>CRISIL: RESULT UPDATE Q2CY10 (PPFAS)

CRISIL Limited has reported a flat financial performance by reporting 11% rise in consolidated total income for the quarter ended June 2010 to Rs. 1,506Mn. from Rs. 1,357Mn. in June 2009. Margins have declined on account of increased headcount and rental costs. Currently the valuations are steep at 24x CY10E earnings. We maintain our REDUCE rating on the scrip.

Performance Highlights:
Revenues from rating services have improved by 17% Y-Y to Rs. 710Mn. for the quarter ended Q2CY10 as against Rs. 608Mn. for the quarter ended Q2CY09, driven by Bank Loan ratings (BLR) & Small & Medium Enterprise ratings (SME). The company announced its 4000th BLR during the quarter.

Research services segment, recorded a 16% Y-Y growth to Rs. 666Mn. in the current quarter v/s Rs. 572Mn. for the corresponding quarter of last year. On the other hand, revenues from advisory services recorded a de-growth of 26% Y-Y at Rs. 131Mn for Q2CY10 as against Rs. 176Mn. for Q2CY09.

CRISIL has added ~10-11% employees on roll, resulting in a sharp increase in staff costs. Rental costs have also increased on account of shifting to a new rented place. As a % of sales, staff and rental costs have risen by 365bps and 209bps respectively. As a result, operating margins (OPM) have been hit by 664bps to 31% for the quarter ended June 2010 as against 38% for the quarter ended June 2009.

Reported net profit declined by 13% Y-Y to Rs. 333Mn. for Q2CY10 v/s Rs. 383Mn. for Q2CY09. This was on account of forex loss of Rs. 6.4Mn. and gratuity expense of Rs. 36Mn. After adjusting for the same, PAT declined by 6% Y-Y to Rs. 370Mn.

Valuations:
At CMP of Rs. 5,845.6/-, CRISIL is quoting at 24x CY10E and 22x CY11E earnings. We have kept our estimates unchanged for CY10 and CY11 and believe that the valuations are stretched. Hence, we maintain our REDUCE rating on the scrip.

To read the full report: CRISIL