Emkay Global Financial recommended Hold rating on Edelweiss Financial Services with a target price of Rs 64 in its research report dated July 06, 2020.
Emkay Global Financial's report on Edelweiss Financial Services
EDEL reported weak Q4 results, with AUM falling for the fourth straight quarter). AUM declined 47.1% YoY and 32.2% QoQ to Rs191bn amid tight liquidity conditions and economic headwinds. Management intends to gradually run down its wholesale book. Accordingly, we expect AUMs to remain under pressure for the foreseeable future. The company has improved its overall borrowing profile with a decline in CPs and rise in NCD/banks. Management has highlighted its plan to collapse the holding company and issue direct equity in the various companies of Edelweiss group by issuing fresh equity of Rs10-15bn in EGIA. We await to hear more from the management regarding the revised structure. Gross NPAs deteriorated sequentially to 3.8% from 2.8% in Q3. The company has made provisions of Rs26bn in Q4 on account of revision in the ECL model, additional impairment to facilitate sell downs and a one-time Covid-19 provision. Management has been prudent in providing, though we believe asset quality may not be as bad as it may appear.
Outlook
We remain cautious given the current economic risks and the tight liquidity scenario. We maintain Hold with a TP of Rs64, corresponding to ~0.9x FY23E P/B on a consolidated basis. We are UW in NBFC-EAP.
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