Rating Rationale for Bank of India's IPDI Issue Rating

Rating Rationale (Review)

Brickwork Ratings reaffirms ‘BWR BBB+’ for the Bank Loan Facilities aggregating ₹ 915 Cr of Darashaw & Company Pvt. Ltd.

On a review, Brickwork Ratings (BWR) has reaffirmed/assigned the following Rating1 for the Bank Loan facilities of Darashaw & Company Pvt. Ltd. (DCPL or ‘Company’). Details of the rated credit facilities are as under:

Amount Facility Tenure Rating (₹ Cr) Cash Credit 100.00

Overdraft BWR BBB+ 565.00 Long (BWR Triple B Plus) Working Capital Term 200.00 Demand Loan (Outlook – Stable) Proposed OD/CC 50.00

Total INR Nine Hundred and Fifteen Crores only 915.00

The rating, inter alia, factors the Company’s long track record, its Risk Management Practices and improving performance. The rating is, however, constrained by Portfolio Risks, risk associated with market volatility, increasing Competition and risks associated with the change in interest rate scenario.

BWR has essentially relied upon the audited financial results of DCPL up to FY13, provisional financial till Dec’13, projected financials, clarifications/information provided by the Company.

Company Overview DCPL is promoted by Mehta family, was incorporated in 1926 and were the first broker to RBI. DCPL is a SEBI accredited Merchant Banker Category-I, Mutual Fund Advisor and Portfolio Manager. It is also a member of various Stock Exchanges in India. DCPL has two subsidiaries - Darashaw & Company (Singapore) Pte Ltd and Darashaw Securities Pvt Ltd. The businesses that DCPL deals with are Debt Intermediation, Investment Banking, Retirement Services, Infrastructure & Financial Advisory, and Equity & Wealth Management.

1 Please refer to www.brickworkratings.com for definition of the Ratings

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Board of Directors The Company has five members on the Board. Mr. Keki D. Mehta is the Chairman of the Company and holds ~4.56% stake. Mr. Mehta was involved in the policy changes initiated by the Reserve Bank of India to make its market intervention techniques more effective. He was also a member of the Bombay Stock Exchange’s committee on audit and reporting systems for the broking community. Mr. Darashaw K. Mehta is the Managing Director and Mr. Baman K. Mehta is the CEO of the Company. The business is run by Mr. Dara K Mehta and Mr. Baman K Mehta and the ownership is held 100% with the Mehta family. Mrs. Daisy K. Mehta and Mr. Deven Padhya are the other directors of the Company.

Internal Processes Overview The Company has an internal policy which, inter alia, prescribes Safety, Liquidity and Return as main parameters for evaluating deals. All investment decisions are taken by an Investment Committee of six members which is well supported by the Company’s strong Research team.

Financials In FY 13, Revenue from Operation slightly decreased to ₹ 3377.85 Cr as compared to ₹ 3776.27 Cr in FY12. However, PAT improved to ₹ 14.63 Cr in FY13 from ₹ 1.51 Cr in FY12. During FY13, Net-worth stood at ₹ 127.39 Cr and Total Borrowings is at ₹ 569.56 Cr. The Company does not have any long term borrowings in FY13. Inventories have increased to ₹ 601.87 Cr in FY13 from ₹ 546.32 Cr in FY12.

As per provisional results for 9MFY14, Net Sales stood at ₹ 2056.61 Cr, with Loss of ₹ 5.80 Cr. Also, Net-worth decreased to ₹ 121.87 Cr with Total Borrowings of ₹ 352.20 Cr in 9M FY14.

Risk Factors DCPL runs a proprietary book on Bonds which they do not intend to hold till maturity. Precise assessment of demand for these bonds is crucial for the Company. Besides, the Bond Portfolio carries usual Credit Risk, Market Risk, Interest Rate risks among other risks. Equity portfolio, albeit very small carries higher market risks than Bond Portfolio. DCPL has so far generally underutilized the sanctioned credit facilities. Increased competition in domestic bond market is driving down the margins and pushing for product innovations. Private Sector Corporate Bonds usually carry higher yields/fees but also involve higher risks as compared to Government Securities.

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DCPL is branching out to newer Businesses such as Infrastructure Advisory and Portfolio Management. These businesses will take time to generate returns.

Rating Outlook DCPL’s performance is expected to be stable over the next year. The Company’s ability to assess the quality and demand of securities, manage Portfolio Risks and Debt Liability prudently remain key rating sensitivities.

Analyst Contact Relationship Contact

[email protected] [email protected]

Phone Media Contact

1-860-425-2742 [email protected]

Disclaimer: Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented “as is” without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons.