| Aditya Birla Money Limited | ||
| Rated amount enhanced for Commercial Paper | ||
| 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 A1+’ rating on the commercial paper programme of Aditya Birla Money Ltd (ABML).
The rating on ABML reflects the benefit that ABML is expected to derive from its parent, Aditya Birla Capital Ltd (ABCL; rated ‘CRISIL AAA/Stable/CRISIL A1+’). The strength is partially offset by the company’s modest earnings profile, and exposure to uncertainties inherent in the equity broking business. |
Analytical Approach The ratings reflect the strong support that ABML receives from its parent ABCL. This is because ABML is a strategically important subsidiary of ABCL, with extensive business and operational linkages, and a common brand. |
Key Rating Drivers & Detailed Description Strengths: Benefits that ABML is expected to derive from its parent, ABCL: The rating factors in ABML’s strategic importance to, and expectation of strong support from, its parent, ABCL. CRISIL believes that ABML, being the group’s broking and distribution arm, is an important subsidiary of ABCL, as it complements the group’s product offerings by providing a capital market platform. Further, financial services are expected to remain one of the key focus areas for the group. The significant holding (73.5% as on September 30, 2024) and shared brand name imply a strong moral obligation on ABCL to support ABML, both on an ongoing basis and in the event of any distress.
Adequate Risk Management Systems: The company has put in adequate risk management systems that help in offsetting the risks inherent in the broking business. The company continuously monitors client exposures on a real-time basis and categorizes its customers and stocks basis the individual characteristics, along with branch wise and customer wise history to arrive at the trading limits. The company has also equipped all of its branches with voice logs. Margin funding is provided to the clients basis the underlying security and automatic square off triggers are fixed for instances where the collateral cover breaches the set limits. The risk mitigating measures implemented should help minimize balance sheet risks.
Weakness: Exposure to uncertainties inherent in the capital-market-related businesses, including regulatory changes: The revenue profile remains inherently volatile because of the high dependence on capital market-related activity such as broking income, which constitutes 48% of the total income. While the company has diversified its sources of revenue, the dependence on capital market-related activity remains high. Given the cyclical nature of these businesses, brokerage volumes and earnings are highly dependent on the level of trading in the capital markets. Thus, any downturn in the capital market business can have an adverse impact on profitability.
Over the past couple of years, the broking industry has witnessed a dynamic regulatory environment. With the objective of enhancing transparency, limiting misuse of funds and safeguarding investor interests, Securities and Exchange Board of India (SEBI) has introduced several changes. Some of these include margin pledge/re-pledge mechanism, daily client collateral reporting and disclosure, collateral allocation at clearing corporations by brokers, and upfront margin collection for intraday positions.
With increasing compliance intensity, associated costs are expected to increase. CRISIL Ratings understands that most large brokers and some mid-sized companies have streamlined their systems in accordance with the revised regulations. However, this could impact small and mid-sized brokers with not-so-advanced IT infrastructure and risk management systems. Fundamentally, while these revised regulations will benefit the broking industry in the long term by increasing transparency and lowering risks for customers, the changes do increase the compliance costs for brokers and require them to adapt their business models to keep pace.
CRISIL Ratings will continue to monitor regulations and its impact on ABML’s performance on an ongoing basis. |
Liquidity: Strong Liquidity is strong due to the agency nature of business. ABML had Rs 1369 crore cash and liquid investments and Rs 442 crore unutilized bank lines as on October 31, 2024. The borrowings are primarily in the form of commercial paper, with outstanding of Rs 1430 crore as on same date. Additionally, the liquidity position is supported by the parentage of ABCL. |
Rating Sensitivity Factors Downward Factors
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About the Company ABML is present in equity broking, commodity broking, depository services, margin trade funding, PMS (portfolio management services) and distribution of products like mutual funds, insurance and loans of Aditya Birla group companies. The Chennai-based company has centralised back-office operations. ABCL, the holding company for the financial services business of the Aditya Birla Group, owns a 73.5% stake in ABML. ABML is listed on Bombay Stock Exchange and National Stock Exchange. As on September 30, 2024, the company had 62 branches and 1000 franchisees across India. The company had around 94,083 active customers on National Stock Exchange (NSE) as on September 30, 2024 (active client market share of around 0.2%).
For fiscal 2024, ABML reported a net profit of Rs 52.9 crore on total income of Rs 395 crore, against Rs 33.9 crore and Rs 278.8 crore, respectively, for previous fiscal. For first half ended September 30, 2024, it reported a net profit of Rs 43.1 crore on total income of Rs 247.1 crore, against Rs 21.4 crore and Rs 177 crore, respectively, for the corresponding period previous fiscal. |
Key Financial Indicators
#including preference shares from the parent in networth
*as per CRISIL Ratings’ calculation |
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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Criteria Details
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