Rating Rationale
August 31, 2020 | Mumbai
IIFL Securities Limited
  Rating Reaffirmed
 
Rating Action
Rs.1050 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A1+' rating on the commercial paper of IIFL Securities Limited (IIFL Securities).
 
The rating factors in the leading presence of IIFL Securities in broking and investment banking business and its adequate capitalisation. These strengths are partially offset by exposure to uncertainties inherent in capital-market-related businesses.

Analytical Approach

For arriving at the ratings, CRISIL has consolidated the business and financial risk profiles of IIFL Securities and its subsidiaries. CRISIL has also factored in the business synergies that IIFL Securities will have with IIFL Finance and IIFL Wealth, given their common promoters and shared brand name.

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:
* Leading presence in retail broking and investment banking business
IIFL Securities is among the large players in the retail broking segment. The company has a pan-India presence with more than a million clients, and had a market share of 0.7% of the aggregate volumes (cash and derivatives segments) of the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) for fiscal 2020 (0.9% in fiscal 2019).  It also has a presence in the institutional, currency, and commodity broking segments. Additionally, it distributes mutual funds and insurance products through its website and branch network. The company caters to over 2.4 million customers through a network of about 2,500 points of presence covering the branches and the business partners across 500 cities in India. Risk management and monitoring systems are adequate to mitigate risks arising from uncertainties inherent in the retail-broking business. 
 
Moreover, IIFL Securities has emerged as a leading domestic investment banker, participating in some of the marquee initial public offerings (IPOs) and qualified institutional placements in the last few years.
 
* Adequate capitalisation
Capitalisation is adequate, with a consolidated networth of Rs 880 crore crore as on March 31, 2020 (Rs 731 crore as on March 31, 2019). Gearing stood at 0.5 time as on March 31, 2020 (1.0 times as on March 31, 2019). The borrowings in the real estate segment are backed by fixed assets of the entity, however, the same has reduced over the past few years as the company has been focusing on deleveraging the balance sheet by disposing of non-core assets. Other borrowings at broking entity are largely to meet the margin requirements at exchanges. Networth is adequate for current and planned scale of operations.
 
Weakness:
* Exposure to uncertainties inherent in capital-market-related businesses
The company's main businesses remain exposed to economic, political, and social factors that drive investor sentiments. Given the cyclical nature of the business, the brokerage volumes and earnings are highly dependent on the level of trading activity in the capital markets. However, the impact on earnings is partially offset by the high share of business originated through franchisees, resulting in a more variable cost structure compared with that of peers.
Liquidity Adequate
IIFL Securities, at a consolidated level, has adequate liquidity supported by the agency nature of its business. As on June 30, 2020, IIFL Securities (consolidated) had total liquidity of Rs 490 crore in the form of cash and cash equivalents of Rs 30 crore, investment of Rs 291 crore and unutilized bank lines of Rs 169 crore as against upcoming debt repayments of Rs 76 crore till September 30, 2020, The debt repayments for all subsidiaries of IIFL Securities is managed at a consolidated level.
 
Rating Sensitivity Factors
Downward Factors
* Impact on business profile marked by drop in market share thereby impacting broking income
* Deterioration in earnings profile or sustained increase in cost to income to over 80%
 
About IIFL Securities
IIFL Securities, the erstwhile flagship company of the India Infoline group, was set up as Probity Research and Services in October 1995; the company's name was changed to India Infoline Ltd in March 2000, and to IIFL Securities in May 2018. The company is a member of the BSE and the NSE. IIFL Commodities Ltd (Formerly India Infoline Commodities Ltd; a 100% subsidiary of IIFL Securities) sold a major part of its business in a slump sale to IIFL Securities, effective July 01, 2018. As a part this, IIFL Securities now also provides a trading platform to its customers on two of India's leading commodity exchanges, the National Commodity and Derivatives Exchange Ltd, and the Multi-Commodity Exchange of India Ltd.
 
In January 2018, IIFL Finance Ltd (IIFL Finance; earlier IIFL Holdings Ltd) announced plans to reorganise its corporate structure, and list the three entities ' IIFL Finance (loans and mortgages business), IIFL Wealth (wealth and asset management business), and IIFL Securities (capital markets and other businesses). In May 2019, as part of this restructuring scheme, IIFL Securities and IIFL Wealth were demerged from IIFL Finance. Further, in September 2019, IIFL Securities was listed on the stock exchanges.
 
As of June 30, 2020, the promoters own 29.8% stake in IIFL Securities, The Fairfax Group owns 35.4% stake while the remaining is held by public.
 
On a consolidated basis, IIFL Securities reported a total income and profit after tax (PAT) of Rs 790 crore and Rs 234 crore (including exceptional item of around Rs 102 crore), respectively,  in fiscal 2020 as against a total income and PAT of Rs 876 crore and Rs 171 crore, respectively, in fiscal 2019.  For the first quarter of fiscal 2021, the consolidated total income and PAT was Rs 178 crore and Rs 41 crore, respectively, as against Rs 185 crore and Rs 24 crore (excluding exceptional item of Rs 102 crore), respectively, for the corresponding period of the previous fiscal.
 
On a standalone basis, IIFL Securities reported a total income and profit after tax (PAT) of Rs 644 crore and Rs 143 crore, respectively, in fiscal 2020 as against a total income and PAT of Rs 706 crore and Rs 145 crore, respectively, in fiscal 2019.  For the first quarter of fiscal 2021, the total income and PAT was Rs 157 crore and Rs 39 crore, respectively, as against Rs 150 crore and Rs 25 crore, respectively, for the corresponding period of the previous fiscal.
Key Financial Indicators - IIFL Securities - Consolidated (CRISIL adjusted numbers)
As on/for the period ended March 31 Unit  2020 2019
Total Assets Rs crore 2434 3050
Total income Rs crore 790 876
Profit after tax Rs crore 234 171
Return on Equity % 29.1% 25.3%
Gearing Times 0.5 1.0

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.Crore) Complexity Level Outstanding rating with Outlook
NA Commercial Paper NA NA 7 to 365 days 1050 Simple CRISIL A1+
 
Annexure - List of Entities Consolidated
Entity consolidated Extent of consolidation Rational for consolidation
IIFL Facilities Services Limited (formerly known as IIFL Real Estate Limited) Full Subsidiary
IIFL Management Services Limited (formerly known as India Infoline Insurance Services Limited) Full Subsidiary
IIFL Insurance Brokers Limited (formerly known as India Infoline Insurance Broken Limited) Full Subsidiary
IIFL Commodities Limited (formerly known as India Infoline Commodities Limited) Full Subsidiary
IIFL Asset Reconstruction Limited Full Subsidiary
IIFL Securities Services IFSC Limited Full Subsidiary
IIFL Wealth (UK) Limited Full Subsidiary
IIFL Capital Inc Full Subsidiary
Shreyans Foundation LLP Full Subsidiary
Meenakshi Towers LLP Full Subsidiary
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
Commercial Paper  ST  1050.00  CRISIL A1+      20-08-19  CRISIL A1+  30-10-18  CRISIL A1+    --  -- 
                04-09-18  CRISIL A1+       
Non Convertible Debentures  LT                      CRISIL AA-/Stable 
Short Term Debt  ST                      CRISIL A1+ 
Short Term Debt (Including Commercial Paper)  ST              13-08-18  CRISIL A1+  29-09-17  CRISIL A1+  -- 
                09-05-18  CRISIL A1+       
                09-02-18  CRISIL A1+       
All amounts are in Rs.Cr.
Links to related criteria
Rating Criteria for Securities Companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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