Revival In Assignments

Equity stake taken up by Standard & Poor: The worlds largest rating agency, a division of the McGraw Hill Companies, has negotiated the purchase of a 9.6 per cent stake presently held by the Asian Development Bank at a price of around Rs 250 per share. Having spent around Rs 15crore, it seems unlikely that S&P will spend another Rs 900 (at current prices) to pick up a 51 per cent majority.

More so when, with the onset of globalisation, Crisils future business development will be overshadowed by S&Ps brand, credibility and reach.

Increase in the ceiling for fees charged: Crisil has about 50 clients (out of a total base of 1,339 as on end March, 1997), to whom the rating fees charged are limited by the current ceiling of Rs 20 lakh (per company). In the current year, Crisil has raised this cap by 50 per cent at Rs 30 lakh which translates into an increased pre-tax earnings of Rs 5 crore on an equity base of Rs 6.2 crore.

Positive fallout of the FY98 first half monetary policy: The recent monetary policy has given a big boost to the sluggish economy, by focusing on increasing the liquidity within the system. As a result of the falling interest rates and ample credit availability, the industrial sector is beginning to come alive, with a concomitant fallout on their need for funds. The scrapping of the MPBF and the consortium system of working capital loans by banks, has activated the commercial paper market for which ratings are actively being sought. With capital investment plans being revived after a long hiatus, the demand for long term debt rating is set to boom in the coming months. Crisil on its part, is actively seeking out new business avenues like the bank loan rating scheme, the mutual fund rating scheme, etc.

Conclusion: Recent reports indicate there has been a significant revival in the fresh rating assignments, led by the commercial paper (CP) business. Also, with the absolute size of projects becoming larger, we will see a faster addition to Crisils capped fee client base, which itself stands increased by 50 per cent (Rs 30 lakh) from FY98. The renewed focus on the information & advisory services division, will see a faster growth in them thus contributing to a larger share of Crisils total income (around eight per cent in FY96). The long term growth prospects remain intact and we stand by our projection of an earnings growth (EPS) of 50 per cent for FY98. However, as the recent sharp appreciation of over 50 per cent in the past three months has discounted the growth in the current year, we revise our recommendation from buy to hold. Due to the sharp appreciation in the share price of Crisil, we are revising our stand from buy to hold, as the current price is largely discounting the anticipated

FY98 financial performance.

ASK-Raymond James