Recommendation from Finance - NBFC Sectors

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

Edelweiss Financial Services Ltd : RIDING THE HIGH TIDE

HERE IS WHY
✓ Strong growth predicted in the financial services industry
✓ Company offers comprehensive offerings to an increasing number of clients

The Indian economy is poised to grow at a faster rate going ahead. During this growth phase, the financial service industry is going to play an important role, and hence our recommendation for a low-priced investment is Edelweiss Financial Services. The company is a diversified financial services company offering a wide array of services, including investment banking, asset management, wealth management, insurance, and retail finance.

The company caters to individuals, corporates and institutions, providing customised financial solutions that encompass wealth creation, wealth protection and credit access. Edelweiss Financial Services’ comprehensive offerings include mutual funds, life and general insurance, loans, and advisory services. The company offers investment banking and advisory services to a client base of 1.2 million through 476 offices and 11,000 employees. The company’s business segments include asset management, insurance and credit. Asset management, led by EAAA, an alternative asset and investment management company of Edelweiss Financial Services, has seen a 20 per cent growth in its annual recurring revenue and asset sunder management, with a 70 per cent growth in PAT over four years.

The company aims to achieve a 20 per cent profit CAGR over the next five years, with strong cash flow potential. Insurance has seen a cumulative investment of ₹4,000 crore across life and general insurance businesses, with a target to achieve breakeven by FY27. Its credit business, comprising ARC, NBFC and Nido Housing Finance, have a cumulative equity of ₹7,500 crore, currently yielding a 5 per cent ROE. The company is also reallocating capital to improve its ROE and reduce corporate debt.

Strategic initiatives include a stake sale and engagement with the Reserve Bank of India (RBI) regarding ECL Finance and EARC compliance. The company’s future guidance includes steady growth across all the key metrics, focusing on reducing corporate debt and enhancing liquidity. It plans to expand distribution channels and product offerings in the mutual fund space. In Q2FY25 on a consolidated basis, the revenue of the company increased by 36.62 per cent YoY to ₹2,209.93 crore compared to ₹1,617.62 crore from the previous year’s same quarter.

On a sequential basis, its revenue increased by 15.21 per cent. Its PBIDT excluding other income increased by 28.81 per cent to ₹1,017.4 crore YoY as compared to ₹789.83 crore from the previous year’s same quarter, while sequentially it increased by 22.94 per cent. The net profit stood at ₹137.02 crore compared to ₹94.93 crore, a YoY increase of 44.34 per cent, while sequentially it increased by 60.63 per cent from ₹85.3 crore. At TTM, the shares of Edelweiss Financial Services are trading at a PBV of 2.1 times, which is higher than its one-year median PBV of 1.5 times.

Given the company’s solid financial performance as indicated by a healthy three-year compounded profit growth of 18 per cent, we believe Edelweiss Financial Services is a promising investment opportunity. Furthermore, the company’s interest coverage ratio of 1.26 times and a Piotroski score of 7 suggest a strong financial position and operational efficiency. In light of the robust growth prospects of the financial services industry, we recommend BUY.