ICRA has assigned 'A1+' to the Rs 10 billion (enhanced from Rs 5 billion) short term debt programme of Kotak Securities (KSL). The ratings reflect KSL's continued strong presence in retail equity broking segment and the online broking segment, comfortable capitalization levels, comfortable liquidity profile, negligible leverage levels and sound risk management systems deployed by the company.

The ratings take into account the declining market share in the non-cash segment, mitigated by strong cash segment market share as well as challenging operating environment and uncertain capital market conditions leading to pressures on profitability for the company. The ratings also factors in the strong parentage of Kotak Mahindra Bank (rated AA+ with stable outlook by ICRA) and groups' favorable experience in capital market related activities in addition to the high financial flexibility enjoyed by KSL by virtue of it being 100% subsidiary of Kotak Group. 

Going forward, KSL's ratings would be sensitive to its ability to grow its business volume by improving upon its equity broking market share and average brokerage yields while keeping the cost structure flexible besides maintaining superior asset quality in the volatile capital market. KSL's rating would also be sensitive to its parent Kotak Bank's rating and the ability to maintain comfortable asset quality through the economic swings. 

In FY14, generally muted capital market conditions prevailed for most of the year only to be in part corrected by stong market buoyancy in the latter part of the year. However, while the overall equity market turnover has gone up by ~22% when compared to FY 13, the continued decline in the mix of cash volumes led to the overall brokerage revenue pool to remain more or less stable in when compared to FY 13 levels. Also, cash volumes declined to ~6.5% of overall market volumes in FY 14 when compared to ~8% in FY 13.

In this backdrop, in ICRA's estimation, KSL's market share continued to decline in FY14 when compared for FY13 as the company continued to focus on cash volumes market share. However, in ICRA's estimation, the company's cash segment market share remained upward of 5% and hence the overall impact on revenue is not significant despite sharp decline in market share.

Shares of the company declined Rs 10.8, or 1.24%, to settle at Rs 861.90. The total volume of shares traded was 45,477 at the BSE (Wednesday).