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ICRA: Healthy quarter - Views on News from Equitymaster
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ICRA: Healthy quarter
Aug 7, 2013

ICRA declared its results for the first quarter of the financial year 2013-14 (FY14). The institution has reported a 16.0% YoY growth in revenues while net profits have grown by whopping 87.9% YoY during 1QFY14. Here is our analysis of the results.

Performance summary
  • Total revenue grows strong 16.0%% YoY in 1QFY14 on the back of growth in debt ratings and bank loan ratings coupled with NSIC/SME business ratings.
  • The operating profit margin moves up to 30.4% in 1QFY14 from 25.7% in 1QFY13.
  • Other income increases by whopping 114.8% YoY in 1QFY14.
  • Consequently, net profit grows by strong 87.9% YoY for 1QFY14
  • The net profit margins at 47.3% for 1QFY14 improved from 29.2% in 1QFY13.

Standalone financial performance
(Rs m) 1QFY13 1QFY14 Change
Total revenue 277 321 16.0%
Expenditure 206 224 8.6%
Operating profit (EBIDTA) 71 98 37.4%
Operating profit margin (%) 25.7% 30.4%  
Other income 43 93 114.8%
Interest  - -  
Depreciation 5 5 11.2%
Profit before tax 109 185 69.2%
Tax 28 33 16.2%
Extraordinary items** - -  
Profit after tax/ (loss) 81 152 87.9%
Net profit margin (%) 29.2% 47.3%  
No. of shares (m)   10.0  
Diluted earnings per share (Rs)*   60.8  
P/E ratio (x)   13.8  
* on a trailing 12 months basis

What has driven performance in 1QFY14?
  • The total revenue for the first quarter of this fiscal recorded healthy growth at 16% YoY. This was primarily driven by good traction in debt and bank loan ratings coupled with healthy growth in NSIC/SME business ratings for the quarter. Structured finance ratings and public finance ratings, however, remained subdued during 1QFY14.

  • With strong 37.4% YoY growth in operating margins supported by healthy revenue traction, the percentage operating profit margins improved to 30.4% during the first quarter from 25.7% same quarter previous year. The expenditure remained under control and increased by mere 8.6% during the quarter.

  • The company reported sturdy growth of almost 114.8% YoY for the 1QFY14 that drove the profits for ICRA to higher levels.

  • Therefore, strong revenue performance and healthy other income led to exceptional increase in profitability for the company that recorded as high as 87.9% growth during the first quarter of this fiscal. However, excluding the amortization of deferred employees compensation, the company profits would have observed 69% YoY growth during 1QFY14. Nonetheless, the profitability for the company stands stronger despite the subdued market conditions.
What to expect?
At the current price of Rs 1119, the stock is trading at 13.8 times our estimated FY15 adjusted earnings per share.

ICRA's revenue mix is highly contingent upon macro-0economic factors. While last quarter the company witnessed subdued performance on account of sluggish markets, the first quarter of this fiscal proved to be quite encouraging. 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, regulatory hurdles and intense competition particularly in the bank loan ratings domain remain. 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. And hence we would closely watch the company's performance in this arena.

That said, the business growth prospects continue to remain buoyant for the company given the increased investments in small scale business rating and the revival in industry and anticipated pick-up in interest in the securitization market, which remained flattish for quite some time now.

Strong market position, potential growth prospects and rich parentage (of Moody's) reinforces our belief in the company's growth potential and we expect ICRA to mop up its revenue base and report healthy returns. Hence, we recommend investors to BUY the stock at current valuations.

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