Rating Rationale
April 16, 2021 | Mumbai
INFINA Finance Private Ltd
'CRISIL A1+' assigned to Commercial Paper Issue
 
Rating Action
Rs.4000 Crore Commercial Paper Issue&CRISIL A1+ (Assigned)
Rs.1300 Crore Commercial PaperCRISIL A1+ (Reaffirmed)
& Assigned for initial public offering/ open offer financing on episodic basis and/or application on proprietary account
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL A1+’ rating to the Rs 4,000 crore commercial paper issue of INFINA Finance Pvt Ltd (INFINA). The rating on the company’s existing debt has been reaffirmed at ‘CRISIL A1+’.

 

The rating continues to reflect INFINA’s healthy capitalisation, financial flexibility and expectation of significant benefits accruing to it as an associate of Kotak Mahindra Bank Ltd (KMBL; rated ‘CRISIL AAA/CRISIL AA+1/FAAA/Stable/CRISIL A1+’). Being an associate of KMBL, INFINA benefits from the Kotak group’s expertise in financial markets, and robust risk management and processes. These strengths are partially offset by volatility in INFINA’s earnings, given its correlation with capital markets, and the company’s susceptibility to risks inherent in the securities-based lending and proprietary trading businesses. Nevertheless, increasing share of security-based lending is expected to gradually provide stability to the earnings profile.

Analytical Approach

CRISIL Ratings has considered the standalone business and financial risk profiles of INFINA. CRISIL Ratings has also factored in the expectation of significant benefits and financial flexibility available to it as an associate of KMBL.

Key Rating Drivers & Detailed Description

Strengths:

  • Significant benefits and financial flexibility as an associate of KMBL:

The rating centrally factors in the expectation of strong managerial and operational support as well as access to capital from INFINA’s sponsors. KMBL, through its wholly-owned subsidiary, Kotak Mahindra Capital Company Ltd (KMCC), holds 49.99% stake in INFINA and the remaining is held by entities promoted by the Kotak family. While INFINA does not carry the Kotak name, it is widely recognised as a Kotak group-sponsored company.

 

CRISIL Ratings believes INFINA will continue to receive strong support from the promoters -- given the company’s high strategic importance as it complements the group’s product offerings.  It is expected that the promoters will act in concert to provide support to INFINA in-line with permissible regulations, if the need arises. INFINA not only benefits from the franchise of being an associate of KMBL, but also follows some of the Kotak group’s robust policies and processes and effective risk management procedures in securities-based lending and proprietary trading. Further, it benefits from management and governance philosophy of the Kotak group, which extends its oversight over the company.

 

  • Healthy capitalisation:

Capital position is healthy, with large networth of Rs 1773 crore and overall capital adequacy ratio of 117.5% as on September 30, 20202. Gearing was nil as on that date. Even adjusting for the capital allocated for proprietary trading, gearing has been negligible on a steady-state basis. Gearing peaked around 6 times when the company contracted debt to fund initial public offering (IPO). With moderate business projected for the near term, gearing is not expected to exceed 1 time (excluding capital allocated for proprietary trading activity) on a steady-state basis, and 8 times on an episodic basis, leading to continued healthy capitalisation.

 

Weakness:

  • Volatile earnings profile:

Given the inherent volatility in INFINA’s businesses because of its high correlation with equity markets, earnings tend to be volatile. In the proprietary trading segment, INFINA primarily follows a long-short strategy and the portfolio is constructed to ensure significantly lower volatility compared to the overall market. However, income from this segment remains linked to the capital markets, and hence, is uncertain and volatile.  Further, shift to Indian Accounting Standard (Ind-AS), and hence recognition of unrealised fair valuation gain (along with loss that was already being recognised as per IGAAP) is expected to increase the volatility in earnings. However, given the increasing share of capital market lending, earnings is expected to gradually stabilise over the medium term.

 

The company reported a loss of Rs 51 crore in fiscal 2020, on account of lower proprietary trading profits and a difficult macro environment towards the end of the fiscal on account of Covid-19. For 6 months ended September 30, 2020, the company reported profit after tax (PAT) of Rs 67.7 crore on total income of Rs 105.7 crore (Rs 46.4 crore and Rs 115.9 crore, respectively, a year earlier.

 

  • Risks associated with proprietary trading in equities and securities-based lending business: The securities-based lending business is susceptible to significant counterparty and liquidity risks, to fluctuations in the market value of collateral, and to concentration in collateral and clientele. Business volumes also tend to be cyclical. Even in the proprietary trading segment, earnings are uncertain and exposed to capital market risks.

Liquidity: Strong

The asset liability management profile was comfortable with positive cumulative mismatches in the up to 1 year bucket as on January 31, 2021. Liquidity is also supported by cash and bank balance of Rs 12 crore, fixed deposits of Rs 173 crore and liquid /overnight mutual fund investments of Rs 294 crore as on December 31, 2020. The total borrowings were Rs 65 crore as on same date. The company also benefits from its association with Kotak Mahindra Bank Ltd.

Rating Sensitivity factors

Downward Factors

  • Deterioration in capitalisation levels, with gearing above 3.5 times on a steady-state basis.
  • Decrease in the benefits derived from the Kotak group, impacting the financial flexibility of the company

About the Company

INFINA is registered with the Reserve Bank of India as a non-deposit-taking, non-banking financial company. INFINA had strategic investment in the telecommunications sector, which was divested in March 2006. The proceeds were invested in tax-saving bonds, which matured in 2009, post which the company commenced IPO financing on a larger scale and proprietary trading in equity. Recently, the company has started focusing on loan against securities (LAS) and other businesses.

 

For fiscal 2020, INFINA, under Ind AS, reported a loss of Rs 51.3 crore on total income of Rs 111.2 crore as against Rs 30.6 crore and Rs 93.5 crore, respectively, in the previous fiscal. For 6 months ended September 30, 2020, the company reported PAT of Rs 67.7 crore on total income of Rs 105.7 crore as against Rs 46.4 crore and Rs 115.9 crore, respectively, for the corresponding period the previous fiscal.

 

1For Perpetual Non-Cumulative Preference Shares

2September financials are unaudited.

Key Financial Indicators

As on/for the year ended Sep 30*

Unit

2020

2019

Total assets

Rs crore

1809.1

1817.6

Total income

Rs crore

105.7

115.9

Profit after tax

Rs crore

67.7

46.4

Gross NPA

%

Nil

Nil

Gearing

Times

Nil

Nil

Return on assets

%

6.9

5.2

   *Unaudited

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.Crore)

Complexity Levels

Rating assigned with outlook

NA

Commercial paper issue*

NA

NA

7-30 days

4,000

Simple

CRISIL A1+

NA

Commercial paper programme

NA

NA

7-365 days

1,300

Simple

CRISIL A1+

*Assigned for initial public offering/ open offer financing on episodic basis and/or application on proprietary account

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper ST 1300.0 CRISIL A1+ 07-04-21 CRISIL A1+ 15-12-20 CRISIL A1+ 24-12-19 CRISIL A1+ 11-12-18 CRISIL A1+ CRISIL A1+
      -- 15-03-21 CRISIL A1+ 03-12-20 CRISIL A1+ 29-11-19 CRISIL A1+ 17-09-18 CRISIL A1+ --
      -- 04-03-21 CRISIL A1+ 30-09-20 CRISIL A1+ 25-11-19 CRISIL A1+ 13-08-18 CRISIL A1+ --
      -- 16-02-21 CRISIL A1+ 22-09-20 CRISIL A1+ 01-10-19 CRISIL A1+ 25-07-18 CRISIL A1+ --
      -- 03-02-21 CRISIL A1+ 08-09-20 CRISIL A1+ 30-07-19 CRISIL A1+ 21-06-18 CRISIL A1+ --
      -- 19-01-21 CRISIL A1+ 30-07-20 CRISIL A1+ 26-06-19 CRISIL A1+ 10-05-18 CRISIL A1+ --
      --   -- 28-02-20 CRISIL A1+ 04-04-19 CRISIL A1+ 14-03-18 CRISIL A1+ --
      --   --   --   -- 28-02-18 CRISIL A1+ --
      --   --   --   -- 15-02-18 CRISIL A1+ --
      --   --   --   -- 31-01-18 CRISIL A1+ --
      --   --   --   -- 11-01-18 CRISIL A1+ --
Commercial Paper Issue ST 4000.0 CRISIL A1+ 07-04-21 Withdrawn 15-12-20 CRISIL A1+ 24-12-19 CRISIL A1+ 11-12-18 Withdrawn CRISIL A1+
      -- 15-03-21 CRISIL A1+ 03-12-20 CRISIL A1+ 29-11-19 CRISIL A1+ 17-09-18 CRISIL A1+ --
      -- 04-03-21 CRISIL A1+ 30-09-20 CRISIL A1+ 25-11-19 CRISIL A1+ 13-08-18 CRISIL A1+ --
      -- 16-02-21 CRISIL A1+ 22-09-20 CRISIL A1+ 01-10-19 CRISIL A1+ 25-07-18 CRISIL A1+ --
      -- 03-02-21 CRISIL A1+ 08-09-20 CRISIL A1+ 30-07-19 CRISIL A1+ 21-06-18 CRISIL A1+ --
      -- 19-01-21 CRISIL A1+ 30-07-20 Withdrawn 26-06-19 CRISIL A1+ 10-05-18 CRISIL A1+ --
      --   -- 28-02-20 CRISIL A1+ 04-04-19 CRISIL A1+ 14-03-18 CRISIL A1+ --
      --   --   --   -- 28-02-18 CRISIL A1+ --
      --   --   --   -- 15-02-18 CRISIL A1+ --
      --   --   --   -- 31-01-18 CRISIL A1+ --
      --   --   --   -- 11-01-18 CRISIL A1+ --
Short Term Debt ST   --   --   --   --   -- CRISIL A1+
All amounts are in Rs.Cr.
 
 

   

Criteria Details
Links to related criteria
Rating Criteria for Finance Companies
CRISILs Criteria for rating short term debt

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