­Acuité has taken a Consolidated view on TCSPL and its subsidiaries, namely, Trust Investment Advisors Private Limited, Trust Securities Services Private Limited, Sankhya Financial Services Private Limited, Trust Asset Management Private Limited, Chanakya Capital Partners and Trust AMC Trustee Private Limited collectively referred to as ‘Trust group’. This is because of the common promoters, shared brand name, significant operational and financial synergies between the companies.
The rating in respect of the PP-MLD of Rs. 60.00 Cr and NCD of Rs. 250.00 Cr. (issued by TIAPL) factors in the presence of a DSRA in form of 20 percent of the outstanding principal amount. DSRA needs to be maintained in the form of cash, bank fixed deposit, ‘AAA’ rated debt securities, sovereign debt securities or listed InvIT units issued by any InvIT (having a credit rating of AAA for its Senior Debt) in any combination, for the minimum duration covering the tenor of the NCDs along with the T structure. The differential in the ratings of regular bank facilities vis. a vis. the rating on the NCDs is on account of these structures. The notch-up is based on DSRA and T-n mechanism and structure being an Internal Credit Enhancement the suffix of CE is not required.
 

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Long operational track record coupled with competitive position in domestic capital market
The Trust Group has presence in merchant banking, wealth management, advisory business, and portfolio management services. The group offers a wide array of financial services to domestic and overseas clients. Trust group has recently made a foray into overseas markets through Chanakya Capital Partners which is the advisory arm of the group catering to international clients. The group has been able to fortify its presence in both capital markets with its strong sourcing, structuring, underwriting, and distribution capabilities for debt issuances. Trust group has been associated with some of the marquee issues like Bank of India, IDBI bank, Bank of Baroda, L & T Finance Limited and Aditya Biral Finance Limited and TATA Capital FInance Limited amongst others. The group’s clientele includes leading banks, family offices, provident funds and high networth individuals (HNIs). The group has also demonstrated expertise in structuring and syndication of innovative and marquee structured transactions such as commercial mortgage backed securities for DLF Group and Phoenix Mills Group, climate and sustainable energy bonds for Hero Wind Energy Private Limited, BASEL III bonds for various banks, credit enhanced state government bonds for Andhra Pradesh State Bverage Corporation and Uttar Pradesh Power Corporation Limited in the past. The Group’s debt mutual fund business, launched in Jan 2021 and offering five schemes in the debt segment has achieved AUM of Rs. 1,500 Cr. as on September 30, 2022.
Acuité believes that the group’s track record and established relationships with marquee clients and investors will provide a strong platform to leverage on the opportunities created due to expected buoyancy in the volumes of the bond market.

Comfortable capitalisation levels boosted by substantial dividend payout
The Group’s capitalisation levels is comfortable marked by networth of Rs. 810 Cr. as on March 31, 2022 (March 31, 2021: Rs. 475 Cr.). The strong growth in networth is led by substantial dividend payout by Chanakya Capital Partners, a group company on the back of record profits (PAT) of about Rs. 595 Cr. during calendar year 2021 (Provisional). For the FY2022 the borrowings for Trust Group stood at around Rs. 2,251 Cr. (March 31, 2021: Rs.1,379 Cr.) against a networth of Rs. 810 Cr. translating into gearing ratio of 2.78 times (March 31, 2021: 2.9 times). The networth further improved to Rs. 866 Cr. as on September 30, 2022 with borrowings at Rs. 2,421 Cr. resulting in a gearing at 2.80 times for H1 FY2023. 
Acuité believes that the comfortable networth will enable the Group to further scale up business volumes in its key businesses.

Healthy and sustained traction in key businesses’ performance to support earnings profile
Trust Group generates revenue from diverse sources viz. merchant banking business, portfolio management business, interest and dealing income from fixed investments portfolio, fixed income broking, mutual fund and lending business. The group’s earnings profile improved during FY2022 with profits (PAT) of Rs. 486.6 Cr. on total income of Rs. 934 Cr. (FY2021: PAT of Rs. 68.7 Cr. on total income of Rs. 327.9 Cr.) led by significant dividend payout by Chanakya Capital Partners, a group company enabling the Group to further scale up its volumes in its key businesses viz. merchant banking and portfolio management services which have recently witnessed improved and sustained traction. During H1 FY2023, Trust Group reported PAT of Rs. 59.7 Cr. on total income of Rs. 272.2 Cr. This performance was largely driven by uptick in the merchant banking with overall bond placement of Rs. 69,249 Cr. of which a significant amount was through structured transaction resulting in income of Rs. 99.8 Cr. for H1 FY2023 (contrbuting ~37 percent of total income for H1 FY2023) as compared to Rs. 59.4 Cr. for FY2022. Dealing income from fixed investments portfolio too improved with an income of Rs. 65.8 Cr. for H1 FY2023 (Rs. 113.9 Cr. for FY2022) on the back of benign interest rate environment
Acuité believes the ability of the group to sustain the current trend in its key business’ performance and thereby drive earnings profile will be key monitorable.

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Susceptible to volatility in demand in the debt capital market
The revenues of the Trust group are linked to level of activity in the bond markets which in turn is linked to the overall economic activity. Any significant slowdown in the economy will result in lower demand for funds which in turn would translate to lower volumes of bond issuances. The corporate bond market in India has mostly been dominated by issuances from non-banking finance companies. Recently, the NBFC sector in India witnessed several credit events which led to reduced investor appetite, especially for the moderate quality issuers for a brief period of time. Occurrence of significant credit events such as credit cliffs i.e. sharp deterioration in credit quality, often results in a material decline in the bond prices and impacts the liquidity of the counter. Such events could trigger demands for accelerated payments by lenders in case of pledge based borrowings. The group has had exposure to certain bonds which faced credit cliffs in the recent past, however, they have been able to initiate prompt corrective action and materially curtail their exposures to these counters. The group still has certain residual exposure to low rated bonds which are expected to be illiquid till a resolution is in place for these issuers. Any significant concentration to a single bond that faces a credit cliff exposes the group to a high level of credit and liquidity risk. Top 5 bonds investment (highly rated) contribute ~35 percent of the total investment portfolio as on September 30, 2022 (Consolidated) and about 5 percent of the total investment portfolio (Consolidated) is invested in A & below rated papers (secured against immovable security). Any decision by the lender to curtail drawings/ increase margin requirements against such bonds to which the group is highly exposed will have an impact on the financial flexibility. Presently, the current levels of networth supports the Trust Group against these exposures. Acuité, therefore, believes that the group’s performance will be susceptible to volumes in the bond markets, adverse macro-economic events and ability to maintain an optimal risk return trade off in respect of its investment exposures. The group’s ability to maintain an optimal buffer of unencumbered liquid investments (liquid investments over and above the stipulated coverage)at all times will be critical.