Ladies and gentlemen, good afternoon and welcome to the second quarter FY2026 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 call, please signal an operator by pressing star, then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Priya Deep Chopra, President, Edelweiss Financial Services Limited. Thank you, and over to you, ma'am.
Thank you, Riol. And a very good afternoon to every one of you. A warm welcome to our earnings call today. I have with us on the call Mr. Rashesh Shah, Chairman and MD of Edelweiss, and Ms. Ananya Suneja, Chief Financial Officer, Edelweiss Financial Services Limited. We hope you've all had a chance to review the investor presentation that we filed with the exchanges earlier today. During our discussion, we will be making references to it. Please take a moment to review the safe harbor statements in our presentation. We will today be making statements that may be forward-looking in nature and hence may involve certain risks and uncertainties. With that, I will hand over the call to Rashesh to begin the proceedings. Thank you all for being here once again. Over to you, Rashesh.
Thank you, Priya, and a very good afternoon to all of you, and a very warm welcome to our earnings call for this quarter and for this half-year ended September. In India, I think all quarters are important, all half-years are important. I think in this year, there has been a lot of upheaval, a lot of changes globally. India slowed down, then the recent GST-led growth starting to come back. I think India is showing that amidst all these ups and downs and drama that goes on every day, India is pretty steady. And Indian economy, first quarter was a good growth, 7.8%. Inflation is down. In my career of 36 years, I've never seen inflation being so low and so much under control for a long time. That is, in India, always very good news, especially for our insurance companies and all.
A low inflation is always a good thing. Government CapEx is still the driver. We all know GST has led to some growth coming back, GST reforms. Obviously, corporate CapEx is low. Export demand is starting to slow down because of the U.S. trade. We hope that once the BR election results are done, the U.S. trade deal should also get closed. A lot of people in the political circles feel that it is waiting because of the U.S., because of the BR elections. India will stay, of course. I mean, we will never be crazily growing at a very crazy rate, nor are we going to slump down as a lot of people were afraid a few months ago. India, over the last so many years, we have seen there is a steady state growth.
Along with that, I think on Edelweiss, also a lot of our updates are on BAU, strategic priorities, business growth. Before we go into the business growth and the update, just a small recap of the three key priorities that we've been always speaking about. One is the scale-up of the profit of the underlying business. We see there's one bucket of our earnings and value creation because the value in Edelweiss is created by the underlying companies and their growth and the franchise and what they are building. The underlying businesses for this first half have grown at a 15% YoY with a profit of INR 295 crore for the six months. If we just annualize it, I think the underlying businesses are currently about an INR 600 crore profit after tax, which is the one chunk of our earnings.
You can see Edelweiss has got two parts. One is the underlying business and one is the corporate. Now, in the underlying business, we have always said that we want to grow between 20%-30%. The first half, 15% is okay. Over the last two years, our underlying PAT businesses of the PAT have grown at 24% CAGR, which is what is as per our plan. We want to make sure the underlying businesses collectively, as an aggregate, are growing at 20%-30% a year. We think we are on track for that. A few businesses will have 1 quarter up and down, which is part and parcel. Aggregate collectively, this growth should continue. This has been the focus area for the last three years. Our insurance businesses are on track to break even by 2027.
As you can see, half-year, there has been an improvement, and both the businesses are on track. The third priority we have always said is to reduce the corporate debt, the net debt in corporate. It has reduced by 10% over the last two years. We want to bring it down. As you know, the levers we have, our property and investments we have, which are about INR 3,000 crore, which we can keep because a lot of them are yielding, or we can reduce up to us. We expect dividends from the businesses to be at a rate of about INR 500 crore a year. That should give us about INR 1,500 crore over the next three years. We have said we will do stake sale in mutual fund, EAAA. Now we may also be exploring a stake sale in our housing finance business.
We think over the next six to eight months, we will do a stake sale with a JV partner in our housing finance business. These three businesses are amenable to us doing a stake sale and raising some capital to reduce our debt. Our overall corporate debt has also gone up a little bit because of the merger of ECL and ERFL. We had two NBFCs. ECL Finance was doing wholesale, and ERFL, which was Edelweiss Retail Finance Limited, was doing retail and MSME business. Two years ago, after speaking with RBI, we decided to merge the two. The approval has come. It's been a two-year process. We got all the approvals. The merger has been done.
As a result of the merger, some of our stake in ERFL got merged, and in a way, for accounting index reasons, our corporate debt has gone up by INR 200 crore. Effectively, it has ended up by us having a higher capital inside the NBFC and our corporate debt going up by INR 200 crore. That is an accounting outcome because of the merger. On the other strategic update, our EAAA IPO, we want to do the EAAA IPO. We are on track to do that, but we are also seeing a fair amount of underlying growth. As you know, we had a leadership change, and in this quarter, the main focus has been on ensuring that the leadership scale-up, the organization strengthening is going on, raising capital. As you will see, the first half has been good.
We have raised INR 5,000 crore in 6 months, which is 3x t hat we had raised one year ago. We also launched a new fund, Energy Transition Fund, where we have an anchor investor by European Investment Bank. That has been the highlight for this quarter. EAAA is going steady state. We would like to IPO the business, as we have said, for strategic reason, also for stake sale, which gives us capital to reduce our debt, but also to ensure the business gets institutionalized and is a standalone listed company because we think the leadership that we have in alternatives and the growth that is there in alternatives is going to be very powerful. The business continues to scale up well. We have been pioneers in what we call yield strategies and alternatives.
Alternatives have got two kinds of strategies, growth strategies, which are mainly things like private equity and all, and yield strategies, which are mainly private credit and real asset. We are focused on the yield strategies. Our idea is that any strategy or a range of strategies we give you between 10%-18% kind of return in an AIF structure has a lot of appetite and a lot of demand from the investors. Yes, all these are AIF funds, so there is a three- to five-year kind of close-ended fund. By willing to give up some kind of liquidity, investors can get some amount of upside, extra alpha that you get. It has grown all over the world, this range of strategies, and we want to bring them to India. We have been doing that. We want to grow that.
In EAAA, we have more than 5,000+ unique client relationships, and more than 1,000 have been repeat clients who have invested in our multiple funds. Out of these 5,000 clients, about 12 clients have an AUM of more than $100 million across our funds. There is a significant headroom for growth. Over the last 15 years, this business has proven itself in a lot of our marquee funds. We are in the Vintage 3 and Vintage 4 now. Since the last 5 years from FY2021, we have raised INR 44,000 crore. We have deployed INR 35,000 crore. More importantly, we have also realized INR 36,000 crore. This realization is both return of capital and return on capital. Even the returns that we make are also part of this realization.
Raising INR 44,000 crore over 5 years, investing INR 35,000 crore, and realizing INR 36,000 crore shows that there has been a consistent track record of being able to run these strategies in a very effective manner. In Q2, we raised INR 2,000 crore, and in the first half, we raised INR 5,000 crore in EAAA. Fundraising momentum remains strong. All our strategies are now getting very proven. They are third vintage, four vintage. If you see in the alternatives world, getting to third, fourth, fifth vintage is very important. There are some PE funds which are in the eighth vintage and ninth vintage. In private credit and real estate, there are very few funds which are in the third vintage and the fourth vintage, and we are already crossing that mark.
AUM has grown in EAAA at 21% CAGR in the last four years, and profit has grown at 68% CAGR in the same period, last four years. The strategic update number two is on the WestBridge Capital investment in Edelweiss Mutual Fund. As you know, WestBridge Capital is acquiring a 15% stake in Edelweiss Mutual Fund for a consideration of INR 450 crore. This is all in secondary. The capital will come to Edelweiss Financial Services, which will be used to reduce our debt. I am very happy to say today we have got the SEBI approval. We have got all the approvals now, and we will start the process of closing the deal in the next couple of weeks. Good news on that. We are very happy to welcome WestBridge. As you know, WestBridge Capital is one of the most respected and one of the largest India-focused funds.
They are truly long-term. As a few of you who have known us in Edelweiss over some time, one thing that we really like is having a long-term focus because we know that in India, thinking long-term and executing long-term itself is a strategic advantage because India tries everybody's patience. Things take a lot more time, but there is a lot of growth and reward at the end of it. On the Edelweiss Mutual Fund stake sale, good progress. The update for the quarter, again, good growth in profit, 15% YoY growth. Profit after tax has grown. As you would have seen, all the underlying businesses have grown. The one healthy thing that has been there in this quarter has been healthy growth in disbursements in NBFC and our housing finance. Our NBFC is now at a very important point because the wholesale book cleanup is over.
I think after the first quarter, we have internally concluded that the wholesale book cleanup, whatever last three years' intense effort has gone into that, that is behind us. Now we are starting to give growth momentum to our MSME credit business. Almost all the MSME credit we do qualifies for TSN. There is a lot of opportunity to sell down these books to the banks and really earn a spread on that. Our MSME disbursement has grown by two and a half times YoY in this quarter. This quarter, we are about two and a half times what we were in the same quarter last year. Of course, we should remember last year was a very muted quarter for MSME business because of the RBI order that has come on our NBFC. Housing finance disbursement has grown 2x YoY.
In this quarter, we did INR 564 crore of disbursements. Housing finance is now clipping along at about INR 2,000 crore. We are among the top, I think, 20 affordable housing finance companies in India. We're still relatively small, but even in spite of being small, we are already respected and known amongst our top 20 affordable housing finance companies. Here also, we want to see steady growth. I think the U-turn in both our NBFC- MSME part and the housing finance is starting to happen. The wholesale cleanup is behind us. As you know, in the NBFC, we are not going to do wholesale business. We have made that a discontinued business. Focus on MSME in NBFC and affordable housing in Nido are the path going forward. Insurance, as I've said, the profitability has improved in the sense losses have come down.
In ARC also, the last five years, we have consolidated. We have not acquired as much, but we've been resolving a lot. Even this quarter, there is a lot of realization that has happened. We have recovered INR 1,225 crore in this quarter. We have been recovering between INR 5,000 crore-INR 10,000 crore every year from the old assets. We do think now that we are starting to see acquisitions pick up. New NPAs are coming about. They are not those large corporate NPAs, but they are retail, housing, MSME, and a lot of banks, a lot of NBFCs are selling small, small portfolios. The ARC acquisition cycle for the industry is starting to pick up again. We do not think for the next three years there is going to be large corporate infrastructure loans like we had last time, like steel and cement and power and road assets and all.
This will be mainly between INR 20 crore-INR 100 crore kind of assets and portfolios, also between INR 100 crore-INR 200 crore retail portfolios. Those are the sizes of the deals that we will see. I don't think we will see INR 500 crore, INR 1,000 crore, INR 2,000 crore, INR 5,000 crore deals in ARC acquisitions anymore for the industry as a whole. In this quarter, in ARC, we acquired INR 356 crore of retail assets. It has been one of the highest quarterly acquisitions we have done. We are acquiring retail assets. We'll also acquire small ticket corporate and MSME between INR 20 crore-INR 100 crore kind of loans. We think there is a lot of availability of assets as we scan the market. Other than that, as I've spoken, we reduced the corporate head debt by INR 2,200 crore, which has come down by 17% YoY.
Customer franchise continues to grow. We have strengthened our balance sheet. Capital adequacy is pretty high, as you would see in one of the slides, and we have surplus liquidity. With this, I will conclude my opening remarks. As I have always seen, the question and answer session we have is always the more exciting part of this interaction. I will stop here. There is a lot of information and data in the investor presentation that we send out. You would have got a copy of that. I hope you have got a chance to go through it. Once again, thank you very much for participating in this, and we will now open for questions from your side. Thank you very much.
Sure. Thank you very much. We will now begin the question and answer session.
Anyone who wishes to ask questions may press star and one on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask questions, please press star and one. First question is from Hemant from YES SECURITIES . Please go ahead.
Hello. Am I audible? Hello?
Yes.
Yeah. Hi. Good afternoon.
Yes. We are audible.
Thanks for the opportunity, sir. I have a couple of questions. First set of questions is on our general insurance business. Given your low exposure to retail health in general insurance business, is it fair to assume that recent GST rule change had a minimal impact?
If so, are there any other factors for the losses which remained flat YOY in Q2? Sir, pardon me if I heard correct that we are on a threat to break even in general insurance business in FY2027?
Yes. Thank you. You are absolutely right. As you know, our strategy in the GI business has been more focused towards automobile. It is a call we have made. Currently, obviously, last couple of years, retail health, especially post-COVID, has grown a lot. It is very expensive. If you want to expand in retail health, we will need more capital, which we do not want to spread ourselves very thin. Our focus is on motor. We have a group health part of the business. The recent GST changes do not affect our GI business in a meaningful way because a large part of that is auto.
We do think over a 10-year period, we have a shot to be one of the leading auto insurance companies in India. We are truly seeing this business for the next 2035 and then 2047 when India is 100 years old. I know it looks like a big thing to talk about long-term, but if you look at most of the good insurance businesses, especially auto insurance like Geico and Progressive in the U.S., they have been built over 80 years, 70, 80 years. We are investing meaningfully in our motor insurance business. The motor insurance business has slowed down in the first half. As you know, car sales were low. October has seen a significant pickup, and that is why growth and profitability is slightly more muted.
Here, I must also add that overall, although I think we have shown good profitability, we do think that first off, if you ask me, I would call overall, it's been a slightly muted profitability. We want to hope that the second half, our profits grow faster across the businesses in Edelweiss. The second question you had was on profitability. Yes, we are pushing very hard, and we think we are on track to break even by FY 2027.
Sir, if I may ask another question on EAAA business side, how is our EAAA business uniquely positioned if we compare as compared to other peers in the industry? In this quarter, your fundraising has tripled on the back of some innovative fund launches that you have mentioned in the PPT. Sir, going forward, are there any other strategies where we can see some innovation?
In EAAA, as I said, alternatives—maybe I'll give half a minute explanation of the alternatives—are about two basic things: liquid and private market. Liquid alternative, you know all these AIS equity funds and even PMS is called alternatives. There are a lot of liquid alternatives which invest in the markets and equities and all that. There are private markets. Now, in private markets, also there are growth strategies and yield strategies. Growth is usually private equity that we all know has been very robust in India. Yield is usually either owning real assets which give you cash flow, like office buildings and roads and all, or having private credit which gives private credit loans to people, which also has a yield. They are not equity-led; they are yield-led kind of strategies. We currently are the leaders in the yield strategies in private market.
The reason private markets exist is there's a lot of need for patient capital because not everything can be liquid every day. You can trade and all that. A lot of private credit, a lot of real assets in an AIF format can generate yield of 12%, 13%, 14%, 15%, 18% also, depending on the strategy. There is a huge appetite for that. Private equity in India started 30 years ago. I think private credit and real assets have started only 8 years-10 years ago. This is a new part of the alternatives business. We are the leaders in that. We started our first fund almost 15 years ago. We've been focused on these yield strategies and alternative markets for 15 years. We have scaled up.
I think our AUM is one of the largest in India across the alternative industry. We have a lot of track record. As I shared in the last five years also, we have raised because in this, there are three skill sets you need: ability to raise money, go to market, and create funds and raise money, then ability to invest debt, find the deals, and third is also exit out of that because it is sometimes very easy to invest but very hard to exit. Last five years, from 2021- 2025, if you see, we have done all three at scale. All three of them have actually had meaningful scale, and we have been growing. As I showed, that business also is very back-end and profitable. After eight, ten years is where the real profit starts coming in. We have now hit that sweet spot.
The other thing is a lot of in our strategies, it's not just investing money. You also need a lot of operating capabilities and workout capabilities. We have a team. We have a whole company called Sakura. It's a differently branded 100% subsidiary. Sakura is very good in operations management. We have people who have worked in 20 years, 30 years in power sector, in road sector, who actually come and also operate and manage the assets that the funds acquire. It's not just a financial game. It's a financial operations game. We have been one of the pioneers in that. Even today, we are the leaders in that. That is why EAAA has been able to scale up.
We do hope that as this part of the industry becomes more well understood and well recognized, obviously, there will be more competition, which has started coming. You would have seen a lot of private credit funds have started in the last three-four years in India. Along with that, there will also be a lot more awareness of this part of the industry, the alternative asset management, especially yield strategies in alternative asset management.
Thank you, sir. Those were my two questions.
Thank you. The next question is from Karthikeya Mohata from Motilal Oswal Financial Services. Please go ahead.
Yeah. Hi. Thank you so much for having me. I have two set of questions, one for the AMC business and one for the licensure business. In AMC, sir, what do you see? Is SIF, can it basically disrupt the PMS business?
That is one part of the question that I had. With your equity book rising and your SIP book crossing an INR 500 crore milestone, what are your future plans for expansion in this business? Will we see a better PAT yield in ANC?
Yeah, absolutely. I think SIF is a new category. I do not think it will kill PMS because, I mean, you can ask the question that when there is a mutual fund available, why should somebody do a PMS? Because income tax-wise, the capital gains and all, it is a lot more worse in a PMS structure than in a mutual fund structure. I think different customers have different needs. In PMS, the need is always a very customized portfolio, a very maybe concentrated portfolio, but also things, assets are in my name. They are not getting pooled with anybody else.
It is my DMAT account, my assets. Even that itself is a big need. When we look at investments, even I for a long time used to look at all investment opportunities from three angles: risk, return, and liquidity. As I've got older, and I've got reasonably older in the last few years, I understood that there is a fourth angle to this also. The fourth angle is risk, return, liquidity, and the fourth is also peace of mind because investments are also supposed to—they're supposed to give you return for a given level of risk and for a given level of liquidity, but they're also supposed to give you peace of mind. Things like PMS, for the people who do that, PMS has a peace of mind element to that also, though it is worse from a capital gains point of view.
I think it will continue. SIF will start a new category. It will be, and there will be some different strategies. It will not be the identical strategies to PMS or to AMC or mutual funds. It will be a new category of strategies. There will be some new investors, but a lot of other investors, it will satisfy a different need. I do not see AIF and mutual fund and PMS as just the same product in a different distinct. I think they all cater to different needs for investors in different forms. I do think SIF will grow, I think, but it will grow over 8 years-10 years. I think all these opportunities, like even AIF started about 13 years-14 years ago. InvIT and REIT are about 8 years-10 years old. I remember the first InvIT- IndiGrid came in 2015 or 2016 or something.
A lot of these instruments will take 8 years-10 years. Even now, we do think the awareness, even the research and everything on InvITs and REITs is still not very high. There are more and more REITs coming, more and more InvITs coming. It has been 8 years-10 years, and still the awareness is at a very low level, which will grow. The same way SIF will grow, the way these alternative strategies have grown. I think we have to see all this from an 8 year-10 year horizon and then ask the question how they will grow. I think they will grow a lot. I do think they will not replace PMS. Thirdly, on profitability, you are right.
As our equity AUM is growing because one of the reasons our PAT yield is low is because of Bharat Bond, which was a great product, and we are very proud of it. It was a low-yield product. It was a low-profit-yield product. In fact, it was almost under breakeven. It did give us innovation. It did allow us to cater to a customer need. It built our distribution franchise. Now our equity AUM is growing. As you would have seen in the mutual fund, our equity AUM has grown from last year at about INR 59,400 crore to now INR 77,000 crore. Equity AUM is the one that we are focusing a lot. It's grown 30% on a YoY basis. That is what we are very focused on. That will improve profitability.
Okay.
Also on the licensure and business, your losses were flat year-on-year in Q2. Was this because of the GST rule change and the loss of input tax credit? What is the estimated impact that we're expecting out of this GST exemption, and what are we doing to mitigate that impact?
Yes, you are absolutely right. I think there was a GST impact on the PAT of that business. I think for the life insurance business, GST has been an impact. It will hit the bottom line of all the insurance companies, all the life insurance companies. We are doing a set of things to mitigate it. Maybe for the next 3 or 4 quarters, we'll have to do a little bit. We are working on a lot of drivers.
I do not want to elaborate on the drivers that we are using in terms of things we are doing to mitigate the GST impact. I think the whole industry will have to look at everything from product portfolio to distribution cost to the insourcing versus outsourcing, all of that, to just offset the GST hit onto the life insurance companies. We will be hit, and we are working on mitigants, and we are fairly confident that given our size and scale, we should be able to mitigate that in the next few quarters.
Sure. Just squeezing in one little question. Are we still confident about breakeven by FY2027 for the life insurance business, or will this get a little delayed?
Yes. Yes. We are still working on that, and the management team and all are deeply committed to that.
See, again, we should understand in the life insurance business, at this scale at which we are, part of the profitability is also choice because it's also how much growth investments you are making, how much growth you are pursuing. Calibrating that, we are not giving away growth. Our approach has been profitability for a certain level of growth. If you grow much faster, your profitability will get worse because insurance is an upfront cost. For a given level of growth we have, we want to grow slightly faster than the industry growth rate and still get to profitability. That has been our internal stated target on that. Yeah?
Sure. Sorry. Thank you so much for taking my question. Thank you.
Thank you. Next question is from Rajiv Rangwani from HDFC Securities. Please go ahead.
Hi sir. Thanks for providing the opportunity.
For the corporate net debt reduction plan, which you have indicated, you have indicated expected inflows of around INR 2,000-3,000 crore from the stake sale in the next three years. Apart from EAAA or the mutual fund fees, any other businesses which you are considering for stake dilution? If you could give some indication on how much you can expect from these transactions?
Yes. As I highlighted in my opening speech also, we are also looking at now bringing in a private equity investor in our housing finance business. In the housing finance business also, because as you know, ours is affordable housing finance. We are currently disbursing about INR 500 crore a quarter. That is what we did.
Now, as the U-turn is happening, I think that business can take a little bit of capital injection also, equity injection, and getting a good PE partner investor will be a good thing. We are open to that. We think the right time for that will be post-March 2026 when this U-turn is very well established and the scale-up has happened. We will definitely, in the next 6 months-8 months, look to do some transaction in the housing finance company also. I think the INR 3,000 crore we have indicated are currently being planned across the three businesses. We have optionality in other businesses also where we can sell, stake, and raise money. Currently, these are the three opportunities we will work on: EAAA, AMC, and housing finance.
Sir, in case if for some reason, if the things get delayed or it does not materialize, then how does it affect our financials and the debt reduction target?
As you know, we have other levers. Currently, we are selling only 15% in the mutual fund. We can always sell more. We have interest in our insurance companies also. Since it is a three-year target, even ARC is now, as you would have seen, RCL has filed for IPO, and RCL is going IPO, and it is almost the same size as ours. We have options on that also. We can begin IPO. We can do a stake sale in ARC business also. We have options. We also have, as I have shown, INR 3,000 crore of investments and office building and all. Even our own office building, only half is used by Edelweiss.
The other half is now used by third party. As we have unbundled, a lot of our businesses started with Nuvama, but even our insurance businesses do not operate from Edelweiss House. They are in Kunda. As the unbundling has happened, a lot of our businesses do not feel the need to be in Edelweiss House, and they can be either in a cheaper place or closer where they can get more space because there is also only so much space available for expansion in Edelweiss House. Half of Edelweiss House is now also getting leased out to other third parties and all. We have that also. We own Edelweiss House. We own Koino. We have Fountainhead. We have other assets also. We have other investments also. We have almost INR 1,000 crore of investments in property.
A few of these, we did to give liquidity to NBFC that we bought their assets, which are all fairly well priced, but there is a lot of liquidity that can come from there. We have options. Except that, how do we optimize also?
Okay. Thanks, sir.
Thank you. Next question is from Aman from Dolat Capital. Please go ahead.
Hi sir. I have two questions. First, in EAAA, while fundraising has surged, the EAAA- AUM has just grown 7% YoY. Could you help reconcile this difference and share your outlook on EAAA- AUM and PAT growth over the next 3 years-5 years? Second is, in Nido, disbursements in Q2 have doubled YoY. Can we expect this quarterly run rate to sustain? What is your guidance on disbursements in the medium term?
We have earlier stated that you are planning to achieve double-digit ROE by March 2026. Are you on track to meet the target, and what are some of the key metrics for profitability improvement in this business? Thank you.
Okay. I think first on EAAA, it is a good question. We have raised money, but you should remember not all the money we raise automatically goes into AUM. There are some strategies where we get paid only on deployment basis. It starts earning money when it is deployed. Also, as you see, we also exit because in yield and this thing, our investors also want cash flow back. These are not strategies which are illiquid for 8, 9 years, like a venture capital fund or a private equity fund where there is no flow back to investors until eight, nine years.
Every time an exit happens, the ARR- AUM comes down. Our idea is to maintain growth in ARR- AUM at about 20% or so and manage growth in profitability at about 25% and keep an ROE of about 30%. That is what our internal target is: 20% growth in ARR AUM because even when we raise money, we also return money. So 20% growth in ARR, 25% growth in profit, and 30% ROE is what we would like to target in that business. Hello? Aman, would that be all?
Yes. Thank you. In Nido also. Just in second question.
Okay. Sorry, I forgot. Yeah. Sorry. Nido, you are right. I think we are scaling up. Our current year target is between INR 2,000 crore-INR 2,500 crore of disbursements. Again, we'll be careful.
We do not want to become the victim of guidance we have given and disburse at any cost. We are hypersensitive to asset quality and the right kind of business we want. Nido also needs a little bit of investment in technology and all as we scale up. We will also prioritize those investments. If a little bit of disbursement scale-up is muted, we will be okay with that. Both, I think, Nido, ECL Finance, and Nido, as I said, between INR 2,000 crore and INR 2,500 crore kind of run rate. ECL Finance, we are looking at about INR 1,500 crore kind of run rate on the recently created. Both of these will be a good achievement if we can hit that run rate because the real growth is in fiscal year 2027 for both these businesses. Right now, we are in the U-turn mode.
But [Foreign language] U-turn [Foreign language] you can actually grow a lot more calibrated.
Okay. Thank you, sir.
Thank you. Next question is from Prabhav Shah from Equirus. Please go ahead.
Hello. Am I audible? Yes. Yeah. Thank you so much for this opportunity. So my first question is on EAAA. You have given a guidance that IPO will be around April 2026. When are we planning to refile the DRHP? What is the valuation range that we are targeting? Otherwise, are we planning to do any pre-placement in this?
I do not want to do the job of good investors and good analysts. I want to leave it to them. As you can see, our job is to grow the business. As you can see, the profitability on EAAA is also there for everybody to see.
We are currently clipping along at about between INR 65 crore-INR 75 crore a quarter. So that is the current profitability, profit after tax for that business. So you can impute, you can extrapolate and say that for this kind of business, with this kind of characteristics, asset management business, what should be the valuation? I do not want to opine on that. We will obviously talk to our bankers and all that. Why? [Foreign language] ? Trying to speculate on that. I think all of you are very smart investors. You can calculate the range and see what is the on IPO. Yeah, we are aiming for April IPO still, and all the work is in progress for that. We will work back. As I said, the reason for April also was that we wanted to make sure our growth is not hampered.
There is a lot of fundraising that happens in the fourth quarter. All our teams are out on the road. We are also doing exits. As I said, we are raising money. We are investing money, and we are also creating exit. Even the last quarter was very good on the exit front. As I said, every time you exit, your fee comes down. Every time we exit is also good for your investors because you have realized the investment that are there and return money and put back. Actually, that is what is very important. For those of you who follow the alternative industry, investors do not look at only IRR. They look at one other thing called DPI, which is the distribution per investment. How much money have you given back?
If I give you a 18% IRR, but I give you money after eight years, it is a very different DPI. If you ever talk to the investors in alternative funds, they are very unhappy if the DPI is low. We have strategies which have pretty high DPI. We return money to investors also on an ongoing basis because these are all yield strategies. That is why I keep on re-emphasizing that yield is actually very important. I think on EAAA, we will continue with that largely.
Thank you. I have one more question on AMC business. First of all, conversations on the deal with Capital, it is a great partner given its track record. How do you, as you mentioned before as well, how do you see them add value to the business?
If you can also share much more detail about future growth plans for this business, and are you planning to do any further stake sale in AMC? Thank you.
Again, on the stake sale, as I said, we have multiple levers that we put. We are trying to carry out a balancing act between the desire to reduce corporate debt, but also the desire not to try and sell stakes too prematurely because we also want to create value, enjoy the value created by our businesses. It is a balancing act. We have a broad agenda. We have broad objectives. Then, as I said, within those broad objectives, we are fairly open between whether to do A or B, and we will keep on tweaking that around. On the WestBridge front, good question.
WestBridge is actually even the price that we have laid over is always very clear. And as a joke, I keep on telling WestBridge that this is a price only for them. They are truly a very high-quality investor. As all of you know, they are not a very random investor who invests in 100 companies and then pray and spray. They are very focused. They add a lot of value. Even up till now, interactions have shown us that they will add a lot of value. They understand this space. They are very long-term, and they also do not want to make quarterly compromises just to show increase in valuation and exit and all that. They want to truly build the business. There is a huge overlap and mismatch of objective and cultural approach to building the business.
Again, as I said, maybe I'm too old to say that. All these businesses, the real enjoyment is when you build them over 20, 30 years. We should not forget that good businesses like HDFC Mutual Fund and all are more than 30 years old. They are 31 years old now. Even now, they are creating a lot of value for all the stakeholders. I think businesses take time. Having a partner like WestBridge, who truly thinks also long-term and wants to build the business, they have said, "We'll not put any pressure on exit and all that. We'll exit when it is the right thing for all stakeholders, for business, for the investors, for all of that." All that has shown us that I think it will be a good partnership. We are selling only 15%.
We still enjoy a lot of the growth that is going to come there. They will also add a lot of value to strategy, thinking about the business. They also have invested in a wealth management business called FundsIndia, which could also strategically be a partnership of enabling to a Mutual Fund going forward.
Thank you so much.
Thank you. The next question is from Shreyansh from IIFL Capital. Please go ahead.
Yeah. Thank you for the opportunity. Just a question. We have been hearing that there are some ongoing discussions for the stake sale of Nido, which is in fairly advanced stages. Would you please share some details on it?
No, I would not say there are a lot of conversations in advanced stages. As you know, I mean, we know quite a few good quality investors, PE funds.
A few of them have been speaking to us. We keep on interacting, exchanging. What I'm currently disclosing is our intention to do because we have always formally spoken about our intention to do a stake sale in the mutual fund and EAAA. We have not spoken about it. I think Nido, we have an intention now to get a PE investor, get a partner who can help us grow the business, maybe infuse some capital in the business. It's still early days. As we have said, when anything is finalized, we'll immediately inform the shareholders and the investors. We intend to do that. I think there is a fair amount of interest that we have seen, and we have interacted. We just have to go forward and get that too logical.
In the next 6 months-8 months, our desire, our intention is to also do a stake sale in Nido. As I said, we are keeping our options open because amongst all the businesses we have, one part of our objective is to reduce debt. The other part of the objective is to make sure that we are not randomly selling stakes, but we are getting in good investors who can help us build business and build really great value going forward.
Okay. Thank you.
Thank you. The next question is from Sanket Chheda from DAM Capital. Please go ahead.
Yeah. Hi, sir. I had a couple of questions. First was on ARC, and despite slowdown in acquisition, you have managed to maintain a stable bet supported by recoveries. What is your bad guidance going forward?
Any strategic initiatives that you plan to boost acquisition and diversify revenue streams?
I think, as I said, I think the acquisition, okay. Go ahead, please.
Yeah. You answer. I'll follow up with the second answer.
On ARC, as I said earlier, an ARC, the acquisition cycle is starting again for the industry, not just for us. As you know, the last time the acquisition cycle started around 2014-2015 and was on till 2018-2019. Unfortunately or fortunately, ARC is a deeply cyclical business. It has a five- to seven-year kind of cycle of acquiring assets and then five to seven years of resolving assets. In a deeply cyclical business, you can't use a lot of borrowed money. You have to have a lot of equity, which is how our business has been funded. If you can see, they have a lot of equity, hardly any borrowing.
I think now we are starting to see acquisition. Again, the last time acquisitions were large corporate accounts of between INR 200 crore-INR 300 crore exposure to INR 5,000 crore-INR 10,000 crore, even as large as SR Steel, which was almost an INR 40,000 crore exposure of the banks. I do not think you will have large corporate NPAs, large account NPAs, which has a different go-to-market strategy, which has a different resolution strategy. The other part of the market is the retail market, which is very by portfolios. There we have been pretty active. There also, we have focused mainly on the secured portfolio, home loans and others. We do not do a lot of unsecured part of that, which is also a different kind of business.
Now, the third category that is opening up, which is what I call the mid-market corporate or the SMEs, which is between INR 510 crore account to INR 800 crore exposure in that range. That we are starting to see a fair amount of availability of assets in the market. Your cost structure, your go-to-market, your resolution strategies are slightly different. We are rejigging our skill set. We have the core skill set, but we have to rejig a little bit, retrofit that to go to that market for that. I think by April, we will have all the ingredients to start. I mean, we are still acquiring, as you have seen, we acquire a retail portfolio. I think the third category, the small ticket, mid-market, as well as MSME, is where we are seeing some amount of opportunity. We will definitely want to capitalize on that.
Sure.
Perfect, sir. The second question was on NBFCs. You mentioned being remarked that disbursements in Q2 in MSME, I think, have jumped 2.5x YoY. We just wanted to check, will this momentum continue? What's the guidance on the disbursement policy? The lending business, as you mentioned, is taking a pivot from wholesale to retail. How is the transition progressing? What are the key levers that are driving this shift?
As you know, NBFC, it's not a pivot. We have discontinued the wholesale business, and only the whole book is getting run down. The current focus is on growing MSME. We have done a disbursement of INR 168 crore for this quarter, which is the same time last year we had done about a fourth of that or a third of that. There has been good growth in that.
As I said, we are targeting about INR 1,500 crore kind of run rate by the end of the year. What we do is mainly PSL kind of MSME loans, largely secured. Eighty percent is secured, very small, unsecured. We do it with co-lending. As you can see, we have a lot of capital adequacy in this business. The NBFC capital adequacy is now at 23.5%. Our borrowing is low. Our debt to equity is only 1.2 times. We have a lot of capacity to grow. We are slowly doing it. On April 1, we had a new Managing Director of the business, Mr. Ajay Khurana. He was earlier ED of Bank of Baroda and has more than 40 years' experience in the banking industry. Now we are building that as an MSME.
Our desire is to be one of the top five or ten MSME- NBFCs in the country. It will take time, but we have made the U-turn. We are starting to make investments in that. We have equity for that, so we do not need to raise equity. The wholesale part is behind us. The wholesale part was a drag. That was holding us. Now the only drag in our whole structure is the corporate debt also, which we have spoken on again and again. We are also reducing that drag because I think the tailwind of growth is there with us. We have some drag factors which are there. Our idea is to reduce the drag factors so that the growth momentum and the tailwind can give us the full upside opportunity.
Thank you. We will be able to take one last question.
The last question is from Sujal Chandaliya from Wallfort PMS. Please go ahead.
Yeah. Thank you for the opportunity, sir. Just a question from myself. We have observed FIIs reducing exposure to Indian equities in favor of other emerging markets, while DIIs have increased their holdings. We have also seen an uptake in DII shares, while a few of the FIIs have somewhat pared down their stake. Could you please share your perspective on this trend?
Yeah. As you know, if you compare Indian markets to, let us say, even U.S. markets on a last five-year basis, on a dollar-adjusted basis, it's not that the Indian markets have done badly. It's that the U.S. markets have done equally well. So we have seen a lot of money going back because investors are saying, "If the returns are identical, then why go to India?
We can invest in the U.S. market. U.S. markets are doing well. FIIs have been reducing, but we have a good counterbalance. I think our local money—and by the way, in all equity markets across the world, largely, if they are driven by local money, they are very stable. If they are driven by foreign money, they are highly volatile. As you know, our market used to be very volatile when the foreigners' in-and-out used to happen. Now there is a counterbalance to their in-and-out, which is the local equity. There is local household savings coming. SIPs and all have become pretty big. I mean, SIPs themselves will be almost INR 4 trillion this year. Given all of that, I think there is a fair amount of stabilization coming in. It is a trend.
Of course, as emerging markets come back in fashion and as U.S. markets go out of fashion, this flow will come back. It is actually good news. In fact, I'm, in a way, happy because our markets are—as it is, I think, fairly valued. There are all these IPOs happening. They're getting a lot of capital. There is enough capital that is there. Too much capital chasing stocks from both India and foreign money could also lead to unnecessary bubbles and euphoria. I think this is a good time. In India, I think the key thing to watch for is the earnings come back, corporate earnings. We are starting to see some upgrades happening, which is good news. We hope that FY2027 will be a growth back of corporate earnings in India.
That corporate earnings, on the back of that, then you should not care whether money is coming from India or overseas.
Thank you, sir, for the insightful answer. That's it. That's all I have.
Thank you very much. We'll take that as the last question. I would now like to hand the conference back to Ms. Priyad eep Chopra for closing comments.
Thank you all for your time today. It's been a joy to have you all and listening to your insightful questions. Like we've always said, your questions and feedback always get us to think and plan forward. Please do write to us at Edelweiss Investor Relations for any other questions, feedback, or any additional information you may need. Thank you all. Thank you, Rashesh. Have a great day.
Thank you very much. On behalf of—
Thank you. Bye-bye.
Thank you.
On behalf of Edelweiss Financial Services, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect the lines.