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Crisil: A turnaround story - Views on News from Equitymaster
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  • Jan 4, 2002

    Crisil: A turnaround story

    The early signs of a turnaround in economy is reflected in Crisil's sterling performance. Lead by a strong demand for rating services from corporates and banks, Crisil's revenues in the December quarter jumped by over 60%, YoY. Its earnings before extraordinary items rose over 200% on the back of stiff cost control measures.

    (Rs m) 3QFY01 3QFY02 Change 9mFY01 9mFY02 Change
    Income from operations 99 161 62.4% 316 429 35.7%
    Other Income 4 6 34.8% 11 15 33.6%
    Expenditure 66 73 9.4% 191 227 19.1%
    Operating Profit (EBDIT) 33 88 170.7% 125 202 61.0%
    Operating Profit Margin (%) 32.9% 54.8%   39.6% 47.0%  
    Interest - -   - -  
    Depreciation 10 16 56.1% 39 55 40.1%
    Profit before Tax 26 78 193.6% 97 161 66.3%
    Extraordinary item 31 -   31 -  
    Tax 12 23 93.7% 37 55 47.2%
    Profit after Tax/(Loss) 45 55 21.1% 90 106 17.8%
    Net profit margin (%) 45.6% 34.0%   28.5% 24.7%  
    No. of Shares (eoy) (m) 6.2 6.2   6.2 6.2  
    Diluted Earnings per share* 29.1 35.3   19.3 22.7  
    P/E (at current price)   3.9     6.1  

    Rating business of the company, which accounts for 70% of its total revenues grew by 53% during the third quarter. Crisil rated bond programme of Tamil Nadu Industrial Development Corporation and is working closely with S&P on a number of assignments globally. Among the other new initiatives, the company plans to launch hospital grading services. The company's constant endeavour to introduce new services is likely to enhance its revenue base in the coming quarters.

    Revenue breakup
    (Rs m) 3QFY01 3QFY02 Change 9mFY01 9mFY02 Change
    Rating 74 113 53.0% 236 312 32.3%
    Advisory 17 35 109.7% 55 82 49.2%
    Information services 8 13 50.7% 25 35 37.5%
    Total 99 161 62.4% 316 429 35.7%

    Crisil's advisory business continued to grow at an astounding rate. The business contributed 19% to its total revenues during the first nine months of FY02, from 17% in the comparable previous period. The division was awarded many prestigious mandates in the last nine months. This includes Asian Development Bank funded mandate for preparation of reorganization plan for Gujarat Electricity Board, joint privatisation advisors in the state of Andhra Pradesh and advising Indian Cotton Mills Federation on rationalisation of excise duty structure of the textile industry. Consolidation and restructuring plans in Indian industries are picking up and Crisil with its experience in advising, is likely to reap the maximum benefits.

    Crisil information services however, reported a lower growth compared to its core business. Net earnings from IT services declined by 45% during the first nine months and net margins at 9% are much lower compared to its other businesses. The division launched a real time information service called CrisilMarketWire (CMW), which provides the live coverage of fixed income, money markets and forex markets. CMW has the second largest subscription base in the country.

    Crisil's efforts to control communication and traveling expenses resulted in a sharp rise in its operating margins. The company's operating margins at 47% in the first nine months of FY02 are much better than any financial or software company. Crisil's net profit margins at 25% are also commendable, reflecting a sharp recovery in its advisory and rating businesses.

    At the current market price of Rs 138, Crisil trades at a P/E of 6x and Price/Book value ratio of 1.3x. In the last five years, the company has traded in the average P/E range of 12-40 times. The sharp rebound in the company's performance is likely to bring an upward re-rating in the stock.



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