Nuvama Wealth Management Ltd

Well positioned in this evolving wealth management space

Company Profile
Nuvama Wealth Management Limited (NWML), erstwhile Edelweiss Securities Limited, was incorporated in 1993. It was earlier a wholly-owned subsidiary of Edelweiss Financial Services Limited. NWML is a public limited company incorporated under the provisions of the Companies Act. PAG is the ultimate holding company. The company is registered as a Trading cum Clearing Member with the National Stock Exchange of India Limited and the BSE Limited. Also, NWML is registered as a Trading Member with the Metropolitan Stock Exchange of India Ltd, Multi Commodity Exchange of India Limited, and National Commodity Exchange of India Limited.

Nuvama Wealth Management carries on broking and trading in equity securities (including derivatives and currencies) listed on stock exchanges in India and futures contracts, for institutional and non-institutional (including retail) clients. It is also registered with SEBI to carry on the business of Research Analyst, Investment Adviser, and Merchant Banking. NWML through its subsidiaries provides wealth management, asset management, and custody services to its clients along with trading in securities and derivatives.

PAG is the parent of the Nuvama Group holding a 55.68% stake as of June 30, 2024. Nuvama focuses on affluent, HNI, and UHNI clients and caters to ~1.2 million affluent and HNI clients and 3,900+ families as of Q1FY25.

Investment Arguments

Established market position in wealth management business
Nuvama Group is one of the leading domestic integrated wealth management firms. Nuvama offers wealth management solutions, covering investment advisory, estate planning, asset management services, investment management, lending, and broking services for individuals, institutions, senior executives, professional investors, and family offices. NWML operates in three business segments namely Wealth Management (UHNI and Affluent/HNI), Asset Management and Capital Markets (Institutional Equities, Investment Banking and Asset Services). It is the second-largest independent wealth management player as reflected in the client assets which stood at Rs.3,89,041 crores as on June 30, 2024 and Rs.2,74,124 crores in Clients Assets Wealth Management segment. The asset management business being relatively at a nascent stage, has an AUM of Rs.7,692 crores as on June 30, 2024.

NWML has a subsidiary, Nuvama Wealth Finance Limited (NWFL) (erstwhile Edelweiss Finance & Investments Limited), which is a registered non-banking finance company (NBFC) that provides loans against securities, ESOP funding, to the clients of the wealth management business.

Furthermore, Nuvama Wealth and Investment Limited (NWIL) (erstwhile Edelweiss Broking Limited), which is wholly owned subsidiary of NWML, primarily provides wealth management solutions and also provides margin trade funding and ESOP Funding.

Furthermore, Nuvama Clearing Services Limited (NCSL), wholly owned subsidiary of NWML, is a professional clearing member engaged in clearing business and settles trades of clients and further provides fund accounting services.

Comprehensive Wealth Management Platform with an exhaustive suite of offerings
Nuvama offers a comprehensive suite of wealth management solutions across various asset classes. Leveraging a combination of third-party and in-house products, it aspires to partner with their clients and help meet their financial goals. Nuvama Wealth Management has established itself as a leader in the Indian wealth management landscape, catering to Affluent, HNI, and UHNI segments. It stands out as the only scaled player offering a comprehensive ‘Full Platform’ solution, encompassing a diverse range of services and expertise. The company boasts of 1.2 million of affluent and HNI clients with client assets of Rs.779 billion making it the second largest wealth management firms in India in terms of AUM. This exhaustive suite of offerings differentiates its platform and enables them to deliver the right solutions to all its clients, harnessing all the capabilities of platform.

Experienced management team
NWML’s senior management team has significant experience and expertise in the wealth management business, which has helped it grow into the second-largest independent player in the wealth management industry. Mr. Ashish Kehair, Managing Director and CEO has more than two decades of experience in areas of Private Banking, Wealth Management. Furthermore, the board of NWML comprises of 11 directors; of which, five are independent directors. Apart from the senior management, the team leaders and relationship managers have an average experience of over five years.

Strong and resourceful promoter
PAG is a global alternative investment firm that manages multiple asset classes, including private equity, real estate, and hedge funds. It is considered one of the largest private investment firms in Asia with over US $55 billion of assets under management in private equity, real estate. It has 9 offices in Asia with additional offices in London and New York. PAG is focused primarily in three sectors in India viz financial sector, health sector and pharma sector. Thus, NWML (wealth management business) has been identified as a key focus area for the group’s overall investment plan. PAG had invested ₹ 2,366 crore for a majority stake in NWML, including primary and secondary investments. As of March 2024, PAG holds a 55.81% stake in Nuvama. Association with PAG has benefitted Nuvama in terms of client acquisition in the wealth and asset management business and in raising resources at competitive prices. PAG is expected to continue to support the group going forward.

Leveraging Capital Market Capabilities
Nuvama has established itself as a premier institutional practice, leveraging its deep domain knowledge and world-class capabilities to empower informed decision-making. Their best-in-class research, encompassing over 280 listed companies, and extensive advisory experience across sectors provide unparalleled insights. They seamlessly support promoters, institutions, private equity firms, and corporates throughout their business lifecycle by offering a comprehensive suite of services. These services include equities, investment banking, custody, and clearing solutions. This integrated approach allows them to cater to wealth management clients by solving their business and capital needs and also to a broad spectrum of institutional investors.

Unique business model, enabling value and seamless client solutions across the ecosystem
Nuvama transcends the limitations of traditional wealth management. We foster a comprehensive ecosystem designed to empower client’s wealth journey. This ecosystem thrives on the deep synergy between our wealth management, asset management and capital market businesses. By leveraging our profound understanding of India’s wealth management needs and the capabilities of our integrated segments, we ensure a holistic approach to delivering relevant solutions.

Well positioned in this evolving wealth space
The Company is well-positioned in the evolving wealth management landscape, leveraging its scale and comprehensive platform capabilities. It anticipates sustained growth momentum in FY25, buoyed by India’s ongoing reforms and the government’s focus on business stability, industrialization, infrastructure development, employment creation, and an expanding digital economy. It expects wealth creation to outpace economic growth, driven by financialisation and the growing penetration of organized wealth management. With strong fundamentals, its business is strategically positioned to capitalize on favorable market trends for continued success.

They are focused on expanding Wealth Management and Asset Management segments, recognizing them as pivotal drivers of growth strategy, while maintaining leadership in capital markets. They are confident in the long-term growth prospects of the Wealth Management industry in India and are striving to expand their capacity and capabilities to maintain leadership positions. It aims to leverage operational efficiencies to achieve significant improvement in the cost-to-income ratio.

Q1FY25 Financial Performance
Nuvama Wealth showcased robust earnings growth for the quarter ended Q1FY25. Consolidated net sales surged 46% YoY to Rs.949 cr as compared to Rs.648 cr in the same quarter of the previous fiscal driven by growth across all its key segments. Wealth and Asset Management business continues to witness secular growth, Q1 FY25 revenues grew by 18% YoY. Capital Markets business revenue grew by 153% YoY driven by heightened market activity and an increase in our market share. Consolidated EBITDA soared 70% YoY to Rs.493 cr. EBITDA Margin expanded by 700 bps at 52%. PAT shot up by 94% YoY to Rs.221 cr aided by healthy topline growth and robust operational performance.

Key Highlights

Wealth Management

1. Revenues: Rs.320 Cr in Q1 FY25, grew by 18% YoY.
2. PBT: Rs.104 Cr in Q1 FY25, grew by 11% YoY.
3. Client Assets: Rs.2,74,124 Cr as at end of Q1 FY25, grew by 35% YoY.
4. Nuvama Wealth: Sustained growth, revenue grew by 23% YoY.

MPIS assets: Stood at Rs.24,960 Cr, grew by 33% YoY, NNM contributed 75%

Added 67 RMs in Q1 FY25 and 350+ in the last 12 months, deepening our presence.

Nuvama Private:

1. Revenues grew by 11% YoY, normalized for AIF regulation change at ~33% YoY.
2. ARR assets: Stood at Rs.38,667 Cr, grew by 48% YoY, and NNM contributed 89%.
3. Increased RMs by ~15% YoY, improved penetration in existing cities, and added 4 new cities beyond tier 1 in the last 12 months.
4. Received final approval from DIFC in Jul’24 for offshore set-up in Dubai

Asset Management

1. Revenues (ex-carry): Rs.15 Cr in Q1 FY25, grew by 23% YoY.
2. AUM: Rs.7,692 Cr as at the end of Q1 FY25, grew by 30% YoY, led by public markets
3. Product suite expanded across all strategies in the last 3-6 months: Commercial Real Estate - Prime Fund, Public Markets - Absolute Return Fund, and Private Markets - Crossover 4 series.

Capital Markets

1. Revenues: Rs.331 Cr in Q1 FY25, grew by 153% YoY.
2. PBT: Rs.192 Cr in Q1 FY25, grew by 494% YoY.
3. Client Assets (Asset Services): Rs.1,07,225 Cr as at end of Q1 FY25, grew by 115% YoY.
4. Rise in market volumes, increase in our market share, IB deal closures, and new flows in asset services led the growth.

Key Risks & Concerns

High concentration in lending operations: Nuvama group extends loans against shares (LAS) to clients of Nuvama group. As on March 31, 2024, the loan portfolio of the group stood at Rs 4,863 crores, having grown from Rs 3,553 crores as of March 31, 2023. Almost half of this portfolio comprised LAS, while the other half was constituted by ESOP financing and other segments, including margin trading facility. Typically, the size of this portfolio exhibits a strong correlation to the ebbs and flows of capital and the money market and remains susceptible to both domestic and international macro events.

Susceptibility to cyclicality and volatility in capital-market-related businesses: Since corporate and investor sentiments drive portfolio flows in the wealth management business, business and earnings are susceptible to cyclicality and volatility in capital markets as well as various other political, social, and macroeconomic factors.

Regulatory Risk: The group is also exposed to regulatory risk. Unlike lending operations, wealth management is largely fee-based, and thus, any credit event has a relatively lower impact on the capital base. However, these businesses operate in a highly regulated environment, and any unanticipated change can adversely impact the business model.

Outlook & Valuation

Nuvama Wealth demonstrated robust earnings growth for the quarter ended Q1FY25 led by the wealth and asset management business. We believe that wealth and asset management will continue to be key growth drivers and constitute 75-80% of the earnings. Nuvama boasts of consistent track record of growth, Integrated and differentiated platform, Strong promoters with experienced management team, Scaled & Multi-client segments with reach across India, Unique hybrid fulfillment model of Technology + RMs, Proven execution with diversified & scalable revenue streams and strong capital base, Unique Business Model, enabling value and seamless client solutions across ecosystem, Comprehensive wealth management platform with exhaustive suite of offerings, Established market position, superior return ratios, Nuvama Wealth is well positioned in this evolving wealth management space. At a CMP of Rs.6000, the stock is trading at 24x FY26E. We recommend a BUY rating on the stock.