Background:
- ICRA Ltd. was incorporated in year 1991 as a credit rating agency by a consortium of financial/investment institutions, commercial banks and financial services companies. Moody’s India, a part of Moody’s Group is the promoter of the ICRA Ltd.
- The company is engaged in the business of providing rating and grading services. The company also provides consulting, information technology based and outsourcing services.
- The Company has three subsidiaries, namely, IMaCS, ICTEAS and ICRA Online. ICTEAS provides business solutions and computer aided engineering services. ICRA Online provides mutual fund based information and outsourcing services while IMACS provides management consulting services.
- Rating services, consulting services and information technology based services contributed 55.97%, 21.70% and 14.00% of total revenues respectively in FY06 and 55.64%, 17.08% and 15.84% respectively for the 9 months ended December 2006.
- In fiscal 2006, volume of debt rated by the company was Rs. 1,389.49 billion and the number of published issuers outstanding as on March 31, 2006 were 398. For the nine months period ended December 31, 2006, the volume of debt rated by the company was Rs. 988.64 billion and the number of published issuers rated outstanding as on December 31, 2006 was 399.
- The company has entered into an agreement with ICRA Online for ranking of mutual funds. For this purpose, ICRA Ltd pays ICRA Online a sum of Rs. 70, 000 per month and revenues from these services are shared in ratio of 85:15 by ICRA Ltd and ICRA Online.
- To achieve the benefits of listing
- To carry out the sale of equity shares upto 2581100 shares.
- The company has developed in depth knowledge in several sectors supplemented by knowledge management system. This has enabled company to develop a comprehensive range of products and thus enabling company to obtain additional business from existing clients as well as address a larger base of potential clients.
- The net sales of the company has increased at a CAGR of 28.55% to Rs. 543.21 million in FY06 from Rs. 328.69 million in FY04. The net profit has increased at a CAGR of 13.35% to Rs. 142.08 million from Rs. 110.58 million for the same period. For the nine months ended net sales stood at Rs. 495.41 million and net profit was Rs. 135.87 million.
- The company has consistently high EBITDA margin. Its EBITDA margin improved marginally from 33.79% in FY04 to 33.93% in FY06. For the nine months ended December’06 it has EBITDA margin of 35.70%.
- Since 97% of the debt offers in India are rated, expected increase in corporate take off and the potential for new businesses from a variety of issuers and debt instruments, prospects for its rating business is expected to increase.
- The company has high debtors turnover ratio. The same has increased from 77 days in 2004 to 86 days in 2006. Further, it has increased to 144 days for the 9 months ended December 2006.
- The company operates in an industry where retaining skilled personnel with particular industry domain knowledge for performing credit and financial analysis is essential. The company has high attrition rate of 23% and 22% for FY06 and for the nine months ended respectively. This can have a negative impact on company’s margin.
- The company had declining operating profit from FY02 to FY05. It has declined from Rs. 121.63 million in FY02 to Rs. 87.03 million in FY05. However, its operating profit increased to Rs. 164.87 million for FY06.
Valuations:
- The results of FY06 are not comparable with FY05 as ICRA Online and ICTEAS both become its subsidiary during FY06 and data is given on consolidated basis.
- Return on net worth (RONW) has increased from 9.66% in FY05 to 15.23% in FY06. For the nine months ended RONW stood at 12.75%.
- Book value per share as on December 31, 2006 is Rs. 120.98/-.
- Post issue annualised EPS based on December 2006 earning is Rs. 18.16. The shared are being offered in a price band of Rs. 275/- to Rs. 330/-. POST issue PE ranges from 15.17 to 18.21. Industry average PE is 43.8.