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Crisil: Ratings improve - Views on News from Equitymaster
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  • May 9, 2002

    Crisil: Ratings improve

    The only listed credit rating company, Crisil, exhibited strong financial performance for FY02 with a 52% rise in revenues and 35% growth in profits. The key trends that underpinned growth of the ratings business in FY02 were declining interest rate, increased consolidation activity and government's disinvestment programme.

    Rs m) FY01 FY02 Change
    Income from operations 440 668 51.8%
    Other Income 17 16 -4.6%
    Expenditure 296 332 11.9%
    Operating Profit (EBDIT) 144 336 134.2%
    Operating Profit Margin (%) 32.6% 50.3%  
    Interest 0 0  
    Depreciation 54 70 30.3%
    Profit before Tax 107 282 164.7%
    Extraordinary gains 27 4 -84.9%
    Tax 37 155 317.9%
    Profit after Tax/(Loss) 97 131 35.3%
    Net profit margin (%) 22.0% 19.6%  
    No. of Shares (m) 6.2 6.2  
    Diluted Earnings per share 15.6 21.1  
    P/E (at current price)   15.8  

    A 52% rise in revenues were however, to an extent fueled by the change in the method of accounting in respect of initial rating fees received by the company. In the past these fees were deemed to accrue over a period of 12 months from the date of assignment of rating which are now deemed to accrue fully on the date of assignment of rating. As a result of the change, rating income for the year is higher by Rs 68 m. Excluding this income would have grown by 36%.

    During the year, Crisil took several new initiatives including first rated debt transaction for an acquisition, two new state government ratings and Government of India guaranteed debt ratings. The company also launched grading of healthcare providers and has received an assignment as a sole consultant from the multilateral agency African Development Bank. During the year, the company's revenues from ratings soared by 74% accounting for similar proportion to total revenues. Its OPM from this segment also stands on the higher side at 64%. Credit offtake is expected to pick up and companies raising debt through private placement (debentures, commercial papers) are likely to go for rating. Crisil being one of the leading rating agencies would derive maximum gains on improvement in the business sentiment.

    Revenue breakup
    Rs m) FY01 FY02 Change
    Ratings 284 494 74.2%
    Advisory services 107 120 11.4%
    Informations services 49 54 10.4%
    Total 440 668 51.8%

    The company managed to show a sharp improvement in operating margins by curtailing operating costs. Over 1,000 basis points rise in OPM increased the company's pre tax profits by 165%. Higher provision for tax, mainly arising from change in method of accounting (Rs 52 m), trimmed earnings growth of the company to 35%.

    At the current market price of Rs 333, Crisil trades at a P/E of 16x and Price/Book value ratio of 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 has brought an upward re-rating in the stock in the last four months. The stock price could witness selling pressure if the company fails to maintain strong growth in rating business. Competition in this segment is increasing which could impact the company' rating revenues in future. However, given S&P's strong support, the company could expand its revenue base in future through international assignments, leveraging its analytical ability.



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