Edelweiss Financial Services Ltd

The Year Gone By

Brushstrokes of Adversity, Recovery and Resilience

The Global Context

FY24 was marked by significant global challenges. We saw the year begin with central banks worldwide adopting tight monetary policies to curb persistently high inflation, stoking fears of a recession. The financial sectors in both the US and Europe encountered significant turbulence, with several bank collapses adding to the uncertainty. Moreover, geopolitical tensions impaired supply chains, contributing to inflationary pressures. However, as the year unfolded, thanks to robust consumption and a strong focus on infrastructure by governments globally, normalcy began to return as inflation started to stabilise, and the world economy managed to grow by 3.2%, surpassing initial expectations.

India – Continuing to be The Bright Spot

It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.

Charles Darwin

India's economic journey in FY24 was nothing short of remarkable. India's real GDP grew by 8.2%, up from 7.0% in the previous fiscal year, propelled by a robust performance in both the manufacturing and services sectors. Despite global trade headwinds, India managed to shrink its merchandise trade deficit, while services exports surged. The fiscal deficit narrowed to 5.6% of GDP, better than initially projected, reflecting improved fiscal management and higher-than-expected revenue collections. Capital inflows hit record highs with net investments by Foreign Portfolio Investors (FPI) reaching 3.4 lakh crore. Moreover, the inclusion of Indian bonds in prominent global indexes like J P Morgan and Bloomberg, aimed to further integrate India into the global financial system, brought in substantial inflows.

The Reserve Bank of India's effective monetary policy helped ease retail inflation to a 10-month low of 4.85%. Notably, the Manufacturing PMI reached a 16-year high of 59.1 in March, underscoring the strength of India's industrial sector.

It is very heartening and encouraging to witness that India is on track to become the world's fourth-largest economy, with over $4 trillion GDP by FY25.

Edelweiss - FY24 Paves The Path to The Future

This year has been pivotal for Edelweiss, marked by strategic achievements that have positioned us for future growth. The successful listing of Nuvama was a cornerstone of our value creation and value unlock strategy, reflecting our commitment to unlocking shareholder value and creating a win-win for all stakeholders.

We also reduced our net debt by 20% year-on-year, and we remain committed to this priority and to strengthen our balance sheet further.

Growth and value creation in the underlying businesses was on track as our Alternative Asset Management and Mutual Fund businesses saw impressive scale-up, with Alternative Asset Management AUM increasing by 18% YoY to 54,700 crore and Mutual Fund AUM growing by 21% YoY to 1,27,000 crore. The profitability of these segments also improved significantly, with Alternative Asset Management PAT rising by 32% YoY to 210 crore, and Mutual Fund PAT more than doubling to 38 crore. Our General Insurance business emerged as the fastest-growing player in the industry, with Gross Written Premium (GWP) increasing by 54% YoY to 851 crore. The Life insurance business achieved EV break-even last year, this year LI PAT improved by 21% YoY, from (199) crore to (157) crore. Both the insurance businesses are poised to break-even in 2027. For the last few years, growth in retail credit has been slower than expected and the focus in FY24 was to strengthen our existing relationship with partner banks and build tech capabilities. The efforts have yielded results - MSME disbursements via CLM tripled YoY whereas the same doubled for HFC.

Structurally, this year witnessed more strides on the path to unbundling, as we strengthen the Boards of all the businesses. We have seven businesses with robust operating platforms, dedicated management teams and strong independent boards. As we look back through time's canvas, FY24 will certainly be an important year in our journey.

Power of Time's Canvas

The Wide-angle View

India - A Story of Patience, Time, and Compounding at Scale

No great thing is created suddenly. If you tell me that you desire a fig, I answer you that there must be time.

Let it first blossom, then bear fruit, then ripen.

- Epictetus

India's growth story is a testament to the power of patience, time, and compounding at scale. It took India over 75 years to become a $4 trillion economy, a journey marked by steady, disciplined growth. In 2008, India became a $1 trillion economy, and since then, GDP has doubled every 7-8 years. By 2023, India had risen to the 5 ^th position in global GDP rankings, and in the next decade, we expect to reach $10 trillion, securing our spot as the world's third-largest economy. The Indian capital markets have mirrored this growth, with the Sensex taking 12 years to climb from 20,000 to 40,000 but doubling to 80,000 in just five years - a clear illustration of compounding in action!

India's progress extends beyond Rnancial markets. India became an IT powerhouse, growing from a modest $150 million industry in the early 1990s to a $245 billion powerhouse by 2023, employing over 5.4 million people and contributing signiRcantly to the country's GDP. The pharmaceutical sector has also expanded signiRcantly, evolving from a $6 billion industry in 2000 to around $50 billion by 2023, establishing India as a major global supplier of generic medicines. The automotive sector has seen substantial growth as well, growing from producing just 40,000 vehicles annually in 1950 to over 5 million units by 2023, making India a global automotive hub. Furthermore, even the telecommunications sector has evolved dramatically, with mobile subscribers increasing from just 5 million in 2001 to over 1.2 billion by March 2024, bolstered by the launch of 5G services in 2022.

There has also been an incredible shift in how Indians engage with their finances. Today, Indians are not just saving; they are investing and actively participating in the economy. In 2012, there were 20 million demat accounts, a number that doubled to 40 million by 2020. Today, there are over 160 million accounts - quadrupling in just four years! Similarly, the Mutual Fund industry has seen exponential growth, growing sixfold from 10 trillion in 2014 to 60 trillion today. Digital payments have surged as well, with UPI recording 13 billion transactions worth 19.8 lakh crore in March 2024 alone. Financial inclusion has made significant strides, with over 510 million bank accounts opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY) by November 2023, facilitating direct subsidy transfers and improving economic efficiency.

These achievements underscore the importance of strategic patience and long-term planning. India's journey reflects this philosophy, as does our journey at Edelweiss.

Nature does not hurry, yet everything is accomplished.

- Lao Tzu

Edelweiss - A Journey of Creating and Unlocking Value

Growth and Value Creation are the cornerstones of our journey.

The steady structural shifts that were initiated in 2016 as decentralisation of the complex conglomerate, were catalysed by the challenging circumstances following the IL&FS crisis in 2018 and then by COVID-19. True to our spirit, we used these events to transition from an integrated diversified conglomerate into an unbundled, structurally simple, well-governed HoldCo with eight underlying independent businesses. This structural transition ensured that each business had its own strategic plan, Udaan, appropriately named as the birds took the first flight out of the nest. The primacy of the business imperatives with robust management teams, operating platforms, and strong independent boards have enabled focussed value creation.

This architectural shift has also set the stage for unlocking value in the businesses and the Nuvama Unlock journey embodies our ideology of an unlock. Not many of you know that we started our wealth management business in 2005, and what seems like an overnight success as always, took nearly a decade and a half to build. By 2020, it had become one of the top two independent wealth management players, recognised as the market leader in the affluent segment with an AUM of 1 lakh crore.

Last September, Nuvama successfully debuted on the stock exchanges, creating a win-win situation for all stakeholders. For Nuvama, the deal led to primary capital infusion and paved the way for listing. Edelweiss shareholders received 30% of Nuvama shares, providing a direct opportunity to participate in Nuvama's growth journey. For Edelweiss, the listing provided capital to reduce debt and further invest in and scale up our other businesses. This truly underscores our ideology for a value unlock in our businesses – we are committed to finding the right time and method to create value for all stakeholders.

Value creation at Edelweiss has always been a pioneering journey. We believe that creating value consistently as an organisation is a sustained journey, where patience and adapting to a changing environment are key. This philosophy has guided us in observing and anticipating market shifts and embracing new opportunities. In 2008, recognising the potential in private credit, we became pioneers in the Alternative Asset Management industry. We launched our Rrst performing credit fund, and over time, introduced other innovative products like the industry-Rrst Special Situations Fund and Infra Yield Strategy. In 2023, we were early movers in sustainable energy with the launch of our Climate Fund. The Alternative Asset Management business, which had an AUM of 1,000 crore in 2010, has grown 50 times over 14 years, reaching 54,700 crore in FY24.

Recognising the growing opportunity in the retail market, we launched our Mutual Fund business in 2008 with a vision to provide investment solutions that deliver enduring value for customers. During this journey, we focussed on building the foundation for a strong retail franchise, making strategic choices like innovative product launches - particularly in the Fixed Income category - becoming a leader in Passive Debt, and establishing a distinct investment platform driven by a process-oriented approach. In 2017, our AUM stood at 7,000 crore, ranking us 26 in the industry. By 2024, our AUM has grown to th ^th 1,27,000 crore, making us the 13 largest AMC in the country.

Another pivotal moment in our journey was our involvement in the Asset Reconstruction space. With a Rrm belief that not all Non-Performing Assets (NPAs) are bad assets, we have worked towards their revival and turnaround to the greatest possible extent. In this business, we have successfully achieved cumulative recoveries worth 52,000 crore over the last 8 years.

We have witnessed growth across our businesses

INR Cr

At the same time, we have focussed on systematically reducing net debt over the past Rve years. In March 2019, our net debt stood at 40,000 crore. By March 2024, we reduced this Rgure by 27,000 crore.

Our business model has shifted from being asset and balance sheet-heavy to an asset-light model, focussing on businesses that don't require heavy borrowings, positioning us well for future growth. As we move forward, Edelweiss will continue to evolve into an Investment Company (InvesCo), focussing on existing businesses with limited operational involvement and incubating new ventures.

I am a slow walker, but I never walk back.

- Abraham Lincoln

The Path on the Canvas Ahead

Forging Hope and Possibilities

Global - Complexity With Emerging Hope

As we step into FY25, the global landscape remains complex. Countries continue to focus on keeping inVation in check, while geopolitical tensions and election cycles add layers of uncertainty. Yet, there is hope - leading indicators suggest an upturn in economic activity, driven by expansions in both manufacturing and service sectors.

India - Towards a $10 Trillion Economy

India is at an inVection point in its economic journey. The pace of Rnancial inclusion has accelerated dramatically over the past decade, driven by key government initiatives and outreach programmes. Continued focus on education, infrastructure development, and innovative approaches will further strengthen India's Rnancial inclusion eTorts.

This is an incredibly exciting time for India. We've reached a point of capital surplus, experiencing strong economic growth since 2020-21.

Our journey, much like the Green Revolution that transformed India from a food-scarce nation to one with surplus production, is now focussed on achieving economic self-reliance. We have transitioned from being dependent on Foreign Institutional Investors (FIIs) for capital, to becoming self-reliant, or atmanirbhar. As India moves forward, the right policies and reforms, focussing on inclusive growth and sustainable development, will guide us towards becoming a $10 trillion economy.

Edelweiss - Poised to Participate in India's Growth

The green reed which bends in the wind is stronger than the mighty oak which breaks in a storm.

Confucius

Edelweiss is strategically positioned to leverage India's growth landscape, with a clear focus on resilience and quality as the cornerstones of our strategy. We will continue to focus on growth and value creation in our underlying businesses, viewing growth as a natural by-product of operational excellence and India's inherent growth dynamics. Our strategy prioritises long-term success with a focus on creating a win-win opportunity for all shareholders through value unlocking in our businesses at opportune times. Furthermore, we remain committed on our stated path to reduce debt.

We remain committed on our key priorities

As we advance in our journey of sustained value creation, positioned to engage in the retailisation, Rnancialisation, and digitisation of the Indian economy, I sincerely thank our shareholders. Your unwavering support and trust have been the cornerstone of our success. As we navigate the dynamic landscape and seize new opportunities, we remain committed to delivering sustained value and growth through adaptability, effective change management, and patience. As we often say at Edelweiss,

Patience is not only the ability to wait, but the ability to keep a positive attitude while waiting.

Yours sincerely,

CHAIRMAN & MD