CRISIL - Ratings Muted; Margin Under Pressure; Result Update Q4CY14 :: Edelweiss

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CRISIL’s Q4CY14 top line (up 7% YoY) and EBITDA (down 4% YoY) came in lower than our estimates by 5% and 10%, respectively. Key positives were: (1) surge of 11% YoY in research revenue; and (2) 340bps QoQ increase in research EBIT margins on better product mix. Key negatives included: (1) flat growth in ratings business; (2) 374bps YoY fall in overall EBITDA margin to 31.4%, impacted by the 350bps YoY drop in ratings EBIT margin to 36.5%; and 100bps YoY dip in research EBIT margin to 31.8%. Led by lower-than-expected performance in ratings and expected pressure in research in Europe, we cut our CY15E/CY16E earnings by 7%/6% to ~19%/~27% growth. With ~65% consolidated revenue from outside India and ~30% revenue being Europe linked, the company’s overall revenues could be under some pressure.

Ratings underperformance continues

CRISIL reported lower-than-expected Q4CY14 performance, with revenue growth of 7% (5% lower than estimate) YoY on account of flat growth in ratings and 11% YoY rise in research segment. Ratings segment was muted due to lower credit growth in bank loan ratings —16% and 8% reported by CARE and ICRA, respectively. Favourable client additions in risk and analytics, and strong show by Coalition led to double-digit growth in research. For CY14, YoY ratings grew by 7.5%, research 16% and advisory 14%.

Ratings EBIT margin subdued; research picks up 344bps QoQ

Operating profit fell 4% YoY with overall margins slipping 374bps YoY to 31.4%. CRISIL reported 9% YoY decline in ratings EBIT, but 8% increase in research EBIT. While ratings EBIT margin fell by 349bps to 36.5%, research EBIT margin plummeted by 100bps YoY, but up 344bps QoQ to 31.8% with improved product mix. For CY14, ratings EBIT grew 1% YoY, leading to 240bps decline in its EBIT. For CY14, research EBIT grew 6% YoY, leading to 287bps decline in its EBIT.

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https://www.edelweiss.in/research/CRISIL--Ratings-Muted;-Margin-Under-Pressure;-Result-Update-Q4CY14/28428.html