Rating Rationale
October 30, 2018 | Mumbai
IIFL Securities Limited
Rated amount enhanced 
 
Rating Action
Rs.1050 Crore Commercial Paper (Enhanced from Rs.1000 Crore) 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 commercial paper of IIFL Securities Limited (IIFL Securities; part of the IIFL group) at 'CRISIL A1+'.

On January 31, 2018, IIFL group (IIFL Holdings Ltd [IIFLHL] and its subsidiaries) announced plans to reorganize its corporate structure which will result in listing of three entities ' IIFL Finance (loans and mortgages business), IIFL Wealth (wealth and asset management business), and IIFL Securities (capital markets and other businesses). IIFLHL, which is currently the holding company of the group, will cease to exist after the reorganisation. The scheme of arrangement will be subject to necessary shareholder, regulatory, and other approvals, some of which are still awaited.

CRISIL believes IIFL Securities (including subsidiaries), as a distinct operating company, will retain its credit risk profile from a short-term debt-servicing perspective. The company should also continue to benefit from the common key promoter holding and common branding with IIFL Finance and IIFL Wealth. The ratings also takes into account the leading presence of IIFL Securities in broking and investment banking businesses. The rating further factors in the benefits accruing from IIFL group's diversified presence in the financial services space. These rating strengths are partially offset by exposure to uncertainties inherent in capital-market-related businesses.

Analytical Approach

For arriving at the ratings, CRISIL has assessed the consolidated business and financial risk profiles of IIFL Securities (including its subsidiaries). CRISIL has also factored in the synergies that the company will have with IIFL Finance and IIFL Wealth given their common promoters and a shared brand name. CRISIL will continue to track developments on regulatory and other requisite approvals for the reorganisation and reflect the same in its analytical approach as appropriate.

Key Rating Drivers & Detailed Description
Strengths:
* IIFL group's diversified presence in the financial services space
IIFL Securities, the group's broking arm, is among the large players in the retail broking segment. It also has a presence in the institutional, currency, commodity broking, and investment banking segments. The company is a member of the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), and also provides a trading platform to customers on two of India's leading commodity exchanges.

IIFLHL, the current holding company of the IIFL group, holds majority stakes in various subsidiaries. These operate in the retail and commercial finance; broking: equity, commodity, and currency; third-party financial product distribution; and wealth management businesses. The individual businesses are currently managed by experienced professionals who have a long track record with the IIFL group.

The lending business of IIFHL is carried out through IIFL Finance and IIFL Home Finance Limited (IIFL Home Finance). The AUM in this segment was Rs 33,653 crore as on June 30, 2018. The wealth management business has a strong distribution presence across products with sizable assets under advisory at Rs 1.4 lakh crore as on June 30, 2018.

* Leading presence in broking and investment banking business
IIFL Securities is among the large players in the retail broking segment. The company has a pan-India presence with more than a million clients, and had a market share of 1.01% of the aggregate volumes (cash and derivatives segments) of BSE and NSE for fiscal 2018 (1.09% in fiscal 2017).  It also has a presence in the institutional, currency, and commodity broking segments. Additionally, it distributes mutual funds and insurance products through its website and branch network. The company had 195 own branches and a franchise network of around 4,000 branches as on March 31, 2018. It has a strong research team for both retail and institutional broking segments, actively covering about 500 stocks as on March 31, 2018. Risk management and monitoring systems are adequate to mitigate risks arising from uncertainties inherent in the retail-broking business. 

Moreover, the group has emerged as a leading domestic investment banker recently, participating in some of the marquee initial public offerings and qualified institutional placements in fiscals 2017 and 2018. Merchant and investment banking, carried out under IIFLHL currently, will move to IIFL Securities as part of the reorganisation. 

The company is likely to maintain its leading position in the equity-broking segment over the medium term, supported by its wide reach, sound research capabilities, and comprehensive and sophisticated internet-based trading platform.

Weakness
* Exposure to uncertainties inherent in capital-market-related businesses
The company's main businesses remain exposed to economic, political, and social factors that drive investor sentiments. Given the cyclical nature of the business, the brokerage volumes and earnings are highly dependent on the level of trading activity in the capital markets. However, the impact on earnings is partially offset by the high share of business originated through franchisees, resulting in a more variable cost structure compared with that of peers.

* Liquidity Position:
IIFL Group has adequate liquidity in the form of cash & cash equivalents, unutilised bank lines and liquid asset book to meet the upcoming debt repayments of the group.

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, while IICL (India Infoline Commodities Ltd) provides a trading platform to its customers on two of India's leading commodity exchanges, the National Commodity and Derivatives Exchange Ltd (NCDEX), and the Multi-Commodity Exchange of India Ltd (MCX).

The India Infoline group reorganised the group holding structure (effective April 2013) and created IIFLHL (erstwhile India Infoline Ltd) as a holding company, with merchant banking as its only direct business. As a part of the reorganisation, the group transferred the broking, depository participant, and portfolio management services to India Infoline Distribution Co Ltd, which has been renamed IIFL Securities.

IIFLHL is currently the holding company of the IIFL group and holds majority stakes in various subsidiaries including IIFL Finance. Through its main businesses in the lending, wealth management, and securities verticals, the company offers a wide range of financial products and services, including retail finance, wealth management, broking, investment banking, and distribution of life insurance.

The Canada-based Fairfax group holds 35.43% equity stake in IIFLHL.

IIFL Securities had total income and profit after tax (PAT) of Rs 451 crore and Rs 180 crore, respectively, in fiscal 2018 against Rs 392 crore and Rs 98 crore respectively for the previous fiscal. For the quarter ended June 30, 2018, total income and PAT were Rs 222 crore and Rs 52 crore respectively, against Rs 219 crore and 49 crore respectively for the corresponding period of the previous fiscal.

The IIFL group had a PAT of Rs 1,162 crore on total income of Rs 6,437 crore in fiscal 2018, against a PAT of Rs 822 crore on total income of Rs 4,924 crore in the previous fiscal. For the quarter ended June 30, 2018, the PAT was Rs 345 crore on total income of Rs 1806 crore, against Rs 253 crore and Rs 1,435 crore, respectively, for the corresponding period of the previous fiscal.
Key Financial Indicators - IIFL Securities (CRISIL adjusted numbers)
As on/for the period ended March 31  Unit 2018 2017
Total Assets Rs crore 2177 1790
Total income Rs crore 451 392
Profit after tax Rs crore 180 98
Return on assets % 9.1 5.5
Gearing Times 0.8 0.0

IIFL Holdings Limited (CRISIL adjusted numbers)
As on/for the period ended March 31 Unit 2018 2017
Total Assets Rs crore 43703 33760
Total income Rs crore 6437 4924
Profit after tax Rs crore 1162 822
Gross NPA* % 1.7 1.8
Return on assets (annualized) % 3.0 2.9
Adjusted gearing Times 5.5 4.8
*Mar-18 numbers are on 90+dpd and Mar-17 on 120+dpd

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) Outstanding rating with Outlook
NA Commercial Paper NA NA 7 to 365 days 1050.0 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
Commercial Paper  ST  1050.00  CRISIL A1+  04-09-18  CRISIL A1+    --    --    --  -- 
Non Convertible Debentures  LT    --    --    --    --  01-10-15  Withdrawal  CRISIL AA-/Stable 
Short Term Debt  ST    --    --    --    --  01-10-15  Withdrawal  CRISIL A1+ 
Short Term Debt (Including Commercial Paper)  ST      13-08-18  CRISIL A1+  29-09-17  CRISIL A1+    --    --  -- 
        09-05-18  CRISIL A1+               
        09-02-18  CRISIL A1+               
All amounts are in Rs.Cr.
Links to related criteria
Rating Criteria for Securities Companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

For further information contact:
Media Relations
 Analytical Contacts
 Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com
Krishnan Sitaraman
Senior Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 8070
krishnan.sitaraman@crisil.com

Rama Patel
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 4254 1919
rama.patel@crisil.com

Mona Khetan
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3032
Mona.Khetan@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. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are 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

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets 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 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.

CRISIL PRIVACY
 
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 forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of 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 providing or intending to provide any services in jurisdictions where CRISIL 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 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 or otherwise 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 Rating 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 assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL 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.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL 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 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 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. CRISIL’s public ratings and analysis 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 web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING 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 a prior written consent of CRISIL.

All rights reserved @ CRISIL