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Sunday, Sep 08, 2002

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Crisil: Hold

Sanjiv Shankaran

THE Credit Rating Information Services of India (Crisil) is the only credit rating agency to have its equity shares listed in the stock market.

A slide in its share price recently — about 25 per cent in the last four months — has brought it down to about Rs 277.

Strengths: Crisil derives most of its revenue and operating profit (before deducting expense towards depreciation and tax) from credit rating. In 2001-02, about 74 per cent of the revenue and 88 per cent of operating profit came from the rating business.

Rating is likely to be the core business of Crisil in the foreseeable future as well as its most profitable one. Increasing depth to debt trading in India, and churning in the corporate world through mergers provide ideal conditions for Crisil's rating business to flourish.

Credit rating has equipped Crisil with valuable information about the world of business as well as the tools to put them to good use. Crisil has got into advisory services, vending information and data slicing to diversify its revenue and capitalise on new opportunities. At the moment, other businesses seem unlikely to supplant ratings either in terms of revenue or profitability. But they do add a bit of variety that helps reduce the risk associated drawing income from one source. Crisil's business is not capital-intensive — an uncommon feature in the financial sector. The company is free of debt, and the situation is likely to continue.

Risks: Business risks seem relatively limited. The shareholding pattern may be a bigger cause for concern. The shareholding pattern (June 2002) indicates a 15 per cent stake with foreign institutional investors (FIIs) and around 8 per cent under the control of a small group of individuals.

In the light of Crisil's trading volume, a concentration of about 23 per cent with two entities (so described for easy categorisation) imparts the risk of a sharp swing in the stock.

Recommendation: Shareholders in Crisil may consider staying invested because the business is sound, and seems likely to remain highly profitable. (CRISIL's profitability at 52 per cent is higher than that of Infosys).

Fresh exposures can be avoided for the moment because of the above risk factors.

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