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ICRA Limited
Analysts Presentation, 2007-08
May 2008
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1
Agenda
2
3
4 Business Outlook and Challenges
1 Background and Business
Financial Performance Review
Business Update
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Background and Business#1
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Background and Business
Consulting ServicesIT solutions in
business applicationsand processes
ICRA LimitedRating Services, Grading Services, Information Services, and Outsourcing Services
ICRA Management
Consulting ServicesLimited (IMaCS)
(100% subsidiary of
ICRA Limited)
ICRA Techno Analytics
Limited (ICTEAS)
(100% subsidiary ofICRA Limited)
ICRA Online Limited(ICRA Online)
(100% subsidiary of
ICRA Limited)
Mutual Fund-basedInformation services
Technology products
and services
Outsourcing services
ICRA is one of the leading
Credit Rating agencies inIndia, and an Associate of
Moodys Investors Service
Besides Ratings, ICRA
Group offers Consulting
services, IT-based services,
Information services, and
Outsourcing services.
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Financial Performance Review#2
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ICRAs Revenues up by 47%
ICRAs Net Profit up by 65%
Consolidated Group Revenue up 40%; Consolidated Group Net Profit up 43%
All businesses register strong top line growth
Proposed Dividend of Rs 5 per share
Proposed Special Dividend of Rs 5 per share
Financial Highlights, 2007-08
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ICRA: Standalone Financials
Due to change in accounting policy for surveillance income during 2007-08, Rating Income is lower by Rs. 70.6 million and PAT is lower byRs. 39.9 million
Strong Financial Performance
Ratings Income up by 55%
Improvement in profitability margins
Net Profits up by 65%
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ICRA Group: Consolidated Performance
All businesses have reported strong top line growth
Robust growth in profits
Due to change in accounting policy for surveillance income during 2007-08, Rating Income is lower byRs. 70.6 million and PAT is lower by Rs. 39.9 million
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ICRA Group: Key Ratios
Overall Group profitability improved in 2007-08, mainly on the strength of Rating Services Income
Profitability of other businesses has declined (discussed under Business Update Section)
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ICRA Group: Segment-wise Contributions
As Ratings Business, which is the most profitable (compared with other businesses), has
reported the highest growth, its contribution to Revenues and Operating profits has increased
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Business Update#3
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Business Update: Rating Services
Performance highlights:
Revenue grew by 55% (24% in the previous year)
Operating profits up by 61%
Growth driven by:
Basel 2 rollout
Issuance by Financial sector entities boosted by buoyant capital markets
Increased market access by Real Estate issuers
New services, viz., IPO gradings and Recovery ratings of Securities Receipts
Govt.s initiatives to prepare urban bodies to tap debt markets
Significant increase in volume of rated debt to INR 2,586 billion (INR 1,776 billion in the previous year); this is in addition
to Basel 2 ratings
Acquisition of new clients
Profitability buoyed by: Cost control and impact of Operating Leverage (with growth in revenues exceeding expenses)
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Business Update: Advisory Services
Performance highlight
Operating Revenue grew by 20% (24% in previous year)
Growth driven by:
Deeper inroads made into Energy and Infrastructure sectors
Creation of a new growth vector in the form of Development Consulting
Strengthening business relationships with multilateral institutions (e.g. ADB, World Bank, UNICEF)
Increase in average mandate size
Profitability impacted by:
Longer than expected execution time for a few large mandates
Investment of resources in creating new products in the risk management practice
Outreach and business development efforts in the overseas markets
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Business Update: IT Related Services
Performance highlight
Revenue grew by 21% (38% in the previous year)
Growth driven by:
New business analytics domain
Addition of new clients
Steady growth in business from prominent (existing) clients
Profitability impacted by:
INR appreciation against the US dollar (by 11.38% from INR 45.15 to INR 40.01)
Opening up of US office (incorporated as a wholly-owned subsidiary, ICRA Techno Analytics, Inc., in April 2007
to increase reach in the North American market)
Strengthening of middle management cadre and other HR related initiatives
Challenges
To scale up size of operations
To better manage exchange rate risks, control costs, and improve profitability
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Business Update: Outsourcing Services
Performance highlight
Revenue grew by 37% (157% in the previous year)
Business impacted by:
Slowdown in work flow due to decline in issuances in the international credit markets
INR appreciation against the US dollar
Challenges
To expand client base
To scale up size of operations
To better manage exchange rate risks, control costs, and improve profitability
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Business Update: Information Services
Performance highlights:
Revenue grew by 39% (26% in the previous year)
Losses declined following growth in revenues
Growth driven by:
Addition of prominent clients in the Financial sector domain
Advertising revenues from web-portal
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Business Outlook and Challenges#4
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Business Outlook: Rating Services
Outlook appears positive for all segments
Basel 2 implementation under standardised approach by Banks in India (Short-Medium term)
Larger corporate issuance in local debt market, which is relatively under-penetrated (Medium to Long term)
Buoyant economic conditions leading to increase in funding requirements
Govt.s forex inflows management related concerns
Govt. initiatives to revive the debt market
Growth in assets under insurance and pension schemes
Enhanced possibilities of Risk-based pricing by Banks (with loan exposures getting rated under Basel 2)
Expected sustained growth in credit demand and capital markets to drive financial sector related issuance
Expansion of under-penetrated structured finance market with growth in credit leading to increasing funding
and capital requirements
Significant funding requirements of sub-sovereign entities
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Business Outlook: Rating Services
Other Opportunities
Mandatory Grading of Initial Public Offers (IPOs)
Initiative by Ministry of Finance for Grading of Public-Private Partnership (PPP) projects
Rating of Security Receipts of Asset Reconstruction Companies
Rating of Real Estate Mutual Funds
B i O l k R i S i
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Business Outlook: Rating Services
ICRA is well positioned to exploit the emerging opportunities, given its:
Strong brand and competitive strengths
Proven ability to make product and service innovations
Track record of Ratings
Experienced Management team and rich talent pool
Close association with Moodys
Ch ll /Ri k F t R ti S i
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Challenges/Risk Factors: Rating Services
Any significant slowdown in economic or investment growth, especially on account of rising interest rates
Protracted Slow down/disruption in domestic debt markets
Ease of access and relative cost economics of overseas funding alternatives
Adverse changes in regulations
Reputation related risks
Competitive pressures from other Rating agencies
Ability to retain and attract quality manpower; increasing compensation and related operating costs
Squeeze on Profitability margins from pricing and cost pressures, besides increasing penetration of relativelylower ticket business
Di l i
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Disclaimer
This Review Presentation contains certain forward-lookingstatements (including expectations and plans) that may be identifiedby words, phrases, or expressions such as expected, will, would,
continue, intend to, in future, opportunities or their variations.These forward-looking statements are subject to certain risks anduncertainties that could cause actual results to differ materially fromthose reflected in the forward-looking statements. Factors that mightcause such differences include, but are not limited to, thosediscussed under Risks and Challenges section, which is a part ofthis review presentation. Readers are cautioned not to place unduereliance on these forward-looking statements, which reflectmanagements analysis only as of the date hereof. The Companyassumes no obligation to publicly update or otherwise revise anystatements reflecting circumstances arising after the date hereof or toreflect the occurrence of underlying events, even if the underlyingassumptions do not come to fruition.