Established presence in Capital Market
Tipsons Consultancy Services Private Limited (TCSPL) is promoted by Mr Dilip Shah and Mr Jitendra Shah. Mr Dilip Shah has more than 28 years of experience across various sectors. Mr. Jitendra Shah is an engineer and has more than 25 years of experience in various segments. Incorporated in 2010, Gujarat based TCSPL, is a SEBI registered Category–I Merchant Banker and provides financial services including G-Sec & bond trading, Investment advisory, Issue underwriting and portfolio management service etc. through its PAN India presence. TCSPL benefits from the established presence in the Indian capital markets and long standing relationships with various clients. TFSPL functions as an intermediary for its clients to buy and sell debt securities, both Government and private. Its network and market intelligence enable it to offer solutions to its clients which mostly comprise banks, mutual funds, insurance companies, provident funds, pension funds, trusts and corporate treasuries etc. TFSPL’s net worth stood at Rs. 42.59 Cr. as on March 31, 2023.
Acuité believes that Tipson’s group presence in the domestic capital market and established relationships with various clients and investors should support its business risk profile over the near to medium term.
 
 Strength of underlying structure
The structure being assessed envisages an aggregate borrowing limit of Rs. 120.00 Cr. in the form of cash credit from the bank secured by pledge of underlying bonds and securities. The underlying securities will be government securities and corporate bonds rated AAA and above within overall limit of Rs. 120.00 Cr. The bank has also stipulated differential margin for different category of securities to be purchased under this arrangement. The government securities purchased by the company will be held in a designated Constituent Subsidiary General Ledger (CSGL) Account and a joint depository participant account for corporate bonds, which will be duly pledged to the bank. The limits as sanctioned by the bank stipulates purchase of only Government securities and corporate bonds rated AAA.
The joint holding of the account facilitates for strict monitoring at the lenders end with respect to transactions. The bank stipulates margin requirement in the range of 5 percent to 7.5 percent (depending on the nature of the security i.e. lowest margin for risk-free securities like G-Sec). The stipulations also include the options available to the lender in case of a margin shortfall. 
The securities pledged against which funding would be provided is restricted to Government securities and Corporate Bonds rated AAA and requires its inclusion in the lenders bank preapproved list thus providing an effective mitigation of credit risk at the initial stage of selecting securities for trade purposes. The structure further provides for 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 lender provides for adequate covenants to safeguard the interest of the lenders. The lenders have adequate buffers available to initiate corrective action and mitigate the risk arising out of any adverse market movements. The strict adherence to the sanctioned terms and conditions is central to the rating.

Moderate Financial Performance; albeit improving
The company reported decline  in trading volume  to Rs 5477.07 Cr as on March 2023 vis-à-vis Rs 8662.47 Cr as on March 2022). The growth might be subdued as compared to previous years on account of overall market activities in wholesale debt market as a result of dip in overall market volumes and pressure on interest rates. The company’s total income improved to Rs 36.66 Cr as on March 2023 ( Rs 14.04 Cr as on March 2022) and reported PAT of Rs 15.71 Cr for FY2023 (Rs 5.59 Cr for FY2022). 

 Susceptibility of performance to optimal management of credit and market risks
Tipsons Consultancy Services Private Limited 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. TFSPL generally engages into buy and sell transactions on behalf of its clients which comprise provident and pension funds, mutual funds, banks, etc. Most of the purchases of the securities are simultaneously sold to its clients. As a prudent strategy, TFSPL 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, TCSPL 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 TCSPL depends on 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. Occurrence of significant credit events such as credit cliffs i.e. sharp deterioration in credit quality, may often result in a material decline in the bond prices and impact the liquidity of the counter. 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 linked to the level of investment activities in the markets and also to the other factors such as regulatory environment. Since the investments held by the company are offered as collateral in this structure of pledge-based borrowings, the continued acceptability of the investments and margin requirements also have a bearing on the financial flexibility of the company. Besides market related factors, changes in bank’s policies regarding the investments offered as collateral can also impact the performance and financial flexibility of the company.
Acuité believes that the ability to manage the tradeoff 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.