| Nuvama Wealth Management Limited | ||||
| Rating outlook revised to 'Stable'; Ratings reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its rating outlook on the existing long term debt instruments and bank facilities of Nuvama Wealth Management Ltd [(NWML; erstwhile Edelweiss Securities Limited), part of Nuvama Group], to ‘Stable’ from ‘Negative’ and reaffirmed its existing ratings at ‘CRISIL AA-/CRISIL A1+’.
CRISIL Ratings has also withdrawn its rating on proposed long term bank loan facility of Rs 500 crore based on client request and the Rs 500 crore commercial paper programme based on client request and third-party confirmation. These withdrawals are in line with CRISIL Ratings’ withdrawal policy.
Ratings on the Nuvama group factor in comfortable capitalisation, its strong market position among non-banking players in the wealth management business, and the benefits from its association with PAGAC Ecstasy Pte. Ltd (PAG) along with its affiliates. These rating strengths are partially offset by possibility of variability in earnings caused by financial market conditions as well as concentration in earnings profile towards revenues from core wealth business.
PAG, parent of Nuvama Wealth Management, held a 56.2% stake as on June 30,2022 and Edelweiss Financial Services Ltd (EFSL) and its subsidiaries, owned the balance. Nuvama Wealth Management was a wholly owned subsidiary of EFSL till 2020 and in the second quarter of fiscal 2021, EFSL announced the sale of majority shareholding in the wealth management business to the Pacific Alliance Group. To implement this stake sale, in fiscal 2022, the wealth management and asset management businesses were segregated into two business verticals, namely Edelweiss Wealth Management (EWM) and Edelweiss Asset Management (EAM). The wealth management vertical was retained in Edelweiss Securities Ltd and was renamed as Nuvama Wealth Management in August 2022. Also, as per the arrangement, the company is likely to conclude its independent listing by March 2023.
In CRISIL Ratings view, the operational, financial and managerial synergies between Nuvama Group and Edelweiss Group have significantly reduced with the former functioning as an independent group. |
Analytical Approach To arrive at the ratings, CRISIL Ratings has consolidated the business and financial risk profiles of Nuvama Wealth Management and its subsidiaries. This is because these entities, collectively referred to as the Nuvama Group, have significant operational, financial, and managerial linkages, and are likely to eventually operate under the common Nuvama brand. |
Key Rating Drivers & Detailed Description Strengths:
The Nuvama group is comfortably capitalised, marked by networth of Rs 1,973 crore as on June 30, 2022 (Rs 1,913 crore as on March 31, 2022) and is well-placed to support its growth plans over the medium term. Most of the businesses of the group are fee-based with borrowings largely comprising onward short-tenor lending to wealth business clients for margin/ESOP financing. PAG holds 56.24% in Nuvama wealth management, acquired through a combination of primary subscription and secondary purchase.
The group had a leverage ratio of 2.3 times as on June 30, 2022, as against 1.9 times as on March 31, 2022 (0.89 time as on March 31, 2021).
The Nuvama group is one of the leading non-bank wealth management players with assets under advisory (AUA) of Rs 1,98,700 crore as on June 30,2022 (Rs 2,06,594 crore as on March 31, 2022). The decline in AUA is largely driven by the exit by foreign institutional investors, amidst unfavourable macro-economic factors.
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 four key verticals i.e., private and affluent wealth management (extends equity, debt, alternatives), investment/asset management, institutional equities, and advisory/investment banking. As of June 2022, 44.43% of the AUA is in equity, 18% in fixed income, 15% in mutual fund/insurance and PMS, 3% is in structured products and remaining 20% is in custody assets.
In the institution equities business, the group is one of the largest domestic brokerage house by volume. In the investment banking business, the group offers advisory on initial public offers, mergers and acquisitions and private equity, and is one of the leading players. The asset management business is in a relatively nascent stage and manages alternate investment funds and portfolio management schemes. The group had an AUM of Rs 4,088 crore as on June 30, 2022, of which nearly Rs 1,900 crore has been deployed.
The group holds a competitive position in majority of businesses and should further strengthen its market position over the medium term.
PAGAC Ecstasy Pte Ltd acquired a majority stake in Nuvama Wealth Management from the Edelweiss group in fiscal 2021, through both primary and secondary investment. As on June 30, 2022, PAG held 55.34% in Nuvama, while Edelweiss Financial Services Ltd and its subsidiary, Edel Finance Company Ltd owned 43.76% and Asia Pragati Strategic Investment Fund held the balance 0.9%.
Association with PAG will also enable the Nuvama Group to expand its clientele in the wealth and asset management businesses and in raising external borrowings at competitive pricing. Further, PAG has also extended liquidity aid of Rs 3,000 crore, to be tapped in case of exigencies.
Weaknesses:
The Nuvama group operates in four key verticals i.e., wealth management, investment banking, institutional equities, and asset/investment management. The wealth management business forms 75% of the overall revenue mix, however the group has diversified revenue sources from the product and services it offers to its client covering distribution, asset management, lending solution, advisory etc.
While the management aims to achieve revenue diversity over the medium term from its diversified wealth management client base, with wealth business contributing ~70%, the same will remain a key monitorable.
Corporate and investor sentiments drive portfolio flows in the wealth management business and therefore, business and earnings are susceptible to cyclicality and volatility in capital markets as well as various other political, social and macroeconomic factors.
The Nuvama 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 margin get eroded as they have adapted or are in the process of modifying their respective business models. Similarly, in the broking business, regulation on upfronting margin requirement by the Securities Exchange Board of India has increased the borrowing requirements of players, thereby impacting their leverage and earnings.
Therefore, any regulatory changes that potentially impacts the business, will remain a key monitorable. |
Liquidity: Strong As on August 30,2022, Nuvama Group had liquidity of Rs 2386 crore, of which Rs 1198 crore is in the form of cash and cash equivalents, Rs 374 crore as unutilised bank line, and Rs 814 crore via securities held for trading. This should suffice to cover the debt obligation of Rs 2370 crore maturing over next 20 months. |
Outlook: Stable CRISIL Ratings believes 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 its association with PAG. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company Nuvama Wealth Management, incorporated in 2001, is the flagship company of the Nuvama group. It is also the holding company and registered as a trading and clearing member with the National Stock Exchange of India Ltd (NSE), Bombay Stock Exchange Ltd (BSE) and Metropolitan Stock Exchange of India Ltd, National Commodity Exchange of India Ltd, and Multi Commodity Exchange of India Ltd. Nuvama Wealth Management carries on the business of broking and trading in equity securities (including derivatives and currencies) listed on stock exchanges in India and in futures contracts, for institutional and non-institutional (including retail) clients. Nuvama Wealth Management's institutional equities business covers both securities and futures contracts, and it provides equity sales, research, and trading services to institutional clients ("Institutional Equities"). As part of its Institutional equities business, Nuvama Wealth Management is licensed with SEBI to, among other things, distribute research reports on Indian Securities to its clients. The company is also registered as an Investment Adviser with SEBI. |
About the Group The group comprises Nuvama Wealth Management and its 10 subsidiaries and associates. Nuvama Wealth Management was a wholly owned subsidiary of Edelweiss Financial Services Ltd 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 Edelweiss Wealth Management (EWM) and Edelweiss Asset Management (EAM).
The wealth management vertical was retained in Edelweiss Securities Ltd and renamed as Nuvama Wealth Management in August 2022. Also, as per the arrangement, the independent listing of Nuvama Wealth Management is expected to conclude by March 2023. The group is engaged in capital market related business 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 as the target client segments. PAG is the parent of the Nuvama Group holding 56.24% stake as on June 30, 2022. The balance is owned EFSL and its subsidiaries. On a consolidated basis, networth stood at Rs 1,973 crore as on June 30, 2022, as against Rs 1,913 crore as on March 31, 2022.
The company reported net profit of Rs 47.04 crore on total income of Rs 428 crore during first quarter of fiscal 2023, as against Rs 857 crore and Rs 1,619 crore, respectively, for fiscal 2022. |
Key Financial Indicators: Nuvama Group
^includes impact of exceptional items in fiscal 2022 and 2021, pertaining to demerger of Asset Management business from Nuvama wealth management to Edelweiss group. Excluding these, adjusted PAT was Rs 225.8 crore for fiscal 2022 and Rs 161.7 crore for fiscal 2021. |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: CRISIL Ratings will disclose complexity level for all securities – including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available. For more details on the CRISIL Ratings’ complexity levels please visit www.crisil.com/complexity-levels. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Interchangeable with short term bank facilities
Annexure - Details of withdrawal instrument(s)
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Annexure – List of entities consolidated (as on March 31, 2022, as per IndAS)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||
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Criteria Details
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