Kotak Mahindra Investments Limited Rated amount enhanced
Rating Action
*Assigned for application on proprietary account and is over and above Rs 7,000 crore commercial paper programme 1 crore = 10 million Refer to annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/CRISIL PP-MLD AAAr/Stable/CRISIL A1+’ ratings on the bank facilities and debt instruments of Kotak Mahindra Investments Limited (KMIL; part of the Kotak group, which is Kotak Mahindra Bank Ltd [KMBL; rated 'CRISIL AAA/CRISIL AA+[1]/FAAA/Stable/CRISIL A1+'] and its subsidiaries and associates).
CRISIL Ratings has also withdrawn its rating on non-convertible debentures aggregating Rs 964.7 crore and long-term principal protected market-linked debentures of Rs 316.7 crore since the outstanding against the same was nil.
The rating on debt instruments of KMIL continue to reflect KMIL's strategic importance to, and expectation of continued support from the ultimate parent, KMBL. The ratings also factor in KMIL's healthy asset quality and comfortable capitalisation. These strengths are partially offset by the moderate scale of operations.
KMIL primarily operates primarily in commercial real estate segment (~55% of portfolio as on June 30, 2021) and also has corporate finance (~28%) and capital market lending products (~17%). The nationwide lockdown to contain the spread of the Covid-19 pandemic impacted operational activity across the country. Sustained economic recovery is a key monitorable, given continued localised restrictions in a few states following the second wave of the pandemic, which could exert pressure on asset quality. Additionally, any change in the payment discipline of borrowers can affect delinquency. Under the Reserve Bank of India’s (RBI) August 2020 resolution framework for Covid-19-related stress, the company had implemented restructuring loan book aggregating to ~Rs 27 crore as on June 30, 2021. While the company’s asset quality will remain a monitorable, comfortable capitalisation provides cushion against asset-side risks in the current difficult macro environment. [1] For Perpetual Non-Cumulative Preference Shares |
Analytical Approach The ratings reflect support KMIL receives from its parent, KMBL. This is because KMIL and KMBL have extensive business and operational linkages, and a common brand. CRISIL Ratings believes that KMBL will continue to provide support to KMIL, considering the strategic importance of the latter, and shared name and 100% ultimate shareholding. |
Key Rating Drivers & Detailed Description Strengths:
KMIL is one of KMBL’s key subsidiaries, as it undertakes a portion of commercial real estate, corporate and capital market financing and supports the group's overall product offering and revenue profile. There also exists strong operational and managerial integration between KMBL and KMIL, with the latter benefiting from the robust franchise and relationships of the former. KMBL shares its strong technology platform and risk management practices with the company. KMIL also has board representation from KMBL. The bank is the ultimate 100% shareholder of KMIL, and CRISIL Ratings believes KMBL will provide both funding and capital assistance to KMIL, if and when required. Extensive operational, managerial, and financial linkages, along with significant holding and shared brand name, imply continued support from KMBL to KMIL, at all points of time.
KMIL has demonstrated its ability to maintain asset quality through economic cycles, as reflected in low gross and net non-performing assets (NPAs) of 1.2% and 0.5%, respectively, as on June 30, 2021 (1.1% and 0.5% respectively as on March 31, 2021; 1.3% and 0.8%, respectively as on March 31, 2020). Given the product segments that KMIL operated in, the loan book is concentrated, with top 10 loans forming around 29% of the overall loan book as on June 30, 2021. However, with sound credit underwriting and collection practices, KMIL has kept the asset quality under check. Ability to maintain the same in the current macro environment will be continuously monitored.
KMIL is well-capitalised, with networth and gearing of Rs 2,147 crore and 2.3 times, respectively, as on June 30, 2021. Overall capital adequacy ratio stood at 35.5% as on same date. Given the healthy asset quality, asset side risk cover also remains comfortable, with a networth to net NPA ratio at around 63 times as on June 30, 2021. Capitalisation is expected to remain comfortable, backed by steady internal cash accrual, and capital support from KMBL, if and when needed.
Weaknesses:
With a loan book (including credit substitutes) of Rs 6,433 crore as on June 30, 2021 (Rs 6,900 crore as on March 31, 2021), KMIL operates on a modest scale, in comparison to the overall lending space. Growth has moderated during the last couple of years with increased competition and on account of run-down of capital market lending portfolio. However, during fiscal 2021, the loan book grew by 16% driven by corporate and real estate lending. The loan book is currently constituted by products segments such as real estate (55% of total loan book as on June 30, 2021), corporate loans (28%), loans against shares (11%) and margin funding (6%). While the corporate book is expected to pick up over medium term, the ability of the company to have a meaningful growth in current environment will be monitored. |
Liquidity: Superior The asset liability management profile was comfortable as on June 31, 2021, with positive cumulative mismatches in all buckets. As on June 30, 2021, KMIL had Rs 1,811 crore of debt maturing by October 30, 2021, against which it has cash equivalents (bank balance and liquid/overnight mutual fund investments) of Rs 979 crore, and unutilised bank lines / facilities of Rs 1,225 crore. Further the company also benefits from Kotak group’s support. |
Outlook: Stable CRISIL Ratings believes KMIL will continue to benefit from its managerial, operational and financial linkages with KMBL, and will maintain its healthy asset quality and comfortable capitalisation. |
Rating Sensitivity factors Downward factors:
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About the Group KMBL is the flagship company of the Kotak group, and has diversified operations across commercial vehicle financing, consumer loans, corporate finance, and asset reconstruction. Through its subsidiaries, the bank is engaged in investment banking, equity broking, securities-based lending, and car financing businesses. KMBL was reconstituted as a commercial bank from a non-banking financial company (NBFC) in fiscal 2003, to provide a more comprehensive range of financial services.
KMIL was set up in fiscal 1989, to hold the strategic investments of the Kotak group. Subsequently, the company diversified into the capital market lending segment and, in fiscal 2014, into commercial real estate financing. It also houses a portfolio of corporate lending portfolio of the Kotak group. Starting fiscal 2020, any additional business in loan against securities segment has been stopped in line with RBI directive and existing portfolio is being run down.
As per Ind-AS, the company reported PAT of Rs 250 crore on total income of Rs 761 crore for fiscal 2021, against Rs 241 crore and Rs 1051 crore, respectively, for fiscal 2020. |
Key Financial Indicators (As per Ind-AS)
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
*Yet to be issued ^Assigned for application on proprietary account and is over and above Rs 7,000 crore commercial paper programme @Yet to be drawn-down
Annexure: Details of ratings withdrawn
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||
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*Interchangeable with short term facilities
Criteria Details
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