edelweiss – investor presentation investor... · md & head of risk management galleon group...
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Edelweiss – Investor PresentationMarch 2008
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Disclaimer
This presentation and the discussion that follows may contain certain words or phrases that are forward - looking statements, based on current expectations of the management of Edelweiss Capital Ltd. or any of its subsidiaries and associate companies (“Edelweiss”). Actual results may vary significantly from the forward-looking statements contained in this presentations due to various risks and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India and outside India, volatility in interest rates and in the securities market, new regulations and Government policies that may impact the businesses of Edelweiss as well as its ability to implement the strategy. The information contained herein is as of the date referenced and Edelweiss does not undertake any obligation to update these statements. Edelweiss has obtained all market data and other information from sources believed to be reliable or its internal estimates, although its accuracy or completeness can not be guaranteed.
This presentation is for information purposes only and does not constitute an offer or recommendation to buy or sell any securities of Edelweiss. This presentation also does not constitute an offer or recommendation to buy or sell any financial products offered by Edelweiss. Any action taken by you on the basis of the information contained herein is your responsibility alone and Edelweiss or its directors or employees will not be liable in any manner for the consequences of such action taken by you. Edelweiss and/or its directors and/or its employees may have interests or positions, financial or otherwise, in the securities mentioned in this presentation
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Industry Overview
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Indian Financial Services Sector: Overview
Public Sector BanksPublic Sector Banks
Private Sector BanksPrivate Sector Banks
Non Banking Financial Institutions/Others
Non Banking Financial Institutions/Others
Asset Management(Traditional and Alternative)
Asset Management(Traditional and Alternative)
General Insurance-Public SectorGeneral Insurance-Public Sector
Banking & Other Lending Companies
Capital Market Players Insurance Companies
Revenue (FY 08 E) USD 70 Bn USD 50 Bn USD 10 Bn
Wealth ManagementWealth Management
Retail Broking and DistributionRetail Broking and Distribution
Institutional Equities(Equities andDerivatives)
Institutional Equities(Equities andDerivatives)
Investment Banking(Advisory, ECM)Investment Banking(Advisory, ECM)
Source: Internal Estimates, figures in brackets indicate estimated revenue size in USD Bn* Based on estimates of embedded value of private sector insurance businesses of listed companies
General Insurance-Private SectorGeneral Insurance-Private Sector
Life Insurance CorporationLife Insurance Corporation
Life Insurance-PrivateLife Insurance-Private Others
(Treasury, Financing, Trading etc)
Others(Treasury, Financing, Trading etc)
(10)
(15)
(45)
(5)
(3)
(27)
(15)
(0.8)
(1.2)
(3.6)
(0.3)
(2.0)
(2.1)
Market Capitalisation USD 115 Bn USD 16 Bn* USD 10 Bn
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Convergence across categories:
– Mutual Funds and Banks
– Insurance and Asset Management
– Broking and Financing
Growth in Capital Markets have outpaced others:
Key Trends
Median Revenue CAGR (2004 -08)
Private Banks 30%
Public Banks 8%
NBFCs 42%
Insurance 31%
Capital Markets 80%
Source: Internal Estimates5
Edelweiss Overview
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Edelweiss: Overview
Diversified financial services company
Founded in 1996, currently has 1,500 employees
Headquartered in Mumbai with 43 offices across 19 cities
Overview Revenue Segmentation (9 months ended Dec 07)
• Investment Banking
• Institutional Equities
• Private Client Broking
• Asset Management
• Wealth Management
• Insurance Broking
• Treasury
• Wholesale Financing
Summary Financials
(Rs. mn, unless otherwise specified) FY ‘05 FY ‘06 FY ‘07
9 months ended
Dec 07
Total Revenue 770 1,580 3,713 6,831% Growth 151.8% 105.1% 135.0%
Net Income (after min. int) 225 405 1,090 1,907
% Margin 29.2% 25.7% 29.4% 27.9%Return on Net Worth 55.6% 38.2% 28.7% 30.0%
Edelweiss: Overview
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Well Diversified Integrated Financial Services Model
Agency-based
Capital-based
Recent Initiatives / High Growth Areas
44%
47%
Institutional Equities
Investment Banking
Wholesale Financing
Treasury
Wealth Management
Insurance Broking
Private Client BrokingTreasury
Institutional Equities
Investment BankingInvestment Banking
Revenue: INR 93mn
Revenue: INR 6,831mn (9 mo)
FY 2000 FY 2003 Dec 2007
Strategy of selectively building new businesses adjacent to our current offerings
Asset Management
Balanced agency and capital-based businesses. Balanced recent growth initiatives and established businesses
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Track Record of Capitalizing on Capital Market Trends
Late 1990s
2001
2004
2005
2006
2007
Private Equity
Equity Derivatives
Alternative Asset Management
Indian Real Estate
Qualified Institutional Placement (“QIP”)
Asset Management
Key Trend
Fund-Based Lending
Wealth Management
Wholesale Finance Business
Investment Advisory and Planning Services
Managed First QIP
Pioneer in PE Advisory
India Diversified Fund Retail Asset Management
Real Estate Investment Banking
Real Estate Fund Blue River Capital
Pioneered Arbitrage andMulti-Book Trading Acquired Rooshnil
Ongoing identification of key trends – creating service offerings and businesses around them
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Strong Research & Analytics Platform
Fundamental Research Alternative / Quantitative Research
Early identification of emerging market themes– 2003: India export-oriented manufacturing
industry – 2005: Lifestyle Consumption products and
services– 2006: Indian infrastructure industry
‘Top-down’ macro research to spot themes, combined with ‘Bottom-up’ research to identify stock ideas
Conventional and proprietary analytical techniques/models to identify short and medium-term opportunitiesProduct suite includes:
– Relative Strength Comparison– Pair Strategy– Edelweiss Market Scan– Master Moves– Sector Fact Sheets
TREASURY
WEALTH MANAGEMENT
INSTITUTIONAL EQUITIES
PRIVATE CLIENT BROKERAGE
INVESTMENT BANKING
Research & Analytics
• 60 analysts• Cover 215 companies • Fundamental Research• Alternative/Quantitative
Research
Backbone of our businesses - cutting-edge research and analytical rigour
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Experienced Management Team
Senior Management Team
Experienced and CapableManagement
Strong track record of identifying business opportunities and executing on strategy
Depth in Management Team Experienced business heads supported by a deep layer of skilled middle managers
Continuity Track Record Most members of the management team have been with the company for over five years
Employee Ownership Management and employees together hold approximately 55% of the Company (20% owned by non-promoter employees)
40 Member Senior Leadership Team (SLG)
45 Member Leadership Team (LG)
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Active Board of Directors with Complementary Skills
Board of Directors
Name Key Affiliation(s) Key Skill-SetBoard
Member Since
Rashesh Shah Management Representative
Chairman and CEO Edelweiss
18 years experience in public and private markets in India
1996
Venkatchalam RamaswamyManagement Representative
Executive DirectorEdelweiss
Diverse experience in financial sector 1996
Sanjay SanthanamNon-Executive Nominee
MD & Head of Risk ManagementGalleon Group
Expertise in risk management 2006
Kunnasagaran ChinniahNon-Executive Nominee
Executive Vice PresidentGIC, Singapore
Highly experienced in global private equity
2007
Ramanan RaghavendranIndependent
Managing PartnerKubera Partners
Diverse experience in global financial services
2000
Sunil WadhwaniIndependent
Co-Founder & CEOiGATE Corporation
Strong background in entrepreneurship across geographies
2000
P.N. VenkatachalamIndependent
Former MD State Bank of India Considerable experience in Indian credit markets
2007
Narendra JhaveriIndependent
Former Joint MD ICICIFormer Chairman ICICI Securities
Extensive experience in Indian capital markets
2007
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Business Overview
Investment Banking
Institutional Equities
Asset Management
Wholesale Financing
Private Client Broking
Wealth Management
Insurance Broking
Innovative financial solutions to HNWI & corporate clients. Offerings include IPO funding, Loan against shares, ESOP Funding
Wide range of expertise across verticals like Equity Capital Markets, Mergers & Acquisitions, Structured Finance, Private Equity, Real Estate & Infrastructure Advisory
Institutional Brokerages in cash & derivatives segment with a global client base. Research coverage across Fundamental, alternative and thematic themes
Advisory services for Institutional & HNWI’s across Alternate asset classes like Real Estate, Private Equity and multi-strategy fund and Portfolio Management services
Brokerage advising to HNWI & corporate clients on Equities, Derivatives & Commodities Investments spread across 43 branches in 19 cities
Customized advice to HNWI & corporate clients on asset allocation across different asset classes from Structured Products, PMS, Mutual Funds, Insurance, Derivative strategies, Private Equity, IPO’s, Real Estate Fund & Art Fund
Specialists in Auto & Fire Insurance, Employees Benefit Schemes & Liabilities Insurance
Diversified across asset classes, products and client segments
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Growth Strategy
Growth Levers
Growth through adjacent markets across products, asset
classes and client segments
Growth through adjacent markets across products, asset
classes and client segments
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Financial Snapshot
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Solid Track Record of Profitable Growth
Revenue Growth Revenue Breakdown
Return on EquityNet Income Growth
Net Income (1)
(INR mn)
25.0% 29.2% 25.7% 29.4% 27.9%Net Income Margin
CAGR: 130%
1. Net income after minority interest
CAGR: 142%
(Annualised)
(INR mn)
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9 months FY08 Financial Overview (consolidated)
More than 50% of the costs are variable in nature: linked to business volumesMore than 50% of the costs are variable in nature: linked to business volumes
INR Million FY08 FY07 Growth FY08 FY07 GrowthQ3 Q3 YOY 9 Mths 9 Mths YOY
Fee and Commission Income 1,252 479 2,993 1,411Trading and Arbitrage Income 946 374 2,150 684Investment and Dividend Income 366 72 599 186Interest Income 672 55 1,085 73
Total Revenues 3,235 981 230% 6,827 2,354 190%
Employee Cost 480 219 1,234 486Operating and other expenses 628 216 1,375 577Financial expenses 673 52 1,182 113Depreciation 17 9 40 28
Total Expenses 1,798 496 262% 3,831 1,205 218%
Profit before tax 1,437 484 197% 2,996 1,149 161%
Tax expenses (including Deferred and Fringe Benefit Tax) 473 176 1,014 427
Profit after tax 964 309 212% 1,982 723 174%
Share of minority interests in profits 40 0 81 3
Profit after tax and minority interest 924 309 199% 1,902 720 164%
Earnings Per Share (EPS) in Rupees - Basic (Not annualised) 13.4 6.1 31.2 14.9 - Diluted (Not annualised) 12.9 5.3 30.0 13.3
9 months FY08 Financial Overview (consolidated)
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Strong Liquid Balance Sheet
Indicative Balance Sheet
Sources of Funds
Equity# 19.3
Other Long Term Capital 2.7
Borrowings 18.0
Total 40.0
Application of Funds
Treasury Assets 15.0
Wholesale Financing Book 8.0
Working Capital 10.0
Liquidity Cushion 4.0
Other Assets 3.0
Total 40.0
INR Billion
# including Minority InterestBased on representative numbers 18
Revenue Mix – Well diversified revenue streams
Investment and Dividend
9%Interest and Other
16%
Fees and Commission
44%
Trading and
Arbitrage31%
Investment and Dividend
7%
Interest and Other
4%
Fees and Commission
58%
Trading and
Arbitrage31%
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Client Revenue Mix – shift towards greater balance
For Agency related businesses
Individual Clients20%
Individual Clients11%
Institutional/Corporate
Clients80%
Institutional/Corporate
Clients89%
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Key Challenges
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People
• High and well distributed employee ownership
• Focus on training and “building our own”
• Unique partnership culture
Risk Management
• Board level oversight – Audit and Risk Committees
• Strong focus on Risk Measurement and Monitoring
Key Challenges & our approach (1/2)
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Business Volatility
• Diversified Business Model
• Flexible resources: capital and people
• Flexible cost base
Regulatory & Compliance
• Strong Corporate Governance
• Compliance Culture
Competition
• Unique Business Model
• Execution culture
• Focus on innovation
Key Challenges & our approach (2/2)
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Thank You
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