CRISIL, ICRA to CARE: IIFL Securities sees strong Q2 growth led by rating segment; recommends THIS stock to buy
- IIFL Securities reports strong Q2 results for Credit Rating Agencies, with CRISIL, ICRA, and CARE experiencing revenue growth of 30%, 24%, and 19%, respectively. Positive outlook for 2HFY25 is supported by increased bond issuances and improved non-rating revenue.
Credit Rating Agencies (CRAs) experienced impressive results in the second quarter, primarily driven by the rating segment, according to a recent sector update report from brokerage IIFL Securities. The growth in rating revenue for the second quarter was strong, attributed to an uptick in bond issuances, significant securitisation activity, and robust issuances of commercial paper (CP). Management's commentary suggests continued healthy growth in rating revenue in 2HFY25, the brokerage noted.
" Rating revenue growth in 2QFY25 was 30%/24%/19% for CRISIL/ICRA/CARE vs double digits in FY24," the brokerage said.
Additionally, the brokerage pointed out that the non-rating divisions of both CRISIL and ICRA experienced an increase in revenue, driven by the alleviation of global challenges. A consistent recovery in CRISIL's non-rating sector could take about 2-3 quarters as discretionary spending among global banks picks up.
The brokerage firm has increased the EPS estimates for CRISIL and CARE by 4%-7% for FY25-27ii, while keeping the ICRA estimate unchanged.
“Our Dec’25 target price for CRISIL/ICRA/CARE is Rs5,823/7,999/1,744. We downgrade CRISIL to REDUCE from ADD as we see limited upside post the recent rally (we estimate that the implied 1YF PE for the rating business is 68x). Our top pick is CARE,” said IIFL Securities.
CRISIL
The new target price set by the brokerage is ₹5,823 with downgrade to REDUCE from ADD as it sees limited upside. As per the report, the overall revenue increase of approximately 10% surpassed their predicted growth of 7%, supported by a 30% revenue surge in the ratings segment, driven by a one-time contract in the third quarter. Excluding this exceptional contract, the brokerage anticipates rating revenue growth of 15-20% for the third quarter. The non-rating segment still faced the repercussions of limited discretionary spending by global clients. The profit after tax (PAT) rose 13% year-on-year to ₹1.72 billion. Consistent with recent quarters, CRISIL has maintained strict control over costs.
Technical View: According to Rajesh Bhosale, Equity Technical and Derivative Analyst at Angel One, this stock has seen vertical upmove despite resentsluggish market. One can continue with positive bias but considering the overbought condition one should have a buy on dip approach. Strong support is at ₹5,400 whereas ₹5,800 as next resistance.
ICRA
The brokerage has a ‘Buy’ recommendation on the stock with a target price of ₹7,999. ICRA’s EBITDA for the second quarter increased by approximately 21% year-on-year to ₹413 million, which is about 13% higher than the brokerage's projections, driven by robust growth in rating revenue (up 24% year-on-year), although this was partially countered by rising employee expenses.
PAT rose by approximately 16% year-on-year, aligning with expectations due to a higher-than-anticipated effective tax rate (ETR). The second quarter marked one of the strongest periods for the rating sector in several years, with ICRA’s rating revenue growth of around 24% positioned between CRISIL's impressive 32% growth and CARE's 19% growth.
Technical View: According to Bhosale, while the higher time frame weekly chart remains positive with higher top higher bottom formation. the recent couple of months has been in a consolidation phase. ₹6,750 is the key support of this consolidation and as long it holds one can continue with positive approach. on the flip side ₹7,400 is resistance and for a momentum to trigger this levels need to be broken with sustainability.
CARE Rating
The brokerage has a ‘Buy’ rating on the stock with a new target price of ₹1,744. CARE's profit after tax for the second quarter increased by 31% year-on-year to Rs461 million, surpassing expectations. The strong performance was primarily driven by revenues that exceeded earlier broker estimates for the quarter, although India's rating revenue grew by 19%, which lagged behind CRISIL's 32% and ICRA's 24% for the same timeframe.
Consolidated revenue and EBITDA rose by 22% and 33% year-on-year, respectively. The board announced an interim dividend of Rs7 per share, resulting in a payout ratio of approximately 28%, compared to 45% in FY24.
Technical View: According to Rajesh Bhosale, this stock is in a strong uptrend, where every minor dips is getting bought into. Today as well prices is up around 2.50 and indicates a resumption of upmove after last few days of consolidation. Traders can continue to have buy on dip approach with 20 ema around 1,420 as support whereas 1,600 as next resistance zone.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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