| IIFL Securities Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the commercial paper of IIFL Securities Limited (IIFL Securities).
The rating continues to reflect the leading position of IIFL Securities in the broking and investment banking businesses and its adequate capitalisation. These strengths are partially offset by exposure to uncertainties inherent in capital-market-related businesses.
As the broking business is cyclical, volume and earnings are highly dependent on trading activity in the capital markets. Since March 2020, the stock markets have seen high retail participation and daily trading volume, coinciding with the lockdown to contain the Covid-19 pandemic and people being confined to their homes. The industry saw significant proportion of clients added in the age bracket of 25-30 years, with many being first-time investors. This trend has benefitted all broking players, including IIFL Securities. The company saw sharp uptick in fiscal 2021 to 3.81 lakh customers from 1.49 lakh in the previous fiscal.
Overall turnover from retail clients increased by 51% year on year (y-o-y) in fiscal 2021, and retail brokerage income increased by 42% y-o-y to Rs 304 crore from Rs 214 crore in fiscal 2020. |
Analytical Approach For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of IIFL Securities and its subsidiaries. The rating also factors in the business synergies between IIFL Securities, IIFL Finance Ltd (IIFL Finance) and IIFL Wealth Management Ltd (IIFL Wealth), given their common promoters and shared brand.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
IIFL Securities is among the leading players in the retail broking segment. The company has pan-India presence with more than 3.5 lakh active clients. It had market share of 1.1% of the aggregate turnover volume (cash and derivatives segments) of the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in fiscal 2021 (1.3% in fiscal 2020). It also has a strong institutional equity franchisee, and has emerged as a leading domestic investment banker, participating in some of the marquee initial public offerings (IPOs) and qualified institutional placements in the past few years.
Moreover, the company is present in currency and commodity broking, and offers products such as insurance policies, mutual funds, bonds, and deposits through its website, mobile-app and branch network. It caters to over 2.4 million customers through a network of about 2,500 points of contact, covering the branches and the business partners, across 500 cities in India. Risk management and monitoring systems are adequate to mitigate risks arising from uncertainties inherent in the retail broking business.
Consolidated networth was Rs 968 crore, as on March 31, 2021 (Rs 880 crore as on March 31, 2020), and gearing stood at 0.3 time (0.5 time as on March 31, 2020). The borrowings in the real estate subsidiary are backed by fixed assets of the entity; however, borrowings have reduced over the past few years as the company has deleveraged its balance sheet by disposing off the non-core assets. The broking entity borrows largely to meet margin requirements at the exchanges and finance a modest margin-trading facility book. Capitalisation will remain adequate over the medium term.
Weakness:
The company’s main businesses remain exposed to economic, political and social factors that drive investor sentiments. Brokerage revenue is dependent on the level of trading activity in capital markets. Specifically, since March 2020, the stock markets have seen high retail participation and daily trading volume. A significant proportion of client additions in the industry are in the age bracket of 25-30 years without relevant trading experience. The upward movement of the key benchmark indices has attracted retail investors to market trading. While this has benefited the broking players, including IIFL Securities, sustainability of the market’s momentum needs to be seen. However, the impact on earnings is partially offset by the high share of business coming through franchisees, resulting in a more variable cost structure than that of peers. |
Liquidity: Adequate IIFL Securities, at a consolidated level, has adequate liquidity, supported by the agency nature of its business. As on July 31, 2021, consolidated liquidity stood at Rs 341 crore in the form of cash and equivalent (Rs 32 crore), liquid investments (Rs 159 crore), and unutilized bank lines (Rs 150 crore). Debt obligation is expected at Rs 22 crore in the remaining part of fiscal 2022, which will be funded at a consolidated level. |
Rating Sensitivity factors Downward factors
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About IIFL Securities IIFL Securities, the erstwhile flagship company of the India Infoline group, was set up as Probity Research and Services in October 1995; the name was changed to India Infoline Ltd in March 2000 and to IIFL Securities in May 2018. The company is a member of the BSE and the NSE. IIFL Commodities Ltd (formerly India Infoline Commodities Ltd; a 100% subsidiary of IIFL Securities) sold a major part of its business in a slump sale to IIFL Securities, effective July 1, 2018.
In January 2018, IIFL Finance (earlier IIFL Holdings Ltd) announced plans to reorganise its corporate structure and list the three entities: IIFL Finance (the loans and mortgages business), IIFL Wealth (the wealth and asset management business) and IIFL Securities (the capital markets and other businesses). In May 2019, as part of this restructuring scheme, IIFL Securities and IIFL Wealth were demerged from IIFL Finance. In September 2019, IIFL Securities was listed on the stock exchanges.
As on June 30, 2021, the promoters owned 31% stake in IIFL Securities. The Fairfax group owns 37% and the remaining 32% is held by public.
On a consolidated basis, IIFL Securities reported total income and profit after tax (PAT) of Rs 868 crore and Rs 220 crore, respectively, in fiscal 2021, as against Rs 790 crore and Rs 234 crore (including exceptional items of around Rs 102 crore), respectively, in fiscal 2020. For the first quarter of fiscal 2022, the total income and PAT were Rs 268 crore and Rs 69 crore, respectively, as against Rs 178 crore and Rs 41 crore, respectively, for the corresponding period of the previous fiscal.
On a standalone basis, IIFL Securities reported total income and PAT of Rs 760 crore and Rs 173 crore, respectively, in fiscal 2021, as against Rs 644 crore and Rs 143 crore, respectively, in fiscal 2020. For the first quarter of fiscal 2022, total income and PAT were Rs 234 crore and Rs 53 crore, respectively, as against Rs 158 crore and Rs 39 crore, respectively, for the corresponding period of the previous fiscal. |
Key Financial Indicators IIFL Securities - consolidated (CRISIL Ratings-adjusted numbers)
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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