UK buy brightens Crisil's growth prospects

After a disappointing show in the June quarter, Mumbai-based Crisil's performance in the September quarter can at best be considered modest. The recovery can be primarily attributed to the growth in the company's research business after it acquired UK's Coalition Development in the June quarter.

But, the investment climate has to improve significantly for the provider of ratings, research and analytical services to gain momentum in the quarters ahead.

Despite the challenging environment, revenue growth in the September quarter was up 29% year on year, against 6.5% in the last quarter. Unlike the company's existing low-margin research business, Coalition's higher profitability business boosted the overall margin of the company.

The EBITDA improved by 600 basis points sequentially. The latest acquisition also enabled the company to add new clients. Crisil's previous two acquisitions, Chennai-based Irevna and US-based Pipal, also aided client growth.

The ratings business revenue grew 23% following higher bank loan ratings, SME ratings and securitisation transactions. This was bettern than the 7% in the June quarter.

But the high-margin debt or bond-issuance rating business continued to be slow due to a sluggish bond market and muted credit growth. The Coalition acquisition offers several growth prospects for Crisil.

The company's stock has fallen 11% in six months compared with Sensex's 15% gain. At 947.8, it trades at a trailing 12-month PE multiple of 33.5. The company has to retain the growth momentum to justify this valuation.