ICRA

ICRA reported a strong first half of FY24, with consolidated revenue from operations increasing 8.6% year-on-year to Rs.207.6 crores. This growth was primarily driven by the ratings business, which saw an 11.8% year-on-year revenue increase, and the ICRA Analytics subsidiary, which grew 4.4%. Profit Before Tax (PBT) demonstrated robust growth, rising 17.6% year-on-year to Rs.97.0 crores for H1 FY24.

While H1 performance was strong, Q2 FY24 experienced some moderation. Consolidated revenue from operations for the quarter increased 6.4% to Rs.104.9 crores, with ICRA rating revenue growing 7.8%. This slowdown was attributed to market headwinds^🌐 in both the bond market (volatile yields) and the bank credit segments (tight liquidity), which offset strong securitization volumes. Management noted that Q1 had benefited from a transient^📎 dip in bond yields, leading to some front-loading of credit offtake.

ICRA announced a definitive agreement to acquire a majority stake in D2K Technologies India Private Limited, an established provider of software solutions to banks and financial institutions. This acquisition is aligned with ICRA's growth and diversification strategy, aiming to accelerate growth in the risk and analytics space by leveraging ICRA's brand, sectoral expertise, and D2K's domain and technology. The company also applied to SEBI for a license to commence ESG ratings business, consistent with new regulatory frameworks.

The ICRA Analytics business, particularly its knowledge services vertical, continued to drive growth in H1 FY24, despite facing a global slowdown^🌐. Management explained that growth in this segment is influenced by the competitive landscape (including insourcing by Moody's and other service providers) and Moody's global business flows. The company is focusing on increasing value-added services and exploring non-Moody's options, both domestically and globally, to capitalize on its process excellence and data analytics capabilities.

ICRA reported further improvement in its rating accuracy, with the Average Default Position (ADP) reaching 95.1% in H1 FY24, up from 93.3% at FY23 end and significantly higher than the long-period average of 76%. The proportion of entities with reaffirmed or unchanged ratings stood at 81%. The credit ratio was two times in H1, reflecting continued rating upgrades, though the upgrade rate moderated to 14% (from 19% in FY22), indicating a normalization of credit quality trends.

Management affirmed its commitment to evaluating capital allocation, citing increased dividend payouts and the recent D2K acquisition as examples. Regarding rating margins, which analysts noted were at historical lows, management acknowledged the need for improvement. Strategies include focusing on operational efficiencies, technology investments, and client acquisition, with an aim to improve margins year-on-year. Tech spends are categorized into catch-up, product enhancement, operational efficiency, and futuristic AI adoption, with about 25-30% of this journey completed.

ICRA projects FY24 GDP growth at 6%, with risks evenly balanced due to factors like uneven monsoon, external headwinds^🌐, and geopolitical tensions. For the remainder of FY24, credit offtake is expected to happen on anticipated lines, supported by government infrastructure spending, working capital requirements, and NBFC demand. The inclusion of Indian bonds in the JP Morgan emerging market index from June 2024 is expected to drive increased investment in government securities, providing headroom for the development of the corporate bond market in India.