2% to 4% of their asset base, and when we talk to banks, their estimate is that between 1% to 2% of their asset base will be the additional credit cost because of COVID. So I think using that as a rule of thumb, we think banks and NBFCs and ARCs are adequately capitalized for this.

--------------------------------------------------------------------------------

Kunal Shah, ICICI Securities Limited, Research Division - Research Analyst [19]

--------------------------------------------------------------------------------

Okay, sir. But in terms of the IRR, that ARC, how does it gets impacted maybe compared to what the expectations were? So maybe if you are working at particular IRR, how much do we think this is getting adversely impacted because of this kind of an environment, particularly for ARC?

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [20]

--------------------------------------------------------------------------------

So ARC, we've always looked at about a 20% kind of IRR because of fee plus the capital that you deploy because you earn interest income also and you get fee income also, about 2/3 is fee income and only 1/3 is interest income. So it's not a very interest-led model. It's a very fee-led model. And on that, we expect that IRRs, as interest rates have come down, what was a 20% IRR can come to 18% or 19%, so 1% to 2% fall in expected IRRs will happen, that is given, but if your cost of funding might also come down.

Also, I think post-COVID, there might be some very select -- very good opportunities, which might be very interesting. And we do believe that India, I think, the manufacturing sector, the infrastructure sector also will have a big revival a couple of years down the line. So if you can get some good assets and be able to revive them or restructure them like what we did with Binani Cement and Essar Steel and others, we think there could be upside on that. But our benchmark is about -- used to be 20%. I think now will become 18%, 19%. And there are deals where we have made more than 24%, 25% also where you get the upside also. So I think we will continue on that basis of keeping the benchmark in that range. But I think our 100 to 200 basis point lower yields is -- will be par for the course.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

The next question is from the line of Subramanian Iyer from Morgan Stanley.

--------------------------------------------------------------------------------

Subramanian Iyer, Morgan Stanley, Research Division - Equity Analyst [22]

--------------------------------------------------------------------------------

So on capital, I had a follow-up question. So what's the time line on the second tranche of money from CDPQ? And the other question I had was if you can just confirm the residual stakes of Edelweiss across the credit business, ARC and asset management because there have been CCD structures in some of these businesses. So if you could just confirm the residual stakes as well?

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [23]

--------------------------------------------------------------------------------

Sure. I think on the first, as I said, our credit businesses are more than adequately capitalized. And when we had raised the CDPQ money, the idea was to grow the retail credit business, but because of COVID and everything else, and because we have scaled down wholesale much faster than what was the plan at that time, we are reworking our capital needs because, as you know, ERFL, EHFL are 24% and 28% capital adequacy, so there is a lot of capital out there. And our idea is to have capital only when you need for growth. I think we'll wait for a couple of quarters before we decide how much more capital is required in the credit business. Because in ECL finance, we don't need any more capital because, as you know, we are scaling down that business for the wholesale book.

In ERFL and EHFL, as you see in the presentation, we have a lot of capital adequacy, in fact, much more than what we need for the next 18 months. So we will, by March, I think, work out the needs of capital for the credit business. Currently, we don't see any need for the next 1 year, given the calibrated and controlled growth plans we have for the credit business.

In other businesses, as I said, I think in the wealth management business, we expect Kora, Sanaka to be about 8% or so, Edelweiss will be 41%, 42% and 51% will be PAG. And the Edelweiss stake will be expected to be distributed amongst the Edelweiss shareholders as we go toward demerger of this business, and we will start that process.

Asset management in ARC, we continue to own 60% of ARC, and we own 100% of alternative asset and the asset management, AMC business. Tokio Life, we own 51%, and general, we own 100%. So in a way, I think, as I said, we will follow a partnership model in all our businesses. So the stakes will vary. And as I said, we are not that much focused on whether it's 40% stake or 50% stake or 36% stake, we are more focused on creating value in this business and unlocking it. And that we remain committed that we will unlock the value and reward the shareholders of Edelweiss as we go along in that because Edelweiss shareholders should eventually have direct ownership in all these businesses at an appropriate point of time. Because as I said earlier, the businesses need initially the handholding and ability to grow, but eventually, they should be listed independently, whether via IPO or via demerger. And that plan, we will continue to pursue.

--------------------------------------------------------------------------------

Subramanian Iyer, Morgan Stanley, Research Division - Equity Analyst [24]

--------------------------------------------------------------------------------

On credit business, I had a follow-up question. So in retail credit, you are obviously exploring co-origination route. So what is Plan B there, if at all that -- if at all co-origination doesn't pick up, then what are your plans for that business? And the other question I had was on the BMU business, the BMU vertical. What kind of recurrent loss should we model in that business line?

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [25]

--------------------------------------------------------------------------------

So I think on the first one, on the credit co-origination model, I think everybody is working. And in fact, last couple of months, there have been a lot of work going on with the banks on improving the co-origination model. So co-origination is a catch-all phase for being -- evolving partnerships of banks. So a lot of banks also experimenting that you originate, keep it on your books for 6 months and automatically goes down because at the stage of originating itself, the banks are effectively approved, but the banks have not put in the money. While other co-origination is this 80-20 model that we're all talking about. The other core co-origination is banks give you very specific lines of credit for specific products, and you use that as like a revolving line. You originate using that bank line, get the credit, package it and keep on selling it to the bank.

So there are various models that will evolve. But the overall approach is that retail credit, we think should not be geared at more than 3 to 4x and should be very granular and should have a back-end partnership with banks. And we do think the PSU banks and especially PSU banks in areas like where it is priority sector lending in SMEs and home loans and all, affordable housing is where there is a lot of opportunity. We continue to hear from PSU banks that any format of partnership for this kind of category is what they are very keen on.

So you will need a balance sheet, you will need an ability to originate, underwrite and all, but you will not be like a bank. You don't have to be like a bank where you just keep on growing your balance sheet as per say. So I think growth will be AUM-led rather than balance sheet led. So you will continue, and we are seeing a lot of opportunity, especially PSU banks because PSU banks post-COVID have realized that there are lot of areas that they can partner with NBFCs and they want because they have got excess capital, they've got excess liquidity. So NBFC's strength is not going to be capital, especially NBFCs, like us, where we are a professional first generation entrepreneur, we are not a business house. So we don't want to use capital as a strength, as a force, we want to use our ability to go to market, focus on niche segments, understand customer needs, do the right kind of underwriting.

And even today, in the last 3, 4 months, in COVID period, our retail portfolio has continued to do very well. And a lot of that, that we have sold to banks, banks are experiencing it that that portfolio continues to hold up well. So we do think that retail credit will be more partnership with banks in many, many formats. And wholesale credit will become AIF and asset management that we think is our approach to credit, not the only approach. I think different companies will have different approaches based on their current format and circumstances and all. We think for us, this is the best possible that in retail credit partner with banks and wholesale credit become an asset manager.

--------------------------------------------------------------------------------

Subramanian Iyer, Morgan Stanley, Research Division - Equity Analyst [26]

--------------------------------------------------------------------------------

The second question was on the BMU line. If -- I mean, what kind of recurrent loss should we model there?

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [27]

--------------------------------------------------------------------------------

So I think as long as we hold excess capital, that is part of that loss is the excess capital, that the group continues to hold, excess liquidity that we continue to hold. And even today, we are holding about INR 3,000 odd crores of excess liquidity, which is more caution or you can call it an insurance payment that we are making. So that itself is about INR 200-odd crores a year, plus, we have used this quarter to also take some impairment on the investments that we have in our -- at the group level. So I think on a steady-state basis, by fourth quarter, we are working towards making the BMU also flat, maybe INR 30 crore, INR 40 crore recurring loss, maybe the format on that. But our approach is that the BMU should become profit neutral as we cut cost, as we align because currently, in the last 2 years, as the business has become independent, we build capacity out there, but the corporate and BMU still carries a lot of those costs, which will slowly get into the businesses as we go along, and as they start growing again.

So we think by fourth quarter, we would like the BMU to be flat or maybe a INR 30 crore, INR 40 crore loss per quarter if we continue to hold excess liquidity. I think the need for holding excess liquidity will go away by then. I think the next 2, 3 quarters, we get a sense that I think that turnaround has happened. And ironically, the turnaround happened in the COVID period, which was the most stressful for NBFCs from a liquidity point of view. I think the NBFCs sector and the financial services sector, at least on liquidity, has made a U-turn, and we are seeing that in bond deals, and we are seeing that. The bond markets will take another 3, 4 quarters to come back to stability. But otherwise, I think credit flows and all have improved. So I don't think by March, you will need to hold a lot of excess liquidity also.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

The next question is from the line of Aditya Jain from Citigroup.

--------------------------------------------------------------------------------

Aditya Jain, Citigroup Inc. Exchange Research - Research Analyst [29]

--------------------------------------------------------------------------------

On the wealth management business, you mentioned Kora, Sanaka will end with an 8% or so say, so they will not have any presence in ARC and asset management? Is that the understanding now?

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [30]

--------------------------------------------------------------------------------

That is what they've orally indicated because there is no immediate plan to list that business. They would rather be in wealth management, where there is now a clear plan to get listed because they are actually more public market funds, so they would like a public market listing as fast as possible. And on asset management and ARC, as we said, eventually, we want all the businesses to be listed. But there is currently no concrete plan on that. But we are in conversation with them, but they have indicated that they would like to remain in the wealth management only and not have an unlisted asset management investment exposure.

And we are also happy with that because we don't need the additional tranches of capital. When we raise Kora, Sanaka money, they were going to invest about INR 900 crores in 3 tranches, only the first tranche has come in. We have not even taken the second and the third tranche. So only the first tranche has been taken. And with this deal happening, our need for tranche 2 and tranche 3 have gone away. We don't need those tranches at all. And it helps everybody because the idea is to make sure enough capital is available for the business, and you have a strong partner, which we have achieved with this deal.

So effectively, the INR 300 crore that they invested should translate into about 8 odd percent stake in the wealth management business.

--------------------------------------------------------------------------------

Aditya Jain, Citigroup Inc. Exchange Research - Research Analyst [31]

--------------------------------------------------------------------------------

Got it. That's for the INR 4,400 crore valuation?

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [32]

--------------------------------------------------------------------------------

Yes, and the conversion formula that we have with them because that was combined for asset and wealth. So we will tweak it around. And I think, ultimately, there is -- all this is also arithmetic, mathematic. That's why we've said we'll just convert that, and they will remain in wealth management.

--------------------------------------------------------------------------------

Aditya Jain, Citigroup Inc. Exchange Research - Research Analyst [33]

--------------------------------------------------------------------------------

All right. And on the use of the proceeds of this INR 2,200 crores you mentioned some amount will be used to repay debt at the group level. So could you just talk about the outside of the fixed operating entities, which are mentioned earlier in the presentation, what -- how much is the debt which is there at the group level? And maybe if there are any loans or investments outside of these 6 entities, what would be the amounts of these 3 things; the debt, investments and loans?

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [34]

--------------------------------------------------------------------------------

So if you see the group entity is more like a core investment company. It's like a CIC, and we have a capital base of close to about INR 6,000 crores at that level. And by RBI rules, CIC can be geared 2.5x. So on a INR 6,000 crore equity base, you can be up to INR 15,000 crores of borrowing. We currently have about -- the net borrowing of about INR 4,500 crores at the group level, out of which INR 2,000 crores will -- with this equity coming in about INR 1,800 crore or so will come down because of this. Along with that, we also have some investments and all of about INR 1,000 crores, which are investment in our funds. We are also limited partner in our funds and all. A lot of that will come back. So we have another INR 1,000 crores of investment. And we have about INR 1,500 crores of real estate investments, which is office building and all that, which are also owned by the group.

So this is the asset composition. We have investments. We have real estate, office premises and all that, and we have this -- the loans that we have used to invest in the businesses. So we do expect that this -- the group should, in the next couple of years go towards the real estate -- the loan should be only equal to the real estate office spaces that we own, and that also we can do a sale and leaseback and convert into a REIT. So the target for the group is to be effectively debt-neutral in the next 2 to 3 years. And this is an important because this will make it almost half. And then as we sell those investments in the next 1 year, it will come down even further. Because as I said, the first phase of Edelweiss that the group not only started businesses but also provided capital support to the businesses. Now I think the group will become more and more capital surplus, which you can use for dividend, for stock buyback. The idea is that the group should become very capital light and the businesses should not depend on the group for capital going forward. They should be able to force their own partnerships and grow independently.

--------------------------------------------------------------------------------

Aditya Jain, Citigroup Inc. Exchange Research - Research Analyst [35]

--------------------------------------------------------------------------------

All right. Just lastly from my side. On the insurance businesses, what is the view on -- so you talked about the strategic intent over there of partnerships and maybe listing in the long term? But what capital needs would you see in those businesses over the next 1 to 2 years?

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [36]

--------------------------------------------------------------------------------

So as I said, I think out of this INR 2,000 crores that we are raising, we do expect that about INR 400 crores or INR 500 crores will be allocated for the next 2 years' growth requirements for the asset management, insurance on businesses, we don't expect to invest in the credit business, but asset management and insurance, we want to allocate about INR 400 crores to INR 500 crores over the next 2, 3 years for that business. The balance part of it will go to the wealth management business and another INR 800 crores or INR 900 crores will go towards repayment of debt at the group level. So that is how we plan to allocate or we will repay more. And if the businesses raise their own capital, insurance and asset management, then they won't need the group money at all. So we are making sure that we have a little bit of capital to give them, but we will explore options for them to be able to raise money on their own also because, as I said, over the years, we have said that we are not the primary call for capital for the group. So we want to help them start businesses. But having a little bit of capital will give them the comfort and the support that if our general insurance business needs INR 100 crores investment for the next 18 months, we have the money. But we will be also -- they will also explore partnerships, strategic partnerships and private equity investors to make sure that they also become independent.

As I said, there was a first, a 25-year format of Edelweiss, which was like a joint family system. Now we increasingly want the businesses to scale up and stand up on their own. And I think it's a great time for the business because they will really path -- they will really forge their own paths. And the pressure on group for capital and all will also come down. So -- and that will be good for the shareholders of Edelweiss because we'll now be able to distribute. We'll now be able to give back capital via shares and via dividends and buybacks and all to our shareholders rather than continue to have to invest in businesses all the time.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

The next question is from the line of Mahrukh Adajania from Elara Capital.

--------------------------------------------------------------------------------

Mahrukh Adajania, [38]

--------------------------------------------------------------------------------

I have 1 question on the restructuring debt, sir, will the onetime restructuring be very generously used on the real estate book? Are there any other thoughts on that?

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [39]

--------------------------------------------------------------------------------

No, I think all of us are very clear. It will be very specifically used, and it will be on a case-by-case basis because ultimately, restructuring is not the answer. The cash flow is the answer. So you look at the cash flow and do restructuring on that basis. And that is what we've been doing. Actually, fortunately, for wholesale, last 18 months have gone in that only because you've looked at project, after project, after project and looked at the individual cash flows of the project. You are not just doing a generic restructuring. You can do that in retail to an extent. But even I think retail, in April, we had about 45% of the retail customers under moratorium, that has come to below 25% now. So I think retail also may not require a lot of restructuring because this government scheme on MSME loans and all that. And a lot of our retail is SME and home loans. And both of them are actually not as impacted as maybe other sectors like unsecured loans and all. So I think I don't expect a lot of wholesale restructuring to happen.

--------------------------------------------------------------------------------

Mahrukh Adajania, [40]

--------------------------------------------------------------------------------

Okay. And any securitization being within the pipeline?

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [41]

--------------------------------------------------------------------------------

Yes. As I said, on retail, we'll continue to do that. So we continue to do that all the time as we go along. Because in retail, we want to partner with banks, and we are doing specific partnerships with many banks on specific programs, on product lines and all, so that we are clear. We don't want to overuse our balance sheet. I think what we've learned in the last 2 years is that I think being more capital-efficient is actually a better model. You may have to work a little bit harder because it's very easy to just scale up the balance sheet, especially in good times. But I think scaling up balance sheet and asset base and saying INR 50,000 crores, INR 1 lakh crores may not be the long-term answer for a nonbank. I think the long-term answer is to build fee and commission income and all of that. And by the way, globally, that is what banks are also doing. Even global banks are saying fee and commission income is more important than just growing the asset and the balance sheet side.

So as capital becomes not the real driver, but more your fee and other income, I think even credit, NBFCs and all will drive that, where you will partner with banks and really -- and India, fortunately, there is an opportunity. The PSU banks are looking for partners. They have a lot of capital. They have a lot of appetite, but they have only so much reach and given their limitations, their ability to partner with NBFCs could be a good one. It will take time. Any partnership takes time. Any partnership takes a lot of effort. But we do believe, for us, the going forward model on retail credit will be partnerships with banks.

--------------------------------------------------------------------------------

Mahrukh Adajania, [42]

--------------------------------------------------------------------------------

Okay. And in wholesale, any securitization deal?

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [43]

--------------------------------------------------------------------------------

That, as we said last time, we have done last time, we will want to -- see our -- Mahrukh, our objective on wholesale is to bring down the book. So as we're getting repayments also, but if we can do an asset sale, it releases equity capital for us. We have INR 3,300 crores of equity in the wholesale business. If we can release that as fast as possible, that will be good for our shareholders. So we will continue to look for opportunities to sell down the wholesale portfolio, and we have said we will bring it down in the next 2 years organically and inorganically. So that we remain committed to that.

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

We'll be able to take one last question. We take the last question from the line of Kshitiz Prasad from Maybank.

--------------------------------------------------------------------------------

Kshitiz C. Prasad, Maybank Kim Eng Holdings Limited, Research Division - Analyst [45]

--------------------------------------------------------------------------------

Congratulations on the transaction. Sir -- yes, I just wanted to check with you. You said that in the asset management, ARC will have 60% Edelweiss holding -- shareholding. And if that is split between asset management and ARC, how much would that be, where will Edelweiss shareholders, how much stake Edelweiss will have in both these entities? One was that. And the other question, sir, was that how do you see the trend in the ARC portfolio right now, given the environment which we are in? And how that you think will span out and what is the current corpus, not the recovery, but the corpus in that business field?

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [46]

--------------------------------------------------------------------------------

So first, in our -- the mutual fund and alternative asset advisers, we own almost 100% in those businesses. EAAA, we own 95%, one of our large LPs owns 5%. And in ARC, we own 60%. As you know, we started ARC with 49% because that was the RBI rule then. And from 49%, we have come to 60%. ARC is the one where there is a lot of equity capital. We have about INR 2,000 crores of equity in that business. The other ones, EAAA and the mutual fund don't require a lot of capital. So that's our holding structure on the asset management vertical that we have.

To answer your question on ARC, we are seeing some very interesting opportunities because I think post-COVID, in fact, ironically, this quarter has also been good on recoveries for the ARC. And we have close to about INR 45,000 crores of assets under management on that. In the last 4 years, we have recovered INR 20,000 crores, and we expect to keep that pace up even going forward because a lot of assets are very good assets. So we do think that -- I think ARC is and continues to be a good model. We have adequate capital for that. But the whole of asset management space is undergoing a transformation. And in the emerging areas of both passive credit structures like ETFs, bond ETFs and all, as well as on alternative asset management, we have a strong pole position in that, which we want to exploit as we go forward.

So I think, overall, we remain optimistic on that. And I think this quarter has been very simplifying from an overall structure point of view for us because now we have this clear vertical businesses, which have their own growth plans.

--------------------------------------------------------------------------------

Kshitiz C. Prasad, Maybank Kim Eng Holdings Limited, Research Division - Analyst [47]

--------------------------------------------------------------------------------

Mr. Shah, the other question on ARC was given the IBC and NCLT and the current environment, do you see that, that can have an impact on the recovery and the overall business? Or it is just a temporary blip that you may see in this financial year? That is what the question is -- I wanted to ask about, how do you see this evolving in an environment as far as IBC and the NCLT aspects are concerned?

--------------------------------------------------------------------------------

Rashesh Chandrakant Shah, Edelweiss Financial Services Limited - Chairman, MD & CEO [48]

--------------------------------------------------------------------------------

Actually, IBC and NCLT are great ones, but we do believe that not all NPAs or not all revival needs an IBC or NCLT. There are some which can be done much better outside of that. But I think NCLT, IBC is a good tool to have in your toolkit because that's your final option. You can -- especially in cases where the change in management is required, and the management is noncooperative and IBC, NCLT works very well. But a lot of cases where management is also cooperating, there is a restructuring plan, and you can actually do sometimes much better outside of NCLT than in NCLT. Plus the fact is that cases which were already NPAs before March 31 are still eligible for NCLT, and NCLT has been in -- IBC has been in suspension only for the next year. So the threat is there. And the threat itself allows you to do a lot of restructuring very efficiently. And we have seen, last 3, 4 months actually have been very good even on recoveries of the -- on the ARC side.

So we do think that a large part of that is going to be how economy comes back, how liquidity conditions are. And I think India has taken a lot of pain in the last 5, 6 years. Fortunately, our economy encountered COVID -- the COVID hurdle when we had already gone through 4, 5 years of pain. So we were not in a euphoric state, and there was not huge expansion underway where we suddenly hit a road block. I think the economy had been facing headwinds. So we were a lot more prepared. And we do think that COVID is like the end of the beginning -- it's like the beginning of the end of that phase for India, where the growth has been challenged, and we remain very confident. In fact, historically, if you see the way India has bounced back after any crisis period has been phenomenal. And I think all the things which are happening, government cutting stamp duty on real estate, huge liquidity, government programs coming out there. Companies becoming more efficient. All of us focusing on cost rationalization. All of that will come together. There has been a perfect storm in a bad way in the last few years. I think maybe there is a perfect storm in a good way going forward where everything will converge, and there'll be a virtuous cycle for all of us.

And we continue to be focused on that, that COVID will get over, there will be March 2021. If we are all 100% certain that there will be a phase called March 2021, and hopefully, by then, COVID is over. And when that is over, if you are strong, you will be able to become stronger. But if you try to optimize and remain still scraping until then, then you will spend a lot of time recoveries from that. So idea is to be positioned for growth on March 31, 2021, and that is what we remain committed to.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

We'll take that as the last question. I would now like to hand the conference back to Ms. Ramya Rajagopalan for closing comments.

--------------------------------------------------------------------------------

Ramya Rajagopalan, Edelweiss Financial Services Limited - EVP of Corporate Development [50]

--------------------------------------------------------------------------------

Thanks, Rahman. Thank you very much, everyone, for your time today. With that, we've come to the end of our available time. And I know there may be more questions that you may have for us. We request you to contact me or the team at our Investor Relations Group, and we'd be happy to help you out with whatever additional information requirements you may have. Thanks again. Have a great weekend, and stay safe. Bye-bye.

--------------------------------------------------------------------------------

Operator [51]

--------------------------------------------------------------------------------

Thank you very much. On behalf of Edelweiss Financial Services Limited, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.