ICRA Ltd Management Discussions

A. Industry Structure and Developments

Ratings & ancillary services

The domestic credit market grew in FY2025 but at a slower pace compared to the previous year as the economy underwent some moderation due to the Government?s infrastructure plans slowing down because of elections. Higher risk weights for NBFCs, and specifically, unsecured borrower segments, and evolving negative sentiments as asset quality concerns emerged in the over leveraged retail segment had a moderating impact on bank credit. Bond issuances too saw lower growth than the previous year reflecting higher risk perception and volatile liquidity. At present, geopolitical uncertainties continue to weigh heavily on market sentiments and corporate plans. The much-awaited revival of private capital expenditure would be contingent on the visibility of demand and, importantly, stability in the environment. The domestic securitisation market saw significant growth in FY2025, driven by new originators, including large private sector banks, and healthy credit demand from NBFCs and HFCs. However, asset quality concerns in unsecured Overview asset classes impacted growth in these segments. The Reserve Bank of India (RBI) has taken several steps to improve the credit market, including two rate cuts of 25 bps each in February and April 2025, with a highly likely additional rate cut in first half of calender year 25 (June to August 2025), deferment of Liquidity Coverage Ratio (LCR) and Business Review higher provisions on project finance loans after March2026, rollback of risk weights on loans to NBFCs, de-stressing concern over the prevailing CD ratio, changing the monetary policy stance to accommodative signaling likelihood of future rate cuts and sizeable infusion of durable liquidity. The ESG Government?s action of tax cuts, announced in the Union Budget, that take effect from April 1, 2025 is expected to improve consumption. With the prediction of a normal monsoon, rural demand can be expected to be encouraging. All these steps are supportive of credit growth. Statutory

Research & Analytics

The research and analytics space continues to evolve rapidly, driven by advancements in technology, increasing demand for data-driven insights, regulatory interventions and the growing complexity of global markets. ICRA is well-positioned to capitalize on these trends, leveraging its robust analytical capabilities and comprehensive research methodologies to deliver high-quality insights to its clients.

Global collaboration, increased demand for customized research, and the inclusion of India in J. P. Morgan?s Government Bond Index-Emerging Markets Global CORE and the Bloomberg Emerging Market Local Currency Index are anticipated to create new opportunities for the Market Data business.

The Reserve Bank of India (RBI) has continued to enhance regulatory supervision for banks and Non-Banking Financial Companies (NBFCs) throughout the year. The introduction of guidelines on Model Governance has opened new opportunities for ICRA Analytics. Additionally, the trend towards the automation of the credit lifecycle in banks is intensifying, creating a growing demand for advanced risk management products. With the acquisition of D2K Technologies, ICRA Analytics is well-positioned to meet these evolving client requirements and deliver comprehensive risk solutions.

The largest business - Knowledge Services (KS) saw muted growth due to the discontinuation of ESG services, but it is gearing up to handle the intensified trend of Gen-AI adoption and automation. The development of Infre360, a data and analytics tool for the InvITs and REIT space, shows promising initial feedback. segments remain a key focus.

(A detailed overview of the businesses is presented in the section titled Review of Operations in the Directors? Report.)

Opportunities

The Ratings business continues to benefit from a favourable regulatory environment. The Securities Exchange Board of India (SEBI) and Reserve Bank of

India (RBI) continue to support enhanced financing through the capital market route. The risk appetite for lower rating grades is a constraining factor in the capital market but with newer classes of investors like Alternate Investment Funds, investment in these high-yielding credits is picking up. These entities would invest in credit enhanced structures too.

ICRA?s wholly owned subsidiary, ICRA ESG Ratings Limited is registered as a Category-I ESG Rating

Provider (ERP). This offers a significant business opportunity as ESG ratings are sought by a certain class of investors such as Impact Funds.

The trend of increasing regulatory oversight coupled with drive toward automation, Gen AI and data driven analytics is expected to further strengthen the demand for deep sectoral research, advanced risk analytics, high quality data, and related support services. Your Company remains committed to providing state of the art products in the Risk Analytics and Research space and cater to emerging demand in this space, including in ESG consulting.

ICRA is well placed to benefit from each of the opportunities stated above, given its competitive strengths and strategic initiatives. We believe that your Companys competitive strengths include a proven track record in ratings, a highly experienced talent pool, advanced analytical capabilities, strong brand recognition, diverse client profiles, a robust governance structure, and close association with the Moody?s Group.

Threats

The threats confronting the business have been discussed in Section D of this report.

Performance

Details on segment-wise performance have been discussed in Section F of this report. to grow in new areas and client

(1) Business Risks

Any economic slowdown in India may impact the volume of bank credit or debt securities issued in the domestic capital markets, and may, have an adverse impact on the ratings business. Any adverse movement in interest rates and credit spreads, foreign exchange fluctuations, defaults by significant issuers/borrowers, along with other market and economic factors, both domestic and global, may negatively impact the issuance of credit-sensitive products and other financial services. A sustained period of volatility or weakness or a downturn in the financial markets domestically or internationally could have a materially adverse effect on your Company?s business and financial results.

The ratings business is largely dependent on the recognition of our brand and reputation. In this regard, prominent investment grade defaults or multi-notch downgrades could negatively affect our reputation and position as a quality credit rating agency.

The Knowledge Services (KS) vertical relies largely on global clients and revenues may be impacted by any adverse global macroeconomic event. Also, increased adoption of Gen-AI and other AI/ML driven automation initiatives at the client end may impact key business segments in KS.

Rapid advances in analytics and reg tech platforms demand continuous investment in technology and talent upskilling in the RMS vertical, while pricing pressures challenge margins. Data quality and integration complexities expose us to delivery delays and cost overruns. A sustained period of downturn in the financial markets domestically or globally could have an adverse impact on the Market Data vertical. To mitigate business risks arising from changes in economic and market conditions and in regulations, your Company constantly monitors developments, including automated early warning signals to identify stress, and remains focused on maintaining the robustness of its ratings and gradings while at the same time promoting brand ICRA through webinars, seminars and conferences, apart from the publication of research reports and thematic notes. ICRA continues to invest in technologies, products and people to drive sustainable growth.

(2) Operational Risk

Your Company relies on clients/third parties for the adequacy and accuracy of information (relating to such clients), which may not always be independently verifiable. It may also rely on representations as to the accuracy and adequacy of the information obtained. The quality of the ratings that the Company assigns is inherently dependent upon the accuracy of the information presented to us.

The Company has robust checks in place to ensure accuracy in sourcing, processing and delivering quality information and has been investing in upgrading technology and related infrastructure to automate processes and minimise manual intervention.

(3) Policy Risk

Material changes in the regulations that govern us, or our businesses could affect the results of our operations. Most of your Company?s revenues come from rating services, which are influenced by regulatory requirements. SEBI has enhanced disclosure and monitoring requirements for credit rating agencies with an objective of bringing in more transparency in the capital market. The Risk Management and Market Data services rely on adopting their products to meet the changing regulatory norms.

The Company keeps a close watch on key regulatory developments to track changes and their potential impact on its business. ICRA continues to enhance its systems and processes to keep pace with the evolving regulatory environment and ensure compliance in a timely manner.

(4) Client Concentration

The Knowledge Services business in ICRA Analytics has significant dependency on a single client for revenue and margins. High client concentration may expose the business for sudden loss of revenue or margins.

The Company has put in place a strategy which aims to reduce the dependence on a single client and focus more on the diversification of revenue streams. The strategy and related plan for reducing client concentration are periodically evaluated by the management.

(5) Investment Risk

Your Company has made, and may continue to make, investments in mutual funds, corporate deposits, and other marketable securities, the returns on which would be impacted by changes in interest rates and volatility in the financial markets. It has a well-defined investment policy with specific guidelines on investments which is duly approved by the Board. All investments are periodically reviewed and assessed for compliance with policy and market risks.

(6) Information and Cyber Security Risk

Your Company?s ability to conduct business may be adversely impacted on account of cyber incidents resulting in financial loss, disruption or damage to the reputation of an organisation. Lack of information security controls, both with respect to process and technology, may lead to a breach of confidential data, data privacy and in turn cause loss in business. ICRA has a well-designed Information Security Management System (ISMS) with various policies, procedures and guidelines in place to set the security controls. The Company has invested in various security tools and infrastructure to strengthen monitoring. Employee training and awareness sessions are conducted to remain vigilant against cyber incidents.

(7) Regulatory Risk

Your Company complies with all the applicable laws, rules and regulations, and makes business decisions based on comprehensive advice, provided both by its internal counsels and by acknowledged external counsels. A complex and dynamically evolving regulatory environment may expose the Company to regulatory risk.

Your Company has put in place a compliance framework and tool to proactively monitor regulatory requirements. Periodic reviews are undertaken by the compliance team to assess effectiveness of the compliance framework. The compliance team provides periodic training to users to ensure adherence to policies, the Code of Conduct, and applicable laws. After the training, all employees are mandatorily required to undergo compliance assessment.

(8) Talent Risk

Attracting and retaining the top talent has been one of the key imperatives for ICRA. We continue to hire the top talent from the country?s best colleges and universities to create a healthy pipeline of talent. Job rotations within the company as well as inter-entity movements within Group ICRA also help us retain the top talent and align individuals? career path with the organisation?s objectives. We recognize the top performers through internal and external social media posts to reinforce the positive behaviours in line with ICRA Values.

We constantly strive to create a strong employee value proposition for our employees by working on our compensation structure, introducing better benefits, launching Group ICRA employee newsletter and organizing more team-bonding initiatives like offsites, lunches etc. for enhanced collaboration. We are driven to achieve better employee experience by making our people processes more efficient with use of technology.

Your Company is committed to its employees well-being and growth. We firmly believe that our most valuable asset is our workforce, and we have consistently implemented various human resource initiatives to ensure their professional and personal development.

E. Internal Control Systems and their Adequacy

The Management is responsible for establishing and maintaining controls and procedures for the Company, following the review by the Audit Committee and the Board of Directors. Accordingly, the Management designed such controls and procedures or caused such controls and procedures to be designed under its supervision to ensure that material information relating to your Company, including its subsidiaries, is made known to the Management by others within those entities. It has also designed such internal control over financial reporting or designed such internal control over financial reporting under its supervision, to provide reasonable assurance regarding the reliability of the financial statements.

(An overview of Internal Control Systems and their adequacy, is presented in the section titled Internal Control System and their Adequacy in the Directors? Report.)

F. Discussion on Financial Performance with respect to Operational Performance

The key features of your Company?s financial performance for the year ended March 31, 2025 are presented in the accompanying financial statements, which have been prepared in accordance with the Indian Accounting Standards (referred to as IndAS) as prescribed under Section 133 of the Companies Act, 2013 (the "Act") read with the Companies (Indian Accounting Standards) Rules, 2015 and other relevant provisions of the Act. The Company?s Management accepts responsibility for the integrity and objectivity of these financial statements. The financial information discussed in this section is derived from the consolidated financial results of the Company.

I. Results of operation

The financial performance of the ICRA is summarised below:

(a) Revenue from operations

ICRA earns revenue primarily from ratings, research, analytics, and other risk offerings. During the year, the revenue from operations increased by 11.6% to RS. 49,802 lakhs, against RS. 44,611 lakhs from FY2024. Revenue from operations was driven by strong growth in Ratings & ancillary services.

Ratings & ancillary services revenue grew by 14% to RS. 29,398 lakhs and was supported by growth in the domestic credit environment, which grew at a slower rate compared to the previous year, amid tightened liquidity and geo-political uncertainties. The growth was also aided by uptick in structured finance and commercial papers borrowings.

Ratings revenue grew in all the key segments, namely corporate, infrastructure and financial and continue to have a sharp focus on infrastructure and financial segments.

Research & Analytics revenue grew by 8% to RS. 20,404 lakhs, with strong growth in D2K Market Data services and Customized Research. ICRA Analytics launched new products like EQ360 for ESG data and Infre360 for infrastructure data.

(b) Other income

Other income primarily consists of interest income on fixed deposits and investments, gain on financial assets carried at fair value through profit or loss and rental income. Other income has grown by 3% in FY2025 over FY2024.

(c) Expenses

Employee benefits expenses growth is largely due to merit increase and impact of consolidation of D2K for full year in FY2025.

Other operating expenses increased largely on account of investments in technologies. Finance costs were higher in FY2024 mainly on account of discounting impact for D2K purchase consideration payouts. Depreciation and amortisation costs are higher due to consolidation of D2K.

Segment Operating Profit

Group segmental profit was RS. 16,139 lakhs driven by strong performance in Ratings & ancillary services. Research

& Analytics segmental profit were lower due to muted revenue growth from Knowledge Service and change in the revenue mix.

a) During the year, the company made investments in fixed assets to support its strategic growth initiatives. The total capital expenditure amounted to 1,486 lakhs, in technology upgrades, leasehold improvements and intangible assets. The depreciation expense for the year was 1,639 lakhs compared to 1,346 lakhs in the previous year.

The Group?s Property plant and equipment and Intangible assets at the end of the year were as follows.

b) Goodwill on consolidation

Goodwill on consolidation represents the excess of purchase consideration over the net asset value of acquired entities on the date of such acquisition. Goodwill is tested for impairment annually, or more frequently if there are indications of impairment. For goodwill impairment testing, the carrying amount of the cash generating units (CGUs) is compared with recoverable amount of CGU by the Group.

III. Financial assets

Financial assets mainly consist of investments, loans, trade receivables, cash and cash equivalents, bank balances and interest accrued on deposits etc.

(a) Treasury: Treasury includes investment in mutual funds, fixed deposits and cash and cash equivalents.

The Group deploys its internal accruals and surplus funds primarily in mutual funds and fixed deposits as per its investment policy approved by the Board of Directors. During FY 2024-25, the company maintained a robust treasury management strategy to ensure optimal liquidity and risk management. The primary focus was on preserving capital, enhancing returns, and managing risks associated with market volatility.

(b) Other financial assets: Other financial assets includes trade receivables, other contract assets, loans, security deposits etc.

Overall DSO of 36 days remains same for FY2025 and FY2024.

(a) Equity share capital

ICRA has only one class of equity shares having a par value of RS. 10 each. The issued, subscribed and paid-up capital stood at RS. 965 lakhs into 96,51,231 equity shares of RS. 10 each.

(b) Other equity

Other equity increased by 8% as on March 31, 2025, in comparison to March 31, 2024. During the year FY2025, the

Group granted additional 9,096 options to eligible employees. The options would be vested as defined in the Scheme.

V. Financial liabilities

*As part of the acquisition of D2K Technologies India Private Limited, the Group has committed to buy-out the balancRs. 40% equity shares from the remaining shareholders. Accordingly, H 3,602 lakhs have been recognised by the Group as deferred consideration.

VI. Other liabilities and provisions

Other current liabilities consist of unearned revenue, statutory dues payable and advances received from customers. Total other current liabilities increased by 5% as on March 31, 2025, as against March 31, 2024, mainly due to increase in unearned revenue. Provisions include employee-related liabilities such as gratuity, compensated absences, variable pay and towards ongoing litigations.

VII. Key financial ratios

Key financial ratios are provided in the table below:

People Employed

ICRA Group, with a total employee strength of 1,365 as of year-end 2024-25, continues to accord high priority to human resource development, with emphasis on improving skill, competence and knowledge through regular virtual/online training and in-house/external professional development programmes.