Kotak Mahindra Investments Limited 'CRISIL AAA/Stable' assigned to Non Convertible Debentures; rated amount enhanced for Bank Debt
Rating Action
& Assigned for application on proprietary account and is over and above Rs 7,000 crore commercial paper programme 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 assigned its ‘CRISIL AAA/Stable’ rating on the non-convertible debentures and reaffirmed its ‘CRISIL AAA/CRISIL PPMLD AAA/Stable/CRISIL A1+’ rating on the existing 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/Stable/CRISIL A1+'] and its subsidiaries and associates).
CRISIL Ratings has also withdrawn its rating on non-convertible debentures aggregating Rs 900 crore since the outstanding against the same was nil. CRISIL Ratings has received an independent confirmation that these instruments are fully redeemed.
The rating on debt instruments of KMIL continues 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.
[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, and corporate 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, as 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 by low gross and net non-performing assets (NPAs) of 1.6% and 0.80% as on December 31, 2022, even with slight uptick compared to 1.2% and 0.5%, respectively, as on March 31, 2022 (1.1% and 0.5% respectively as on March 31, 2021). Given the product segments that KMIL operates in, the loan book is concentrated, with top 20 loans forming around 27% of the overall loan book as on December 31, 2022. However, with sound credit underwriting and collection practices, KMIL has kept asset quality under check. Ability to maintain the same in the current macro environment and as the NBFC explores increase in both will be continuously monitored.
KMIL is well-capitalised, with networth and gearing of Rs. 2680 crore and 2.7 times as on December 31, 2022 as compared to Rs 2,462 crore and 2.9 times, respectively, as on March 31, 2022. Overall capital adequacy ratio stood at ~32% 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 40 times as on December 31, 2022 vis-à-vis 64 times as on March 31, 2022. Capitalisation is expected to remain comfortable, backed by steady internal cash accruals, as well as capital support from KMBL, as and when needed.
Weakness:
KMIL operates on a modest scale, in comparison to the overall lending landscape, with a loan book (including credit substitutes) of Rs. 8267 crore as on December 31, 2022 vis-a-vis Rs 7,240 crore as on March 31, 2022 (Rs 6,900 crore as on March 31, 2021). Growth had moderated significantly in FY20 following run-down of the capital market lending portfolio. Growth since then has been directed towards the two focus segments of real estate (RE) and corporate loans. During the nine months of fiscal 2023 the book grew by 14% YTD versus 5% YoY in FY22 . Real estate comprises 54% of total loan book as on December 31, 2022), with corporate loans accounting for 44% of the book during the same period., The residual is towards loans against shares (1%) and margin funding (1%). Within the real estate book, residential RE has grown to form 80% of the overall RE exposure. However, KMIL expects to rebalance the mix a bit towards commercial RE going ahead. The corporate book is a mix of term loans to large corporates, event based structured deals and some exposure to school funding (K12) among others. This book is also expected to grow steadily over the medium term. |
Liquidity: Superior The asset liability management profile was comfortable as on March 31, 2023, with positive cumulative mismatches in all buckets. As on April 30, 2023, KMIL had Rs 1596 crore of debt maturing by July 31, 2023, against which it has cash equivalents (bank balance and liquid/overnight mutual fund investments) of Rs 2444 crore, and unutilised bank lines / facilities of Rs 1670 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 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’s directive and the existing portfolio has been largely run down.
As per Ind-AS, the company reported PAT of Rs. 225 crore on total income of Rs. 638 crore as on December 31, 2022 as compared to Rs 396 crore on total income of Rs 891 crore for fiscal 2022, against Rs 250 crore and Rs 761 crore, respectively, for fiscal 2021. |
Key Financial Indicators (As per Ind-AS)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
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 #Interchangeable with short-term bank facilities &Total borrowing under the rated short term loan and working capital demand loan not to exceed Rs 300 crore at any point in time %Includes Rs 60 crore cash credit facility
Annexure: Details of ratings withdrawn
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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&Total borrowing under the rated short term loan and working capital demand loan not to exceed Rs 300 crore at any point in time
%Includes Rs 60 crore cash credit facility
Criteria Details
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