For the second quarter in a row, the research division of credit rater Crisil Ltdsalvaged its results. For the three months ended March, that segment reported a revenue of Rs 97.39 crore, 50% more than a year ago.
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True, this number has been boosted by the addition of its subsidiary Pipal Research Corp.’s figures, but it also shows that diversification pays.
Not only that, the earnings before interest and taxation (Ebit) from the research division grew 52% over a year ago to Rs 26.90 crore.
Still, the fact remains that the ratings division—the original business that led to the set up of Crisil and is still its most lucrative segment—has lagged considerably. Although this segment reported an 11% gain in revenue to Rs 72.24 crore,margins shrunk by 5.67 percentage points. Consequently, Ebit for this segment fell 3.14% to Rs 27.90 crore.
The decline in the ratings segment is not wholly unsurprising. During the first quarter of this year, the corporate bond market was in a stupor due to high interest rates and tight liquidity.
Data from Prime Database show private placements of corporate bonds shrunk by more than half over a year ago in the March quarter. Sure, central bank numbers indicate that the number of commercial paper issuances did rise during the first five fortnights of the quarter.
But, intense competition from the likes of Fitch Ratings Inc., Credit Analysis and Research Ltd and Icra Ltd means that it has become tougher for Crisil to retain market share and maintain margins. With many economists now forecasting a slowdown in economic growth, the ratings business is likely to remain under pressure for a couple of quarters.
The advisory business has also not taken off as expected. Falling revenue in this segment crimped overall operating income growth to 24.7%. With expenses growing at a similar rate, operating margins for the company grew a measly 41 basis points. One basis point is one-hundredth of a percentage point.
Savings on tax go meant that reported net profit remained almost flat at Rs 45.98 crore. However, in the quarter ended March 2010, Crisil reported one-off income of Rs 18.33 crore. Adjusted for that, profit after tax grew a healthy 65%.
Overall, the results doubly underline the importance of the research segment to Crisil’s fortunes. It is somewhat immune to economic growth and bond markets and the company also does not depend on brokerage income. That explains why investors continue to buy the stock.
Graphic by Yogesh Kumar/Mint
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