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Jan 29, 2013, 10.24 AM IST | Source: CNBC-TV18

Going forward ICRA expects yields to compress in bond mkt

“Macro performance, debt markets and the big investments have been fairly flat, impacting the margins and the earnings of the company,” said Naresh Takkar, MD, ICRA in an interview to CNBC-TV18.

The main growth for us is likely to be primarily because of some revival in the macro particularly in the debt market issuance for which there are some visible signs

Naresh Takkar

MD

ICRA

Ratings firm ICRA announced its Q3 numbers recently with a profit after tax (PAT) of Rs 11.5 cr vs Rs 17.4 cr down 34 percent from a year ago period. "Macro performance, debt markets and the big investments have been fairly flat, impacting the margins and the earnings of the company," said Naresh Takkar, MD, ICRA in an interview to CNBC-TV18.

Takkar believes that going forward the yields should compress in the bond markets and that would facilitate some issuance and a pickup of interest in the securitisation market which was flattish for the first couple of quarters in this year may also lead to better margins.

Below is an edited transcript of Naresh Takkar's interview on CNBC-TV18

Q: Is there anything we should expect by any game changing improvement in earnings or margins in the year to come?

A: Game changing would be a strong word for a relatively mature business as we see in the Indian market because bank loan ratings have been fairly penetrated. So I would not say game changer but there is bit of seasonality, not so much on Q3. What is impacting our performance is the happenings in the macro and also the fact that the debt markets and the big ticket investments in the system have been fairly flat. As a result there is lack of issuance and the industry data has been flattish kind of issuance.

Recently, we have started seeing some activity in the debt markets primarily for refinancing not so much for funding the new investments. Going forward the yields should compress in the bond markets and that would facilitate some issuance

Q: What is your view on the margins of the company because though you all have maintained it sequentially; overall it is a bit of a worsening on a year on year basis. Compared to a couple of peers who have listed in the same space recently, you all tend to report lower margins as compared to them. What sort of cost pressures do you face and what is the trajectory that we can expect going forward?

A: As far as the cost pressures are concerned, if you look at the volume of activity in terms of the number of bank loan ratings which we do and that continues to expand quite significantly for us. Also the fact that those entities are getting smaller and there is significant price erosion because of the competition. So because of that the growth is not reflected in the top line.

However, on the cost side the cost of execution as well as our investments that we are making in scaling up our small scale business as well as research business is showing some pressure on the cost. But for quarter on quarter basis the cost increase has been quite moderate.

Q: What should we assume by margins and revenues for FY14?

A: We don’t give earnings or margins guidance, but as the macro unfolds we would expect some pickup in our research activity and that is what we are scaling up but it is unlikely to become significant in the short-term. Similarly we are investing in small scale business ratings, showing good results but is unlikely to become a game changer in the next one year or so.

The main growth for us is likely to be primarily because of some revival in the macro particularly in the debt market issuance for which there are some visible signs. Also we are seeing some pickup in interest in the securitisation market which was flattish for the first couple of quarters in this year.

READ MORE ON  ICRA, PAT, bond, securitisation, debt, FY14
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