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Sanjiv Shankaran

POWERED by buoyancy in its core business of credit rating, Crisil registered a marked growth in income and earnings in the first nine months (April-December) of this financial year. The net profit for the nine months was Rs 10.60 crore.

A softening trend in interest rates has triggered a good run in the debt market. Consequently, Crisil's core business of credit-rating corporate debt has seen increased demand this financial year. To add to the benign environment, Crisil also claims to have improved the market share in the last quarter (September-December).

Strong revenue growth

Crisil's operating income rose Rs 11.28 crore (35.70 per cent) to Rs 42.87 crore in the first nine months. The `other income' was Rs 1.46 crore, up 34 per cent over the corresponding previous period and the total income Rs 44.33 crore.

The most significant expense for Crisil was the outgo towards staff, at Rs 10.42 crore for the first nine months. Expenses, excluding depreciation and tax provision, came to Rs 22.71 crore, up 19 per cent.

Unlike most financial intermediaries, Crisil does not incur interest expense as it does not lend money.

The company's revenue is derived out of rating, advisory and information-related services.

Crisil's operating profit in the first three quarters was Rs 21.62 crore, up Rs 4.94 crore (29.61 per cent) over the corresponding previous period. Profitability from operations was 48.77 per cent of turnover.

Crisil's net profit in the first nine months was Rs 10.60 crore, up Rs 1.6 crore (17.77 per cent) over the corresponding previous period. The net profit margin was about 24 per cent of turnover. The earnings per share (EPS) showed a healthy 18 per cent rise to Rs 17.10.

Outlook

Crisil's future looks good. While the external environment has deteriorated in most industries, credit-rating agencies have seldom had it better on the heels of a determined effort by the central bank to nudge the general level of interest rates lower.

A low interest rate level in the backdrop of a marked lack of enthusiasm in the equity market has made debt financing the preferred option.

The current situation is likely to continue in the foreseeable future because the central bank has made it clear that it would work towards a low interest regime.

Consequently, Crisil has the good fortune of operating in a benign environment that is likely to remain that way for a while. A couple of new credit rating agencies have commenced operations in the recent past, but Crisil's competitive position appears intact.

The revenue from rating has been supplemented by that from advisory services and information vending.

Currently, about 72 per cent of the revenue comes from rating, and the balance from other businesses. While rating will remain the core business in the near future, a notable proportion of revenue from other segments imparts stability to Crisil's revenue stream. Crisil's share price was Rs 151 as on January 4. Over the last five months, the share price notched almost 50 per cent return, but despite the recent rally, Crisil remains a good long-term investment.

The stability of the business and its high level of profitability make it a good investment candidate for those who cannot monitor constantly their investment.

Therefore, investors may consider taking an exposure to Crisil because the returns from the current level are likely to be good over the next couple of years.

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