Rating agency Crisil Ltd’s modified credit ratio (MCR), an indicator of the credit quality of the companies the agency rates, is slipping. MCR is the ratio of upgrades plus reaffirmations to downgrades plus reaffirmations. The ratio is measured once every six months. It was at 0.98 for the period from April to September, which saw one long-term rating upgrade and three downgrades.
The next official MCR reading is not ready yet. But Crisil managing director and chief executive officer Roopa Kudva points out that in the four-and-a-half month period till 20 February, Crisil downgraded 46 companies while upgrading just one.
Kudva points out that companies that are facing the maximum stress are from the real estate, textiles, engineering, automobile, auto ancillaries, and gems and jewellery sectors. Those in the telecommunications, pharmaceuticals and power sectors are facing the least pressure.
According to Kudva, while the current slowdown is unprecedented, the silver lining is that Indian companies now have stronger balance sheets compared with that in the previous downturn.
The slowdown, however, hasn’t had much impact on Crisil’s financial performance. Its profit before interest and tax jumped by 68% in the year till December, on the back of strong growth in both its rating and research services.
The former benefited from a new Reserve Bank of India guideline pertaining to rating of companies taking bank loans. This spurred new ratings, leading to a 45% jump in revenues of this division. Thanks to the high operating leverage in the business, profit of the segment jumped by 65%. In the first half of the last year, structured finance deals and issuances by banks to increase their tier II capital also contributed to Crisil’s growth.
Research services also did well, growing revenues by 35% and profit by as much as 85%. Growth of this division, however, is expected to slow down in 2009, since a bulk of the business pertains to offshoring work from global banks. The ratings business continues to thrive, owing to ratings of bank loans to companies and the increase in domestic corporate bond issues.
Crisil shares trade at around 12 times adjusted earnings for 2008, more or less in line with market valuations.
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