BSE ID : 532922 NSE ID : EDELWEISS
RECOMMENDED PRICE 121.80
PEAK FROM RECO 342.00 180.79%
CURRENT PRICE 73.90 39.33%
Edelweiss Financial Services Ltd (EFSL) is one of India's leading diversified financial services company providing a broad range of financial products and services. We initiate coverage with a BUY with a price objective of Rs. 217 representing a potential upside of 75% over the next 21 months.
Edelweiss Financial Services Ltd
Edelweiss Financial Services Ltd (EFSL) is on the cusp of accelerated growth given the growth opportunities presented by:
- Under penetration of credit in India
- Exponential growth of the wealth management industry
- Unique opportunity presented by the Asset Reconstruction space
- Emergence of Insurance as a high growth sector
- Changing investment habits of Indian investor, which is expected to spearhead the growth of the asset management industry
- Buoyant capital markets which are expected to fuel the growth of the broking segment
We believe that EFSL has a robust business model in place to cater to all the above opportunities and partake in the India growth story while keeping risk under control.
Overall we expect consolidated revenue to grow at CAGR of 23.6% over the period FY16-19 to Rs.9,933 crore. Consolidated PAT to grow at CAGR of 35.6% over FY16-19 to Rs.1,032 crore. RoA to expand by 68bps to 1.9% by FY19. RoE to broaden by 581bps to 17.1% by FY19. We are optimistic about the prospective fortunes of EFSL given that:
Credit book is set to grow at a CAGR of 21.3% to Rs.35,748 crore by FY19. Over the same period asset quality (which is already superior than that of its peers and private banks) is expected to remain stable.
We expect the wealth management AUM to grow at a CAGR of 30.8% over FY16-19 to Rs.77,600 crore driven by:
- Strong branding of its franchise ‘Edelweiss’
- Aggressive spend towards building the franchise
- Favorable capital markets
- Hallmark equity research
The business which till date was in the investment phase is expected to start contributing to the profitability.
Acquisition of JP Morgan schemes and Ambit alpha funds schemes to augment AUMs of the Asset Management business. Buoyed by the changing investment habits of Indian investors the AUM is expected to grow at a CAGR of 91.3% to Rs.35,000 crore by FY19.
CDPQ’s investment in its ARC business is expected to bolster fortunes of this segment. We expect ARC AUM to grow at a CAGR of 26.3% over the period FY16-19 to Rs. 54,552 crore.
Favorable sentiments for the capital markets are expected to lead to a surge in revenues of this segment at CAGR of 12.9% to Rs.753 crores by FY19.
Although the Insurance business is not expected to break even until FY21, we expect premiums to grow at a CAGR of 52.0% to Rs.1,054 crore by FY19.
We initiate coverage on EFSL as a Buy with a SOTP based price objective of Rs. 217 representing a potential upside of approx. 75% over a period of 21 months. At CMP of Rs. 121.80, the stock is trading at 2.5X FY17 P/Adj. BV.
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