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Acquisition of Pipal to boost research revenue: Pipal Research
Corp. is a strong player providing offshore research services to
the corporate sector, while CRISIL's Irevna is a leading offshore
research provider to the financial sector. The synergy between
the two firms will help CRISIL to service its clients better and
further expand its client base, resulting in a strong growth platform
in the coming years. Post the acquisition, with the combined
strength of the two firms, we expect a 22% CAGR in the research
segment's revenue over CY2010-12E.
Robust growth in credit ratings to continue on strong credit
demand: We believe credit demand will continue to grow at a
faster rate than India's nominal GDP as financial depth continues
to increase. The need for large capital formation of 30-35% of
GDP for sustaining 8%+ GDP growth in India is well
acknowledged; hence we expect credit demand to witness a 20%
CAGR over CY2010-14, considering the actual and latent credit
demand in India. CRISIL has been growing at ~2x India's credit
growth since CY2005. Currently,CRISIL is the market leader in
the bank loan rating (BLR) segment with 50% market share and
is expected to futher benefit from Basel II norms, as the number
of entities to be rated will increase. CRISIL, being the market
leader with around 65% market share in credit rating, will
continue to benefit greatly from India's strong credit growth. Thus,
we conservatively expect it grow at 1x India's credit growth,
registering a 21% revenue CAGR in the ratings segment.
Infra and risk advisory services segment to benefit from huge
infra spend: CRISIL is set to benefit from the estimated US $800bn
spend on infrastructure from FY2010-14E (US $1tn in the XIIth
Five-Year Plan), as it will provide a huge opportunity to the
company to expand its infra and risk advisory services segment.
Accordingly, CRISIL has undertaken aggressive hiring across
hierarchy and will expand its customer base going ahead. Hence,
we expect CRISIL's infra and risk advisory services segment to
report a 22% CAGR over CY2010-12E.
Outlook and valuation: We expect CRISIL to register a 21.5%
CAGR in revenue over CY2010-12E and continue to maintain
its leadership position, with robust growth across all its segments.
The company benefits from its asset-light business model, which
is high on intellectual assets (employee cost-to-sales is around
40%). Further, the company is debt free and has 40% plus RoE.
Additionally, the company enjoys strong parentage (Standard
and Poor's). Currently, the stock is available at 17.0x CY2012E
earnings, which is at the lower end of its historical range of 16.4-
29.9x one-year forward EPS. We maintain a Buy
recommendation with a target price of `7,584, valuing it at its
five-year median of 22x CY2012E earnings, implying an upside
of 29%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Acquisition of Pipal to boost research revenue: Pipal Research
Corp. is a strong player providing offshore research services to
the corporate sector, while CRISIL's Irevna is a leading offshore
research provider to the financial sector. The synergy between
the two firms will help CRISIL to service its clients better and
further expand its client base, resulting in a strong growth platform
in the coming years. Post the acquisition, with the combined
strength of the two firms, we expect a 22% CAGR in the research
segment's revenue over CY2010-12E.
Robust growth in credit ratings to continue on strong credit
demand: We believe credit demand will continue to grow at a
faster rate than India's nominal GDP as financial depth continues
to increase. The need for large capital formation of 30-35% of
GDP for sustaining 8%+ GDP growth in India is well
acknowledged; hence we expect credit demand to witness a 20%
CAGR over CY2010-14, considering the actual and latent credit
demand in India. CRISIL has been growing at ~2x India's credit
growth since CY2005. Currently,CRISIL is the market leader in
the bank loan rating (BLR) segment with 50% market share and
is expected to futher benefit from Basel II norms, as the number
of entities to be rated will increase. CRISIL, being the market
leader with around 65% market share in credit rating, will
continue to benefit greatly from India's strong credit growth. Thus,
we conservatively expect it grow at 1x India's credit growth,
registering a 21% revenue CAGR in the ratings segment.
Infra and risk advisory services segment to benefit from huge
infra spend: CRISIL is set to benefit from the estimated US $800bn
spend on infrastructure from FY2010-14E (US $1tn in the XIIth
Five-Year Plan), as it will provide a huge opportunity to the
company to expand its infra and risk advisory services segment.
Accordingly, CRISIL has undertaken aggressive hiring across
hierarchy and will expand its customer base going ahead. Hence,
we expect CRISIL's infra and risk advisory services segment to
report a 22% CAGR over CY2010-12E.
Outlook and valuation: We expect CRISIL to register a 21.5%
CAGR in revenue over CY2010-12E and continue to maintain
its leadership position, with robust growth across all its segments.
The company benefits from its asset-light business model, which
is high on intellectual assets (employee cost-to-sales is around
40%). Further, the company is debt free and has 40% plus RoE.
Additionally, the company enjoys strong parentage (Standard
and Poor's). Currently, the stock is available at 17.0x CY2012E
earnings, which is at the lower end of its historical range of 16.4-
29.9x one-year forward EPS. We maintain a Buy
recommendation with a target price of `7,584, valuing it at its
five-year median of 22x CY2012E earnings, implying an upside
of 29%.
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