| BOB Capital Markets Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its Corporate Credit Rating of BOB Capital Markets Ltd (BOBCAPS) at ‘CCR AAA/Stable’. The rating continues to centrally factor in the increasing strategic importance of BOBCAPS to, and expectation of strong support from, its parent, Bank of Baroda (BoB; rated ‘CRISIL AAA//CRISIL AA+/Stable[1]). The rating also reflects BOBCAPS’ comfortable capitalisation for current and planned scale of operations. These strengths are partially offset by its small, albeit increasing, scale of operations and modest earnings profile. [1]Tier I Bonds (under Basel III) |
Analytical Approach For arriving at its rating, CRISIL Ratings has factored in the support that BOBCAPS is expected to receive from its parent, BoB. |
Key Rating Drivers & Detailed Description Strengths: Expectation of strong support from parent BOBCAPS will continue to receive strong support from BoB given its increasing strategic importance to the latter and strong moral obligation due to 100% ownership and name sharing.
While the company’s current scale of operations is small, its strategic importance is increasing as BOBCAPS is being developed as a core platform for the fee-based offerings of the bank. A professional management team has been put in place to build capabilities and product offerings in investment banking (IB) and broking.
Board-level oversight from BoB is expected to remain strong and operational synergies would increase over the medium term. The company’s board of directors comprise senior personnel from BoB (including Mr Sanjiv Chadha, the managing director and CEO of BoB as chairman). The Board of the Company is further strengthened with Mr. Sunil Kumar Sharma as MD & CEO who is deputed from the Bank with rich experience in the banking sector and Mr. Sanjiv Saraff as Joint MD having 26 years of varied financial services experience. All the strategy formulations are at the board level. Operational synergies remain high as a significant portion of the investment banking and debt business is linked to BoB. Incremental sourcing of IB deals is also expected to build upon BoB’s existing corporate relationship. Furthermore, the retail broking business will primarily serve BoB’s extensive customer base. As BOBCAPS’s retail broking business grows over the medium term, it will primarily leverage upon BoB’s existing branch and digital network.
Comfortable capital position Capitalisation remains adequate for its current and planned scale of operations. Total networth was Rs 165 crore as on March 31, 2022 (Rs 162 crores as on March 31, 2021). The company neither has any debt on its books nor has any immediate plan to raise capital in the near term. Also, while it plans to expand operations, focus on fee-based business limits incremental capital requirement. Overall, capitalisation will continue to be supported by flexibility to recapitalise (if needed) from BOB.
Weakness: Small, albeit increasing, scale of operations Scale has been subdued, with mainly BoB-linked investment banking business and a limited broking presence. However, the company plans to ramp up operations over the medium term. The investment banking capabilities has been strengthened by hiring a team of specialist bankers to build product capabilities and acquire new clients. The institutional broking team has been strengthened with additional resources, especially on the research side and recent tie-up with a global bank which will enable offerings to international clients. Furthermore, the retail broking business is also expected to pick up once scale-up of online platforms is complete and operational linkages have been put in place.
BOBCAPS will be able to tap the parent’s existing base of clients for its investment banking as well as broking business and ramp up operations from the current levels. However, the company’s ability to manage intense competition within the capital markets business will need to be demonstrated.
Modest earnings profile Earnings profile is underpinned by subdued scale. The company primarily generates revenue from investment banking and broking income, while interest on investments forms a smaller proportion of total turnover. In fiscal 2022, investment banking formed 72% of core operating income. The company reported a profit after tax (PAT) of Rs 7.7 crore for the period ending March 31, 2022, as compared to Rs 9.3 crore in the last fiscal. The profitability was impacted majorly on account of increase in operating expenses owing to higher employee cost on account of hiring additional resources. The cost to income ratio increased to 81.5% in March 2022 from 73.4% in March 2021 owing to increase in the operating expense. However, the operating costs are expected to further normalize going forward which is expected to aid the profitability metrics. |
Liquidity: Superior Liquidity is adequate for the current scale of operations and associated operating expenses, given the absence of any fund-based borrowing or debt obligation. BOBCAPS avails borrowings on occasions but they are typically intra-day borrowings or 100% backed by fixed deposits. The company maintains surplus liquidity in the form of unencumbered deposits which stood at Rs 12 crore as on March 31, 2022. The company has intra-day and overdraft facilities from banks. In the case of any liquidity requirement or exigency, the company is also expected to receive funding support from parent Bank of Baroda. |
Outlook: Stable CRISIL Ratings believes BOBCAPS will receive strong support from BoB given its increasing strategic importance, 100% ownership, and name sharing. The company’s capital position is also expected to remain comfortable for the nature of the business and proposed scale of operations. |
Rating Sensitivity Factors Downward Factors
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About the Company Incorporated under the Companies Act of 1956, BOBCAPS is a wholly owned subsidiary of BoB. Formed on March 11, 1996, it is a SEBI (Securities and Exchange Board of India)-registered Category I Merchant Banker and a Stock Broker. The company has presence in Mumbai via its registered and corporate offices and branches in Delhi and Puducherry.
For the fiscal ended March 31, 2022, the company reported a profit of Rs 7.7 crore on total revenue of Rs 55 crore, against a profit of Rs 9.3 crore on total revenue of Rs 46.6 crore for the previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
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