Edelweiss [1]

8/6/2019 Edelweiss [1]

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Strictly Private and ConfidentialStrictly Private and Confidential

July 2010

Edelweiss Capital


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Contents

1. Edelweiss Overview

2. Business Overview

3. India: Growth Opportunities & Edelweiss Strategy

4. Edelweiss Strengths

2


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Edelweiss Group- Introduction

Leading diversified financial services organization

Incorporated in 1995 as an investment bank focus on Private

Equity Syndication

Key businesses now: Investment Banking, Brokerage - Institutional

and Retail, Asset Management, Financing and Treasury

FY10 Revenue of`9,778 mn, PAT of`2,292 mn)

11 year CAGR for Revenue 80% and for PAT 75% upto FY10

Group net-worth of` 25.4 bn as on June 10 (including Minority)

Total employee strength of ~1300, Anagram acquisition adds ~1300

employees

3


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Institutional Equities

+ International Long

Investment Banking+ Project Finance, DCM

HNI Businesses

+ Wealth Management

2007 - 2010

Financing

+ ESOP, LAS

Treasury

+ Fixed Income, Comm.

Asset Management

Alternatives + AMC

Retail Broking & Dist.

Broking, IPO Distribution,Anagram acquisition

Evolution

4

Investment BankingPE Syndication

1996 - 2000

Treasury

Equities Arbitrage


Equity Derivatives

Investment Banking+ M&A Advisory

2000 - 2005


+ MFs and Insurance

Investment Banking+ ECM

Treasury

+ Special Situations

HNI Businesses

Broking

2005 - 2007

Financing

Sponsor and IPO

From an Investment Banking firm to a Diversified Financial Services Organization


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Market Presence Strategy

5

Growth Levers

Presence in adjacent markets across products,

asset classes and client segments

Products

Alternative AssetManagement

Domestic AssetManagement

Financial ProductsDistribution

CollateralizedLoans

Asset Classes

Equities &Derivatives

Fixed Income

Commodities

Currencies

Distressed Assets

Client Segments

Institutions

High Net-worthIndividuals

Mass Affluents

Retail


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-

500

1,000

1,500

2,000

2,500

3,000

FY99 FY01 FY03 FY05 FY07 FY09

Profit After Tax`mn

-

5

10

15

20

25

30


Net Worth`bn

-

200

400

600

800

1,000

1,200

1,400

1,600


Average no. of Employees

-

2,000

4,000

6,000

8,000

10,000

12,000


Total Income`mn

Track Record

6

FY10FY10

CAGR 80% CAGR 75%

CAGR 95%

FY10

CAGR 60%

FY10


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7

Consolidated Results

` Million FY11 FY10 FY10 FY10Q1 Q4 Q1 Annual

Fee and Commission Income 934 1,172 671 3,504

Income from Treasury Operations 562 339 790 2,455

Investment and Dividend Income 40 1 83 342

Interest Income 1,257 1,083 682 3,389

Other Operating Income 47 29 20 88

Total Revenues 2,840 2,624 2,246 9,778

Operating and Other Expenses 637 804 652 2,763

Employee Cost 498 465 391 1,622

Financial Expenses 776 569 311 1,943

Depreciation 37 39 28 122

Total Expenses 1,948 1,877 1,382 6,450

Profit Before Tax 892 747 864 3,328

Tax Expenses 237 184 249 879

Profit After Tax 655 563 615 2,449

Share of Minority Interests in Profits 41 40 32 157

Profit After Tax and MinorityInterest

614 523 583 2,292

Diluted EPS (` Qtly not annualized) 7.92 6.69 7.58 29.37


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8

Revenues`2,840 mn (`2,246 mn for Q1FY10)

Fee & Commission Income` 934 mn (`671 mn)

Income from Treasury Operations` 562 mn (`790 mn)

Interest Income#` 1,257 mn (`682 mn)

Profit After Tax and Minority` 614 mn (`583 mn)

PBT Margin 31% (38%)

PAT Margin 22% (26%)

Diluted quarterly EPS` 7.92 (`7.58) (not annualized)

(#)comprises interest on Loans and Working Capital Assets

Q1FY11 Consolidated Unaudited Results at a Glance


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9

Fee & Commission Income`934 mn (Q1FY10:`671 mn)

Broking Revenues`542 mn, Clients Broking ADV`18.7 bn,

Yields 4.60 bps

Fee Income`392 mn, I-Banking handled 10 Deals (3 in Q1FY10)

Income from Treasury Operations`562 mn (`790 mn)

Average book size ~`

15 bn, Gross Yields 15% and Net 9.7%

Interest Income `1,257 mn (`682 mn)

Interest on steady state loans`820 mn, average loan book

~`21 bn, yields of 15.6% (quarter-end loan book`25.6 bn)

Q1FY11 Revenue Segments Highlights


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10

Balance Sheet size as on June 30, 2010`71.75 bn

Group Networth`25.38 bn (including Minority Interest`2.17 bn)

Total Borrowings`46.37 bn, gearing 1.8x, average cost of

borrowing in Q1FY11 is 7.6%%

Loan book of`25.62 bn

Treasury assets of ~`16 bn

Working Capital assets ~`20 bn including Cash and Bank

Balances`14.74 bn

Corporate, Fixed and other assets ~`9.50 bn

Balance Sheet Highlights


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Businesses


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Investment Banking

HNI Businesses

Financing

Treasury

Asset Management

Retail Broking & Dist.

Business Portfolio

12

Agency Businesses

Capital Businesses

NewBusinesses

GrowthBusinesses

EstablishedBusinesses

Balanced Business Portfolio across

Agency and Capital

Established, Growth and New Businesses


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One of the widest product portfolios among the investment banking

franchises in India

Broad range of services from Capital Markets (ECM - IPOs, FPOs,QIPs, Rights, Open Offers, Buy Backs and DCM) to Advisory (PE

Syndication, M&A, Structured Finance, Infrastructure Advisory)

Strong franchise with emerging and mid market companies, gaining

traction with large corporates

Strong presence among both Public and Private Sectors

Fixed Income Syndication reached top 10 of the league tables in itsfirst full year of operation; ranked 2nd in Short Term Bonds placementand 3rd in Commercial Papers issuances in Q1FY11 (Source Prime Database)

10 deals across ECM, Advisory and DCM in Q1FY11 (3 deals in Q1FY10,33 deals in FY10)

Investment Banking

13

InstitutionalEquities

InvestmentBanking

FinancingAssetManagement

Treasury HNI BusinessesRetail Broking& Distribution

Edelweiss is ranked 2nd in QIPs and overall 3rd in ECM (QIPs, IPO/FPOs and Rights Issues) in FY10#

#By number of deals: Source Prime Database

A B i T ti Q1FY11


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Agency Business Transactions Q1FY11

14


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One of the Leading players in Institutional Equities

market share of ~5%

Wide client coverage across investor types and geographies

Robust technology platform and strong execution capabilities

178 stocks under coverage - one of the largest Research coverage universe

Strong positioning in Thematic Research - identifying large structural themesacross sectors

India 2020 Seeing Beyond Sizing the superstructure over the next

decade our landmark Report

Thought leader in alternative research

over 15 regular products ex. pair-trading strategies, corporate action

tracker

15


InvestmentBanking



R h C S l R t


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16

Research Coverage Sample Reports

I di 2020 Th I di G th St


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India 2020 The Indian Growth Story

17

* Edelweiss released its landmark research report

India 2020 Seeing beyond in March 10

* India's GDP expected to quadruple from FY09 level

to`205 Tn (USD 4.5 Tn) by FY20 (Nominal growth

rate of 13% p.a.)

* Key sectors outperforming GDP growth:

* Savings led: Banking, Insurance, Capital markets

* Consumption led: Education, Healthcare, Urban

Housing, Media & Entertainment, Organized

Retail, Automobiles

* Infrastructure led: Power, Roads, Railways,Irrigation, Water Supply & Sanitation


InvestmentBanking



Fi i


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Financing

Primary offering: loan products such as Sponsor Funding, Loan Against

Shares, Loan Against ESOPs & IPO Financing

Sponsors of Mid-to-large corporates constitute key clientele strong

origination capabilities

Loan book of`25.6 bn as on June 10; Typical collateral covers range from

2x to 3x

Received NHB approval for Housing Finance subsidiary

18


InvestmentBanking

TreasuryAssetManagement

Financing HNI BusinessesRetail Broking& Distribution

Financing Collateral Cover


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Financing Collateral Cover

19

Current collateral cover at ~2.65 times loan book size

Minimum cover at ~2.5 times


InvestmentBanking



1.5

2.0

2.5

3.0

3.5

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Collateral Cover

Treasury


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Treasury

Strong focus on capital preservation and liquidity

no negative quarter since 2001, no negative month since 2005

ample liquidity impacting equity arbitrage yields

~80% of the book can be liquidated within 3 days with less than 1%

impact costs

Origins in Equity and Equity Derivatives, now one of the few truly multi asset

class treasury operation in India

equity and equity derivatives, fixed income, commodities and currencies

20


InvestmentBanking



Treasury returns correlation with India Equity returns


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Treasury returns correlation with India Equity returns

21

Low correlation between market returns and treasury performance

No negative quarter over an 8 year period

*Treasury returns are at gross level; transaction and other costs average around 30-35% of the returns


InvestmentBanking



-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Q1

FY08

Q2

FY08

Q3

FY08

Q4

FY08

Q1

FY09

Q2

FY09

Q3

FY09

Q4

FY09

Q1

FY10

Q2

FY10

Q3

FY10

Q4

FY10

Q1

FY11

Nifty Qtrly Returns (LHS) Treasury Qtrly Returns (RHS)

Asset Management


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Asset Management

22

Alternative Asset Management

Current focus largely on offshore institutional investors

Product Portfolio includes

Hedge Fund Arbitrage, Long-Short (planned)

Special Opportunities Fund, Real Estate (existing domestic fund),

Distress Asset Fund (planned, ARC approval in place)

AUMs/AUAs of USD 264 mn equivalent as on June 10

Traditional Asset Management

Current focus on expanding the product portfolio and building

investment track record

Have 10 schemes across equity and debt funds


InvestmentBanking



HNI Businesses


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HNI Businesses

23

Wealth Advisory and Investment Services

HNI is a large growing market opportunity

India has an existing base of nearly 0.5 m individuals with

greater than USD 0.5 m investible assets, expected to grow at

~15-18% per annum

Differentiated product offering with focus on

Asset Allocation

High quality execution and reporting


InvestmentBanking



Retail Broking & Distribution - 1


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Retail Broking & Distribution 1

24

Retail Broking

New growth initiative at Edelweiss targeting the mass affluent

Centralized model of online (www.edelweiss.in) and tele-calling basedbroking

Client base of over 60,000 as on June 10

Decentralized model of branch and franchise based broking through

Anagram Capital

Minimal overlap with our existing retail businessesAdds nationwide network of 139 own offices, 122 franchise led

offices, over 1300 sub-brokers and more than 207,000 Retail clients

Strong product offering based on delivering services based on client

profile

High quality execution platform with best in class reporting

One of the widest Research offering for individual clients


InvestmentBanking



Retail Broking & Distribution - 2
http://www.edelweiss.in/http://www.edelweiss.in/


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Retail Broking & Distribution 2

25

Retail Distribution

Started in 2007 with initial focus on Equity Initial Public Offerings

(IPO distribution)

Have a network of 5000 distributors across 320 cities

For Q1FY11, ranked 3rd in HNI category (market share 13%) and 4th

in Retail category (market share 7%) by amount mobilized for IPOs#

Expanding into other products MF, Corporate Debt and Insurance

distribution

Unique web-offering to provide access to channel partners


InvestmentBanking



#Source Prime Database


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India : Growth Opportunities & Edelweiss Strategy

India: A Structural Shift in Growth


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-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

FY

70

FY

72

FY

74

FY

76

FY

78

FY

80

FY

82

FY

84

FY

86

FY

88

FY

90

FY

92

FY

94

FY

96

FY

98

FY

00

FY

02

FY

04

FY

06

FY

08

27Source: CSO, Edelweiss

India: Annual GDP Growth

1st phase of economic

reforms

Structural shift propelled

by services growth and

reforms

Nominal GDP at USD ~1.3 tn (FY09)

Witnessing a structural shift in the growth trajectory from 4-5% in70s and 80s to 7%+ in the current decade

5 Yr Moving Average of GDP growth

GDP to Savings Flow


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Household Savings

USD 340 bn

26%

Physical Savings

USD 150 bn

Financial Savings

USD 190 bn

Banking (60%)

USD 115 bn

Insurance(20%)

USD 40 bn

Capital Mkt(5%)

USD 10 bn

45% 55%

GDP

USD 1.3 tn

Others (15%)

USD 25 bn

Physical assets represent 45% of the total Household Savings

Banking and Insurance account for 80% of the Financial Savings

Source: Internal estimates 28

Flows reflected in the size of the industry verticals


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29

Figures in brackets indicate revenue size in USD bn

Source: Internal estimates for FY10

Non Banking FinancialInstitutions

(10.0)

Banking

(55.0)

Banking & OtherLending

Insurance

~USD 65 bn ~USD 43 bn

Capital Market

~USD 9.4 bn

Life Insurance

(37.5)

Non Life Insurance

(5.0)

Retail Capital Markets

(4.8)

Wholesale Capital Markets

(4.6)

Retail accounts for ~50% of Capital Markets


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30

Figures in brackets indicate revenue size in USD bn

Source: Internal estimates for FY10

Investment Banking(Advisory, ECM) (0.6)

Capital Market

Treasury (1.0)

~USD 9.4 bn

Institutional Equities (0.8)

Retail(Broking and Distribution) (4.0)

Traditional Asset Mgmt (0.8)

Financing (0.7)

Alternative and OffshoreAsset Mgmt (1.5)

Retail

(4.8)

Wholesale

(4.6)

Edelweiss Growth Strategy - 1


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31

Diversifying into adjacent markets, newer client segments, newer

asset classes within the capital market industry

Have used this strategy to establish strong businesses in wholesale

capital markets

Expanding the footprint to retail capital markets

Retail broking platform www.edelweiss.in

Anagram acquisition

Retail distribution

Asset management

Edelweiss Growth Strategy - 2
http://www.edelweiss.in/http://www.edelweiss.in/


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Insurance initiative - JV with Tokio Marine Holding Inc.# to expand

beyond capital markets and tap large Indian household savings

Edelweiss Housing Finance Limited received NHB approval

Asset Reconstruction Company received RBI approval

This will require ongoing investments in building new businesses

while continuing to benefit from scale up of existing businesses

# subject to regulatory approvals


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Edelweiss Strengths

Edelweiss Strengths


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Culture

Risk

Management

Cost

Flexibility

Growth with

Profitability

Diversified

Revenue

Streams

Strong Balance

Sheet

34

Growth with Profitability


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-

2,000

4,000

6,000

8,000

10,000

12,000


Total Income`mn

11 year Revenue and PAT CAGRs of 80% and 75%

Approach: growth through adjacent markets; through widening the

product mix in existing businesses

35

Culture

Risk

ManagementCost

Flexibility

Growth withProfitability

Diversified

Rev. Streams

Strong

Balance Sheet

-

500

1,000

1,500

2,000

2,500

3,000


Profit After Tax`mn

FY10 FY10

CAGR 80% CAGR 75%

Strong Balance Sheet


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Strong balance-sheet

Group net-worth of ~` 25.4 bn (including minority)

Gearing of 1.8x, ample capacity to lever

Liquid balance sheet

Liquid balance sheet with ~40% in Cash and Cash Equivalents

Total Treasury Assets account for ~50% of the total assets

Asset-side duration of less than 9 months, Liabilities at ~120 months

36

Culture

Risk

ManagementCost

Flexibility


Diversified

Rev. Streams

Strong

Balance Sheet

Diversified Revenue Streams


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3%

Fee & Commission Treasury Interest Investment & Others

37

4,438

2,171

3,493

(In`million)

Q1FY11

20%

44%

934

562

1,257

33%

Balanced mix of revenues across three key operating revenue streams

FY09

28%

37%

8%

2,441

2,512

3,315

27%

4%

FY10

25%

35%

3,504

2,455

3,389

36%

Cost Flexibility


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~50% of total costs are variable in nature

Variable employee compensation varies from 30% to 50% of the

total employee costs

Operating costs - Direct variable costs incl. STT and Transaction costs

account for 40 to 50% of the operating costs

Financing Costs (linked to yield asset book size) Short term financing

costs account for nearly half of the total Financing CostsReflected in ability to maintain PBT margins across cycles

38

Culture

Risk

Management

Cost

Flexibility


Diversified

Rev. Streams

Strong

Balance Sheet

Risk Management


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Four tier oversight on risk covering key risk buckets financial,

operational, compliance and corporate governance

Business level Risk

Centralized risk group

Executive committee

Board committee

Strong internal framework for risk assessment backed by robust

technology and processes, and benchmarked to best practices

39

Culture

Risk

Management`

Cost

Flexibility


Diversified

Rev. Streams

Strong

Balance Sheet

Culture


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Ownership

Employees (incl. key management) own over 50% of the company

One of the largest ESOP pools in the financial services space

~600 employees covered through the ESOPs

Leadership

Four tier leadership pool covering over 10% of the organization

Continued emphasis on training and developing leadership

100 seater training center operational at Alibaug (near Mumbai)

Innovation

Reflected in leadership in new product and asset classesand new client segments

40

Culture

Risk

Management

Cost

Flexibility


Diversified

Rev. Streams

Strong

Balance Sheet

Safe Harbor


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This presentation and the discussion that follows may contain certain words or phrases that are forward - lookingstatements, based on current expectations of the management of Edelweiss Capital Ltd. or any of its subsidiariesand associate companies (Edelweiss). Actual results may vary significantly from the forward-looking statements

contained in this presentation due to various risks and uncertainties. These risks and uncertainties include the effectof economic and political conditions in India and outside India, volatility in interest rates and in the securitiesmarket, new regulations and Government policies that may impact the businesses of Edelweiss as well as the abilityto implement its strategy. The information contained herein is as of the date referenced and Edelweiss does notundertake any obligation to update these statements. Edelweiss has obtained all market data and other informationfrom sources believed to be reliable or are its internal estimates, although its accuracy or completeness can not beguaranteed.

This presentation is for information purposes only and does not constitute an offer or recommendation to buy or sellany securities of Edelweiss. This presentation also does not constitute an offer or recommendation to buy or sellany financial products offered by Edelweiss. Any action taken by you on the basis of the information containedherein is your responsibility alone and Edelweiss or its directors or employees will not be liable in any manner for theconsequences of such action taken by you. Edelweiss and/or its directors and/or its employees may have interestsor positions, financial or otherwise, in the securities mentioned in this presentation.

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