Q1CY23 Review: CRISIL: Sanguine outlook despite global macro woes

20 Apr 2023 , 10:27 AM

CRISIL’s 20% PAT growth in Q1CY23 was well above estimates of IIFL Capital Services led by strong revenue growth in both the segments. On the earnings call, management was optimistic on the Research, Analytics & Solutions (RAS) segment despite challenges for global banks. It also expects stable/falling interest rates to aid rating revenue. 

Analysts at IIFL Capital Services expect RAS revenue growth to moderate to 14% in CY23 from 23% in CY22 considering headwinds to global banks and likely lower FX tailwinds. They have raised their CY23/24 estimated EPS by 7%/3.5% considering the Q1 beat and upbeat management commentary. At 38x 1YF PE, the stock trades at 1SD above mean but such valuations may sustain if earnings growth remains robust. 

Key takeaways from the earnings call: 

• Non-discretionary spending by global banks has been robust amid increased regulatory oversight and thrust on cost reduction
• Global Benchmarking Analytics business also has some non-discretionary aspects and CRISIL has not seen any weakness so far
• Basel-IV implementation by global banks will result in opportunities for CRISIL.

CRISIL also clarified that the impact from recent taxation changes on debt MFs will be insignificant since: 

• It estimates debt MFs to account for <20% of outstanding bonds
• Corporate investors into debt MFs are not affected by the recent taxation changes since they liquidate their holdings in a few months. SEBI is working on a detailed ESG rating framework (as opposed to ESG grading at present). The details are yet to be released but this should open up opportunities for rating agencies.

Analysts at IIFL Capital Services have maintained their Add recommendation on the stock with a new June-24 Target Price of Rs 3,711 (versus Rs 3,391 earlier).