Detailed Rationale CRISIL Ratings’ has assigned its ‘CRISIL AAA/Stable’ rating to Rs.2500 crore Non-convertible debentures of Kotak Mahindra Prime Limited (KMPL). Ratings on the other debt instruments and bank facilities has been reaffirmed at 'CRISIL AAA/CRISIL PPMLD AAA/Stable/CRISIL A1+'.
CRISIL Ratings has also withdrawn its rating of Rs. 970 crore NCDs and Rs 40 crore of Subordinated debt in line with its withdrawal policy (See Annexure 'Details of rating withdrawn' for details). CRISIL Ratings has received independent confirmation that these instruments are fully redeemed.
The ratings on the debt instruments of Kotak Mahindra Prime Ltd (KMPL; 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) continue to factor in the company’s strategic importance to, and expectation of support from its ultimate parent, KMBL. The ratings also factor in KMPL’s comfortable capitalization. These strengths are partially offset by limited diversification in the retail lending space.
Overall delinquencies augmented with gross non-performing assets decreasing to 2.4% as on March 31, 2023 from 3.1% as on March 31, 2022 and 4.3% a year earlier. The company’s asset quality has been improving along with, comfortable capitalisation providing cushion against asset-side risks in the current difficult macro environment
1For Perpetual Non-Cumulative Preference Shares. |
Analytical Approach The ratings reflect the support that KMPL receives from its parent, KMBL. This is because KMPL and KMBL have extensive business and operational linkages and a common brand. CRISIL Ratings believes that KMBL will continue to provide support to KMPL considering the strategic importance of the entity and shared name and 100% ultimate shareholding. |
Key Rating Drivers & Detailed Description Strengths: Expectation of support from the ultimate parent, KMBL KMPL is an important subsidiary for KMBL, as it undertakes car financing business for the group and supports its product offering and revenue profile. It is an important growth engine for the Kotak group in the retail finance space, with a strong presence in the car finance sector (retail auto loan book and dealer funding book of Rs 22,455 crore as on June 30, 2023, and forms 76% of total loan book of KMPL). Further, there exists strong operational and managerial integration between KMBL and KMPL. The latter benefits from the robust retail franchise and nation-wide branch infrastructure of the parent. KMBL shares its strong technology platform and risk management practices with the company. KMPL also has board representation from KMBL. The bank is the ultimate 100% shareholder of KMPL and CRISIL Ratings believes KMBL will provide both funding and capital assistance to KMPL, if required. The extensive operational, managerial, and financial linkages, along with significant holding and shared brand name, imply a support from KMBL to KMPL.
Comfortable capitalisation KMPL is well capitalised, with networth and gearing of Rs 10,689 crore and 2.2 times, respectively, as on June 30, 2023 increasing from Rs 10,239 crore as on March 31, 2023. The overall capital adequacy ratio stood at 28.5% as on March 31, 2023. Given the healthy asset quality, asset side risk cover also remains comfortable, with a networth to net NPAs ratio at ~36 times as on March 31, 2023. Capitalisation is expected to remain comfortable backed by steady internal cash accrual, and capital support from KMBL as and when needed.
Weakness: Limited diversification in the retail lending space KMPL is focused towards the auto financing segment and has built a niche position therein, given its expertise in the higher-end car segment and established relationships with manufacturers and dealers. Of the total loan book of Rs 29,593 crore as per IGAAP as on June 30, 2023, ~66% was towards retail auto loans and another ~10% towards dealer financing. This leads to limited diversification in the portfolio of the entity, exposing it to risks/unfavourable developments in that particular segment. However, KMPL has also ventured into two-wheeler financing, although the book currently is only 9% of the total loan book as on June 30, 2023, it is expected to add to the diversification.
Further, the size of the loan book remains modest in relation to the overall lending space. KMPL is expected to have limited diversification over the medium term. |
Liquidity: Superior The asset liability management profile was comfortable as on June 30, 2023, with positive cumulative mismatches in all buckets. KMPL had liquidity of Rs 5,581 crore as on July 31, 2023, comprising of government securities, cash balance and unutilised bank lines. This is against repayments of Rs 4,633 crore up to October 30, 2023. Liquidity remains supported by regular collection and option to securitise loans. The company also benefits from the linkages with the Kotak group |
Outlook: Stable CRISIL Ratings believes KMPL will continue to benefit from the 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 Company KMPL has a niche position in the car finance segment, given its expertise in the higher-end car segment and established relationships with manufacturers and dealers. The loan book was Rs 29,593 crore as on June 30, 2023 as per IGAAP, of which ~76% was towards retail auto loans and dealer financing. Rest ~24% was contributed by two-wheeler financing, commercial real estate financing, and corporate loans.
Profit after tax (PAT) was Rs 947 crore on total income of Rs 2,994 crore for fiscal 2023, against Rs 975 crore and Rs 2,626 crore, respectively for fiscal 2022. For the 3-month ended June 30, 2023, PAT was Rs 215 crore on total income of Rs 867 crore |
About the Group KMBL is the flagship company of the Kotak group and has diversified operations covering 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 finance. 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. Effective April 1, 2015, ING Vysya Bank was merged with KMBL.
Other than KMBL, the key operating companies of the Kotak group are Kotak Mahindra Prime Ltd (car financing), Kotak Mahindra Capital Company (investment banking), Kotak Securities Ltd (retail and institutional equities broking, and portfolio management services), Kotak Mahindra Investments Ltd (commercial real estate lending and securities-based lending) and Kotak Investment Advisors Ltd (alternate assets space). The group also operates in the life and general insurance business through Kotak Mahindra Life Insurance Company Ltd and Kotak Mahindra General Insurance Company Ltd, respectively. It is also present in the asset management business through Kotak Mahindra AMC and Trustee Company Ltd, and recently launched Kotak Infrastructure Debt Fund. The acquisition of BSS Microfinance Ltd (formerly, BSS Microfinance Pvt Ltd), an NBFC-microfinance institution, was completed during fiscal 2018. |
Key Financial Indicators
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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 9,000 crore commercial paper programme ^Interchangeable with short term bank facilities ^^Interchangeable with long term bank facilities
Annexure - Details of Rating Withdrawn
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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^Interchangeable with short term bank facilities
^^Interchangeable with long term bank facilities
Criteria Details
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