ICRA - QIFY13 Result Update - SPA Securities

ICRA reported consolidated revenues of INR 508mn and PAT of INR 85mn in Q1FY13. Q1FY13 revenues included BPA Technologies's contribution of INR 59mn to revenues and INR 2mn to PAT, which ICRA acquired in Q1FY13. On like to like basis revenues grew by 16% on the back of better than expected performance from rating and outsourcing business. Adjusting for ESOP amortization expenses, consolidated EBIDTA margin declined by 522 bps YoY to 19.09%, whereas PAT grew by 24% on the back of higher other income. Going ahead, we expect economic slowdown to weigh on rating business and high employee expense to continue to put pressure on margins. We maintain our 15 months target price of INR 1,300 and recommend HOLD.

Higher than expected growth in rating business

ICRA's standalone rating revenue grew by 16% YoY to INR 277mn in Q1FY13 on the back of higher growth in debt ratings and structured finance ratings. Volumes remained subdued in corporate debt rating (CDR) segment but higher avg. rating fees supported the overall revenue growth. Going forward growth in CDR will remain muted and growth in bank credit is expected to slow down on the back of sluggish economic environment. Company's focus on expanding SME grading business would aid growth in revenues. For the full year FY13, we expect rating revenue to grow by 5%.

Adj. EBIDTA margin fall on higher operating expensesConsolidated EBIDTA margin expanded by 284bps YoY to 16% in Q1FY13 on the back of lower ESOP amortization expense (INR 15.6mn in Q1FY13 compared to INR 43.1 in Q1FY12). Adjusted for the same, EBIDTA margin declined by 522bps YoY due to higher employee and other expenses. Pressure on EBIDTA margin is expected to remain for the full year FY13 compared to FY12 due to slower growth in revenue base.

Stable performance of subsidiaries

Company reported revenues and PAT of INR 232mn and INR 3mn respectively in other businesses in Q1FY13 to INR 193mn which included contribution from BPA technology since its acquisition on May 8, 2012 by ICRA's wholly owned subsidiary ICRA Techno Analytics Ltd. On like to like basis, revenue of other businesses grew by 16%. PAT came at INR 1mn compared to loss of INR 4mn in corresponding quarter last year. EBIDTA margin expanded by 169bps YoY on the back of lower employee expenses which fell by 500bps YoY (as % of revenues).

Outlook & Valuation

Credit rating industry is currently facing headwinds due to weak macro-economic environment leading to lower amount of rated volumes and increasing competition putting pressure on avg. rating fees, thereby impacting overall revenue growth. However, we continue to remain positive on long term growth prospects of the rating sector in India. Emergence of newer avenues of growth like SME grading, educational institutes and real-estate grading in near term and expansion of debt market in medium to long term would bode well for ICRA. Also company's focus to diversify its revenue stream across different business and geographies would help it to register stable revenue growth. We maintain 15 months target price of INR 1,300 based on our DCF valuation model. CMP provides an upside of 9% from our target price and thus we recommend HOLD.

Source : Equity Bulls

Keywords