Emkay Global Financial Services is bullish on CRISIL and has recommended buy rating on the stock with a target of Rs 1050 in its October 18, 2011 research report.
“CRISIL Q3CY11 revenue at Rs2.1bn (up 32% yoy and 4.3% qoq) was lnline with our expectation. This growth in revenue was primarily led by 48% yoy (8% qoq) growth in research and information services segment at Rs1.1bn. Despite stiff competition, revenues from rating business remained healthy at Rs840mn (up14.1% yoy). Advisory services at Rs147mn were up 44% yoy (declined 6% qoq).”
“We expect the momentum in the revenue growth to sustain in coming quarters driven by research over CY11E/CY12E. The number of full time equivalents (FTE) has seen strong growth during the quarter. Same coupled with the momentum in business from Pipal research will further add to the growth trajectory in research segment in CY11/12. We believe that strong growth in research will more than compensate any slow down in the rating revenues. Driven by healthy revenue growth coupled with 4.9%qoq decline in opex, the operating profit grew by a strong 34.1% yoy to Rs734mn. As a result the operating margin expanded by 63bpsyoy to 35%. The decline in opex was primarily led by 4.1%qoq decline in employee cost to Rs892mn.”
“While at 25x CY12E EPS the valuations look quite expensive, we believe that the strong cash flow generation capabilities of the company should continue to support the expensive valuations. Taking cognizance of the fact that (1) CRISIL’s earnings growth over CY11-13E is likely to be much stronger than that of the Sensex and (2) the ability of the company to replenish its cash balances each year despite paying out special dividends and stock buybacks, we are shifting our valuation methodology from premium to Sensex valuations to cash flow discounting. Accordingly, we are revising our price target on the stock to Rs 1050 and upgrade to BUY. Recent, correction in the stock price (post buy back announcement) gives a decent 26% upside in the stock,” says Emkay Global Financial Services research report.
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“CRISIL Q3CY11 revenue at Rs2.1bn (up 32% yoy and 4.3% qoq) was lnline with our expectation. This growth in revenue was primarily led by 48% yoy (8% qoq) growth in research and information services segment at Rs1.1bn. Despite stiff competition, revenues from rating business remained healthy at Rs840mn (up14.1% yoy). Advisory services at Rs147mn were up 44% yoy (declined 6% qoq).”
“We expect the momentum in the revenue growth to sustain in coming quarters driven by research over CY11E/CY12E. The number of full time equivalents (FTE) has seen strong growth during the quarter. Same coupled with the momentum in business from Pipal research will further add to the growth trajectory in research segment in CY11/12. We believe that strong growth in research will more than compensate any slow down in the rating revenues. Driven by healthy revenue growth coupled with 4.9%qoq decline in opex, the operating profit grew by a strong 34.1% yoy to Rs734mn. As a result the operating margin expanded by 63bpsyoy to 35%. The decline in opex was primarily led by 4.1%qoq decline in employee cost to Rs892mn.”
“While at 25x CY12E EPS the valuations look quite expensive, we believe that the strong cash flow generation capabilities of the company should continue to support the expensive valuations. Taking cognizance of the fact that (1) CRISIL’s earnings growth over CY11-13E is likely to be much stronger than that of the Sensex and (2) the ability of the company to replenish its cash balances each year despite paying out special dividends and stock buybacks, we are shifting our valuation methodology from premium to Sensex valuations to cash flow discounting. Accordingly, we are revising our price target on the stock to Rs 1050 and upgrade to BUY. Recent, correction in the stock price (post buy back announcement) gives a decent 26% upside in the stock,” says Emkay Global Financial Services research report.
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