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)
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