| Choice Equity Broking Private Limited | ||||||
| 'CRISIL BBB-/Stable/CRISIL A3' assigned to bank debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has assigned its 'CRISIL BBB-/Stable/CRISIL A3' ratings to the bank facilities of Choice Equity Broking Private Limited (CEBPL; part of the Choice group). |
| Analytical Approach |
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For arriving at its ratings, CRISIL has combined the business and financial risk profiles of CEBPL,Choice Merchandise Broking Private Limited, Choice Capital Advisors Private Limited, Choice Corporate Services Private Limited, Choice Wealth Management Private Limited, Choice Finserv Private Limited, Choice Retail Solutions Private Limited, Choice Portfolio Management Private Limited, Choice Consultancy Services Private Limited, Choice Peers International Private Limited, Choice Tech Lab Solutions Private Limited, Choice Insurance Brokers Private Limited. All the companies, collectively referred to as the Choice group, have integrated operations, and common promoters and brand. |
| Key Rating Drivers & Detailed Description |
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Strengths * Adequate capital position Capital position of the group is adequate reflected in an adjusted networth of Rs 80.3 crore* and a gearing of 2.2 times as on March 31, 2018. During the fiscal, the promoters have infused Rs 40 crore of capital into the holding entity- Choice International Ltd for inorganic expansion in the broking business. While gearing is higher compared to similar CRISIL rated peers, CRISIL believes that the promoters of Choice group enjoy adequate financial flexibility to infuse capital when required. Therefore, the capital position of the group should remain adequate in relation to its size and scale over the medium term. * Diversity in revenue profile The group has a diversified revenue profile which is gradually improving. Apart from revenue streams in the broking and related segments, which account for about 40% of the group's revenue, about 20-30% of revenue is from an entirely different segment of consultancy business. This lends a balance to the revenue profile as this segment is insulated from the vagaries of equity or commodity markets. * Experienced leadership and management team Choice group is promoted by Mr. Kamal Poddar, the Managing Director of the group. He is a chartered accountant and has over 20 years of experience in the fields of financial and infrastructure consultancy, retail broking and allied businesses. Similarly, Mr. Ajay Kejriwal, heading the broking business, is a chartered accountant with over 15 years of experience. Most of the other members of the senior management are also chartered accountants with experience of 10-15 years in the field of financial markets, merchant banking, consultancy, foreign investment consultancy and exchange control regulations. This senior leadership team has set up the group's various businesses and has successfully scaled it up over the years. Weaknesses * Average market position in the equity broking space Choice group's market position in the equity broking space is average, evidenced by a market share of ~0.1%. CEBPL, the retail broking arm of Choice group, has an active client base of ~15,000 which primarily comprises retail and HNI clients. Additionally, CEBPL follows a high debtor driven model to ramp up its business volumes. As a result, its debtors outstanding for less than 3 months have been high historically at Rs 70-80 crore. As on March 31, 2018, the total debtors outstanding stood at Rs 110.6 crore vis-a-viz the networth of Rs. 80.3 crore as on that date. Similarly, the income from market making business is disproportionally low vis-a-viz the risks arising in the course of market making business, wherein the group has invested Rs. 17 crore as on March 31, 2018. However, the risk of high level of debtors is partially offset by a collateral cover of at least 1.5 times which is maintained against all debtor accounts and there has been no significant write offs in the past. Further, the group is in the advanced stage of acquiring the business of 'IndiTrade'- a Tamil Nadu based equity broking company; this inorganic expansion is expected not only to help improve the remunerative cash market business of CEBPL but also improve its competitive position in the near to medium term. * Modest earnings profile constrained by operating expenses Earnings profile of the group is modest, constrained by high operating expenses across major businesses. At a consolidated level, the average cost to income ratio has been around 83% for the past 3 fiscals, primarily on account of high employee expenses. The cost to income ratio for equity broking segment was also high at 68.1% for fiscal 2018. Consequently, the equity broking business had a low RoE of 8.9% for fiscal 2018 (7.5% for the previous fiscal). CRISIL believes that increasing operating leverage in various segments will help improve overall profitability over the medium term. * Susceptibility to inherent volatility in capital markets Volumes and earnings in the broking segment depend on the level of trading activity in capital markets, which are volatile and driven by economic and political factors, and investor sentiments. Global factors influence the fortunes of these markets, too. Furthermore, the Indian securities space has become increasingly competitive, with the presence of a few entrenched players and the entry of foreign broking entities. The ability to establish market position in the retail segment, given such a competitive scenario, is critical for the business risk profile. Also, dependence on equity markets for revenue should continue. The business risk profile will, therefore, remain susceptible to uncertainties inherent in capital market-related businesses. |
| Outlook: Stable |
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CRISIL believes CEBPL will continue to benefit from its adequate capitalization and improving diversity in the revenue profile. The outlook could be revised to 'Positive' if there is significant and sustained improvement in market position of CEBPL alongside improvement in profitability while its capital position remains adequate. Conversely, the outlook may be revised to 'Negative' if there is deterioration in risk management practices leading to material increase in debtors outstanding, weakening in market position or in case of sharp increase in gearing. More so, risks arising from its market making business may also lead to revision in outlook to /Negative'. |
| About the Group |
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Choice International Ltd., was incorporated on March 12, 1993, as public limited company in the name of Choice Financial Services Ltd. Since then, the Choice International along with its network of subsidiaries, has been providing Investment Banking, Stock Trading, Management Consulting and E-Commerce services to its clients. The company is a registered non-deposit taking NBFC with RBI. However it does not carry out any operations now as the LAS business, which it used to carry out previously, has been transferred to Choice Finserv (wholly owned subsidiary of CIL) w.e.f June 1st, 2016. The Company is also registered with Securities and Exchange Board of India (SEBI) as a Category IV Merchant. |
| Key Financial Indicators | ||||||||||||||||||||||||||||
*Networth has been adjusted for intangible assets, balance in revaluation reserve, investment in associate companies |
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | |||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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| Links to related criteria |
| CRISILs Bank Loan Ratings - process, scale and default recognition |
| Rating Criteria for Securities Companies |
| For further information contact: | ||||||
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