RAM reaffirms Bartleet Religare Securities’ BB+/NP ratings

•  Outlook revised from positive to stable

 

RAM Ratings Lanka has reaffirmed Bartleet Religare Securities (Pvt) Limited’s (BRS) respective long and short term corporate credit ratings at BB+ and NP.

Concurrently, the outlook of the long-term rating has been revised from positive to stable.

The long-term rating was placed on a positive outlook in 2010 as BRS’s competitive position was expected to strengthen on the back of Religare Enterprise Limited’s (REL) involvement, leading to better market share and profitability. Given its access to a vast Indian and global clientele via REL and its subsidiaries, BRS’s market share was envisaged to increase, thereby improving its performance and easing customer concentration risk.

However, the outlook has been revised from positive to stable in view of the fact that the anticipated improvements have not materialised partly due to the relatively subdued stock market conditions. BRS is a joint venture between Bartleet Transcapital Limited (BTCL), the financial arm of the century old Bartleet Group and Religare Capital Markets Limited, a wholly-owned subsidiary of Religare.

With stock broking as its forte, BRS also deals in government and corporate debt securities in the secondary market, research, asset management and investment banking via its subsidiaries.

The ratings are supported by BRS’s established franchise and reflected in its relatively good market share in the domestic stock broking industry as at end September 2012. Underscored by its established reputation derived from the century-old Bartleet group, as well as its strong retail clientele, Bartleet is a conglomerate with interests in plantations, finance, manufacturing, trading and information/communication.

The ratings are further supported by the group’s financial profile which had strengthened significantly following the capital infusion from RCML in November 2010. Moreover BRS is debt-free at both company and group level.

Meanwhile, its net exposure (T+3 debtors outstanding) to shareholder’s funds was stable at 17.03% as at end-March 2012 before deteriorating to 32.44% by end-September 2012 (end March 2011: 17.48%) as stock market activity gradually picked up.

Despite the above strengths, the ratings are moderated by BRS’s core business being vulnerable to stock market volatility. All stock broking companies are susceptible to the inherent volatility of the equity markets, which in turn are affected by a range of factors that include domestic economic conditions, political stability and the global economic environment.

This is reflected in the volatility of BRS’s revenue and profits, which are directly correlated to the fortunes of the local bourse. On a separate note, competition is keen in the stock broking sector and the industry is fragmented with 28 players at present.

As per the industry norm, BRS relies heavily on a few senior personnel for most of its brokerage income generation. Thus, the loss of these key personnel could have a significant impact on the Group’s revenue-generating ability.