INSUBCONTINENT EXCLUSIVE:
Centrum Broking has a buy call on Crisil with a target price of Rs 1,980.
The current market price of Crisil is Rs 1,596.55.
Time period
given by the brokerage is one year when Crisil price can reach the defined target
Investment rationale by the brokerageRating business- growth rates set to accelerate: The modest growth in rating revenues for the last
7-quarters could well be attributed to a) the sharp decline in new bond issuances b) pricing war in bank loan rating market (even as volumes
have been on rise) and c) material reduction in NSIC-linked SME subsidy business
According to management, each of above aspects are set to reverse
SEBI framework on large corporate borrowing starting April 2019 will see rise in bond issuances; the improved loan growth and delay in
implementation of internal rating based (IRB) approach augurs well for BLR volumes
CRISIL has restructured its SME vertical that is aimed at use of digital and wholesale nature of rating model
We see rating revenue accelerate and are factoring in 8 per cent CAGR in revenue over CY18-CY20E (vs 3 per cent CAGR over CY16-18E)
Outsourcing business (nearly 10 per cent of total revenue) grew 5 per centYoY in CY17
The recent past has seen rating margins improve and follows initiative aimed at centralisation of core capabilities through automation and
tools that aid in better productivity
We see trend therein to continue in ensuing quarters.
Research segment- strong traction in Coalition continues; initiatives underway at
scaling global research: Coalition (19 per cent of total revenue; witnessed 17 per cent CAGR over CY13-17) is engaged in the business of
providing client-competitive and country analytics to global CIB players
Management has hinted at extending the scope of research and data analytics to insurance, wealth management and AMC players and also
clientele in non-CIB segment
The global research and risk analytics segment includes product offering to investment banking division, sell-side research and research on
equity, credit and fixed income
The implementation of MiFID II (CY18 was the year of reckoning) saw growth rates moderate
The pace of new clientele integration albeit slow, is gaining traction evident in rising share of buy-side clientele (15 per cent)
India research includes macro analysis, company/sector research, input for businesses, valuation and DHRP related work
Management has indicated for continued traction in Coalition and India business; growth in global research is expected to remain low in the
We are factoring in 9 per cent CAGR in research revenue over CY18-CY20E.
Infrastructure advisory and risk solution (6 per cent of total
revenue) is broadly in nature of a) advisory for multi-lateral/state or central government entities and b) risk solution through Pragmatix
(recently acquired) that is engaged in data analytics for banks, AMC and wealth managers, both India and globally
Infrastructure advisory is more from creating long time framework
The risk solution division, Pragmatix complements CRISIL data analytics division and has levers in place for strong growth.
Valuation and
view: The recent past has seen valuation multiples for the CRA space correct and follows revenue growth slowdown and the delay in rating
A study of some of the riskier names (few NCLT cases/NBFC downgrade) indicate that CRISIL had no exposure (i.e
never rated these institutions) or was quick to revise its ratings given its ability to foresee the risks
This, in turn will also aid in improved revenue growth
Our estimates build in 10 per cent CAGR in revenue/PAT each over CY18-20E (vs
6 per cent/7 per cent CAGR in revenue/PAT over CY16-18E)
Retain BUY with a target price at Rs 1,980 (valued at 35x CY20E EPS)
Key risks: slower than expected revenue growth; margin pressures.
