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Solid growth across the board

CRISIL's Q3CY21 sales increased 18% YoY to INR5.7bn (6% ahead of estimates) led by solid growth across both segments—21% in research and 12% in ratings. EBITDA shot up 29% YoY (5% ahead of estimates) as margins expanded 228bps.

With improving corporate capex and additional levers with ESG ratings, the outlook for the domestic ratings business is improving alongside healthy outsourced ratings. CRISIL also has a strong outlook for the research segment (65% of revenue) led by global recovery and domestic research. This would yield double-digit growth and 50– 100bps EBIT margin expansion per year in research. Retain ‘BUY’, valuing at 50x Q1CY23E (close to higher end), yielding a TP of INR3,706.

Ratings: Healthy growth across domestic and outsourced business

For Q3CY21, ratings revenue grew 12% YoY. This was led by a 22% increase in the domestic ratings business owing to certain large mandates in initial ratings and growth in stressed assets. The business maintained its leadership in corporate bonds. The Global Analytical Centre (GAC) business stepped up support for surveillance, new issuances and transformation projects to S&P. Segmental EBIT margin expanded 406bps YoY in Q3CY21 to 41.9%. New offerings such as ESG ratings post-SEBI approval should prop up revenues further. Management remained cautiously optimistic in this segment. We estimate an 8% revenue CAGR over CY20–22E.

Research: Robust growth and outlook

Research sales shot up 21% YoY led by robust growth across businesses. Highlights: i) Global Research & Risk Solutions business grew on the back of new mandate wins, and higher traction for risk, credit research and sustainability offerings. ii) CoalitionGreenwich saw revenue growth on benchmarking analytics for core client segments. EBIT margin posted robust growth of 1,064bps YoY to 21.9%, aided by cost and operational synergies in the acquisition. Management sees sustained traction in research, with double digit growth and 50–100bps expansion per year. We have – built-in a 15% revenue CAGR and 34% EBIT CAGR over CY20-22E.

Outlook and valuation: All guns firing; maintain ‘BUY’

We remain positive on CRISIL’s ratings as well as research driving profitability, leading to overall sales/PAT CAGR of 13/21% over CY20–22E and 830bps RoCE expansion to 46.4%. Maintain ‘BUY’ with a revised TP of INR3,706 (INR3,520 earlier), valuing the stock at 50x Q1CY23 (close to higher end of the historical band).

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