| JM Financial Institutional 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 |
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CRISIL has reaffirmed its Commercial Paper programme rating on the JM Financial Institutional Securities Limited (JMFISL) at 'CRISIL A1+'. |
| Analytical Approach |
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For arriving at its ratings, CRISIL has combined the business and financial risk profiles of all companies within the JM Financial group, including the NBFC, JM Financial Credit Solutions Ltd where a fund raised by Mr. Vikram Pandit has 49.99% stake. The group also includes JM Financial Asset Reconstruction Company Ltd (JMARC; rated 'CRISIL AA-/Stable/CRISIL A1+') where JM Financial Group has 50.01% stake and is now a subsidiary of JM Financial Limited. This is because of the significant operational and financial integration among the group companies, and their common senior management team and shared brand. All the companies are collectively referred to as the JM Financial group. |
| Key Rating Drivers & Detailed Description |
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Strengths * Healthy capitalisation The group will remain sufficiently capitalised to support growth plans over the medium term, especially in the wholesale lending business that will provide cushion against asset-side risks. Financial policy is conservative. Networth (including minority interest and excluding goodwill) was sizeable at Rs 4,336 crore as on March 31, 2017 (Rs 3,473 crore as on March 31, 2016). Moreover, gearing (including debt and equity of JMARC) remained comfortable at 2.5 times as on March 31, 2017 (2.0 times as on March 31, 2016). Despite increasing scale of operations in the lending business, adjusted gearing will not exceed 3.5 times on a steady state basis over the medium term. * Established market position in the capital markets-related businesses The group will benefit significantly from buoyancy in the capital markets over the medium term, given its strong market position across business segments. It has developed a strong franchise in key operating segments such as investment banking, wealth management, and securities-based lending. This is aided by the track record and reputation of its experienced management and healthy client relationship. Furthermore, management has been conservative in its risk philosophy. Total revenue and net profit (including minority interest and profit from associate) increased year-on-year by 40% and 23%, respectively, during fiscal 2017, backed by traction in the capital market- and lending-based businesses. Return on networth1 improved marginally to 16.6% from 16.0% for fiscal 2016. This will continue over the medium term and will strengthen accrual and capitalisation, as seen in the past few quarters. * Diversification benefits to accrue from scale up in the wholesale lending business The JM Financial group plans to significantly increase scale in the wholesale lending business through JM Financial Credit Solutions and JM Financial Products Ltd. Loan book was Rs 11,343 crore as on March 31, 2017 (Rs 7,215 crore as on March 31, 2016). The wholesale loan book witnessed more than five-fold growth to Rs 9,667 crore as on March 31, 2017, from Rs 1,643 crore as on March 31, 2013, and accounted for 85% of the portfolio as on March 31, 2017. This is likely to continue to grow at a healthy pace over the medium-term. * Strong risk management practices Credit risk profile is supported by strong risk management practices to deal with market, credit, liquidity, operational, and counterparty risks, which mitigate the risk of potential losses in the broking and lending businesses. Track record of low delinquencies and negligible write-offs in the broking and securities-based lending businesses, despite cyclicality in equity markets, underscores the adequacy of the group's risk management systems. The group has also put in place strong practices to manage inherent risks in the wholesale lending business while growing the lending book. It continues to follow prudent lending policies and has put in place additional controls in recent quarters to manage increased stress in the real estate sector. It focuses on providing funding to select builders/corporates with robust performance track record and with which it has had prior business association. A team of experienced professionals undertakes detailed due diligence, including stress testing, to assess the credit quality of borrowers. The portfolio is regularly monitored, including regular and detailed discussion with borrowers, and end-use monitoring of funds. All the loans are adequately covered by collateral (of 1.5-2.0 times) at all points in time. The group has demonstrated ability to resolve delinquencies in the portfolio at an early stage through identification and quick exit. This is reflected in its relatively low gross non-performing assets of 0.1% as on March 31, 2017 (0.3% on March 31, 2016). Weakness * Asset quality in the wholesale lending business remains inherently vulnerable Asset quality of the wholesale lending business remains susceptible to the performance of the real estate sector and financial flexibility of borrowers. This business also entails high risks given the underlying borrower profile and large ticket size of loans. While the group has adequate origination, underwriting, and credit monitoring systems, ability to maintain healthy asset quality in this business will remain a key rating monitorable. |
| About the Group |
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The JM Financial group has interests in investment banking, retail and institutional equity broking, wealth management, investment advisory services, portfolio management, asset management, commodity broking, securities-based lending, corporate lending, private equity, and asset reconstruction. Clients include corporates, domestic and foreign financial institutions, high-networth individuals, and retail investors. While each of these businesses is independent, companies in the group have integrated operations. JM Financial Ltd is the group's holding company. |
| Key Financial Indicators | ||||||||||||||||||||||||||||
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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) | ||||||||||||||
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release. | |||||||||||||||||||||||||||||||||||||||
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