CRISIL - The Best Play In An Otherwise Crowded Rating Space: HDFC Securities

HDFC Securities Retail Research

CRISIL Ltd. is the oldest and a leading domestic credit rating agency in India. It is majorly owned by by S&P Global which is world's foremost provider of transparent and independent ratings, benchmarks, analytics, data, research, commentary and ESG solution.

The company has diversified over the years and ventured into research and analytics and advisory services which now accounts for ~75 of its revenue.

The diversification has been geographic as well with offices in Argentina, Australia, China, Hong Kong, Poland, Singapore, Switzerland, UAE, UK and USA. This helps the company in getting a lot of business from the parent.

Being the best-in-class industry leader it delivers a diversified revenue mix, superior margins, solid return ratios, and free-cash-flow yield. With the Government focus on capex, the outlook of the domestic credit rating agencies has been improving.

Incentives by Government for micro, small and medium enterprises sector and easy availability of finance for retail consumers is expected to further enhance credit demand.

Corporates have also increased their borrowings with significant expansion plans announced by many of the leaders. We expect aggregate corporate borrowings to increase which bodes well for the rating business.

The Global Analytical Centre business increased support for surveillance, new issuances and transformation projects to S&P.

New offerings such as ESG ratings post-SEBI approval should raise revenues further.

Diversified revenue mix, levers for margin expansion, and solid return ratios have seen CRISIL's valuation multiplies stay at a premium and to its peers. Preference for quality has seen investors/lenders prefer CRISIL, propelling it to be the best play in an otherwise crowded rating space.

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