Edelweiss Financial Services Ltd
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Edelweiss Financial Services Ltd
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Ladies and gentlemen, good day, and welcome to Edelweiss Financial Services Limited Q2 FY '21 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Ms. Ramya Rajagopalan, Senior EVP, Corporate Development. Thank you, and over to you, ma'am.
Thank you, Vikram. Good afternoon, everyone, and a very warm welcome to our Second Quarter Earnings Call for the financial year 2021. As ever, we hope you and your families are safe and well. Today, we have with us on the call Mr. Rashesh Shah, Chairman and CEO of the Edelweiss Group; Mr. Himanshu Kaji, Executive Director and Group COO; Mr. S. Ranganathan, President, Edelweiss Financial Services; and Mr. Sarju Simaria, CFO of Edelweiss Financial Services. During the discussions today, we will be making references to the Q2 results presentation uploaded on the exchanges and on our website. We do hope you've had a chance to review it and have it close by. Please do note that some of our statements on today's call may be forward-looking in nature and, hence, may involve risks and uncertainties. Please read the safe harbor statement in our results presentation as well. With that, I will now hand the call over to Mr. Rashesh Shah to begin the proceedings of the call. Thank you, and over to you, Rashesh.
Thank you, Ramya, and good afternoon to all of you. A very warm welcome to all of you for this Q2 results. I hope all of you are safe and your families and all are okay. We still -- all of us are managing in the middle of this COVID unprecedented crisis, but thank you all for joining this call. Friends, as we had spoken earlier, the current year FY '21, given all the events that are happening in this year and what has happened in the last couple of years in the financial services space in India is what we call a year of reset. The -- I think India economy is also going through a reset. We have had 4 years of slowdown, but a lot of changes with IBC and GST and now other reforms and the bank NPAs, which have also come down but then COVID happened. So there is a reset going on, not only a short-term reset but a medium-term reset for Indian economy. But we do feel that this COVID is like a big reset for Indian economy, and it comes at a final stage of this interim changes that have been happening. Recently, we have seen the economy is going through a gradual phase of recovery and all of us have an opportunity to think beyond COVID. So we are also taking this opportunity to refresh and renew ourselves, our organization, our businesses to become future-ready. This quarter, quarter 2, has been as per plan. What we have said earlier, I think most of the things have gone as per plan as what we were intending to do. So on this call, I hope to give you some more color on what we have done, what we are going to do going forward. And the 4 things I want to talk about is what is the progress we have made on the focus areas up until now. The second item is our balance sheet and how we are strengthening the balance sheet and the organization. The third is our growth and businesses and the update on that, including the quarterly results. And the fourth is environment and how, on a long-term basis, we are getting ready for the -- how we see the environment and how we are adapting to that. First, on the progress on focus areas. We continue to focus on improving our liquidity and equity. As we have said that, things have improved a lot. But since we were already in motion of making sure we have a fortressed balance sheet, our debt-to-equity ratio has come down to 3.1 from what was 5.2 2 years ago. So in 2 years, we have significantly reduced our debt-to-equity ratio. Our total borrowing at the Edelweiss Group level, which were more than INR 50,000 crores have now come down to INR 30,000 crores. So almost a 40% reduction in the borrowing in 2 years, and that has been a significant achievement. It has come at a cost, but I think it is very, very positive development. The re-ratio has improved and will improve further when we close the PAG deal, and I'll give you an update on that. It is going as per schedule. But when we close the PAG deal and get approximately INR 2,000 crores of equity money in the next 3 to 6 months, that will improve our DE ratio but also make us capital surplus. And for us, I think getting ready for the next innings, one of the important thing is not just to have enough liquidity on hand, but to also be capital surplus because there is going to be a lot of growth, and organizations, especially financial services organizations, which are capitally strong, will be able to benefit on that. We have also -- with PAG deal, we have demonstrated again that our idea is to build great businesses, have excellent management teams. And then with global partners, scale up these businesses and create value. So we have done that in our insurance venture. We have done that in our distressed credit venture. We have some fabulous investors in our asset management business also. And now with PAG in our wealth management business, we have a nice business in insurance broking where we have a partnership with Gallagher from U.S.A., and that is also doing well. So I think our demonstrated capability to forge partnerships has also come of age. And finally, on the progress and focus areas was cost, we have done well on that. That is Slide 19, gives you more color on that, how we have reduced the fixed cost by 23%. And a lot of our cost efficiency initiatives, including using technology and being more productive, will start to show results only by the end of this fiscal year. So we do hope that FY '22 onwards, a lot of these things we are doing will start to show progress. On the balance sheet side, as I said, we continue to improve CapEx. You must have seen Slide #6, which shows our capital adequacy and the solvency ratios across all the businesses. So our idea was that all our businesses should be very, very well capitalized. So our 3 credit businesses, ECL Finance, ERFL and EHFL all have capital adequacy of 23% to 29%, which as you can see, is very, very robust. Our Asset Management, Wealth Management business have very strong AUM. Asset Management has got almost INR 73,000 crores, On the Wealth Management, we have INR 133,000 crores of assets under advice. Our ARC, which has now INR 2,000 crores of equity has a capital of 34%. And both our insurance companies operate at a solvency ratio of more than 200%. Though they've grown very well, we've maintained solvency ratio. So Slides 5 and 6 show you that we continue to make sure our entities, our businesses are very well capitalized. Our liquidity position is also strong. You can see on Slide 41, we hold liquidity, which is close to 21% of our borrowings. Friends, we always said we'll be between 15% to 20% of our borrowings as liquidity at any point of time. In the crisis of the last 2 years, we have tried to stay about 20%. And I'm happy that we are at 21% now, which is shown on Slide 41, which is also a significant improvement because last quarter, we have almost increased our liquidity by 50% from end of last quarter to this quarter. Our asset quality is still under watch, though I think we have taken very proactive impairments. And as you know, a couple of quarters ago, we took 1 massive impairment, and it was very painful, but we do feel that we are now fairly well covered. And as you know, NBFCs, we have to worry more about impairment than only about provisioning because provisioning is an NPA formula, which was applicable to banks and NBFCs earlier. But since NBFCs have moved to IndAS, It is very, very important that even if something is not an NPA, what we expect impairment, we should provide for that, and that is what we have done. Our impairments are a lot higher than what NPAs would have been under the earlier structure, and we do think we have bitten the bullet on that. And hopefully, as the economy is improving, asset quality should also be very quickly covered. And lastly, our retail collections have improved. Slide 27 shows how retail collections have come back. And this is across the board. I think all the banks we have seen, there is a strong performance on retail collections across the board, and that is good news because that shows the economy is coming back also. On the quarter 2, we have shown an ex-insurance profit after tax of INR 28 crores. And as you know, in our insurance businesses, we are still investing. So we expect to make accounting loss in our insurance business. So though there is a consolidated loss, what are important metric from an operating parameter point of view has been the ex-insurance profit after tax, which came in at INR 28 crores. And I will speak about it because it was important for us to get to breakeven and then start improving profitability via various things we are doing. So we are getting back on track. Slide 14 gives us more color on that. Importantly, in this quarter, our asset management business in alternatives where we are the leaders, we closed the special opportunities fund, ESOF III, with a fundraise of INR 6,600 crores. This is the largest fundraise in this year in the private credit space. Friends, as you know, a couple of years ago, we had closed our distressed credit fund, which was almost INR 10,000 crores, which was the largest distressed credit fund in Asia at that time. And we are very happy to show that we have closed ESOF also in this quarter. And this is demonstrating that in alternative space, especially in private credit space, our leadership is very strong. And we -- I'm very happy that we managed to close this fund in the middle of COVID. As you know, these funds take almost 12 to 18 months to close. And all that effort, we kept up the momentum even through the COVID situation and close this fund. We have some great LPs, limited partners, in this fund like OTPP and Florida Pension Fund and AP4 and all. And that itself is a strong demonstration of our franchise in this business. In our mutual fund business also, it's been a great quarter. We closed the second tranche of Bharat Bond ETF. And as a result, now our asset management AUM on both alternatives and mutual fund is at INR 73,000 crores. We just closed $10 billion, and it has more than doubled in 1 year. So in the last 1 year, which is effectively almost a COVID year, in Slide 11, you can see that we have doubled our AUM in the last 1 year in our Asset Management space, which has been a soft endorsement. In the Wealth Management also, we have seen a 24% Y-o-Y growth. Our assets under advice now crossed INR 133,000 crores, and asset -- and the wealth management business also showed good profitability. On the retail credit also, we have started growing again. We have disbursed almost INR 65 crores in the MSME scheme. And we have also started assigning portfolio. So we sold more than INR 500 crores of mortgage portfolio because our approach in this business is to become asset-light, but use our origination, underwriting, servicing capability to build a robust credit business, and we partner with banks and all to do this. And on the retail side, also, this quarter, a lot of our actions have got endorsed by that, the ability to assign portfolios, distribute, originate and MSME loans, all that has strong traction on this. And lastly, ARC has also had a good quarter. We had more than INR 1,000 crores of recovery in this quarter. And on ARC, we continue to remain focused on recoveries. We are not yet building the portfolio. We had built a very strong portfolio between 2015 to 2018. And from '18 till '21, our focus was -- has been stated as focus on revival and recoveries and making sure that these assets, we unlock values in them in the best possible way. I expect from '21 onwards, our ARC will start building portfolios again, will start buying assets again. And as we talk to banks and other NBFCs, we're seeing that there will be a lot of opportunities out there. But I think another couple of quarters when COVID is over and things stabilize. Until then, our ARC is actually sitting on a lot of ample liquidity, but we are not worried about it. Though it is an earnings drag, we think this is not the time to build the portfolio, this is time to work on the portfolio. And that is what we are doing on our ARC. And our insurance companies have also had a very good quarter. Our general insurance business has been the fastest-growing player in the industry in the first half of this year. You can see it on Slide 39. And we are now at an annualized run rate of GWP of INR 250 crores, which for a 2-year-old company and especially in COVID time, is very, very gratifying. And here, we have built this business as a fintech model. It's a completely digital model. And since it's the newest business in Edelweiss' table, we've been able to experiment a lot using technology, and that has been very gratifying. The Life Insurance business, ETLI, also positive growth every month in this quarter. It is one of the only 2 companies to have registered positive APE growth every month in this year in the first -- in this year, first half. So last 6 months, we have had positive growth. So COVID or no COVID, our Life Insurance business continue to grow, and has been only one of the 2 companies in the industry who show that. So in this challenging environment, our businesses continue to do well. And from a future outlook point of view, I think we are focused on being very resilient. And fortunately, the Indian economy is also showing strong signs of comeback. And for us, that is very important. September has been a good month, even October has been a very good month for the economy. So we do think the economic recovery is underway. A lot of things RBI and the government did have been very, very helpful the -- from the MSME, Atmanirbhar Bharat scheme to the liquidity injection. So I think a lot of things are starting to fall in place. Global environment has also improved. So I think real growth will start coming back a couple of quarters down the line. But the U-turn has been made. And even on Edelweiss, I do think that last couple of quarters have been very difficult. Last couple of years have been very difficult. But we have made the U-turn, and our priorities will remain becoming more asset-light, reducing debt, improving on cost efficiencies and strengthening organization. And the business is becoming more independent. In the last 2 years, we have made sure that all our businesses are becoming more and more operationally independent. So all our businesses are the best of both the worlds. They have the Edelweiss umbrella and the Group support and the handholding and the brand, common brand and all. But they also are operationally independent, governance independent. They have their independent boards. They are very well capitalized. So we have tried to achieve the best of both worlds for our businesses so that they can compete in that individual space and become stronger. Other update on the EWM deal with PAG is making satisfactory progress. We are filing for all the regulatory approval, and it seems to be on track. We will continue to focus on profitability. As I said, we have got to about breakeven, but we need to work a lot more. And the focus will be on reducing cost of borrowing. Our cost of borrowing has gone up by almost 100 basis points in the last 18 months, while actually interest cost in India has come down by almost 200 basis points. So even if we take an average, like reduction of 150 basis points, which should have happened on the INR 30,000 crore borrowing, that's a INR 450 crore delta for us. So we have to work on that. Now as liquidity has improved for the first time, we have started -- in the last 2 years, we have started saying no to bank lines, we have started renegotiating rates. Housing finance, a few term loans have been reset, interest rate recently have been reset. So we remain optimistic on our ability to reduce the cost of borrowing. That is going to be 1 important area. I spoke about the operating cost. We are becoming more efficient on that. And as we get the equity that comes in when we closed the PAG deal on EWM, on Edelweiss Wealth Management, even that equity will reduce our cost of funding, our interest cost and will also help on profitability. So I think these are the focus areas. As I said, we have -- last 2 quarters, we have taken -- a lot of heavy lifting has been done. We have taken the impairment that was required. COVID has fortunately not played out as bad as we all thought in April, May, June, but it has had significant impact. But has also allowed us -- all of us to reset. So most of our businesses are doing well, except NBFC, where last 2 years, we have seen a reduction in growth and value reduction and scale has come down in the NBFC business like it has been for many others. Especially in the wholesale NBFC space, our Asset Management, Wealth Management, Insurance, ARC business, all this continue to create value. And I think our focus on being truly a diversified financial services company, having these multiple businesses, making them independent, having that independent equity capital, balance sheet out there. But providing them group support and all the strengths of the group, but making them operationally independent has actually come a long way in the last 6 months also. So along with that, we'll continue to do that. We need another 2 quarters of real hard work on improving profitability. Our target was originally always been first liquidity then equity then profitability then growth. So I think the first 2, we remain comfortable on that, on equity and liquidity. Now we want to get to profitability with all these cost efficiency items we have been speaking about. And eventually, I think March '21 onwards, we hope that growth comes back. And a lot of our businesses see a lot of growth ahead of them. So along with that, I would once again thank all of you for being on this call, and we will now open for Q&A. Over to you, Ramya.
[Operator Instructions] We have a first question from the line of Kshitiz Prasad from Maybank.
Congratulations on a good set of numbers. Two questions I have. One is if one can share the breakup the loans in each of the category. Last quarter, it was given in a pandemic, how much is mortgages, how much is corporate mortgage loans to real estate and a breakup. The other question I wanted to ask was regarding if I may understand the entire capital raise -- equity capital raise, the process over a period of time since the liquidity crisis in different businesses and the restructuring of the businesses. Now ARC is not part of the Asset Management, it's a separate entity altogether. So may I assume that all these restructuring and capital -- external capital raise in the form of equity is more or less over? Now is the strategy -- business strategy is going to be more on profitability and sustainability? We see that the operating profit level, we have made a profit. So what's the view? And what's the strategy going forward? That is my question.
Absolutely. I think on the first question, whether ARC is part of AMC or not, as you know, all these are independent entities. So if you see one of the slides, Slide #6, we have given all the independent entities because these are the legal entities. So ARC is always a stand-alone company because it is like semi NBFC and a semi asset manager in that sense. If you see all our NBFCs, Edelweiss Housing Finance, which is HFC, retail finance. So when we were -- when the present numbers, we presented for convenience and ease of understanding for the investors, but we are increasingly providing detail of each individual entity. So if you see that Slide #6, there are effectively 8 entities out there. And in fact, even EAAAs and alternatives and AMC is the mutual fund, which are also 2 entities. So we -- the way Edelweiss run it's -- all these entities are independent. They are run independently because that is what is required by law also. Like as you know, a mutual fund has to be an independent entity, an ARC is an independent entity, an insurance company is independent entity. So for sake of ease of investor presentation, we will group it and all, but all these will be run independently. And a lot of investors' feedback came to us that ARC and Asset Management was confusing them because they saw ARC as a balance sheet business, while Asset Management was purely Asset Management. And based on investor feedback, we are providing numbers. But if you look at our annual report or you look at our investor presentations, we are increasingly showing it at entity level because I think grouping is more for presentation convenience. The way they operate is, they operate as independent entities with their own boards. A lot of them have their own investors also, but they get all the support. They get all the support from the group. They get all the assistance, even liquidity management and all group helps out because group always has a little bit of excess liquidity that can be provided. So we do provide some amount of group support. But most of the businesses are very, very independent. And if there were operational independent, say about 40%, 50% 3, 4 years ago, now they're almost 90% independent. There are very few common things across the group level. And as you correctly said, I think with this -- when we close the PAG deal and we close EWM, then we become capital surplus. So most of the equity raising is more or less over because as you can see, our entities are fairly well capitalized. They don't need capital for growth. As you would have seen in the P&L, the corporate is making a loss because we have borrowed money in the last 2 years to fund a lot of needs, especially liquidity needs of the group and all, which in this -- with this equity raise, also goes away. So if you raise INR 2,000 crores, the interest cost saving on that will be INR 250-odd crores a year. And that is the current drag. So I think as we improve our cost efficiency, as we -- even without coming back to growth, a lot of the profitability will start coming back. And once growth comes in, then obviously, profitability can be improved further. And on the breakup, I think I thought there was a slide which gave the breakup of the assets. But I'll get maybe Ramya to refer to that slide. Which is the slide, Ramya, where you have the asset breakup? If it is not there, we'll be happy to hang it across to you.
We have next question from the line of Saket from GrowthX Capital.
I have a simple query. In the results, we have net gain on fair value changes as INR 423 crores. Could you please explain what exactly is this amount for this quarter? And what is the sustainable number that we can take it up?
Can you ask it again? Sorry, I didn't hear it. There was some static.
Right. Is it good now, sir? Am I audible?
Yes, yes. I can hear you now.
Right. In the consolidated results, in the revenue from operations, we have net gain on fair value changes as INR 423 crores. Could you explain a bit about the same, please?
So I think this is largely -- as you know, we had taken impairment last quarter and all because a lot of these securities are bonds and others, a lot of our loans are held as securities and investments and all, especially at a group level. So we will -- on the IndAS, as you know, we have to mark-to-market every quarter up or down. So this keeps on changing at an entity level. So a lot of this must be at entity level, which gets consolidated. Like we have a lot of SR, security receipts, in the ARC. We hold a lot of security. We have a lot of derivatives contract. So maybe our CFO S.R can explain it. It's a very -- maybe technical issue. But if you need offline some more details, entity wise and all, we can provide it to you.
More than half, we'll take it offline. But as Rashesh did talk about it, it's all kinds of instruments, largely derivatives, options at all. Those gets revalued periodically, and this is the net result of all of that.
Fair enough, sir. I'll take it offline on that. Second, sir, in the distribution of earning across businesses, in your presentation, you have mentioned EMU and Corporate heading wherein we have provided for some loss. Could you please explain on the same? Because all of your businesses have been in the profit except the insurance part. And in this simple heading, BMG and Corporate, you have $20 million as loss in the Slide 14.
Yes. So actually, that is an important question because this is the last part that we need to clean up. So what has happened in the last 2 years as the liquidity crisis became more stronger. As you know, we've been holding excess liquidity and some of the excess liquidity we are holding it at a group level, and we have also borrowed money at a group level to just -- for emergencies and all that. A lot of this is also resulting in an earnings drag. And I think my estimate has been that we hold about INR 3,000 crores to INR 4,000 crores of excess cash in the balance management unit and all, and there is an earnings drag on that. Second, because we have borrowed money in anticipation of this equity raise that we wanted to do some time ago. So part of this, what we have borrowed will get repaid as we get the PAG deal close and the INR 2,000 crores of equity comes in. So we had borrowed money just to be on the safe side and provide liquidity. But our idea was to replace it with equity, which is where we have done the PAG deal. So as I said earlier, a INR 2,000 crore effective equity raise will itself help us reduce interest cost at the corporate level by INR 250 crores. And the other is, as we have been making the businesses more independent, there was a lot of cost at the center because the center was also providing a lot of services. A lot of that also we have started to unwind as we made the business as more independent. So we expect that BMU and Corporate, when we close the PAG deal should become breakeven, and that is how it should be. But for the last 2 years, we've been holding a lot of our excess liquidity. We've been borrowing extra through structured mezzanine funding and all to just make sure at any point, we have a couple of thousand crores at a group level available so that we can cater to needs of any of the group entity. And that was something, if you remember about a year ago or so, we said that we will continue to do that just to provide a liquidity backstop because unlike a lot of other corporate groups, we are not a business house. So we don't have any group treasury or group other businesses to be there. So EFSL, the holding company, and the corporate center has to provide for that, and we took that as abundant caution. It has costed us profitability. And my estimate is that currently, we have about INR 400 crores of cost at the BMU level at -- which is being incurred for all this, which should go away once we close the PAG deal and basically rationalize the structure. And that should allow us to get to breakeven at the at the BMU level because the corporate -- the other businesses are now in a fairly healthy place. So businesses have got to a decent stage. Now we have to make sure the BMU and Corporate also gets there.
Right, sir. Am I audible, sir?
Yes.
I would only request 1 thing. Your presentation is quite detailed. But if at all, small, small notes could be provided on these important loss aspect or impairment aspect. Just like in results, we have INR 400 crores of fair value changes. And because as an analyst, we have to understand what exactly it is. It's a major part of the overall revenue if we see. So all these will be healthy understanding -- in having a better understanding as well.
Absolutely. I think a lot of this feedback is helpful and a lot of details we give in the presentation has come out of the feedback only because we are also in a transition phase. Earlier, people saw Edelweiss Financial Services as an operating company. But the fact is that we are a clutch of businesses and all these other underlying entities And unlike a bank, which is 1 entity, which is everything consolidated and underneath that, EFSL has no operating activity. But we have all these underlying businesses. So a lot of these fair value changes may happen in ARC, may happen in the NBFC and all. So how much detail at an entity level we should give is what we are trying to also work out. So any feedback on that will be important because this is not at 1 company level, this is an aggregation of 8 or 9 underlying entities.
[Operator Instructions] We have next question from the line of Aditya Jain from Citigroup.
So as of June, we disclosed some INR 909 crores as the total sort of buffer. How much is that -- how much has that is now and where is it?
Sorry, I didn't hear you clearly at all. Your line was very unclear. S.R, did you hear that? Do you want to...
Not really. I haven't heard it. I mean I heard INR 909 crores but...
Yes, I just got the number. I didn't hear the details. Can you repeat that, Aditya?
Yes. My question was the total stock up provisions we disclosed in the last quarter across stage 1, stage 2, stage 3 was INR 909 crores, if I remember correctly. So where is that now? Have we -- how much of that would you call as the buffer? How has the buffer being used? If you can just talk about that?
S.R, do you want to answer that? Do you have that? Or...
So we are talking about the -- the total provision today stands at about INR 1,000 crores, the INR 909 crores that you are talking, about today stands at INR 1,041 crores.
And again, Aditya, as we earlier said, I think for us, provisioning is not the only thing we look at. We now look at total impairment. And one of the things we all have to get used to is the IndAS, especially on the wholesale side. On the retail side, still the provisioning and the impairment is -- fairly overlaps with each other because it works at a portfolio level. At a wholesale level, it works at a very account-by-account. It's a very idiosyncratic kind of behavior. So as I said last quarter -- I mean last year, we took a fairly big impairment. And what we look at is impairment. So we don't look at only provisioning because provisioning is only 1 part of that because only those accounts which are NPA. But there are a lot of accounts where we have marked down, we have sold to ARC. We have taken the impairment. So for us, impairment is a lot, lot, lot more important than just the provisioning. So if you want, maybe Ramya and S.R. can organize meeting with our NBFC team, who can give you details on how to understand the provisioning and the impairment part of this.
Got it, sir. And secondly, on the wholesale book sell down. So you've mentioned at 1 place in the presentation that around -- another INR 2,000 crores will be sold down. Could you talk about how much additional provisions are we still carrying? And what is our expectation of fair price on these? And with the provision -- the buffer provisions that we have are enough to absorb them?
So in -- on a wholesale book, what we did in the last 2 quarters, we think we have marked the impairment as required. So even if when we want to sell, there won't be any additional impairment. We will have to take for the selling part of it. There are some accounts where COVID-related movement will happen, some accounts which are individual accounts, but we don't think those will be significant numbers. Because we anyway have expect to provide about INR 400-odd crores on the wholesale book every year. So I think it will remain in that range. Only maybe INR 100 crores here and there. But a large part of the impairment that we had to take because of the last 2 years of slowdown and the accrued interest and all of that is what we have already taken, is what I would estimate.
Got it, sir. Just lastly, on the real estate project which you lent to, can you talk about the sales? How they are versus pre-COVID levels? And how is construction activity right now?
So actually it's interesting that you asked that because we have all been very positively surprised how well the real estate market has been recovering, especially in Mumbai and Maharashtra, partly also because I think the stamp duty concession given by the government partly was the pent-up, partly just this maybe the behavioral economics part of it about people working from home and buying homes. But August, September and October have been phenomenally good in terms of sales. Even -- and sales and project progress usually goes hand in hand. We have started seeing a lot of the projects which were stuck, have found -- new developers are showing interest to get them off the ground. Some were stuck, have started moving again. Sales have started. A lot of projects which were 80%, 90% completed but needed some sales to be done to get the last-mile funding and all, at least 8 or 9 projects, we have seen some significant traction on sales on those kinds. So I think sales performance has been fairly good. And if sales is good, then usually project progress happens automatically. Pricing is still slightly soft. I think on an average, pricing is about 8%, 10% below the pre-COVID times. But the volume uptake has been very, very strong. In fact, has been much stronger than we would have expected. I think August, September and October has been the best sales volume that we have seen in a lot of projects that we have seen in the last 2 years. Since 2018, there has not been this kind of momentum. And a lot of developers we talk to, especially established developers, they all expect that by '23, '24, a lot of inventory will go away. So they need to start building inventory. So there is a lot of interest from established developers in brownfield projects or projects which are stuck and all. So we remain optimistic. I think as the economy recovers, I do think real estate will also lead the way. But important is to get the projects completed, which requires either a new developer and/or sales to happen and/or some last-mile funding, but all 3 have got easier in the last 3, 4 months.
We have next question from the line of Jignesh Shial from Emkay Global.
This was after a long now, I'm hearing very positive commentary from your side. So basically '21 seems to be a consolidation year and then '22 on which we'll be seeing a growth coming up. So do I know that this year is more or less we're going to concentrate, which are the areas that you have started identifying for the growth, more importantly, on the retail side? And then on the wholesale side, what will be the growth strategy that you're going to take it forward for the next year? That is my first question.
So on the -- and I assume you're asking about credit, but we are seeing growth in other sectors also. So in credit, I think retail, as I said, mortgages as well as MSME loans, we have started disbursing in this quarter again in a significant way. We were already disbursing but smaller amount. Now we have started stepping up on that. In fact, Edelweiss Housing Finance is currently sitting on a liquidity of almost INR 1,000 crores. We have INR 1,000 crores of ample liquidity out there. But we want to be asset-light and efficient. So we want to rotate that money. So we are originating, but old book, we are selling down because we are finding a lot of banks are willing to buy portfolios at the cost of 8%, 8.5%, which is actually cheaper than our own borrowing costs. So rather than borrow and grow, we would rather sell down assets. So I think we are going towards an AUM concept on that side, but we're seeing a lot of traction on that. We invested a lot, especially on MSME, on data analytics, on all of that. And even in the last few months, we found even DSV partners who were earlier not as technologically agile, have become very agile, thanks to COVID and all. So we remain optimistic on that. On wholesale credit, we will do it via the asset management format. As I said, we raised INR 6,600 crores structured credit fund. We have a INR 10,000 crore distressed credit fund, out of which about 2/3 is invested, but almost INR 3,000 crores, INR 3,500 crores is dry powder on that. We also have a real estate credit fund where we still have about INR 1,300 crores, INR 1,400 crores of invested money in that. But as we have said in NBFC, the problem on wholesale credit is not just credit cost that you can take it and it'll go through cycles and all that. But the problem is ALM. In last 2 years, we saw that the value destruction because of ALM management, either by holding excess liquidity or raising expensive capital, because things can be very uncertain on cash flow on the wholesale side. And hence, it should be run in an asset management format. So we are moving the wholesale credit business to asset management, and we've been doing that. So we almost -- we have almost INR 25,000 crores of AUM in private credit space. And we think a lot of the NBFCs and banks, wherever the long-term structured flexible credit ready is required, whether it's distress or structured or holdco financing, a lot of that is very profitable, but should be done without an ALM risk. And hence, NBFCs will not be able to do it, but it should be done in a fund format. So wholesale, we see growth. I mean we have just closed the fund, and we expect to -- we also already see a good pipeline. In our Asset Management business, we have done 4 or 5 deals in the last couple of months, and we expect to keep on deploying money on good quality credit opportunities in our Asset Management business on the wholesale side. Outside of that, I said, last 1 year, the AUM of Asset Management has doubled, 100% growth in 1 year. And I think in between all the NBFC noise, a lot of this has got ground away. And same thing on the Wealth Management. We're still seeing 25%, 30% AUA growth. And as you know, with all this COVID and all, I think the entire Wealth Management space is doing well. Plus with now PAG as a partner, we have a lot of capital available in that business, which will also allow us to scale that up. And insurance also is -- has been doing well. So I think we remain optimistic. The only -- if you look at the last 2 years, the only part of Edelweiss that took a lot of attention away was the wholesale credit business. Now there, we have reduced the book. We have increased liquidity, we have taken impairment. We have done all that was required to be done. And that opportunity is now going to be captured in an asset management format, so will not present any balance sheet and P&L risk to us. So I think a lot of hard work has been done. We need another couple of quarters of just being focused on all this. But given where we are on liquidity and how the businesses have been strengthened, I remain optimistic.
Understood. My second question had been, you already have mentioned that the overall liability franchise side for Edelweiss has been improving now, you're renegotiating rates and all. So overall, if you can throw some more lights over there. And more appropriately, what kind of -- because we have already seen OpEx advantages are coming in. So what kind of margin advantage we can see it over the cost of fund advantage, we can see it up probably not immediately, but over a period of next, say, 3 or 4 quarters or probably down the line, what kind of advantages will be coming up? So if you can throw some light. And thirdly and lastly, what kind of ROA profile for Edelweiss you're seeing it up over a bit to a long period of time? So if you can...
So I think on the first one, as I said, our cost of borrowing in the last 2 years has gone up by almost 100 basis points. So that -- and as you know, interest rates have come down in the same time. So ideally, it should come back. We have also reduced utilization of commercial paper. We have done more long-term borrowing. We have made our ALM very positive. So we have more longer-term liabilities than assets in that sense. So all this has resulted in increased cost of fund. As things normalize and as we become comfortable, we will not take risk on this, but we do think that getting a -- because in the same time that our cost has gone up by 100 basis point, the actual interest rates have come down by 200 basis point. There is almost a 300 basis point delta that has impacted us. We don't expect to claw back the entire 300. But if you can claw back 100 basis points, that's equal to INR 300 crores of saving on interest cost. And as I said, the equity we are raising, another INR 2,000 crores when we closed the PAG deal, will also result in interest cost savings because we are not going to use that for anything else but repay the loans, which are already there, we'll also save. So I think in the next 1 year, if we can save about 500 to 600 cost of interest, both by reduction of rate and by this equity raising that happens, that we bring down or improve the profitability further. And along with that, I think we do feel that the markets are improving, some -- as we are also reducing our borrowing, the borrowing efficiency will improve. So I would focus on that.
Understood. And lastly, what kind of ROA trajectory we'll be seeing it up?
So ROA, I think -- see, For Edelweiss, there will be no because Edelweiss is a combination of all these businesses. Like there is no concept of ROA on Asset Management or Wealth Management or Insurance. Our ARC has been working on ROA of about 5% to 8%. But obviously, it's not geared very much. But ARC can make between 5% to 8% ROA. That is what you will see in the investor presentation also. I think our retail and MSME credit mortgages will aim between 1.5% to 2.5% ROA, depend -- which will be a combination of balance sheet plus the sell down and the securitization we do. But we do think getting to about 2% average ROA on the retail credit opportunities that we are pursuing, should be possible, but not being very heavily geared. So we will not be geared more than 3, 4x. So we do expect that ROE on the credit businesses would stabilize at about 12%, 13% plus whatever you can make via cross-sell and all is over and above that is what we should aim for. So again, credit will be only about 1/4 or 1/5 of Edelweiss. We have Asset Management, Wealth Management, Insurance, ARC, all this also. And increasingly, last 2 years, we were seen as an NBFC. Edelweiss Financial Services became -- seen as an NBFC. But we are much more than an NBFC. NBFC is a business we have, but we also have some very robust businesses outside of NBFC business also. And I think our idea would be to constantly articulate that and communicate that and showcase that to our investors.
We have next question from the line of Chirag Sureka from DSP Mutual Fund.
Sir, this is Vivek here. I hope you're all well, sir. Just a couple of questions. One on the asset side and the couple on the liability side. On the asset side, sir, it's good to know that there is good momentum in the real estate sector. I just wanted to know in terms of whether you can quantify, for our portfolio, ECL Finance portfolio, what percentage of projects will have OC or expected high level of completion over the next 6 months so that you can start seeing cash flow from there?
So as -- I think our current wholesale book is such because a lot of -- wherever we had, which were not late-stage project, the early-stage projects and all. A lot of them we have either, as you know, we sold it to funds in the last 2 years. We did a deal with Meritz and then we did 1 deal with SSZ and [ Felaron ] recently. Plus we have sold some accounts to ARC because we found that, that is where you could actually restructure the projects, getting a new developer because those projects, as you very correctly said, the projects which are in the earlier stages, need some handling. Projects, which were in the later stage needed last-mile funding and sales support. So I think a lot of the accounts under NBFC today we have should be getting to closure. There are still some early stage accounts out there, and there are some accounts where the project is there, but the collateral is that project plus the Phase 2, Phase 3 also. So you might very often see Phase 1 as close to completion, but Phase 2 has to be started. And for that also, there is equity required. So it varies from project to project, But our expectation is that we are not as dependent on cash flows because we've got our ALM fairly matched and all in a very conservative way. So as long as the ALM is matched, and our book size is fairly small now, I don't think at best in a year, the cash flow if at all projects get delayed a little bit, will be about INR 500 crores to INR 1,000 crores a year, which we have already kept adequate liquidity. It does hurt profitability. But as I said, we have been fairly conservative, though, we are recently seeing things are improving. So I think we go project by project. We have about 48 projects which are under watch that we closely monitor. And these 48 projects, I think we remain optimistic at least on 40, 42 of them that we have an answer, either a new developer or a new sales strategy or some last-mile funding and all. And a lot of these 48 projects are already either in the ARC or in the fund. So we -- and as I said, we want to increasingly do this in an asset management format because we do think that our ability to recover, our ability to complete projects and all is high because we come from ARC expertise also. So we should be able to complete the project. The problem in the last 2 years, if you ask me what has worried me more, was not recovery or cash flow from the project or the credit cost in a particular account, but it was more ALM risk because if 3 years -- take 4 years or 5 years, you may still end up making a good return, but your ALM goes for a toss. And that has been a larger part of the problem. Because of that, we had excess liquidity. We had to scramble to sell assets and put them in a fund structure. So a lot of the effort was to get the ALM risk. And I think it's a larger structural problem. I think, Vivek, you understand this more than all of us. You've seen banking side, you've seen the mutual fund side. I think ALM risk is the hardest for a nonbank to manage. And if you are a large business house, up to a point, you can manage it. But I think most -- and even what we see in the mutual fund when the bond redemptions and all started creating a problem, it was an ALM risk ultimately. So I think the nonbank financial credit sector in India has to overcome this ALM problem because there is no real lender of the last resort as RBI is for banks for the bond market or for the NBFCs. And hence, I think NBFCs will have to now become more and more agile on the ALM side. At least on our side, Edelweiss, we will remain more and more agile because having gone through these last 2 years, we have learned a lot. We have also understood how to do it. And even if it comes at a cost of some profitability or some growth, I think ALM is going to be the most important part of how we manage the future.
Sir, I'm sorry, sir. And I know you've been putting into place a lot of initiatives like core initiative and all, I'm sure that will bear fruit. And the second question is on the liability side. In terms of liquidity, we know at the group level, is it possible to share how much liquidity is there in ECL Finance, in particular, because I think that's the main borrowing entity? And whether all the liabilities of ECL have been redeemed?
So if you see, we have given entity-wise liquidity also. So if you see Slide 22, ECL Finance has got INR 2,400 crores of liquidity. In fact, ECL Finance has excess liquidity. You must -- if you see on Slide 22, we have also bought back bonds of almost INR 500 crores in this quarter. So we have started buying back bonds also. Not long-term bonds. We are not really -- because we don't want to really change the ALM, but any bond which is redeeming in the next 1 year to 18 months, we are happy to buy it back. And we have been buying back. We have also disclosed it in the investor PPT. And we have shown liquidity for a lot of our other entities also. If I remember, we have liquidity in our retail finance and housing finance of almost INR 1,000 crores. In our ARC also, I think we have shown liquidity that we have -- sorry, ARC has got INR 670 crores, it's on Slide 33. So we have given entity wise also. So you can add up the entity wise, and then whatever is the balance at a group level. So at a group level, we have about INR 1,500 crores. As I said, we maintain INR 1,500 crores to INR 2,000 crores of liquidity. So -- and with this EWM deal getting closed with PAG, all that will come to the group, including ECL and all of that. So I think we remain comfortable both on equity and liquidity side because we have planned in advance. And in April itself, we started working on the stake sale in EWM at the start of COVID. And we have gone through with it and is going as per schedule because our idea is to be comfortable on both liquidity and equity. So INR 2,000 crores will come to the group, which is ECSL and the group entities. And all these operating entities, they have enough liquidity, as you can see in the presentation. If you need any more details, we'll be happy to provide. But we have that, I think, details against each of the entities as you go through the PPT.
I'm sorry, I missed that. And good luck, and I hope the real estate sales continue and just at the sites as you may need it.
No. But as I said, Vivek, for us, I hope it improves and I do believe it will improve But now the -- a large part of heavy lifting is done. So 1 year here and there in recovery, maybe a INR 500 crore extra impairment here and there. It will not be a make or break for us because NBFC today, if you look at the value of Edelweiss, value of our Wealth Management business, our Asset Management business, our ARC business, our Insurance businesses, our Insurance broking business, our housing finance business, a lot of that are intact. They are insulated from all this. And ECL Finance is enough liquidity. So to make sure that even if the real estate market takes some more time because we have proactively done all this. We have sold assets to -- we have also sold assets to AIFs and funds and ARCs and all. So we have done this proactively. So I think we are holding power now. What we have done is at a cost to P&L. We have strengthened the balance sheet but also build holding power. And a lot of our value is not -- see, 2 years ago, a large part of Edelweiss value was seen in the NBFC and the ARC. Now in the last 2 years, the way Wealth Management, Insurance, Asset Management, all of them have grown, we are truly diversified. So even if the wholesale credit books takes a longer time, given that we have provided, we have more than -- the ECL Finance capital adequacy is about 23% now, which is the highest it has ever been. In the history of ECL Finance, this is the highest capital adequacy we have ever had. So liquidity is ample, Capital adequacy is ample. We have holding power. Yes, we have to work on profitability now.
We have next question from the line of Jeetu Panjabi from EM Capital Advisors.
I wanted to ask, is there any -- in terms of the next 6 or 9 months, are there any areas where we're working where there could be stake reorganizations coming up directionally?
So I think the 1 important one is that Edelweiss Wealth Management. As you said, our idea is that we complete this stake sale to PAG, make this business independent. We've been working on that. And then eventually, demerge and list this company and basically unlock the value for the shareholders. So we remain committed to doing that for the Wealth Management business. I think eventually, our idea is that Edelweiss is very good at building businesses. But -- and we have -- with the stake sale and all, have enough cash flow to do all the things that we need at a group level. So our focus will be on unlocking value in the most tax efficient and in the most efficient manner for the shareholders. Because one of the good things about Edelweiss is even today, more than 40-odd percent of the company is held by the management team. So everybody is incentivized to think like a shareholder of the company. And if the best way to unlock shareholder value is through demergers or distribution of shares or dividend or buyback, we'll continue to evaluate all those options in the most efficient way. But our idea is we can build businesses. We can get partners, we can release capital and then what to do with that capital, either we can distribute it to the shareholders via shares and demergers and all or we can use it to invest in businesses. Currently, next 2, 3 years, we don't think we will start any more business. All the current businesses we have got enough growth opportunities in front of them. So our effort in the next 2, 3 years is to truly make Edelweiss diversified. As I said, 2 years ago, we became heavily concentrated as an NBFC and as an ARC. NBFC and ARC contributed to almost 75% of our profits at that time. Now obviously, our Asset Management, Wealth Management, even the Insurance businesses have grown. In fact, if you see Slide 7, the fee income has been very robust. Our management fee income has continued to be around INR 400 crores, is to be closer to INR 500 crores, it's still INR 400 crores. So we do expect that INR 1,500 crores to INR 2,000 crores of fee income itself is more like an FMCG business because this is fee income. This is not interest income and very NBFC dependent. So we clearly have this fee income franchise that we want to capitalize on. And we will continue to, a, take feedback from the shareholders and do whatever is there to unlock value. So our focus remains on creating value, which we have shown even the EWM deal with PAG, you can see Edelweiss, over the years has invested only INR 300 crores in that business. And if our stake is worth INR 4,000 crores, that's a fairly good value creation that we have achieved. Same thing on Asset Management, we invested only about a couple of hundred crores up till now. In ARC, we have invested only about INR 400 crores. And our stake today at book value is worth -- is actually worth more than INR 1,300 crores. So our idea is that use a little bit of capital, a lot of management skill set, build our franchise and build good businesses and then partner with global best-in-class partners. And that is what we continue to do. And after that, how to unlock value, we'll be always open to suggestions, but we will think like the shareholders. So I think Asset Management, can it also be spun off in a couple of years? That should also be a possibility. Can we do the same in Insurance? We can do that. Our idea is to build businesses and then unlock value in that.
Ladies and gentlemen, that was the last question. I now hand the conference over to Ms. Ramya Rajagopalan for closing comments. Over to you, ma'am.
Thank you, Vikram. Thanks to all of you who found the time to join us for our Q2 conference call right in the midst of the busy results season. We still have a long question queue but have to end because of time. Please contact me or my colleagues if you would like to discuss anything further or need more information. And from all of us at Edelweiss are very best wishes to you and your families for the holiday season. Thank you very much indeed.
Okay, everybody, thank you. Thank you for being there.
Thank you.
Bye.
Thank you very much, sir. Thank you, ma'am. Ladies and gentlemen, on behalf of Edelweiss Financial Services, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.