Crisil in restructuring phase

Crisil has reported an impressive 29% growth in topline on the back of increased rating business in the current year. Crisil has rated companies in industries such as media and airlines in FY01, which were hitherto not rated in India. The company's profits however, declined by 25%.

(Rs m)	FY00	FY01	Change
Income from Operations	340	440	29.4%
Other Income	29	17	-41.2%
Expenditure	180	296	64.3%
Operating Profit (EBDIT)	159	144	-10.0%
Operating Profit Margin (%)	46.9%	32.6%
Interest	0	-
Depreciation	29	54	83.1%
Profit before Tax	159	107	-32.8%
Other Adjustments	34	27	-18.7%
Tax	63	37	-41.0%
Profit after Tax/(Loss)	129	97	-25.1%
Net profit margin (%)	38.0%	22.0%
No. of Shares (eoy) (m)	6.2	6.2
Diluted Earnings per share	20.8	15.6
P/E (at current price)		7
Price/Book value		1.1

Crisil's operating profits took a severe hit due to higher staff cost and professional expenses, which rose by 52% and 282% respectively. Professional fees was higher on the back of rise in payment of outsourcing charges to Rs 28 m from Rs 2 m in FY00. These factors led to a sharp decline in its operating margins to 32.6% from 46.9% in the previous year. Also, depreciation cost was higher by 83% due to acquisition of brand 'Infac' and purchase of new office premises.

Other adjustments is on account of profits on sale of fixed assets, property rights and investments. Excluding these items the profits of the company drop by 27%.

At the current market price of Rs 115 Crisil is trading at PER of 7 times its FY01 earnings and a Price/Book value ratio of 1x. Crisil's topline growth was satisfactory considering the widespread difficulties in the economy and industry. However, due to higher operating expenses the company's net took a hit. As a result the re-rating of the stock is highly linked to its ability to show an improvement in operating margins and generate the returns on the amount invested (acquisition of Infac) by it in the current year.