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Research
ICRA - Result Update - SPA Securities
Posted On : 2012-05-16 11:15:13( TIMEZONE : IST )
ICRA reported consolidated sales of INR 626mn (up 11.10% YoY) and PAT of INR 243mn (up 106.18% YoY) in Q4FY12. EBIDTA margins expanded by 475bps YoY to 38.25% on back of lower ESOPs amortization expenses compared to corresponding quarter last year. For the full year company reported slightly higher than expected consolidated sales of INR 2,075mn, a YoY growth of 7.48% while PAT grew by 12.29% to INR 540mn. EBIDTA margin at 30.15% was down by 387bps YoY due to front loaded higher ESOPs amortization expense and higher growth in employee cost.
Higher rating fees negated impact of lower volumes
ICRA reported YoY growth of 12.35% in standalone rating revenue (67% of consol) at INR 433mn in Q4FY12. For FY12, standalone income at INR 1,394mn was up by 7.78%. Company disappointed on rated volumes in corporate debt rating (CDR) segment (52% of rating business) which fell by 13% YoY despite increase in overall debt market volumes by estimated 20%. Revenue from CDR segment, however, increased by 1.64% due to higher avg. rating fees. Bank loan rating (BLR) segment reported a +ve turnaround in growth of rated volumes by 5% YoY and also showed improvement in avg. rating fees. Going forward, we do not expect further improvement in avg. rating fees on the back of increased competition. Also, due to sluggish economic environment growth in CDR will remain muted and growth in bank credit is expected to slow down to 15% from 17% in FY12. Company is planning to expand aggressively in SME grading business which would aid growth in revenues. We expect overall standalone rating revenues to grow at 5% CAGR over FY12-14 to INR 1,539mn.
EBIDTA margins to expand going forward
Consolidated EBIDTA margins expanded by 475bps YoY to 38.25% in Q4FY12 but declined by 387bps for the full year to 30.15%. This was mainly on the back of higher front loaded ESOPs amortization expense of INR 129mn in FY12 compared to INR 75mn in FY11. Adj. for amortization expenses, EBIDTA margin declined by 149bps YoY due to higher growth in employee cost (28% YoY) but contained by lower other expenses (-11% YoY). Employee cost pressure is expected to remain going forward also due to employee addition for SME business. We expect EBIDTA margins to expand by 277bps due to lower amortization expense but decline by 271bps to 33.67% after adjusting for the same.
Subsidiaries performance - a mixed bag
Company reported 8.39% growth in revenues of other businesses in Q3FY12 to INR 193mn. EBIDTA margin for the quarter came at 10.38% (+2bps YoY). For the full year revenues of other businesses grew by 6.87% to INR 681mn due to flattish growth in consulting business (37% of other businesses). PAT declined by 2.74% to INR 31mn due to lower growth in revenues vis-Ã -vis growth in employee cost. Going ahead, we expect combined revenues of subsidiaries to report a 2 year CAGR of 9% to INR 813mn in FY14.
Acquisition of BPA
ICRA's wholly owned subsidiary ICRA Technology Analytics Ltd. (ICTEAS) will be acquiring 100% stake in BPA Technologies Inc (BPA) in an all cash deal -50.1% within May 2012, and the remaining 49.9% in two parts over the next two years. BPA is a California-based global business consulting and software technology services firm with development centres in Chennai and Visakhapatnam. The valuation is estimated at around USD 16mn. BPA reported a turnover of USD 10mn in CY11. According to the management, deal will provide larger footprint in USA & is strategically good fit for ICTEAS which has its clients across the globe - US, UK, Asia & Africa.
Outlook & Valuation
ICRA is the second largest player in credit rating agencies in terms of volume rated. Credit rating industry is currently facing headwinds due to weak macro-economic environment and increasing competition. However, we are positive on long term growth opportunities for the rating business in India and we believe ICRA is strongly positioned to take advantage of growth in debt market in India which is currently at nascent stage. Company is also tapping into other segments of growth like grading of SMEs and educational institutes aggressively which would aid the revenue growth going forward. We introduce FY14 estimates and revise our target price (18 months) to INR 1,300 from INR 1,038 based on the discounted cash flow method. We recommend BUY.
