Mumbai: After a strong December quarter, Crisil Ltd’s performance seems to have hit a rough patch in the three months ended March.
The country’s largest rating agency reported 6.8% fall in net profit for the March quarter and a large part of this was due to a forex loss of ₹7.8 crore, compared to a gain of ₹2.3 crore in the corresponding quarter of the previous year. The company had ended 2018 with 19% growth in net profit for the final quarter.
Revenue from the research business, which contributes more than 60% to Crisil’s overall revenue, saw a decline for the second consecutive quarter, while the operating profit fell 26% from a year ago.
The management issued a statement saying that while its new offerings have gained traction, overall revenues have dropped due to the changing landscape of the risk analytics business.
To be sure, the research business has lagged for some time, and analysts had indicated that it would be a drag on the company’s performance.
The bright spot, however, was the growth in the ratings business, which posted 13% increase in revenue. Operating profit from the ratings business rose 16% from a year ago on the back of overall business growth of 12%. The sharp rise in bond issuances during the quarter was the reason behind the improved performance.
Crisil continues to be the market leader in rating debt instruments.
The company will hive off its ratings business into a wholly-owned subsidiary through a slump sale to abide by the rules of capital market regulator Securities and Exchange Board of India (Sebi), Crisil said in a press release.
Sebi rules say that ratings businesses and non-ratings operations should be run separately.
Notwithstanding the 10% rise since beginning of this month, the stock hasn’t notched any gains at all for the year 2019 so far, reflecting the research business’s drag on overall earnings.
Even after the hive-off, the ratings business is likely to continue to be the driver for valuation. After the 10% gain so far this month, the Crisil stock trades at 28 times its one-year forward earnings.