Rating Action (Rs. crore) Commercial Paper programme

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1 March 09, 2017 CR Retail Malls (India) Limited Instrument* Rated Amount Rating Action (Rs. crore) Commercial Paper programme 500 [ICRA]A1+; assigned (for IPO Financing) Term Loans 79 [ICRA]A (stable) ; outstanding Unallocated Limits 1 [ICRA]A (stable) ; outstanding *Instrument Details are provided in Annexure-1 Rating Action ICRA has assigned the rating of [ICRA]A1+ (pronounced ICRA A One plus) to the Rs. 500 crore Commercial Paper programme (for IPO Financing) of CR Retail Malls (India) Limited (CR Retail). ICRA also has a long-term rating of [ICRA]A (pronounced ICRA A) outstanding on the Rs. 80 crore bank facilities of CR Retail. The outlook on the long term rating is Stable. Rationale The rating assigned for Commercial Paper programme (for IPO Financing) factors in the established market position and demonstrated track-record of JM Financial Group which is a leading diversified financial services entity with interests in capital market businesses viz. investment banking, broking and securities based lending, portfolio and asset management, wholesale and retail lending as well as asset reconstruction. CR Retail is a wholly owned step-down subsidiary of JM Financial Limited, the flagship holding company of JM Financial Group. ICRA takes comfort from the financial support expected from the JM Financial Group to CR Retail for meet the debt servicing obligations for the rated programme should there be a requirement. The rating also factors the successful diversification of the group into real estate lending and stressed asset management business as demonstrated by the scaling up of operations. The company s ability to maintain its asset quality indicators despite the cyclicality in equity markets and challenges faced by the real estate industry in the past few years underscores the strong risk management systems and processes. While assigning the rating ICRA has taken note of the healthy performance of the JM Financial group at a consolidated level with robust profitability indicators which have further improved with increase in scale of its lending business as well as its ability to maintain comfortable capitalization and conservative gearing despite aggressive scale up of its lending business. The rating however factors in the group s relatively higher dependence on the cyclical capital markets and higher lending exposure to the real estate and promoter funding segment which are perceptibly riskier. ICRA takes into consideration that despite of increase in share of long term borrowings in the form of bank borrowings and debentures during FY2016 and YTDFY2017, the group s dependence on short tenor commercial paper borrowings continue to remain high.

2 Key Rating Drivers Key Strengths Leading entity in capital markets and related businesses with prime focus on investment banking and merchant banking operations; investment banking positioning remains one of the best in the Indian capital markets space on the back of strong relationships and demonstrated execution track-record Diverse revenue streams with operations in investment banking, securities, lending, asset reconstruction (ARC) and alternate asset management Ramp-up in fund based business in the past three years driven by real estate lending, reducing dependence on capital market related businesses Strong presence in the equity broking business backed by sound research capabilities Improved profitability of the group with an increase in revenues and stable expenses Group s adequate capitalisation levels for current scale of operations Healthy financial flexibility given the comfortable leverage (~1.9 times at consolidated group level as on March 30, 2016) and sizeable undrawn bank limits Comfortable asset quality of the funding portfolio Key Challenges High dependence on short term borrowings with ~46% of overall borrowings as on March 31, 2016 being in the form of commercial papers (CPs); however, the group s consistent efforts to raise longer tenure debt provide some comfort Exposure to risky segments, with real estate (76%) 1 and promoter funding (11%) 1 accounting for more than 80% of lending book; however, conservative credit underwriting norms provide comfort Constrained financial flexibility with capital markets advances and land financing (20-25% of overall book) not being eligible for bank refinance High concentration risk on account of the exposure to real estate lending; ability to manage asset quality remains critical for profitable operations Slow movement in resolution of large ticket stressed assets acquired by the group during FY2015 Key Sensitivities Ability to improve profitability with further scale up of business and maintaining costs at comfortable level Inability to maintain asset quality especially in the real estate lending segment given the current weak operating environment Description of key rating drivers highlighted above: The JM Financial group is a diversified financial services entity with interests in investment banking, retail and institutional equity broking, wealth management, investment advisory services, portfolio management, asset management, commodity broking, securities-based lending, corporate lending, commercial real estate lending, private equity, and asset reconstruction. JM Financial group made a foray in the lending business in 2008 year and since then this has emerged as a key contributor to the group s revenue stream. The Group conducts its lending business from two NBFCs, namely, JM Financial Products Limited (JMFPL) and JM Financial Credit Solutions Limited (JMFCSL). JMFCSL is the joint venture of JM Financial Limited (JMFL) with INH Mauritius 1 (the fund), a global fund led by Mr. Vikram Pandit, ex-ceo of Citigroup and will focus on real estate lending. JMFCSL is a subsidiary of JMFL and post conversion of Compulsorily Convertible Preference shares 1 As on December 31, 2016

3 held by the fund, JMFL s holding in the entity will be 50.01%. JM Financial Products Limited (subsidiary of JMFL) will focus on non-real estate lending segments, primarily margin funding, promoter funding and loan against securities. During FY2016, the lending book of JM Financial Group increased sharply by ~34% to Rs. 7,214 crore from Rs. 5,388 crore as on March 31, 2015 driven by sharp growth in real estate lending. As on December 31, 2016, loan book stood at Rs. 8,990 crore of which real estate financing comprised of ~76%, Promoter and Corporate Funding comprised of ~11% and retail LAS / margin/ IPO funding constituting the remaining 13% of the book. Going ahead, the management plans to enter the SME financing segment in the next 3-6 months. Also, share of real estate lending is likely to remain at current levels in the medium term. The overall loan book for the group is sufficiently collateralised and asset quality has also remained stable over the last few years. With limited slippages and good recoveries, the asset quality of the company improved in the past few quarters. Gross NPA stood at ~0.2% as on December 31, 2016 whereas Net NPAs were negligible. Going forward, the ability of the company to control its asset quality with further scale up in loan book remains to be seen. Also, with the recent demonetisation exercise likely to adversely affect the real estate industry especially the builders, the asset quality of the group will remain a key rating monitorable. The asset liability maturity profile of JM Financial Group improved in FY2016 as the company increased the share of long term borrowings in its total borrowings to ~37% as on March 31, 2016 as compared to ~6% as on March 31, With the average tenor of assets being in the 2-3 year range, asset liability profile has improved. However, the reliance of the group on commercial paper borrowings remained high (~46% as on March 31, 2016). The share of long term borrowings has further increased in FY2017 year till date (YTD) which further improves the asset liability maturity profile of JM Financial Group. The total borrowings at the consolidated level increased from Rs. 4,721 crore as on March 31, 2015 to Rs. 6,671 crore as on March 31, Accordingly, at consolidated group level, overall leverage levels increased to ~1.92 times as on March 31, 2016 as compared to ~1.53 times as on March 31, ICRA takes comfort from the relatively lower gearing at consolidated level when compared to its peers and the group s stated plans to keep leverage levels under 3 at all points in time. The securities business constitutes of equity broking (institutional, HNI and retail), asset management and investment banking. JM Financial s positioning specifically in the investment banking and merchant banking businesses is strong with the group involved in many marquee deals in the market. During FY2016, the revenues from broking business and investment banking have remained stable. The fee income from investment banking stood at Rs. 103 crore in FY2016 (Rs. 115 crore in FY2015) and net broking income 2 stood at Rs. 118 crore in FY2016 (Rs. 120 crore in FY2015). JM Financial Asset Reconstruction Company Private Limited (JMFARC) is one of the larger players in the asset reconstruction business with AUM at Rs. 10,351 crore as on September 30, The company largely operates in the large single borrower segment, perceived to be risky on account of its complexity, higher ticket size as well as levels of high degree of engagement with promoters. The AUM also includes a sizeable investment in Corporate/SME portfolios consisting of multiple borrowers thereby diversifying the risk profile. After witnessing sharp growth in AUM during FY2015, the growth in AUM moderated to ~17% during FY2016 due to limited acquisitions and challenging operating environment. The growth in AUM remained muted during H1 FY2017; however, with change in provisioning guidelines for banks for their investments in Security Receipts (SRs) and changes in regulations of foreign investment in SRs, ICRA expects the operating environment for ARCs to improve in the near term. 2 Net of sub-brokerage commission

4 During FY2016, the group s total income 3 increased by ~27% to Rs. 1,602 crore from Rs. 1,263 crore in FY2015 driven by an increase in interest income from its lending business with robust growth in loan book. Cost income ratio of the group declined during FY2016 to ~37% from ~44% in FY2015 due to expenses remaining at a comfortable level. Consequently, the group reported a net profit of ~Rs. 400 crore in FY2016 (RoE 4 of ~16%) as compared to ~Rs. 331 crore in FY2015 (RoE 4 of ~14%). The group s capitalization remains adequate with capital adequacy ratio being reported at ~27% as on December 31, 2016, much above the regulatory requirements. Analytical approach: While assigning the rating, ICRA has taken a consolidated view of JM Financial Group into consideration due to high operational and managerial linkages between the group companies. Links to applicable Criteria: ICRA s Credit Rating Methodology for Non-Banking Finance Companies Rating Methodology For Debt Backed By Lease Rentals Company Profile About JM Financial Group The JM Financial group has interests in investment banking, retail and institutional equity broking, wealth management, investment advisory services, portfolio management, asset management, commodity broking, securities-based lending, corporate lending, commercial real estate lending, private equity, and asset reconstruction. The group's clients include corporates, domestic and foreign financial institutions, high-net-worth individuals (HNIs), and retail investors. While each of these businesses is independent in itself, the companies in the group have integrated operations. JM Financial Ltd is the holding company for the operating companies in the JM Financial group. During FY2016, the JM Financial Limited reported a consolidated profit after tax (PAT) of Rs. 400 crore on a total income3 of Rs. 1,602 crore as compared to a net profit of Rs. 331 crore on a total income3 of Rs. 1,263 crore during FY2015. About CR Retail Malls (India) Limited CR Retail Malls (India) Limited (CR retail or the company) is primarily engaged in the business of giving and taking on lease and sub lease land, buildings, structures, properties including Multiplexes and Cinemas. The company currently owns Seven Screen Multiplex Cinema (Theatre) known as 'PVR- Multiplex' at Phoenix Mills, Lower Parel, Mumbai which has been given on a long term lease to PVR Limited (Rated [ICRA]AA-/A1+). The company was earlier a subsidiary of PVR Limited, and was acquired in May 2011 by JM Financial Group, which has an established presence in the capital market industry. CR retail is a wholly owned subsidiary of JM Financial Investment Managers Limited. Recent Results During 9M FY2017, CR Retail reported a net profit of Rs crore on a total income of Rs crore as against net profit of Rs crore on a total income of Rs crore during FY Excluding profit on sale of assets/investments and net of sub-brokerage commission 4 Return on average net worth (including minority interest)

5 Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Table: Rating History S.No Name of Instrument Type Current Rating Rated amount (Rs. Crores) Chronology of Rating History for the past 3 years March 2017 FY2017 FY2016 FY Commercial Paper Short Term 2 Term Loans Long Term 3 Unallocated Long Limited Term 500 [ICRA]A1+ NA NA NA 79 [ICRA]A 1 [ICRA]A [ICRA]A [ICRA]A [ICRA]A [ICRA]A NA NA 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

6 Name of the instrument Commercial Paper (for IPO Financing)* Date of issuance March 2017 Annexure-1 Details of Instrument Coupon rate - Maturity Date March- April 2017 March Size of the issue (Rs. Cr) Current Rating and Outlook 500 [ICRA]A1+ April Term Loan 9.90% 79 [ICRA]A Unallocated Limits [ICRA]A Source: Company Data; *Yet to be issued Name and Contact Details of the Rating Analyst(s): Mr. Karthik Srinivasan (Tel. No ) karthiks@icraindia.com Mr. Kushal Modi (Tel. No ) kushal.modi@icraindia.com Ms. Samriddhi Chowdhary (Tel. No ) samriddhi.chowdhary@icraindia.com Mr. Chirag Sureka (Tel. No ) chirag.sureka@icraindia.com Mr. Pratik Jain (Tel. No ) pratik.jain@icraindia.com Name and Contact Details of Relationship Contacts: Mr. L. Shivakumar (Tel. No ) shivakumar@icraindia.com

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