Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings on bank loan facilities and commercial paper of IIFL Capital Services Limited (IIFL Capital, erstwhile IIFL Securities Limited).

 

The rating continues to reflect the strong market position of IIFL Capital in the broking and investment banking businesses and its adequate capitalisation. These strengths are partially offset by exposure to uncertainties inherent in capital market-related businesses.

 

The company has served over 30 lakh customers, out of which 4.57 lakh customers were active in September 2024. Out of total turnover volume (cash and derivatives segments) of the National Stock Exchange (NSE), the company has a market share at 0.67% overall, and 2.67% in the cash segment for 1HFY25, compared to ~0.8% overall, and 2.98% in the cash segment market share for fiscal 2024. Average daily turnover increased to Rs 2.6 lakh crore for fiscal 2024 as compared to Rs 1.5 lakh crore in fiscal 2023 and further remained similar at ~Rs 2.6 lakh crore in first six months of fiscal 2025, in line with industry trends.

Analytical Approach

For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of IIFL Capital and its subsidiaries. The rating also factors in the business synergies between IIFL Capital

 

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:

• Strong market position in the retail broking and investment banking businesses: IIFL Capital is primarily into broking and allied activities such as margin trading facility (MTF), depository, etc. (70% of total income), financial product distribution (16%) and investment banking (9%) for H1 FY2025. It is one of the leading players in the retail broking segment. The company has pan-India presence with more than 4.57 lakh active clients as on September 30, 2024. It had a market share of 0.67% of the turnover volume (cash and derivatives segments) of the National Stock Exchange (NSE) for the first half of fiscal 2025. It also provides MTF to its clients and the book was Rs 1,052 crore as on September 30, 2024.

 

The company also has a strong institutional equity desk, and is a leading domestic investment banker, participating in several marquee initial public offerings (IPOs) and qualified institutional placements. In fiscal 2024, owing to high traction in the investment banking space, revenue from this segment increased to Rs 225 crore in fiscal 2024 from Rs 129 crore in fiscal 2023. With deals getting more traction in the current fiscal, income from the segment stood at Rs 120 crore in first six months of fiscal 2025.

 

The company also distributes third-party financial products such as insurance, mutual funds, bonds, alternative investment funds, portfolio management services, and deposits through its website, mobile app and branch network. Distribution assets under management (AUM) was around Rs 31,200 crore as on September 30, 2024, and income from distribution was Rs 212 crore during first six months of fiscal 2025 (Rs 391 crore in fiscal 2024). Other businesses, such as currency and commodity broking businesses are modest in scale.

 

Overall, the business profile is fairly diversified which has supported steady revenue flow over the years.

 

• Adequate capitalisation supported by healthy internal accruals: Consolidated networth for the company was Rs 2,222 crore as on September 30, 2024 (Rs 1,788 crore as on March 31, 2024 and Rs 1,350 crore as on March 31, 2023) supported by healthy internal accruals. In the past, a large portion of the borrowing was by the wholly owned subsidiary, IIFL Facilities Services, which was secured by the subsidiary's various real estate assets. Now, with the scale up of MTF book, borrowings at the broking entity is expected to increase. The MTF book (net) stood at Rs 1,052 crore as on September 30, 2024 (Rs 916 crore in March 2024 and Rs 491 crore in March 2023). Overall gearing was 0.5 times as on September 30, 2024 (0.6 times as on March 31, 2024 and 0.4 times as on March 31, 2023).

 

IIFL Capital on a consolidated basis reported a net profit of Rs 513 crore in fiscal 2024 vis-à-vis Rs 250 crore in fiscal 2023. The earnings performance continued to remain robust with a net profit of Rs 388 crore in first six months of fiscal 2025 driven by improvement in market sentiments and though marginally increased broking volumes and investment banking deals. The 3-year average cost to income ratio was 69% for fiscal 2022 to fiscal 2024. Healthy internal accruals have supported the capital position of the company and is expected to remain adequate over the medium term.

 

Weakness:

• Exposure to uncertainties inherent in the capital market businesses and tightening regulatory environment: The company's key broking business remains exposed to economic, political, and social factors that drive investor sentiments. Given the cyclical nature of the business, brokerage volumes and earnings are highly dependent on the level of trading activity in capital markets. This makes earnings and profitability volatile. However, the impact on earnings is partially offset by the high share of business coming through franchisees, resulting in a more variable cost structure.

 

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 including IIFL Capital 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.

 

SEBI had placed a ban on IIFL Capital to acquire new broking clients for two years as per an order dated June 19, 2023 based on various inspections carried out over 2011-17. Subsequently the company approached the Securities Appellate Tribunal (SAT) and obtained a stay order on June 27, 2023. On December 07, 2023, SAT has set aside SEBI’s ban on IIFL Capital on acquiring new clients and reduced the penalty amount. SEBI has now appealed against the SAT order before the Supreme Court.

Liquidity: Strong

IIFL Capital, at a consolidated level, has strong liquidity. As on September 30, 2024, consolidated liquidity stood at Rs 1,115 crore in the form of cash and equivalent (Rs 569 crore), liquid investments (Rs 242 crore), and unutilized bank lines (Rs 304 crore) while debt repayments over October 2024 – March 2025 stand at Rs 681 crore. The debt repayments of Rs 681 crore are in the form of commercial paper (CP; Rs 419 crore) and working capital demand loan (WCDL; Rs 250 crore). WCDL is secured against receivables, which along with CP, are typically rolled over.

Outlook: Stable

IIFL Capital will continue to strengthen its market position and improve its earning profile and core profitability over the medium term.

Rating sensitivity factors

Upward factors:

• Significant scale-up of operations leading to improvement in the market position across business segments
• Continued improvement in revenue, and cost to income improving to 55%, together resulting in significant improvement in profitability
• Improvement in income diversity on a sustained basis

 

Downward factors:

• Impact on business profile as indicated by drop in market share thereby impacting broking income
• Weakening of the earnings profile or sustained increase in cost-to-income ratio to over 80%

About the Company

IIFL Capital (formerly IIFL Securities Limited, the erstwhile flagship company of the India Infoline group, was set up as Probity Research and Services in October 1995. The name was changed to India Infoline Ltd in March 2000, then to IIFL Securities in May 2018 and currently as IIFL Capital in November 2024) . The company is a member of the BSE and the NSE. IIFL Commodities Ltd (formerly India Infoline Commodities Ltd; a 100% subsidiary of IIFL Capital) sold a major part of its business in a slump sale to IIFL Capital, effective July 1, 2018.

 

In January 2018, IIFL Finance (earlier IIFL Holdings Ltd) reorganised itself into three entities: IIFL Finance (the loans and mortgages business), 360 One (the wealth and asset management business) and IIFL Capital (the capital markets and other businesses). Subsequently in September 2019, IIFL Capital was listed on the stock exchanges.

 

As on September 30, 2024, the promoters owned 31% stake in IIFL Capital. The Fairfax group owns 27% and the remaining 42% is held by the public.

 

On a consolidated basis, IIFL Capital reported total income and profit after tax (PAT) of Rs. 2,231  crore and Rs 513 crore, respectively, in fiscal 2024, against Rs 1,370 crore and Rs 250 crore, respectively, in fiscal 2023. During first six months of fiscal 2025 total income and PAT were Rs 1,348 crore and Rs 388 crore respectively.

 

On a standalone basis, IIFL Capital reported total income and PAT of Rs 1,966 crore and Rs 535 crore, respectively, in fiscal 2024, against Rs 1,269 crore and Rs 283 crore, respectively, in fiscal 2023. During first six months of fiscal 2025 total income and PAT were Rs 1,184 crore and Rs 367 crore respectively.

Key Financial Indicators : IIFL Capital - consolidated (CRISIL Ratings-adjusted numbers)

As on / for the period ended	Unit	H1 FY 2025	FY2024	FY2023	FY2022
Total assets	Rs crore	9,665	7,875	5,237	6,041
Total income	Rs crore	1,348	2,231	1,370	1,316
Profit after tax	Rs crore	388	513	250	306
Return on equity	%	38.7*	32.7	19.7	28.5
Gearing	Times	0.5	0.6	0.4	0.5

*Annualised

 

IIFL Capital - standalone (CRISIL Ratings-adjusted numbers)

As on / for the period ended	Unit	H1 FY 2025	FY 2024	FY2023	FY2022
Total assets	Rs crore	9,256	7,452	4,805	5,539
Total income	Rs crore	1,184	1,966	1,269	1,151
Profit after tax	Rs crore	367	535	283	284
Return on equity	%	40.5*	38.8	27.0	33.3
Gearing	Times	0.5	0.6	0.3	0.4

*Annualised

Any other information: Not Applicable