Edelweiss Capital Limited: A Profile

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1 CONTENTS Introduction Evolution of Edelweiss Business Overview Corporate Structure Shareholding Pattern Board of Directors Senior Management Financial Performance Credit Ratings Corporate Social Responsibility Edelweiss Strengths 1

2 Introduction Edelweiss Capital Limited (), incorporated on 21 st November 1995, has emerged as one of India s leading diversified financial services group. The Edelweiss Group offers one of the largest range of products and services spanning varied asset classes and diversified consumer segments. The Group s businesses are broadly divided into Credit, Capital Markets including Investment Banking and Brokerage Services, Asset Management, Housing Finance and Life Insurance. The company s research driven approach and consistent ability to capitalize on emerging market trends has enabled it to foster strong relationships across corporate, institutional, HNI and Retail clients. Edelweiss Group employs around 2647 employees, leveraging a strong partnership culture and unique model of employee ownership. It operates through 343 own offices, 31 franchiseled offices and over sub-brokers in over 170 cities in India. The Edelweiss Group is a conglomerate of 49 entities including 43 Subsidiaries and 5 Associate companies (March 11), which are engaged in the business of providing diverse financial services. It is a listed company since December 2007 under the symbols NSE: EDELWEISS, BSE: , Reuters: EDEL.BO and Bloomberg: EDEL.IN. Evolution of Edelweiss Business Overview The current businesses of Edelweiss are organized around five broad lines Credit, Capital Markets, Asset Management, Housing Finance and Life Insurance. The Credit Businesses include collateralized loans to Promoters and Corporates, Margin funding, ESOP financing and IPO financing. Capital Markets businesses include investment banking, brokerage services institutional, HNI and retail and financial products distribution. The Asset Management businesses include offshore and domestic asset management. Housing Finance business is its newest business and Life Insurance business is poised for a launch shortly. 2

3 The strategy employed by Edelweiss ensures that there is a balanced mix of revenues among the three key revenue streams viz., Agency fee & commission, Treasury & Investments income and Interest income, thereby achieving the intended diversification in revenue streams. CREDIT With a deep knowledge and understanding of capital markets backed by strong origination capabilities, the Company s primary offering in the financing business includes collateralized loan products such as sponsor funding, loans against shares, IPO financing, loans against ESOPs and margin funding etc. The sponsors of midto-large corporates constitute its key clientele. Its prudent financing norms, strong risk management and a conservative margin of safety (typical collateral cover ranges from 2x to 3x) ensures low non performing loans. Edelweiss continues to work on new product offerings around other asset classes. Edelweiss Housing Finance Limited has recently commenced the business and would help the group diversify the collateral class. CAPITAL MARKETS Investment Banking Equity Capital Markets & Advisory Services Edelweiss has one of the most extensive product offerings in Investment Banking in India, catering to different market and client segments. The verticals within Investment Banking include Equity Capital Markets which include IPOs/FPOs, QIPs, Rights and Open Offers, and Advisory services which offer Mergers & Acquisitions Advisory, Private Equity Syndication, Structured Finance Advisory and Infrastructure Advisory. Edelweiss also offers full bouquet of products in Debt Capital Markets including Debt Syndication and broking. Edelweiss enjoys strong franchise with emerging and mid-market companies which is reflected in the # 1 ranking in both Bloomberg tables for Mid-market Private Equity placements in CY2007 and Prime Database league tables for IPOs in Mid-market segment in FY2008. It was adjudged winner in the Best Merchant Banker category in the Outlook Money NDTV Profit Awards It was ranked # 2 in QIPs and # 3 in ECM (QIP+IPO/FPO+Rights) in FY10. For FY11 it is ranked # 2 in ECM by number of deals below ` 400 crore. Overall, it is now among the top 10 players in ECM by number of deals in the country in FY11 (rankings source: Prime Database). Its client segments now range from private to public sector and from Mid-caps to Large-caps across different industries. Corporate Debt Syndication The Debt Syndication Desk focuses on origination, sales, trading and research. It has gained a strong foothold and visibility in the market. Ranked # 2 in CP placement and Short Term Debt placement for FY09 Ranked # 4 in CP placement and Short Term Debt placement for FY10 Ranked # 3 in Short Term Debt placement and ranked # 4 in CP placement in FY11. Overall Edelweiss is among the top 10 debt arrangers in the country in FY11. (Rankings source: Prime Database) Its clients in the recent past included large corporates like Reliance Industries, SAIL, REC, PFC, PGC, IRFC, Tata Capital, Sundaram Finance, Yes Bank, State Bank and its Group companies, Bank of India, Canara Bank etc. Brokerage Services Institutional Equities Edelweiss has one of the leading institutional equities businesses in India backed by a large and experienced research team and a large and diversified client base with a market share of 4 to 5%, among the highest in 3

4 Indian brokerage firms. Intense servicing, seamless execution and innovative research products have helped Edelweiss build strong relationships with over 400 active institutional investors, including domestic institutional investors and FIIs across different geographies. Edelweiss provides broad corporate access by arranging annual Investor Conferences in different locations across the world with a strong investor and Indian corporates participation. Research coverage presently extends to 188 companies across 21 sectors accounting for over 70% of total market capitalization representing one of the largest Research coverage universe. The quality and caliber of research associated with Edelweiss is widely regarded across the institutional community. It continues to focus on path breaking Perspective Research which identifies future trends before they become popular. After the landmark India 2020 Report that Edelweiss published in March 10, it has come out with another thematic report on opportunities Rural India offers. The Prescriptive Research of Edelweiss believes in never missing a beat with multi dimensional company research covering important company events like quarterly results, bottom up equity research and special reports such as Annual Report analysis and Analysis Beyond Consensus. It is also considered a Thought Leader in Alternative and Quant Research with over 15 regular products such as pairtrading strategies, corporate action tracker etc. Edelweiss commitment to provide cutting edge research has resulted in a pioneering effort to provide online research to its clients through the portal with smart features of quick sorting of information, analysis and convenient archiving. HNI Broking Edelweiss offers dedicated broking services to high net-worth individuals with a strong emphasis on building long-term relationships with clients. Product offerings include specialized trading execution for active trading clients and structured products backed by high quality execution and reporting. Retail Broking & Distribution Retail Broking and Distribution are the new initiatives of the Group under its Retail Business strategy. The organic Retail broking business is through the online portal and provides advisory and research based broking services supported by high quality execution platform and best in class reporting. It currently has over 100,000 clients under the online broking. Edelweiss has also completed the acquisition of Anagram Capital Limited in July 10. This adds around 225,000 clients, over 1300 sub-brokers, 141 own offices and 31 franchise led offices to Edelweiss group. The acquisition is in sync with the existing Retail Strategy of the group with minimal overlap. Distribution business focuses on giving advice and analyzing the best financial product options available in the market. It involves the distribution of the full range of third party financial products and services including IPO syndication for the retail customer. For FY11 Edelweiss is ranked # 1 in HNI category and # 3 in Retail category by amount mobilized in IPOs. It was also ranked # 1 in both HNI and Retail categories in the recent IPO of MOIL Ltd by amount procured. Overall, it was second largest mobilizer of IPO subscriptions in all categories taken together (non-asba) in FY11 (Source: Prime Database). Wealth Advisory & Investment Services The Primary focus is on understanding each client's profile including life style, risk appetite, growth expectations, current financial position and income requirements to create comprehensive and tailored investment strategies. The broad range of offerings includes a truly multi-asset class allocation advisory to Structured Products, Portfolio Management, Mutual Funds, Insurance, Derivatives Strategies, Direct Equity, Private Equity, and Real Estate Funds etc. ASSET MANAGEMENT Our Asset Management business includes Domestic Asset Management (AMC) and Alternative Asset Management business. Edelweiss Asset Management has launched a mix of nine equity and debt funds. The current focus of this business is on broad basing the product portfolio and building investment track record. 4

5 Alternative Asset Management currently focuses largely on offshore institutional investors offering advisory/management expertise for India focused Multi-Strategy Fund, Real Estate Fund and a Special Opportunities Fund. Recent Initiatives include launch of an ARC. HOUSING FINANCE Edelweiss has taken a major step in diversifying its asset class in the credit book through the launch of its housing finance business in FY11. The housing finance subsidiary initially launched its business in Mumbai and later expanded it to include the National Capital Region. Considering that it is the aspirations of all Indians to own a home, this business represents an exciting opportunity reinforcing Edelweiss intent to cover a larger retail footprint. LIFE INSURANCE Edelweiss has entered into a Joint Venture Agreement with Tokio Marine Holdings, Inc., for setting up the life insurance business subject to regulatory approvals. It has recently received the final R-3 approval from IRDA and plans to launch this business shortly. Life Insurance has played a pivotal role in channelizing household savings into long-term investments and has immense growth potential in India given the current low penetration. Life Insurance segment, thus, presents to Edelweiss an exciting prospect for long-term growth opportunity and is a part of overall strategy of Edelweiss to enlarge its retail footprint. Treasury The Treasury operations in Edelweiss are similar to that of a Treasury in a Commercial Bank and focus on liquidity management with capital preservation. This business adopts a multi strategy/multi-book approach to diversify and grow its portfolio while imparting liquidity in the balance sheet. The group follows a disciplined and conservative approach to cash management with emphasis on strong risk policies. This has resulted in a low or no correlation between the market returns and the treasury performance. Growth Initiatives Edelweiss continues to build on the following growth initiatives with the objective of diversifying its client segments and product classes in its quest to emerge as a fully diversified financial services organization: It has invested in launch of Life Insurance business for which the final approval from IRDA been received recently. It has completed the acquisition of Anagram Capital during the year and has also rebranded the company as Edelweiss Financial Advisors Limited. With the integration issues behind, this acquisition will help it in expanding its Retail Broking and Distribution businesses. In addition to this offline model of retail broking, it has also invested in building its online retail broking format organically with an aspiration to become a significant player in this industry. The Housing Finance subsidiary commenced business in the latter half of FY11 and has plans to scale up the business going forward. Its Alternative Asset Management business closed the EW Special Opportunities Fund in FY11. Edelweiss considers this business as a growth opportunity within its wholesale businesses. 5

6 Corporate Structure * Edelweiss has 100% holding in its subsidiaries unless specifically mentioned in parenthesis, as on 31 st March Shareholding Pattern 6

7 Board of Directors The Edelweiss Board comprises of five external directors out of a total of seven directors, each of whom brings in his own expertise in diverse areas. The focus is on strong corporate governance. The directors of the company are: Senior Management Edelweiss has an experienced and capable Senior Management team with a strong track record of identifying business opportunities and executing on strategy. The company has experienced business heads supported by a deep layer of skilled middle managers. Most members of the senior management team have been with the company for over five years. A four tier leadership pool covering over 5% of the organization provides stable leadership across various businesses while building bench strength. Financial Performance at a Glance Edelweiss has delivered strong operating and financial performance since inception, consistently demonstrating a strong track record of high growth and profitability. Its Revenues have grown at a 12-year CAGR of 78% and PAT at 67% till FY11. As at the end of 31 st March 2011 Edelweiss Group s Networth excluding minority interest stood at `23.00 billion (`24.16 billion including minority interest), indicating a strong balance sheet. Equity capital is the primary source of funding for the group besides debt. The leverage as on 31 st March 2011 is 3.4 times including the Minority Interest indicating a healthy position whereby the balance sheet can be further levered. Consolidated Financial Performance of Edelweiss Capital Limited: Edelweiss benefits from a strong and liquid balance sheet with a reasonable leverage. A strong capital base and adequate profitability year after year allows Edelweiss to constantly invest in new businesses with an eye on future growth while scaling up the existing businesses. A large capital base also allows it to transact larger volumes of broking and trading in the markets giving it a leadership position in Institutional Equities business. It also enables the group to add debt capital as and when required at reasonable rates. Its market capitalization as on 31 st March 11 was ~ ` 30 billion. 7

8 Financial Year (In `mn except as indicated) Total Income 14,911 9,778 9,005 10,888 3,718 1, Total Expenditure 11,411 6,450 5,715 6,421 1, Profit Before Tax 3,500 3,328 3,290 4,467 1, Tax Expenses 1, ,199 1, Net Profit (after minority) 2,330 2,292 1,864 2,732 1, Pre Tax Margins (%) Paid up Equity Share Capital Networth (excl. minority) # 23,005 22,574 21,154 18,476 5,823 1, BVPS (FV ` 1) (`) # Diluted EPS (FV ` 1) (`) # RoE (%) (#) Adjusted for corporate actions 8

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10 Highest Short Term Credit Ratings Edelweiss Capital Limited and three other group companies enjoy highest short term rating as under: (As on 31 st March 11) Entity Rating Agency Rating Edelweiss Capital Limited Long-Term Debt Programme ICRA LAA-/LAA- pn/ LAA- pp/stable Short-Term Debt Programme CRISIL P1+ Edelweiss Securities Limited Short-Term Debt Programme CRISIL P1+ ECL Finance Limited Long-Term Debt Programme ICRA LAA- pp (SO)/Stable Long-Term Debt Programme CRISIL AA-/AA-r Stable Short-Term Debt Programme CRISIL P1+ Edelweiss Trading & Holdings Limited (formerly Edelweiss Commodities Limited) Short-Term Debt Programme CRISIL P1+ Corporate Social Responsibility At Edelweiss, Corporate Social Responsibility is a part of its DNA and it focuses on initiatives that help to build a better, more equitable and sustainable society. For Edelweiss, CSR means giving back to the society - beyond the call of the business. EdelGive Foundation, the CSR wing of Edelweiss, has accordingly been formed to create an effective institutional platform to provide structure and direction to the philanthropic activities of Edelweiss, its employees, its clients and its associates. Its primary focus is on creating educational, employment and sustainable livelihood opportunities for the underprivileged and it brings an institutional banking and venture capital rationale and thinking to the social sector. Edelweiss leverages its strengths - the ability and expertise to act as a bridge between providers and consumers of capital - to achieve the objective of addressing the primary needs of the social sector. Edelweiss Social Innovation Honours is a CSR initiative to encourage NGOs who are working to improve the status of the girl child in the areas of health, education and employability. The Social Innovation Honours for the year received overwhelming response and 5 NGO were selected for the award for their innovative work to empower women. Edelweiss has been rated among the top 5% of companies in terms of CSR by Karmyog.com. 10

11 Edelweiss Strengths 1. Brand: Edelweiss the brand, today is a strong franchise in the capital markets backed by a consistent focus on execution and innovation. 2. Edelweiss Core Strategic Approach to business is founded on growth with profitability backed by synergistic diversification across the businesses; Control and flexibility of cost, capital and balance sheet, diversified revenue streams, strong risk management and organization build up by developing leadership in bench and investing in culture which rewards thinking about long-term in a partnership cohesive approach. It believes in growth through adjacent markets, adjacent asset classes, adjacent product classes and adjacent client segments. 3. Integrated & Diversified Business Model: Edelweiss derives its strength from a distinct but complementary set of diversified businesses which provide stability in performance across cycles. To this end, Edelweiss continues to look to invest in long term business opportunities in financial services. The synergistic diversification among businesses ensures three broad streams of revenue, viz. Agency fee & commission, Treasury & Investments income and Interest income generate a balanced mix of revenues. 4. Balance Sheet: Edelweiss benefits from a strong and liquid balance sheet with a reasonable leverage. Its focus while managing the Balance Sheet is on strong risk management with capital preservation. A strong capital base of ` billion and adequate profitability year after year allows Edelweiss to constantly invest in new businesses with an eye on future growth while scaling up the existing businesses. Edelweiss is also shielded from any adverse asset liability mismatch as its asset-side duration is less than 9 months whereas its liabilities have duration of about 120 months. Low leverage on the balance sheet and highest short term credit ratings allow it ample leeway to lever the balance sheet further. 5. Edelweiss Business Model is to be able to adjust to downturn in markets with inherent cost flexibility and be able to quickly convert growth opportunities into business when they reappear. Our business growth perspective is aligned to the medium term of 3 to 5 years. 6. Board level Commitment: The board comprises four independent and one non-independent non-executive director out of a total of seven directors. All of the directors play a governing role and provide expertise and insight into building Edelweiss as one of the most reputable organizations with an admirable compliance and corporate governance ethos. 7. Management: Edelweiss has an experienced and stable senior management team. It also has a strong middle management team, which comprises of an 80 member Senior Leadership Group and a 100 member Leadership Group forming the bench strength. The four tier leadership pool thus covers over 5% of the total employee strength of the group. Edelweiss constantly emphasizes training and developing leadership and its 100 seater Training Centre at Alibaug (near Mumbai) is now operational. 8. Employee Ownership: Edelweiss has a widely distributed employee ownership and was among the pioneers in the financial services industry in instituting an employee stock option scheme. It now has one of the largest ESOP pool in the financial services space in India and over 600 employees are covered through ESOPs. The employees including key management own over 50% of the company. ******* This presentation is for information purposes only and does not constitute an offer or recommendation to buy or sell any securities or financial products of Edelweiss. Any action taken by you on the basis of the information contained herein is your responsibility alone and Edelweiss or its directors or employees will not be liable in any manner for the consequences of such action taken by you. This presentation may contain certain words or phrases that are forward - looking statements, based on current expectations of the management of Edelweiss Capital Ltd. or any of its subsidiaries and associate companies ( Edelweiss ). Actual results may vary significantly from the forward-looking statements contained in this presentation due to various risks and uncertainties. The information contained herein is as of the date referenced and Edelweiss does not undertake any obligation to update these statements. Edelweiss has obtained all market data and other information from sources believed to be reliable or are its internal estimates, although its accuracy or completeness cannot be guaranteed. 11