Rating Rationale
June 26, 2023 | Mumbai
Infina Finance Private Limited
Rated amount enhanced for Commercial Paper
 
Rating Action
Rs.2500 Crore (Enhanced from Rs.2000 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 A1+’ rating to commercial paper of Infina Finance Private Limited (INFINA).

 

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]/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.

 

[1] For Perpetual Non-Cumulative Preference Shares

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 2,307 crore and overall capital adequacy ratio of 66.89% as on March 31, 2023. Gearing was 0.4 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 2.0 times (excluding capital allocated for proprietary trading activity) on a steady-state basis, and 8 times on an episodic basis, leading to continued healthy capitalisation. However, RBI’s circular (w.e.f. April 01, 2022) restricts NBFCs from lending more than Rs 1 crore per borrower for IPO financing. Accordingly, this business will not remain a focus for the Company going forward. Even factoring in the episodic IPO financing done by the company, it is expected to maintain capital adequacy ratio above the regulatory minimum at all points of time.

 

Weaknesses:

  • 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 followed a long-short strategy and the portfolio was constructed to ensure significantly lower volatility compared to the overall market. However, income from this segment remained linked to the capital markets, and hence, had uncertain and volatile returns. For the same reason, the company has decided to wind down their proprietary business and focus on the LAS business. Thus, given predominant shift to LAS going forward, earnings are expected to gradually stabilise over the medium term.

 

The company reported profit after tax (PAT) of Rs 106 crore in fiscal 2023 compared to PAT of Rs 270 crore in fiscal 2022, with the decline primarily attributable to lower gains in proprietary business & absence of IPO financing income in FY23.

 

  • 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 April 30, 2023. As on May 31, 2023, INFINA had liquidity of Rs 503 cr comprising Rs 4 cr cash, Rs 38 cr FDs, Rs 74 cr CDs, and Rs 387 cr liquid investments. Against this, it had debt maturing over next three months at Rs 707 cr. Also, management indicated that they have put option for majority of the loan book. It also has investments which are highly liquid in nature, further supported by strong financial flexibility from being an associate of Kotak Mahindra Bank.

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. Going forward, the company’s primary focus segment is the loan against securities (LAS) business.

 

For fiscal 2023, the company reported PAT of Rs 106 crore on total income of Rs 228 crore as compared to that in 2022, where the company, reported PAT of Rs 270 crore on total income of Rs 536 crore

Key Financial Indicators

As on / for the year ended March 31

 

2023

2022

Total assets

Rs crore

3326

3163

Total income

Rs crore

228

536

Profit after tax

Rs crore

106

270

Gross NPA

%

Nil

Nil

Gearing

Times

0.4

0.4

Return on assets

%

3.3

9.9

 

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.crisilratings.com. 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

Commercial paper programme

NA

NA

7-365 days

2,500

Simple

CRISIL A1+

 

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper ST 2500.0 CRISIL A1+   -- 28-06-22 CRISIL A1+ 14-07-21 CRISIL A1+ 15-12-20 CRISIL A1+ CRISIL A1+
      --   --   -- 06-07-21 CRISIL A1+ 03-12-20 CRISIL A1+ --
      --   --   -- 15-06-21 CRISIL A1+ 30-09-20 CRISIL A1+ --
      --   --   -- 16-04-21 CRISIL A1+ 22-09-20 CRISIL A1+ --
      --   --   -- 07-04-21 CRISIL A1+ 08-09-20 CRISIL A1+ --
      --   --   -- 15-03-21 CRISIL A1+ 30-07-20 CRISIL A1+ --
      --   --   -- 04-03-21 CRISIL A1+ 28-02-20 CRISIL A1+ --
      --   --   -- 16-02-21 CRISIL A1+   -- --
      --   --   -- 03-02-21 CRISIL A1+   -- --
      --   --   -- 19-01-21 CRISIL A1+   -- --
Commercial Paper Issue ST   --   -- 28-06-22 Withdrawn 14-07-21 CRISIL A1+ 15-12-20 CRISIL A1+ CRISIL A1+
      --   --   -- 06-07-21 CRISIL A1+ 03-12-20 CRISIL A1+ --
      --   --   -- 15-06-21 CRISIL A1+ 30-09-20 CRISIL A1+ --
      --   --   -- 16-04-21 CRISIL A1+ 22-09-20 CRISIL A1+ --
      --   --   -- 07-04-21 Withdrawn 08-09-20 CRISIL A1+ --
      --   --   -- 15-03-21 CRISIL A1+ 30-07-20 Withdrawn --
      --   --   -- 04-03-21 CRISIL A1+ 28-02-20 CRISIL A1+ --
      --   --   -- 16-02-21 CRISIL A1+   -- --
      --   --   -- 03-02-21 CRISIL A1+   -- --
      --   --   -- 19-01-21 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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