Sri Lanka's stockbroking industry is too crowded with competition expected to intensify in the future, a rating agency has said. "The stockbroking industry is fragmented, with 28 players at present compared to 15 member firms a few years ago. We expect competition to intensify with the entry of new players amid the relatively lenient requirements of obtaining a stockbroking license," RAM said in issuing the first ever rating for a broking firm.
It assigned a corporate credit ratings' of "BB+", for the long term, with a positive outlook, and "NP", for the short term, to stockbroker Bartleet Religare Securities (BRS), formerly Bartleet Mallory Stockbrokers, a 50:50 joint venture between local firm Bartleet Transcapital and Indian financial conglomerate Religare.
According to RAM, the rating was indicative of the stockbroker's "established franchise, strong financial profile and liquidity position. On the other hand, the ratings are tempered by the group's vulnerability to stock market volatility, keen competition in the industry as well as its high reliance on key personnel in generating brokerage income."
Additionally noted; "The outlook of the long-term rating is based on our view that BRS's competitive position would strengthen over the medium term on the back of Religare Enterprise Limited's ('Religare') involvement, leading to better market share and profitability. Given its access to a vast Indian clientele through Religare, we expect BRS's market share to increase, thereby improving its performance, and easing its customer-concentration risk."
RAM also highlighted BRS's "relatively good market share" as well as good financial profile and liquidity position which was "strengthened significantly following a capital infusion by [Religare] in November 2010." As such, it was noted that, as of end-June 2011, BRS's financials showed Rs. 550.59 million in cash and bank balances. This was in comparison to its debt load of Rs. 4.05 million and "T+3" creditor balance of Rs. 107.28 million.