| Dolat Algotech Limited | ||
| 'CRISIL A1+' assigned to Commercial Paper | ||
| Rating Action | ||
| ||
| 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 assigned its ‘CRISIL A1+’ rating to the Commercial Paper of Dolat Algotech Limited (DAL).
The rating takes into account established track record in the capital markets business supported by strong risk management systems and adequate capitalisation.
Adjusted networth on a consolidated basis for the Dolat group stood at Rs 2462 crore as on September 30, 2023 (Rs 2,319 crore as on March 31, 2023, Rs 2,081 crore as on March 31, 2022 and Rs 1,696 crore as on March 31, 2021). Networth is supported by internal cash accruals; gearing has remained low historically.
The group, with an established track record of performance, is supported by strong promoters with experience of more than four-decades in the capital market business. This has also helped to build a sound risk management framework.
These strengths are partially offset by the group’s high reliance on a single revenue stream and vulnerability to regulatory changes, with volatility inherent in the capital markets business. |
Analytical Approach CRISIL Ratings has considered the combined business and financial profiles of Dolat group entities to arrive at the rating. This approach has been taken on account of high degree of management, business and financial integration of the companies.
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:
The promoters, Mr. Pankaj Shah (Managing Director of DAL), Mr. Shailesh Shah, Mr. Harendra Shah and Mr. Rajendra Shah have been associated with the capital market industry for more than three decades. They are now supported by the second generation, who have also built requisite understanding and knowledge of the industry.
The company has a strong risk management system and a risk-averse approach to trading, as there are no directional trades executed. The management is conservative in its approach, and maintains sufficient liquidity required for placing margins. The trades are executed through automated algorithmic software which calculates the hedge ratio considering market volatility and volume and the position is hedged automatically. Trades are executed as per the set parameters in the algorithmic software and the traders can trade only within these parameters. Also, the group has a real-time risk monitoring system which ensures there are no errors. Human intervention is mitigated as the final execution of trades is done post the risk management checks. The Group has a dedicated risk management team of 5 individuals headed by the promoter, Mr. Pankaj Shah.
Weaknesses:
CRISIL Ratings understands that most top and few mid-sized brokers have already streamlined their systems in accordance with the revised regulations. However, this may impact small and mid-sized brokers given their not-so-advanced IT infrastructure and risk management systems. Nevertheless, most of these regulations pertains to the client business (pure broking business). As far as Dolat group is concerned, the business is primarily confined to proprietary/arbitrage/delta hedged business. Hence, these revised regulations did not have any visible impact on the group thus far. CRISIL Ratings, nevertheless, will continue to monitor it on an ongoing basis. These regulations will benefit the industry with increased transparency and de-risk the broking platform for retail customers. |
Liquidity: Adequate The liquidity of the group remains adequate for the current scale of operations. Majority of the bank facilities are non-fund based. At a group level, the management has the policy to maintain Rs. 150 crores as the minimum liquidity. Unencumbered cash and bank balance of the group as on February 29, 2024, was about Rs 90 crore. The group also has funds parked in the form of unutilized fixed deposits, with overdraft limits against these deposits, of Rs. 318 crores which can be used whenever required. |
Rating Sensitivity Factors Downward factors
|
About the Company Dolat Group was established in the year 1971 by late Shri Dolatrai A. Shah, a first-generation broker with the first group company - Dolat Capital. The growth of the Dolat group has been directly linked to the growth of stock trading in India.
The Group is in the business of trading and broking activities for more than 40 years. The group’s lines of business include arbitrage trading in equities, institutional broking, forex broking, commodity trading, algo-trading in derivatives, etc. Each company has a different core trading strategy, as such there is no revenue interlinkages between the group companies.
Dolat Algotech Limited is engaged in the risk neutral delta hedged derivatives trading in futures and options through its proprietary trading desk. The company deploys strategies to earn on the market inefficiencies using highly complex and accurate algo-trading model developed in-house. |
Key Financial Indicators: (Consolidated group)
Key Financial Indicators: DAL (Standalone)
|
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
|
Annexure - List of Entities Consolidated
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
|