Emkay Global Financial's report on Edelweiss Financial Services
EDEL reported weak Q1 results, with AUM falling for the fifth straight quarter. AUM declined 60.7% YoY and 12.3% QoQ to Rs168bn amid tight liquidity conditions and economic headwinds. Management intends to gradually run down its wholesale book. Accordingly, we expect AUMs to remain under pressure till Q4. The company has improved its overall borrowing profile with a decline in CPs and rise in NCD/banks. EDEL has entered into an agreement with PAG, which will acquire a 51% stake in EWM (the wealth management and capital markets business) at a post-money valuation of Rs44bn. Before the transaction, EWM will acquire 51% equity of ESL (capital markets business) for Rs1.4bn. The plan is to demerge and list EWM in due course. This deal values the franchise business at a 33% premium to our valuation
We maintain Hold with a TP of Rs95, corresponding to ~0.3x FY23E P/B on a consolidated basis. We have an UW stance in NBFC– EAP. Key risks: Unexpected revival of the real estate industry.
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