| Sharekhan Limited | ||
| Rating placed on 'Watch Negative' | ||
| 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 placed its long-term rating on the non-convertible debentures of Sharekhan Limited (Sharekhan) on ‘Rating Watch with Negative Implications’.
The rating action follows the recent announcement made by Sharekhan group dated December 12, 2023 regarding BNP Paribas SA (BNP Paribas, rated: A+/Stable/A-1 by S&P Global) entered into share purchase agreement for sale of stake of Sharekhan Limited to Mirae Asset Securities (MAS; rated 'BBB/Stable/A-2' by S&P Global Ratings [S&P]) and its subsidiary Mirae Asset Capital Markets India Pvt Ltd (MACM; rated ‘CRISIL AA/Stable’) in an all-cash deal for a sum of approximately Rs. 3000 crore.
The proposed deal involves sale of 72.76% stake in Sharekhan Limited by BNP Paribas to MACM for ~Rs. 1820 crore. Furthermore, MAS will acquire a 100% stake in ‘Human Value Developers Private Limited’ (Currently 100% subsidiary of BNP Paribas) which currently holds a 27.24% stake in Sharekhan Limited for a consideration of ~Rs. 1280crore. The final acquisition amount may change at the time of transaction closing to reflect additions and subtractions in the contract and is subject to relevant regulatory approvals.
Existing rating is centrally based on the strategic importance to, and the expectation of strong support from BNP Paribas SA, the ultimate parent of the Sharekhan group of companies. The rating also factors in the group's adequate capitalisation and comfortable liquidity position. The group also benefits from the established market position of the group’s brand in the retail equity broking space. These strengths are partially offset by the group’s modest scale of operations in the lending business.
Once the transaction is consummated, the parent support factored in the existing analytical approach will be discontinued and instead the rating will have to factor in the support from MACM.
CRISIL Ratings will track the progress on the transaction and have discussions with the management to understand their support stance, commitment, strategic importance and long-term business and financial strategy for the company. The watch will be resolved once all requisite regulatory approvals are in place, and once greater clarity emerges on the said aspects.
Nevertheless, till the transaction is completed, the existing ratings will continue to centrally factor in the strong support from the current parent, BNP Paribas. |
Analytical Approach For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of Sharekhan Limited (Sharekhan) and its wholly owned subsidiary Sharekhan BNP Paribas Financial Services, together referred to as the Sharekhan group. The companies have strong operational and financial linkages, common senior management, and shared brand. The rating also factors strong support expected from BNP Paribas, the ultimate parent of the Sharekhan group given the strategic importance of the group to the former.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths: Strategic importance to, and expectation of strong support from, BNP Paribas BNP Paribas acquired the Sharekhan group as part of its strategy to enter retail broking and lending businesses in India. BNP Paribas intends to leverage the pan-India presence and large client base of Sharekhan Ltd and offer loan products through Sharekhan BNP Paribas Financial Services.
BNP Paribas acquired 100% stake in the Sharekhan group of companies and is committed to infusing capital in the group companies on an ongoing basis and in the event of distress. BNP Paribas has extended its brand in the tagline of Sharekhan Ltd and has sizeable representation on the board. Sharekhan BNP Paribas Financial Services also has substantial representation from the parent. A few representatives from BNP Paribas have also been deputed at senior positions in the Sharekhan group of companies. Senior management of the group have a matrix reporting structure and report to regional and head office of BNP Paribas.
Sharekhan group, in 2018, had announced plans of venturing into retail lending. However, owing to a change in strategy at the global level and tight liquidity in the market, plans to launch retail lending operations were postponed. However, it continues to focus on its current business (such as loan against shares and margin funding).
CRISIL Ratings believes that sharing of brand, sizeable representation on the board, and strong commitment to infuse capital when needed indicates that the Sharekhan group is strategically important to, and will receive strong support from, BNP Paribas.
However, considering the proposed transaction, extent of impact on support stance of incoming investors along with implication on business and financial synergies will be monitored.
Adequate capitalisation The group had a sizeable networth of Rs 1,702.6 crore and Rs 1904.8 crore of borrowing with gearing being at around 1.1 time, as on March 31, 2023 as against a networth of Rs 1,600.7 crore and Rs 1,803 crore of borrowing with gearing of 1.1 as on March 31, 2022. With plans for the non-capital markets-related retail lending business getting postponed, gearing is likely to remain at similar levels over the medium term. Capital position is expected to remain adequate, supported by regular need-based equity infusion from BNP Paribas till the deals gets consummated.
Established market position of the group in retail equity broking Sharekhan Ltd is one of the leading players in the retail equity broking segment. The management of Sharekhan group has extensive experience in establishing and managing capital market businesses. The group has established a sizeable presence in western and north-western India during its longstanding existence of nearly two decades. In terms of client and franchise base, Sharekhan Ltd is among the top brokerage houses in India. It has 29 lakh customers and presence in more than 1000 cities through over 4000 outlets/business partners. Furthermore, Sharekhan Ltd is also among the leading depository service providers.
Furthermore, amidst high competition from discount brokers, the group started its own discount broking company called ‘Espresso Financial Services Pvt Ltd’ a year back. However, the same is in nascent stage of operations and going forward the performance of the same will be a monitorable.
Weakness: Modest scale of operations in lending business Sharekhan BNP Paribas Financial Services had a loan portfolio of Rs 746.2 crore as on September 30, 2023 as against 711.8 crore as on March 31, 2023, the current portfolio predominantly comprising of loans against shares. The group was planning to enter into newer loan segments in the medium term. However, this plan has been postponed. While the group plans to focus on the existing lending business such as LAS from current levels, CRISIL Ratings believes that the portfolio size will remain modest in the near term. |
Liquidity: Superior The group has comfortable liquidity position, the ALM profile as of September 30, 2023 of Sharekhan BNP Paribas Financial Limited has negative cumulative mismatches in one three month bucket. As on November 30, 2023, Sharekhan BNP Paribas Financial Services Limited had free cash and liquid investments of Rs 139.2 crore against a debt repayment obligation for CP’s of Rs 139.2 crore till May’24. Further, Sharekhan limited had free cash and liquid investments of Rs 59.03 crore against which the company has a repayment obligation of Rs. 1492.3 crore till Jul’24 of which CP repayment is of Rs.1442.3 crore. The CP’s are expected to be rolled over/new CP’s raised to fund the debt obligation. |
Rating Sensitivity factors Downward factors
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About the Company Sharekhan Limited Sharekhan Ltd is the flagship company of the Sharekhan group and is one of the leading retail broking houses in India. It has 29 lakh customers and presence in over 1000 cities through over 4000 outlets/business partners. It also has international presence through its representative office in the UAE. It has corporate tie-ups with 14 banks. The company is a registered member of the National Stock Exchange (both cash and F&O segment) and the Bombay Stock Exchange, and a depository participant of Central Depository Services (India) Ltd and National Securities Depository Ltd (NSDL). It is one of the leading players in the high yielding cash segment.
In the first half of fiscal 2024, the Sharekhan Ltd's net profit was Rs 95.4 crore on a total income of Rs 677.6 crore, against a net profit of Rs 170.9 crore and total income of Rs 1,154 crore in fiscal 2023. At consolidated level, the group’s net profit was Rs 151.1 crore on total income of Rs 1,255.1 crore in fiscal 2023.
About Sharekhan BNP Paribas Financial Services Sharekhan BNP Paribas Financial Services is a wholly owned subsidiary of Sharekhan and is registered with Reserve Bank of India as a non-banking financial company. The name is changed to ‘Sharekhan BNP Paribas Financial Services Limited’ from Sharekhan BNP Paribas Financial Services Private Limited’. The company is engaged in capital market related lending activities such as margin funding and loans against shares. It intends to diversify its loan portfolio by entering non-capital market related segments.
About BNP Paribas BNP Paribas is a leading global banking group headquartered in Paris. Under the universal banking business model that involves both commercial and investment banking operations, the business consists of two segments: retail banking and services, and corporate and institutional banking. The bank has built up an extensive network in 72 countries across Europe, America, the Middle East, and Asia. Given its global presence in major business segments, strong franchise supported by excellent creditworthiness, and diversified profit base, its business competitiveness and stability of sales platforms are deemed to be robust. BNP Paribas has shown leadership in the European retail banking market, book-running, syndicated lending, asset management, and the private banking sector in France, Belgium, Luxemburg, and Italy.
BNP Paribas has been present in India for over 150 years. The bank set up its first Indian branch in Kolkata in 1860, and now has eight branches in India |
Key Financial Indicators
Note- Key financial indicators are standalone financials of Sharekhan Ltd |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
#Yet to be issued |
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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