CRISIL

Bank loan rating, customised research products and growing international advisory business has benefited Crisil. Tightening international liquidity acts as a windfall gain

CRISIL is the market leader in research, rating and advisory businesses. It has posted impressive results for 2008 (it follows Jan-Dec FY). Its performance got a fillip from the Reserve Bank of India (RBI) too, because as per one of its directive, companies borrowing more than Rs 10 crore from the banks have to be rated. Investors can consider an exposure in the stock for the long term.

BUSINESS:

Crisil’s business can be broadly divided in three segments:

• Research,
• Rating and
• Advisory.

Crisil Research provides products related to research on several industries. The last few years witnessed a large number of new entrants in different industries thus boosting the company’s research business.

It has also tapped the market of outsourced research through its subsidiary, Irevna, which provides support to financial institutions worldwide. Crisil Rating is the largest agency in its business in India. It rates a wide spectrum of organisations, like insurance companies, mutual funds, state government, urban bodies, small and medium enterprises (SME) and non banking financial companies (NBFC).

Crisil Risk and Infrastructure Solutions take care of the advisory part of the business. It acts as an advisor to various agencies on policy, infrastructure and energy. The financial institutions have realised the importance of adequate measures to ascertain and manage risk. Crisil has tried to tap this market by providing risk solutions in the form of risk management services, consulting and software products.

Crisil is the market leader in its business segments. Its market share in bank loan rating is 50%, while its share in other bonds stands at 65%-70%. Even in research space, it is the biggest player as it offers reports across wide spectrum of industries. The sector expertise and the subject knowledge help it in factoring a premium in pricing.


FINANCIALS:

For the year ending December 2008, Crisil’s total income increased 30.5%, while profit after tax grew by 68% over last year. Another interesting trend was that the manufacturing companies are again using bond ratings to raise finance through debt. This is because the liquidity in the international market has been squeezed making the route of external commercial borrowings and foreign currency convertible bond extremely tough.

Corporate India did not do all that well in 2008, however, the performance of Crisil’s research business was unfazed. This is because the company has a large base of subscription-based products. Moreover, it released timely reports on current issues like the impact of global meltdown in India. Similarly, advisory business also continued to do well. Despite rising government deficit, the company’s domestic advisory business was not affected as most of the projects are in urban areas, where the funds are committed for long term. The company has seen growing proportion of international business and projects with agencies like Asian Development Bank.

In the short run, the company is expected to face headwinds in the form of lesser outsourced business for Irevna due to global financial crisis. Moreover, the retail loan market is witnessing slowdown thereby impacting the securitisation, which in turn has affected the structured finance business. However, in the long term the outsourced research part of business is expected to do well especially after the dust settles down around the ownership of financial institutions worldwide.

VALUATION:

The stock is trading at a price to earning multiple of 12.1 times. The earning growth has been much higher than the valuation. This shows that the stock is available at attractive valuations. Moreover, its nearest competitor ICRA is trading at a P/E of 13.1 times. Crisil’s stock is available at lower valuation despite of being the market leader in the industry, which further shows that the market is not factoring the fundamentals entirely into the price.