Edelweiss Financial Services soars 10% on buzz of stake sale in MF unit

According to reports the company was looking to sell a minority stake in its mutual fund arm and has initiated the process by hiring an investment banker.

Shares of Edelweiss Financial Services were locked in the 10 per cent upper circuit at Rs 123.75 on the BSE in Thursday’s intra-day trade in an otherwise weak market. In the past two days, the stock has rallied 14 per cent on reports that the company was looking to sell a minority stake in its mutual fund (MF) arm. The company has initiated the process by hiring an investment banker.

 

Till 12:33 pm; a combined 6.76 million equity shares changed hands and there were pending buy orders for 1.5 million shares on the NSE and BSE. In comparison, the BSE Sensex was down 0.92 per cent at 79,492.

 

Edelweiss Financial is a diversified financial services company with subsidiaries across credit, asset management, asset reconstruction, and insurance. Edelweiss Mutual Fund is the 13th-largest fund house in India, with around Rs 1.5 trillion in assets under management (AUM).

 

Edelweiss Financial Services clarified on Monday, November 25, that the company has subsidiaries which are engaged in various businesses such as insurance, alternative asset management, mutual fund, etc. The company has been exploring various alternatives for enhancing shareholders’ value, either by way of a stake sale in subsidiaries or listing them on the stock exchanges. 

 

To this intent, the company has in 2023, listed the wealth management business on the stock exchanges. “We have in the past mentioned about the value unlocking theme at Edelweiss at various forums and earning calls. In this regard, the company is required to appoint advisors from time to time to advise on the manner and timing of value unlocking,” the company said.

 

In the past six months, the stock price of Edelweiss Financial has zoomed 60 per cent, as against 5.5 per cent rise in the BSE Sensex. It has more-than-doubled from its 52-week low price of Rs 59.40 touched on July 23, 2024. The stock hit a 52-week high of Rs 145.50 on September 30, 2024.

 

Meanwhile, CARE Ratings on Edelweiss’s rationale said ratings continue to be on ‘Rating watch with Negative implications’ considering business restrictions placed by the Reserve Bank of India (RBI) (regulator) on two subsidiaries of EFSL, ECL Finance Limited (ECLF) and Edelweiss Asset Reconstruction Company Limited (EARC) on May 29, 2024. The regulator has cited material supervisory concerns while imposing these restrictions and will review the restrictions once corrective actions are taken.

 

CARE Ratings understands that remedial actions have been submitted by the company and the regulator’s response is awaited. ECLF has also stated they will continue with their strategy to reduce wholesale exposure in the normal course of business and growth in the retail MSME book through co-lending.

 

The group demonstrated its ability to monetise stakes in its different businesses. Recently, the group liquidated ~6 per cent stake of Nuvama Wealth Management Limited (Nuvama) for Rs 1500 crore as of September 27, 2024, enhancing its liquidity. The remaining stake in Nuvama is expected to be sold by March 2025. 

 

The group plans to divest 10 per cent to 20 per cent of its stake in Edelweiss Alternative Asset Management (EAAA) by September 2025, with proceeds strategically used to reduce debt. This move will also provide a buffer against adverse developments that could significantly impact business or financial risk profile. Ratings also reflect the group’s strong intention to monetise investments in other businesses, such as mutual funds, insurance, and housing finance, where the group has created substantial value relative to the initial capital invested, CARE Ratings said on October 8.