Muted bond issuance spoils CRISIL’s March quarter show

Share of rating segment in total revenue falls 120 basis points year-on-year to 27.4%

A significant decline in bond issuance weighed on CRISIL’s rating business in the March 2018 quarter (Q1CY18). On a consolidated basis, its rating revenues were almost flat over the year-ago quarter and declined 8.5 per cent sequentially. Moreover, the share of the rating segment in the overall revenue fell by 120 basis points to 27.4 per cent.

For the past couple of months, yields have remained at a higher level, though the government’s decision to truncate its debt programme in April-September, 2018, helped the bond market to some extent in the last few days of FY18. Since yields and bond prices are inversely related, the high-yield trajectory affects bond issuance. Nevertheless, the management expects recent regulatory changes and policy announcements, intended to increase participation and strengthen India’s corporate bond market, to augur well for the bond market in the long term.

Besides, according to the management, CRISIL’s revenue from the research segment, accounting for over 65 per cent of its total pie, increased marginally by 3.1 per cent year-on-year (over a year-ago quarter) and fell by 4.6 per cent sequentially, owing to the seasonality factor. Even the margin from this segment contracted by 20-30 basis points.

A feeble performance by the rating and research segments restricted CRISIL’s overall top line growth to just 4.6 per cent year- on-year. The company, however, reported a 14 per cent jump in the net profit year-on-year and expanded its margins by 161 basis points because of greater efficiencies and cost-control measures (mainly due to automation).

The management expects changes in the external environment to improve demand for its offerings. CRISIL is positioned well to capture opportunities as and when they arise.

The positives, according to analysts at Elara Capital, are acceleration in revenue growth (13 per cent), the ability to turn around acquisition in the non-rating business, and stable performance in existing businesses. They see a 18-20 per cent upside in the stock by December 2019.