CRISIL
Triple A rated
Implementation of Basel II norms and initiatives for development of active corporate debt market are likely to accelerate growth in rating business, while non-rating business will continue to retain strong growth
| Buy | CRISIL |
| BSE Code | 500092 |
| NSE Code | CRISIL |
| Bloomberg | CRISIL@IN |
| Reuter | CRSL.BO |
| 52-week High/Low | Rs 4275 / 2451 |
| Current Price | Rs 3106 (as on 04th April 2008) |
CRISIL, a 56.5% subsidiary of Standard & Poor’s, USA offers a unique combination of local insights and global perspectives in the areas of rating, research and advisory services for banks, corporate, government and other investors and participants.
Excellent December quarter results- consolidated sales up 41% and PAT up by 78%.
For the quarter ended December 2007, income from operations grew by 41% to Rs 119.73 crore with growth witnessed in all business in both Indian and global markets.
Maximum upside at revenue level was witnessed in research and Information services (RISS) whose segment revenue grew by 55% to Rs 52.04 crore accounting for 43% of total sales. While the segment revenue of rating services was higher by 38% to Rs 36.51 crore (or 30% of total sales) that of advisory services posted a growth of 24% to Rs 31.18 crore (or 26% of total sales).
Owing to good growth in Income from operation, the OPM for the quarter improved by 610 bps to 29.7% leading the operating profit jump by 76% to Rs 35.58 crore. Almost all segment reported healthy margin expansion with the highest growth reported by Advisory business. The advisory business margin expanded by 830 bps to 30.4%, Research & Info Service expanded by 710 bps to 24.7% and Rating business margins expanded by 470 bps to 38.2% for the period
Other income declined by 30% to Rs 0.37 crore. Interest cost was nil and the depreciation was higher by 29% to Rs 3.22 crore. Thus PBT grew 78% to Rs 22.55 crore. Provision for tax increased by 83% to Rs 10.18 crore. thus PAT before EO was up 78% to Rs 22.55 crore.
The operations of CRISIL Research were restructured during the year. The three wholly-owned subsidiaries – CRISIL Research & Information Services Limited, Global Data Services of India Limited and Irevna Research Services Limited, were merged with CRISIL.
Full year sales and PAT up 40%
Income from operations grew by 41% to Rs 404.33 crore with growth witnessed in all segments. Operating profits grew by 45% to Rs 117.17 crore with OPM marginally up by 90 bps to 29%. The other income jumped by 37% to Rs 9.16 crore. The interest cost was nil and the depreciation was higher by 100% to Rs 15.69 crore, restricting the PBT growth at 39% to Rs 110.64 crore. Further with 43% increase in tax provision at Rs 26.98 crore, the PAT stood at Rs 83.66 crore, up by 36%.
CRISIL Ratings’ revenue growth was driven by strong growth in the Indian structured finance market, and in borrowings by the financial sector. Moreover, the Reserve Bank of India’s guidelines on the use of external ratings for computation of capital under Basel II norms have opened up the bank loan rating market. CRISIL Ratings’ Bank Loan Rating activity got off to a brisk start in 2007.
Initiatives in the Small and Medium Enterprise (SME) Rating and Executive Training domains also gained momentum during 2007. CRISIL Ratings consolidated its market leadership, with pioneering initiatives such as assigning the first rating to a life insurance company in India, assigning the first rating to non-performing loans in India under the recently-launched recovery scale ratings, assigning a rating to the largest asset-backed securitisation transaction in the country, and completing a prestigious assignment assisting Pension Fund Regulatory and Development Authority (PFRDA) in the selection of fund managers to manage the New Pension Scheme.
Rating business to accelerate in future
CRISIL pioneered the concept of credit rating in the country and is the leader in the ratings business. Besides corporate debt ratings, over the years, the company has continued to innovate and has consistently introduced new rating services for entities such as state governments, municipalities, banks, non-banking financial companies, infrastructure sector projects, insurance companies and mutual funds. CRISIL has always been the first rating agency to introduce rating criteria for new debt securities and structures in the country like GVC, maritime institutes, SME, MFI, healthcare ratings. The company has assisted in setting up the first rating agencies in Malaysia, Israel and Caribbean Islands.
Revenues from this segment increased 38% to Rs 36.51 crore (43% of total) during the quarter ended December 2007. PBIT rose 57% to Rs 13.95 crore (38% of total). For the year ended December 2007, revenues from this segment increased 44% to Rs 130.08 crore (32% of total). PBIT rose 41% to Rs 55.05 crore (46% of total).
The Ratings business in India is accelerating after the Reserve Bank of India (RBI) issued its guidelines on implementation of Basel II norms for banks stipulating that capital provision by banks for corporate exposures were to be linked to ratings assigned by rating agencies. RBI also issued guidelines making recovery ratings mandatory for security receipts issued by asset reconstruction companies.
Substantial growth in the bank loan rating business is expected in 2008, with banks' need to comply with Basel II requirements. This move, besides increasing rating penetration, augurs well for the development of the debt and securitisation markets in the future. The securitisation market is expected to remain buoyant in 2008 as more issuers and investors enter and explore this market and reap its benefits.
Continued growth in retail financing and credit off-take by corporate India will result in increasing demand for funds from the banking and non-banking segments, which is expected to result in greater demand for ratings of both, vanilla debt and structured finance instruments.
The corporate debt market, which has shown a lacklustre performance over the last two years, would see revival in the later part of 2008. Regulatory iiatives from RBI as well as SEBI to develop active corporate debt market through various measures are likely to boost issuance in domestic market leading to increased rating requirements. The RBI’s stand on favouring domestic borrowing vis-a-vis foreign currency borrowing, also bode well for the corporate bond market.
Non-rating services are also growing strongly
During the quarter ended December 2007, revenues from the Research & Info Services increased 55% to Rs 52.04 crore (43% of total). PBIT rose 1177% to Rs 12.87 crore (35% of total). For the year ended December 2007, revenues from this segment increased 68% to Rs 44.16 crore (37% of total). PBIT rose 68% to Rs 44.16 crore (37% of total).
Apart from rendering rating services, CRISIL is involved in providing research, information and advisory services to corporates, banks, financial institutions and central and state governments. It has also carried out assignments for the World Bank, Asian Development Bank and international investment banks. These services span the economic, industrial, business and financial markets domains. CRISIL Investment & Risk Management Services, a division of CRISIL, provides comprehensive risk management solutions for banks and financial institutions. The division has a complete suite of models, which combine the domain knowledge and the technology while offering solutions to the clients to meet the requirements of Basel II.
During the quarter ended December 2007, revenues from the Advisory Services increased 24% to Rs 31.18 crore (26% of total). PBIT rose 71% to Rs 9.49 crore (26% of total). For the year ended December 2007, revenues from this segment increased 19% to Rs 106.70 crore (26% of total). PBIT rose 28% to Rs 20.94 crore (17% of total).
CRISIL Infrastructure Advisory achieved significant revenue growth driven by the performance of the energy and urban sectors, and was actively engaged in reforms implementation in some cities covered under Jawaharlal Nehru National Urban Renewal Mission. International initiatives gathered momentum during the year, with mandates from Africa, Middle East and Asia.
The company’s Advisory services covers five major practices all of which have good growth potential. Urban Practice: Reform implementation & project implementation at city level, township policy & development, assessing ULB financing capability, Real estate and housing development. Power Practice: Generating capacity development, bidding, valuation, strategic support on acquisition of assets. Support to utilities in their move to commercialisation. Fuels Practice: Coal mine development, mine acquisition, regulatory support on city gas distribution, market assessment and support for investments in the LNG/ natural gas. PPP Practice: Investments in the port, road, tourism sector. Formulation of Public Private Partnership (PPP) policies and structuring of projects for private sector participation. Corporate Practice: Project viability, pricing, location studies, partner search for domestic as well as international investors investing in India.
The company’s advisory business also includes Gas Strategies Group which saw continued growth in demand due to the rise in crude price. Opportunities for the Group have expanded as demand-side players are challenged to respond to the new global environment; global upstream players are re-examining their market strategies in pursuit of greater value; and national resource holders are looking to more strategic routes for monetising their reserves for long-term value, and new tools and skills are required to sustain success, achieve new participations, and manage risks at all points in the value-chain.
Valuable stake in NCDEX
CRISIL holds 12% stake in National Commodity and Derivatives Exchange Limited (NCDEX)
NCDEX is a professionally managed online multi commodity exchange promoted by ICICI Bank Limited (ICICI Bank), Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSE). Punjab National Bank (PNB), CRISIL Limited, Indian Farmers Fertiliser Cooperative Limited (IFFCO) and Canara Bank by subscribing to the equity shares have joined the initial promoters as shareholders of the Exchange. NCDEX is the only commodity exchange in the country promoted by national level institutions.
Valuation
In CY 2008, we expect CRISIL to register consolidated sales and net profit of Rs 507.23 crore and Rs 105.58 crore. On equity of Rs 7.23 crore and face value of Rs 10 per share, EPS works out to Rs 146.0. The scrip trades at Rs 3106. P/E works out to 21.3. On the back of strong FY 2007, the company’s book value stands at a solid Rs 371, making it ripe for a liberal bonus/split. Being an MNC associate rightly positioned to benefit from growth in infrastructure, outsourcing and expansion of debt as well as equity markets, the company deserves better valuation.
| | 0503 (12) | 0512 (9) | 0612 (12) | 0712 (12) | 0812 (12P) |
| Income | 119.32 | 140.47 | 287.33 | 404.33 | 507.03 |
| OPM (%) | 29.0 | 27.7 | 28.1 | 29.0 | 29.5 |
| OP | 34.64 | 38.90 | 80.62 | 117.17 | 149.78 |
| Other inc. | 2.74 | 2.11 | 6.70 | 9.16 | 11.91 |
| PBIDT | 37.38 | 41.01 | 87.32 | 126.33 | 161.68 |
| Interest | 0.00 | 0.00 | 0.01 | 0.00 | 0.00 |
| PBDT | 37.38 | 41.01 | 87.32 | 126.33 | 161.68 |
| Dep. | 6.52 | 5.47 | 7.85 | 15.69 | 19.77 |
| PBT | 30.86 | 35.54 | 79.47 | 110.64 | 141.92 |
| Tax | -0.50 | 0.00 | 18.81 | 26.98 | 36.19 |
| PAT | 31.36 | 35.54 | 60.66 | 83.66 | 105.73 |
| EO (Net of tax) | 11.52 | 11.03 | 0.77 | 0.00 | 0.00 |
| Net Profit | 19.84 | 24.51 | 61.43 | 83.66 | 105.73 |
| EPS* (Rs) | 30.2 | 49.7 | 83.9 | 115.7 | 146.2 |
| * Annualised on current equity of Rs 7.23 crore; | |||||
| Crisil: Consolidated Results |
| | 0712 (3) | 0612 (3) | Var. (%) | 0712 (12) | 0612 (12) | Var. (%) |
| Income | 119.73 | 85.21 | 41 | 404.33 | 287.33 | 41 |
| OPM (%) | 29.7 | 23.7 | | 29.0 | 28.1 | |
| OP | 35.58 | 20.16 | 76 | 117.17 | 80.62 | 45 |
| Other inc. | 0.37 | 0.53 | -30 | 9.16 | 6.70 | 37 |
| PBIDT | 35.95 | 20.69 | 74 | 126.33 | 87.32 | 45 |
| Interest | 0.00 | 0.00 | 0 | 0.00 | 0.01 | 0 |
| PBDT | 35.95 | 20.69 | 74 | 126.33 | 87.32 | 45 |
| Dep. | 3.22 | 2.49 | 29 | 15.69 | 7.85 | 100 |
| PBT | 32.73 | 18.20 | 80 | 110.64 | 79.47 | 39 |
| Tax | 10.18 | 5.55 | 83 | 26.98 | 18.81 | 43 |
| PAT | 22.55 | 12.65 | 78 | 83.66 | 60.66 | 38 |
| EO (Net of tax) | 0.00 | 0.77 | 999 | 0.00 | 0.77 | 999 |
| Net Profit | 22.55 | 13.42 | 68 | 83.66 | 61.43 | 36 |
| EPS* (Rs) | 124.8 | 70.0 | | 115.7 | 83.9 | |
| Annualized on current equity of Rs 7.23 crore. | ||||||
| CRISIL: Consolidated Segment Results |
| Sales | 0712 (3) | 0612 (3) | Var. (%) | % to total | 0712 (12) | 0612 (12) | Var. (%) | % to total |
| Rating Services | 36.51 | 26.41 | 38 | 30 | 130.08 | 90.47 | 44 | 32 |
| Advisory Services | 31.18 | 25.18 | 24 | 26 | 106.70 | 89.39 | 19 | 26 |
| Research & Info Services | 52.04 | 33.63 | 55 | 43 | 167.56 | 107.47 | 56 | 41 |
| Operational Income (total) | 119.73 | 85.22 | 40 | 100 | 404.34 | 287.33 | 41 | 100 |
| PBIT | | | | | | | | |
| Rating Services | 13.95 | 8.86 | 57 | 38 | 55.05 | 39.11 | 41 | 46 |
| Advisory Services | 9.49 | 5.56 | 71 | 26 | 20.94 | 16.41 | 28 | 17 |
| Research & Info Services | 12.87 | 5.92 | 117 | 35 | 44.16 | 26.29 | 68 | 37 |
| PBT before tax and interest | 36.31 | 20.34 | 79 | 100 | 120.15 | 81.81 | 47 | 100 |
| Less: Dep./Amortization | 3.22 | 2.49 | | | 15.69 | 7.85 | | |
| Add: Other unallocable income | -0.36 | 0.34 | | | 6.18 | 5.49 | | |
| PBT | 32.73 | 18.19 | | | 110.64 | 79.45 | | |
| Figures in Rs crore | ||||||||
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