Press Release
VIS Credit Rating Company Maintains Entity Ratings of BIPL Securities Limited
Karachi, February 19, 2019: VIS Credit Rating Company Ltd. (VIS) has maintained the entity ratings of BIPL Securities Limited (BIPLS) at ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Negative’. The previous rating action was announced on October 9, 2017.
The assigned ratings to BIPLS reflect existing market position, strong sponsor profile, sizeable retail client base and adequate liquidity and capitalization indicators. Revision in rating outlook reflects cyclical nature of the brokerage industry. Improving persistently high cost to income ratio vis-à-vis similar rated peers and existing limited diversification in revenue streams will be key rating drivers.
Declining trend in trading volumes during FY18 and the ongoing year has impacted the topline of brokerage industry. Given the operating environment, players with efficient and variable cost structures focusing on high margin business and diversification in revenue streams are expected to fare better vis-à-vis peers. Going forward, given low base effect of ready market volumes & growing volumes in the future segment and improved valuations post two consecutive years of decline in benchmark index, overall market volumes during FY19 are expected to be higher vis-à-vis FY18.
Given the significant reliance on brokerage income (particularly retail brokerage), earning profile of the company remains largely dependent on market volumes. Although some diversification in brokerage revenue streams have been noted since last review. A sizeable retail client base is a competitive advantage for the company with the same remaining a key focus area. This is also evident from expansion in branches which is expected to double over the medium term. However, active client base remains low. In order to activate sizeable retail client base, a call center has also been setup to enhance brokerage volumes by tapping new and inactive clients. Moreover, new product offering are being rolled-out to enhance revenue streams. Translation of these initiatives into improved brokerage revenue is considered important. Rationalization in expense base has limited the drag on operating profitability; however, cost to income ratio continues to be on the higher side. Overall profitability depicted significant decline due to absence of one-off gains. Going forward, continuity of efficient cost management and translation of various initiatives to enhance and broaden revenues are important for improvement in profitability indicators.
For further information on this rating announcement, please contact the undersigned (Ext: 201) at 021-35311861-71 or fax to 021-35311872-3.
Javed Callea
Advisor
Applicable rating criteria: Methodology - Securities Firms Rating (June 2017)
http://vis.com.pk/docs/Securities%20Firms%20201706.pdf