Edelweiss Financial Services Limited (NSE: EDELWEISS) Q2 2025 Earnings Call dated Oct. 29, 2024
Corporate Participants:
Priyadeep Chopra — President
Rashesh Shah — Chairman and Managing Director
Ananya Suneja — Chief Financial Officer
Analysts:
Rahul — Analyst
Siddharth Shah — Analyst
Varun Kumar — Analyst
Pravin Agarwal — Analyst
Niranjan Kumar — Analyst
Aman — Analyst
Ritika Dua — Analyst
Kshitij Saraf — Analyst
Deepak Agrawal — Analyst
Naman — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Second Quarter FY ’25 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. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Priyadeep Chopra, President, Edelweiss Financial Services Limited. Thank you, and over to you, ma’am.
Priyadeep Chopra — President
Thank you, Ruthuja; and good afternoon, everyone. Wish you all a very, very good, happy Dhanteras. A warm welcome to our earnings call for the quarter ended September ’24. Today on the call, we have Mr. Rashesh Shah, Chairman, MD of Edelweiss; and Ms. Ananya Suneja, Chief Financial Officer of Edelweiss Financial Services.
We hope you all have had a chance to review the investor presentation as well as the strategic overview presentation that we filed with the Exchanges today. During the discussion, we will be making references to it.
Please do take a moment to review the safe harbor statements in our presentation. We’ll be making some statements today that may be forward-looking in nature and, hence, may involve certain risks and uncertainties.
With that, welcoming you all, and I’ll hand over now to Rashesh to begin the proceedings of the call. Thank you, and over to you, Rashesh.
Rashesh Shah — Chairman and Managing Director
Thank you, Priya, and a very good afternoon to all of you, and a warm welcome for this earnings call. All of you, I’m sure, have a fairly busy schedule, but the fact that you have taken the time, we are very grateful for that. As Priya said, wishing all of you a very happy Dhanteras.
As with earlier calls, we just wanted to keep this call slightly briefer and keep more time for Q&A because I found that the questions and the interaction with all of you has been actually more enriching for all of us than just the commentary where we repeat what is in the investor presentation. So I hope you’ve got a chance to see the investor presentation. But broadly on the call, I think on the economic front, most of us are aware, Indian economy has had a little bit of slowdown in Q2. But overall, it is actually relatively doing pretty well as compared to the world.
The interest rates were — are expected to come down. Everybody is waiting for that, but obviously, there is inflation pickup and some mutation in credit growth and deposit growth. But overall, the economy is in a good health. The banking sector, the RBI finances, the government finances, everything is in a good place.
Corporate balance sheets are very healthy. At Edelweiss, we had a good quarter. Consolidated PAT has grown by 45% on a Y-o-Y basis to INR110 crores. And what we monitor more is the ex-insurance tag, because we are still investing in the insurance businesses, and hence, there is a loss associated with the insurance businesses. So ex-insurance PAT came at INR163 crores for the quarter. Overall, our balance sheet continues to become more robust. We have very strong capitalization of all the businesses. As you know, in the last few years, there is a first thing we ensured that we had capital adequacy and solvency across all the businesses.
And our customer franchise continues to grow. We have now reached about 91 lakh, more than 9 million customers and our total customer assets are at INR2.2 trillion, which has grown at about 12% Y-o-Y. I just broadly want to just explain the four blocks of Edelweiss construct. As you know, we have seven businesses, and we have the corporate and the corporate balance sheet over and above that. But we also internally look at our businesses in blocks. So the first block is the asset management block, which has two businesses: alternate asset management which is EAAA and mutual fund.
And as we have spoken, EAAA has had a good quarter. There is a 20% growth in ARR AUM and a 70% growth in PAT CAGR over four years. So as we’ve been highlighting, EAAA, the foundation has been laid, now we are getting ready to significantly grow profit. And we think we should be able to maintain a 20-ish percent growth profit CAGR for this business over the next five years. And it can also bring a lot of free cash flow because now the funds are of a decent size, the profit has grown. So EAAA is in a good place good growth of our strategies, which are yield and income-oriented in private credit and Real Assets are doing well. The other block of the asset management is the mutual fund. So mutual fund also, we have 13th largest AMC.
Our equity AUM has grown by 60% CAGR. As you know, we are focusing on not only overall AUM, but equity AUM. And the idea here is good businesses, the first block of asset management, both EAAA and mutual funds have had good creation of what we call intrinsic value, and now idea is as they grow their profit hit this hockey stick phase, we also unlock some of the value. We also, by selling some state monetizing it, try and also reduce the corporate debt in Edelweiss.
The second block we have is our insurance, the two insurance businesses. We have collectively invested almost INR4,000 crores across these two businesses, almost INR2,800 odd crores in the life insurance business, out of which about INR1,200 crores is for Edelweiss and the balance, INR1,600 odd crores is from Tokio Marine.
And in the general insurance business, we have invested close to INR1,000 crores up till now. So a fair amount of very heavy investment is happening in this. INR3,700 odd crores cumulative capital invested. Both these businesses, the losses have been reducing now, and we are getting closer and closer to the breakeven. We remain confident to achieve breakeven by FY ’27. And this is going to be an important step to get there. And as we — after we get there, unlocking the value will start after that. So our current objective of our insurance is to get to breakeven by ’27.
Our third block is our credit businesses, which have three of them: ARC, NBFC and Nido Housing Finance. In this business, we are adequately capitalized or I must say actually more than adequately capitalized. We have an equity of cumulative of INR7,500 crore. And we are currently achieving only about 5% collective ROE on that, a large part coming from the ARC business. But overall, we need to improve ROE reallocate capital is required and make it the right size of that.
And the fourth block we have after the credit book is the corporate debt, where we had a peak Consol debt of INR40,000 crores. Our current corporate debt is about INR5,500 crores, which we want to bring down even further in the next 18 months to get down to below INR3,000 crores or INR2,500 crores. And for that, as we said, the asset management business is our mutual fund and EAAA could be used to sell some stake and use that capital for a reduction on debt. We also, in this current quarterly presentation, investor presentation, have attached and adding them, which is a strategic overview on businesses, which highlights some of the things that I’ve said, and that could also be very useful.
That addendum is for giving a slightly broader strategic view of the businesses rather than the quarterly performance and the quarterly parameters. So a quick update on some of the other important items. On EAAA value unlock, we are working on the 10% to 20% stake sale. We are evaluating an IPO process on that. And very soon, we’ll be able to come back to investors and give a time line and a schedule for the EAAA stake sale and the value unlock.
On the RBI order, on ECL Finance and ERC, which came out in end of May, we are engaged with RBI. Both the Boards are monitoring the progress. Almost everything that RBI would have liked to do, we are implementing it and also giving that progress report to RBI. And we do hope that very soon, all the requirement in RBI and in terms of process overall and all in both the business, we’ll get that, and we will hopefully convince RBI whatever checks and balances were required has been put.
In the meantime, ERC, we are not acquiring fresh assets, but recover is continued as planned, and in the first half of this year, we have made INR2,800 crores of recoveries in ERC. In ECLF, we continue to reduce our wholesales book in the normal course of business and the book is down by 34% to INR3,700 crores now. We also have update on each of the businesses in the investor deck. Again, it’s the same thing, both the asset management businesses continue to grow. ARC focused on recoveries, NBFC is working through the RBI order and reducing the wholesale book.
Nido Housing Finance is still slowly and steadily scaling up. We remain very bullish on that. This business is very well capitalized, but colending is a key vector for growth, and our partners, especially State Bank of India, have put in a lot of things in place, which has allowed the colending to grow and both the insurance business have done well.
Zuno in this quarter grew at about 27%. The industry grew at only 8%, 9%. So we’re still growing at 2 times to 3 times the industry present in Zuno insurance business. In the life insurance, we had a 14% growth. APE has come in at INR130 crores for the quarter. The AUM has been INR8,700 crores for the business. And we focus on persistency, which is at 78% and claim settlement, which is at 98.8%. So broadly, just executing as per plan. There has been steady growth in all the key matrices across businesses. And our idea is the same, get the businesses to grow. All the businesses are at different stage.
There have different issues to grapple with. And at an Edelweiss level, focus on reduction of debt, make the balance sheet more robust, maintain more than adequate liquidity. And we think the next five years from now to 2030 is the horizon we want to take and focus on building the organization and making it ready for that.
So along with that, once again, thank you to all of you for being on this call, also wishing all of you a very happy Diwali, and we’ll open up for any questions that you may have. Thank you.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Rahul from StockEdge. Please go ahead.
Rahul
Hello.
Rashesh Shah
Hello. Hi, Rahul.
Rahul
Hi. Congratulations on the good set of numbers. I have two questions. First, on your AGM deck, you mentioned about some 6% stake sale in Nuvama of INR1,500 crores in the last month. So — and we have another INR1,800 crores stake over there. So are we planning to utilize the entire proceeds towards the repayment of debt? And we might see — can we see some decline in Q3?
Rashesh Shah
Yeah. Whether we do it in Q3 or Q4, but yeah, the remaining stake sale is also earmarked for reduction of debt.
Rahul
All right. And my another question is, like you mentioned about stake sale in your mutual fund and insurance business, so can you throw some light on that? And what are the expected time lines?
Rashesh Shah
So our current plan is to do both of them in the next 18 months. Most likely, though we are still evaluating both of private stake option as well as an IPO for EAAA. And in the next three or four weeks, we should be able to finalize whether we want to do a stake sale or an IPO. Either way, I think the EAAA should be in the next two or three quarters and the mutual fund should be another two, three quarters after that. So in the next 18 months, we would like to do a stake sale in both the mutual fund and the EAAA.
Rahul
All right. Thank you.
Operator
Thank you. The next question is from the line of Siddharth Shah, an individual investor. Please go ahead.
Siddharth Shah
Hi. Thanks for taking my question. Could you [Technical Issues]
Operator
Sorry to interrupt, Siddharth. We are unable to hear you. Mr. Siddharth, we are unable to hear you. We’ll move to the next question, which is from the line of Varun Kumar from Flowering Tree Investment Management. Please go ahead.
Varun Kumar
Hi. Can you hear me?
Rashesh Shah
Yeah. Hi.
Varun Kumar
Hi, sir. So I had a question on the life insurance business. If you could elaborate on the time line regarding the breakeven in that business on the path forward?
Rashesh Shah
So as we’ve said, I think FY ’27, by the third or fourth quarter of FY ’27, we should get the accounting breakeven. As you know, we are early an embedded value breakeven. So about a year ago, we hit embedded value breakeven. So now that goalpost is behind us, the accounting breakeven we are expecting in the third or fourth quarter of ’27. We are also hoping that IFRS is implemented for the insurance companies. And if IFRS is implemented and we get there, then we think we can get to breakeven about two to three quarters earlier than that also. But currently, our target is by end of FY ’27 under the current accounting rules.
Varun Kumar
Got it. And on the EAAA, if I heard correctly, you said two to three quarters is when we would do a stake sale or some kind of forecast — I mean, capital raising in that business.
Rashesh Shah
Yeah. I think we would look at some time around June of 2025. Because anyway…
Varun Kumar
No issues. Thank you.
Rashesh Shah
…whether you do stake sale or anything, it takes four to five months IPO, it takes four to five months for closure and everything, right?
Varun Kumar
Yeah. Got it. Thank you. Thank you.
Operator
Thank you. The next question is from the line of Pravin Agarwal, an individual investor. Please go ahead.
Pravin Agarwal
Sure. Thank you for taking my question. So the first question that I have is regarding the alternative business. So can you give us some insight on the players which are there in the industry in the alternative asset management space, who are the typical peers that one can compare Edelweiss to? And also a lot of fun houses are entering into this space, as you can see in market. So going forward, do you think there will be a lot of competition there? What is the view on this?
Rashesh Shah
So I think it is a good question because alternatives is a new business and very few people have put their arms around and very few research reports are there. So I would say we are in alternatives, but one category of alternatives called income and yield strategies. So in alternatives, we also have private equity. So we are not in private equity. In the private equity, there are a lot of Indian players and foreign players, including Blackstone, Carlyle, Warburg Pincus, MultiPulse, True North, ChrysCapital they are all in private equity. We are not in private equity. We are in, what we call, income and yield solutions, which are mainly private credit and real asset funds, okay.
Now in this, the Indian players, asset managers who are there, one is Kotak, Kotak is fairly big in this. There is IIFL Wealth, which is 361 Wealth, they have a few AIS also in these categories on private credit fund, absolute return funds and some real assets fund. Then we have Piramal has a couple of funds on that. So HDFC has for real estate. So in the non-equity alternatives, so one alternatives is a private equity and the other is what is not private equity, which are usually income and yield solutions. In that, it’s mainly Edelweiss, Kotak, HDFC, Piramal, IIFL — sorry, 361 in the Indian players.
In terms of foreign players, there are people like Blackstone in real estate, like the REIT business and all. There is Brookfield, there is Actives, and there are people like Oaktree and Celeran and Cerberus. So there are international players and there are Indian players. So it’s a fairly robust set of people. There are a lot of people who are also raising funds, but amongst people who have larger sizes, people who have led us in more than a couple of billion dollars would be all of this, Oaktree, Celeran, Cerberus, Brookfield, Blackstone on the international side and Kotak, Piramal, HDFC, 361 on the Indian side.
Pravin Agarwal
Okay.
Rashesh Shah
In this business, I would look at one parameter is how many people have crossed $1 billion of AUM. So a lot of competition is around people who have INR1,000 crores fund, INR1,500 crores, INR2,000 crores fund. And a lot of them can also grow. But to break through to $1 billion AUM, especially fee-paying AUM or what we call ARR AUM is the first threshold that people cross. So if you look at — if you want to analyze competition for EAAA, I would look at people who are in the $1 billion trust category.
Pravin Agarwal
Okay.
Operator
Thank you.
Pravin Agarwal
I have a follow-up question on this.
Rashesh Shah
Yeah.
Pravin Agarwal
Yeah. So very recently, SEBI also introduced this new asset class, which is basically alternative products in the shape of smaller ticket investments. Any thoughts on this? Will this — will Edelweiss be participating in launching any products under this category?
Rashesh Shah
That will be in the mutual fund, and we will definitely, I mean, want to look at it. Our early-stage analysis for that category is that a lot of that is going to be basically proxy or eating into the PMS and equity AIF market. As you know, there are a lot of equity AIFs out there, and there is a PMS where there’s a lot more flexibility out there. Obviously, very similar products on the mutual fund platform, we have the income tax advantages and all that, as compared to AIF. At least on equity AIF, there is a lot of gray area in terms of the capital gains, taxation and all that. And the same in PMS, where we induced the client-base tax, is there can be a pooled vehicle inside the mutual fund but offers the same thing as equity PMS and equity AIF structure could be more efficient and could appeal to a very new class of investors and can expand the market, but we think the new asset class under mutual fund is going to be for equity-oriented strategies.
Pravin Agarwal
Got it. Thank you so much.
Operator
Thank you. The next question is from the line of Siddharth Shah, an individual investor. Please go ahead.
Siddharth Shah
Hi. I hope you can hear me.
Operator
Sorry to disturb you, Siddharth. We’re unable to hear you clearly.
Siddharth Shah
Is this better?
Operator
Yes, please go ahead.
Siddharth Shah
Hi. Sir, thanks for taking my question. I think you mentioned just evaluating the stake sale maybe to a strategic versus an IPO. Can you like help us understand what are the key criteria you’re looking at to make that decision that would help unlock better value for the shareholders?
Rashesh Shah
Yeah. So on the strategic, there have been two options. One is strategics who want to be in the alternative asset management business in India; and the other, there are PE funds or stake, there are — what I call GP state funds who like to buy stakes in an alternative asset management, asset manager. So that we’ve been evaluating within in conversation with some people. The key issues on that are the strategic value and the cost and benefit of that, because a lot of strategic players also come with their own agenda, their own requirements, whether you can access their markets and not access their markets and all of that for investor money and all that.
So there are a lot of complications on that which you have to evaluate and that’s case to case. We would ideally like an investor who buys the stake, but does not put any business restrictions on us in terms of product introduction on market access or even our ability to do an IPO in the future. There were some strategic players who are — who would like not to IPO at all and give them an option to buy. So we are looking at all those considerations on that.
On the other side, as you know, Indian IPO market is very robust. And the business has also grown in the last two, three quarters as we’ve been in conversation with some investors. So the other alternative ways, which we are evaluating is to do an IPO in India, which still allows us to do a stake sale, also allows us to maybe sell 8%, 10% to a strategic partner if he so wants, he can be a partner in that business 10%, you can create and get opportunities with them.
But at the same time, our primary route is IPO. IPO has its own pros and cons, but a year ago, I mean, we thought the business was too small and early for IPO. But in the last two quarters, three quarters, the business has grown a lot. And if you look at an IPO in the next three quarters, we expect the business will grow also along with that. So, as you know, this business now is at a profit run rate of about INR250 crores of PAT a year and can grow at about 20%, 25% a year. So at that trajectory now is very IPO-able. So we are just evaluating the pros and cons of IPO on one side and what I call a private market stake sale on the other side.
Siddharth Shah
Got it. And even if — if I understood correctly, even if we chose an IPO with filings and everything, this will still happen by June 2025 or so?
Rashesh Shah
Yeah. I think three quarters to either we’ll take, whether it’s a stake sale in the private market or IPO, I would expect three quarters from now is what it would take.
Siddharth Shah
Okay. And maybe just one last small question. I think earlier, you used to report XP AUM and you changed that to ARR AUM now. Is there any difference between the two?
Rashesh Shah
Yeah. So what happens is the ARR AUM is the AUM on which we are earning fee or we will, in the near future, earn fees, while the XP AUM was only the ones where we are currently earning fees. And so earlier, we had AUM, which was more just a historic number. There was some AUM in that where we were not going to earn fees in the future, because those funds had completed the investment phase. So it was a very — so the AUM did not give a clear picture on what is the fee earning and the fee earning potential of the AUM. So ARR AUM is where we earn fees or will earn fees.
And on that basis, we just calculate the ratio on that, which is — because the investors wanted to know what are our yield ratio. So how much is our fee upon AUM? So either look at AUM or overstating the AUM, a fee-paying at AUM or understating the AUM. So ARR AUM is — gives the right picture of what is the fee we are learning and can earn and what is the debt AUM in that sense.
Siddharth Shah
Understood. That’s it. Thank you so much.
Operator
Thank you. The next question is from the line of Niranjan Kumar from Equirus. Please go ahead.
Niranjan Kumar
Good afternoon, sir. First of all, congrats for a good set of numbers. Sir, can you please give a brief update on the RBI order in the ARC business? Like what’s the status? And when do we foresee that the regulator to look at restrictions?
Rashesh Shah
So, as you know, in ARC business, RBI has said we can’t acquire new assets. We can still continue recoveries and I have said recoveries are doing very well. We have recovered almost INR2,800 crores in the first half. Anyway, asset acquisition was going anyway on a slow burn because as you know, there are not too many NPAs in the market in any case. So RBI wanted us to strengthen some processes, some board level processes, some framework, some valuation certificate, all of that as part of the even some of the structuring when we structure a deal for acquisition, how it is done and all that.
So there were other things they’ve asked us to do. We have completed a lot of that. Along with that, RBI just completed their annual inspection also, so we were also waiting for them to complete their annual inspection. So even the inspection report, they will give us autopsy report very soon. So we are, I think, pretty ready to — we have already submitted to RBI that we’ll meet all the things that they’ve asked.
So if they come back and ask us to do a few more things, we’ll have to add that, but it’s been about five months, and there is no time line to that. We think we should hopefully get this. It’s been very hard to say about exact date, but we are very actively engaged with RBI. And we have started with a point that whatever RBI wants us to do, we will complete that as fast as possible. So given that approach, I do think that we should be able to hopefully get the order lifted from RBI. But we’ll just have to wait and complete all the things that RBI wants.
Niranjan Kumar
Thank you, sir. That’s helpful.
Operator
Thank you. The next question is from the line of Aman from Dolat Capital. Please go ahead.
Aman
Yeah, sir. Hello?
Rashesh Shah
Yeah.
Aman
Yeah. Currently, around 50% of alternatives AUM is contributed by offshore clients. Can you give us some update on which geographies we are currently operating, any plans to enter new regions and on a steady-state basis, what will be the ideal offshore to onshore mix? And is there any difference in pricing for offshore and domestic clients? Thank you.
Rashesh Shah
So on the first one, a lot of our current clients are from North America and the European Continent. I think almost all our offshore clients are from North America and European Continent. We’re just getting some early investors from Far East now, but we’ve been doing a lot of coverage in Australia, Far East and the Middle East also. We do hope that we invest some new clients from this area. But in international markets with institutional clients, the coverage period is about four to five years. So we started our coverage for the European market, Scandinaia and the European market in 2011-’12, and by ’16-’17, we have — we had about five or six large insurance clients out there.
Same thing in America, we started in about ’12-’13 and by ’17-’18, we have some clients in America, North America, Canada, all of that. So we currently are very strong in these two geographies, but last three years, we’ve been investing a lot in Australia, Far East and the Middle East. So we hope that in the next couple of years, we should also get that. The nuance of international market was an Indian market is that the international market is largely you have to do your own coverage, you build relationship with institutional investors. Most of the investors are institutions, and it’s a more B2B coverage kind of a thing.
In India, most investors are high-networth investors and family offices. And usually, you go through a wealth manager. The pricing is more or less the same. The distribution cost in the first one is in-house, while in India, it is outsourced. But if you look at the cost, the India cost is slightly higher distribution cost than the international one. But India has some other advantage in terms of tax and all your hurdle rate and all that are more pretax and all of that because international is after tax and all. So it just makes up for that. The gross profitability of both these brand base onshore and offshore is more or less the same. I must also add that internationally, it’s been institutional clients, but now we are starting to see individual and family offices internationally also looking at India alternatives.
And in India, it’s been mainly HNI and family offices, but first time, we are starting to see institutional clients in India, mainly insurance companies and pension funds also now looking at investing in AIS and all. So it’s going to be an interesting journey for the next four, five years. And as I said, both in-house and third-party versus onshore and offshore, it’s a metric. But we have actually shown that we have covered all of that. Our announced coverage for international clients, third-party partners and distributors for Indian clients. So we do know how to manage it. There are a lot of bells and whistles in managing it and all that. And we have currently at least experienced on both of them, in-house and outsource third-party distributor partners.
Aman
What will be the ideal offshore to onshore mix then?
Rashesh Shah
I think it will change from year-to-year, but we think the steady state will be about 55 to 60 offshore and 40 to 45 onshore.
Aman
Okay, sir. Thank you.
Operator
Thank you. The next question is from the line of Ritika Dua from Bandhan. Please go ahead.
Ritika Dua
Sir, thanks for the opportunity. Some more basics I wanted to check on the AIF piece. So firstly, when we actually look at the profitability and just trying to maybe look at it on a PAT to AUM basis, I know it’s a scaling business. But how should we look at like a scaled-up profitability for this entity? Secondly, even in terms of growth opportunities, as you’ve been alluding like you look to maybe diversify on the distribution. On the product side, also what all products can get added here to understand that how the AUM in this piece can continue to grow? So two questions around this.
And secondly, on the mutual fund business, obviously, we have grown very healthily, just some numbers around how do you look maybe the profitability also may be catching up on this piece. So that’s the second on mutual fund.
And lastly, on the ARC, I missed your comments. I think somebody did ask, but some views around, you’ve written in the presentation that this will also be — this will incrementally be an asset-light model. I think another large peer of yours who is also into ARC is getting into asset-light. So where is this industry really getting into from here and how should we see Edelweiss ARC also maybe growing? So three questions. And I’ll come back, sir. Thank you.
Rashesh Shah
I’ll write down all the three ones. So the first one was on the profitability of EAAA. I forgot the second one. Third one, I have on ARC.
Ritika Dua
Yeah, sir. The first is — first was the profitability and growth prospects of EAAA. Second is that how should mutual fund now that is a considerable size, how should profitability move there? And the third was ARC getting into asset-light and even another peer is getting asset-light. So where is the industry heading to? So these are three.
Rashesh Shah
Got it. Got it. So on the first one, the — see, I think alternatives have two levers of profitably, one is the fee and one is what is called the variable fee or the carry part of it. On an average, the — an alternative funds on your ARR AUM, you make about 1.5% as your gross yield when you have a cost-income ratio of about 50% very broadly. So if you make about between 60 to 70, and if you study the results of 361 or even Motilal has also an alternative business, all of them, I think the average profit is between 0.5% to 0.8% of the AUM PAT level, PAT if you all calculate — sorry, PBT level.
So I think PBT is about between 0.5% to 0.8% of the AUM in an alternatives business. If you look at it in the mutual fund, it is usually about 15 to 20 basis points. In alternatives, it should be 50 to 80 basis points. We are currently averaging about 70, 75 basis points as profitability. And we think that, that is maintainable. Maybe quarterly ups and downs will be there, but overall, on an annual basis, this is the profitability, basically, PBT upon AUM is what we should get.
In terms of growth, we — since we have a lot of strategies entered across private credit and Real Assets, and we currently have about 11 of strategies and we’re always raising new funds all the time. So it’s not like a private equity where you raise one fund and for four years don’t raise any other fund. This is because it’s a multi-strategy approach, we have quite a few strategies which are on the road raising money.
If you look at the last two, three years, we have raised about INR14,000 crores, INR15,000 crores every year. We have deployed about INR8,000 crores, INR9,000 crores every year, and we have exited about INR5,000 crores, INR6,000 crores every year just on an average if you look at the last. So these are three important parameters to look at it from a growth point of view. And when you do all of this in this way, getting a 20% PAT growth is what we think this business is capable of going forward.
To answer your second question on the mutual fund, you are right, we’ve been investing a lot in scaling up the mutual fund, especially the equities business. If you see the equity AUM in our mutual fund has grown pretty well from on a Y-o-Y basis. Currently, we are making about 4 basis points of AUM as of PAT. Our target is to get to between 10% to 15% in the next three to four years. Our current cost-to-income ratio hovers at about 85%, 86% because we are still investing and the scale-up is happening now.
But on the long-term steady state, we would like the cost-to-income ratio to be around between 55% to 58% in that business, which is the industry average. So if you can scale-up the AUM, bring down the cost income ratio, we think the profitability of a mutual fund between 10 to 15 basis points is achievable. It will take us about two, three years. We’re also adding more offices. We opened eight more branches in this first half. So we are also opening more branches. We are now currently present in about 40 odd on branches we have. We want to go to about 100 branches. So there’s a fair amount of investment we’ll continue to make, which will keep maybe profitability slightly lower, but it’s a good investment to make in that sense.
So that’s our plan on the mutual fund side. And on ARC, we also want to be asset-light, but the current problem with ARC is on two fronts. One is there are not a lot of good quality assets available that you can buy. And the other is, even if you buy them, your capital is mainly coming from equity because there is not a lot of borrowing that you can do. So if you think of the ARC has also another form of NBFC, it is not able to gear itself. If you look at our ARC also, the peak was geared 3:1. Now, it is currently geared at 0.2:1. So what has happened in ARC, even if we become asset-light, you can make about 5%, 6% ROA about 6%, 7% ROA, but even if we make a 7% ROA and if we can be geared 1:1, you can get to 14% ROE.
But if you can make only — if you can gear only 0.2 times or 0.3 times or 0.4 times, then getting to more than 8%, 9%, 10% ROE is going to be harder. So the problem here is going to be, on one side, there is not a lot of assets available for growth. And the other side is your balance sheet structure because of the lack of borrowing availability, your ROEs will be subdued, though your ROAs can be very healthy. So that’s the current challenge all of us have to grapple with it. Maybe if you become asset-light, you can increase your ROAs a little bit more, but eventually getting to more than 10%, 12% ROE is going to be a challenge in this business. And that is currently what the industry is experiencing.
Ritika Dua
Sir, if I can maybe ask two more questions?
Rashesh Shah
Please.
Ritika Dua
Sir, on the — coming to the — just like maybe on the ARC front, any expectations on any past — I mean, assets that we had bought and maybe any write-downs may be expected of them still? And so what is the — maybe from a write-down perspective, any further expected here on the ARC front? And also on a similar question on the wholesale book also, it has run down materially. But of this number, if I’m not wrong, some INR3,700 odd crores wholesale NBFC, what are the further hits that you expect?
Rashesh Shah
So on ARC, we are fairly okay in the sense because we — by the time we acquired — an ARC asset is acquired, it’s already in NPA. So usually, you can price it pretty well because now there are no more unknown unknowns in that sense because when an asset is standard goes to NPA, the real markdowns and all that happen. Once it is an NPA, then you keep on calibrating the value of the SRs on a quarterly basis in the cash flow.
So the book on the whole in ARC is fairly well marked. And usually, it’s very — has been consistent in that sense. Again, I think ARC partly gets the money out of the assets it owns, but — and partly it gets out of the fee and the incentive and the carry that it gets. So as I said, on that basis, the ARC is making about close to INR100 crore PBT a quarter. And if you go back and see the last five, six quarters, we just consistently been back in that range, and we expect to stay there. So ARC, we’ll be able to make about around INR100 crores PBT every quarter.
There won’t be a lot of growth in that business, as I said, because no new assets are getting acquired, but there won’t be any significant markdown because that is not the big thing in ARC, the assets are usually fairly well marked. And at the portfolio level, we have not seen any markdown in the last three, four years, so that’s on ARC.
On the NBFC, we have — the wholesale business is now the non-continuing business. So it is now going straight to the balance sheet. We have INR3,700 crores of the wholesale book remaining, but against that, we have INR3,500 crores of equity also in the NBFC business that we have. So we think a large part of the wholesale book is equity funded and we do a quarterly mark-to-market on that.
So keep on looking at the cash flow, we keep on marking it conservatively. So as and when we feel that the marks have changed because the cash flows have either got delayed on the quantum is changing at a portfolio level, we keep on calibrating it every quarter. As of now, we don’t see any big structural things on the wholesale side. But as I said, it is a non-continuing business. So everything is now at the balance sheet level in the wholesale business — in the wholesale side.
Ritika Dua
Thank you. Sure. Thank you so much.
Operator
Thank you. The next question is from the line of Kshitij Saraf from Tusk Investments. Please go ahead.
Kshitij Saraf
Hi. Good afternoon. I’m a little bit new to the company, so pardon me if this is a very basic question. But just wanted to understand the net gain on fair value changes so that INR1,300 odd crores, just so there is a mark-to-market on MTM and at the same time, in the insurance businesses, we see another component which is to that tune, but just to understand what would be the breakdown and how is this reported?
Rashesh Shah
So I don’t have the details of exact breakdown. If you want offline, our CFO, Ananya can — will be happy to take you or anybody through that on what is the exact of the components of the breakdown. In this quarter, obviously, there was a mark-to-market gain on the Nuvama stake that we are owning because as you would have seen, the stock has gone up in this quarter. So it was part of that and new mark-to-market sold part of that also. So part of that is a fair value gain. We also have the SRs and all we have, which also get marked. As I said, every quarter, we get marked accordingly. So the exact breakup on that, maybe Ananya can give you off-line if you contact with her.
Kshitij Saraf
Sure. That’s fine. And on the insurance business, yes. There is an investment income and other income in both Zuno and life insurance. So what sort of investments are sitting here because in life insurance, the investment and other income is almost INR340 crores in this quarter.
Rashesh Shah
I wouldn’t know that. Ananya, are you on the call? Can you explain that, the insurance investment income?
Ananya Suneja
Yeah. Am I audible?
Rashesh Shah
Yeah.
Kshitij Saraf
Yeah.
Rashesh Shah
Yeah, Ananya. Go ahead.
Ananya Suneja
Yeah. So the insurance business is, obviously, have us — once you collected the premium, you invested a set of assets against the long-term liabilities you have. These investments are held at value in our mark-to-market, okay? So what you’re seeing on that line is the mark-to-market on the investments that the insurance business holds.
Kshitij Saraf
Got it. And primarily, treasury sort of assets or I mean, are these fixed income generating assets?
Ananya Suneja
No. So it is on the investment assets. Okay, so everything according to Ind AS, which is fair value and mark-to-market every quarter is what you see on that line. That is also true for your other question across all our businesses. So I’m happy to walk you through business-wise breakup of that line at a later point, but…
Kshitij Saraf
Okay. Okay. Fine.
Ananya Suneja
The idea is mark-to-market. Yeah.
Kshitij Saraf
Okay. Okay. Perfect. That’s helpful. Thank you.
Operator
Thank you. The next question is from the line of Deepak Agrawal from Param Capital. Please go ahead.
Deepak Agrawal
Yeah. Good afternoon, sir. Am I audible?
Operator
Yes. You are.
Rashesh Shah
Yeah.
Operator
Please go ahead.
Deepak Agrawal
Yeah. Thank you so much. Sir, my first question was on the Nuvama lines of business. So obviously, we will be selling our entire stake in whatever a quarter or two. So some of those fee income line items like broking and wealth, so any thoughts there? Is there any non-compete clause? Anything you can share there, sir?
Rashesh Shah
So currently, we don’t have any — the Nuvama income doesn’t come — because a year ago, when we demerged the business, it was already deconsolidated from Edelweiss. So right now, in the Edelweiss consolidated, there are no line items of Nuvama. The Nuvama shares we own is just an investment, liquid investment category for us and it’s mark-to-market like any other investment instrument. We don’t consolidate the Nuvama results with us since the demerger that happened almost 18 months ago, okay?
Deepak Agrawal
Yeah.
Rashesh Shah
So that’s on the Nuvama. The Nuvama non-compete we had was up to March ’24. So we did the deal in March 2021, and we had a three-year non-compete, though we are not in the wealth management business at all. So we don’t have any line items on the wealth management business in our category. We are in this, the current businesses we have, NBFC, Housing Finance, ARC, NIGI and EAAA and mutual fund, that’s the seven businesses that we have. We are not in the wealth management business at all, but we have the stake in Nuvama, but there is no fee income or investment banking income in our balance sheet as of operating activities as such.
Deepak Agrawal
So what I was referring to is in terms of restarting some of these businesses, which earlier, maybe till, as you said, March ’24, you are not allowed to do as a part of non-compete, so can…
Rashesh Shah
See, we have so much on our heads because this current seven business is also scaling up well and we have highlighted there is quite a bit of work to do. We have, as I said, excess capital in the credit businesses, which is not earning good ROE. So we have to get that capital efficiency in the credit businesses, we are to bring the insurance businesses to breakeven.
And we have to scale-up both the asset management business and do a stake sale and hopefully them in the near future. So since we have our hands pretty full, and you also want to reduce the overall corporate debt that is there. So we have a agenda pretty focused. And all businesses take about five, 10 years to build. So it’s not that you can start a business tomorrow without having a five, 10-year investment horizon. I personally think to start a wealth management business is a INR500 crores to INR600 crores investment with at least a minimum five to six years kind of horizon to take to build the business to get to a certain scale.
So any such business is just because the non-compete is overall should not be started. You should start it when amongst all the opportunities you have, the capital you have, the bandwidth you have, you want to get into that. We are currently pretty happy with the range of businesses we have and we want to scale this up and focus on the priorities that you have highlighted.
Deepak Agrawal
Got it. Got it. Sir, my second question was for the alternate business. So if we list it separately, instead of — so if you do a demerger like what we did for Nuvama, so that holding company discount which Edelweiss will start attracting, right, once it gets listed separately, so any thoughts there, sir, if we directly list it and then let the markets do the correct valuation of the company?
Rashesh Shah
I think listing of the EAAA is separate from maybe demerging it or unlocking the value because there are a lot of optionality on that, which is what we did with Nuvama. So currently, the idea is to sell the stake, get that capital to reduce our debt and all and then decide on how to unlock the value where also there are many options are there. And slowly and steadily, we are seeing that market will get some HoldCo’s discount, but the market will also understand the value of the HoldCo. So it is our job if the HoldCo discount is very high, then you can unlock that value in actually quite a few ways like we’ve done with Nuvama.
Deepak Agrawal
Sure.
Rashesh Shah
Or if it is — you can also sell a stake and do a stock buyback also. So there are ways of addressing the HoldCo discount. Our current priority is not hugely focused on how to reduce the HoldCo discount. It is how to make the asset management businesses scale-up, institutionalize, unlock some value out of that. How to get the insurance business to breakeven, how to get the credit businesses to generate a decent ROE and how to reduce corporate debt. These are the four things we are focused on. Once we get some progress on that in the next three, four quarters, then we can change our priorities and then look at how to reduce the HoldCo discount and other things. And there are various instruments available for that, options available for that.
Deepak Agrawal
Got it. Got it. Sir, and my last question was on the NBFC scaling up of NBFC. So obviously, we have had challenges — and seems like liabilities, we are constrained on liabilities on that, right, in terms of…
Rashesh Shah
So actually, more than that, we have believed last three, four years, and it is proving to be true that NBFCs, either you are part of a corporate house, where you can take some ALM risk and make some extra returns because you can be more aggressive in making your ALM assumptions or you are part of a PE fund or whatever where you have a lot of backstop capital available to you.
Otherwise, NBFC is a much harder business to make it work. And given what is happening in the banking pace and I think availability of bank lines and all that, the cost of that with bank deposits are also not growing. So bank credit to NBFC is also coming down. So I think the large corporate houses as well as maybe the pre-funded players have an inherent advantage. People like us, don’t have an advantage. So even if we get the credit lines and all, we’ll end up holding a lot of capital for ALM, which is also eat into the return.
So today, a pure-play NBFC, if you don’t scale it up much, can you get 10%, 12% ROE? Yes. But can you make 18%, 15%, 18% ROE? We think it’s harder and harder, unless you have a corporate house umbrella or a PE umbrella with you. So our idea is maybe convert this into more a colending partnership.
And by the way, that is coming out true. You look at what the Q2 results have been because if you want to make returns and you go up the risk or you take ALM risk, and both of them, like what is happening with MFI and unsecured and all is starting to show that stress. So we do believe that NBFC businesses have some inherent challenges, which have come to fore in the last four, five years, post ILFS.
There are clear advantages that large corporate house NBFCs and PE-funded NBFCs have, which people like us don’t have, but we can try and do a co-lending partnership and instead of competing with banks, we can we partner with banks and still actually aim for a 14%, 15% return, but not with an asset-heavy strategy, but with asset-light, more a combination of partly servicing, originate and partner with banks, do colending and get the service income, all of that will allow you to get to a 14%, 15% ROE that would be our ambition in our credit businesses. Can we get to 14%, 15% ROE without ballooning the balance sheet a lot, without borrowing a lot. Because after seeing what has happened last four, five years, even if you borrow, we hold a lot of liquidity.
Last five years, we have held a lot of excess liquidity at a group level. And collectively, it has costed us about a couple of hundred crores a year in terms of foregone profit of just the holding cost of that liquidity. So in a way, the liquidity management, ALM management is a bigger challenge in an NBFC business than just credit cost any longer.
Deepak Agrawal
Right. So that was the whole reason why I was asking.
Operator
Sorry to interrupt you, Mr. Agrawal. May we request you to please rejoin the queue?
Deepak Agrawal
Okay. Yeah. Thank you.
Operator
Thank you. Ladies and gentlemen, due to time constraints, we will take the last question, which is from the line of Naman, an individual investor. Please go ahead.
Naman
Hi, Rashesh. How are you?
Rashesh Shah
Hi. We can’t hear you very clearly. Can you speak…
Naman
Now?
Operator
Mr. Naman, we are unable to hear you, sir.
Naman
Am I audible now?
Rashesh Shah
Yeah. Okay. Yeah. Go ahead.
Naman
Yeah. So I have one question regarding EAAA, I think which was answered. The question was basically when can we, as a shareholders expect to get the shares distributed? And second question is, any book you would like to recommend, any favorite book for this year?
Rashesh Shah
I think…
Naman
People are too busy on the numbers. Yeah, please go on.
Rashesh Shah
No, no. As I said, our current priorities is the four priority I’ve highlighted for the next three quarters. We have a broader value unlock strategy that we are working on. We’re looking at all the rules and regulations and doing it in a way that becomes win-win. And hopefully, in the next three, four months, four, five months, we’ll be able to come up with what is a broad value unlock plan for the shareholders. As you have seen with Nuvama also, our overarching objective is how do we align the shareholders being able to enjoy the value that we are creating. And we are all actually thinking like shareholders because I myself am also a shareholder of the company. So we will come up with that.
On the books, I mean, there are a lot of books. The one I like a lot that I read again and again every year is The Outsiders, which is about capital allocation and business structure and empowerment and all that. So it’s a book called The Outsiders, which I have always enjoyed reading, but happy to also…
Naman
Thank you.
Rashesh Shah
…get recommendations from others on and off, you can send me a mail with your book recommended.
Naman
Poor Charlie’s Almanack. Poor Charlie’s Almanack. The book.
Rashesh Shah
Yes. That is also a great book. That is also amazing book.
Naman
Thank you so much.
Operator
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference back to Ms. Priyadeep Chopra for closing comments.
Priyadeep Chopra
Thank you all for your time today. It was lovely to listen into the questions, and thank you, Rashesh, for patiently answering all of them. Please do write in to us at Edelweiss Investor Relations for any questions or additional information that you may need. Once again, wish you all and your family members a very happy Diwali and a great festive season ahead. Bye-bye. Thank you for your time.
Rashesh Shah
Okay. Thank you, and happy Diwali to everybody. Bye-bye. Thank you.
Operator
[Operator Closing Remarks]