Established Business Model based on Diversified Revenue Streams

Aum Capital Market Private Limited (ACPL) has been in the capital market business of stock broking since 2007. The company is promoted by Mr. Aditya Choudhary and Mr. Siddharth Choudhary. Over the years, the company has built a relationship with more than 50 Institutional Clients and 6800 Retail Clients (including HNIs). The company has active operations in Debt and Equity Markets, both in Cash and F&O. They also have a presence in Mutual Fund and Financial Advisory (Debt Syndication). The major revenue contributing segments are Brokerage Income and Trading Income. As on March 31, 2023 of the total revenue, Broking Income contributing ~59.04% (Rs. 25.57 Cr in FY2023 as compared to Rs. 26.92 Cr in FY2022). Besides Brokerage revenue, the company is active in Trading in Debt and Equity Market. The Trading Income contributed ~11.22% of the total revenue (Rs. 4.86 Cr in FY2023 as compared to Rs. 8.27 Cr in FY2022).
 With the expected buoyancy in the debt market segment, Acuité believes that ACPL will benefit from its relations with institutional clientele and its expertise in Debt Market.
 
Strength of underlying structure in respect of one of the rated instruments

In respect of facilities of Rs. 75 Cr rated at ACUITE A-(CE), Acuite has been guided by the structure of the underlying facilities. The structure being assessed envisages an aggregate borrowing limit of Rs. 75.00 crore in the form of cash credit from the bank secured by a pledge in the form of Central & State Government Securities with margin stipulations and other risk mitigations measures in place. The Rs 75.00 Cr facility has a Rs. 25 Cr sub-limit from the bank by a pledge of AAA, AA+ rated and above (PSU/Pvt) Bonds. 
The mentioned bank facility also has Intraday sub limit of Rs. 150 Cr for trading in Central & State Government Securities. The government securities purchased by the company will be held in a designated Constituent Subsidiary General Ledger (CSGL) Account, which will be duly pledged to the bank. The joint holding of the account between the bank and the borrower facilitates for strict monitoring at the lenders end with respect to transactions. The bank stipulates a margin requirement of 10 percent and 5 percent for Intraday Trading. The stipulations also include the options available to the lending bank in case of a margin shortfall. The structure further provides for a shorter duration of the securities held like in case of securities outstanding in CGSL account for more than 30 days would not be reckoned while calculating drawing power. Hence, the exposure to credit risk is limited to the period the security is held and the structure facilitates for a shorter duration.

Acuité believes that the structure sanctioned by the lending bank provides for adequate covenants to safeguard the interest of the lenders. The lending bank has adequate buffers available to initiate corrective action and mitigate the risk arising out of any adverse market movements.

Susceptibility to operating performance to volume and level of activity in capital markets

Aum Capital Market Private Limited’s business performance is linked to the level of activity in the bond markets, which in turn is linked to the overall economic activity. The volumes in the debt capital market are influenced by economic cyclicality and other macroeconomic factors such as GDP, growth rate, inflation, movement in interest rates and policy actions adopted by RBI. ACPL generally engages in to buy and sell transactions on behalf of its clients, which comprise provident and pension funds, mutual funds, banks, family offices etc. Most of the purchases of the securities are simultaneously sold to its clients. As a prudent strategy, ACPL prefers to minimize the holding period in respect of any securities, which significantly mitigates the associated credit risk and market risk. However, since a complete matching and synchronization of purchase and sale orders may always not be feasible, ACPL will always be required to maintain certain inventory at any point of time. This exposes the company to certain credit and market risk. The risk assumed by ACPL depends on the nature of the security, volatility in the price of the security and the period of the holding. The timely churning of the portfolio also becomes important. Such events could also trigger demands for accelerated payments by lenders in case of pledge-based borrowings. Besides trading of bonds, the company also has revenue streams from broking business, which is highly volatile and cyclical business with the presence of a large number of established players who provide significant competition to the other fragmented and small players. The company's operating performance is linked to the capital markets, which are inherently volatile as they are driven by economic and political factors as well as investor sentiments. Trading volume and earnings depend heavily on the level of trading activity in the capital market.
 
Acuité believes that the ability to manage the trade-off between various risks such as credit risk, market risk and operational risk and the returns is critical to the maintenance of a stable credit risk profile.

Susceptibility of Credit Profile to the performance of equity division

As on March 31, 2023, Networth stood at Rs.42.26 Cr as compared to Rs. 38.73 Cr as on March 31, 2022. On the back of this, the company had equity investments of Rs. 10.46 Cr as on March 31, 2023 as compared to Rs. 3.61 Cr as on March 31,2022 (March 31, 2021: Rs. 4.79 Cr. The company has demonstrated the propensity to initiate large equity investment to gain from the likely capital appreciation. Most of these equity investments are in relatively less liquid counters (i.e non–index stocks) which are prone to high volatility and relatively higher level of market risk. These significant exposures have been funded by way of unsecured loans from the market.

In view of the above, the susceptibility of performance of large equity investments is expected to influence the credit profile over the near to medium term. Acuité believes that the propensity of the company to initiate large equity exposures vis a vis networth will impinge the credit profile of the company.