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Consolidation in the offing

* Edelweiss Financial Services (EDEL) continued to consolidate its advances, with ~3.6% yoy growth in AUM to Rs435.1bn amid tight liquidity conditions and an adverse macro environment. We expect the slowdown to persist; assume ~12% FY19-21E AUM CAGR.

* EDEL has improved its overall borrowing profile with decline in CPs and rise in NCD/Banks. However, the gradual shift toward low-yield retail lending, along with tight liquidity and rating downgrades, should keep margins under pressure for FY20/21E

* Although asset quality has remained stable sequentially, we do factor in elevated credit cost of ~140bps for FY20-21, considering the current stress in the developer finance segment and the continuing tight liquidity situation.

* We downgraded EDEL last quarter, factoring in risks involved in the wholesale business and the tight liquidity situation. We cut our FY20 earnings estimates by ~12.1% and TP to Rs166 (1.7x P/B FY21E). We have an UW position on EDEL in our NBFC–EAP.

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