rating agency, ICRA The stock markets are well placed to deliver double digit returns going forward with credit growth and outsourced business emerging as a major booster for the company. HDFC Securities takes a buy position on ICRA and expects the stock to reach fair value 4,195 each in the next two quarters.
ICRA stock witnessed selling pressure on Friday and was trading at 3766.20 pm on BSE, down Rs 55 or 1.44% at around 2.22 pm. The stock has touched intraday highs and lows of Rs 3853.75 and Rs 3754.30 respectively.
HDFC Securities believes “can buy stocks in investor’s band” 3720-3750 and add on dips 3350-3380 band (22.5x FY24E EPS) for a reasonable price of 4195 (28x FY24E EPS) in the next 2 quarters.”
The share of Icra was at Rs 3821.20 on the previous day. Keeping in mind the fair price target of HDFC Securities and Thursday’s price level, ICRA is poised to make around 10% in the next 2 quarters.
Meanwhile, from the current price level, ICRA stock is likely to rise by over 11% going forward. So far this year, ICRA’s stock has gained about 11 per cent.
Arguing its view on ICRA, HDFC Securities in its note said that ICRA is well poised to benefit from the revival in credit growth.
“We expect ICRA’s Revenue / EBITDA / PAT to grow at 13/21/21% CAGR in FY 2011-FY 24, led by revival in demand in credit growth and strong growth in outsourced business. ICRA has healthy cash and cash equivalents (FY24). Books equal to 19.5% of its CMP,” HDFC Securities note added.
According to the stockbroker, the COVID-19 pandemic had disrupted businesses and rating volumes, resulting in lower revenue from rating services for rating agencies. However, credit growth has started picking up and the need for credit ratings will increase along with the economy. In the longer term, the credit market outlook remains optimistic as support from the government and regulatory authorities could enable a deepening in markets that are positive for the ratings business.
Further, the broker highlighted that the increasing preference of strong borrowers towards bank loan options has opened up an additional source of revenue. ICRA’s Outsourced and Information Services business segment is performing well and margins are improving. The long-term outlook for the ratings business remains positive, which will have to meet larger funding requirements through a combination of bank loans and bonds. ICRA aims to achieve wallet share among large and medium-sized clients focused by becoming the preferred rating agency of investors.
Perspective.
In Q3FY22, ICRA’s consolidated operating income grew 11.9% year-on-year 86.6 crores due to traction in fresh business. In the quarter, the company’s employee expenses decreased, while other operating expenses increased (due to higher bad debts and provisions) resulting in a 43% year-on-year increase in EBITDA. 34.6 crores. EBITDA margin increased by 865bps to 40%. PAT up 27.8% y-o-y 30.9 crore and PAT margin increased by 440bps to 35.7%.
Further, in Q3FY22, the rating, research and other services segment of ICRA, including foreign subsidiaries, grew by 3.7% on a y-o-y basis. The outsourced and information services segment grew 30.8% due to business growth from existing and new clients, while consulting services grew 5% due to challenges in the external environment and a focus on some unprofitable areas of its business.
Notably, during the third quarter of FY22, there was an increase in issuance of bonds backed by issues of banks and NBFCs over the corresponding quarter of the previous year. Bank credit to large industry, however, remained weak as the impact of supply-side disruptions on the back of pick-up in economic activity eased.
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