ICRA

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.

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.

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.

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.

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.

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.

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.

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.