VNS Finance & Capital Services Limited

December 15, 2017

Summary of rated instruments

Previous Rated Amount Current Rated Amount
Instrument* Rating Action
(Rs. crore) (Rs. crore)
[ICRA]BB- (Stable);
Long term fund based bank facilities 1.00 1.00
Reaffirmed
Short term non-fund based bank
15.00 15.00 [ICRA]A4; Reaffirmed
facilities
Total 16.00 16.00

Rating action
ICRA has reaffirmed the long-term rating of [ICRA]BB- (pronounced ICRA double B minus) for the Rs. 1.00 long term fund
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based bank facilities and the short-term rating of [ICRA]A4 (pronounced ICRA A four) for the Rs. 15.00 crore short term
non-fund based bank facilities of VNS Finance & Capital Services Limited. The outlook on the long-term rating is ‘Stable’.

Rationale

The ratings remain constrained by the company’s modest scale of operations, low diversification of revenues with its
operations focused on equity broking and the inherently volatile nature of the company’s equity broking business. The
ratings also remain constrained by the high competitive intensity in the industry which in-turn has resulted in a pressure
over broking yields, with the company reporting a decline in average blended yields in the past fiscal. However, these
concerns are partly mitigated by the company’s longstanding experience in equity broking and arbitrage trading; its
consistent ability to maintain profitability, albeit low, even during downturns, favourable asset quality as compared to
peers, and its adequate capitalization and liquidity in relation to scale of operations.

Outlook: Stable
ICRA believes VNS will continue to benefit from the extensive experience of its promoters. The outlook may be revised to
'Positive' if a healthy scaling up of operations along with greater diversification in revenue stream and increase in
economies of scale results in an improvement in profitability which further strengthens the company’s financial risk
profile. The outlook may be revised to 'Negative' in the event of a downturn in the industry or any changes in regulatory
environment which may have an impact the business operations and consequently financial performance of the
company.

1
100 lakh = 1 crore = 10 million

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Key rating drivers

Credit strengths
Long track record of the promoters of more than two decades in the capital markets related businesses - The
promoters of the company have been engaged in the brokerage business for the last two decades and have been steadily
increasing the scale of operations. The promoter, Mr. Vijay Singhania, is on the board of the Association of National
Exchanges Members of India (ANMI). Under his stewardship VNS has been able to establish a large retail client base as
well as empanelment with some institutional players.

Adequate risk management systems for the current scale of operations - The Company has adequate systems in place.
VNS has a central reporting system for the franchises and uses in-house risk management software for monitoring and
managing the exposure at each franchisee and client level. VNS has been able to effectively track exposures, maintain
steady asset quality and contain its debtor levels supported by its risk management policy.

Comfortable Liquidity position- Since VNS is not involved in margin funding activities; its capital requirements are
limited to meeting the margin requirements at the bourses. VNS’ broking business has a comfortable liquidity profile
with average margin utilization levels placed with stock exchanges (generally in the range of 70-75%), adequate
unutilized bank lines available with the company and ready access to client’s assets (backed by share collateral) that can
be monetized without a significant lag. VNS’s reported gearing stood at 0.59 as on March 31, 2017 with a net worth at
Rs.10.76 crore.

Credit weaknesses
Low revenue diversification with high dependence on retail brokerage income - During FY2017, VNS’ net brokerage
income accounted for ~64% of net operating income (NOI; 66% in FY2016) reflecting the low presence of VNS in other
capital market businesses. The other sources of revenue include net interest income (31% of NOI in FY2017) and fee
income from depository services (5% of NOI in FY2017). Going forward, the revenue stream is expected to remain
concentrated on the broking segment as the company does not have immediate plans to diversify into other capital
markets businesses.

Gradual decline in average broking yields - In FY2013, the company revised its business model with greater emphasis on
online and mobile platform and also started offering different discounted products. This enabled the company to scale
up the broking volumes; however the blended yields have been declining over the years. In H1FY2018, its blended yields
declined to 1.23 bps from 1.37 bps in FY2017. With increasing competition in equity broking and the advent of discount
brokerage houses, average yields are expected to remain under downward pressure for the industry.

Small scale of business operations with negligible market share- The Company offers equity broking services to retail
clients; however the scale of operations of this remains modest. The total broking turnover for the company increased to
Rs. 0.63 lakh crore in FY2017 from Rs. 0.49 lakh crore in FY2016 registering a growth of 29%. With the company’s broking
volumes growth being slower than the industry growth of 35% in FY2017, the company witnessed a marginal decline in
market share from 0.07% in FY2016 to 0.06% in FY2017. The blended yields of the company declined from 1.37 bps
during FY2017 to 1.23 bps in H1FY2018. The company’s ability to ramp up its operations in order to realise economies of
scale remains critical for an improvement in profitability levels.

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Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable criteria:

Rating Methodology for Brokerage Houses

About the company:

VNS Finance & Capital Services Limited was incorporated in June 1995. The company is a member of the Bombay Stock
Exchange (BSE) in all segments, and a member of the National Stock Exchange (NSE) in the capital and derivative
segments and a depository participant of Central Depository Services Ltd. The company is primarily engaged in retail
equity broking, arbitrage trading, and currency trading and depository services. VNS is entirely owned by the promoters
either directly or indirectly through other group companies and relatives.

VNS reported a net profit of Rs. 1.84 crore on a total income of Rs. 8.75 crore in FY2017 as compared to a net profit of
Rs. 1.66 crore on a total income of Rs. 7.72 crore in FY2016.

Key Financial Indicators (Audited)

FY 2016 FY 2017
Brokerage Income (net) 5.12 5.56
Net Interest Income 2.31 2.79
Fee Income (other than broking) 0.29 0.40
Operating Income (excluding trading
income) 7.72 8.75
Total Operating Expenses 5.24 5.99
Profit Before Tax 2.47 2.76
Profit After Tax 1.66 1.84
Net Worth 9.10 10.76
Return on Net Worth (%) 18.24% 17.14%
Note: Amounts in Rs. crore
Source: Company and ICRA Research;

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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Rating history for last three years:
Chronology of Rating History for the
Current Rating (FY2018) past 3 years
Date & Date & Date &
Date & Rating in Rating in Rating in
Amount Amount Rating FY2017 FY2016 FY2015
Rated Outstanding March
Instrument Type (Rs. crore) (Rs. Crore) Dec 2017 July 2016 - 2015
1 Long term fund Long 1.00 1.00 [ICRA]BB- [ICRA]BB- [ICRA]BB- [ICRA]BB-
based bank Term (Stable) (Stable) (Stable) (Stable)
facilities
2 Short term non- Short 15.00 15.00 [ICRA]A4 [ICRA]A4 [ICRA]A4 [ICRA]A4
fund based bank Term
facilities

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

Date of Amount
Issuance / Maturity Rated Current Rating
ISIN No Instrument Name Sanction Coupon Rate Date (Rs. crore) and Outlook
Long term fund
NA 16/02/2015 - 21/09/2018 1.00 [ICRA]A4
based
Short term non- [ICRA]BB-
NA 16/02/2015 - 21/09/2018 15.00
fund based (Stable)
Source: VNS Finance and Capital Services Limited

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ANALYST CONTACTS
Karthik Srinivasan Samriddhi Chowdhary
+91 22 6114 3444 +91 22 6114 3400
karthiks@icraindia.com samriddhi.chowdhary@icraindia.com
Chirag Sureka Ankur Verma
+91 22 6114 3424 +91 22 6114 3427
chirag.sureka@icraindia.com ankur.verma@icraindia.com

RELATIONSHIP CONTACT
L. Shivakumar
+91 22 61143 406
shivakumar@icraindia.com

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
naznin.prodhani@icraindia.com

Helpline for business queries:

+91-124-3341580 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

For more information, visit www.icra.in

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ICRA Limited
Corporate Office
Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002
Tel: +91 124 4545300
Email: info@icraindia.com
Website: www.icra.in

Registered Office
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Tel: +91 11 23357940-50

Branches

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Pune + (91 20) 66069999

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