Crisil-Outlook Promising, but valuations steep! PPFAS

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Outlook Promising, but valuations steep!
CRISIL Limited has reported a good performance by clocking 19.5% Y-Y rise in its consolidated total income for the
quarter ended September 2010 to Rs. 1,585.5Mn from Rs. 1,326Mn in September 2009. The growth mainly came
from rating and research businesses. Operating margins have declined on account of increased headcounts & rental
costs. We expect the momentum in revenue growth to sustain in the coming quarters. But, valuations are steep at 25x
CY10E and 23x CY11E earnings. We maintain our REDUCE rating on the scrip.



Performance Highlights:
Revenues from rating services have improved by 32% Y-Y to Rs. 735Mn for the quarter ended Q3CY10 as against
Rs. 558Mn for the quarter ended Q3CY09, driven by Bank Loan ratings (BLR) & Small & Medium Enterprise ratings
(SME). During the quarter the company achieved an important milestone with the release of 5000th bank loan rating.

Further CRISILhas also launched its Real Estate Star Ratings, to positive response.

Research services segment, recorded a 20% Y-Y growth to Rs. 749Mn in the current quarter v/s Rs. 624Mn. for the
corresponding quarter of last year. On the other hand, revenues from advisory services recorded a negative growth of
29.5% Y-Y at Rs. 102Mn for Q3CY10 as against Rs. 144.5Mn for Q3CY09.

Demand for Irevnas' services continues to be strong across equities and derivatives research. The actuarial vertical
saw a pick-up during the quarter. Irevna is also getting good traction in demand for resources from its Poland research
centre.

CRISILhas done most of its investment in human capital, resulting in a sharp rise in staff costs. Rental costs have also
increased on account of shifting, to a new rented place. As a % of sales, staff and rental costs have risen by 338.5bps
and 121bps respectively. Hence, operating margins (OPM) have been hit by 188bps to 35% for the quarter ended
Sept’10 as against 37% for the quarter ended Sept’09.

Other Income for Q3CY10 has reported a growth of 391% to Rs. 439.5Mn v/s Rs. 89.5Mn for Q3CY09. This includes a
profit of Rs. 329Mn on account of sale shares in Gas Strategies Group Ltd. & National Commodity and

Derivative
Exchange Ltd. (NCDEX). After adjusting for the same, reported net profit shows a marginal decline of 1% Y-Y to
Rs. 425Mn for the quarter ended Sept'10 as compared to Rs. 430Mn for the quarter ended Sept'09.

Recent Developments:
Ÿ Pipal Research Acquisition – Crisil signed an agreement with Pipal, to buy the later for a sum of USD12.75Mn.
Pipal, headquartered in Chicago is a leading custom research firm offering high quality financial and business
research and quantitative analytics to organizations globally. CRISIL's endeavour has always been to invest in
businesses when they are in nascent stage, then using their existing capabilities and client base to scale up even
further.
Ÿ The Irevna – Pipal combination will be uniquely positioned in the high-end analytical offshoring space with the
widest range of services, geographic locations and customer diversity. Pipal's services, clients and delivery
locations are complementary to Irevna's, enabling the combine to strengthen its leadership in the KPO industry.
Ÿ CRISIL also announced a buyback programme of shares upto Rs. 800Mn at a price not exceeding Rs. 6,500/- per
share.



Our Call:
At CMP of Rs. 6,118/-, CRISIL is quoting at 25x CY10E and 23x CY11E earnings. We have kept our estimates
unchanged for CY10 and CY11. Going ahead we believe the revenue growth will be sustained, driven mainly by the
ratings and research services. Moreover with all the expenses in place, the benefit of leveraging will start kicking from
here on. Currently, the valuations are a little over stretched. Hence, we maintain our REDUCE rating on the scrip.