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ICRA: Good start to the fiscal - Views on News from Equitymaster
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ICRA: Good start to the fiscal
Jul 9, 2014

ICRA declared its results for the first quarter of the financial year 2014-15 (FY15). The institution has reported a 16.7% YoY growth in revenues while net profits have grown by whopping 31.5% YoY during 1QFY15. Here is our analysis of the results.

Performance summary
  • Total revenue grows strong 16.7% YoY in 1QFY15 on the back of growth in debt and bank loan ratings. The business ratings also reported a healthy performance.
  • The operating profit margin moves up to 25.0% in 1QFY15 from 19.9% in 1QFY14.
  • Other income increases by 18.4% YoY in 1QFY15 on account of investment gains.
  • Consequently, net profit grows by strong 31.5% YoY for 1QFY15.
  • The net profit margins at 32.0% for 1QFY15 improved from 28.4% in 1QFY14.


Consolidated Financial Performance Snapshot
(Rs m) 1QFY14 1QFY15 Change
Total revenue 584 682 16.7%
Expenditure 468 512 9.3%
Operating profit (EBIDTA) 116 170 46.5%
Operating profit margin (%) 19.9% 25.0%  
Other income 108 128 18.4%
Interest  - (5)  
Depreciation 11 18 61.8%
Profit before tax 213 275 29.2%
Tax 46 56 23.0%
Extraordinary items** - -  
Profit after tax/ (loss) 167 218 30.9%
Minority Interest 1 0  
Net profits 166 218 31.5%
Net profit margin (%) 28.4% 32.0%  
No. of shares (m)   10.0  
Diluted earnings per share (Rs)*   77.6  
P/E ratio (x)   38.1  
* on a trailing 12 months basis
What has driven performance in 1QFY15?
  • The total revenue for the first quarter of this fiscal recorded healthy growth at 16.7% YoY. This was primarily driven by good traction in debt ratings and bank loan ratings. Structured finance ratings, public finance ratings and NSIC/SME business ratings have also grown during the first quarter of FY15.

  • With strong 46.5% YoY growth in operating profits supported by healthy revenue traction, the percentage operating profit margins improved to 25.0% during the first quarter from 19.9% same quarter previous year. The expenditure remained under control and increased by mere 9.3% during the quarter.

  • The other income for the quarter has grown by 18.4% YoY largely on account of maturing of investments in fixed maturity plans.

  • With strong income performance and lower finance costs for the 1QFY15, the profits for ICRA moved to higher levels reporting 31.5% YoY growth.

  • Moreover, during the June quarter of 2014, the shareholding of the parent company Moody’s Corporation in ICRA Ltd has increased from 28.51% to 50.06%.
What to expect?
At the current price of Rs 2955, the stock is trading at 37.5 times our estimated FY16 adjusted earnings per share.

ICRA’s revenue mix is highly contingent upon macro-0economic factors. The first quarter of this fiscal proved to be quite encouraging driven by the hopes of revival with the change in guard at the centre. The debt ratings as well as bank loan ratings improved at a healthy pace. This combined with strong other income growth drove higher growth in earnings for ICRA.

However, certain challenges stand inevitable for ICRA due to the nature of its business; despite the economic revival. The company will have to cope up with intense competition from other rating agencies, reputation related risks, ability to retain and attract quality manpower, increasing share of small-ticket business and adverse change in regulations.

While the valuations of the stock remain above our comfort zone, we are in the process of reviewing the earnings estimates for the company. We recommend investors to not buy the stock at current levels.

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