Ladies and gentlemen, good day and welcome to the second quarter FY 2022 earnings conference call of Edelweiss Financial Services Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Priyadeep Chopra, President, Edelweiss Group. Thank you, and over to you.
Thank you, Sanford. Good evening, everyone, and a very warm welcome to our results call. We hope you and your families are safe. We have with us on the call Mr. Rashesh Shah, Chairman and Managing Director of Edelweiss Group, Mr. Himanshu Kaji, Executive Director and Group COO, and Mr. Rujan Panjwani, Executive Director of the Edelweiss Group. We hope you've had a chance to review the investor presentation as well as the addendum on our life and general insurance businesses. We will be making references to these during the discussion today. Please do take a moment and review the safe harbor statements in our presentation. We will be making some statements today that may be forward-looking in nature and hence may involve certain risks and uncertainties. With that, I'll hand over the call to Rashesh to begin the proceedings of the call.
Thank you all once again for being with us and over to you, Rashesh.
Thank you, Priya, and a very good afternoon to all of you. Welcome to our earnings call for this quarter ended September 2021. First of all, I hope you and your families are all keeping well and in good health because I think we are at the last stage of this thing called COVID, but hopefully it is behind us. I hope all of you are safe and sound. The last few months we have seen a renewed confidence and optimism. It's been all over the world, but I think India. Indian economic confidence and optimism is coming back very strongly. We think it has been largely because the COVID is behind us, the government plan for vaccination. We've touched 1 billion jabs now. It's a phenomenal achievement, something we should, as Indians, be very proud of, and we have managed it well.
Of course, there are always hiccups in this, but I think overall, given the size of our population, the health infrastructure we have, it's a great achievement we have had, and we hope that this continues and everybody gets the second vaccination and we have this behind us. Economic activity is now at a pre-COVID level, and in a few sectors the bounce back has been even bigger than what it was pre-COVID. We do feel, and we'll talk about it a little bit more, that the economic outlook for India for the next few years and especially corporate profits looks very strong and very healthy. I think we are at the beginning of a good earnings, corporate earnings cycle for India and a good economic upcycle for India.
I think there is still gonna be a little bit of overhang and there are some sectors like the informal sector which are still suffering the after-effects of COVID. I think overall, we do think what was the last about six years to seven years slowdown of corporate profit, then last two years even more severe, the IL&FS and the liquidity crisis and obviously last year COVID, all three, the short, medium and long down cycles are behind us. For Edelweiss also I think it's been a very interesting quarter, in a sense that a lot of it has been business as usual, but the performance of a lot of our businesses have even taken us by very positive surprise. Some of the key highlights, our ex-insurance profit after tax.
We continue to invest in insurance and hence one of the metrics we watch is the ex-insurance profit after tax because insurance incurs a loss, but we are creating a lot of value. But accounting-wise it will continue to have a loss. We expect to break even by 2025, 2026 in both our insurance businesses. Ex-insurance profit after tax for this quarter was INR 113 crore, compared to INR 7 crore last year same quarter. From INR 7 crore - INR 113 crore. Consolidated PAT including insurance was also healthy at 57. We do acknowledge we have a long way to go and there is a lot of lost ground in terms of profit growth that we need to make up, but it's a good start. I think as we have said, the next few quarters are gonna be about profitability and growth.
The profit improvement has also been driven by the return of profitability in credit, but more importantly strong growth in our asset management and wealth management businesses. One of the big highlights, and again we'll speak a little bit, is our retail customers. Now we have reached about five million customers. I think three years ago we were under one million customers. We are adding customers and we have added two million customers in the last one year.
In the COVID period with all this uncertainty around the credit business, degrowth and all, very happy to say that our insurance and our asset management business have added a lot of customers and I think we're very thankful to our customers and our employees who have through the last few years, especially last three years in a very challenging environment, have stood by us and reposed faith in our organization and our offerings. Our customer base and the retailization of Edelweiss is happening in real time. Our customer assets also total have crossed INR 3.2 trillion, 3 lakh 20,000 crores. Our balance sheet remains strong, I think on all three counts on equity adequacy, on liquidity and on asset quality.
I think with all the impairments and markdown we have taken, all the equity we have raised and all the liquidity we have amassed, I think our balance sheet has also become stronger. In the investor presentation, you would have seen an update on the insurance brokerage business, which was part of the wealth management business. When we did the PAG deal a year ago, we had carved out the insurance brokerage business because it was a partnership with Arthur Gallagher, and they had indicated that they would be keen to buy this business from us. As you are aware, we have agreed to sell this business. The transaction has got all the approvals. We have closed the deal. The first tranche has been closed. The second tranche, which is the last 9%, will be closed in March 2022.
I'll briefly touch upon the four to five key highlights for this quarter and then more importantly, I will look forward to feedback and questions from you. As I said, we have seen improvement in profit across all our businesses, with a steady business performance and focus on quality. First, credit. I think credit cluster has returned to profitability. NBFC is now strong and well-capitalized balance sheet with a capital adequacy of 26.2%. Collections have been very healthy. We are back to 94% and disbursements are also now scaling up. Our asset quality has shown significant improvement because we have the workouts and wholesale credit we've been doing. The gross NPA is 2.7 and the net NPA is 2.2.
They have fallen by almost the gross NPA has come down from 3.2%. Almost about a 50 basis point improvement in that. We hope to continue to keep up the asset quality improvement as we go along. Wholesale portfolio continues to come down as we have stated. Wholesale portfolio has been coming down by 2.5 thousand every year in the last three years, and we will continue the same pace. I think our wholesale portfolio, which is now close to INR 11,000 crore, will become close to INR 5,000 crore in the next two years and then another two years will go down to zero. Happy to report that disbursements are also picked up post August.
I think our retail disbursement, both in SME and in housing, have picked up and we have also started co-lending with banks. Our NBFC strategy on the credit cluster, both NBFC and housing finance, is to be asset light and have a lot of co-lending arrangements. I know it's now the buzzword and a lot of people are doing it, but we do believe that there are going to be two kinds of NBFCs in India. One set of NBFCs will compete with the banks where they have maybe capital advantage or cost of borrowing advantage. The large groups or the large NBFCs may end up doing that. There'll be another set of NBFCs which will be partners with bank, which will use co-lending and asset securitization as a key tool to be asset light, but still post about 15%-18% ROE.
We think the second is also a very important opportunities and we want to be in that category. We do look at our credit business opportunity as asset light partnership with banks and focusing on SME and home loans. Item two on the asset management business. Both our asset management businesses, the mutual fund and the alternative, has seen breakout quarters. Our total profit for asset management now, as you would have seen in the presentation, is an annualized run rate of about INR 100 crores. Where we had wealth management about three years ago, we have asset management now, and I think asset management profits have broken out. Even the AUM in mutual fund, we now stand at INR 71,000 crore, which has grown by 62% in the last year.
Out of the 71, almost 17,000 is equity AUM, which has tripled in the last one year. Equity AUM has grown from about INR 6,000 crore - INR 17,000 crore in one year. Alternatives, we have a lot of dry powder. We have INR 30,000 crore of AUM, but only 15 out of that has been deployed. The remaining 15 is starting to get deployed. In the first half of this year, we have deployed almost INR 1,850 crore. I think we want to step up and we look to be able to deploy about $1 billion, about INR 7,000 crore - INR 8,000 crore a year, and we are stepping up. As you know, in credit alternative funds, we earn fees only on deployed capital.
As this undeployed dry powder is deployed, the fee income will start accruing and that will be good for the alternative asset management business profit growth. We also think there is some alternatives income in the alternatives, there's a carry income in the alternatives, which will start from 2023 when real exits will start. I think we do look forward to adding the AUM, deploying the dry powder we have, but also realizing the carry from the exits that we'll make. Because ultimately in the alternative business, there are only three things you do. You raise funds. We have done almost about INR 1.5 billion in the last year. You deploy money and then you exit and earn your fees and carry. That is gonna be our strategy on alternatives.
Third, ARC has had robust. We had recoveries of INR 900 crore in this quarter. As you know, in ARC, we have recovered almost INR 25,000 crore in the last four years. So it has been a very strong recovery track record. We think the industry leadership we have is largely because of the recovery focus that we've been able to instill in the business model. Our balance sheet is very strong. From our top gearing of 3:1, we are now close to 1:1. Capital adequacy is at 35%. Retail ARC, we've been buying retail assets in the ARC. As you know, wholesale corporate assets have gone through a cycle.
The retail ARC, the retail distressed assets where collection analytics is very important is starting to grow, and we are maintaining our leadership position in the retail part of ARC business also. Fourth, our insurance business. Both the insurance businesses have done consistently well, have been the fastest growing in their respective sectors. Our general insurance business has had a gross premium growth of 52% QOQ and 62% YOY, and they've been growing at about 5 x the industry. Of course, because we are a very small business, but we expect to grow at about between 2x-3x the industry growth rate. On the life insurance business, we have witnessed strong growth. Premium, gross premium is up 59% QOQ.
We continue to remain the youngest and the fastest growing LI player in the industry, and our APE growth has been averaging three times of the industry for the last four years. We have also this quarter given addendum to help you understand these businesses better because these are the not as well appreciated or well understood businesses. We have four clusters: asset management, wealth management, credit and insurance. Going forward, we would give one cluster as addendum and give more color to all of you. We would love your feedback on that, but our idea is that at least one cluster a year update to all of you will also be a good idea. Every investor presentation will have an addendum which will showcase one of the business clusters we have.
On the wealth management, the assets under advice are at INR 180,000 crore, grown at 35% YOY. Also, there has been strong financial performance. The PAD growth is almost 70% quarter-over-quarter. From quarter one to quarter two, there has been good growth. Overall, friends, the balance sheet is robust, well-capitalized businesses. We have said, given what we have seen in the last few years, we'll go towards building a fortress balance sheet and we are committed to that. It will take us another 18 months, but by March 2023 we expect to have a really very fortress balance sheet. Every quarter we are making it stronger and stronger. This will help us build enough resilience and bounce back from any disruption that would happen in the future.
Our equity base is fairly robust and as we scale back the wholesale book, a lot of equity is expected to get released also. We have been bringing down the D/E ratio. The consolidated D/E, which at the peak was 5.2, now stands at 2.1 as we have reduced borrowings but also increased equity. Liquidity remains comfortable. I know for a lot of people last two years, liquidity has been a focus area. I do think going forward we'll stop talking about liquidity and we'll start talking about growth and profitability. Last two years, our focus was on liquidity, because we are not part of any large conglomerate or any large business house, so we don't have too many fallbacks for any liquidity shortfall or disruption that happens.
We have been very, very conservative in amassing liquidity, holding a lot more liquidity. It has affected earnings, but I think as we get back to normalcy, that liquidity drag will also come down. I think our focus for the last two years has been liquidity, governance by you know making the businesses stronger. By strengthening the boards of the businesses, we have made sure we have very, very robust governance in each and every business entity that we have. The third was making sure we had enough equity. We have raised close to INR 4,000 crore of equity in the last three years. Making sure we have a lot of equity, lot of liquidity and strong governance was the focus for the last two years.
The next 18 months from now to March 2023, the focus is gonna be growth and profitability. I think having got the first three out of the way, we can focus on that. It's gonna be slow and steady focus every quarter. As I said earlier, one big highlight as we go forward is the retailization of our business. Five million customers added 3 lakh in this quarter, and both insurance businesses and wealth management and asset management are adding customers and strengthening the customer franchise we have. Lastly, the update on the Edelweiss Wealth Management business demerger. Going as per plan. A few of you have asked me whether there is any slowdown on that. We are as per plan.
We will continue and as expected by the third quarter of the next financial year, we should be able to demerge and list the Edelweiss Wealth Management business. It's a three-stage process. We have to demerge the asset management business, then demerge the wealth management business and then get it listed. We are on the schedule for that in spite of the COVID and all that. We are pushing very hard on that. It's an important milestone for all our shareholders. The second focus is on scale back of wholesale book, on track on that, and the growth of asset management insurance business also. All three priorities we have been focusing and have achieved on that.
Along with that, we are confident that given the economic prospects of India, the next few years, I think there is a turnaround that is there. We'll have to do it slowly and steadily. I think profitability and growth will still take another three, four quarters to be showcased slowly and steadily. Every quarter from now onwards, we expect that we will be able to showcase that. We do remain committed to unlocking the value. The wealth management demerger is one way of unlocking the value. We will continue to build businesses and create value, but we'll also continue to unlock value for the shareholders as we go along. As you know, about 45% of the company is held by insiders.
The good thing is the insiders also think like shareholders to focus on how to create value and how to unlock value. Along with that, thank you very much again, for all of you for being on this call, and we will now open for questions.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may please press star then one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star then two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask a question, please press star then one. The first question is from the line of Praveen Agarwal, an individual investor. Please go ahead.
Hello, Mr. Shah. Thank you so much for laying down the vision board of the business. I have just one question regarding the scale back of the credit assets. We noticed that there is a slowdown in the reduction of the wholesale credit. Could you please throw some light and explain for this, for the reason of the slowdown and also how do you plan to achieve the reduction of 50% in the next two years?
As you know, earlier we had been focusing on the reduction, and there was a two-way. One was repayments, and the other was we were also selling some portfolios here and there. On the portfolio sale, though the option is available, we think given the real estate improvement, given the projects have been moving forward, a lot of projects that needed additional last mile funding, they needed to be sold off. Whoever is buying that portfolio also gives additional funding and helps complete the project because we were not giving additional funding. Now we are finding that additional funding from the SBI SWAMIH Fund and some international funds is also coming through without us having to sell the portfolio. We expect to make at least about 12%-14% on that portfolio going forward.
When we sell the portfolio, the yields that the investors want is about 18%-20%. If need be, and we need to expedite, we can sell. We think maintaining the pace of INR 2,000 crore-INR 2,500 crore reduction every year, we can do that organically. This first half, as you know, the real estate sector turned around. A lot of projects are now going towards completion. We expect that for the next, you know, 18 months, we should be able to do about INR 1,000 crores a quarter as we go along. I think we are on track for that. Organically we'll be able to because the projects will get completed. If we need to sell, for portfolios we can sell.
It's economically not better for us, but we can always do that. That we always keep that as plan B so that we can achieve the numbers that we want. This first half, because of COVID and all, we ensured that we focus more on projects getting completed and they are all getting done. You will see the outcome of that in the next 18 months.
The follow-up question would be, does that mean that we are shifting our strategy and thinking from selling of the projects towards getting them completed and arranging the last mile funding also?
Yeah, it was always there. If you see, we've been doing a lot of the workouts. We have a slide on that, which we are doing workouts on that. Earlier, the workout meant you had to take a larger haircut, sell the project, and get somebody else to do the last mile funding. Now you can do workout organically also. We will do a combination of two. We have sold two, three projects also. We'll continue to do that. I do feel in this first half we have, I think, I think reduced the book by about INR 800 crore. I do feel that we will continue to do about, as I said, about INR 2,500 crore a year. I think that is our plan going forward. The book is at about INR 11,000 crore.
It will be about INR 5,500 crore in two years, and then it will go to zero two years after that.
Okay. Ideally if we are going.
The other good thing about wholesale, Praveen, is there are no more impairments. We do a quarterly NPV of the portfolio based on the cash flow expectations. As the markets have recovered for the real estate, we expect the cash flows are actually slightly stronger and we now are committed to making sure the NPV is always higher than the carrying value on the book. There are no more impairments on that, which is a good thing because it gives us chance to do things organically and still adhere to the timeline that we have. We want to get this book down to zero by 2025, and that we are very confident on that.
Sure, sir. Thank you so much.
Thank you. The next question is from the line of Hitesh Dhawan from Citibank. Please go ahead.
Hi. Guys, good evening. Mr. Shah, you mentioned your mutual fund and alts business are seeing strong growth in AUM. Also noticed that profits have jumped in this current quarter in that segment. At an absolute level, they still remain low as a, you know, percentage profitability of the whole firm. When can we expect these businesses to be substantial contributors to your overall profitability, sir?
As you know about our assets and it's an important question, thank you for asking this. As you know, our total AUM has now crossed INR 100,000 crore, about INR 70,000 crore in mutual fund and INR 30,000 crore in alternative. Now, in alternative, there are three sources of profitability. One is the deployed capital, one is when you deploy undeployed capital, it increases profit because your costs don't go up, but your fee income goes up. Third is the carry. We do expect that a carry income will start coming in from 2023, 2024 onwards. That is a significant carry by some estimates on the investments we already made and the funds we have. The carry itself should be INR 800 crore-INR 1,000 crore.
The alternative business has a lot of profitability, but some of it is back-ended because of the carry income, and some of it also is slightly back-ended because you always are undeployed. Out of the INR 30,000 crore we have, only 15,000 is deployed, so we're earning fee only on 15,000. The other 15,000, when it get deployed, we will earn fee, but our cost will not go up because the front team and all are already in place and they are getting paid on that. As and when we get carry, the front team has a carry share also, but our share of the carry, as I said, should be at least INR 800 crore-INR 1,000 crore, which will come over three years from 2023, 2024 to 2025, 2026. In a way, that is where the real profitability takeoff will happen.
On the mutual fund, the key driver for profitability are our equity assets. Currently we are still growing much faster, so we are front-loading some of the cost on you know building distribution and onboarding IFAs and others. Our equity assets have jumped from INR 6,000 crore to almost INR 17,000 crore. They now constitute of more than 25% of the AUM. We think long term we'll have over 35%-40% of the AUM, which will be from equity assets. Equity assets will also drive profitability. I think one way to look at it is currently we make at the annualized run rate is about INR 100 crore on a AUM of INR 1 lakh crore.
As we increase AUM, but as we increase deployment and carry income comes in, the profitability should double, which is maybe currently. If 10 basis points should go to 20 basis points is what I would feel. I think being in the range of 20 basis points-25 basis points on a long-term basis should be steady state for asset management business, which is a mix of alternatives and mutual fund that we have.
Thank you, sir. Noted. Thank you.
Thank you. The next question is from the line of Ravi Kumar from Sahni Partners. Please go ahead.
Hi. Good evening, Shah.
Hi, Ravi.
I have a query on your trade business. I think you said that the profitability is returning in the trade business. So I just want to know, is it fair to assume that the worst in terms of impairment is over now? If you can give some guidance on the trade costs and the bad outlook for this business for next couple of years.
Yeah, I think the worst in terms of impairment is definitely over. In fact, I think now the reversals will start because from what we have provided by our estimate, with the caveat that, you know, this is based on the cash flow estimates that we do. Our estimates, we should get back about INR 700crores-INR 800 crores more out of the impairment and provision we have made. Assuming this comes over four years, that's about INR 150 crores-INR 200 crores a year should start coming back from the over-provisioning or over-impairment that has been done. Because in order to be conservative, last two years we have taken, actually front-loaded a lot of impairment. But in terms of further impairment, that is as you very correctly said, it is definitely over at a portfolio level.
Couple of accounts might slip and you might have to provide for that, but there'll be three, four others where the flow back and the write back will happen. At a portfolio level, we are now in the reversal cycle, not in the impairment cycle. Now we have to start growing, because as you know, we have not grown our retail books also, SME and mortgage and the home loan. They have started to grow from August onwards.
Yes.
To just give you a little bit of color, in our retail and SME pre-IL&FS crisis, we were doing about INR 700 crore-INR 800 crore of disbursements a month. We had come down to about INR 100 crore a month in both these businesses. We are now back to INR 250 crore. By March, we should be at about INR 400 crore-INR 500 crore of disbursements in the credit retail credit business. I think now growth and the impairment cycle is over. We are carrying excess liquidity, which is still holding back profits a little bit, but that will also get over in the next couple of quarters. Thirdly, as the retail growth starts, I think the profit because we're carrying the operating cost of that business. Our capacity is almost 4x-5x what we are currently disbursing.
Even that will get used up. I think the U-turn has happened. It started happening about three quarters ago, but then COVID wave two happened and we all pulled back a little bit. It has got, in a way, delayed by three quarters, the scale-up on the credit business in retail. I think that is now ahead of us. On all three counts, the markdown on wholesale, the drag because of liquidity and higher cost liquidity, which is also a cost, is also coming down. Thirdly, the retail growth. All three should ensure that at least some normalcy in profitability for the credit business should come back.
Understood. Thank you.
Thank you. Participants who would like to ask questions, please press star then one. The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead. Mr. Vivek Ramakrishnan, your line is unmuted. Please unmute the line from your side and proceed.
Hi, good afternoon, Rashesh.
Hi, Vivek.
Season's greetings to everybody. Hi, sir. My usual question on the real estate rollback has been asked, but I also noticed that you've put an addendum which covers the life insurance and general insurance businesses in greater detail. Otherwise, you have mentioned earlier nurtures certain businesses and if there's value then, you know, is able to monetize it as well. Why have you done that, and what value do you ascribe to these businesses over the next few years? I mean, what can we expect from these businesses?
Yeah. As I said, if you remember, Vivek, about last couple of quarters ago, we had given an addendum on ECL Finance also. Based on the feedback from all of you, we have decided to give more color to individual clusters also. As I said, we'll appreciate your feedback because we do think that last two years, the credit story overpowered all the other parts of Edelweiss. Asset management has grown well, wealth management has grown well, even insurance is doing well. I'm happy that, you know, you had a chance to go through that. On the insurance business, to give you an idea, on the life insurance business we have invested about INR 500 crore from Edelweiss up till now. That is the investment we have made.
Our current embedded value is about INR 1,400 crore. We do think that, given the growth rate and the quality of business we have, that the business today should be valued, though we are not in the market to sell or even monetize or IPO that business. We need another two to three years of growing that business. We think that business is currently worth about INR 4,000 crores-INR 5,000 crores in its as the intrinsic value. We calculate the intrinsic value of all the businesses. We have a very elaborate model. Our internal model is showing the intrinsic value of the insurance business at between INR 4,000 crore-INR 5,000 crore. We own half of that, so our share should be worth about between INR 2,000-INR 2,500 crore.
We have invested INR 500 crore over the last 10 years in that business. Same thing in the general insurance business. We invested about INR 400 crore. Our gross premium in that business of this year should be annualized INR 100 crore or INR 400 crore. That business is growing very well. It's growing at five times the industry size. If we wanted to raise money, we own 100% of that. We are not currently looking to raise money in that business. We think we can value that business also at between INR 2,000 crore-INR 2,500 crore. Both the insurance businesses need capital. In life insurance, we and our partners have allocated capital, so we will, it will need about INR 400 crore-INR 500 crore in the next three years. We'll be able to allocate that.
The general insurance business consumes about INR 100 crore a year, and we have enough allocation for that also. Both the businesses will break even in 2025, 2026. We think the businesses should double in terms of the top line from here. I think the value of the businesses should also at least double from here, is what we are hoping for.
Excellent, Rashesh. Good to hear that and good luck on that.
The next question is from the line of Sanjay Pandit from 1729 Capital.
Yes. Hi, Rashesh.
Hi.
I was wondering if you looked out three years to four years, what kind of return on equity target you're thinking of for Edelweiss Financial as a whole? I think there's been a good transition from asset heavy to asset light businesses, and that ought to eventually result in a more attractive sort of return on equity profile looking out three years to four years. Question number one is, what might that look like in a range? The second thing is, if indeed, you know, a lot of value will accrue to the business in the next three years to four years as businesses achieve scale and there's excess liquidity in the business today on account of, you know, earlier cautiousness, then might a share repurchase make sense to take advantage of today's prices, you know, relative to book value or relative to your long-term ROE targets?
I think excellent question. I would say, I think there are three parts of this. I think one is, as you know, we are gonna demerge and distribute the shares of the wealth management business to investors. The wealth management business is currently at a quarterly profit rate of about INR 100 crores a quarter, give or take a little bit. I think it will continue to grow. We hope to grow it at about at least 25%-30% for the next year also. Even if it is an annualized run rate of about INR 500 odd crores of profit after tax, we will distribute our shares and the investors will participate in that. That will be one thing.
It will not affect the return on equity, but it will be in a way a distribution in kind for the shareholders. The other is, if I look at four years down the line and if I keep insurance outside of that, because as I said, by 2025, 2026 insurance will break even. After that they will start throwing out profit. On credit and asset management, credit we are expecting a 14%, 15% ROE, and asset management, as you know, is a very asset light, capital light business. Combined, Edelweiss we should aim for a 20% ROE kind of a target on that, keeping the wealth management business has been distributed by then, and insurance is being kept aside because that's a different cluster.
If I look at Edelweiss asset management and credit, or if I give you another answer on credit, we should make about 14%-15% ROE and on asset management, we should make. I mean, the ROE is unimportant because if you make even INR 400 crore profit on INR 300 crores-INR 400 crores of equity, it will be 100% ROE. That is how we see the businesses in this. The other answer on share buyback that you asked, I think we have excess liquidity. We want to be conservative on capital. As you know, our capital adequacy is fairly good. I think we would like to use that first for growth.
As I said, from 2023 onwards, as the profit growth also steps up significantly, we can always look at a buyback. But for us, a buyback comes after growth. We've been holding back on liquidity and capital because we wanted to strengthen the balance sheet and all which has all got done. We would now like to step up on growth. After the growth needs are met, any excess capital we have, we will look at buyback. I think, maybe the time will be right a year and a half, if so at all.
Mr. Pandit, do you have any further questions?
Sorry. Yes, I was wondering what kind of hurdle rates you think about when you reinvest in the business, sort of.
We look at what we have our own model of what is called intrinsic value. We look at 18% intrinsic value IRR. We used to look at 10 years, now we look at both 10 years and 25 years for all the businesses. We have an intrinsic value calculator for each of our businesses saying over 10 years and over 25 years, can we make this kind of intrinsic value return? If you invest X amount of money and you can make that return, I think 18% is our internal hurdle for trying to calculate the return on capital invested in terms of intrinsic value.
Unfortunately, in financial services like insurance and all, you invest a lot of money up front, so using only profit, accounting profit or cash flow is not the only way, but using intrinsic value is a way.
Yeah.
We've been adopting that for last about couple of years. I'm happy to say that in most of our businesses, except in the credit business, given what happened in the last two years, we have been hitting that 18% target. In things like wealth management, asset management, we have exceeded that. In credit also as we get back, we have not done badly over 14 years, 15 years, but I think, maybe our the intrinsic value return would have been about 8% or 9% up till now. It is not 18%. As we grow this and, you know, get the flowbacks and all that, we hope that in credit also by 2025, if when we look back and recalculate the actual value realized, we will be able to hit our 18% targets.
Okay. Thank you. I think intrinsic value is a great way to look at it, so that's very helpful. Thanks.
Any input or any feedback any of our stakeholders will have, we will truly appreciate that. I think intrinsic value calculation is an important way we use for allocating capital.
Sure. That sounds very good.
Thank you.
Thank you.
Ladies and gentlemen, that was the last question. I now hand the conference back to Priyadeep Chopra for closing comments.
Thank you, Sanford. Thank you everyone for your time today and joining us for this call. Thank you, Rashesh. Please do write into us at Edelweiss Investor Relations for any questions or any additional information you may need. Once again, thank you. Have a good weekend and a great Diwali ahead. Thank you all.
Thank you. Bye bye.
Thank you very much. Ladies and gentlemen, on behalf of Edelweiss Financial Services, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.