Rationale

 The rating factors in the strong parentage of Nuvama Custodial Services Limited (Nuvama Custodial), which is part of Nuvama Group {flagship entity is Nuvama Wealth Management Limited; rated [ICRA]AA (Stable)}, and its synergies with the Group’s broader service portfolio. The shared brand name and strategic importance to the Group strengthen ICRA's belief that Nuvama Custodial will receive adequate and timely support from Nuvama, as and when required. ICRA is cognisant that Edelweiss Group {flagship entity: Edelweiss Financial Services Limited, rated [ICRA]A+ (Stable)} continues to hold a 51% stake in Nuvama Custodial, while the remaining 49% is held by Nuvama. Notwithstanding the shareholding structure, the operations and finances are managed by Nuvama Group. The rating also considers the company's adequate capitalisation and liquidity along with the improving scale of operations. Nuvama Custodial’s operations encompass custodial and allied services, distribution of unlisted securities, fee-based referral services and treasury operations. Since the commencement of operations in 2021, the company has a track record of profitable operations supported by the improving scale of business. However, its cost structure remains elevated due to sizeable commissions and intermediation fees shared with Nuvama Group entities. Nonetheless, its profitability remains adequate with an average return on equity (RoE) of 12% during FY2022-FY2025. During 9M FY2026, the company witnessed a moderation in profitability largely on account of increase in operating expenses, nonetheless it remained adequate (RoE of 8%). As on December 31, 2025, the capitalisation profile was characterised by a net worth of ~Rs. 91 crore and gearing of 1.1 times. While ICRA is cognisant that the indebtedness is expected to increase as the company scales up its distribution business, it is expected to maintain prudent capitalisation. The aforesaid strengths are partially offset by Nuvama Custodial’s limited revenue diversification with its key revenue stream exposed to the movement in systemic interest rates. Also, it faces intense competition in the custodian business along with operational vulnerabilities stemming from any disruption in its digital operations. Furthermore, the company’s ability to maintain compliance with the evolving regulatory landscape remains critical.