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Rationale
The ratings for IIFL
Wealth Management Limited (IWML; standalone) are based on a consolidated view
of IWML and its subsidiaries (referred to as IIFL Wealth/the Group/the company;
consolidated), given the common senior management team and the 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. 2,62,780 crore as on December 31, 2021. 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 (loss of assets under management (AUM) due to client attrition
of 0.5% as of September 30, 2021). ICRA also considers the comfortable
capitalisation with the demonstrated ability to raise equity. While the Group's
profitability had declined in FY2020 due to the change in the revenue
recognition model to trail basis, the same improved in FY2021 and 9M FY2022
(profit after tax (PAT)/average total assets (ATA) of 5% and return on equity
(RoE) of 19% in 9M FY2022 compared to 3% and 12%, respectively, in 9M FY2021).
ICRA draws comfort from the management's strategy of focusing on increasing the
share of annual recurring assets (53% as of December 31, 2021, 49% as on March
31, 2021 and 40% as on March 31, 2020) instead of transaction/brokerage assets,
which could help reduce the volatility in income. ICRA takes into consideration
the modest lending operations with a loan book of Rs. 3,983 crore as on
December 31, 2021. Moreover, the top 20 exposures formed 50% of the total loans
and 57% of the consolidated net worth as on September 30, 2021. The loans are
primarily to IIFL Wealth's clients. The ratings also factor in the
concentration of the funding, which is largely through its own client base in
the form of principal protected market linked debentures (PP-MLDs). ICRA takes
note of the increase in the share of commercial papers (CP) to ~30-35% of the
consolidated borrowings. The same is, however, expected to decline to ~20% in
six months.
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