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    ICRA

    ICRAGood
    Financial Services·31 May 2024
    Management Summary

    ICRA delivered strong financial results for Q4 and full year FY24, driven by robust growth in both ratings and analytics businesses. The company reported double-digit increases in revenue and profit after tax, alongside an improved Average Default Position. Strategic initiatives like the D2K Technologies acquisition and SEBI approval for its ESG rating entity are set to diversify offerings and strengthen market position, despite some headwinds in knowledge services due to automation.

    Highlights

    8
    • Q4 FY24 consolidated revenue from operations increased 13.7% to INR124 crores.

    • Q4 FY24 profit after tax increased 22% to INR47.1 crores.

    • Full year FY24 consolidated revenue from operations grew 10.6% to INR446.1 crores.

    • Full year FY24 profit after tax grew 11.3% to INR152.2 crores.

    • Ratings business delivered 12% growth, while analytics grew 8.6% for FY24.

    • Board recommended a dividend of INR100 per share, including a special dividend of INR60.

    • ICRA's ESG Rating Provider subsidiary received SEBI approval as Category 1.

    • FY24 Average Default Position (ADP) improved to 94%, with 5 default instances.

    What Changed1

    vs Q2 FY25

    Guidance items5 → 4 (-1)
    Key financials

    Metrics

    5

    Periods

    2

    Headline

    2
    • Consolidated Revenue
      ₹124 Cr
      YoY+13.7%
    • PAT
      ₹47.1 Cr
      YoY+22%

    FY24

    3
    • Consolidated Revenue
      ₹446.1 Cr
      YoY+10.6%
    • PAT
      ₹152.2 Cr
      YoY+11.3%
    • Dividend per Share
      ₹100

    Segment breakdown

    Ratings Business
    12% Revenue Growth (FY24)
    Analytics Business
    8.6% Revenue Growth (FY24)
    List

    Guidance & targets

    1
    CategoryTargetPriority
    Profitability
    Operating Margins
    will continue to improve
    Medium

    Risks & concerns

    8
    RiskSeverity

    Potential slowdown in government capex during general elections and monsoon period

    Expected to impact H1 FY25 GDP growth.Management acknowledged

    medium

    Weakness in merchandise export growth

    Contributes to caution on H1 FY25 economic momentum.Management acknowledged

    medium

    Dissipation of the benefit of deflation in global commodity prices

    Contributes to caution on H1 FY25 economic momentum.Management acknowledged

    medium

    Headwinds in knowledge services due to global automation drive

    Impacts client services, countered by diversification strategy.Management acknowledged

    medium

    Single client dependency in non-ratings business

    Need to diversify business model for robustness.Management acknowledged

    medium

    Areas of Evasion(3)

    • Specific financial contribution of D2K
    • Target EBITDA margin
    • Revenue mix between project and recurring business in knowledge services

    Q&A highlights

    3

    “So on knowledge services, as you know, we have been servicing our global client through this vertical. And there has been headwinds that we have seen in certain parts of the services that we offer to them. These are largely driven by the drive for automation that we are seeing globally.”

    Reveals a structural challenge (automation) impacting a key segment and management's strategy to counter it by diversification.

    asked by Rajiv Mehta

    3 min read8 chapters

    Detailed Narrative

    01

    Strong FY24 Performance Driven by Ratings and Analytics

    ICRA reported a robust financial performance for FY24, with consolidated revenue from operations growing 10.6% to INR446.1 crores. Profit after tax increased by 11.3% to INR152.2 crores. The ratings business was a key driver, achieving 12% year-on-year growth, while the non-ratings analytics business also contributed significantly with an 8.6% growth. For Q4 FY24, consolidated revenue rose 13.7% to INR124 crores, and PAT surged 22% to INR47.1 crores.

    02

    Enhanced Shareholder Returns and ESG Leadership

    The board has recommended a dividend of INR100 per share for FY24, which includes a special dividend of INR60, reflecting a commitment to consistent shareholder rewards. Furthermore, ICRA's subsidiary, Pragati Development Consulting Services Limited, received SEBI's approval for registration as a Category 1 ESG Rating Provider. This strategic move positions ICRA among the few entities offering holistic risk management solutions, integrating ESG principles into its operations and services.

    03

    Improved Asset Quality and Rating Accuracy

    ICRA demonstrated continued improvement in its rating accuracy metrics, with the Average Default Position (ADP) reaching 94% for FY24, up from 93.3% in the previous year. The number of default instances significantly dipped to 5 in FY24, compared to 22 in FY23 and 42 in FY22. The severity of rating actions, measured by the large rating change rate, also reduced to 0.7% in FY24 from 1.4% in FY23, indicating greater rating stability.

    04

    Strategic Diversification through D2K Acquisition

    The acquisition of 60% stake in D2K Technologies in November 2023 is a pivotal step to transform ICRA Analytics into a diversified product company. D2K's sophisticated tools for credit monitoring and early warning signals have strengthened ICRA's risk management segment, which saw robust growth in H2 FY24. Management noted strong demand for D2K's products in credit monitoring, regulatory reporting, and data management, aligning with increasing regulatory focus on automation of credit life cycles.

    05

    Headwinds and Strategic Adjustments in Knowledge Services

    The knowledge services segment, ICRA Analytics' largest vertical, experienced headwinds in H2 FY24, primarily due to a global drive for automation impacting client services. This pressure led to challenges in project-based revenue, though FTE (full-time equivalent) billing remained relatively steady. To mitigate this, ICRA is expanding its knowledge services to other global and domestic clients and growing its banking and risk management vertical to diversify its revenue streams.

    06

    Outlook on Credit Market and Economic Growth

    For FY24, bank credit outstanding grew 16.3% and bond issuances 17.2%, driven by a buoyant economy and government infrastructure spending. However, ICRA expects GDP growth to moderate to below 6.5% in H1 FY25 due to potential slowdowns in government capex, general elections, and monsoon period, before improving to 7.2% in H2 FY25, leading to an overall FY25 GDP growth forecast of 6.5%. Increased risk weights on bank lending to NBFCs are expected to shift NBFC funding towards bond markets and securitization, potentially benefiting ICRA's rating business.

    07

    Ongoing Investment in Technology and People

    ICRA continues its transformative journey with significant investments in people and technology. While major corrections in pay structures for the ratings business were largely completed 1-2 years ago, technology investments in infrastructure and application enhancement are expected to continue for the next 2-3 years. These investments aim to improve operating efficiencies, user experience, and overall margin performance, which remains a continuous focus area for management.

    08

    Capital Allocation and Shareholder Value

    An analyst raised concerns about ICRA's return on equity being lower than peers like CRISIL, attributing it to excess cash holdings. Management acknowledged this point, stating that capital allocation is constantly reviewed to strike a balance between expansion needs and shareholder payouts. The increased dividend for FY24 and the D2K acquisition were cited as examples of active capital allocation decisions.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.