Rating agencies rolled up for a capex spring: IIFL Securities

CRISIL’s Research segment has yet to experience weakness in global bank spending, although a clearer picture will emerge in early 2023, especially with fears of a recession in developed countries. CIFAR continued to benefit from increased engagement with Moody’s. IIFL Securities analysts cut CRISIL estimates by 3-8% (due to rising personnel costs), maintain ICRA estimates and increase CARE’s EPS by 4-5% (on higher income). The three rating agencies are expected to generate EPS growth of 22-25 years in the teens. IIFL Securities analysts find the risk-reward ratio most attractive for ICRA at 26x the 1-year forward PE. CRISIL’s rich valuation could limit the upside, while CARE’s revaluation depends on continued revenue growth momentum. IIFL Securities’ new target prices for December 2023 for CRISIL/ICRA/CARE are Rs 3,375/Rs 4,797/Rs 619 respectively.

The drivers of the investment cycle recovery are falling into place

All three companies reported double-digit ratings revenue growth in the September quarter. The managements of CRISIL and ICRA remain optimistic about the resumption of the investment cycle, but refrained from trying to predict its timing. With the rise in the PAT/GDP ratio of better capitalized corporations, banks and NBFCs and a favorable political environment, the chances of a resumption of the investment cycle have improved, analysts at IIFL Securities believe.

CRISIL Research: Global banks’ spending outlook for 2023 is key

CRISIL’s Research segment has recorded revenue growth of more than 20% over the past six quarters. ~40-45% of segment revenue is tied to discretionary spending by global banks, although multi-year agreements can insulate them to some degree in a downturn. An additional 40-45% is related to outsourcing, risk modeling, etc., which can be resilient in difficult times.

ICRA Knowledge Services: IIFL Securities progressing in moderation after recent bumper run

This segment, which primarily caters to Moody’s, has seen revenue growth of around 30% over the past six quarters, with the EBIT margin reaching an all-time high of around 54%. Management expects the margin to hold; IIFL Securities analysts assume some moderation, with prices trading every two years.

Valuation matrix

CMP (Rs)

Target Price (Rs)


MCap (millions of US dollars)
CRISIS* 2,950 3,375 To add 2,600
CARE 531 619 To add 190
CIFAR 4,138 4,797 To buy 485

Source: Company, IIFL Research; *FY22 represents CY21 and so on, for CRISIL

Donald E. Patel