Rating Rationale
April 26, 2018 | Mumbai
Geojit Financial Services Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.61 Crore
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its rating on the short-term bank facility of Geojit Financial Services Limited (GFSL; part of the Geojit group), at 'CRISIL A1'. GFSL was formerly known as Geojit BNP Paribas Financial Services Ltd.
 
The rating continues to reflect the group's established market presence in the retail broking segment, adequate capitalisation, sound risk management systems and extensive experience of the promoters in the broking business. These rating strengths are partially offset by the group's ability to sustain its diversified income profile across market cycles, and exposure to inherent uncertainties in the equity broking business. 
 
The Geojit group has been reporting healthy earnings over several quarters in the past, with return on equity of 14.0% during first nine months of fiscal 2018. However, the performance is in line with peers, since equity markets have been doing well overall.

Analytical Approach

For arriving at the rating, CRISIL has combined the business and financial risk profiles of GFSL and its subsidiaries. This is because the entities, together referred to as the Geojit group, have integrated operations. GFSL, the flagship company of the Geojit group, undertakes retail broking, and third-party product distribution. The group also comprises Geojit Credits Pvt Ltd (GCPL), Geojit Investment Services Ltd, Geojit Technologies Pvt Ltd, Geojit Financial Distribution Pvt Ltd, and Geojit Financial Management Services Pvt Ltd.

Key Rating Drivers & Detailed Description
Strengths
* Strong and established market position in the retail equity broking segment: The Geojit group has established its presence in the retail equity broking business, mainly in the high-yielding delivery-based cash segment, in which it held around 0.9% market share for the nine months of fiscal 2018. This is because the group is largely present in south India where clients prefer delivery based trade, as compared to intra-day and short-term trading.
 
* Adequate capitalisation: The group is adequately capitalised for its current and planned scale of operations. Tangible networth and gearing were around Rs 522 crore and below 0.1 time, respectively, as on December 31, 2017. Gearing has been low over the five fiscals ended March 31, 2018, and may remain below 1.0 time in the medium term, in the absence of aggressive growth plans for fund-based business. CRISIL the group's networth will continue lending stability to operations even during volatile phases in capital market.
 
* Sound risk management systems and extensive experience of the promoters: The risk management systems and processes are adequate. The company grades its clients on a three-point scale, based on parameters such as turnover, brokerage earned, and performance of account. Clients are provided margin funding or loans against shares only up to T-7th day beyond which, positions are squared off, thus neutralising any adverse impact of risks associated with such products. CRISIL believes adequate risk mitigation measures have been implemented to minimise balance sheet risks.
 
Mr CJ George, the Geojit group's managing director, has been engaged in equity broking since the early 1980's, and incorporated Geojit in 1987. His vast experience brings in guidance and direction to the Geojit group, which operates through many associate locations across India.
 
Weaknesses
* Need to demonstrate ability to sustain diversified income profile across market cycles: Since 2016, the group has made conscious efforts to strengthen its distribution business. The systematic investment plans (SIP) book has grown to Rs 118 crore as on December 31, 2017, from Rs 19 crore as on March 31, 2016, reflecting the group's 1.98% market share in the mutual fund distribution segment. Contribution from activities other than equity broking, which includes depository services, distribution of financial products, portfolio management services, software income and other income, has increased to almost 30% of total income as of December 2017, and may be around 40% over the medium term. However, since most of the investors have not yet seen the complete market cycle since 2016, the ability to sustain the SIP book during down cycles will be closely monitored over the medium term. Moreover, group also has plans to restart its commodity broking business, which will lend further diversity to the revenue profile. However, CRISIL believes these diversification efforts will take time to scale up and benefits will accrue only over medium term.
 
* Inherent uncertainties in the core business of equity broking: CRISIL believes the group's businesses will remain susceptible to volatility in capital markets, which account for bulk of the revenue. The broking volume is dependent on level of trading activity in the equity market, which in turn, is driven by economic and political factors, and investor sentiments. Global events also influence the fortunes of the domestic market.
About the Company

GFSL, the flagship company of the Geojit group, was founded in 1987. The group offers services such as retail broking, depository, equity research, portfolio management, third-party product distribution, and loans against shares (LAS). As on December 31, 2017, the Geojit group had over 500 offices (includes branches and franchisees) across India, and over 900,000 clients. The group also set up broking joint ventures in Dubai, Saudi Arabia, Kuwait, and Oman, to offer equity broking and related services, mainly to non-resident Indians in these countries.
  
For the nine months ended December 31, 2017, the group reported a PAT of Rs 54 crore on a total income of Rs 272 crores as compared to a PAT of Rs 40.7 crore on a total income of Rs 225.9 crore same period last year.

Key Financial Indicators
Particulars Unit 2017 2016
Total assets* Rs Crore 757 652
Total income Rs Crore 305 271
Profit after tax Rs Crore 61 44
GNPA % NA NA
Gearing  Times 0.0 NA
Return on networth % 12.4 9.3
*Adjusted for minority interest and intangible assets

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)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs. Cr) Rating Outstanding with Outlook
N.A Bank Guarantee N.A N.A N.A 61 CRISIL A1
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Fund-based Bank Facilities  LT/ST  61.00  CRISIL A1      23-02-17  CRISIL A1  02-02-16  CRISIL A1      CRISIL A1 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 61 CRISIL A1 Bank Guarantee 51 CRISIL A1
-- 0 -- Proposed Bank Guarantee 10 CRISIL A1
Total 61 -- Total 61 --
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Finance Companies
Rating Criteria for Securities Companies
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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