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Strong revenue beat; upgrade to BUY

CRISIL’s Q4CY21 earnings surprised positively on higher revenue that led to an EBITDA and EBIT beat despite of opex being a tad higher. Top-line was better due to strong growth in research (+30% QoQ) while ratings also witnessed an uptick (+7.5% QoQ). EBIT for research was higher to estimates by 17.5% at Rs1.08bn and rating EBIT was also a bit higher at Rs660mn. Strong research growth was led by new client wins and higher wallet share from existing clients as there was increased demand in regulatory reporting, sustainability, product control and buy-side research. Ratings business improved as companies increasingly sought to refinance debt and strengthened their liquidity positions that helped sustain its position of dominance in ratings. Maintain multiple at 52x on CY23E EPS but raise TP to Rs3500 as CRISIL could benefit from an international/domestic economic recovery. Upgrade from ADD to BUY.

Q4CY21 results – Earnings beat led by stronger top-line

Revenue was a beat at Rs7.1bn (est. Rs6.2bn), +23.7% QoQ due to strong research performance while ratings also saw an uptick. Overall opex was a bit higher Rs5.14bn (est. Rs4.8bn) led by higher employee cost at Rs3.9bn (est. Rs3.4bn) while other opex was lower. EBIDTA saw a strong beat by 39% to Rs1.93bn while EBITDA margin was higher at 27% (est. 22.4%). Other income was a lower at Rs134mn (est. Rs350mn) which included a forex gain of Rs12.5mn. As expected, the quarter also saw exceptional gain of Rs458.2mn (gain on sale of immovable property). Normalised PAT was ahead of estimates at Rs1.23bn (est. Rs1.1bn). CY21 revenue was higher at Rs23bn (est. Rs22.1bn) while opex was Rs16.95bn (est. Rs16.6bn). CY21 EBITDA was ahead of estimates by 10% at Rs6.1bn while normalised PAT was in-line at Rs4.2bn due to lower other income.

Research saw a robust growth driven by new clients and wallet share increase

Research revenue saw a handsome ~30% QoQ growth to Rs4.9bn (est. Rs4.2bn) while EBIT for research at Rs1.08bn was a beat though EBIT margin flat QoQ at 22%. Strong research performance was led by new client wins and higher wallet share from existing clients. There was increased demand for its offerings in the areas of regulatory reporting, sustainability, product control and buy-side research. Investments in digital and regulatory-driven transformation agenda at financial institutions also propelled business opportunities. There was increased traction for data, insights, and capital market research offerings. Greenwich Associates, strengthened its relationships with commercial banks and its regional client base.

Rating business also improved sequentially

Ratings rose QoQ by 7.4% to Rs1.65bn (est. Rs1.61bn) while EBIT for ratings was Rs6.6bn (a bit higher) though EBIT margin dipped from 42% to 40% QoQ. Uptick in ratings was seen as activity in lending markets improved in line with economic recovery. Companies increasingly sought to refinance debt and strengthened their liquidity positions. CRISIL continues to dominate in corporate bond ratings and added new clients in the quarter. Business also saw increased penetration in the mid-corporate segment and traction for stressed asset offerings.

Valuation and risks

We raise CY21/CY22 earnings by 2%/4% mainly due to higher EBITDA that would increase by 3.8%/5.3% mainly on the back of better revenues. CRISIL could be a beneficiary of overall recovery and a pick up in the capex cycle. We maintain multiple at 52x but increase TP from Rs3400 from Rs3500. Upgrade from ADD to BUY. Risks: slower economic recovery.

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