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CRISIL registered strong top-line growth in 4QCY2010. Net sales grew by 19.8%
yoy and 11.5% qoq to `177cr. The company reported a 380bp qoq expansion in
OPM to 39.1% mainly due to lower employee cost during the quarter. Net profit
increased by 14.9% yoy to `51cr (`44cr).
Top line posts strong growth, margins improve qoq: For 4QCY2010, the
company’s top line reported 19.8% yoy growth to `177cr (`148cr), led by strong
growth in its research and ratings segment, which witnessed 33.1% and 17.7%
yoy growth, respectively. The advisory segment also witnessed strong turnaround
during the quarter, reporting strong 49% qoq growth. Consequently, with robust
growth in the credit ratings and the research segments and strong turnaround in
the advisory segment, employee cost as a percentage of sales dipped to 60.2%
v/s 66.25 in 3QCY2010, resulting in better margins, which improved by 380bp
qoq and 161bp yoy to 39.1%. Due to higher realisation and margin expansion,
net profit improved by 14.9% yoy to `151cr; however, NPM declined by 121bp
yoy to 28.5% due to lower other income and marginally higher taxes paid during
the quarter, which increased by 100bp yoy.
Outlook and valuation: We expect CRISIL to post a 21% CAGR in revenue over
CY2010–12 and continue to maintain its leadership position. CRISIL benefits from
its asset-light business model, which is high on intellectual assets (employee costto-
sales is around 40%). Further, the company is debt free and has 40% plus RoE.
Additionally, CRISIL enjoys strong parentage (Standard and Poor's). Currently, the
stock is available at 17.2x CY2012E earnings, which is at the lower end of its
historical range of 16.4–29.9x one-year forward EPS. Considering the strong
4QCY2010 performance, we have tweaked our numbers. We continue to
maintain our Buy rating on the stock with increased Target Price of `7,616
(`7,584), valuing it at its five-year median of 22x CY2012E earnings, implying an
upside of 28%.
OPM improves qoq following strong growth in research
For 4QCY2010, OPM spiked to 39.1% in 4QCY2010, up 380bp qoq and 161bp
yoy, reporting the highest quarterly OPM during the year. This was largely due to
strong growth in the research segment and huge turnaround in the advisory
segment on a qoq basis, which resulted in reduction in employee cost to 60.2% as
a percentage of sales compared to 66.2% in 3QCY2010.
EBITDA improves, but margins decline in CY2010
For CY2010, EBITDA increased by 9.2% to `218cr due to higher top line for the
year. However, margins declined by 259bp yoy to 34.5% (37.1%), largely due to
weak first half, where the company reported forex losses and as a result the
average margin came in at around 31.6% in the first half compared to 37.2% for
the second half.
PAT increases, but margins decline once again in 4QCY2010
For 4QCY2010, PAT increased by 14.9% yoy to `51cr, largely on the back of
higher sales and OPM expansion during the quarter. However, margins declined
by 121bp yoy to 28.5% mainly due to lower other income, which declined by 59%
yoy to `1.8cr (`4.4cr), and a 100bp yoy increase in tax rate, which increased to
22.9% (21.9%).
PAT, margins increase for CY2010
For CY2010, CRISIL registered a strong increase of 27.8% in PAT to `205cr,
largely on the back of higher top line and other income, which grew by 206% to
`70cr (`23cr), due to sale of property and investments during the year.
Consequently, margins also increased yoy by 263bp to 32.6% (29.9%).
Investment arguments
CRISIL is the largest credit rating agency with a market share of around 65% and is
one of the biggest research houses in India. With the recent acquisition of Pipal
Research, robust credit demand and strong infrastructure-spend, we expect strong
growth across all the segments of the company. The company has also recently
finished a buyback of 1.3lakh shares worth `80cr at an average price of `6,200.
Acquisition of Pipal Research to boost research revenue: Pipal Research 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 strong growth going ahead. Post the acquisition
with the combined strength of the two firms, we expect a 22% CAGR in the
research segment's revenue over CY2010–12.
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. Further, the company will continue to
benefit from Basel-II norms, as a large number of entities are still to be rated.
CRISIL, being the market leader with ~65% market share in credit rating and 50%
share in bank loan rating (BLR), will continue to benefit greatly from India's strong
credit growth. We conservatively expect the segment to register a 21% revenue
CAGR over CY2010–12.
Outlook and valuation
We expect CRISIL to post a 21% CAGR in revenue over CY2010–12 and continue
to maintain its leadership position. CRISIL 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, CRISIL
enjoys strong parentage (Standard and Poor's).
Currently, the stock is available at 17.2x CY2012E earnings, which is at the lower
end of its historical range of 16.4–29.9x one-year forward EPS. Considering the
strong 4QCY2010 performance, we have tweaked our numbers. We continue to
maintain our Buy rating on the stock with increased Target Price of `7,616
(`7,584), valuing it at its five-year median of 22x CY2012E earnings, implying an
upside of 28%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
CRISIL – 4QCY2010 Result Update
Angel Broking maintains a Buy on CRISIL with a Target Price of Rs. 7,616.
CRISIL registered strong top-line growth in 4QCY2010. Net sales grew by 19.8%
yoy and 11.5% qoq to `177cr. The company reported a 380bp qoq expansion in
OPM to 39.1% mainly due to lower employee cost during the quarter. Net profit
increased by 14.9% yoy to `51cr (`44cr).
Top line posts strong growth, margins improve qoq: For 4QCY2010, the
company’s top line reported 19.8% yoy growth to `177cr (`148cr), led by strong
growth in its research and ratings segment, which witnessed 33.1% and 17.7%
yoy growth, respectively. The advisory segment also witnessed strong turnaround
during the quarter, reporting strong 49% qoq growth. Consequently, with robust
growth in the credit ratings and the research segments and strong turnaround in
the advisory segment, employee cost as a percentage of sales dipped to 60.2%
v/s 66.25 in 3QCY2010, resulting in better margins, which improved by 380bp
qoq and 161bp yoy to 39.1%. Due to higher realisation and margin expansion,
net profit improved by 14.9% yoy to `151cr; however, NPM declined by 121bp
yoy to 28.5% due to lower other income and marginally higher taxes paid during
the quarter, which increased by 100bp yoy.
Outlook and valuation: We expect CRISIL to post a 21% CAGR in revenue over
CY2010–12 and continue to maintain its leadership position. CRISIL benefits from
its asset-light business model, which is high on intellectual assets (employee costto-
sales is around 40%). Further, the company is debt free and has 40% plus RoE.
Additionally, CRISIL enjoys strong parentage (Standard and Poor's). Currently, the
stock is available at 17.2x CY2012E earnings, which is at the lower end of its
historical range of 16.4–29.9x one-year forward EPS. Considering the strong
4QCY2010 performance, we have tweaked our numbers. We continue to
maintain our Buy rating on the stock with increased Target Price of `7,616
(`7,584), valuing it at its five-year median of 22x CY2012E earnings, implying an
upside of 28%.
Revenue up 19.8% yoy on the back of strong research growth in 4QCY2010
For 4QCY2010, CRISIL registered 19.8% yoy growth in revenue to `177cr on the
back of strong growth in the credit ratings and research segments. The ratings
segment grew by 17.7% yoy to `75cr and the research segment’s revenue spiked
by 33.1% yoy to `87cr, the highest-ever revenue reported in a quarter. Even the
advisory segment’s revenue witnessed a huge jump of 49% qoq to `15cr.
CY2010 witnesses strong recovery after a weak CY2009
After a weak CY2009, CRISIL recovered strongly in CY2010 on the back of the
economic recovery, registering robust 17.5% growth yoy in net sales to `631cr
(`537cr), in line with our estimate of `629cr. Major segmental growth was
witnessed by the credit ratings and research segments. The ratings segment grew
by 18.9% to `284cr (`239cr). The research segment grew by 22.8% yoy to `293cr,
witnessing the highest growth amongst the three segments. The company also
finished the full acquisition of Pipal Research in December 2010. The advisory
segment’s revenue fell by 13.9% largely because the company sold some of its
advisory businesses abroad.
OPM improves qoq following strong growth in research
For 4QCY2010, OPM spiked to 39.1% in 4QCY2010, up 380bp qoq and 161bp
yoy, reporting the highest quarterly OPM during the year. This was largely due to
strong growth in the research segment and huge turnaround in the advisory
segment on a qoq basis, which resulted in reduction in employee cost to 60.2% as
a percentage of sales compared to 66.2% in 3QCY2010.
EBITDA improves, but margins decline in CY2010
For CY2010, EBITDA increased by 9.2% to `218cr due to higher top line for the
year. However, margins declined by 259bp yoy to 34.5% (37.1%), largely due to
weak first half, where the company reported forex losses and as a result the
average margin came in at around 31.6% in the first half compared to 37.2% for
the second half.
PAT increases, but margins decline once again in 4QCY2010
For 4QCY2010, PAT increased by 14.9% yoy to `51cr, largely on the back of
higher sales and OPM expansion during the quarter. However, margins declined
by 121bp yoy to 28.5% mainly due to lower other income, which declined by 59%
yoy to `1.8cr (`4.4cr), and a 100bp yoy increase in tax rate, which increased to
22.9% (21.9%).
PAT, margins increase for CY2010
For CY2010, CRISIL registered a strong increase of 27.8% in PAT to `205cr,
largely on the back of higher top line and other income, which grew by 206% to
`70cr (`23cr), due to sale of property and investments during the year.
Consequently, margins also increased yoy by 263bp to 32.6% (29.9%).
Investment arguments
CRISIL is the largest credit rating agency with a market share of around 65% and is
one of the biggest research houses in India. With the recent acquisition of Pipal
Research, robust credit demand and strong infrastructure-spend, we expect strong
growth across all the segments of the company. The company has also recently
finished a buyback of 1.3lakh shares worth `80cr at an average price of `6,200.
Acquisition of Pipal Research to boost research revenue: Pipal Research 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 strong growth going ahead. Post the acquisition
with the combined strength of the two firms, we expect a 22% CAGR in the
research segment's revenue over CY2010–12.
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. Further, the company will continue to
benefit from Basel-II norms, as a large number of entities are still to be rated.
CRISIL, being the market leader with ~65% market share in credit rating and 50%
share in bank loan rating (BLR), will continue to benefit greatly from India's strong
credit growth. We conservatively expect the segment to register a 21% revenue
CAGR over CY2010–12.
Outlook and valuation
We expect CRISIL to post a 21% CAGR in revenue over CY2010–12 and continue
to maintain its leadership position. CRISIL 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, CRISIL
enjoys strong parentage (Standard and Poor's).
Currently, the stock is available at 17.2x CY2012E earnings, which is at the lower
end of its historical range of 16.4–29.9x one-year forward EPS. Considering the
strong 4QCY2010 performance, we have tweaked our numbers. We continue to
maintain our Buy rating on the stock with increased Target Price of `7,616
(`7,584), valuing it at its five-year median of 22x CY2012E earnings, implying an
upside of 28%.
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