ICRA - Strong Outsourced Growth; IT Bounces Back; Result Update Q3FY15 ::Edelweiss

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ICRA’s Q3FY15 revenue surge at 12% was below estimate by 1%, but EBITDA surge at 14% YoY was above estimates by 5%. Key positives were: (1) strong 27% YoY growth in outsourced revenue; and (2) IT bounce back with 17% YoY growth. Key negatives were: (1) mere 8% YoY growth in ratings due to lower structured finance issuances in the quarter; and (2) ratings margin dipped by 170bps YoY to 45.3%. With Moody’s stake at 50% in ICRA, outsourced ratings grew by a robust 21% YoY in 9mFY15. We are also convinced of the strong structural opportunity in the domestic debt market and expect 22% CAGR in ratings revenue over FY15-17. Also, we introduce FY17E EPS, leading to 24% CAGR in earnings over FY15-17E.

Robust outsourced sales growth; ratings slightly lower

ICRA reported revenue growth of 12% YoY in Q3FY15. Ratings grew slower at ~8% YoY due to sluggish structured finance issuances due to changes in priority sector norms, which lowered the demand from banks. However, going forward, management anticipates pick up in corporate bond issuances with interest rate reversal and inquiry pipeline in corporate bond market getting healthy. Outsourcing segment grew by strong 27% YoY and 11% QoQ, led by rise in business from parent. IT segment bounced back with 17% YoY growth due to pick up in orders post the 1% YoY decline last quarter. On 9mFY15 basis, the company reported 12% YoY growth in overall revenues.

Margin expansion in outsourced segment

Operating profit surged 14% YoY. EBIT of ratings segment grew 4% YoY, while EBIT of outsourced services rose 58% YoY. IT segment bounced back with 5.5% margin versus negative 2.7% last quarter. For 9mFY15, ICRA reported 17% YoY growth in EBITDA.

LINK
https://www.edelweiss.in/research/ICRA--Strong-Outsourced-Growth;-IT-Bounces-Back;-Result-Update-Q3FY15/28187.html