Coimbatore Capital Limited December 27, 2017 Ratings Facilities Amount Short-term Bank Facilities 37 Total Facilities Details of instruments/facilities in Annexure-1 37 (Rupees Thirty Seven crore only) Rating 1 CARE A3 [A Three] Rating Action Reaffirmed Detailed Rationale & Key Rating Drivers The rating continues to factor in the long track record of Coimbatore Capital Limited (CCap) in the business of offering equity and derivative broking services supported by the presence of experienced promoters and top management. The rating also favourably considers the comfortable leverage indicators, satisfactory compliance track record and adequate risk management systems of CCap. The rating also factors in the slight improvement in financial performance during FY17. The rating is, however, constrained by the relatively small size of operations of CCap, geographic concentration and high reliance on business associates. The rating also factors in the absence of revenue diversification, particularly in light of the highly volatile and intensely competitive industry in which CCap operates. The ability of CCap to improve its business volumes, grow its income and cash accruals while maintaining the comfortable capital structure form the key rating sensitivities. Detailed description of the key rating drivers Key Rating Strengths Well-qualified & experienced directors and top management CCap was promoted by Mr D. Balasundaram, an industrialist and a director in some of the KG group of companies. Mr D. Balasundaram is the former president and founder-director of Coimbatore Stock Exchange. He is also the founder director of inter-connected stock exchange of India. Executive Director, Mr Venkateswaran, has nearly three decades of experience in various facets of business administration. The other directors are also well-qualified and experienced. Satisfactory compliance track record CCap has been in the stock broking business since 1995 with a satisfactory track record of complying with the stipulations of the exchange with respect to maintaining adequate capital (margin) for trading purposes. CCap also has a dedicated compliance officer, who is responsible for monitoring the compliance of various acts, rules and regulations, notifications, guidelines, etc., issued by the various regulatory agencies. The company also strictly enforces the KYC norms as prescribed by the regulatory authorities. Adequate risk management systems CCap has set limits for its clients for trading in the cash and F&O market to mitigate counterparty risk and procedures for handling transactions in the cash as well as F&O segment. CCap also sets limit on client-wise exposure. Furthermore, the 1 Complete definition of the ratings assigned are available at www.careratings.com and other CARE publications 1 CARE Ratings Limited
company has also strengthened the collection of dues from clients and charges interest after the settlement date itself, resulting in considerable amount of income earned as compensation for delayed payments made by customers. Improvement in financial performance during FY17 During FY17, the company s trading volumes have increased by 22% from 10,32,210 in FY16 to 12,59,490 in FY17. On account of increase in the trading volumes, the brokerage income increased from Rs.7.85 crore in FY16 to Rs.8.50 crore in FY17. PAT has also increased from Rs.0.19 crore in FY16 to Rs.0.21 crore in FY17. Compensation for delayed payment has increased from Rs.1.07 crore in FY16 to Rs.1.39 crore in FY17. During H1FY18, total income and PAT stood at Rs.7.01 crore and Rs.0.43 crore respectively. Comfortable capital structure The short term working capital borrowings decreased from Rs.10.33 crore in FY16 to Rs.9.91 crore in FY17. The shortterm debt outstanding is an overdraft facility of sanctioned limit Rs.17 crore. The average utilization of this facility during the twelve month period from October 2016 to September 2017 was 27%. Overall gearing improved from 0.83x as on March 31, 2016 to 0.78x as on March 31, 2017. Key Rating Weaknesses Small scale of operations with absence of revenue diversification CCap is a small-sized regional player with services catered only to retail clients in the stock broking business operating through 91 business locations as on March 31, 2017, primarily located in Tamil Nadu. The business clientele of CCap is entirely constituted by the retail investors community. The company s overall transaction volumes have increased by 22% from 10,32,210 in FY16 to 12,59,490 in FY17. Unlike most other established brokerage houses, it does not engage in the institutional business and proprietary trading. The company does neither have a research desk nor does it offer services such as portfolio management which results in the absence of revenue diversification. During FY17, the brokerage income contributed to around 70% of the total income and the income generated from depository services (8%) and the distribution of mutual fund and IPO (1%) is yet to contribute in a significant way. Geographic concentration and high reliance on business associates CCap s major part of the revenue originates in the state of TN. As on March 31, 2017, the company is operating in 91 centres of which 31 are owned and the rest through business associates/franchisees. The company has two centres each in Kerala and Puducherry and one centre in Karnataka and the rest are in TN. Volatility associated with the stock market Like any other brokerage company, CCap faces significant business risk as downturns in the securities markets can reduce trading volumes thereby impacting its revenues. Prospects CCap caters only to retail investors with majority of the branches located in Tamil Nadu and does not engage in proprietary trading, institutional services and research/advisory services. Though catering only to retail investors in limited geography results in relatively smaller size, its focus on core competency reduces the risk. In the past year ended March 2017, due to favourable market scenario, there has been growth in business volumes from the retail segment across the industry. Also, backed by increase in overall transaction volumes, total income and PAT has witnessed growth in FY17. Absence of term loans and moderate utilisation of the working capital limits provided certain 2 CARE Ratings Limited
degree of comfort to the financial risk profile of CCap. The ability of the company to grow its customer base, improve profitability and maintenance of the comfortable capital structure will be key rating sensitivities. Analytical approach: Standalone Applicable Criteria CARE's Policy on Default Recognition Financial Ratios-Financial Sector CARE's Criteria for Short Term Instruments About the Company CCap is a financial services provider, operating primarily as a stock broker. The company is a trading member in the Cash Market (CM) and Futures and Options (F&O) segment of the National Stock Exchange of India Limited (NSE). Apart from stock broking, it also provides depository services, being a depository participant with National Securities Depository Limited (NSDL) and also does mutual funds distribution and selling of Initial Public Offers (IPOs). During FY17 (refers to the period April 01 to March 31), the company reported PAT of Rs.0.21 crore on a total income of Rs.12.23 crore. Brief Financials FY16 (A) FY17 (A) Total operating income 11.50 12.23 PAT 0.19 0.21 Interest coverage (times) 1.36 1.33 Total Assets 35.66 38.03 ROTA (%) 0.50 0.57 A: Audited Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to care@careratings.com for any clarifications. Analyst Contact: Name: Mr P Sudhakar Tel: 044-2850 1003 Mobile: 9442228580 Email: p.sudhakar@careratings.com **For detailed Rationale Report and subscription information, please contact us at www.careratings.com 3 CARE Ratings Limited
About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. Disclaimer CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. Annexure-1: Details of Instruments/Facilities Name of the Instrument Date of Issuance Coupon Rate Maturity Date Size of the Issue Non-fund-based - ST- - - - 20.00 CARE A3 Bank Guarantees Fund-based-Short Term - - - 17.00 CARE A3 Rating assigned along with Rating Outlook Annexure-2: Rating History of last three years Sr. No. Name of the Instrument/Bank Facilities Type Current Ratings Amount Outstanding 1. Non-fund-based - ST- Bank Guarantees Rating 2017-2018 Rating history 2016-2017 ST 20.00 CARE A3 - (06-Jan-17) 2015-2016 (05-Jan-16) 2014-2015 (11-Dec-14) 2. Fund-based-Short Term ST 17.00 CARE A3 - (06-Jan-17) (05-Jan-16) (11-Dec-14) 4 CARE Ratings Limited
CONTACT Head Office Mumbai Ms. Meenal Sikchi Mr. Ankur Sachdeva Cell: + 91 98190 09839 Cell: + 91 98196 98985 E-mail: meenal.sikchi@careratings.com E-mail: ankur.sachdeva@careratings.com Ms. Rashmi Narvankar Mr. Saikat Roy Cell: + 91 99675 70636 Cell: + 91 98209 98779 E-mail: rashmi.narvankar@careratings.com E-mail: saikat.roy@careratings.com CARE Ratings Limited (Formerly known as Credit Analysis & Research Ltd.) Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai - 400 022 Tel: +91-22-6754 3456 Fax: +91-22-6754 3457 E-mail: care@careratings.com AHMEDABAD Mr. Deepak Prajapati 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad - 380 015 Cell: +91-9099028864 Tel: +91-79-4026 5656 E-mail: deepak.prajapati@careratings.com BENGALURU Unit No. 1101-1102, 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bangalore - 560 001. Cell: +91 98407 54521 Tel: +91-80-4115 0445, 4165 4529 CHANDIGARH Mr. Anand Jha SCF No. 54-55, First Floor, Phase 11, Sector 65, Mohali - 160062 Chandigarh Cell: +91 85111-53511/99251-42264 Tel: +91-0172-490-4000/01 Email: anand.jha@careratings.com CHENNAI Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai - 600 002. Cell: +91 98407 54521 Tel: +91-44-2849 7812 / 0811 COIMBATORE T-3, 3rd Floor, Manchester Square Puliakulam Road, Coimbatore - 641 037. Tel: +91-422-4332399 / 4502399 JAIPUR Mr. Nikhil Soni 304, Pashupati Akshat Heights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur - 302 016. Cell: +91 95490 33222 Tel: +91-141-402 0213 / 14 E-mail: nikhil.soni@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata - 700 071. Cell: +91-98319 67110 Tel: +91-33- 4018 1600 E-mail: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi - 110 055. Cell: +91-98117 45677 Tel: +91-11-4533 3200 E-mail: swati.agrawal@careratings.com PUNE Mr.Pratim Banerjee 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune - 411 015. Cell: +91-98361 07331 Tel: +91-20- 4000 9000 E-mail: pratim.banerjee@careratings.com CIN - L67190MH1993PLC071691 HYDERABAD Mr. Ramesh Bob 401, Ashoka Scintilla, 3-6-502, Himayat Nagar, Hyderabad - 500 029. Cell : + 91 90520 00521 Tel: +91-40-4010 2030 E-mail: ramesh.bob@careratings.com 5 CARE Ratings Limited