Accumulate ICRA; target of Rs 1100: Emkay

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Accumulate ICRA; target of Rs 1100: Emkay

Emkay Global Financial Services is bullish on ICRA and has recommended accumulate rating on the stock with a target of Rs 1100 in its February 07, 2012 research report.

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Emkay Global Financial Services is bullish on ICRA and has recommended accumulate rating on the stock with a target of Rs 1100 in its February 07, 2012 research report.

"ICRA Q3FY12 revenues at Rs542mn (up 15% yoy and 5% qoq) were significantly ahead of our estimates of Rs497mn. Growth in rating services continues to remain impressive with Q3 revenues at Rs369mn up 23% yoy and 5% qoq and constituting 68% of total revenues. In our recent interaction, the management has guided for healthy traction in bond ratings. Revenue from other segments continues to remain mixed: Consulting services Rs63mn (-7% yoy), KPO/BPO services at Rs4.4mn (+4% yoy) and Professional services at Rs6.5mn (+7% yoy)."

"EBIDTA margins at 39% expanded 170bps qoq and was aided by lower other expenses. Other expenses at Rs50mn were down 31% yoy and 12% qoq. On the other hand, employee cost continues to run higher at Rs238mn up 21% yoy and 4% qoq. Even on YTD basis, employee cost at Rs676mn (up 15% yoy) constituted 47% of total revenues against 43% in M9FY11. Q3FY12 net profit at Rs170mn (up 29% yoy and 36% qoq) was ahead of our estimates of Rs112mn. Even adjusted for for ESOP expenses of Rs24mn and reversal / provision of investment depreciation of Rs6mn / Rs14mn each, adjusted net profit at Rs169mn was up 29% yoy and 35% qoq."

"During Q2, in the back drop of intense competition and sluggish debt issuance including poor non-food credit growth, we had raised concerns over ICRA's revenue model given higher dependence on rating business (68% of total revenues). This concerns, however, where clearly shrugged off in Q3FY12 results, with strong traction in rating business (68% of total revenues) with healthy Rs191mn of EBIT and 52% of EBIDTA margins. In our recent interaction, management has clearly guided for uptick in business volumes. We have thereby raised our FY12/FY13 EPS estimates by 25%/ 14% each. At CMP the stock trades at 16.7x/ 14.6x FY12E/13E EPS of Rs56.6and Rs64.7. Upgrade to ACCUMULATE with price target of Rs1,100," says Emkay Global Financial Services research report.    

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To read the full report click on the attachment