ICRA - Ratings, Outsourced Sustain Growth; IT Drags; Result Update Q2FY15 :: Edelweiss, PDF link

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ICRA’s Q2FY15 revenue and EBITDA surged 10% and 4% YoY but came in below estimates by 3% and 12%, respectively. Key positives were: (1) 14% YoY jump in ratings (CRISIL reported 5% YoY growth in ratings) and 20% YoY growth in outsourced revenues; (2) margin expansion by 90bps in outsourced segment to 28.3%. Key negative was: 152bps EBIDTA margin dip to 25.6%. Ratings EBIT was marred by exceptional expense due to accounting change. IT segment margin dipped to -2.7%, post 5 quarters of positive double-digit margins. Ratings delivered healthy performance in H1FY15 at 14.5% growth, and is expected to be better in seasonally strong 2H with improvement in macros. Also, the outsourced segment continued with healthy traction at ~19.5% growth. IT segment however disappointed with flat growth this quarter. This induces us to downgrade our earnings by ~4% each in FY15 and FY16.

Robust ratings and outsourced sales growth; IT weak

ICRA reported revenue growth of 10% YoY in Q2FY15. Ratings grew a healthy 14% YoY led by debt ratings, bank loans and SME ratings driven by both acquisition of new clients and repeat business from existing ones. Outsourcing segment continued strong 19% YoY growth led by rise in business from parent. IT segment reported 1% decline due to lack of orders post 5 quarters of ~20% growth.

Margin expansion in outsourced segment; others witness dip

ICRA’s overall operating profit surged by mere 4% YoY. Ratings segment EBIT fell by 4% YoY, while outsourced services’ EBIT rose 24% YoY. IT posted EBIT loss of INR5mn post 5 quarters of profit with no order wins and currency headwind. Other income surged 57% to INR78mn; however, exceptional expense of INR122mn due to prior period adjustments for change in revenue recognition of ratings and lease rentals along with goodwill impairment of BPA Tech, resulted in PAT of mere INR28mn (expected INR193mn). Adjusted PAT stood at INR156mn.

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https://www.edelweiss.in/research/ICRA--Ratings,-Outsourced-Sustain-Growth;-IT-Drags;-Result-Update-Q2FY15/27559.html