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Crisil Equity Research

HomeCompanyCrisil Equity Research

Date of Research – 13 January 2016

Price – Rs. 1,890.15

About the Company

Crisil Limited (“Crisil” or the “Company”) is India’s leading ratings,research, risk and policy advisory company. The Company’s majority shareholder is Standard & Poor’s. Standard & Poor’s, a subsidiary of the McGraw–Hill Companies, is the provider of independent credit ratings, indices, risk evaluation, investment research and data. The Company operates in two segments: Ratings and Research. The rating services include credit ratings for corporates, banks, small and medium enterprises (SME), training in the credit rating field, credit analysis services, grading services and global analytical services. The research segment provides equity research, industry reports, customized research assignments, subscription to data services and initial public offer gradings.

*Company’s financial year is from January – December.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Total Income from Operations 979.31 1,112.34 1,254.82 1,381.60  1,549.36 
Expenses 650.09 754.47 867.89 983.00  1,087.20  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 329.22 357.87 386.93 398.60  462.16  
Depreciation 34.32 37.92 36.12 37.12  40.36  
Finance Costs –  – 
Other income 18.79 39.32 25.25 44.23  54.08  
Exceptional items (65.88) –  – 
PBT 313.69 425.15 376.06 405.71  475.88  
Tax 93.29 127.33 107.62 120.55  149.53  
PAT (before Minority Interest and share of Associates) 220.40 297.82 268.44 285.16  326.35
Profit/ (loss) attributable to Minority Interest –  – 
Share of profit / (loss) of Associates –  – 
Consolidated Profit / (Loss) for the year 220.40 297.82 268.44 285.16  326.35  

Profitability Analysis

Consolidated (%)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Operating Profit Margin Ratio 33.62 32.17 30.84 28.85  29.83 
Net Profit Margin Ratio 22.51 26.77 21.39 20.64  21.06 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 7.02 7.07 7.14 7.12  7.13 
Reserves & Surplus 521.95 667.43 841.21 848.64  938.22 
Net worth (shareholders funds) 528.97 674.50 848.35 855.76  945.35 
Other liabilities and provisions 17.95 18.03 35.11 32.39  23.58 
Current liabilities 436.11 454.08 381.15 442.72  467.32 
Total Liabilities 983.05 1,146.61 1,264.61 1,330.88  1,436.25 

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 466.78 449.25 431.91 100.14  82.66 
Noncurrent Investments 6.64 5.63 5.63 5.63  5.63 
Current assets 441.79 611.81 746.55 827.93  954.55
Long term advances and other noncurrent assets 50.35 57.06 50.61 45.89  63.24
Deferred Tax Assets 17.48 22.86 29.91 36.26  38.52 
Goodwill on consolidation 315.03 291.66 
Total assets 983.05 1,146.61 1,264.61 1,330.88  1,436.25 

Efficiency Analysis

  (%)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 62.24 53.06 45.61 46.58 48.89 
ROE / RONW 41.67 44.15 31.64 33.32  34.52 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Total Income from Operations (Rs. Cr.) 979.31 1,112.34 1,254.82 1,381.60  1,549.36 
Growth (%) 18.39 % 13.58 % 12.81 % 10.10 %  12.14 % 
PAT (Rs. Cr.) 220.40 297.82 268.44 285.16  326.35  
Growth (%) 6.78 % 35.13 % (9.87 %) 6.23 %  14.44 % 
Earnings Per Share – Basic (Rs. ) 31.42 42.27 37.83 40.03  45.79
Earning Per Share – Diluted (Rs. ) 31.42 42.15 37.41 39.51  45.31 
Price to Earnings 34.49 28.64 56.04 51.05  40.74 

Dividend History

The Company has maintained an average dividend yield of 1.65 % over the last 5 financial years

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Crisil’s average current ratio over the last 5 financial years has been 1.55 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations

Long term Debt to Equity Ratio

Companies operating with high long term debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Crisil’s average long term debt to equity ratio over the last 5 financial years has been 0.00 which indicate that the Company is operating with a zero level of debt

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Since Crisil’s operates with zero level of debt, this ratio is not applicable in this case.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Crisil reported a promoter holding of 67.05 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 18.45 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

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