Edelweiss Financial Services Limited (EDELWEISS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Second Quarter FY '23 Earnings Conference Call of Edelweiss Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Priyadeep Chopra, President, Edelweiss Group. Thank you, and over to you, ma'am.

Thank you very much, Raman. Good afternoon, everyone, and a very warm welcome to our results call. Today, I have with us on the call, Rashesh Shah, Chairman and MD of Edelweiss Group; Himanshu Kaji, Executive Director and Group COO; and Ananya Suneja, Chief Financial Officer, Edelweiss Financial Services Limited; and Mr. Ashish Kehair, MDM CEO, Nuvama Wealth Management. We hope you've had a chance to review the investor presentation as well as the agenda on the wealth management business that we filed with the exchanges yesterday. During the discussion, we will be making references to it. Please do take a moment to review the safe harbor statements in our presentation. We will be making some statements today that will be forward-looking in nature and, hence, may involve certain risks and uncertainties. With that, I now hand over to Rashesh to begin the proceedings of the call. Thank you, and over to you, Rashesh.

Thank you, Priya, and a very good afternoon to all of you and a warm welcome to earnings call for the quarter ended September '22. First of all, I think we must apologize for having this call on the day that India has had a match going on, but truly thankful because I think our Board meeting schedule and the analyst call was -- it's a long time ago. So truly very thankful that all of you have taken time to be on this call. I hope you and your families all are keeping well. And I think this is an important point because we are halfway through this year and this has been a, I think, a very interesting year. The global geopolitical events, the inflation, the liquidity raised by the Fed, even things like small -- from a larger economic perspective, things like what's happening in the crypto world, I think there has been a lot of volatility. But amidst that volatility, I think India has been relatively more stable. And though our inflation still remains elevated and RBI has been raising rates and liquidity has come down, but I think our equity market performance, the rupee performance, all of that has given some confidence that India is more balanced in our ability to weather this storm. And if you look at India today, both from the macro and the micro perspective, it is actually almost like a golden year where both the macro parameters and the micro parameters. And when I say the micro parameters, I look at company's balance sheet and company's growth plans and all of that. Currently at a micro level, things are very good. I think companies have restructured, there is a reduction of debt, companies have become more efficient. And at a macro level, government balance sheet, all of that is very strong. The only macro issue is the inflation. But overall, I think one of the few phases in India where both the macro and micro were very good. At Edelweiss, our focus has been on building strength and resilience. In the last 5 years, we have spent a lot of time in building this more and more. And our increased focus now going is we have built enough strength and resilience. Now we will focus on growth and profitability. Just to recap, last 5 years, I think the key things we've been grappling with one of, obviously, the post IL&FS NBFC issue and the liquidity drying up and all. Then came COVID. And in the middle of that, we also voluntarily have changed the architecture of Edelweiss Group in that sense. Earlier, we were one integrated company with a lot of common services, common finance, governance, administration, all of that. We have now truly moved to 8 independent businesses, legal entities, ringfenced capital, ringfenced people. So know the people working -- employee in one company, working in another company. So that we have cleaned up. Entities are not shared. All entities are -- they belong to a particular business unit. So last actually 4 years that has been also providing more than half of our focus, is about 50% of focus was on managing the NBFC related liquidity issues and then half the focus was on managing COVID. That half was one half. And the other half was changing our architecture. And I think changing architecture has been one of the most important changes we have made because this has truly propelled us into a platform where we can actually play the growth in each of the 8 individual businesses. And I think the potential -- our ability to potentially capture the growth in this has increased many fold. I think in the old structure, even if growth opportunity was there in India, our architecture was struggling. Now I think that all architecture, our leadership architecture, our business architecture, all of them have fallen in place. Of course, all this came at a cost. There has been a loss of growth and profitability in the last 4, 5 years. And hence, I said now that we have built, strengthened the resilience via this change in architecture, I think managed COVID and managed the post IL&FS issues, we're now getting ready to focus on growth and profitability in the coming years. I think first half has been a good indicator of that. It has shown healthy profitability across the business. Since our ex-insurance profit is now for the quarter are back to INR 436 crores for the half year and INR 133 crores for the quarter. So 18% growth on a quarter basis, but 36% growth on the first half year basis. Our consolidated PAT is also healthy at about INR 93 crores. Of course, we have a long way to go. Our return on equity, we need to restore it to good range and all that because, as I said, last few years have been lost growth in profitability. But the change in architecture gives us a lot of confidence that we are now geared to be able to capture that. A lot of our noncredit businesses, asset management like for example, alternatives AUM, we're now one of the leaders in alternative asset management in India and our AUM has now crossed INR 40,000 crores, which is a 70% growth on the -- and we had a 70% growth in the quarterly gross premium for the general insurance business. So I think our alternative asset management business, our future fund business, our insurance businesses have continued to show strong growth, including even our wealth management business from client addition to top line to profit as you would have seen in the rest of presentation. Our customer assets now stand at almost INR 4 lakh crores, INR 3.9 lakh crores, which is a 20% increase. As we have moved to a asset-light capital-efficient model, we want to focus more on customer assets and advisory comfort party AUMs and all that. And that has been growing really at about 20% in the year. So you would have seen our balance sheet is shrinking, but our customer assets are growing. The balance sheet is strong, very well capitalized. All businesses have capital adequacy, which is much higher than the required norms. And we continue to focus on our 3 priorities, which I'll talk it about as we go along. So I just want to give you some color on the 4 or 5 key highlights for this quarter. And these 5 highlights have been our approach to profit growth, our approach to business growth, our customer franchise, our balance sheet, and the update on progress on the key priorities. A lot of this information you would have had in the investor presentation, but we thought we just highlight some of them and give you more color on that. On the profit side, I think as I said last 3, 4 quarters, we have seen a consistent increase in profit. We still have some way to go to get back to the earlier highs. But I think the trend is starting to look promising. Even in the credit business, which have been around significantly, the first half PAT has grown from INR 76 crores from INR 10 crores last year. Our asset management now is starting to grow. Our asset management profit after tax for first half has been INR 64 crores as compared to INR 37 crores for the last year. So almost 100% growth in the asset management business profit. Our ARC business also has shown about 17% growth for the first half. Last year, it was INR 120 crores for first half. It's now INR 140 crores. So a lot of our businesses are showing profit growth and you would have seen that at a financial level also. On the business growth also, there is a lot of -- I spoke about the alternative asset management business, where we are one of the leaders in that. Not only on alternative, AUM has crossed INR 40,000 crores, we invested about -- because out of INR 40 crores, only INR 20 crores is invested. Other INR 20 crores is dry powder, which we intend to invest over the next between 2-2.5 years. So 2 years ago, our invested funds in the alternative was about INR 11,000 crores. So we've gone INR 11,000 crores to INR 20,000 crores of invested and what we call sweeping. And that has grown 40% on a Y-o-Y basis. I think along with asset management, mutual fund has also grown and we are among the fastest-growing mutual fund in India. We are, I think, ranked 13 largest mutual fund in India, have shown 30% Y-o-Y growth. This has not been a good year for the mutual funds industry as a whole. And we are the leaders in many segments of the mutant markets like the asset debt and the debt ETFs and all. And our equity AUM in mutual funds has also shown a 27% growth Y-o-Y. Both our insurance business, general and light, have grown. Our LI business has grown at 19% 5-year CAGR as we go along. And lastly, our debt financing business, we have an addendum on that because that is a business that is now getting ready to be demerged and spun off and will be, I think, very soon listed in the market. Wealth management has shown 28% growth in top line revenue. AUA growth has been 22%. But more importantly, the profit growth for the first half has been INR 138 crores. The profit for the wealth management business for the first half is INR 138 crores. Q2 profit has been INR 84 crores. So that has been a good growth sign, and we remain very bullish on the business, and we don't think a lot of Edelweiss shareholders after demerger will become direct shareholder in that. We'll also get a chance to understand more about the business, the addendums that are being presented. And lastly, our credit business has also started growing as we have adopted asset-light co-lending credit approach. And both in housing and MSME credit, we will continue to grow. Wholesale business continues to de-grow because that is part of our strategy. We want to wind down the wholesale book. And as you would have seen in the last 3 years, there is a significant reduction on that. The third focus area for the highlight has been our customer franchise, which has been the heart of our growth in the last few years. We have not been as focused on balance sheet growth, we have been more focused on our customer reach. And we now have a customer reach of close to 6 million customers, which is a growth of 25% Y-o-Y. And mutual fund retail volumes have grown at 32%, and we have now more than 1 million of mutual fund investors. Our debt business has grown 32% and we have close to 1 million customers. So almost all businesses except credit, our customer reach and truly retailization of various businesses is also happening. And a lot of this is happening by focusing on innovative products, partnership, customer experience, and we do talk a lot about all that because we operate in these businesses in a very competitive world. And we do feel that understanding customers coming out with the right products for the customer can give us an edge. And we have shown that in our mutual fund business, alternative asset management business and the insurance business. Fourth highlight I would like to give is on the balance sheet. Our balance sheet, as I said, all businesses are very well capitalized. As we have degrown, the balance sheet has become stronger because we have more than INR 8,000 crores of equity, but a much, much smaller balance sheet. We have reduced our borrowing by INR 7,100 crores over the last 2 years, and our D/E now stands at 2.1, which was 3.3 a year ago and which was at peak about 5.2. So we have come down from 5.2 about 4 years ago to 2.1 now. And we carry comparable liquidity. So part of that acts as an earnings drag, but after the experience of the last 4 years, we and our stakeholders are very convinced that holding good liquidity is also buying good insurance in that sense. So as you would have seen, a lot of our businesses have capital adequacy of 34% in the credit business and very well-capitalized insurance businesses we have. And the last item, I want to give the update on are the key priorities, which are 3. One is the demerger of the wealth management business, which has been renamed as Nuvama Wealth Management. Nuvama is a new name of the Edelweiss Wealth Management business because we are now getting ready for getting that business listed after the demerger. The Phase 2 demerger is well into the 3-phase demerger. I don't want to go into the technical aspects of that. But as you know, these are very complex processes. So there are 3 phases. Phase 2 is over. We got an NCLT order. The Phase 3 demerger is going on right now. And we expect to complete demerger and get the shares listed around March 23. I hope you had a chance to look at the business update on the wealth management business. And we have Ashish also on this call. Ashish Kehair is the MD and CEO of the wealth management business. He has done a lot of work to strengthen the business. The growth we are seeing in the business is all kudos to him and the management team along with him. So he'll be also happy to give you more color on the business if you wish to. We're shedding down the wholesale loan book. We have reduced 30% in the last 2 years. We further expect almost about 60% on reduction from here in the next 2 years. And after 2 years, we expect the wholesale book to be between INR 2,000 crores to INR 3,000 crores. And we continue to monitor if there is any further impairment. We are very convinced there is no more impairment required. We have already taken the impairment. All of you would have seen last 2, 3 years, we have taken a significant amount of impairment on the book. We have returned it now. We chose to accelerate the impairment and the provisioning on that business because we wanted to take a pain first and now we are reducing the book. And as we reduce the book, a lot of liquidity gets released, a lot of equity gets released, which we will redeploy in other growth areas as we go along. I think the wholesale business in NBFC, as we have continued to say is not well-suited for that. So we want to continue to wind up that too. So I think along with that, the final comment I will give is our -- I think all the internal things we have said to you about 6 months ago and what we have said a year ago, a lot of that on the report card, we see the report card saying what we are saying to our stakeholders and what we've achieved. I think we have made significant progress on that. We had been focused on liquidity and balance sheet. Since then I think there we have come a long way. We now have to focus, and that is after 2 quarters and after 4 quarters when we chat again, you should hold us to account on that is on profitability growth and business growth and increased digitalization and the Edelweiss Wealth Management demerger. These are things we are working on, and we hope to continue to show progress on that in a significant way. So thanks a lot for all your support. Thanks a lot for being on this call. And with that, we can now open it up for questions, if any are there. Thank you very much once again.

[Operator Instructions] The first question is from the line of [ Mahavir Jain from Astrom Advisors. ]

Yes. I just had one question that you have done a very good job on reduction of our wholesale exposure so far. But the planned reduction, which is from INR 8,500 crores to INR 2,900 crores seems sizeable. So what are we planning to do different going ahead?

Yes. Actually, thanks a lot. If you see, our wholesale book continues to fall by between INR 2,000 crores to INR 2,500 crores. And as you would have seen a lot of this is real estate housing projects. So as the real estate market has improved and as a lot of the projects which were stuck are getting completed, the loans are getting repaid. And since we are not doing any fresh disbursement in this book, in the wholesale credit real estate book, we will continue to get about between INR 2,500 crores to INR 3,000 crores of repayment every year. And we're also having some of them refinanced. There's a lot of interest that is coming to the real estate market. As you know, prices are going up, demand is strong and the demand supply inflation on real estate has truly improved. With added total data that we are seeing, the exponential data we are seeing, even in Bombay, South Bombay and the Central Bombay, prices are up between 8%, 10% to 15%, 20% in the last one year. So as prices are improving, a lot of these projects also starting to get completed. So INR 8,500 crores, we should see about INR 3,000 crores reduction in the next year and maybe another INR 3,000 crores in the year after that, about INR 2,500 crores. And this INR 8,500 crores is currently over almost 70 projects. So there are multiple projects. We evaluate this project by project. We look at every project, what is the cash flow expected, what is the NPV of that cash flow, how much we have provided, are our marks on that correct. We [ coordinate ] exercise on that and we revise our cash flows every quarter. Based on the current cash flows that we are seeing, we are confident that between INR 2,500 crores to INR 3,000 crores reduction every year in this book will happen. In a way, in 3, 3.5 years, the book should go to 0 because we are in -- right now we are cutting down this business. This is actually a non-continuing business for us, the wholesale real estate book.

Next question is from the line of Vinay from Equirus Capital.

Wonderful presentation. Sir, you mentioned about your demerger. If you could throw some more highlights on the demerger process, where do we stand, and if any approvals outstanding? And how fast can we get it listed?

So as I said earlier, Vinay, we are in Phase 3 of the demerger. It's in NCLT. We are getting the exchanges and the SEBI approval because it's a wealth management brokerage investment banking business. So we need approvals from SEBI and others. What I believe is SEBI approval is in progress. After that, we get NCLT approval. So we expect NCLT approval somewhere around February, even accounting for the Christmas holidays at all. And it should take about 4 to 6 weeks after the NCLT approval for the listing to happen. And we've already seen demerger, usually after 4 to 6 weeks of demerger listing is happening. We have already prepared that. So I think somewhere around March, we should get the listing done and the demerger should happen about 4 to 6 weeks before that.

I'll add one more question to this if it is fine. We have one business that's already demerger. What are the other demerger plans you have with the subsidiaries you're holding in terms of AMC, the insurance, the housing finance?

I think our current approach is that we will build business. I think at Edelweiss, now our approach is we have these great 8 businesses, well capitalized, already the platforms are built. Each of these 8 businesses, we've been there for -- except for the general insurance business, which is about 5 years old, each of the business we have spent at least 8, 10 to 14, 15 years in the businesses now. So all these are very well established, stable businesses. We want to grow them and then we want to unlock value. So our approach is, Vinay, create value, unlock value. Unlock value in a smart way like what we are doing in the wealth management. So currently, I think the next 2, 3 years, as I said, a lot of focus is on asset management and insurance growth and all of that. So we will continue to look at options on how to unlock value. We don't have any plans that we can announce as of now.

Next question is from the line of [ Praveen Agarwal ] as an investor.

Regarding the alternatives business, so your alternative business has seen a significant growth over the years and the leadership has been in private debt only. So any plans of diversifying away from private debt into maybe private equity or anything?

So we keep on, I think, evaluating it, but as you have correctly said, we are seeing so much growth in private debt. Like a lot of our funds are now on their third fund. And you know what happens with alternative business, as the [ engine ] gets older, as you go from Fund I to Fund I to Fund III, a lot of your investment capability, management team, revenue has got big. So currently, I think -- we think private debt is a great differentiator opportunity. As you know, private equity is a great opportunity in India, but it's also a very competitive space. There are a lot of private equity funds. In private debt, we are the leaders, we are one of the pioneers. And especially what happened in the last 4 years with NBFCs and mutual funds not able to do private credit, a lot of that is slowly and steadily starting to move into the private credit space, structured credit, private credit, special situations, technical opportunities, whatever you call them. You know what, private equity in India started about 20 years ago while I think private credit in India started about 3, 4 years ago. So private credit is also a new emerging field. We are well established. Currently, we have no intention to expand. We are in the process of raising new funds in this -- in the private debt also. Also in private debt, it's not one category. We have almost 4 or 5 strategies, and we have about 8 or 9 funds. So it's pretty diversified. We are in infrastructure yield strategy, real estate credit strategy, business credit, performing credit. So the private credit space also it's a fairly large space with different strategies out there. There are some significant entry barriers. Maybe at a future date when we have a review on that particular business, we'll add an addendum on that. But there are significant advantages we enjoy in scaling it out here. We have now only gone to INR 40,000 crores. We think the space is fairly large, and we have a lot of investors, and we have some great fund management teams already baked. And we have the performance and the track record over the last 8-10 years in that business.

So also there's a follow-up question, Mr. Shah. Since you mentioned the scale, given this current scale, I have a feeling that the operating leverage would have already kicked in. Can you give us a sense of how do you see the profitability of the business in terms of the scale and income streams? And any guidance on carry or when will this kick in?

So actually, I think operating leverage is a very important question, especially in private credit space because you would have seen in the presentation and what I was speaking earlier, our AUM is INR 40,000 crores, but our fee paying range is only half of that. So we're earning fees only on INR 20,000 crores. The other INR 20,000 crores is not deployed yet. So as you deploy that, you have no real increase in cost because it's the same management team, the same operating cost you have. And we are -- last one year, we would have deployed about INR 8,000 crores is what I would think. So we are now at a stage across strategies we are deploying about $1 billion a year. And as we deploy the dry powder -- because out of INR 40,000 crores, as I said, only half is deployed, other half is dry powder. As we deploy that, the fees on that should come in. So that is the one operating I think without increase in cost, you will get increase in fees and all. And part of the growth in the asset management profit you are seeing is coming out of that. The other matter of profit growth is of carry. Usually, carry comes in a fund is after 3, 4, 5 years old when the carry starts coming in. A lot of our funds have been deployed. I mean, last 3 years, we would have deployed almost 75% of this deployed, INR 20,000 crores has been deployed in the last 2 years. So I would think now a lot of this will be 3, 4 years. And by the coming years, we will start seeing the carry upside also, which would start coming in. Usually carry, as a profit, comes after 3, 4 years of the fund. So you should also look at the vintage of the fund. So I think the way to understand is how much is your AUM, how much is your fee paying AUM, how much of that fee paying AUM has been deployed for more than 3 years, and is there a carry that is coming into that. So we think from the next year onwards, the carry income stream should also start kicking in. How much will be a function of the returns we make.

The next question is from the line of [ Prakhar Agarwal from Menara ].

A couple of questions are for Ashish. Ashish, how is your wealth management business different when you look at from competition perspective and some of your aspirations on that side of the business, if you could highlight? And then I have a follow-up question. I will probably ask it later.

Thanks, Prakhar. See, the way we look at it, there are a couple of dimensions on which business is actually built. So the first dimension on which I think we are different is the whole target addressable market or the TAM. Typically, most of our peer group operates in the ultra-HNI segment, except, of course, banks which are in retail and affluent. But specialized stand-alone wealth managers like us are largely in the ultra-HNI segment, which has its own supply constraints, whereas we operate from affluent plus-plus to ultra-HNI. That gives a much larger canvas for us to play, significantly lesser supply constraints, technology leverage, lower cost [ talents ] and so on and so forth. And this also is a business that can't be built overnight. It takes a long gestation period because of the whole granularity of it. But once you've built the platform, then ability to scale is significantly easier. So that is one dimension. Second, I think where we have consciously focused and differentiated is building a more comprehensive product platform. So when a client comes on any wealth management platform -- I mean, there are a couple of needs which the wealth manager can address. It could be investments. Now investments can be on an exchange, it could be of a managed product. So under our umbrella, actually, the client can execute across the board. There are players where you can only buy, let's say, managed products, you can't do broking or some can't do lending. We will have everything under the same umbrella, which basically allows a relationship person to add more value to the client and therefore monetize the clients more. And third is we are very strongly supported by a alternative investment management and investment banking business, which also helps at a promoter level. So when you have an investment banking business, we not only are addressing the wealth and savings needs of the client, but you also work with them on their aspirations on the business side, which ultimately when they monetize you get the wealth business. So it's really the platform, synergy and the TAM, which I think is very heavily differentiates us from rest of the competition.

Some aspirations on that side of the business, if you could highlight maybe over 2-year, 3-year period, how do you aspire to do in that side as you grow?

So I think we are blessed with the sectoral tailwinds. And I've always maintained that the business is in a very nascent stage, not only for us but for everybody. And we can -- basically, the way we look at it, there is a stock of wealth and there is a flow of wealth. So stock of wealth basically compounds anywhere between 8% to 12% given the combination of debt and equity which you have. And flow of wealth is the new money which gets added either by the new clients which you acquire or the existing clients which top up their incremental close line. So if you put the 2 together, I think at a base level, anywhere between 18% to 20% is where you will see the AUM or the money which get managed to grow. And on top of it, if you can innovate with some products or something. So between 18% to 22% is a safe level of growth, which you can consider in the industry per se. And the better players will execute more. So I think we should aim for anywhere between 20% to 25%.

Perfect. And just one last bit for me. Is [ Edelweiss ] transition completely from Edelweiss?

So there were multiple areas of transitioning because we were actually joined at the hip. So there was a technology transition. There was a logistical transition like your email. So we've done most of it. I would say we are 90% done. But key are the critical ones like our trading servers, data centers, all that is now done. I think last mile remains, about 5%, 10%. In another 2 months, that should get over. And the reason -- the transition is actually the reason why some of us would [indiscernible] OpEx or the cost would have gone up this year because that led to some duplication because we had to have overlap because these are certain mission-critical systems. You have to have fall back mechanism. And these will all fall off in the next year. So by December of this year, I think for all practical purposes, it will be completely independent. And by the time we list, I think whatever little remain will completely be out.

The next question is from the line of [ Rushil Bhagwati from BB Consultants ].

Rashesh and Ashish, I have a question. Your half yearly backend looks healthy. How do you think -- will this be sustained in the H2 and what will be your key drivers of profitability? And I have another question on the MS side also where the PAT looks a little low compared to the sizable AUM it has now. What will be your game plan to further enhance the profitability for MS business?

So I think, as you said, the first half PAT has been encouraging. We hope to maintain this. But as you know, I think a lot of this is coming from stable areas like wealth management -- asset management, wealth management, mutual fund. And as you see, the credit business is also showing uptick because our core lending model is starting to fall in place as our wholesale book is getting wound down. So we remain positive. I think last 3, 4 quarters, you've seen there is a consistent trend that is inching up business by business. And I think that is what we have given in really each of the business, profit after profit. We have to maintain that. Mutual fund, I think the 2 things we are still continuing. One is we are investing in the business. And maybe the first half was slightly affected because of some mark-to-market in our funds that we have because we also have a little bit of investment in the funds. So there was a late bit of mark-to-market as interest rates went up. But largely, we continue to invest in that business. And the AUM growth we are seeing, it is coming at a P&L cost in that sense. And I think it will continue for another one year. And we are still not really harvesting the potential profitability of the mutual fund business or the AUM we have because you would rather invest it back because now I think a lot of things, our product strategies, our distribution strategy, all of that is starting to fall in place. So we would like to continue the momentum of AUM growth and customer additions in the mutual fund business, which will have some P&L impact, and that is what you are seeing.

Our next question is from the line of Hitesh from Citibank.

Just wanted to do a follow-up on a point that you had mentioned in your AGM, that you will be looking at value unlocking in other businesses like life insurance and housing finance companies. Could you throw some light on what's the management thinking on these businesses? And I have a follow-up question on the mutual fund business. Any plans for IPO for this business as well?

So currently there are no plans for the mutual fund business that we want to -- as I said, I think the next 2, 3 years, we want to continue to grow that business. It's still relatively young in our eyes. And I think we need to continue to maintain the momentum we have. So no plans on the mutual fund side for IPO. On the life insurance, we would like to do some partnership which gets a distribution. As you know, a lot of our current distribution is half is agency and other half is corporate agents and Banca and direct and online. We would like to increase and grow the Banca franchise and all. And now as you may have seen, IRDAI has increased the number of insurance partners firms can have from 3 to up to 9 partners. So we will like to capitalize on that and look at some value unlocking by including stakes to strategic investors who can bring us distribution and we would think along those lines. It will take about a year for us to get something in place, but that is one way of unlocking value. I think the insurance businesses, we will wait until the profitability happens, which is about '26 or so for the insurance business, both the life and sector insurance before we think of listing them. Housing Finance business, I think we are building a fairly unique co-lending model on the affordable housing. Obviously, others are there, we are not the only one, but it's a fairly differentiated model. We have some early wins on that. We would like to spend the next year or 18 months on consolidating, proving that model before we even think of our IPO strategic sales in that business. As you know, that business is very well capitalized. Capital adequacy is close to 30%. We want to get this co-lending affordable housing business model strongly validated over 4 quarters before we look at that. But our idea would be, as we have done, we have self-financed it. Either from IPO or spin off or demerger, constantly look at if the business is at a scale and size where it can be listed on its own and can also unlock value for Edelweiss and its shareholders. We are committed to that.

The next question is from the line of Salil Rajadhyaksha as a personal investor.

Rashesh, I just want to complement you on the excellent work that you all have done over the last 3 years and getting all the different businesses in order and independently managed, et cetera. My question is with respect to the wholesale book. You've done a lot of work to get it down to INR 8,500 crores. But you need 3 years more to get it down to INR 2,900 crores. That's a significant amount of time. And I was wondering whether there's a wholesale way of solving the wholesale book problem. Is there a way you can just sell that book entirely even if at a haircut of 10% or whatever and release all that equity? That's my only question.

Good question, Salil. I think it's a tough concern we constantly evaluate. I think they are inorganic. So basically, what we are saying is you can organically reduce the book or you can do inorganic or you can do a combination of both. I think our approach would be to do a combination of both because, a) I think the market doing just one short entire book sale will be very expensive. To give you an idea, there are a lot of the hedge funds and special situations funds who are always looking for portfolios, but they would like a return of 20%, 25%. A lot of our assets are good enough, it can make 15%, 18%, 20% IRR also as these projects are going. So the answer to your question would be where we see the cash flow coming in the next 18 months or 2 years, we would rather reduce it organically project by project. So once where we think the cash flows are elongated, so the IRR is there, so there is no impairment risk, but the cash flow is because that project has gone Phase 2, Phase 3 and Phase 4, those if we can do it inorganically, we would be happy to do that. Though it might come at a slightly higher cost because the return that the new buyer will want will be slightly higher than the return the portfolio is earning. But it can shorten the release of cash for us. So I think our approach would be organic plus inorganic. One short answer is not really possible or always there because if you go for that, the cost is going to be too high. People will take the portfolio, keep the risk still with you by having [indiscernible] or junior tranche and all that. So you don't get anything, you just end up giving away on a lot of value. Because remember, in this book of INR 8,500 crores, only INR 5,000 crores is borrowing. There is a notion of 3,500 equity of ECL Finance. If you look at ECL Finance and our NBFC has equity capital of INR 3,900 crores, there is a 3,500 equity out there. So that equity will still be trapped and we'll end up paying a high cost and it'll come back to us after 2, 3 years, if you look at any wholesale one-stop kind of an answer. And it's not really a problem because this all projects are different. All projects have different management. We have a management team out there which is overseeing this. And we think there is significant value. So also remember as the real estate prices are improving, Salil, not to be greedy, but there could be potential upsides also because we have taken impairment. But as the prices increase, maybe our recoveries will also be better. We have seen that in the past when [indiscernible] sold to ARCs and all that, and ultimately recoveries are good. So assets are good, recoveries are good, you just need to be patient. And it's not really affecting us. I mean it might be affecting some skeptics in the stock market about, okay, wholesale book is still a problem. But I think anybody who wants to understand and study, having seen this over the last 3 years, I think last 3 years was flying after ILFS and the real estate market was down, and we have navigated that well. So having done all this, I don't know what I think advise a lot of our different stakeholders will have because at some time, some people will see it better to do one stock, maybe take INR 1,000 crores, INR 1,500 crores, INR 1,800 crores cost on that. The other is to do it on a very thoughtful manner. And the third is just play it out and extract everything you can. I think our approach is more the middle one. Don't be greedy, do be thoughtful about it, but do it in a way. And by the way, we have done that. If you've seen in the last 3 years, we have done inorganic also. We have done about INR 4,000 crores to INR 5,000 crores of inorganic sales to AIFs and other hedge funds of assets which required last mile funding, but which also require from holding power. So that's our approach. We'll continue with that. We feel confident that there is -- the equity in business can be released. There could be maybe upside if Indian economy does well, if the market does well. And we also have ALM under control. So if ALM is under control, if impairment is turned, we just have to do our work and [indiscernible] capital one by one. It might give a sense of relief if we just do one short answer to this, but it will come at a cost, which can be anywhere between INR 1,000 crores to INR 2,000 crores of additional cost.

Next question is from the line of [ Mohit from NG Advisors. ]

So we've seen a rapid growth in your general insurance business. But given that you are a late entrant to this competitive space, what are you envisaging as your differentiator to continue to sustain growth?

Actually, I'm happy you're asking this question because I know we end up spending a lot of time on the NBFC business and maybe the wealth management business, now asset management business. But insurance business is also a very important part of us and [indiscernible]. And as you very correctly said, insurance is not where we are the natural players. There are large government-owned companies like in life insurance, there is LIC, then there is State Bank, then there is HDFC, ICICI, Kotak, Bajaj, Tata, Birla. So this is very competitive field. And still we have in our life insurance business grown at 23%. The same thing is about general insurance. The good thing about general insurance, it's an industry which is getting disrupted very quickly. And you would have seen other digital players, insurance players like Go Digit and Acko and others. And there is a lot of excitement in that particular business. Our differentiator has been product innovation. So if you go to our site or if you look at our investor presentation, the number of product awards our general insurance business has been getting has been outstanding. So we do focus a lot on product innovation. And not just product innovation for the sake of product innovation, but product innovation that meets the customer needs. And being a late entrant in a field that is getting changing very fast and disrupting itself is also an advantage. We don't have any barriers to scale. So even if a product gives us INR 40 crores, INR 50 crores of annual GWP, we are happy to try that products. In a large company, it may not really move the needle for you. For us, it allows us a lot of innovation. When IRDAI announced the Sandbox guidelines, we are one of the large players in that. We have a lot of products in the Sandbox. So one is product innovation. Second is we work a lot on customer experience, especially health insurance and motor insurance. In motor insurance, about 18% to 20% of our customers who buy insurance will have a claim. So your claim experience matters a lot. We all think a claim is a claim is a claim, a car insurance is a car insurance, car insurance. Once you've made a claim, you realize that not all car insurance is the same. So we do work a lot on customer experience, customer insight, customer feedback, NPS scores and all because that is our other edge. And the third work that we have is we are very careful about how we use our capital. We have spent about close to around INR 500 odd crores in that business and with this scale because we've been also very efficient. I think we will easily spend a lot more capital to reach the same place. So I think in these 3 players -- because then the capital we have, we are actually deploying it a lot smartly and we have almost seen 80% to 83% growth in that business. So I think in an exciting field, because we are 5 years old -- to give you an idea, because we were the late entrant, we were the first insurance company in Asia to be cloud native. It started on the cloud. We had no architecture which was not cloud. Almost everything we do starts with APIs in that business. So being a late entrant gives you a lot of architectural flexibility because we don't have the leader feedback and baggage also on that. So we are very excited by that. It's still early here. I would tell all our stakeholders that wait and watch for 2, 3 years. We still have to prove ourselves in both the insurance businesses. But in the last 4, 5 years, we have seen in spite of COVID, in spite of all the other affairs was going on, both our insurance businesses continue to add significant clients and growth in that. In fact, our travel insurance business now has close to about approximately 3 million customers. Yes, our total reach has now crossed 4 million customers in this business. So there are 4 million people in India who bought our insurance product. So we are more and more for capital market and asset management and others. Even in insurance, I think our businesses have made inroads into that. We are still small, and we have a long way to go.

Sir, a follow-up to that. So could we look at any JV or strategic partners? And any guidance on breakeven for this business?

So on breakeven, in the life insurance, our next target is embedded value breakeven which we should hit in the next 4 quarters. Because EV breakeven is an important one. Accounting breakeven should be '26 or so. It will take a few quarters. The general insurance business should also breakeven around '26. Our current gross written premium in general insurance could be averaging about INR 50 crores a month. So that is the scale of the business. We want to continue to grow within the general insurance business. Industry growth at about 18% a year for the next 4, 5 years. We want to grow with that and obviously being some market share on that. We own 100% of the general insurance business. We are interested in strategic partners. We don't need partners for capital in that business. It's well capitalized. We need partners who give us either strategic inputs either in distribution or in product and technology. So large global firms who are good in digital insurance and all that, we're happy to talk to them. We speak to them all the time. But when we find the like-fit, we'll obviously go forward on that. On the life insurance, as I said, I think a banking partner, a Banca channel is an important opportunity for us, especially given the changes that IRDAI has announced, how many partners a bank can have. So we'll also be looking at that. But both these businesses are well capitalized and the capital is in place. So we don't need to dilute for capital reasons in either of these businesses.

Thank you. Ladies and gentlemen, due to paucity of time, that would be our last question for today. I now hand the conference over to Mr. Priyadeep Chopra for closing comments. Thank you, and over to you, ma'am.

Thanks, Aman. Thank you very much, everyone, for your time today. Please do write in to us, the investor relations at Edelweiss for any questions and additional information that you may need from us. Once again, thank you for all your time, and we hope to keep in touch. Bye-bye.

Thank you, ladies and gentlemen, on behalf of Edelweiss Financial Services, that concludes this conference call. Thank you all for joining us, and you may now disconnect your lines. Thank you.