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Rationale
The ratings for IIFL Wealth Management Limited (IWML) are
based on a consolidated view of IIFL Wealth Management Limited and its
subsidiaries (referred to as IIFL Wealth/the Group/company), given the 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. 1,67,091 crore as on
September 30, 2020. The company's senior management team has significant
experience and expertise in the wealth management business, which has helped it
grow into a leading player in the wealth management industry. The franchisee
built over the years has helped ensure low client attrition (less than 2.5%
p.a.). ICRA also takes into account the comfortable capitalisation with the
demonstrated ability to raise equity. The ratings consider the reduction in the
Group's profitability on account of a change in the revenue recognition model
to trail basis and the mark-to-market (MTM) losses on its alternate investment
funds (AIFs), with profit after tax/average total assets (PAT/ATA) of 1.8% and
return on equity (RoE) of ~7% in FY2020. ICRA draws comfort from the
management's strategy of focusing on increasing the share of annual recurring
assets (42% as on September 30, 2020; 37% as on March 31, 2019) as opposed to
transaction/brokerage assets, which could help reduce the volatility in income.
ICRA considers the modest lending operations with a loan book of Rs. 2,836
crore as on September 30, 2020 and the top 20 exposures forming 48% of the
total loans and 46% of the consolidated net worth as on June 30, 2020. The
loans are primarily to IIFL Wealth's clients. 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). The
outlook is Stable as the company is expected to maintain its strong position in
wealth management with the gearing likely to remain under 3.5x.
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