Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA-/CRISIL PPMLD AA-/Stable/CRISIL A1+/CRISIL PPMLD A1+’ ratings on the debt instruments of Nuvama Wealth Finance Limited [(NWFL; erstwhile Edelweiss Finance and Investments Limited), part of Nuvama Group].
CRISIL Ratings has also withdrawn its rating on the Rs 311.12 crore long-term principal protected market-linked debentures, Rs 35 crore non-convertible debentures, and Rs 31.38 crore preference shares as redeemed. This is in line with the CRISIL Ratings withdrawal policy; CRISIL Ratings has also received an independent confirmation for the fully redeemed instruments.
The ratings on the Nuvama group factor in the comfortable capitalisation, strong market position among non-banking players in the wealth management business, and benefits from the association with PAGAC Ecstasy Pte. Ltd (PAG) along with its affiliates. These rating strengths are partially offset by susceptibility of earnings to financial market conditions as well as high concentration in lending operations.
The equity shares of Nuvama Wealth Management Ltd (NWML) got listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) on September 26, 2023. After listing, PAG along with its affiliates (classified as promoter and promoter group) hold 56.2% stake in NWML as on September 30,2023 while the wholly-owned subsidiaries of Edelweiss Financial Services Limited (EFSL) i.e. Edel Finance Company Limited and ECap Equities Limited (formerly Edel Land Limited) collectively owned 13.7%. Remaining 30.1% comprises of public shareholding and Employee Trust.
After its segregation from Edelweiss Group and rebranding as ‘Nuvama’ in fiscal 2022, the operational, financial and managerial synergies between the Nuvama group and Edelweiss group have reduced significantly with the former functioning as an independent group. |
Analytical Approach CRISIL Ratings has consolidated the business and financial risk profiles of NWML and its subsidiaries including NWFL. This is because these entities, collectively referred to as the Nuvama Group, have significant operational, financial, and managerial linkages, and operate under the common brand name ‘Nuvama’. |
Key Rating Drivers & Detailed Description Strengths: Comfortable capitalisation The Nuvama group had a networth of Rs 2,349 crore as on June 30, 2023 (Rs 2,259 crore as on March 31, 2023) and is well-placed to support its growth plans for the medium term. Most of the businesses are fee-based, with borrowings largely comprising onward short-tenor lending to wealth business clients for margin/ESOP financing. The consolidated leverage ratio of the group stood at 2.78 times as on June 30, 2023 as compared to 2.40 times as on March 31, 2023. However, CRISIL Ratings understands that this metric has reduced over Q2 2024.
Strong market position among non-banking entities in the wealth management business The Nuvama group is one of the leading non-bank wealth management players with client assets[1] of about Rs 2,59,000 crore as on June 30,2023 (Rs 2,31,202 crore as on March 31, 2023).
The group largely caters to affluent and high-networth individuals (HNIs), ultra HNIs (UHNIs) and institutional clients through various platforms in the wealth business. It operates in three key verticals i.e private and affluent wealth management (equity, debt and alternatives), asset management and capital market business including institutional equities business and debt advisory and clearing services.
In the institution equities business, the group is one of the largest domestic brokerage houses by volume. The group is also a leading player in the investment banking business, offering advisory on initial public offers, mergers and acquisitions and private equity. The asset management business is at a relatively nascent stage, comprising alternate investment funds and portfolio management schemes. The group had an AUM of about Rs 5,900 crore as on June 30, 2023, of which nearly Rs 2,500 crore has been deployed.
It holds a competitive position in majority of businesses and should further strengthen its market position over the medium term.
Benefits from association with PAG: PAG acquired a majority stake in NWML from the Edelweiss group in fiscal 2021, through both primary and secondary investment. As on September 30, 2023, PAG held 56.2% in Nuvama.
PAG is the largest Asia focused private investment fund, with an AUM of about $50 billion. PAG has three board representatives and supports the strategic initiatives of the group. Association with PAG also allows Nuvama group the opportunity to expand its clientele in the wealth and asset management businesses and, raise external debt at competitive rates.
Weaknesses: High concentration in lending operations: Nuvama group extends loans against shares (LAS) to clients of Nuvama group. As on June 30, 2023, the loan portfolio of the group stood at Rs 3,868 crore, having grown from Rs 3,553 crore as of March 31, 2023. Almost half of this portfolio comprised LAS, while the other half was constituted by ESOP financing and other segments, including margin trading facility. Typically, the size of this portfolio exhibits strong correlation to the ebbs and flows of capital and money market, and remains susceptible to both domestic and international macro events.
Against this loan portfolio, gross non-performing assets (GNPAs) were nil as on June 30,2023 and March 31, 2023. However, asset quality here remains inherently vulnerable to the vagaries of capital markets.
Susceptibility to cyclicality and volatility in capital-market-related businesses: Since corporate and investor sentiments drive portfolio flows in the wealth management business, business and earnings are susceptible to cyclicality and volatility in capital markets as well as various other political, social and macroeconomic factors.
The group is also exposed to regulatory risk. Unlike lending operations, wealth management is largely fee-based, and thus, any credit event has a relatively lower impact on the capital base. However, these businesses operate in a highly regulated environment, and any unanticipated change can adversely impact the business model. For instance, in the last few years, regulations that prohibited upfront commissions, led to a sharp erosion in commission income. Many players saw their margins getting eroded as they have adapted or are in the process of modifying their respective business models. Similarly, in the broking business, regulation on the upfront margin requirement by the Securities Exchange Board of India has increased borrowing requirements of players, thereby impacting their leverage and earnings.
Therefore, any regulatory change that could adversely impact the business, will remain a key monitorable. [1]Earlier referred to as Assets Under Advisory (AUA) |
Liquidity: Strong As on September 30,2023, the group had liquidity of Rs 2,494 crore of which Rs 1,197 crore was in the form of cash and cash equivalents, Rs 428 crore was unutilised bank lines, and Rs 526 crore was in the form of securities held for trading. This adequately covered the debt obligations scheduled for maturity till December 2023.
Earlier, PAG had extended a line of Rs 3,000 crore to the group. However, the same has been given up by the group. |
Outlook: Stable The Nuvama group will continue to maintain an adequate capital position. The 'Stable' outlook also reflects its strong market position among non-banking entities in the wealth management domain and the benefits from the association with PAG. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company NWFL is a non-deposit taking non-banking financial company registered with the Reserve Bank of India (RBI). It’s product portfolio comprises loans against securities, ESOP financing and IPO financing. As on June 30, 2023, the company had assets of Rs 4,502 crore.
On a standalone basis, NWFL reported a profit after tax (PAT) of Rs 72 crore on total income of Rs 454 crore for fiscal 2023, against a profit of Rs 45 crore on total income of Rs 388 crore for fiscal 2022. The reported PAT for the first quarter of fiscal 2024 was Rs 28 crore on total income of Rs 126 crore. |
About the Group The group comprises Nuvama Wealth Management Limited (NWML) and its 11 subsidiaries and 1 associate and 1 joint venture. NWML was a wholly owned subsidiary of EFSL till 2020 and in the second quarter of fiscal 2021, the group announced the sale of majority holding in the wealth management business to PAG. To implement the stake sale, in fiscal 2022, the wealth management and asset management businesses were segregated into two verticals, namely EWM and EAM.
The wealth management vertical was retained under Edelweiss Securities Ltd and renamed NWML in August 2022.
Its equity shares were listed on the NSE and BSE on September 26, 2023. The group is engaged in wealth management, asset management and capital market related businesses such as private and affluent wealth management (equity, debt, alternatives), asset management, investment banking and institutional equities. It caters to affluent customers, CXO with ESOPs, entrepreneurs, family offices and mid-market companies.
The group reported net profit of Rs 123 crore on total income of Rs 649 crore for quarter ended June 30, 2023 as against Rs 47 crore and Rs 463 crore, respectively, for corresponding quarter, last year. |
Key Financial Indicators
^For fiscal 2022, the PAT figure includes the impact of one-time, exceptional item pertaining to demerger of Asset Management business from Nuvama Wealth Management to Edelweiss group. Upon adjusting this exceptional item, the normalized PAT and RoA for fiscal 2022 would be Rs 226 crore and 2.51%, respectively. |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
#Yet to be issued &public issue of retail NCDs
Annexure – Details of Rating Withdrawn
&public issue of retail NCDs |
Annexure – List of Entities Consolidated
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Criteria Details
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