Press Release

VIS Reaffirms Entity Ratings of Next Capital Limited
 

Karachi, June 15, 2020: VIS Credit Rating Company Ltd. (VIS) has reaffirmed the entity ratings of Next Capital Limited (NCL) at ‘A-/A-2’ (Single A-Minus/A-Two). Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on April 10, 2019.

Reaffirmation of ratings incorporates established and sustained market position of NCL in equity brokerage business and corporate advisory services. Ratings also factor in the company’s diversified revenue mix which is expected to provide sustainability to earnings and support overall business risk profile. Assessment of financial profile incorporates low leveraged capital structure, adequate liquidity buffers and improvement in profitability profile during 9MFY20 on account of some uptick in industry trading volumes vis-à-vis corresponding period, implementation of revised commission structure and sizeable jump in other income. Ratings are constrained by the current challenging operating environment where continued slowdown in GDP growth and increasing spread of Covid-19 may have an implication on brokerage sector’s performance. VIS will continue to monitor operational challenges (along with associated settlement risk) as currently faced by industry in the backdrop of covid-19 and its consequent lockdowns. Given the challenging operating environment, management has continued to focus on retail segment; the segment now represents around two-third of total brokerage revenue and has consistently increased over the last 3 years. On the corporate advisory front, NCL has adequate signed mandates in hand. However, Covid-19 outbreak is expected to impact timeline of realization of these revenues.

After two consecutive years (FY18 & FY19) of dwindling industry trading volumes (owing to economic slowdown, rising benchmark rate and aggressive foreign selling), brokerage industry has witnessed some recovery in the ongoing year. Recently revised brokerage commission structure (a standard range/scale implemented by SECP for all security brokers) and uptick in market volumes in the ongoing year would support profitability profile of brokers. Nonetheless, profitability of players with large proprietary book (being exposed to market risk) along with reliance on corporate finance & advisory business may be impacted. In case of prolonged effect of pandemic on business activity and economic indicators, overall brokerage industry could also face severe adverse impact. Hence, the sector outlook remains challenging.

For further information on this rating announcement, please contact Mr. Talha Iqbal (Ext: 213) or the undersigned (Ext. 306) at 021-35311861-70 or email at info@vis.com.pk mailto:info@vis.com.pk


Faryal Ahmad Faheem
Deputy CEO

Applicable rating criteria: Methodology - Securities Firms Rating (June 2017)
http://vis.com.pk/docs/Securities%20Firms%20201706.pdf

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Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2020 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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