Buy CRISIL; target of Rs 1240: Emkay

Emkay Global Financial Services is bullish on CRISIL and has recommended buy rating on the stock with a target of Rs 1240 in its April 16, 2012 research report.

“CRISIL Q1CY12 reported revenue at Rs2.3bn (up 30.7% yoy and 4.2% qoq) was slightly ahead of our expectation. A Large part of the growth was led by higher rating revenue at Rs1bn (40.1%yoy) as there was one time income of Rs73mn included in rating revenues, pertaining to previous year on account of price renegotiation with retrospective effect. Adjusted for the same the revenue growth came in at 26.6% to Rs2.27bn, inline with our expectation. Research revenue adjusted for Fx grew by strong 7-8% qoq in line with our expectations.”

“Rating revenues reported robust growth during the quarter aided by strong growth in BLR and ratings of securitization transactions. Higher PSL requirement in FY12 due to higher credit growth in FY11 (22%), led to substantial rise in securtisation transactions during the quarter. Moreover increase in debt issuances (43%yoy in Q1CY12) also supported growth in rating revenues. Going forward in the same quarter next year, we believe the growth may not remain as high since with slower non-food credit growth this year, the requirement of PSL and securitization may remain low. The operating profit (adjusted for one time income of Rs73mn and forex loss of Rs28.3mn) at Rs773mn was slightly ahead of expectations led by improvement in EBIDTA margins. Strong rating revenue growth coupled with 2.3% decline in establishment expenses led to 279bps improvement in EBIDTA margins to 34.8%. Resultantly adj. net profit grew by 17.4%yoy to Rs525mn.”

“Hence, we still do not find the valuations expensive looking at strong operating cash flows and willingness of the company to share the same with minority shareholders. With recent sharp run up in the stock price, we rate the stock as ACCUMULATE with TP of Rs1,240 valuing it at 30x CY13E core EPS of Rs39 plus cash per share of Rs70/share. We have also assumed total dividends of Rs30/share over next two years,” says Emkay Global Financial Services research report.  

Institutional holding more than 40% in Indian cos

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