Rating Rationale
June 28, 2022 | Mumbai
INFINA Finance Private Ltd
Rating Reaffirmed
 
Rating Action
Rs.2000 Crore Commercial PaperCRISIL A1+ (Reaffirmed)
Rs.13000 Crore Commercial Paper Issue&CRISIL A1+ (Withdrawn)
Rs.8720 Crore Commercial Paper Issue^CRISIL A1+ (Withdrawn)
& Assigned for initial public offering/ open offer financing on episodic basis and/or application on proprietary account
^ Assigned for initial public offering/ open offer financing on episodic basis and/or application on proprietary account
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on commercial paper of INFINA Finance Private Ltd (INFINA).

 

Rating on Rs 13000 crore and Rs 8720 crore commercial paper issue has been withdrawn as there was no outstanding against the facility. The same is in line with CRISIL Ratings’ withdrawal policy.

 

The rating continues to reflect INFINA’s healthy capitalisation, financial flexibility and expectation of significant benefits accruing to it as an associate of Kotak Mahindra Bank Ltd (KMBL; rated ‘CRISIL AAA/CRISIL AA+[[1]]/Stable/CRISIL A1+’). Being an associate of KMBL, INFINA benefits from the Kotak group’s expertise in financial markets, and robust risk management and processes. These strengths are partially offset by volatility in INFINA’s earnings, given its correlation with capital markets, and the company’s susceptibility to risks inherent in the securities-based lending and proprietary trading businesses. Nevertheless, increasing share of security-based lending is expected to gradually provide stability to the earnings profile.

[1] For Perpetual Non-Cumulative Preference Shares.

Analytical Approach

CRISIL Ratings has considered the standalone business and financial risk profiles of INFINA. CRISIL Ratings has also factored in the expectation of significant benefits and financial flexibility available to it as an associate of KMBL.

Key Rating Drivers & Detailed Description

Strengths:

Significant benefits and financial flexibility as an associate of KMBL:

The rating centrally factors in the expectation of strong managerial and operational support as well as access to capital from INFINA’s sponsors. KMBL, through its wholly-owned subsidiary, Kotak Mahindra Capital Company Ltd (KMCC), holds 49.99% stake in INFINA and the remaining is held by entities promoted by the Kotak family. While INFINA does not carry the Kotak name, it is widely recognised as a Kotak group-sponsored company.

 

CRISIL Ratings believes INFINA will continue to receive strong support from the promoters -- given the company’s high strategic importance as it complements the group’s product offerings.  It is expected that the promoters will act in concert to provide support to INFINA in-line with permissible regulations, if the need arises. INFINA not only benefits from the franchise of being an associate of KMBL, but also follows some of the Kotak group’s robust policies and processes and effective risk management procedures in securities-based lending and proprietary trading. Further, it benefits from management and governance philosophy of the Kotak group, which extends its oversight over the company.

 

Healthy capitalisation:

Capital position is healthy, with large networth of Rs 2,202 crore and overall capital adequacy ratio of 71.16% as on March 31, 2022. Gearing was 0.4 as on that date. Even adjusting for the capital allocated for proprietary trading, gearing has been negligible on a steady-state basis. Gearing peaked around 6 times when the company contracted debt to fund initial public offering (IPO). With moderate business projected for the near term, gearing is not expected to exceed 2.0 times (excluding capital allocated for proprietary trading activity) on a steady-state basis, and 8 times on an episodic basis, leading to continued healthy capitalisation. However, RBI’s circular (w.e.f. April 01, 2022) restricts NBFCs from lending more than Rs 1 crore per borrower for IPO financing. Accordingly, this business will not remain a focus for the Company going forward. Even factoring in the episodic IPO financing done by the company, it is expected to maintain capital adequacy ratio above the regulatory minimum at all points of time.

 

Weakness:

Volatile earnings profile:

Given the inherent volatility in INFINA’s businesses because of its high correlation with equity markets, earnings tend to be volatile. In the proprietary trading segment, INFINA primarily follows a long-short strategy and the portfolio is constructed to ensure significantly lower volatility compared to the overall market. However, income from this segment remains linked to the capital markets, and hence, is uncertain and volatile.  Further, shift to Indian Accounting Standard (Ind-AS), and hence recognition of unrealised fair valuation gain (along with loss that was already being recognised as per IGAAP) is expected to increase the volatility in earnings. However, given the increasing share of capital market lending, earnings is expected to gradually stabilise over the medium term.

 

The company reported profit after tax (PAT) of Rs 270 crore in fiscal 2022 compared to PAT of Rs 226 crore in fiscal 2021.

 

Risks associated with proprietary trading in equities and securities-based lending business:

The securities-based lending business is susceptible to significant counterparty and liquidity risks, to fluctuations in the market value of collateral, and to concentration in collateral and clientele. Business volumes also tend to be cyclical. Even in the proprietary trading segment, earnings are uncertain and exposed to capital market risks.

Liquidity: Strong

The asset liability management profile was comfortable with positive cumulative mismatches in the up to 1 year bucket as on May 31, 2022. As on May 31, 2022, INFINA had liquidity of Rs 344.41 crore comprising Rs 8.60 crore cash and bank balance, Rs 83.67 crore fixed deposits and Rs 252.14 crore liquid/overnight mutual fund investments. The total debt maturity for next three months was Rs 395 crore as on same date. Further, Rs 126.80 crore worth of mutual funds units lien-marked towards margin for F&O exposure can be released at a short notice in case of need. Also, management indicated that they have put options for majority of the loan book. The company also benefits from its association with Kotak Mahindra Bank Ltd.

Rating Sensitivity Factors

Downward Factors:

  • Deterioration in capitalisation levels, with gearing above 3.5 times on a steady-state basis.
  • Decrease in the benefits derived from the Kotak group, impacting the financial flexibility of the company

About the Company

INFINA is registered with the Reserve Bank of India as a non-deposit-taking, non-banking financial company. INFINA had strategic investment in the telecommunications sector, which was divested in March 2006. The proceeds were invested in tax-saving bonds, which matured in 2009, post which the company commenced IPO financing on a larger scale and proprietary trading in equity. Recently, the company has started focusing on loan against securities (LAS) business.

 

For fiscal 2022, the company, reported PAT of Rs 270 crore on total income of Rs 536 crore as against a PAT of Rs 226 crore on total income of Rs 356 crore in the previous fiscal.

Key Financial Indicators

As on/for the year ended March 31

Unit

2022

2021

Total assets

Rs crore

3163

2281

Total income

Rs crore

536

356

Profit after tax

Rs crore

270

226

Gross NPA

%

Nil

0.3

Gearing

Times

0.4

0.2

Return on assets

%

9.9

11.3

 

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)

ISIN

Name of instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size (Rs.Crore)

Complexity Level

Rating assigned with outlook

NA

Commercial paper programme

NA

NA

7-365 days

2,000

Simple

CRISIL A1+

 

Annexure - Details of Rating Withdrawn

ISIN

Name of Instrument

Date of
Allotment

Coupon
Rate (%)

Maturity Date

Issue Size
(Rs.Cr)

Complexity
levels

NA

Commercial paper Issue*

NA

NA

7-30 days

13,000

Simple

NA

Commercial paper issue*

NA

NA

7-30 days

8,720

Simple

*Assigned for initial public offering/ open offer financing on episodic basis and/or application on proprietary account

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper ST 2000.0 CRISIL A1+   -- 14-07-21 CRISIL A1+ 15-12-20 CRISIL A1+ 24-12-19 CRISIL A1+ CRISIL A1+
      --   -- 06-07-21 CRISIL A1+ 03-12-20 CRISIL A1+ 29-11-19 CRISIL A1+ --
      --   -- 15-06-21 CRISIL A1+ 30-09-20 CRISIL A1+ 25-11-19 CRISIL A1+ --
      --   -- 16-04-21 CRISIL A1+ 22-09-20 CRISIL A1+ 01-10-19 CRISIL A1+ --
      --   -- 07-04-21 CRISIL A1+ 08-09-20 CRISIL A1+ 30-07-19 CRISIL A1+ --
      --   -- 15-03-21 CRISIL A1+ 30-07-20 CRISIL A1+ 26-06-19 CRISIL A1+ --
      --   -- 04-03-21 CRISIL A1+ 28-02-20 CRISIL A1+ 04-04-19 CRISIL A1+ --
      --   -- 16-02-21 CRISIL A1+   --   -- --
      --   -- 03-02-21 CRISIL A1+   --   -- --
      --   -- 19-01-21 CRISIL A1+   --   -- --
Commercial Paper Issue ST 21720.0 Withdrawn   -- 14-07-21 CRISIL A1+ 15-12-20 CRISIL A1+ 24-12-19 CRISIL A1+ Withdrawn
      --   -- 06-07-21 CRISIL A1+ 03-12-20 CRISIL A1+ 29-11-19 CRISIL A1+ --
      --   -- 15-06-21 CRISIL A1+ 30-09-20 CRISIL A1+ 25-11-19 CRISIL A1+ --
      --   -- 16-04-21 CRISIL A1+ 22-09-20 CRISIL A1+ 01-10-19 CRISIL A1+ --
      --   -- 07-04-21 Withdrawn 08-09-20 CRISIL A1+ 30-07-19 CRISIL A1+ --
      --   -- 15-03-21 CRISIL A1+ 30-07-20 Withdrawn 26-06-19 CRISIL A1+ --
      --   -- 04-03-21 CRISIL A1+ 28-02-20 CRISIL A1+ 04-04-19 CRISIL A1+ --
      --   -- 16-02-21 CRISIL A1+   --   -- --
      --   -- 03-02-21 CRISIL A1+   --   -- --
      --   -- 19-01-21 CRISIL A1+   --   -- --
All amounts are in Rs.Cr.

  

Criteria Details
Links to related criteria
Rating Criteria for Finance Companies
CRISILs Criteria for rating short term debt

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