CRISIL - 2QCY2012 Result Update - Angel Broking

For 2QCY2012, CRISIL's net sales grew by 6.3% yoy to Rs.217cr. The company reported a 216bp yoy contraction in OPM to 27.6%. Net profit declined by 1.7% yoy to Rs.44cr. We continue to remain Neutral on the stock.

Top line posts mediocre growth, EBITDA margin contract: For 2QCY2012, CRISIL's top line reported 6.3% yoy growth to Rs.217cr. Its rating segment witnessed 7.2% yoy growth backed by decent growth in the bank loan rating segment. CRISIL has reached the milestone of assigning ratings for the bank loan facilities of 10,000 companies. The research segment growth slowed down during the quarter, registering 10.2% yoy growth. The advisory segment witnessed a decline in its revenue, registering 21.6% yoy de-growth. The company's EBITDA margin contracted by 216bp yoy to 27.6%, largely due to higher staff cost, which increased to 49.0% of sales in 2QCY2012 from 45.6% of sales in 2QCY2011. Net profit came in at Rs.44cr, down 1.7% yoy; while margin contracted by 163bp yoy to 20.2%, largely due to increased tax rate. CRISIL's tax rate increased to 28.7% of PBT in 2QCY2012 vs. 24.4% of PBT in 2QCY2011.

Outlook and valuation: In June 2012, CRISIL signed an agreement to buy 100% of the equity shares of the UK-headquartered Coalition Development Ltd. along with its subsidiaries (Coalition), which we expect to drive the next leg of growth for CRISIL. Accounting for Coalition revenue, we expect CRISIL to post a 20.6% CAGR in revenue and 16.5% CAGR in PAT over CY2011-13 and continue to maintain its leadership position. Despite the recent buy back, the stock is available at rich valuation of 24.9x CY2013E earnings, which is at the higher end of its historical range of 16.4x-29.9x and five-year median of 22x one-year forward EPS. We continue to maintain our Neutral recommendation on the stock.

Source : Equity Bulls

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