Target: ₹4,195

CMP: ₹3,731.30

The Covid-19 pandemic had disrupted businesses and the rating volumes which resulted in lower revenue from rating services for rating agencies. However, the credit growth has begun to pick-up and the requirement for credit rating would also grow along with the economy.

Over the longer term, credit market outlook remains optimistic as support from government and regulatory authorities could enable depth in the markets which is positive for ratings business.

Increasing preference of sound borrowers towards bank loan alternatives has opened additional source of revenues. The outsourced and information services business segment of ICRA is doing well and the margins have been improving. The long-term outlook for the ratings business remains positive, given the large funding requirements which would have to be raised through a combination of bank loans and bonds.

ICRA is aiming to gain wallet share in focused large and mid-sized clients by being the preferred rating agency from investor’s perspective.

ICRA is well placed to benefit from the revival in credit growth. We expect ICRA’s revenue/EBITDA/PAT to grow at 13/21/21 per cent CAGR over FY21-FY24, led by demand revival in credit growth and strong uptick in outsourced business. ICRA has healthy cash and cash equivalents (FY24) on books equivalent to 19.5 per cent of its CMP.

We believe investors can buy the stock in the band of ₹3,720-3,750 and add on dips to ₹3,350-3,380 band (22.5x FY24E EPS) for a fair value of ₹4,195 (28x FY24E EPS) over the next 2 quarters.

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