Rationale

While ICRA used to take a consolidated view of IIFL Holdings Limited, following the scheme of demerger (effective May 2019), there has been a restructuring, thereby creating three separate entities – India Infoline Finance Limited (lending operations), IIFL Wealth Management Limited (wealth and asset management) and IIFL Securities Limited (capital markets and broking business). The ratings for IIFL Wealth Finance are based on a consolidated view of IIFL Wealth Management Limited and its subsidiaries (referred to as IIFL Wealth/Group/company), given their common senior management team and strong financial and operational synergies. The ratings factor in IIFL Wealth's leading market position, as reflected in the assets under advice, management and distribution of Rs. 1,50,762 crore as on December 31, 2019. The company's senior management team has significant experience and expertise in the wealth management business, which has helped the company grow into a leading player in the wealth management industry. The franchisee built over the years has helped in ensuring low client attrition (less than 2.5% p.a.) as well as low employee attrition (team leader attrition rate of sub-4% p.a.). ICRA also takes into account the comfortable capitalisation with demonstrated ability to raise equity. Although the Group's profitability has reduced on account of a change in the revenue recognition model to trail basis, it remains comfortable with PAT/ATA of 2.5% and RoE of ~9% in 9M FY2020. ICRA draws comfort from the management's strategy of focusing on increasing the share of annual recurring revenues (58% in 9M FY2020; 42% in FY2019) as opposed to transaction/brokerage revenues (40%), which could help reduce the volatility in income. ICRA considers the modest lending operations with a loan book of Rs. 4,027 crore as on December 31, 2019 with the top 20 exposures forming 38% of the total loans and 59% of consolidated net worth as of June 30, 2019. The loans are largely to the clients of IIFL Wealth. The ratings also factor in the concentration of the funding sources, which is largely through its own client base in the form of principal protected market linked debentures (PP-MLDs).