The Hindu Business Line : Crisil: Buy

Crisil is into a number of businesses such as rating of debt instruments, infrastructure advisory, fund rating investment and risk management services, governance rating, information services and high-end business process outsourcing. Based on consolidated earnings for the 12-month period ended September 2005, the stock now trades at a price to earnings multiple of 28 times. This is based on earnings that include profits of Irevna - a recent acquisition - only for a four-month period.

If one factors in its likely contribution on an annual basis and the likely growth prospects for the portfolio of businesses owned by Crisil, the stock appears to be more attractively valued.

Crisil also holds a 12 per cent stake in NCDEX, a commodity derivatives exchange. This stake could prove valuable as evidenced by the market capitalisation of Financial Technologies, which holds a significant stake in another competing commodity exchange Multi Commodity Exchange of India. The core operations of Crisil are also beginning to experience considerable traction. Revenues of both rating and advisory services, which account for three-fourths of profits, are growing at a fast pace. The prospects for both rating and advisory services are also bright as the market for rating of bank loans has just about started in India. Other drivers of growth such as securitisation of loans, infrastructure development and growth of debt market are also at a nascent stage indicating considerable potential for earnings growth over the long-term.

Investments may, however, need to be held with a considerably long-term perspective. In the short-term, a volatile stock market, cyclical economic growth and changes in regulations may lead to fairly lengthy periods when earnings growth rates and stock price move in a narrow band.

Suresh Krishnamurthy

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