Scrip Code: 500092 / CRISIL
CRISIL has assigned ratings to 31,000 SMEs
over last six years which it believes will gradually migrate over next few
years as Crisil’s bank loan rating and bond rating customers. Within Crisil’s
research business, despite having weak financial conditions globally, IREVNA
and Pipal have added significant number of customers over last 6-9 months. Over
and above that, merger of CDL will result in further inorganic client additions
into the kitty. It is believed that significant addition of clients in research
(organically and inorganically through acquisition of coalition) will reflect
in research revenues in H1CY13. The pace of growth for CRISIL in research has
cooled off from high of 44 % in CY11 to 24 % in Q1CY12 and further to 10 % YoY
in Q2CY12. The management has attributed lower growth in research due to the
slowdown in domestic price. Moreover with a significant number of new clients
addition in Coalition Development Ltd, which was acquired last quarter, will
further give traction to the research revenues. CRISIL’s staff costs have gone
up by 11% for H1CY12 while other operating expenses have remained flat. While operating
expenses remained flat reflecting CRISIL’s ability to keep the costs under
check, it is believed that the rise in staff costs reflects further strong
additions to employee base. CRISIL has hedged almost 55 % of its revenues as
against 40 % in CY10. Of the USD revenues, approximately 70 % of the revenues
are hedged against 51 % in the previous year. The hedging of the revenues has capped
the revenue as well as EBIDTA expansion despite INR depreciating significantly
vis-à-vis USD as well as GBP. It is
expected that Crisil could have earnings cut by 16 % to 17 % for CY12/13E
taking into the account the disappointing Q2CY12 numbers. However, CRISIL has
gradually put building blocks for strong growth in revenues and profitability
in its key businesses. CRISIL could be bought at a target price of Rs. 1000 and
should be accumulated at every dip. In my view
CRISIL could report FY13E EPS of Rs. 41.30/sh. The
stock could be bought for the target price of Rs. 1250 and
recommend Accumulate on the stock.
I would buy CRISIL LTD with a price target of Rs. 1000 for the short term and Rs. 1250 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 844.00 on every purchase.
CMP: Rs. 917.45; Buy at
current levels.
Short term Target – Rs. 1000; Medium to Long term Target - Rs.1250; STOP LOSS – Rs. 844.00; Market Cap: Rs. 6,437.59 Cr; 52 Week High/Low: Rs. 1,150.30 / Rs. 731.75
Short term Target – Rs. 1000; Medium to Long term Target - Rs.1250; STOP LOSS – Rs. 844.00; Market Cap: Rs. 6,437.59 Cr; 52 Week High/Low: Rs. 1,150.30 / Rs. 731.75
Total Shares: 7,01,68,390 shares;
Promoters : 3,72,09,480 shares –53.03 %; Total Public holding : 3,29,58,910
shares – 46.97 %; Book Value: Rs. 52.05; Face
Value: Rs. 1.00; EPS: Rs. 28.30; Div: 1100 % ; P/E: 32.41 times; Ind P/E: 26.67;
EV/EBITDA: 24.04.
Total Debt: ZERO ; Enterprise Value: Rs. 6,205.73 Cr.
CRISIL LTD: The Company was founded in 1987 and is
headquartered in Mumbai, India. CRISIL Limited operates as a subsidiary of Standard & Poor's LLC. It was
formerly known as The Credit Rating Information Services of India Limited and
changed its name to CRISIL Limited in December 2003. CRISIL Limited, together
with its subsidiaries, provides ratings, research, and risk and policy advisory
services primarily in India, the United Kingdom, and the United States. It
offers services for a range of debt instruments, in the areas of credit
ratings; research on India's economy, industries, and companies; financial
research and analytics outsourcing; fund services; risk management; and
infrastructure advisory services. The company provides research and analytics
services to commercial and investment banks, insurance companies, corporations,
consulting firms, private equity players, and asset management firms. It offers
ratings for long-term instruments, such as debentures/bonds and preference
shares, fixed deposits, and loans, as well as pass through certificates and
structured finance instruments; and short-term instruments comprising
commercial papers, certificates of deposits, and short-term debts. The company
also provides equity and corporate research, industry reports, customized
research assignments, subscription to data services, and initial public offer
grading services. In addition, it offers fund research, rankings, and ratings
to mutual funds industry; infrastructure advisory services in the renewable
energy, transportation and logistics, oil and gas, and minerals sectors; and
risk management services to banks, financial institutions, and corporations.
The company has a joint venture with the National Stock Exchange of India
Limited to provide various indices and index-related services and products to
the capital markets. CRISIL is compared with Nice Information Services Co. Ltd, Korea Ratings Corporation and Koryo Credit Information all of these are from South Korea.
Investment Rationale:
CRISIL’s rating businesses like outsourcing
from S&P and SME rating have done well during the quarter and helped it to
post 7 % growth in the overall rating business. However, with margins in those
businesses are at fairly lower level than the bond/bank loan rating business,
the growth in revenues in these businesses hasn’t helped the margins with
rating business margins declining by 3.30 % YoY. While the debt market activity
has been lackluster for quite some time, it slowed down considerably in the
last quarter with fresh debt issuances falling to Rs. 48,320 Cr as against Rs. 1.1
trillion in Q4FY12. Rating revenues grew by just 7.2 % YoY (-3.2 % QoQ) to Rs. 90.7
Cr, lowest in more than five years. With no new projects coming up & with
given poor investment climate, the debt issuance as well as credit demand are
likely to remain low over the next couple of quarters, thereby keeping the
ratings revenue under pressure. CRISIL Q2CY12 results were significantly below
expectation with operating revenue growing by just 6.5 % YoY (-2.6 % QoQ) to Rs.
220 Cr. The sluggish growth was led by slowdown in all the three segments like
Rating, Research and advisory with major disappointment coming from research
business which grew by just 10.2 % YoY, lowest since Q3CY09. The other segments
rating and advisory also reported dismal numbers with rating growing by just
7.2 % YoY and advisory revenue declining by 21.6 % YoY. The management has
attributed the lower growth in research to slowdown in domestic piece which has
reported negative growth. Domestic piece which is mainly CRISINFAC broadly
constitute 18-20 % of the total research revenues
Outlook and Valuation:
CRISIL House - the 2,11,610 sq.ft Corporate Head Office Powai, Mumbai |
KEY FINANCIALS | FY10 | FY11 | FY12 | FY13E |
---|---|---|---|---|
SALES (Rs. Crs) | 628.40 | 807.00 | 1018.30 | 1,273.30 |
NET PROFIT (Rs. Crs) | 164.50 | 187.70 | 226.10 | 289.00 |
EPS (Rs.) | 23.20 | 26.80 | 32.30 | 41.30 |
PE (x) | 37.10 | 32.10 | 26.70 | 20.90 |
P/BV (x) | 19.60 | 18.20 | 13.00 | 9.60 |
EV/EBITDA (x) | 27.40 | 22.30 | 18.30 | 13.50 |
ROE (%) | 48.60 | 58.40 | 57.00 | 52.90 |
ROCE (%) | 64.70 | 81.40 | 82.50 | 76.60 |
I would buy CRISIL LTD with a price target of Rs. 1000 for the short term and Rs. 1250 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 844.00 on every purchase.
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Hi bhavik, Every thing was fine in your report, How could you fix the target price as 1000, on what basis you fixed, based on last quarter results? or did some simulation?
ReplyDeleteBut based on your FY13E ROC , P/E, EPS estimates it could be below 1000!!