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Revenue in‐line, but substantial EBITDA and earnings beat

Our view

ICRA’s performance was stellar from margins and earnings perspective. While revenue is tracking our growth estimate (12% yoy) for full‐year, the 9m EBITDA and PAT stands at 85% and 81% of our FY22 estimates. So, earnings estimates for FY22‐24 have been revised upwards by 5‐6%. The positive surprises have been coming from a largely unaffected traction in fresh business and wallet share gains, notwithstanding pursued pricing corrections. The growth in ICRA Analytics is also sustaining at higher levels courtesy persistent flow of outsourcing from the parent (Moody’s share in revenue at near 80%). Key monitorable would be a) acceleration in rating volumes, b) attrition impact on growth/margins, c) revenue flow from Moody’s in ICRA Analytics and d) utilization of cash which has been increasing (we reckon dividend payout will be increased). Valuation is below long‐term mean at 24x FY24 P/E, and thus can re‐rate on such strong performances. Upgrade to BUY with enhanced 12m PT of Rs4300.  

Consolidated performance

* Revenue came in‐line at Rs866mn (up 5% qoq/12% yoy) – share of Rating & Research business fell to multi‐quarter low of 58% (60% in Q2 FY22 and 63% in Q3 FY21).   

* EBITDA beat of 30% (abs. growth of 53% qoq/43% yoy).

* EBITDA margin at multi‐year high of 40% (improved 13 ppt qoq/9 ppt yoy).  

* PAT 18% higher than estimate (up 28% qoq/27% yoy), despite marginal decline in other income.    

* Cash & Inv. balance increases from Rs7.9bn to Rs8.2bn (25% of M‐cap).

Rating & Research segment performance

* Revenues largely flat qoq and annual growth slowed to 4% from 10% in H1 FY22.

* Key revenue drivers were 1) traction in fresh business and 2) pricing improvement driven by management’s persistent efforts to align pricing framework with the strong franchise value.

* Segmental PBT jumps 2.2x qoq and margin to 30% from 14%.   

* Key margin drivers were 1) continuance of pricing led growth and 2) sharp fall in employee cost qoq due to a) decline in employee base since March 2021 on account of increased attrition and b) presence of significant variable payouts during H1 to rein in attrition.     

ICRA Analytics performance highlights

* Revenue growth accelerates to 25% yoy from 22% yoy in H1 FY22, led by continued growth momentum in outsourcing services (88% of revenues).   

* Segmental PBT grows 25% qoq/75% yoy with margin improving by 6 ppt qoq/14 ppt yoy.  

* Outsourcing services revenues grew by 32% yoy on the back of more business from existing clients and addition of new clients.  

* Key margin drivers were 1) operating leverage and 2) turnaround in profitability of consulting business (12% of revenue).     

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