Rating Rationale
February 21, 2024 | Mumbai
 
Kotak Alternate Asset Managers Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.100 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.100 Crore Preference Shares CRISIL AAA/Stable (Reaffirmed)
Rs.300 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
Rs.59 Crore Non Convertible Debentures CRISIL AAA/Stable (Withdrawn)
Non Convertible Debentures Aggregating Rs.441 Crore CRISIL AAA/Stable (Reaffirmed)
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 reaffirmed its ratings on the debt instruments and bank facilities of Kotak Alternate Asset Managers Ltd (formerly known as Kotak Investment Advisors Ltd) (KAAML; part of the Kotak group) at 'CRISIL AAA/Stable/CRISIL A1+'.

 

CRISIL Ratings has also withdrawn its rating of Rs.59 crore NCDs in line with its withdrawal policy (See 'Annexure - Details of Rating Withdrawn' for details). CRISIL Ratings has received independent confirmation that these instruments are fully redeemed

 

The ratings continue to reflect the strategic importance to, and expectation of strong support from the ultimate parent, Kotak Mahindra Bank Ltd (KMBL; rated ‘CRISIL AAA/CRISIL AA+[1]/Stable/CRISIL A1+’), and comfortable capitalisation. These strengths are partially offset by a volatile, though adequate, earnings profile.

 

The rating on the preference shares also factors in expectation that, given the company’s multiple revenue sources (including management fees from funds, Investment advisory income, income on sponsor commitment, and other interest income), surpluses generated will be adequate to cover any future dividend payments.

[1]For Perpetual Non-Cumulative Preference Shares.

Analytical Approach

The ratings reflect support KAAML receives from its parent, KMBL. This is because KAAML and KMBL have extensive business and operational linkages, and a common brand.

Key Rating Drivers & Detailed Description

Strengths:

  • Strategic importance to, and expectation of strong support from, KMBL: The company receives operational, financial, and managerial support from KMBL, and other group companies. KMBL held 58.6% stake in KAAML as on December 31, 2023. The balance 41.4% is held by Kotak Mahindra Capital Company Ltd (KMCC), which is a wholly-owned subsidiary of KMBL.

 

The senior management has also been associated in various roles with other subsidiaries of KMBL in the past.

 

The company is also expected to benefit from being part of the Kotak group, in terms of competitive borrowings. The group also offers funding support, and has infused equity of around Rs 354.6 crore till now. Incremental inflow of funds, as and when needed , are possible.

 

The Kotak group is likely to continue to hold 100% stake in KAAML. The shared Kotak brand implies KMBL’s strong moral obligation to support the company, both on an on-going basis as well as in the event of distress.

 

  • Comfortable capitalization: Capitalisation is comfortable for the size and nature of the business. The business is predominantly fee-based, except for the sponsor commitment made for the funds managed/ advised on. Under IGAAP, the networth stood at Rs Rs 860.45 crore and the gearing at 0.6 time as on December 31, 2023 against Rs 799.86 crore and the gearing at 0.4 times as on December 31, 2022.

 

Weakness:

  • Volatile, though adequate, earnings profile: The company has multiple revenue sources, but these are linked to either the fund size or the returns on the funds, thus reducing revenue diversity. It earns managerial fees from the funds that it manages and advises on. This is primarily linked to the fund size for most of the funds. It also earns returns on its investment in the funds in the form of sponsor commitment. Further, it earns variable income in case the returns on a fund surpass the set hurdle rate. The revenue profile from investment advisory business in KAAML is expected to diversify over the medium term. This is also expected to lend stability to the revenue. However, for the near term, the additional employee expense and investments in technology could keep operating costs higher than the linked revenue

 

The company has consistently reported profits over the past few fiscals (except FY20 due to Covid impact on fair values under IND AS). However, earnings tend to be highly variable for investment income, although cushioned by adequate fee income. The management fee is linked to the fund size, and has picked up with increase in assets under management (AUM). Nevertheless, the income on own investment and variable income is highly volatile. 

 

Though profitability is likely to remain variable given the nature of the business, multiple revenue sources should keep it adequate.

Liquidity: Superior

Borrowing was at Rs 478 crore as on December 31, 2023. The cash and bank balance was Rs 144.8 crore as on this date, against Rs. 143 crore principal debt repayment obligation till March-2024. The company also benefits from the support from KMBL.

Outlook: Stable

KAAML is likely to maintain its strong market position in the alternative investment space and continue to benefit from the operational, financial, and managerial support from KMBL.

Rating Sensitivity Factors

Downward factors:

  • Downward change in the credit risk profile of KMBL by 1 notch could have a similar rating change on KAAML
  • Any material change in the shareholding or support philosophy of KMBL impacting the quantum and timing of support.

About the Company

KAAML, incorporated in 1994, is a subsidiary of KMBL and is involved in fund management and advisory services. It acts as a fund manager for domestic funds and currently manages 26 such funds. As of December 31, 2023, it managed/advised on assets worth around Rs 43,412 crore across six segments - private equity, real estate, infrastructure, special situations, private credit, and optimus. Fee income from managerial and advisory services is the major source of revenue. Other sources include returns generated on investments made in the form of sponsor commitment in funds.  It also has stable revenue source from the Investment Advisory Fees.

 

Under IGAAP, profit after tax (PAT) was Rs 54.7 crore on total income of Rs 318.0 crore for nine month ended December 31, 2023.

Key Financial Indicators: as per IND AS

As on period ended

Unit

December 31,2023

March 31,2023

March 31,2022

 

 

Under IGAAP

Under IND AS

Total assets

Rs crore

1434

1630

1184

Total income

Rs crore

318

318

343

PAT

Rs crore

55

43

138

Gearing

Times

0.4

0.3

0.2

Return on assets

%

5.5

3.0

15.2

 

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs.Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Preference shares* NA NA NA 100 Complex CRISIL AAA/Stable
NA Commercial Paper NA NA 7 to 365 Days 300 Simple CRISIL A1+
NA Overdraft Facility NA NA NA 40 NA CRISIL AAA/Stable
NA Bank Guarantee NA NA NA 60 NA CRISIL A1+
INE03BW08036 Non-convertible debentures 05-Mar-2021 7.36% 05-Mar-2024 38 Simple CRISIL AAA/Stable
INE03BW08044 Non-convertible debentures 25-Mar-2021 7.36% 25-Mar-2024 55 Simple CRISIL AAA/Stable
INE03BW08051 Non-convertible debentures 11-May-2021 6.98% 10-May-2024 65 Simple CRISIL AAA/Stable
INE03BW08069 Non-convertible debentures 26-Sep-2022 10.00% 26-Sep-2025 80 Simple CRISIL AAA/Stable
INE03BW08077 Non-convertible debentures 24-Feb-2023 8.70% 24-Feb-2026 115 Simple CRISIL AAA/Stable
INE03BW08085 Non-convertible debentures 12-Sep-2023 8.63% 11-Sep-2026 75 Simple CRISIL AAA/Stable
NA Non-convertible debentures* NA NA NA 13 Simple CRISIL AAA/Stable

*Yet to be issued

 

Annexure - Details of Rating Withdrawn

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs.Crore)		 Complexity
Level		 Rating assigned
with outlook
INE03BW08010 Non-convertible debentures 24-Feb-2020 8.82% 24-Feb-2023 34 Simple Withdrawn
INE03BW08028 Non-convertible debentures 09-Jul-2020 8.66% 07-Jul-2023 25 Simple Withdrawn
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 40.0 CRISIL AAA/Stable   -- 21-02-23 CRISIL AAA/Stable 23-11-22 CRISIL AAA/Stable 30-12-21 CRISIL AAA/Stable CRISIL AAA/Stable
      --   --   -- 31-03-22 CRISIL AAA/Stable 20-04-21 CRISIL AAA/Stable --
      --   --   --   -- 22-03-21 CRISIL AAA/Stable --
Non-Fund Based Facilities ST 60.0 CRISIL A1+   -- 21-02-23 CRISIL A1+ 23-11-22 CRISIL A1+ 30-12-21 CRISIL A1+ CRISIL A1+
      --   --   -- 31-03-22 CRISIL A1+ 20-04-21 CRISIL A1+ --
      --   --   --   -- 22-03-21 CRISIL A1+ --
Commercial Paper ST 300.0 CRISIL A1+   -- 21-02-23 CRISIL A1+ 23-11-22 CRISIL A1+ 30-12-21 CRISIL A1+ CRISIL A1+
      --   --   -- 31-03-22 CRISIL A1+ 20-04-21 CRISIL A1+ --
      --   --   --   -- 22-03-21 CRISIL A1+ --
Non Convertible Debentures LT 441.0 CRISIL AAA/Stable   -- 21-02-23 CRISIL AAA/Stable 23-11-22 CRISIL AAA/Stable 30-12-21 CRISIL AAA/Stable CRISIL AAA/Stable
      --   --   -- 31-03-22 CRISIL AAA/Stable 20-04-21 CRISIL AAA/Stable --
      --   --   --   -- 22-03-21 CRISIL AAA/Stable --
Preference Shares LT 100.0 CRISIL AAA/Stable   -- 21-02-23 CRISIL AAA/Stable 23-11-22 CRISIL AAA/Stable 30-12-21 CRISIL AAA/Stable CRISIL AAA/Stable
      --   --   -- 31-03-22 CRISIL AAA/Stable 20-04-21 CRISIL AAA/Stable --
      --   --   --   -- 22-03-21 CRISIL AAA/Stable --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 60 Kotak Mahindra Bank Limited CRISIL A1+
Overdraft Facility 40 Kotak Mahindra Bank Limited CRISIL AAA/Stable
Criteria Details
Links to related criteria
Rating Criteria for Finance Companies
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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