| SBICAP Securities Limited | ||||
| Ratings reaffirmed at 'CRISIL AAA/Stable/CRISIL A1+' | ||||
| 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 AAA/Stable/CRISIL A1+’ ratings on bank loan facilities and commercial paper programme of SBICAP Securities Limited (SSL).
The rating factors in scale-up of operations across various business segments, providing increased diversification in the revenue stream and improvement in earnings profile of the company. SSL operates across retail broking, margin funding, selling & distribution business and distribution of financial products. SSL has also invested in its technological initiatives to upgrade its mobile application, website and trading platform as it aims to rapidly grow retail broking customer base; these measures should help the company going forward.
Further, SSL’s linkages with the ultimate parent, SBI, continue to remain strong with SSL sourcing sizeable retail loans for SBI. SSL sourced 87% of auto loans and 27% of home loans, for SBI, in fiscal 2023 as compared to 71% and 21%, respectively, in fiscal 2022. SBI is also leveraging SSL as a common platform for the group entities for distribution of their respective products (insurance, mutual funds and corporate fixed deposits) as well as for distribution of third-party products. SBI is also evaluating making SSL a direct subsidiary, subject to regulatory approvals, over the medium to long term.
The overall rating continues to reflect the strong expectation of support from SSL’s parent, SBI Capital Markets Ltd (SBICAP), and ultimate parent, SBI as well as SSL’s comfortable capitalisation. These strengths are partially offset by its modest scale of operations, and susceptibility of earnings to uncertainties inherent in capital-market-related businesses. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has assessed the standalone credit risk profile of SSL and continues to factor in strong managerial and financial support from the parent SBICAP, and ultimate parent, SBI. CRISIL Ratings believes SSL, will, in case of exigencies, receive distress support from its parent for timely repayment of debt obligations, considering the strategic importance of the entity and also high moral obligation on account of majority shareholding and shared brand name. |
Key Rating Drivers & Detailed Description Strengths: Expectation of support from SBICAP and SBI SSL is an important subsidiary, as it complements its parent’s product offerings by providing a platform for services related to broking and financial products distribution. With increased linkages in recent years, the strategic importance of SSL has increased to the parent. SSL sourced 87% of SBI’s auto loans and 27% of SBI’s home loans in fiscal 2023. SBI intends to make SSL a common platform for distribution of group entities’ products. SBICAP and SBI infused Rs 75 crore in SSL from fiscal 2013 to fiscal 2015 (Rs 25 crore each year). CRISIL Ratings believes that strong operational, managerial, and financial linkages, along with significant shareholding and shared brand, imply a strong moral obligation on SBICAP and SBI to support SSL, both on an ongoing basis and in the event of distress.
Comfortable capitalisation Capitalisation is comfortable for its size of operations. As on March 31, 2023, networth and gearing stood at Rs 1084 crore and 0.4 time, respectively (Rs 800 crore and 0.9 time, respectively, as on March 31, 2022). SSL also benefits from high flexibility to recapitalise as both SBICAP and SBI have the ability to infuse capital whenever needed.
Weaknesses: Modest scale of operations SSL currently caters only to the retail clients in the cash equity and derivatives segments, including currency derivatives. SSL has exited the institutional broking space and transferred this business to a joint venture formed with Investec Capital Services India Pvt. Ltd. SSL had a modest market share of less than 0.5% in the broking segment for fiscal 2023. The company is trying to diversify its income base and is focusing on selling and distribution division, which distributes third party products such as home and auto loans, as well as financial products such as mutual funds, bonds and insurance. Income from selling distribution contributed to 58% of the overall income in fiscal 2023 as compared to only 35% in fiscal 2018. Ability to scale up operations across both broking and distribution businesses will remain a key monitorable.
Susceptibility of earnings to inherent uncertainties in the capital markets related business While the company has diversified sources of revenue, the dependence on capital market-related activity remains high. Businesses like broking and margin funding are exposed to various economic, political and social factors that drive investor sentiments. Given the cyclical nature of these businesses, brokerage volumes and earnings are highly dependent on the level of trading in the capital markets. While businesses like distribution of financial products and selling and distribution business lend some stability to the earnings, overall earnings are expected to remain volatile.
Given the cyclical nature of the business, SSL’s earnings and profitability remain volatile owing to fixed costs. SSL reported a profit after tax of Rs 308 crore in fiscal 2023 (Rs 233 crore in previous fiscal) |
Liquidity: Superior SSL’s liquidity position is strong due to agency nature of its business (i-e equity broking, distribution, etc). Further, as on March 31, 2023, company has liquidity in the form of cash and liquid investments amounting to Rs 318 crore and unutilized bank lines of Rs 743 crore. As on same date, outstanding borrowings in the form of overdraft stood at Rs 465 crore. The company also benefits from the support from its parent SBI. |
Outlook: Stable CRISIL Ratings believes SSL will continue to receive support from SBICAP and SBI, given its strategic importance to them and the strong moral obligation of parents to extend support. |
Rating Sensitivity factors Downward factors
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About the Company SSL, incorporated in 2005, is a wholly-owned subsidiary of SBICAP, which is a subsidiary of SBI. SSL is engaged in the broking business, and in third-party distribution of financial products. Before SSL’s incorporation, these businesses were carried out as a division of SBICAP. To focus on expansion, SBICAP transferred these operations to SSL, which commenced full-fledged operations in fiscal 2007. SSL has started sourcing car and home loans for SBI and also offers products of group entities like insurance and bonds. Further, SSL had recently entered the fund based business in the form of margin funding. |
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)
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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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