| Bajaj Financial Securities Limited | ||||
| Rated amount enhanced for Commercial Paper | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the bank facilities and debt instruments of Bajaj Financial Securities Limited (BFSL).
The ratings on BFSL centrally factor in expectation of strong financial, operational, and management support from its parent, Bajaj Finance Ltd (BFL: 'CRISIL AAA/Stable/CRISIL A1+'), both on an ongoing basis, and in the event of distress. The expectation reflects the strategic importance of BFSL to BFL, and the strong moral obligation of the parent to support the former. The rating strength is augmented by BFL’s track record in the loans against shares (LAS) segment and the demonstrated track record of support in term of timely equity infusion/support for its other subsidiary Bajaj Housing Finance Limited (CRISIL AAA/Stable/CRISIL A1+).
BFSL, a wholly owned subsidiary of BFL, is engaged in the retail broking and securities backed lending business. BFSL, which started operations in August 2019, is a registered member of National Stock Exchange and Bombay Stock Exchange for equities and derivative segment. BFSL is a depository participant with CDSL and NSDL.
The parent, BFL has emerged as one of the largest retail asset financing NBFCs in the country. It has a diversified product suite, comprising key businesses such as vehicle loans (two- and three-wheelers), consumer durable loans, personal loans, mortgage loans, small business loans, loan against securities (LAS), commercial finance, and rural finance. BFL has been in the LAS business since fiscal 2010 and has registered comfortable performance in the book.
The rating also factors in BFSL’s comfortable capitalization metrics backed by strong initial start-up capital infused by BFL.
These strengths are partially offset by nascent stage of operations and modest earnings of the company. |
Analytical Approach For arriving at the rating, CRISIL Ratings has evaluated the standalone business, financial and management risk profile of BFSL. CRISIL Ratings has also factored in expectation of financial, operational and managerial support that BFSL is expected to receive from BFL, both on an ongoing basis, and in the event of distress given its high strategic importance to BFL as the company’s retail broking business and the strong moral obligation of the parent to support the same. |
Key Rating Drivers & Detailed Description Strengths: Expectation of strong support from BFL CRISIL Ratings believes BFSL is strategically important to BFL as it would be the vehicle to target the customers of BFL to offer a bouquet of products which couldn’t be done in BFL. CRISIL Ratings understands that offering demat services and brokerage business would help BFL to offer a holistic service to its customers and an opportunity to cross sell other products such as insurance and mutual funds. This further increases the economic incentive of BFL to support BFSL. CRISIL Ratings believes that BFSL would operate as a division of BFL with a high level of management and operational support from BFL.
The top management in BFSL is set up with senior management from BFL moving to BFSL. The current CEO of BFSL also headed LAS in BFL. Further, the board of BFSL also comprises of senior management personnel from Bajaj Finserv and BFL. The treasury team of both companies is also common thereby allowing BFSL to leverage upon the banking relations of BFL. The shared name also enhances the BFL’s moral obligation to support the company.
Comfortable capitalization metrics backed by strong initial start-up capital BFL has infused strong start-up capital for BFSL. BFL has infused Rs. 650 crore till date. The networth and gearing stood at Rs. 703.6 crore and 1.8 times as on March 31, 2023 as against Rs. 695.3 crore and 1.1 times as on March 31, 2022. As on June 30, 2023 also the capitalization profile of the company was comfortable at Rs 708.2 crore with a gearing of 2.2 times.
Further BFL has also extended a credit line of Rs 1000 crore to support the borrowings of BFSL.
The parent plans to continue to hold 100% shareholding in BFSL in the medium term and is willing to infuse further equity or provide financing support for company's growth requirements over the medium term. BFSL plans to follow a conservative gearing policy.
Weakness: Nascent stage of operations, though scaling up BFSL started operations in August 2019 and plans to focus on the retail broking business, distribution of mutual funds, insurance products and also offer margin trade funding (MTF) facility. BFSL offers both discount brokerage plans and conventional brokerage plans. The discount brokerage plan is to target the trading segment of customers while the conventional broking plan is to target the high networth customers.
As on June 30, 2023, BFSL, apart from its corporate office in Pune, operates through its 31 branches.
Also, BFSL is investing heavily on branch expansion and technology to streamline the processes and increase customer acquisition. The total clients has also increased from 331,334 as on March 31, 2022 to 565,143 as on March 31, 2023.
Earnings profile expected to remain modest in the near term BFSL reported a PAT and ROA of Rs. 4.6 crore and 0.7% in the first quarter of fiscal 2024 after a PAT of Rs. 8.2 crore and ROA of 0.4% in fiscal 2023 and a PAT of Rs 16.8 crore and ROA 1.4% in fiscal 2022. The profitability was impacted in fiscal 2023 primarily because of increased operating expenses related to scale up of operations through branch expansions and increased investments in technology. The cost to income ratio of the company increased to 94.5% in fiscal 2023 and 91.6% in the first quarter of fiscal 2024, as against 81.6% in fiscal 2022. In the near term, with BFSL planning expansion of customer base, CRISIL Ratings expects the acquisition cost to constrain profitability. However, with the scale up of operations, the volume of turnover and income from MTF facility is expected to support the earnings profile. BFL has demonstrated its ability to scale various business lines and products and CRISIL Ratings believes that BFSL with its strong linkages with BFL and experienced management would be able to scale up its operations. |
Liquidity: Superior On a provisional basis as on September 30, 2023, BFSL has liquid assets of Rs. 241 crore (cash and equivalents of Rs.94.7 crore, Rs.6.3 crore of investments in mutual funds and fixed deposits and Rs 140 crore of unutilised CC/WCDL lines). Additionally, the company also has an emergency line from Bajaj Finance of Rs.1000 crore, of which Rs.535 crore is unutilized. Against this, the company has debt repayments of Rs.2000 crore in the next three months. |
Outlook: Stable CRISIL Ratings believes BFSL will continue to benefit from strong financial, managerial, and operational support from BFL over the medium term. |
Rating Sensitivity Factors Downward factors:
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About the Company BFSL, is a 100 % subsidiary of BFL offering capital market solutions covering equities, mutual funds, corporate deposits, bonds, insurance, loans & distribution offerings to corporates, high-net-worth individuals and families. BFSL started operations in August 2019 and is a registered member of NSE & BSE for Equities & Derivative Segment and also a depository participant with CDSL & NSDL. |
About the Group Set up in 1987, BFL is a subsidiary of Bajaj Finserv (52.8% ownership), the financial services arm of the Bajaj group. BFL has a diversified product suite comprising key businesses such as vehicle loans (2- and 3-wheelers manufactured by Bajaj Auto), consumer durable loans, personal loans, mortgage loans, small business loans, loans against securities, commercial finance, and rural finance. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Interchangeable with short-term bank facilities |
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| Annexure - Details of Bank Lenders & Facilities | |||||||||
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*Interchangeable with short-term bank facilities
Criteria Details
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