Maintain ‘buy’ on Crisil with revised TP of Rs 2,261

CRISIL’s Q1CY21 revenue grew 16% YoY to Rs 4.9billion (in line) driven by strong sales across segments. This was led by 18% YoY spurt in research (7% adjusted for Greenwich acquisition); and ratings grew 12%. Ebitda grew 15% YoY (in line) to `1.3billion. PAT was 14% below estimate due to lower other income on account of forex hit. While we as well as management believe domestic business could see some delayed recovery, Crisil is well placed to capitalise on the global recovery underway (60% of overall revenue). On account of lower MEIS income and forex hit, we revise down CY21E earnings 8%. Maintain ‘buy’ with revised TP of Rs 2,261, valuing the stock at 37x June 2022E EPS.

Ratings: Domestic healthy, GAC robust. For Q1CY21, ratings revenue grew 12% YoY led by 6% growth in domestic ratings on strong surveillance fees and new client addition. We believe Crisil is likely to have gained market share in a weak credit environment with issuances declining in terms of quantum and issuers. Global Analytical Centre (GAC) posted strong growth owing to deepening coverage, stepped up support for ESG offerings and automation initiatives. Segmental ebit margin expanded 399bps YoY to 47% in Q1CY21 led by growth in high-margin domestic business. With the second Covid wave, recovery in domestic business is likely to be back-ended, in our view.

Research. Gathering momentum; profit growth awaited. Research sales grew 18% YoY, led by growth in Global Research & Risk Solutions (GR&RS) business driven by existing and new mandates across transformation, change and regulatory offerings. Contribution from Greenwich, which saw good traction for its voice-of-client analytics. Sustained recovery in India Research, which saw increased demand for data, research and analytics underpinned by an uptick in industrial activity and capital markets.

While EBIT margin tumbled 403bps YoY to 17.0% due to adverse forex impact and Greenwich losses, synergies should kick in from H2CY21.

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