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RESULT UPDATE
CRISIL
All round strong performance
India Equity Research| Credit Rating
CRISILs Q1CY14 top line at 21% YoY and PAT at 39% YoY surpassed our
estimates by 8% and 15%, respectively. Key positives were: (1) ratings
segment revenue rebounded with 16% YoY growth and research revenue
surged 26% YoY; (2) overall EBIDTA grew 35% YoY; and (3) ratings EBIT
margin grew a robust 174bps alongwith 400bps expansion in research
EBIT margin to 30%, which led to overall EBITDA margin catapulting
322bps to 33.2%. Led by strong performance in ratings and research, we
are revising our CY14E and CY15E earnings up 4.0% and 6.5% to ~14.3%
and ~18.3% growth, respectively. However, we maintain HOLD on rich
valuations.
EDELWEISS RATINGS
Absolute Rating
HOLD
Investment Characteristics
Growth
: INR 1,246
Target Price
: INR 1,347
: 1,289 / 884
: 70.7
: 88 / 1,460
Q2FY14
Q1FY14
67.7
10.4
67.8
10.2
52.8
16.1
Promoters *
MF's, FI's & BKs
FII's
8.0
8.3
10.4
Others
13.9
13.7
20.7
NIL
BSE Midcap
Stock
Index
Stock over
Index
1 month
6.8
9.1
2.3
3 months
3.7
3.7
0.0
12 months
14.1
32.7
18.6
Finanacials
Year to Dec.
(INR mn)
Q1CY14 Q1CY13 Growth %
Q4CY13 Growth %
CY13
CY14E
CY15E
Revenue
3,092
2,550
21.3
3,051
1.4
11,123
12,778
14,733
EBITDA
1,028
766
34.3
1,073
(4.2)
3,579
4,205
4,920
687
496
38.5
709
(3.1)
2,516
2,876
3,402
9.7
7.1
35.6
40.7
48.1
34.9
30.5
25.8
EV/EBITDA (x)
23.3
19.5
16.4
ROAE (%)
41.8
39.1
39.0
10.0
Shradha Sheth
+91 22 6623 3308
shradha.sheth@edelweissfin.com
Credit Rating
Table 1: Segment wise performance
(INR mn)
Q1CY13
% YoY
Q4CY13
%QoQ
1153.3
139.5
1797
994
125
1426
16.0
11.3
26.1
1094.5
170.4
1778.4
5.4
(18.1)
1.0
4,139
557
6,411
3,891
553
5,260
6.4
0.6
21.9
467.9
15.1
539.1
386
15
370
21.2
3.4
45.5
437.7
27.1
583.8
6.9
(44.3)
-7.7
1,639
76
2,054
1,638
99.70
1,588
0.1
(24.3)
29.3
1.74
(0.83)
4.02
40.0
15.9
32.8
0.58
(5.08)
(2.83)
39.6
13.6
32.0
42.1
18.0
30.2
(2.5)
(4.5)
1.8
40.6
10.8
30.0
38.8
11.7
26.0
CY13
CY12
(INR mn)
% YoY
Q1CY14
Source: Company
Other highlights
Dividend: During the quarter, the company declared dividend of INR3 per share (same
as last year).
Company reported forex loss of INR30mn in Q1CY14 versus gain of INR0.47mn for
Q1CY13.
Announced 3,106 new bank loan ratings (BLRs; decline of 14% YoY); total BLRs
outstanding exceed 12,100.
Assigned 12,857 SME ratings during the year (up 29% YoY).
Research
Added large and marquee clients including a number of buy-side and private equity firms,
Investments in the Risk & Analytics vertical and a product-based go-to-market strategy in
Corporate Research are providing impetus to new client addition.
A mid year launch of web-based products using CRISILs proprietary framework resulted in
positive client responses and additions to the client base.
Crisil
In the Risk & Analytics vertical, CRISIL built scale of operations in model validation and
stress-testing by hiring a number of subject experts, developing robust training modules and
putting in place strong process and quality measures. These steps have resulted in positive
client feedback and opened new avenues of engagement.
In Corporate Research, the company took steps to productise the institutional knowledge
built over the years by serving global Fortune 500 companies in Key Account Management
and Competitive Intelligence. It launched two new products in the market - COMPASS, a key
account management product, and CI 360, a competitive intelligence tool. Both products
are built on strong analytical frameworks that provide actionable insights to clients. The
feedback from clients on these has been positive.
CRISILs global research centres continue to scale up. The China research centre grew rapidly
in 2013 and crossed the 50-people mark. CRISIL has expanded its client roster in Argentina
and moved into a larger facility to accommodate growth plans.
Coalition research
Coalition grew strongly by adding new global investment banks as clients and successfully
launching new products.
In 2013, it delivered a strong performance driven by its core Competitor and Client
Analytics, which reported solid growth. It recently launched RWA (Risk Weighted Assets)
Analytics, which enjoyed a strong start. A comprehensive media strategy in each region has
delivered results, leading to significant improvement in its reach among prospective clients.
Coalition added new clients among the top 20 global investment banks and renewed its
exclusive relationship with a leading consulting firm.
Infrastructure advisory
Continued focus on international business and working with multilateral agencies resulted
in execution of a number of high-profile assignments.
Worked with central and state government departments in formulating, advising and
implementing plan and policies in urban development, coal, food and power. There was
sharper focus on Africa and Southeast Asia, which got a boost from long-term multilateral
spending programmes this year.
Risk solutions
Maintained focus on both consulting and software solutions and won 22 mandates in 2013.
CRISILs risk solutions reached out to newer markets across EMEA and Southeast Asia, got
new mandates and built a strong pipeline for future growth.
Achievements
Ratings: CRISIL Ratings instituted several innovations aimed at development of the
corporate bond market in 2013. It rated Indias first Basel III-compliant Tier-II bond,
inflation-indexed debenture, infrastructure debt fund NBFC.
Research & Analytics: CRISIL GR&A launched Collateral Management and Portfolio
Reconciliation to offer end-to-end solutions in the collateral management space.
Credit Rating
CRISIL GR&A (Coalition) won mandate from a Swiss Investment bank, which is one of the top
15 globally .
CRISIL GR&A won mandate from a large Europe-based buy-side firm to support its portfolio
managers in building an emerging market fund.
CRISIL GR&A (Coalition) won a mandate from one of the top 15 global investment banks in
the US.
CRISIL GR&A won mandates from two global investment banks for Model Validation.
CRISIL GR&A won mandate from a large US-based asset management company to assist in
writing investment commentaries.
CRISIL GR&A won mandates from a large global investment bank for portfolio optimisation,
a cutting-edge quant analytics work stream a Latin American wealth management and
financial services firm.
Infrastructure Advisory: The company won large and prestigious mandates in Indonesia,
Laos and Vietnam in Southeast Asia, and Tanzania, Malawi and Namibia in Africa.
CRISIL provides offshore rating services to S&P under the Global Analytical Center (GAC)
segment, which contributed ~12% (14% last year) to CRISILs overall revenue and ~32%
(36% last year) to rating revenue. In the interim, there has was a decline of 5% YoY in
CY13. This we assume should be since S&P was consolidating its position since stake
increase to 67.7% last year.
Geographically as on CY13, company has a well diversified portfolio with 35% of sales
from India, 30% of sales from Europe, 29% from North America and 6% from rest of the
world.
Crisil
Financial snapshot - (Consolidated)
Year to March
Revenues
Employee cost
Other expenses
Total expenditure
Q1CY14A
3,092
1,399
666
2,064
Q1CY13
2,550
1,211
573
1,784
% change
21
15
16
16
Q4CY13
3,051
1,348
631
1,978
% change
1
4
5
4
CY13
11,123
5,155
2,390
7,545
CY14E
12,778
5,861
2,712
8,573
(INR mn)
CY15E
14,733
6,725
3,088
9,814
1,028
766
34
1,073
(4)
3,579
4,205
4,920
Depreciation
Other income
PBT
Tax
Adjusted net profit
Extraordinary items
Net profit after extraordinary items
Minority interest
Net Profit after minority interest
Equity capital (FV INR 1)
No. of shares (mn)
Adj. Core EPS (INR)
Diluted P/E (x)
EV/EBITDA (x)
Market cap / Revenues (x)
ROAE (%)
87
29
970
283
687
0
687
0
687
71
71
9.7
87
32
711
215
496
0
496
0
496
70
70
7.1
0
(10)
36
31
39
(100)
38
91
34
1,016
307
709
0
709
0
709
71
71
10.0
(4)
(15)
(5)
(8)
(3)
379
393
3,593
1,076
2,516
462
2,978
0
2,978
71
71
35.6
34.9
23.3
7.9
41.8
450
353
4,108
1,232
2,876
0
2,876
0
2,876
71
71
40.7
30.5
19.5
6.9
39.1
481
457
4,895
1,493
3,402
0
3,402
0
3,402
71
71
48.1
25.8
16.4
6.0
39.0
as % of net revenues
Staff expenses
Other expenses
EBITDA
Net profit
0.1
45.2
21.5
33.2
22.2
0.1
47.5
22.5
30.0
19.5
0.1
1.1
46.3
21.5
32.2
26.8
1.1
45.9
21.2
32.9
22.5
45.6
21.0
33.4
23.1
EBITDA
39
38
(3)
(3)
(3)
0.1
44.2
20.7
35.2
23.2
0.1
Change in Estimates
Net Revenue
New
12,778
CY14E
Old
12,510
% change
2.1
New
14,733
CY15E
Old
14,226
% change Comments
3.6 Due to 13% YoY growth in ratings
versus 11% earlier assumed in
CY14. Due to 17% YoY growth in
ratings in CY14E and 18% YoY in
CY15E versus 15% and 16% YoY
earlier assumed.
EBITDA
4,205
4,054
3.7
4,920
4,634
EBITDA Margin
Core profit
32.9
32.4
2,876
2,768
3.9
33.4
32.6
3,402
3,193
PAT Margin
22.5
22.1
Capex
450
450
0.0
23.1
22.4
450
450
0.0
Credit Rating
Company Description
CRISIL is Indias leading credit rating, research, risk & policy advisory company having
pioneered the concept of credit rating in India in 1987. S&P, the worlds leading credit rating
agency by market share, is its major shareholder (67.7%) after the recent open offer. CRISIL
is a globally diversified analytical company having ratings, research and advisory services
under its fold. With market leadership in corporate bonds, bank loan ratings and SME
ratings, company is strongly poised to gain from cyclical and structural uptick in domestic
ratings segment. With increased interest from parent, strong growth in off shoring services
to S&P will continue which will drive its offshore ratings segment (Global Analytic Center).
Being a global research analytics company providing off shoring services to several large
global clients like 12 of top 15 global investment banks, two of the top 10 global consulting
groups, three of the top 15 global insurance companies and 37 Fortune 500 companies,
company is expected to continue its strong momentum in research revenues.
Investment Theme
CRISIL is Indias leading credit rating company having a ~35% market share, and a strong
parentageStandard & Poor (S&P), worlds leading credit rating agency by market share.
The domestic ratings segment is estimated to grow at 13% CAGR over CY13-15E. We have
estimated off shoring to parent to grow at 11% CAGR over the same period. Going forward
there is a greater scope with increased interest from parent with parent having increased
stake to ~68% now. Research posted robust revenue CAGR of 23% over CY08-13. We believe
CRISILs strategy to offer differentiated solutions with strong association with global
investment banks will propel growth at 17% CAGR over CY13-15E.
Key Risks
Adverse macro economy
Ratings agencies are vulnerable to downturns in the economy when capital raising activities
fall. Last year, fund raising activities dipped due to weakness in the economy and corporate
level stress, which in turn led to reduced bond issuances and bonds rating businesses.
Migration to internal ratings based approach by banks
If banks whose clients avail credit rating services under the Basel II framework migrate to
the internal rating based approach for credit risk (the IRB Approach), it could have an
adverse effect on CRISIL's rating business.
Pricing transience to fixed fee structure
Limited bond issuance and lower bank loan rating volumes pose a threat as issuances have
transcended to a fixed fee cap structure. However, this is more so pronounced only in the
BLR market and less in the CDR segment which is more profitable.
Risk of defaults
Any rating default by a client would hamper the credibility of the rating agency. However
SEBIs mandatory disclosures of default rates would keep the rating agency under control of
the watch guard.
Crisil
Financial Statements
Key Assumptions
Year to December
Income statement
CY12
Macro
GDP(Y-o-Y %)
Inflation (Avg)
5.0
7.4
4.8
6.2
5.4
5.5
6.3
6.0
7.5
8.0
7.5
7.0
54.5
62.0
60.0
58.0
USD/INR (Avg)
Sector
CY12
CY13
CY14E
CY15E
Net revenue
Gross profit
9,793
5,403
11,123
5,969
12,778
6,917
14,733
8,008
Employee costs
4,390
5,155
5,861
6,725
Other Expenses
2,207
2,390
2,712
3,088
EBITDA
3,196
3,579
4,205
4,920
343
379
450
481
2,853
3,200
3,755
4,438
30.7
5.0
21.0
27.0
EBIT
14.7
15.0
16.0
16.0
Other income
Company
Net profit
Nos
(INR mn)
Year to December
284
393
353
457
3,137
3,593
4,108
4,895
933
1,076
1,232
1,493
2,204
2,516
2,876
3,402
462
2,204
2,978
2,876
3,402
Domestic Ratings
31.4
35.6
40.7
48.1
CEPS (INR)
36.3
41.0
47.0
54.9
16.0
19.0
20.0
23.1
Year to December
CY12
CY13
CY14E
CY15E
Operating expenses
Depreciation
67.4
3.5
67.8
3.4
67.1
3.5
66.6
3.3
EBITDA margins
32.6
32.2
32.9
33.4
22.5
22.6
22.5
23.1
Year to December
CY12
CY13
CY14E
CY15E
Revenues
EBITDA
21.4
21.9
13.6
12.0
14.9
17.5
15.3
17.0
PBT
800
SME
425
587
S&P Ratings
734
844
Advisory services
553
557
584
614
Irevna
Pipal Research
326
327
343
377
India Research
861
43
47
52
Coalition Development
41.8
44.1
44.0
43.8
Domestic Ratings
26.8
30.0
30.3
30.3
S&P Ratings
14.9
14.1
13.7
13.5
Advisory services
5.9
5.9
5.5
5.1
14.0
14.5
14.4
19.2
52.3
50.0
50.5
51.1
Net profit
6.8
14.2
14.3
18.3
Irevna
39.5
46.1
46.9
47.5
EPS
6.6
13.4
14.3
18.3
Pipal Research
3.5
3.5
3.2
3.1
India Research
9.2
0.5
0.4
0.4
Coalition Development
4.2
18.3
20.2
22.3
Credit Rating
Balance sheet
(INR mn)
As on 31st December
CY12
CY13
CY14E
CY15E
Year to December
CY12
CY13
CY14E
CY15E
Equity capital
Reserves & surplus
70
5,220
71
6,674
71
7,910
71
9,418
2,233
(1,182)
3,065
(204)
3,489
(450)
3,912
(450)
Shareholders funds
5,290
6,745
7,981
9,488
(1,108)
(1,558)
(1,640)
(1,894)
(175)
(229)
(229)
(229)
(57)
1,303
1,399
1,568
Sources of funds
5,115
6,516
7,752
9,260
Capex
(430)
(204)
(450)
(450)
Tangible assets
Intangible assets
1,065
3,603
1,342
3,150
1,342
3,150
1,311
3,150
Dividends paid
(1,203)
(1,558)
(1,640)
(1,894)
4,668
4,493
4,493
4,462
66
56
56
56
Year to December
CY12
CY13
CY14E
CY15E
Current Investments
1,084
2,387
2,387
2,387
1,528
1,900
3,299
4,867
ROAE (%)
ROACE (%)
46.6
95.2
41.8
85.6
39.1
101.7
39.0
118.4
Sundry debtors
ROA
48.1
43.3
40.3
36.7
85.4
68.9
62.3
54.7
1,172
1,195
1,365
1,574
703
691
691
691
434
516
516
516
2,309
2,402
2,572
2,781
Operating ratios
Trade payable
1,300
1,280
1,614
1,851
Year to December
CY12
CY13
CY14E
CY15E
3,240
3,442
3,442
3,442
4,541
4,721
5,055
5,293
2.1
2.8
1.9
2.4
1.8
2.8
1.7
3.3
(2,232)
(2,319)
(2,483)
(2,512)
Equity turnover
2.1
1.8
1.7
1.7
5,115
6,516
7,752
9,260
75.3
95.4
112.9
134.2
Year to December
CY12
CY13
CY14E
CY15E
31.4
6.6
35.6
13.4
40.7
14.3
48.1
18.3
CEPS (INR)
36.3
41.0
47.0
54.9
Diluted PE (x)
39.6
29.5
30.5
25.8
9.3
(INR mn)
Valuation parameters
Year to December
CY12
CY13
CY14E
CY15E
Net profit
Depreciation
2,204
343
2,516
379
2,876
450
3,402
481
Others
(583)
339
327
58
Price/BV (x)
16.5
13.0
11.0
1,965
3,235
3,653
3,941
EV/Sales (x)
8.6
7.5
6.4
5.5
Less: Changes in WC
(268)
170
164
29
26.5
23.3
19.5
16.4
2,233
3,065
3,489
3,912
430
204
450
450
1.3
87,277
1.5
87,848
1.6
87,848
1.9
87,848
1,803
2,861
3,039
3,462
Less: Capex
Free cash flow
EV/EBITDA (x)
Dividend yield (%)
Market Capitalisation
Diluted PE (X)
Price/BV (X)
ROAE (%)
(USD mn)
CY14E
CY15E
CY14E
CY15E
CY14E
CY15E
1,460
30.5
25.8
11.0
9.3
39.1
39.0
386
15.8
13.4
4.4
4.0
29.6
31.4
ICRA
312
23.0
19.0
4.4
3.9
20.7
22.1
Median
386
23.0
19.0
4.4
4.0
29.6
31.4
AVERAGE
719
23.1
19.4
6.6
5.7
29.8
30.8
Crisil
Crisil
Additional Data
Directors Data
Roopa Kudva
H.N Sinor
Douglas Peterson
David Pearce
M. Damodaran
Ms. Vinita Bali
Dr.Nachiket Mor
Yann Le Pallec
Holding Top10
Perc. Holding
44.17
8.49
4.01
2.56
2.43
Perc. Holding
15.04
5.66
2.69
2.56
2.43
Mcgraw-hill asian ho
Jhunjhunwal rakesh r
Jhunjhunwala rekha
Uti asset management
Acacia partners lp
Bulk Deals
Data
14 Jun 2013
Acquired / Seller
Jhunjhunwala Rekha R
B/S
Sell
Qty Traded
400000
Price
1158.60
Insider Trades
Reporting Data
29 Aug 2013
29 Jul 2013
Acquired / Seller
Roopa Kudva
Roopa Kudva
B/S
Sell
Sell
Qty Traded
160000.00
160000.00
Credit Rating
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai 400 098.
Board: (91-22) 4009 4400, Email: research@edelweissfin.com
Vikas Khemani
vikas.khemani@edelweissfin.com
Nischal Maheshwari
nischal.maheshwari@edelweissfin.com
Nirav Sheth
Head Sales
nirav.sheth@edelweissfin.com
Recent Research
Date
Company
Title
Price (INR)
Recos
21-Feb-14
ICRA
1,588
Buy
17-Feb-14
CRISIL
1,120
Hold
27-Jan-14
ICRA
1,543
Buy
Rating Distribution*
* 1 stocks under review
> 50bn
Market Cap (INR)
126
Buy
Hold
133
40
Reduce
Total
16
190
< 10bn
55
10
Rating
Expected to
Buy
Hold
Reduce
Crisil
DISCLAIMER
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