July 04, 2017

Motilal Oswal Securities Limited

Summary of rated instruments
Instrument* Amount Rating Action
(in Rs. crore)
Non-Convertible Debenture 50.00 [ICRA]AA (stable); reaffirmed
Programme
Non-Convertible Debenture 150.00 [ICRA]AA (stable); assigned
Programme
*Instrument details are provided in Annexure-1

Rating action
ICRA has reaffirmed the long-term rating of [ICRA]AA (pronounced ICRA double A) for the Rs. 50
crore non-convertible debenture programme of Motilal Oswal Securities Limited (MOSL). The outlook
on the long term rating is stable. ICRA has also assigned the rating of [ICRA]AA (stable) for the Rs. 150
crore non-convertible debenture programme of MOSL.

Rationale
While reaffirming the rating, ICRA has taken a consolidated view of the Motilal Oswal group given the
operational linkages and strong synergies across businesses as well as the shared senior management
team. The rating reaffirmation takes into account the group’s healthy operational profile with a strong
market position in retail broking, robust risk management systems and its competitive cost structure with
a high share of the broking business sourced through the low-cost franchisee channel. The rating also
takes into account the company’s favourable financial profile with healthy profitability, comfortable
capitalisation and low leverage levels. While reaffirming the rating, ICRA has taken note of the MOFSL’s
dependence on capital markets, which are inherently volatile in nature. The gradual diversification in the
company’s revenues, supported by the growing housing finance and asset management businesses
provides comfort. The company is among the leading players in portfolio management services (PMS),
and is also in the process of providing exit from its first set of private equity funds. The group forayed
into housing finance in FY2014 through Aspire Home Finance Corporation Limited (Aspire, rated at
[ICRA]AA- (stable)), and had an outstanding loan book of Rs. 4,100 crore as on March 31, 2017.
However, given the limited track record, the portfolio remains unseasoned. The rating also takes into
account the highly competitive and fragmented nature of the broking industry, which coupled with the
rising share of derivatives volumes vis-à-vis cash turnover, has resulted in a compression in yields. Going
forward, the company’s ability to diversify its portfolio by scaling up the housing finance portfolio
further, and maintain healthy asset quality, profitability and capital structure remains critical.

Key rating drivers

Credit strengths
 Established name as one of the marquee players in the equity broking space in India
 Strong market position in both retail and institutional broking segments, with over 8.5 lakh retail
customers and 636 institutional empanelments
 Strong and experienced top management team with considerable experience and expertise in the
capital market space
 Healthy capital structure with a standalone gearing of 1.02 times; while there has been an increase in
debt levels with the scaling up of lending operations, capitalisation at a group level remains
commensurate with the scale of operations
 Strong position in portfolio management services business with assets under management of Rs.
10,357 crore as on March 31, 2017

Credit weaknesses
 High dependence of the group on the capital markets which are inherently volatile in nature; the
gradual diversification of the business profile provides comfort
 Decline in broking margins given the rising share of derivative volumes and increased competition
 Ability of the group to successfully scale up the home loan business, while maintain healthy asset
quality and profitability

Description of key rating drivers:

The Motilal Oswal group is one of India’s leading providers of capital market related services. The group
has been engaged in equity broking since 1987 and has a long track record in the capital markets. The
group, through its various entities, is engaged in retail and institutional broking, wealth management,
margin funding, commodities broking, investment banking, asset management, private equity and housing
finance. Motilal Oswal Financial Services Limited (MOFSL, rated [ICRA]AA (stable)) serves as the main
holding company of the group and also houses the fund based business of the group. MOSL was founded
by Mr. Motilal Oswal and Mr. Raamdeo Agrawal in 1987, and is a wholly owned subsidiary of MOFSL.

MOSL offers equity broking services to both institutional and retail clients. The retail segment remains
the primary revenue driver for the company and contributed to 80% of the total broking volumes in
FY2017. MOSL earns a majority of its revenues from equity broking (~71% during FY2017), followed
by fee income (~15%) and net interest income (~9%). During FY2017, MOSL’s total equity broking
volumes increased by 46%, largely driven by healthy traction in the retail segment, outperforming the
industry volumes (which grew by 35% in the same period). This enabled the company increase its market
share to 2.1% from 2% in FY2016. The proportion of volumes from the cash segment moderated to ~13%
in FY2017 from ~14% in FY2016. With the declining share of the higher-yielding cash segment and
falling yields in both the cash and derivatives segments, MOSL’s blended yields contracted in FY2017 to
3.10 bps from 3.50 bps in FY2016. Going forward, given the competitive intensity in the industry coupled
with rising share of F&O volumes, blended yields are expected to remain under pressure.

The fall in blended yields was however cushioned by the improvement in broking volumes, resulting in
the company’s equity broking income increasing by 17% in FY2017. With other revenues sources also
showing healthy traction, MOSL reported total operating revenue of Rs. 463.75 crore in FY2017 (a
growth of 30% over FY2016). This coupled with an improvement in the cost to income ratio resulted in
an increase in MOSL’s profit after tax to Rs. 108.81 crore in FY2017 (RoE of 12.48%) from Rs. 60.55
crore in FY2016 (RoE of 7.94%).

MOSL’s broking operations have a comfortable liquidity profile with low levels of utilisation of the
margins placed with stock exchanges (generally in the range of 50-60%), large unutilised bank lines
available with the company and ready access to margins provided by clients. The company is adequately
capitalised with its net worth standing at Rs. 871.62 crore as on March 31, 2017 (Rs. 762.81 crore as on
March 31, 2016). MOSL’s reported gearing stood at 1.02 times as on March 31, 2017.

Analytical approach:
For arriving at the ratings, ICRA has taken a consolidated view of Motilal Oswal Financial Services
Limited along with its subsidiaries as they have operational linkages and common senior management.

Links to applicable criteria:

Brokerage Houses
About the Company
Motilal Oswal Financial Services Limited
Incorporated in 2005, Motilal Oswal Financial Services Limited (MOFSL) is a non-deposit-taking non-
banking financial company, providing margin financing services to the group’s retail broking clients.
MOFSL also serves as the holding company of the group. The Motilal Oswal group is India’s leading
providers of capital-market related services, including retail and institutional broking, wealth
management, loan against shares, margin financing, commodities broking, investment banking, and
venture capital management. The group consists of MOFSL and its subsidiaries, namely Motilal Oswal
Securities Limited, Aspire Home Finance Limited, Motilal Oswal Commodities Brokers Pvt Ltd, Motilal
Oswal Private Equity Advisors Pvt Ltd, Motilal Oswal Investment Advisors Pvt Ltd, Motilal Oswal
Capital Markets Pvt Ltd, Motilal Asset Management Company Ltd, and Antop Trader Pvt Ltd.

The company reported a consolidated net profit of Rs. 360 crore on a total income of Rs 1,813 crore in
FY2017 compared with a net profit of Rs 169 crore over a total income of Rs 1,094 crore in FY2016. At a
consolidated level, the group’s net worth stood at Rs. 1,786 crore as on March 31, 2017.

Motilal Oswal Securities Limited

Incorporated in 1987, MOSL offers equity broking services to both institutional and retail clients. Like
other domestic brokerage houses, it also provides ancillary services such as portfolio management,
depository and distribution of financial products. Currently, it caters to close to 8.5 lakh clients through its
24 branches and 2260 franchisees. During FY2017, the company recorded a net profit of Rs. 108.81 crore
on a total operating income of Rs. 463.75 crore. As on March 31, 2017, the company had a net worth of
Rs. 871.62 crore.

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

Rating history for last three years:

Table:
Chronology of Rating History for the past 3
Current Rating (FY2018)
years
Sr. Instrument
No. Rated FY2017 FY2016 FY2015
Type
Amount July 2017
(Rs. crore) January
- -
2017
Non-
Long [ICRA]AA [ICRA]AA
1 Convertible 200.00 - -
Term (stable) (stable)
Debentures

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly
Complex". The classification of instruments according to their complexity levels is available on the
website www.icra.in
Annexure-1
Instrument Details
Rated
Date of
Coupon Maturity Amount Current Rating
Instrument Issuance /
Rate Date Outstanding
(Rs. crore) and Outlook
Sanction
[ICRA]AA
03/02/2017 8.50% 30/04/2019 25
Non- Convertible Debentures (stable)
Non- Convertible Debentures 03/02/2017 8.50% 05/06/2019 25 [ICRA]AA
(stable)
Non- Convertible Debentures – NA NA NA 150 [ICRA]AA
Yet to be issued (stable)
Source: Company
For further details please contact:

Analyst Contacts:
Mr. Karthik Srinivasan (Tel. No. +91 22 61143 444)
[email protected]

Ms. Samriddhi Chowdhary (Tel. No. +91 22 6169 3331)

[email protected]

Mr. Amaan Elahi (Tel No. +91 22 6114 3448)

[email protected]

Mr. Chirag Sureka (Tel. No. +91 22 6114 3424)

[email protected]

Relationship Contacts:
Mr. L. Shivakumar (Tel. No. +91 22 61143 406)
[email protected]

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© Copyright, 2017, ICRA Limited. All Rights Reserved

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