Rating Rationale
December 06, 2022 | Mumbai
HDFC Securities Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.300 Crore
Long Term RatingCRISIL AAA/Stable (Reaffirmed)
 
Rs.6000 Crore Commercial PaperCRISIL A1+ (Reaffirmed)
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 commercial paper of HDFC Securities Limited (HDFC Securities).

 

The ratings continue to reflect HDFC Securities' strategic importance to, and strong expectation of support from, its parent: HDFC Bank Ltd (HDFC Bank; rated 'CRISIL AAA/CRISIL AA+/Stable'). The ratings also factor in HDFC Securities' comfortable capitalisation. These strengths are partially offset by susceptibility to risks associated with capital market-related businesses.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has factored in support that HDFC Securities is expected to receive from HDFC Bank. This is because HDFC Securities and HDFC Bank have business, managerial, and operational linkages, and a common brand.

Key Rating Drivers & Detailed Description

Strengths:

  • Expectation of support from HDFC Bank

HDFC Securities is an important subsidiary of HDFC Bank, as it complements the bank's product offerings by providing a platform for services related to capital markets and financial products' distribution to the latter's customers. These services not only strengthen the business franchise of the bank, but also support its efforts towards increasing low-cost retail deposit base. The company also helps strengthen the bank's relationships with its clients. Furthermore, there exists strong operational and managerial integration between HDFC Bank and HDFC Securities. The latter benefits significantly from the well-spread retail franchise and nationwide branch infrastructure of the parent. The bank shares its robust technology platform and risk management practices with the company. Moreover, some of the senior management personnel of HDFC Securities, including the managing director and chief executive officer, are on deputation from HDFC Bank. HDFC Securities also has board representation from HDFC Bank. The bank is committed to providing both funding and capital assistance to the company on an ongoing basis to support the latter's business growth over the medium term. The strong operational, managerial, and financial linkages, and significant holding and shared brand name, imply a strong moral obligation on HDFC Bank to support HDFC Securities both on an ongoing basis and in the event of distress.

 

  • Comfortable capitalisation

Capitalisation is comfortable, with net worth of Rs 1,703 crore as on September 30, 2022 (Rs 1,658 crore as on March 31, 2022). Gearing was 2.6 in September 30, 2022 (2.8 as on March 31, 2022). Borrowings are primarily to fund the margin funding book. Net worth should remain adequate for current and planned scale of operations. Capitalisation is also supported by strong parentage of HDFC Bank and healthy internal accruals.

 

  • Strong market position in the equity broking business

HDFC Securities, ranks among the top equity brokers by number of active clients, as on October 31, 2022, in the highly fragmented broking industry. As on October 31, 2022, the company had 11.6 lakh active customers on National Stock Exchange (NSE). HDFC Securities had an active client market share of around 3.3% as of October 31, 2022. Its market share of the combined volumes of the Bombay Stock Exchange and NSE in both the cash and derivatives segments for half year ended fiscal 2022 was around 0.2%, with higher market share in high-yielding cash segment. Around 96% of the total broking turnover in half year ended fiscal 2022 was from the retail segment. For retail customers, the focus continues to be on the high-yield cash segment. The company recently announced plans to launch a discount broking platform to target a larger customer base looking for a different set of services.

 

Weakness:

  • Exposure to risks associated with capital market-related businesses

The company's key broking business remains exposed to economic, political, and social factors that drive investor sentiments. Given the cyclical nature of the business, brokerage volumes and earnings are highly dependent on the level of trading activity in capital markets. This makes earnings and profitability volatile.

Liquidity: Superior

Liquidity is comfortable due to the agency nature of business. The company had unencumbered cash, and unutilised bank facilities of Rs 929 crore as on October 31, 2022. Commercial paper (CP) repayments over November 2022 - February 2023 are Rs 3,865 crore while other bank borrowing repayments are Rs 330 crore during the period. CPs are typically used for margin financing book (Rs 3,103 crore as September 30, 2022) which is a short term product and secured against clients' securities, and the company has been able to successfully raise CPs. The company also benefits from support from the HDFC group.

Outlook: Stable

CRISIL Ratings believes HDFC Securities will continue to benefit from the strong financial, managerial, and operational support from HDFC Bank. The outlook may be revised to 'Negative' if there is significant weakening of the HDFC Bank's credit risk profile, a change in the extent of the bank's ownership of HDFC Securities, or diminution in support from the parent.

Rating Sensitivity factors

Downward factors:

  • Downward change in the credit risk profile of HDFC Bank by 1 notch could have a similar rating change on HDFC Securities.
  • Any material change in the shareholding or support philosophy of HDFC Bank impacting the quantum and timing of support.

About the Company

HDFC Securities, a subsidiary of HDFC Bank, was incorporated in fiscal 2001 as a joint venture between HDFC Ltd and HDFC Bank; Indocean e-Securities Holdings Ltd (Indocean) later joined as a venture capitalist. HDFC bank has increased its stake in HDFC Securities over a period. It held 95.96% stake in HDFC Securities as on September 30, 2022. HDFC Securities had a network of over 209 own branches as on September 30, 2022; it also has an effective internet and call centre model.

 

HDFC Securities offers broking services, both in cash equity and derivatives market segments, including the currency derivatives division. The retail broking segment accounted for about 97% of total broking income in fiscal 2022. Income from broking activities was Rs 1,115 crore, and constituted around 58% of total revenue in fiscal 2022. The company also distributes third-party products, such as mutual funds, insurance, bonds, fixed deposits, initial public offerings, and non-convertible debentures. In fiscal 2019, it started margin trading (total portfolio outstanding at Rs 3,103 crore as on September 30, 2022). Furthermore, the company is one of the largest non-bank distributors for HDFC Life. HDFC Securities caters mainly to the customers of HDFC Bank and is among the equity brokerage firms with a large retail client base; it had over 11 lakh customers as on October 31, 2022. The company remains a strong player in the cash segment; however, its presence in the futures and options market continues to be small. For the year ended March 31, 2022, profit after tax (PAT) was Rs 984 crore on total income of Rs 1,990 crore, against Rs 703 crore and Rs 1,399 crore, respectively, in the previous fiscal.

 

During first half of fiscal 2023, the company reported a net profit of Rs 380 crore on a total income of Rs 901 crore as against Rs 491 crore and Rs 945 crore in corresponding period previous fiscal.

Key Financial Indicators

As on / for the half year ended September 30,

 

2022

2021

Total assets

Rs crore

7,621

6899

Total income

Rs crore

901

945

PAT

Rs crore

380

296

Gross NPA

%

Nil

Nil

Gearing

Times

2.6

2.2

Return on assets

%

9.8

16.8

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisil.com/complexity-levels. 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 crore)

Complexity

level

Rating assigned
with outlook

NA

Long Term Bank Facility*

NA

NA

NA

200

NA

CRISIL AAA/Stable

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

100

NA

CRISIL AAA/Stable

NA

Commercial Paper

NA

NA

7-365 days

6000

Simple

CRISIL A1+

* Limits interchangeable between funded and non-funded facilities

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 300.0 CRISIL AAA/Stable   -- 09-12-21 CRISIL AAA/Stable 07-07-20 CRISIL AAA/Stable 16-05-19 CRISIL AAA/Stable CRISIL AAA/Stable
      --   -- 07-09-21 CRISIL AAA/Stable 27-01-20 CRISIL AAA/Stable   -- --
      --   -- 18-03-21 CRISIL AAA/Stable 22-01-20 CRISIL AAA/Stable   -- --
      --   -- 08-01-21 CRISIL AAA/Stable   --   -- --
Non-Fund Based Facilities ST   --   --   -- 22-01-20 CRISIL A1+ 16-05-19 CRISIL A1+ CRISIL A1+
Commercial Paper ST 6000.0 CRISIL A1+   -- 09-12-21 CRISIL A1+ 07-07-20 CRISIL A1+ 16-05-19 CRISIL A1+ --
      --   -- 07-09-21 CRISIL A1+ 27-01-20 CRISIL A1+   -- --
      --   -- 18-03-21 CRISIL A1+ 22-01-20 CRISIL A1+   -- --
      --   -- 08-01-21 CRISIL A1+   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Long Term Bank Facility* 200 HDFC Bank Limited CRISIL AAA/Stable
Proposed Long Term Bank Loan Facility 100 Not Applicable CRISIL AAA/Stable
This Annexure has been updated on 06-Dec-22 in line with the lender-wise facility details as on 23-Aug-21 received from the rated entity.
* Limits interchangeable between funded and non-funded facilities
Criteria Details
Links to related criteria
Rating Criteria for Securities Companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

Media Relations
Analytical Contacts
Customer Service Helpdesk

Aveek Datta
Media Relations
CRISIL Limited
M: +91 99204 93912
B: +91 22 3342 3000
AVEEK.DATTA@crisil.com

Prakruti Jani
Media Relations
CRISIL Limited
M: +91 98678 68976
B: +91 22 3342 3000
PRAKRUTI.JANI@crisil.com

Rutuja Gaikwad 
Media Relations
CRISIL Limited
B: +91 22 3342 3000
Rutuja.Gaikwad@ext-crisil.com


Krishnan Sitaraman
Senior Director and Deputy Chief Ratings Officer
CRISIL Ratings Limited
D:+91 22 3342 8070
krishnan.sitaraman@crisil.com

Subhasri Narayanan
Director
CRISIL Ratings Limited
D:+91 22 3342 3403
subhasri.narayanan@crisil.com

AMLAN JYOTI BADU
Senior Rating Analyst
CRISIL Ratings Limited
B:+91 22 3342 3000
AMLAN.BADU@crisil.com		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 
 



About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

CRISIL is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL's privacy policy please visit www.crisil.com.



DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale ('report') that is provided by CRISIL Ratings Limited ('CRISIL Ratings'). To avoid doubt, the term 'report' includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, 'CRISIL Ratings Parties') guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee - more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.
 

 

CRISIL Ratings uses the prefix 'PP-MLD' for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html