Rating Rationale

Strengths
* Established market position in the retail equity broking segment
Geojit group has significant presence in retail equity broking segment, especially in high yielding delivery based cash market segment as reflected in its market share of around 0.9% in cash segment during the first nine months of fiscal 2018. This is mainly because the group is largely present in the south Indian market where the retail clients largely engage in delivery based trade as compared to intraday and short term trading

* Adequate capitalisation
The Geojit group is adequately capitalised for its current and planned scale of operations. The group's reported net worth was around Rs 558 crores (excluding minority interest), with nil borrowings, as on March 31, 2018. The gearing has been low over the five years through 2017-18, and is unlikely to exceed 0.5 times over the medium term, in the absence of aggressive growth plans for the fund-based business. CRISIL, therefore, believes that the Geojit group will remain adequately capitalised over the medium term; the group's net worth will continue lending stability to its operations even during volatility in the capital markets.

* Sound risk management systems and promoters rich experience in equity broking industry
The risk management systems and processes are adequate. The company uses a client-grading methodology via which it grades clients on a three-point scale, based on parameters such as turnover details, brokerage earned, and performance of account. Margin funding or loans against shares are provided to clients only upto T-7^th 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 minimize balance sheet risks.

Mr C.J.George, Geojit group's Managing Director, has been engaged in equity broking since early 1980's and later incorporated Geojit in 1987. Mr George's experience helps in providing guidance and direction to the Geojit group, which operates through many associate locations across India.

Weakness
* Challenges in maintaining diversity in income profile across market cycles
Since 2016, Geojit group has made conscious efforts towards improving its distribution business. Consequently contribution from activities other than equity broking have increased to ~30% of total income which will further increase to ~40% over the medium term. Geojit has built systematic investment book (SIP) of Rs 118 crore as on December 31, 2017 compared to Rs 19 crore as on March 31, 2016. As on December 31, 2017, Geojit has market share of 1.98% in the mutual fund distribution segment. However, since most of the investors have not yet seen complete cycle of market since 2016 ability to sustain the SIP book during down cycles in the market shall be key monitorable over the medium term. While the company is focusing on diversifying its revenue stream by focusing on increasing share of the distribution business, CRISIL believes this will take time to scale up and benefits will accrue only over medium term.

* Inherent uncertainties in group's core business of equity broking
CRISIL believes that Geojit group's businesses will remain susceptible to risks related to volatility in capital markets, as the group derives most of its revenue from capital market operations. The broking volumes are dependent on the level of trading activity in the equity markets. Equity markets are inherently volatile, driven by economic and political factors, and investor sentiments. Global events also influence the fortunes of the domestic market. Turnover and volumes in the broking business move sharply in tandem with market sentiments. CRISIL therefore, believes that Geojit group's core business will continue to be driven by the state of the equity markets, and remain volatile over the medium term.