ICRA

ICRA

REC, MCX, ICRA, Muthoot Capital, LIC Housing Finance

REC, MCX, ICRA, Muthoot Capital, LIC Housing Finance 

ICRA

ICRA

ICRA

ICRA

ICRA

ICRA

ICRA

Investors with a three-year horizon can be consider accumulating the stock of ICRA, a credit rating agency with a presence in consultancy, advisory, information and IT services. The company may continue to deliver strong earnings growth with the revival in India Inc's capital raising plans, directly adding to rating revenues. Implementation of base rate and possibility of increased volumes in securitised issuances may also help maintain good earnings growth. A major portion of ICRA's current earnings comes from rating services, and being one of the prominent players, it is well-equipped to take advantage of any opportunities in this sector.

ICRA, ICSA, Mahindra and Mahindra, Piramal Healthcare, Patel Engineering, Ranbaxy Labs, Shree Renuka Sugar

ICRA, ICSA, Mahindra and Mahindra, Piramal Healthcare, Patel Engineering, Ranbaxy Labs, Shree Renuka Sugar

ICRA

ICRA

ICRA

Investors can consider accumulating the stock of Investor Information and Credit Rating Agency (ICRA). Having consistently delivered a high rate of earnings growth, ICRA is expected to manage growth at a fair clip over the next two-three years, given the sizeable opportunities in the credit rating business.

The sector’s oligopolistic nature, strong brand equity and higher demand for rating services likely from India Inc’s increased domestic capital raising plans, offer a sizeable opportunity for the company. The strong cash flows and low debt requirements of the business, impressive operating profit margins for the ratings business (51 per cent), also make the stock a stable addition to one’s portfolio, despite a small cap status.

At the CMP of Rs 485, ICRA is trading at a trailing one year PEM of 13.7 on a consolidated basis, at a discount to the lone listed competitor CRISIL. The discount may be justified by CRISIL’s more diversified business profile, even as ICRA is highly reliant on rating services.
Business

ICRA is engaged in the business of credit ratings, advisory, outsourcing, information and IT services. Over the last few years, the company has set in motion initiatives to diversify its revenues, although rating services still contribute the major chunk of revenues and earnings. For the nine months ended December 2008, rating services contributed 64 per cent of the total revenues and 92 per cent of the operating profit (EBIDT).

ICRA’s consolidated revenues grew at 34 per cent CAGR in the last three years (FY 2006- FY2008) while net profit grew by 41 per cent in the same period.

For the first nine months of 2008-09, the company’s profits grew by 35 per cent, due to a surge in rating income which grew by 39 per cent. Other businesses such as consultancy and outsourcing have grown at 42 per cent and 127 per cent, respectively, on a lower base.

The operating margin for the standalone business is 51 per cent; this drops to 35 per cent on a consolidated basis, as other business incurred higher operating costs.

With ratings being the key driver of margins, operating profit margins may see some moderation in the coming quarters. A decline in the average size of rating mandates (as the company rates smaller companies), even as the cost of monitoring rises (given the more susceptible credit environment), may keep realisations under check.

This may be partially offset by moderating employee costs as attrition-related pressures decline (employee costs account for 41 per cent of operating revenues).

In the non-rating businesses, ICRA’s Information service segment has seen fall in revenues and may continue to be vulnerable to the slowdown in coming quarters. Advisory services, given their lumpy nature, may not be a consistent contributor. ICRA’s IT subsidiary has acquired two companies (Axiom Technologies and Sapphire International Inc) in the last fiscal but the benefits from these acquisitions can only be reaped in the long term.
Growth Prospects

The near-term revenue driver for Indian rating agencies is the mandatory requirement of ratings for bank loan exposures. Industry estimates suggest that about 30 per cent of the current loan exposures of banks by value and about 55 per cent in number remain unrated as of now.

The RBI requires all commercial bank loans of above Rs 10 crore to be rated by end of 2008-09. Alternatively they will have to set aside more capital for such un-rated loans (through higher risk weights).

That may prompt banks to obtain ratings on the residual loans to free up capital for lending. ICRA has already signed MoUs with more than 23 banks, including SBI, Canara Bank, Central Bank of India and Andhra Bank for providing rating services and can be expected to reap revenues from their mandates.

Incremental loans advanced will also require ratings, spelling an ongoing opportunity for ICRA. Apart from the ‘line of credit rating’, banks may also require ICRA’s services when they raise capital to meet their capital adequacy norms. According to the RBI’s currency and finance report projection released in September 2008 , the banking sector would require additional capital of Rs 5,68,744 crore over the next five years to maintain capital adequacy of 12 per cent.

With India’s corporate debt market in a nascent stage, corporate credit ratings will be the key medium to long-term revenue driver for rating agencies such as ICRA.

With the focus of Indian companies turning back to domestic debt (post credit crisis), domestic debt funding will play a major role in India Inc’s capital raising plans over the next five years; spending related to the Five Year Plan may also expand debt raising. Estimates suggest that new issues in corporate debt have surged by 44 per cent in the first quarter of 2009.

The moribund state of the equity markets may also prompt more companies to turn to debt, especially given the downward bias in interest rates. In addition to corporate bonds, state and local level entities (municipal bonds and state level bonds) are also expected to tap the market for funding requirements. The securitisation market also offers huge potential but is still in an early stage of development.

ICICI Bank, ICRA, Marico, Orient Paper, SBI, Sterlite Industries, Canara Bank, IPCA Labs, United Spirits

ICICI Bank, ICRA, Marico, Orient Paper, SBI, Sterlite Industries, Canara Bank, IPCA Labs, United Spirits

ICRA Ltd

ICRA Ltd

ICRA

ICRA

ICRA - downgrades Maytas

ICRA - downgrades Maytas

CRISIL, ICRA

ICRA

ICRA

Reliance Power - ICRA assigns 4/5 Rating

Leading credit rating agency, ICRA assigned IPO Grade 4, indicating above average fundamentals, to the proposed initial public offering of Reliance Power (RPower), a subsidiary of Reliance Energy. ICRA assigns IPO grading on a scale of IPO Grade 5 to IPO Grade 1, with Grade 5 indicating strong fundamentals and Grade 1 indicating poor fundamentals.

The IPO Grade 4 assigned by ICRA reflects the benefits arising out of being a part of the Reliance Anil Dhirubhai Ambani Group which has considerable experience across the value chain in the power sector and the expected cost competitiveness of most of the power projects in relation to the markets it proposes to serve, which when combined with spiraling energy deficits and the groups plans of maintaining a judicious mix of long term PPAs and short term trading, should result in strong earnings growth in the long term.

Further, the IPO proceeds would enable the company to tie up the equity funding for the first tranche of projects that it has identified. The grading also reflects the prospects for the power generation business in the country with increasing regulatory clarity, gradual emergence of a market for trading in power and improvement in financial position of some of the utilities in the state sector.

The grading is however constrained by the implementation risks inherent in project implementation of the scale and magnitude being envisaged by RPower, uncertainty on issues related to gas and the ability of the company to maintain the desired levels of all operating parameters, especially in case of the competitively bid projects, apart from executing the projects without cost overruns.

The company would also be subject to technology risks arising out of the fact that for some of its plants, which are based on Super Critical Technology, the BTG would be primarily imported and these are yet to be proven in Indian conditions, even though they have an operating history internationally. However these risks are partly mitigated due the significant financial strength enjoyed by the promoter group, along with demonstrated execution capabilities. Also, as a strategy to mitigate the financing risk, RPower has taken in principle sanctions for rupee debt facilities of Rs 179.4 billion and foreign currency denominated debt facilities of USD 542 million, which constitute more than 87% of total debt requirement for identified projects.

Shares of Reliance Energy gained Rs 144.4, or 6.76%, to settle at Rs 2,279. The total volume of shares traded was 1,396,980 at the BSE.

Weekly Stock Recommendations

Asian Paints: Buy
The stock of Asian Paints appears to be a good addition to the portfolio for conservative investors with a two-year investment horizon.

Strong growth prospects for decorative paints arising from the higher pace of construction activity and a ramp-up in revenues from international operations could aid sales growth over the next couple of years.

ICRA: Book profits
Investors in the initial public offering from ICRA have reaped substantial rewards from their investments, though only two months have elapsed since the offer. After listing at a significant premium to the offer price, the stock has delivered almost a three-fold appreciation from its IPO price of Rs 330.

At the current price levels of Rs 940, investors can look to book profits on at least a part of their holdings, as current stock valuations appear to capture a good portion of the earnings growth potential over the next couple of years.

Petronet LNG: Buy
Investors can consider acquiringPetronet LNG stock with a long-term perspective. The company is in a growth phase and accounts for a quarter of the domestic gas market. The growing demand for natural gas augurs well for Petronet's expansion plans while the near-term earnings are likely to be buoyed by spot and short-term market cargoes.

The growing acceptance of regasified LNG (liquefied natural gas) by users such as power and fertiliser companies, even of gas sourced at relatively higher rates in the spot market, holds out promise for Petronet's business .

Stock Takes

Will cash help Tata Tea?

With reports of Coca Cola's interest in the Glaceau brand doing the rounds for quite some time now, the stock price of Tata Tea had already run up to a significant extent in expectation of a deal to buyout Tata Tea's stake in Energy Brands Inc (owner of Glaceau).

Apart from a sizeable cash inflow of $1.2 billion (about Rs 4,800 crore) from the deal, Tata Tea has also managed to pocket a tidy profit of $523 million (about Rs 2,100 crore) representing the difference between its own acquisition price for Glaceau and the recent sale price for its 30 per cent stake. However, the manner in which the company chooses to deploy this cash would be crucial to the future direction of the stock price. If used to retire the substantial debt on the groups' balance-sheet after a series of debt-funded overseas acquisitions in recent years, the cash inflow could help improve earnings prospects.

Balanced against this is the fact that Glaceau was among the most promising brands in Tata Tea's current portfolio, in terms of its growth potential. With the sale of this brand, Tata Tea is once again left with a clutch of conventional beverage businesses spanning the globe. As these are unlikely to offer the growth potential of Glaceau, the company may again be forced to scout for new acquisitions to drive growth. The stock may continue to trade at a valuation discount to its FMCG peers.

Everest Kanto faces margin pressure

Everest Kanto Cylinders (EKC) registered an 80 per cent growth in net sales and 114 per cent increase in earnings for FY-07, on a consolidated basis.

Healthy realisations and high utilisation led to the expansion of net profit margins. However, on a standalone basis, revenues remained flat while earnings fell by about 50 per cent. This can be explained by the exclusion of contributions from EKC's Dubai facility in Q4 of FY-07 compared to the corresponding previous quarter, as the Dubai facility has been transferred to EKC's wholly-owned subsidiary.

On the operational front, while margins expanded on a year on year basis, change in sales mix in the Indian operations led to a decline in margins on a sequential basis. Driven by a robust demand, EKC has announced an investment of $60 million (approximately Rs 240 crore) for further expansion through equity-linked instruments. This apart, the company has also announced a 5:1 stock split.

Tension mounts for Fortis

The Fortis Healthcare stock has been under pressure in recent times following an escalation in tension between the Fortis management and a leading cardiologist at its key hospital — the Escorts Heart Institute and Research Centre (EHIRC). The two parties have reached an out-of-court settlement towards the end of the week. But irrespective of this outcome, uncertainties remain about the initial takeover and operation of EHIRC by the Fortis group, which is under litigation.

Further clarity on this front may emerge only after the next Court hearing. At the current price of Rs 92, the stock trades at a premium to Apollo Hospitals, a peer company which has better profitability and return parameters. This suggests that further downside to the stock cannot be ruled out.

ICRA - Shipping Industry

ICRA - Shipping Industry

ICRA IPO Allotment

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RETAIL - 54 times

OVERALL - 75 times