Rating Rationale
July 31, 2020 | Mumbai
Batlivala and Karani Securities India Private Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.37 Crore
Short Term Rating CRISIL A3+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its rating on the short term bank loan facilities of Batlivala and Karani Securities India Private Limited (B&K) at 'CRISIL A3+'.
 
The rating continues to reflect B&K's adequate capitalisation, conservative gearing policy, and promoters' extensive experience in the institutional broking segment. These rating strengths are partially offset by the company's modest, though stable, market position and modest earnings profile and exposure to uncertainties inherent in the equity broking segment.
 
The nationwide lockdown (originally till April 14, 2020) declared by the Government of India to contain the spread of the Novel Coronavirus (Covid-19) will have near-term impact on the operations of broking companies. Majority of the operations of broking business ' especially small entities - had not been streamlined to be compatible with 'work from home'. As a result, the many broking companies during the initial days post announcement of lockdown, struggled to ensure seamless operations. During April and May 2020, some of the broking companies have slowly adjusted to undertaking operations with minimal manpower and work from home. 
 
The medium to large sized brokerages had business continuity planning and were able to run their business from remote locations for majority of their business divisions. For certain critical divisions the companies have arranged transportation, food, incentives and overnight stay at offices for their employees. Within the lockdown majority of client sourcing & additions has been done through the online medium. Further the other operations of trading & settlement can also be done online through the trading application. This has led to high volumes and turnovers transacted through the online medium which in turn has decreased the requirement for physical intervention from the brokers
 
On the business side, there has been significant volatility in equity and commodity markets during this period. This has left many of the brokers to be extra cautious while doing margin financing or taking any high value trade request from their clients. The lockdown is currently extended and there is high likelihood that eventual lifting of restrictions will be in a phased manner. The impact of the lockdown on the economy and its implications on the capital markets remains high. Consequently, the business and profitability of broking companies is likely to remain constrained in fiscal 2021.

Analytical Approach

For arriving at the ratings of B&K, CRISIL has considered the standalone business and financial risk profile of B&K.

Key Rating Drivers & Detailed Description
Strengths:
* Adequate Capitalisation and conservative gearing policy
B&K is adequately capitalised for its current and planned scale of operations. The company's adjusted networth (net of investments & loans in subsidiaries and group companies, 30% of unlisted shares and intangible assets) was Rs 35 crore as on March 31, 2020, against Rs 31 crore as on March 31, 2019.  B&K's adequate capital position is supported by its conservative gearing policy, reflected in nil gearing of 0 times as on March 31, 2020. Gearing has been less than 0.3 times in the past 5 years.
 
* Promoter's extensive experience in institutional broking segment
B&K's key promoter, Mr Manoj Murarka, has experience of more than two decades in the equity market and is known for his market intelligence. Mr Murarka has very good understanding of the equity markets and the institutional broking business. He looks after the research division and group's business operations. B &K's research division is known for its presence in the mid cap segment. B&K will continue to benefit from its promoters' extensive experience in the institutional broking business and maintain its strong relationships with large clients both in cash and F&O segments over the medium term.
 
Weakness
* Modest earnings profile
B&K's income is highly dependent on trading volumes, which are volatile, and is susceptible to uncertainties prevalent in the equity markets. The return on earnings (RoE) continued to remain low at 4.7% for fiscal 2020 (as per provisional financials) compared to 2.7% for fiscal 2019. The company operates on higher fixed operating cost model which might lead to high pressure on the profitability if the turnover declines from the current level. 
 
The cost to income for fiscal 2020 was 95% (as per provisional financials) compared to 97% for fiscal 2019.  Additionally, the company's earnings profile might be impacted on account of the slowdown in institutional equity turnover which is driven by market valuations and macro-economic factors. These factors might lead to decline in the earnings of the company from the current level. As a prudent measure the company has taken cost cutting initiatives by extending salary cuts hierarchy wise.
 
CRISIL, therefore, believes, that B&K's income profile will continue to be modest driven by volatility on account of its high fixed cost model and due to market conditions.
 
* Exposure to uncertainties in equity broking market
Equity markets are inherently volatile, driven by economic and political factors. Global factors also influence the domestic markets. Given the cyclical nature of the business, the company's brokerage volumes and earnings are highly dependent on the level of trading activity in the capital markets. This makes earnings and profitability volatile.
 
* Modest, though stable, market position
B & K continues to have modest market share in its main business of institutional equity broking with 0.3% in the cash market segment and 0.01% in the F&O segment during the fiscal 2020. The low market share is partly because B&K is engaged only in institutional broking, and has limited F&O activity. B&K, nevertheless, enjoys good brand equity in the domestic market, given the quality of its research on mid-caps, its lineage, and continues to have a significant presence among domestic institutional clients such as insurance and mutual fund companies.
Liquidity Adequate

The liquidity position of the company remains adequate. The company usually has no debts on its books. The company maintains unencumbered cash and bank balance of Rs 1-2 crore on a steady state basis. The company has no term loan borrowings. The fund based borrowings of the company are limited to intraday OD facility of Rs 20 crore for cash delivery settlement and Rs 75 crore for F&O intraday settlement. The company had nil borrowings outstanding as on March 31, 2020.

Rating Sensitivity factors
Upward factors
* The cost to income ratio of the company improves to above 70% on a steady state basis
* The capitalisation and market share of the company increases substantially
 
Downward factors
* The company reports cost to income ratio of above 100% for a continues period
* The company market share declines substantially from current levels.
About the Company

B&K, set up in 1998, has a presence in the institutional broking & MF distribution (around 90 per cent of revenues) and investment banking segments. The company is closely held and controlled by Mr. Manoj Murarka, and has around 200 institutional clients. In 2005, B&K established seven subsidiaries, which are engaged in fee-based businesses, such as commodity broking, insurance broking, and wealth management services; however, their operations continue to be marginal.

Key Financial Indicators
As on / for the period ended Unit Mar-20 Mar-19
Total Assets Rs crore 102 101
Broking and distribution Income  Rs crore 72 69
Total income Rs crore 79 79
Profit after tax Rs crore 3.4 1.9
Cost to Income ratio % 95.0 97.0
Adjusted gearing Times 0.0 0.1

Status of non cooperation with previous CRA: Not applicable

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon
rate (%)		 Maturity
date		 Issue size
(Rs cr)		 Complexity Level Rating assigned with outlook
NA Bank Guarantee NA NA NA 14.5 NA CRISIL A3+
NA Proposed Short Term Bank Loan Facility NA NA NA 2.5 NA CRISIL A3+
NA Short Term Bank Facility NA NA NA 20 NA CRISIL A3+
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  22.50  CRISIL A3+      30-04-19  CRISIL A3+  23-01-18  CRISIL A3+      CRISIL A3+ 
Non Fund-based Bank Facilities  LT/ST  14.50  CRISIL A3+      30-04-19  CRISIL A3+  23-01-18  CRISIL A3+      CRISIL A3+ 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 14.5 CRISIL A3+ Bank Guarantee 14.5 CRISIL A3+
Proposed Short Term Bank Loan Facility 2.5 CRISIL A3+ Proposed Short Term Bank Loan Facility 2.5 CRISIL A3+
Short Term Bank Facility 20 CRISIL A3+ Short Term Bank Facility 20 CRISIL A3+
Total 37 -- Total 37 --
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Securities Companies
CRISILs Criteria for rating short term debt

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