By Pankaj Naik

India Ratings and Research (Ind-Ra) has assigned Motilal Oswal Financial Services Limited’s (MOFSL) additional commercial paper (CP) as follows:

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating

Rating Action

CP

-

-

-

INR10,500

IND A1+

Assigned


Ind-Ra has rated the CP after the amalgamation of Motilal Oswal Securities Ltd (MOSL) with MOFSL and the subsequent transfer of the former’s all debts, liabilities, duties and obligations (debentures, bonds, notes or other debt securities) to the latter.

 

MOSL was a wholly owned subsidiary of MOFSL. The board approved the amalgamation on 21 August 2018. The National Company Law Tribunal has also approved the amalgamation by virtue of an order dated 30 July 2018.

Ind-Ra continues to take a consolidated view of MOFSL and its group companies to arriving at a rating.

KEY RATING DRIVERS

Comfortable Liquidity: The group had unencumbered cash and bank balance of INR4.0 billion at FYE18 (FYE17: INR3.8 billion) and mutual fund investments of INR13.2 billion (INR9.5 billion), which is sufficient to meet the short-term debt liabilities. The group also had INR7.6 billion of unutilised bank lines to take care of the liquidity requirements. The group has a common treasury (except Aspire Home Finance Corporation Limited) and the liquidity pool is fungible for liquidity requirements of the group companies.   

 

Healthy Capitalisation: MOFSL (on a consolidated basis) had a sizeable equity base of INR22.3 billion at FYE18 (FYE17: INR17.8 billion) and moderate leverage of 2.4x (2.9x). Incremental equity support is mostly limited to the mortgage lending business, which can be largely supported by the free cash generated at the group level, thus limiting the incremental borrowings.

 

Stable Profitability: The group’s return on equity, excluding unrealised gains, was 27% in FY18 (FY17: 22.4%), supported by buoyant capital market activities and asset management business. Sustained inflows in the asset management business coupled with an improvement in operating leverage in the capital market and leverage businesses, as well as the likely exits in some of the mature investments, could continue to aid the profitability. The company’s unrealised gains on mutual fund investments were about INR4.4 billion in FY18 (FY17: INR3.3 billion).


RATING SENSITIVITIES

Negative: A negative rating action could result from a sharp deterioration in the business viability of any of the group’s large businesses, which in Ind-Ra’s opinion could lead to a significant weakening of the group’s profitability and/or capital buffers at the parent. A negative rating action could also result from signs of a sharp deterioration in MOFSL’s liquidity and/or access to funding due to unexpected market-wide shocks or losses in the capital market businesses. A breach of leverage levels from Ind-Ra’s comfort levels could also have a negative impact on the rating. The ability to provide growth capital to Aspire in the long-term without increasing the leverage at the group level would also be a key monitorable.


COMPANY PROFILE

MOFSL is the ultimate holding company of the broker-turned-diversified financial services Motilal Oswal group. The group is present in several businesses such as retail and institutional broking, asset management, private equity, wealth management, loan against shares, margin financing, commodities broking, investment banking, venture capital management and housing finance. Since 1986, the company has seen various capital market cycles and has a strong hold in the capital market space.

 

FINANCIAL SUMMARY (consolidated)

 

Particulars

FY18

FY17

Total assets (INR million)

97,907

84,269

Total equity (INR million)

22345

17765

Net income (INR million)

5420

3645

Return on average assets (%)

5.95

5.40

Equity / assets (%)

22.8

21.1

Source: Company



RATING HISTORY

Instrument Type

Current Rating

Historical Rating

Rating Type

Rated Limits (million)

Rating

11 December 2017

CP*

Short-term

INR13,000

IND A1+

IND A1+


ANNEXURE

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating

CP

-

-

14 September 2018

INR1,000

IND A1+

CP

 

 

9 October 2018

INR2,500

IND A1+

CP

 

 

15 October 2018

INR2,000

IND A1+

Unutilised CP

 

 

 

INR7,500

 

Total

 

 

 

INR13,000

 



COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

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Analyst Names

  • Primary Analyst

    Pankaj Naik

    Associate Director
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40001723

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121