Diversification has served credit rater Crisil Ltd well. It began life as a credit rating agency, but after acquiring firms such as Irevna in 2005 and Pipal Research Corp. last year, its research division now accounts for about half of revenue and profits.
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In the three months ended December, Crisil recorded its highest-ever revenue from the research division, of Rs86.75 crore, about one-third more than a year ago. Research revenue has now firmly overtaken income from the core ratings business, though this has been boosted by the folding in of Pipal Research’s numbers from December. Not only that, the research business has shown the fastest profit increase, too.
Earnings before interest and taxation from this segment grew 46.31% over a year ago, as Crisil entered more markets.
However, an increase in rent and depreciation expenses crimped Crisil’s December quarter net profit growth to 14.9%, marginally better than the Street estimates.
Now, this doesn’t mean that the ratings division didn’t do well. On the contrary, revenue from this business grew 17.7% and profits 18.42%, as bank credit grew at a rapid pace in the six months leading to December. Crisil has some 60% market share of the credit ratings business and 50% share in bank loan ratings, according to two brokers who track the company.
There is more growth to come from this segment. Basel II norms (which kicked in three years ago) specify mandatory credit ratings for bank loans above Rs5 crore. The recent barrage of scams is also prompting more small and medium companies to get the respectability of an independent credit rating when raising funds.
Still, the ratings segment is dependent on economic growth and credit demand. That’s where the research, and also the small, but growing, advisory business has a slight edge. This business is somewhat immune to these factors and nor does Crisil depend on income from doing stock trades like brokerages.
That’s perhaps why investors in the Crisil stock have chosen to ignore the murmurs of economic growth decelerating and the Reserve Bank of India asking banks to go slow on loan expansion. The stock has beaten the broader market significantly this year.
Graphics by Ahmed Raza Khan/Mint
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