| Investec Capital Services India Private Limited | ||||
| Rating reaffirmed at 'CRISIL AA+ / Stable' | ||||
| Rating Action | ||||
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| 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 AA+/Stable’ rating on the long-term bank facility of Investec Capital Services India Private Limited (Investec India).
The rating centrally factors in the strategic importance of Investec India to, and expectation of strong support from, its ultimate parent, Investec Bank Plc (IBP). IBP, through its subsidiaries, holds 80.3% stake in Investec India and the balance 19.7% is held by SBI Capital Markets Ltd (SBICAPS), which also views the joint venture (JV) as strategically important vehicle to drive the equity capital markets (ECM) business.
The rating also factors in Investec India’s adequate capitalisation for the current and planned scale of operations, and the company’s experienced management team. These strengths are partially offset by the small, albeit improving, scale of operations and exposure to risks inherent in capital market businesses. Over the medium to long term, profitable scale up of the businesses and performance during an adverse capital market cycle will be a key monitorable.
Investec India was incorporated in 2010 as an indirect subsidiary of IBP. The company is engaged in corporate advisory, credit markets, institutional equities and research and ECM businesses. Each of these businesses are spearheaded by experienced management teams and, receive strategic guidance from IBP. For the ECM business, Investec India has a business arrangement with SBICAPS which has yielded favourable results in terms of Investec India’s market position.
CRISIL Ratings has also noted that earlier SBICAP was expected to increase its shareholding in IBP to ~40% (from its exiting shareholding of 19.7%) in Investec India. However, that plan will not materialize now owing to the regulators not according approval for the same. |
Analytical Approach CRISIL Ratings has considered the standalone credit risk profile of Investec India and, has factored in the support it receives from IBP on account of the former’s strategic importance to, and shared brand name and operational linkages with IBP. |
Key Rating Drivers & Detailed Description Strengths: Expectation of strong support from, and strategic importance to, IBP The rating centrally factors in the expectation of strong operational and managerial support to Investec India from IBP. The entity was set up by IBP to gain access to Indian market which is intrinsic to the bank’s global growth strategy and considering the optimistic growth prospects for India – Investec India remains strategically important to IBP. IBP has four board seats out of seven in India and two representatives (Mr Kevin McKenna, Chief Risk Officer of IBP [on the board of other Investec group companies] and Mr David Van Der Walt, ex-CEO of IBP) on the board of Investec India. Furthermore, the country head, Mr Ajeeth Narayan, is deputed from IBP. The risk management systems of Investec India have been drawn upon from IBP and the latter is involved in the strategic operations of the company.
Investec India was reconstituted as a JV in June 2021, with SBICAPS acquiring 19.7% stake, to enhance its market position in the ECM segment and derive other synergies from the association. Nevertheless, IBP is committed to support the venture given the strategic importance and strong moral obligation by virtue of shared brand name and associated reputation risk.
SBICAPS also views the JV as an important vehicle for its ECM segment and is involved both at the board level as well as in the daily functioning of the ECM business. Both the partners act in concert on strategic and key operational decisions.
Adequate capitalisation Capitalisation is adequate, reflected in networth of Rs 222 crore as on March 31, 2023, largely supported by internal cash accrual. Given the nature of businesses, capital requirement is largely for placing margins at stock exchanges. As these activities are largely non-capital intensive, the networth is likely to remain comfortable for the current and planned scale of operations.
Experienced senior management Investec India has a seasoned senior management team with significant experience in their respective segment. The country head for India business, Mr Ajeeth Narayan has over 30 years of banking experience and has been deputed from IBP. Mr Vikram Surana, who heads the corporate finance and ECM segments has spent over 20 years (of which 17 years) are in the advisory segment and has worked on many deals in various sectors in the mergers and acquisitions (M&A. The head of credit markets, Mr Piyush Gupta, has nearly 30 years of experience in the Indian credit and fixed income markets and was previously the managing director (MD) and head of fixed income at JP Morgan. Mr. Mukul Kochhar who heads the institutional equities, has nearly 25 years of experience in the space. Mr. Rambhushan Kanumuri has over 28 years of experience and is the Chief Strategy and Operating Officer responsible for the central services supporting the growth of the various businesses. Ms. Neha Shah, the Chief Financial Officer, has an experience of over 12 years.
CRISIL Ratings believes the rich experience of the management will stand Investec India in good stead as it scales up its business.
Weaknesses: Small, albeit improving, scale of operations Investec India commenced operations in 2010. It has gradually set up presence across corporate finance advisory, credit markets, ECM and institutional equities and research and the company continues to scale up its businesses.
In the corporate advisory segment, it provides strategic advice including private equity fund raise, mergers, acquisitions and strategic partnership.
In the credit markets segment, Investec India provides credit solutions to mid-market corporates and private equity sponsors for various debt financing requirements such as structured private credit solutions, acquisition and leverage financing, growth financing, bridge financing, stake consolidation and dividend recapitalisation. The company has been growing in prominence in the private credit space catering to mid-sized corporates. The team size has also been augmented in these segments in alignment with the scale-up plan. The company is also the investment manager to the AIF Category 2 Fund
In the institutional equities segment, the company has empanelment with both domestic and overseas clients and is supported by an experienced research team. Investec India, till recently, was present only in the cash segment and has entered the derivatives segment in May 2022, which is expected to improve its market position in the institutional equities segment. In the ECM business, the JV with SBICAP has strengthened the company’s position, improving its ranking in league tables.
Nevertheless, the current scale of operations is moderate and profitable scale-up remains to be demonstrated.
Exposure to risks inherent in capital market businesses and volatility in earnings Investec India’s capital market businesses (institutional equities, corporate advisory, ECM and credit markets) are susceptible to economic, political and social factors which drive corporate and investor sentiments. The company's brokerage volumes and deal flows will be susceptible to the vagaries of the capital market. The company has been profitable since fiscal 2018 and the internal accruals have been supporting the capital position. Profitable scale up of the businesses, and performance during capital market cycles is a key monitorable. |
Liquidity: Strong Liquidity is strong owing to the agency nature of business and nil borrowings. (Investec India needs funds for meeting margin requirement at the exchanges; this is met through own funds.) The company had cash and bank balance of over Rs 200 crore as on June 30, 2023, which constituted over 70% of its overall balance sheet size. |
Outlook: Stable CRISIL Ratings believes Investec India will continue to receive strong support from IBP because of the strategic importance of the India operations and the latter’s moral obligation towards the company. |
Rating Sensitivity factors Upwards factors
Downward factors
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About the Company Investec India was incorporated in June 2010 as a stepdown subsidiary of Investec Bank Plc. Investec India provides merchant banking, stock broking, research, financial advisory and other related services. SBICAP acquired 19.7% stake in the company in June 2021.
In fiscal 2023, Investec India reported profit after tax (PAT) of Rs 49.5 crore on total income of Rs 222 crore, compared with PAT of Rs 40 crore on total income of Rs 173 crore in fiscal 2022. It reported a PAT of Rs 13.1 crore on total income of Rs 55 crore as on June 30, 2023. |
About Investec Bank Plc IBP is a bank based in the UK; it provides a range of financial products and services to clients primarily based in the UK. It has a number of other distribution and origination channels to support the underlying core businesses in the Channel Islands, India, Ireland, Switzerland and the USA. IBP’s offerings are broadly classified into two principal divisions: specialist banking, and wealth and investments. Specialist banking activities include corporate and investment banking activities and high networth individuals (HNI) – private client banking activities. In the wealth and investment segment, IBP services private clients, trusts, charities, intermediaries and pension schemes as a wealth/investment manager.
On 4 April 2023, Investec Group announced that it had entered into a definitive agreement with Rathbones to combine their UK wealth-management businesses which is expected to result in funds under management and administration of approximately £ 100 billion. The transaction has received shareholder and regulatory approval and is expected to come into effect by end of September 2023. This will involve Rathbones issuing new shares in exchange for Investec wealth and investment UK's share capital, and IBP is expected to hold 41.25% stake in Rathbones Group post the scheme of arrangement comes into effect and have 29.9% voting rights.
In fiscal 2023, IBP reported net profit of £[1] 313 million (£ 232.9 million in fiscal 2022) on total assets of £ 28.2 billion (£ 27.6 billion as on March 31, 2022). As on March 31, 2023, assets under management were £ 42.4 billion (£ 44.4 billion as on March 31, 2022) and customer deposits £ 19.3 billion (£ 18.6 billion as on March 31, 2022).
Gross stage-3 and net stage-3 assets were 2.3% and 1.8%, respectively, as on March 31, 2023 (2.1% and 1.6% as on March 31, 2022). Common equity tier-1 and overall capital adequacy ratio were 12.7% and 18.5% as on March 31, 2023 (12% and 18.2% a year earlier). [1] Exchange rate as on September 01, 2023: 1 Pound sterling = Rs 104.90 |
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Any other information: Not applicable |
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Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||
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Criteria Details
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