Document 373416

CRISIL LIMITED
Result Update (Consolidated): Q3 CY14
BUY
CMP
1822.95
Target Price
2078.00
October 22nd 2014
ISIN: INE007A01025
Index Details
SYNOPSIS
Stock Data
Sector
BSE Code
Face Value
52wk. High / Low (Rs.)
Volume (2wk. Avg.)
Market Cap (Rs. in mn.)
Financial Services
500092
1.00
2258.00/1010.00
3092
128882.57
Annual Estimated Results (A*: Actual / E*: Estimated)
YEARS
Net Sales
EBITDA
Net Profit
EPS
P/E
CY13A
CY14E
CY15E
11123.40
3971.90
2978.20
42.12
43.28
12602.11
4189.12
2752.45
38.93
46.82
14114.37
4577.18
3019.71
42.71
42.68
Shareholding Pattern (%)
CRISIL is India’s leading ratings agency and it is a
global analytical company providing ratings,
research and risk & policy advisory services.
The company has posted a growth in consolidated
net sales of 9.47% y-o-y to Rs. 3135.20 million in 3rd
quarter of Calendar year from Rs. 2864.00 million in
corresponding previous year period.
Net profit Stood at Rs. 711.10 million, marginally
lower compared to Rs. 1168.10 million in the
corresponding quarter ending of previous year, a
decrease of 39.12% y-o-y due to adverse foreign
exchange movement.
During the quarter, operating profit is Rs. 1068.50
million as against Rs. 1114.00 million in the
corresponding period of the previous year.
The Global Research and Analytics (GR & A)
business grew strongly during the quarter with new
clients additions in the areas of model validation,
stress testing’s and financial research.
The Company has declared an interim dividend of
Rs. 4.00/- per share on face value of Rs.1.00/- each
for the financial year December 31, 2014.
1 Year Comparative Graph
For the Nine months ended Sept 30, 2014,
consolidated Net sales grew by 14.98% to Rs.
9278.80 million against Rs. 8072.40 million for the
nine month ended of Sept of the previous year.
CRISIL LTD.
BSE SENSEX
Net Sales and PAT of the company are expected to
grow at a CAGR of 13% & 11% over 2012 to 2015E
respectively.
PEER GROUPS
CMP
MARKET CAP
EPS
P/E (X)
P/BV(X)
DIVIDEND
Company Name
(Rs.)
1822.95
1360.00
296.00
767.80
Rs. in mn.
128882.57
39380.80
24570.10
39156.50
(Rs.)
42.12
15.16
6.20
22.75
Ratio
43.28
30.07
47.74
33.75
Ratio
19.11
8.13
2.16
2.98
(%)
1900.00
280.00
20.00
100.00
CRISIL Ltd.
Credit Analysis and Research Ltd.
Capital First Ltd.
Multi Commodity Exchange of India Ltd.
Analysis & Recommendation - ‘BUY’
For the 3rdquarter of Calendar year 2014, CRISIL Ltd posted a 9.47% growth in consolidated net sales to Rs.
3135.20 million from Rs. 2864.00 million in corresponding previous year period. Net profit Stood at Rs. 711.10
million, marginally lower compared to Rs. 1168.10 million in the corresponding quarter ending of previous year,
a decrease of 39.12% y-o-y due to adverse foreign exchange movement. Operating profit is Rs. 1068.50 million as
against Rs. 1114.00 million in the corresponding period of the previous year. During the quarter, within Ratings,
Bank Loan Ratings witnessed good growth. Capital market activity was muted. Business environment is
improving with initial signs of an uptick in investments demand. The Global Research and Analytics (GR & A)
business grew strongly during the quarter with new clients additions in the areas of model validation, stress
testing’s and financial research.
For the Nine months ended Sept 30, 2014, consolidated Net sales grew by 14.98% to Rs. 9278.80 million and net
profit was Rs. 1976.50 million as against Rs. 8072.40 million and Rs. 2269.00 million respectively for the nine
month ended of Sept of the previous year, driven by strong growth in financial Research (GR&A), Risk and
Analytics (GR&A), coalition and Bank Loan Ratings.
The overall operating environment both in India and globally was challenging. However the global industry
continues to remain stressed with renew focus on cost management and recovery of industry. The investments
slowdown and volatile Capital markets have impacted the India research business. The company continues to
closely engage with its customers to provide added value. The overall operating environment both in India and
globally was challenging. Both the infrastructure advisory and risk solutions businesses won their largest-ever
mandates in India and abroad. Hence, we expect the company to post a CAGR of 13% and 11% in its top-line and
bottom-line respectively, over 2012-2015E. Hence, we recommend ‘BUY’ for ‘CRISIL LIMITED’ with a target
price of Rs. 2078.00 on the stock.
QUARTERLY HIGHLIGHTS (CONSOLIDATED)
Results updates- Q3 CY14
Months
SEP-14
SEP-13
% Change
Net Sales
3135.20
2864.00
9.47
PAT
711.10
1168.10
(39.12)
EPS
10.02
16.64
(39.81)
1068.50
1114.00
(4.08)
EBITDA
CRISIL Ltd. achieved Net sales of Rs. 3135.20 million for Q3 CY14 as against Rs. 2864.00 million in the
corresponding quarter of the previous year. The company has reported an EBITDA of Rs. 1068.50 million, a
decrease by 4.08% against Rs. 1114.00 million over prior period of last year. In Q3 CY14, Net profit stood at Rs.
711.10 million compared to Rs. 1168.10 million in Q3 CY13. The company has reported an EPS of Rs. 10.02 for
the 3rd quarter of CY14 as against an EPS of Rs. 16.64 in the corresponding quarter of the previous year.
Break up of Expenditure
During the quarter, Total Expenditure rose by 14 per cent mainly on account of increase in Travel Expenses by
21%, Professional fees 24%, other expenses by 15%, Associates services Fees and Staff Expenses by 27% & 17%
respectively are the main attribute for growth of expenditure. Total expenditure in Q3 CY14 was at Rs.2300.30
million as against Rs.2019.90 million in Q3 CY13.
Rs. Millions
Break up of Expenditure
Q3 CY14 Q3 CY13
Staff Expenses
1502.80
1279.30
Rent Expense
117.00
116.60
Establishment Expense
103.70
108.60
Professional Fees
156.20
126.10
Travel Expenses
102.80
85.30
Associate Services Fees
95.90
75.60
Other Expenses
131.00
114.10
Depreciation/Amortisation
90.90
114.30
Operating Revenue Segment
COMPANY PROFILE
CRISIL India’s leading rating agency and pioneered the concept of credit ratings in the country in 1987
headquartered in Mumbai, Maharashtra, India. The offices of the company have its global presence in New York,
Argentina, Singapore, Poland, London and China.
The company play’s a key role in India's fixed income markets and it is India's largest provider of valuations of
fixed income securities, serving the mutual fund, insurance, and banking industries. CRISIL is the sole provider of
debt and hybrid indices to India's mutual fund and life insurance industries. The company Pioneered
independent equity research in India and are today India's largest independent equity research house.
CRISIL (Credit Rating Information Services of India Limited) is a global analytical company providing ratings,
research, and risk and policy advisory services. The company is the foremost provider of high-end research to
the world's largest banks and leading corporations. Within India its customers range from small enterprises to
the largest corporations and financial institutions; outside India its customers include the world’s largest banks
and leading corporations. It also works with governments and policy-makers in India and other emerging
markets in the infrastructure domain. The company’s majority shareholder is Standard & Poor's (S&P). Standard
& Poor's, a part of McGraw Hill Financial Inc. is the world's foremost provider of credit ratings. The acquisition of
Coalition Development Limited in July 2012 gave CRISIL access to proprietary global research and a premium
brand. And the launch of ‘Pragati’, a financial awareness initiative targeted at India’s unbanked poor, illustrates
the continued innovation that characterises the CRISIL spirit.
CRISIL Research, India’s largest independent and integrated research house, estimates that online retailing -both direct and through marketplaces will become a Rs 500 billion industry by 2016, growing at a whopping 5055% annually over the next three years.
Businesses
Ratings
Bond Ratings
Bank Loan Ratings
SME Ratings
Real Estate Star Ratings
Global Research & Analytics: (Irevna, Pipal Research)
Equity Research
Credit Research
Risk & Analytics
Research
INDIA RESEARCH
Economy & Industry Research
Funds & Fixed Income Research
Equity & Company Research
CRISIL Risk and Infrastructure Solutions (CRIS), a wholly owned subsidiary of CRISIL Ltd.
FINANCIAL HIGHLIGHT (CONSOLIDATED)
(A*- Actual, E* -Estimations & Rs. In Millions)
Balance Sheet as at DECEMBER 31, 2012A -2015E
I.
CY12A
CY13A
CY14E
CY15E
70.20
70.70
70.70
70.70
b) Reserves and Surplus
5219.50
6674.30
8409.62
10007.45
Sub Total-Net worth
5289.70
6745.00
8480.32
10078.15
a) Trade Payables
165.10
157.30
151.01
146.48
b) Other Long Term Liabilities
14.40
23.10
45.74
60.37
179.50
180.40
196.75
206.85
a) Trade Payables
1135.30
1122.20
1144.64
1121.75
b) Other Current Liabilities
2503.00
2037.60
1996.85
1916.97
c) Short Term Provisions
723.00
1380.80
1491.26
1938.64
4361.30
4540.60
4632.76
4977.37
9830.50
11466.00
13309.82
15262.37
1517.50
1342.20
1395.89
1465.68
0.00
0.00
17.20
21.33
c) Goodwill on consolidation (net)
3150.30
3150.30
3150.30
3150.30
d) Deferred tax assets
174.80
228.60
278.89
331.88
e) Other non-current assets
47.40
89.90
109.68
128.32
f)
66.40
56.30
53.49
58.83
456.10
480.60
571.91
629.11
5412.50
5347.90
5577.36
5785.45
a) Current Investments
1084.30
2387.20
2486.01
2829.88
b) Trade Receivables
1172.30
1194.90
2019.38
2786.75
c) Cash and Bank Balances
1528.00
1899.50
1956.49
2132.57
d) Short Term Loans and Advances
247.20
210.80
231.88
252.75
e) Other Current Assets
386.20
425.70
1038.71
1474.97
4418.00
6118.10
7732.46
9476.92
9830.50
11466.00
13309.82
15262.37
EQUITY AND LIABILITIES:
A. Shareholders’ Funds:
a) Share Capital
B. Non-Current Liabilities:
Sub Total-Long term liabilities
C. Current Liabilities:
Sub Total-Current Liabilities
TOTAL EQUITY AND LIABILITIES (A+B+C)
II.
ASSETS:
D. Non-Current Assets:
a) Fixed Assets
b) Capital work-in-progress
Non Current Investments
g) Long Term Loans and Advances
Sub Total- Non-Current Assets
E.
Current Assets:
Sub Total- Current Assets
TOTAL ASSETS (D+E)
Annual Profit & Loss Statement for the period of 2012 to 2015E
Value(Rs.in.mn)
CY12A
CY13A
CY14E
CY15E
Description
Net Sales
12m
9793.10
12m
11123.40
12m
12602.11
12m
14114.37
Other Income
284.10
393.20
293.53
328.75
Total Income
10077.20
11516.60
12895.64
14443.12
Expenditure
-6597.10
-7544.70
-8706.52
-9865.94
Operating Profit
3480.10
3971.90
4189.12
4577.18
0.00
0.00
0.00
0.00
Gross profit
3480.10
3971.90
4189.12
4577.18
Depreciation
-343.20
-379.20
-343.94
-371.45
Exceptional Items
0.00
658.80
0.00
0.00
Profit Before Tax
3136.90
4251.50
3845.18
4205.72
Tax
-932.90
-1273.30
-1092.73
-1186.01
Net Profit
2204.00
2978.20
2752.45
3019.71
70.20
70.70
70.70
70.70
5219.50
6674.30
8409.62
10007.45
Face value
1.00
1.00
1.00
1.00
EPS
31.40
42.12
38.93
42.71
Interest
Equity capital
Reserves
Quarterly Profit & Loss Statement for the period of 31 MAR, 2014 to 31 DEC, 2014E
Value(Rs.in.mn)
31-Mar-14
30-Jun-14
30-Sep-14
31-Dec-14E
Description
3m
3m
3m
3m
3092.30
3051.30
3135.20
3323.31
Other income
28.90
30.60
142.70
91.33
Total Income
3121.20
3081.90
3277.90
3414.64
Expenditure
-2064.30
-2163.00
-2209.40
-2269.82
Operating profit
1056.90
918.90
1068.50
1144.82
0.00
0.00
0.00
0.00
Gross profit
1056.90
918.90
1068.50
1144.82
Depreciation
-87.10
-91.40
-90.90
-74.54
Profit Before Tax
969.80
827.50
977.60
1070.28
Tax
-282.70
-249.20
-266.50
-294.33
Net Profit
687.10
578.30
711.10
775.95
Equity capital
70.70
71.00
71.00
71
Face value
1.00
1.00
1.00
1.00
EPS
9.72
8.15
10.02
10.93
Net sales
Interest
Ratio Analysis
Particulars
Charts
CY12A
CY13A
CY14E
CY15E
EPS (Rs.)
31.40
42.12
38.93
42.71
EBITDA Margin (%)
35.54
35.71
33.24
32.43
PBT Margin (%)
32.03
38.22
30.51
29.80
PAT Margin (%)
22.51
26.77
21.84
21.39
P/E Ratio (x)
58.06
43.28
46.82
42.68
ROE (%)
41.67
44.15
32.46
29.96
ROCE (%)
72.28
64.51
53.45
49.10
EV/EBITDA (x)
36.02
31.37
29.71
27.07
Book Value (Rs.)
75.35
95.40
119.95
142.55
P/BV
24.19
19.11
15.20
12.79
OUTLOOK AND CONCLUSION
At the current market price of Rs.1822.95, the stock P/E ratio is at 46.82 x CY14E and 42.68 x CY15E
respectively.
Earning per share (EPS) of the company for the earnings for CY14E and CY15E is seen at Rs.38.93 and
Rs.42.71 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 13% and 11% over 2012 to 2015E
respectively.
On the basis of EV/EBITDA, the stock trades at 29.71 x for CY14E and 27.07 x for CY15E.
Price to Book Value of the stock is expected to be at 15.20 x and 12.79 x respectively for CY14E and CY15E.
We expect that the company surplus scenario is likely to continue for the next three years, will keep its
growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of
Rs. 2078.00 for Medium to Long term investment.
INDUSTRY OVERVIEW
India's services sector has always served the Indian economy well, accounting for nearly 57 per cent of the gross
domestic product (GDP). Here, the financial services segment has been a significant contributor. The financial
services sector in India is dominated by commercial banks which have more than 60 per cent share of the total
assets; other segments include mutual funds, insurance firms, non-banking institutions, cooperatives and
pension funds.
The Government of India has introduced reforms to liberalise, regulate and enhance the country's financial
services industry. Presently, the country can claim to be one of the world's most vibrant capital markets. In spite
of the challenges that are still there, the sector's future looks good.
Market size
The size of banking assets in India reached US$ 1.8 trillion in FY 13 and is projected to touch US$ 28.5 trillion by
FY 25. Information technology (IT) services, the largest spending segment of India's insurance industry at Rs
40000.00 mn (US$ 665.78 million) in 2014, is anticipated to continue enjoying strong growth at 16 per cent.
Category leaders are business process outsourcing (BPO) at 25 per cent and consulting at 21 per cent.
Investments
During FY 14, foreign institutional investors (FIIs) invested a net amount of about Rs 800000.00 mn (US$ 13.31
billion) in India's equity market, according to data by Securities and Exchange Board of India (SEBI).
Insurance companies in India will spend about Rs 121000.00 mn (US$ 2.01 billion) on IT products and services
in 2014, a 12 per cent increase over the previous year, according to Gartner Inc. The forecast includes spending
by insurers on segments such as internal IT (including personnel), telecommunications, hardware, software, and
external IT services. The Rs 12000.00 mn (US$ 202.47 million) software segment is predicted to be the fastest
growing external segment, with overall growth of 18 per cent in 2014.
The following are some of the key developments and investments in the Indian financial services sector:
•
About 75 per cent of the insurance policies sold by 2020 would be in one way or another influenced by digital
channels during the pre-purchase, purchase or renewal stages, according to a report by Boston Consulting
Group (BCG) and Google India. This report, [email protected] By 2020, predicts that insurance sales
from online channels will increase 20 times from present-day sales by 2020, and overall internet influenced
sales will reach Rs 3000000.00 mn -4000000.00 mn (US$ 49.9-66.54 billion).
•
Export-Import Bank of India (Exim Bank) will focus more on supporting project exports from India to South
Asia, Africa and Latin America, as per Chairman and MD, Exim Bank. The bank has moved up the value chain
by lending support to project exports so that India earns foreign exchange. In 2012-13, Exim Bank had
supported 85 project export contracts valued at Rs 242550.00 mn (US$ 4.03 billion) secured by 47
companies in 23 countries.
•
Private-sector lender IndusInd Bank will soon begin its asset reconstruction business. It plans to partner
asset reconstruction companies (ARCs) for this venture. New initiative, which is going to launch in the next
two months, is about asset reconstruction.
•
Association of Mutual Funds in India (AMFI) has reported that the mutual fund industry's assets under
management (AUM) have gone past the Rs 10 trillion (US$ 166.37 billion) mark in May, 2014. The AUM of the
Indian mutual fund industry rose to Rs 10.11 trillion (US$ 168.19 billion) in May from Rs 9.45 trillion (US$
157.21 billion) in April.
Government Initiatives
In an effort to enable banks to provide greater choice in insurance products through their branches, a
proposal could be made which will allow banks to act as corporate agents and tie up with multiple insurers. A
committee set up by the Finance Ministry of India is likely to suggest this model as an alternative to the
broking model.
The Reserve Bank of India (RBI) has simplified the rules for credit to exporters. Exporters can now receive
long-term advance credit from banks for up to 10 years to service their contracts. They have to have a
satisfactory record of three years to get payments from banks, who can adjust the payments against future
exports.
The RBI has enabled foreign investors, including foreign portfolio investors (FPIs) and non-resident Indians
(NRIs), to invest up to 26 per cent in insurance and related activities via the automatic route. "Effective from
February 4, 2014, foreign investment by way of FDI, investment by FIIs/FPIs and NRIs up to 26 per cent
under automatic route shall be permitted in insurance sector," as per the RBI.
Road Ahead
India is among the world's top 10 economies, driven by its strong banking and insurance sectors. The country is
expected to become the fifth largest banking sector in the world by 2020, as per a joint report by KPMG-CII. The
report anticipates bank credit to increase at a compound annual growth rate (CAGR) of 17 per cent in the
medium term which will lead to better credit penetration. Life Insurance Council, the industry body of life
insurers in India, has also estimated a CAGR of 12-15 per cent over the next few years for the segment.
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale
of any financial instrument or as an official confirmation of any transaction. The information contained herein is
from publicly available data or other sources believed to be reliable but do not represent that it is accurate or
complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall
not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the
information contained in this report. This document is provide for assistance only and is not intended to be and must
not alone be taken as the basis for an investment decision.
Firstcall India Equity Research: Email – [email protected]
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