Edelweiss wants to take all companies public and enter new businesses

Executives at the eponymous financial services group said Edelweiss 3.0 was taking shape, with plans to list seven companies on the stock exchange, eliminate all debt and launch new businesses.

Founder and chairman Rashesh Shah said the plan would spin off multiple entities and remove the “spaghetti wires crisscrossing” its subsidiaries, even as the financial group remains reeling from the 5 came under regulatory scrutiny for various violations highlighted in the month.

Shah said the group’s third phase would focus on efficiency rather than pursuing “high growth”. The first phase focuses on building capital for 11-12 years. The second phase focuses on using this capital to set up NBFCs (non-bank financial companies first before setting up more capital-intensive businesses), housing finance companies, insurance companies, etc.

“It allowed us to grow quickly, but at the expense of efficiency. I think it was a good move, but we didn’t do it wisely,” Shah said, adding that the group would now focus on wise capital allocation, execution and efficiency, and a focus on investing in “developing leaders.”

Edelweiss 3.0 will enter execution mode in 2026 with the initial public offerings (IPOs) of its mutual fund unit (Edelweiss Asset Management Ltd.) and its alternative asset management subsidiary (Edelweiss Alternate Asset Advisors Ltd.), each offering $1 billion. Add valuation.

Thereafter, the group will seek to list its housing finance business (Nido Home Finance Ltd.), asset restructuring business (Edelweiss Asset Reconstruction Co. Ltd.) and NBFC units (ECL Finance Ltd. and Edewleiss Retail Finance Ltd.). ” said Shah. The two insurance subsidiaries, Zuno Property & Casualty Insurance Company Limited and Edelweiss Life Insurance Company Limited, will be the last to be listed after achieving profitability.

like a nuclear family

Justifying the need to list every business, Shah said Edelweiss has become more like a nuclear family, with each “child” having his or her own apartment, house, kitchen. “We have to build institutions now. We need leadership, culture and capital efficiency and I think the current plan lasts until 2035,” Shah said.

In addition to its seven listings, the group will pay down debt and enter new businesses. This year, the group plans to sell stakes in several companies to pay down debt $Of which Rs 6,000 crore $Shah said the debt stood at Rs 12,710 crore.

Completing the plan is a new business due to launch in March 2025, although Shah declined to reveal details, saying Edelweiss is “specialized in building businesses such as mutual funds and alternative assets”.

In May, the Reserve Bank of India (RBI) imposed business restrictions on two Edelweiss Group entities, including its asset reconstruction company, after regulatory inspections uncovered several instances of misconduct. Regulator Reserve Bank of India ordered ECL Finance and Edelweiss ARC to immediately cease new activities, citing their long-standing activities, circumvention of rules and lack of corrective action.

Shah said Edelweiss Group is moving from a holding company structure to an investment company structure, where each business will be linked to the returns it generates for shareholders. Currently, the group’s holding company is Edelweiss Financial Services Ltd (EFSL).

“Edelweiss Group’s strategy focused on reducing debt, improving asset quality and carefully nurturing new ventures has slowed its growth rate,” said Rajendra Srivastava, executive director of the Center for Business Innovation at ISB.

Srivastava added that the group’s strategy is centered on sustainable growth and long-term value creation and avoids the trap of chasing short-term profits. “This cautious advancement is critical to maintaining stability and remaining competitive in the unpredictable financial services industry,” Srivastava said.

However, even as Edelweiss looks to move in a different direction, some things remain confusing, including certain restrictions from banking regulators on two of its group companies.

Reserve Bank of India Watch

CARE Ratings reported on October 8 that the group’s ratings were downgraded as the Reserve Bank of India imposed restrictions on two of EFSL’s subsidiaries – ECL Finance or ECLF and Edelweiss Asset Reconstruction Company or EARC – citing significant regulatory issues. Enter “Rating Watch with Negative Impact”. The RBI will review these restrictions after taking corrective measures.

The regulator has directed ECLF, which is engaged in lending business to micro, small and medium enterprises, to stop structured transactions related to wholesale risks, except for normal repayments or account closures. It also directed EARC, India’s largest asset restructuring company, to “stop acquiring any financial assets” until further orders, including security receipts (SRs), and to avoid restructuring these assets into senior and subordinated tranches.

However, CARE Ratings said in the report that it does not expect there will be a significant impact on recovery efforts and resolutions for existing portfolios managed by EARC, which will continue as normal. “As stated by management, EARC has submitted remedial measures to the regulator but is still awaiting the regulator’s response. EARC mentioned that operations will be in line with regulatory expectations for as long as required,” the rating agency said.

“These issues are being resolved. RBI inspections are on. It will take about 5-6 months,” Shah said, adding that the regulator has not said that EARC cannot continue to recover. “We can’t buy more assets, but we haven’t been buying anyway,” Shah said, calling ARC “a deeply cyclical business.

He said banks that were saddled with NPAs seven years ago no longer have many NPAs. “Bank assets are not yet available and the next growth cycle is not yet here,” he said.

Shah said EARC has restored approx. $58,000 crore in the past seven years, and $1,300 crore in the July-September quarter.

in recovery mode

Shah believes the AUM (assets under management) of the ARC business is at $As of June this year, the capital adequacy ratio was 299 billion rupees, and the capital adequacy ratio was 64%. It may continue to be in recovery mode, and the next growth cycle may not arrive until 3-4 years later.

“People have cleaned up the past, but once the corporate capex cycle starts, some NPAs will come into the market,” Shah said.

Edelweiss focuses on two assets of the ARC business. “One is that the asset is very good but the promoter is under pressure. The other scenario is that the asset is under pressure but the promoter is not under pressure,” Shah said while citing Gautam Thapar An example of such an account is that of Ballarpur Industries, India’s largest paper company.

“…the bank has withdrawn working capital. It has $3,000 crore debt and zero Ebitda (earnings before interest, tax, depreciation and amortization). Their capacity utilization is only 18-20%, which can only cover costs. We acquire debt. There are about 18 banks. We also provide them with additional working capital $2 billion rupees. Capacity utilization reached 88%, and the company’s Ebitda was $1,500 crore,” Shah said.

He expects EARC’s profits, currently up 6%, to continue growing.

Meanwhile, Shah said Edelweiss’ general insurance business is growing about 40%, its life insurance unit is growing about 18%, mutual funds are growing 25% and its alternative asset management unit is growing 28%. “Growth is not a challenge, but efficiency is more important to us,” Shah said.

IPO and new business planning

While Edelweiss will list its mutual funds and alternative businesses first, it will wait until the housing finance segment is big enough to do so. “It’s well capitalized, but it’s still a little small,” Shah said, adding that the company has about $The current AUM is Rs 3,000 crore and it can be divested once the AUM reaches the target $800-100 billion, it will take another three to four years.

Shah said the mutual fund and alternative investment businesses are now equally profitable and sizable and will be listed within the next two years. Edelweiss will then list credit businesses (ECL Finance, Nido Home Finance, Edelweiss Retail Finance). “They (credit companies) have quite a bit of capital, but they need a growth cycle,” Shah said.

Edelweiss’s two insurance businesses are still waiting to break even and will only go public after recording profits. “We will break even within 18 months. So, two years after breaking even, they will also be ready for an IPO,” Shah said.

“I think all these companies should aspire to reach over $1 billion in their own right. Only then should it aspire to go public,” feels Shah.

To strengthen its NBFC and emerging insurance subsidiaries, Edelweiss Group should focus on strengthening its financial backbone through strategic capital infusion and sophisticated risk management strategies, ISB’s Srivastava said, adding that Edelweiss should innovate its product lines to incorporate more technologies driven solutions.

Until debt tears us apart

Even as he plans a new business that may be digitally focused, Shah intends to clear all of the group’s debt quickly.

group $127 billion rupees debt, $Rs 6,000-7,000 crore is at the holding company level and the rest is operational debt required for the group’s smaller NBFC business. To repay debt at the holding company level, Shah said the group could sell shares in some group companies.

EFSL has sold 6.2% stake in financial services firm Nuvama Wealth Management $14.81 billion rupees were used to repay part of the debt.

In an effort to pare more debt, Edelweiss announced a stake sale in its alternatives business. The number of EAAA shares planned to be sold is unclear. EAAA operates and manages private investment vehicles in the areas of performance credit, structured credit, real estate and infrastructure income $As of June 2024, assets stood at Rs 56,342 crore.

“This could give us another $1,500-2,000 crore,” Shah said. “What we have in Nuwama is worth another $20 billion rupees. We have another investment $10 billion rupees. From that point on, we may sell some of our shares. “

Schad added that the group will reduce debt to the following levels $3,000 crore in the next year. “In contrast, we still own the office property, this office building, et cetera. We have $Of this, Rs 3,000-4,000 crore in assets,” says Shah, whose new ideas often come from his extensive travel experience.

“When I travel in India, I especially like to go to tier-2, tier-3 and tier-4 cities. I see amazing aspirations. It’s a different India. The Mumbai we see is a completely different India. This is not the real India, ” Shah added that he saw many small cities accumulating wealth.