Equity L/S Analyst | Forensic Accounting | India, Yellowstone Equity

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

Creating Wealth through Alpha and Compounding

Yellowstone Equity

Providing unbiased and independent research on Indian equities to global institutions and individual investors


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Regulatory Disclosure: 
Note that Ankit Agrawal (Proprietor of Yellowstone Equity) is a SEBI registered Research Analyst (Registration No.: INH000007216). Registration granted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Investment in securities market are subject to market risks. Read all the related documents carefully before investing.

Research Analyst Contact Details:
Address: A-412, Shilp Aaron, Sindhu Bhavan Road, Ahmedabad, Gujarat - 380059
Email: services@yellowstoneequity.com
Mobile: +91-7575817289

Compliance/Grievance Officer:
Name: Ankit Agrawal
Email: services@yellowstoneequity.com
Mobile: +91-7575817289
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Equity Bottom-Up

Edelweiss Financial Services / Equity Bottom-Up

<ul>
<li>Excluding one-off gains, Edelweiss reported weak Q3FY22 earnings, led by the credit business that has been adversely impacted by operational de-leverage from declining AUM.</li>
<li>However, barring the credit business, Edelweiss’ rest of the businesses continue to post strong growth and profitability. </li>
<li>There are material headwinds in the credit business currently; however, these are poised to recede as the business scales up over the next 2Y.</li>
</ul>


Excluding one-off gains, Edelweiss reported weak Q3FY22 earnings, led by the credit business that has been adversely impacted by operational de-leverage from declining AUM.
However, barring the credit business, Edelweiss’ rest of the businesses continue to post strong growth and profitability. 
There are material headwinds in the credit business currently; however, these are poised to recede as the business scales up over the next 2Y.


Edelweiss: Cheap Valuation; Scaling Up The Credit Business Is Key

Alpha-Centric ESG Research

Kyle Rudden

<ul>
<li>In a recent Insight, <a href="https://www.smartkarma.com/insights/regulating-esg-ratings-in-india-outline-of-sebi-s-proposed-regulatory-framework" target="_blank" data-smartkarma-citation="insights:64468" rel="noopener">Regulating ESG Ratings in India: Outline of SEBI's Proposed Regulatory Framework</a>, I summarised SEBI's proposed regulatory framework for ESG ratings in India. </li>
<li>This Insight goes a bit further, looking at implications of regulation on stocks of ESG ratings providers (ERPs), especially Credit Rating Agencies (CRAs) and Research Analysts (RAs).</li>
<li>Downside risk are minimal for ERPs, but a few scenarios and stipulations related to conflicts of interest and compensation (how ERPs are paid, and by whom) could have an impact.</li>
</ul>


In a recent Insight, Regulating ESG Ratings in India: Outline of SEBI's Proposed Regulatory Framework, I summarised SEBI's proposed regulatory framework for ESG ratings in India. 
This Insight goes a bit further, looking at implications of regulation on stocks of ESG ratings providers (ERPs), especially Credit Rating Agencies (CRAs) and Research Analysts (RAs).
Downside risk are minimal for ERPs, but a few scenarios and stipulations related to conflicts of interest and compensation (how ERPs are paid, and by whom) could have an impact.


Credit Rating Agency Stocks Most Impacted by SEBI Regulation of ESG Ratings in India

<ul>
<li>After being focused on preserving liquidity and maintaining a strong balance sheet, Edelweiss is now gearing up for growth as the environment becomes conducive.</li>
<li>In line our our thesis, asset quality deterioration has stabilized and accordingly incremental provisioning continues to be minimal. </li>
<li>We think all stars are aligned for Edelweiss to grow from here and witness valuation re-rating. Management has also guided for substantial profit catalysts over the next 3 years.</li>
</ul>


After being focused on preserving liquidity and maintaining a strong balance sheet, Edelweiss is now gearing up for growth as the environment becomes conducive.
In line our our thesis, asset quality deterioration has stabilized and accordingly incremental provisioning continues to be minimal. 
We think all stars are aligned for Edelweiss to grow from here and witness valuation re-rating. Management has also guided for substantial profit catalysts over the next 3 years.


Edelweiss: Focus On Growth Is Back, The Stock Is Ripe For Re-Rating

<p>Edelweiss reported its Q1FY22 earnings. Key highlight of the earnings was minimal provisioning, in line with our expectation as highlighted in our prior insight - <a href="https://www.smartkarma.com/insights/edelweiss-the-worst-is-behind-us" target="_blank" data-smartkarma-citation="insights:53296" rel="noopener">Edelweiss: The Worst Is Behind Us</a>. Edelweiss also reported strong growth in its capital market linked businesses and insurance businesses.</p>

Edelweiss reported its Q1FY22 earnings. Key highlight of the earnings was minimal provisioning, in line with our expectation as highlighted in our prior insight - Edelweiss: The Worst Is Behind Us. Edelweiss also reported strong growth in its capital market linked businesses and insurance businesses.

Edelweiss: Minimal Provisioning in Q1FY22 in Line with Our Expectation

<p>While Edelweiss has faced significant provisioning led losses over the past one and half years, we believe the worst is behind us now. Edelweiss had significantly cleaned up its book in Q4FY20 and in the most recent reported quarter i.e. Q4FY21, it further took significant provisioning to account for adverse impact of COVID second wave and any additional stress. Going forward, we expect Edelweiss' asset quality to improve largely assisted by significant clean-up in the past few quarters. Additionally, the residential real estate market seems to have bottomed out with liquidity coming back to the market and demand turning favorable post COVID. In line with our original thesis, Edelweiss has also significantly accelerated its shift towards fee based business model over the past couple of years. All in all, we expect significant re-rating in the stock over the next 1 to 2 years.</p>

While Edelweiss has faced significant provisioning led losses over the past one and half years, we believe the worst is behind us now. Edelweiss had significantly cleaned up its book in Q4FY20 and in the most recent reported quarter i.e. Q4FY21, it further took significant provisioning to account for adverse impact of COVID second wave and any additional stress. Going forward, we expect Edelweiss' asset quality to improve largely assisted by significant clean-up in the past few quarters. Additionally, the residential real estate market seems to have bottomed out with liquidity coming back to the market and demand turning favorable post COVID. In line with our original thesis, Edelweiss has also significantly accelerated its shift towards fee based business model over the past couple of years. All in all, we expect significant re-rating in the stock over the next 1 to 2 years.

India

Edelweiss Financial Services Ltd. provides financial services.  The Company offers financial services including lines of credit, investment banking, institutional and retail broking, financial planning, asset advisory, life insurance, and investment management services.

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Edelweiss Financial Services (EDEL IN)

Edelweiss: Cheap Valuation; Scaling Up The Credit Business Is Key

Edelweiss has potential to command a valuation of INR 25,000cr+ over next 3-5Y vs current valuation of around INR 6,000cr.

Ankit Agrawal, CFA

Credit Rating Agency Stocks Most Impacted by SEBI Regulation of ESG Ratings in India

The potential impacts of SEBI's proposed framework for regulating ESG ratings are unclear at this stage, but a few things (related to conflicts of...

Kyle Rudden

Edelweiss: Focus On Growth Is Back, The Stock Is Ripe For Re-Rating

We think all stars are aligned for Edelweiss to grow from here and witness valuation re-rating. Management has also guided for substantial profit...

Ankit Agrawal, CFA

Edelweiss: Minimal Provisioning in Q1FY22 in Line with Our Expectation

In line with our expectation, Edelweiss reported minimal provisions in Q1FY22. The worst for Edelweiss seems to be behind it. With a strong balance...

Ankit Agrawal, CFA

Edelweiss: The Worst Is Behind Us

We anticipate Edelweiss to report strong Q1FY22 earnings as most of the cleanup in the credit book is behind us. Edelweiss is well capitalized to...

Ankit Agrawal, CFA

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