Broker’s Call: ICRA (Buy)

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Target: ₹6,700

CMP: ₹5,752.60

ICRA’s full participation in the extant ratings cycle has been a function 1) reorganisation of ratings team structure with sharpened sectoral rigor, 2) restructuring of business development team on lines of key sectors, 3) strong ratings performance and timely actions, 4) focus on remunerative and appropriate pricing/yields, and 5) inherent strength (leading market position) in faster growing sectors (financial incl. Securitisation, and Infra) and bond ratings (issuances have increased in recent quarters).

After tuning around in FY22 (10 per cent growth v/s 13 per cent de-growth in FY21), ICRA’s ratings revenue growth has kept on strengthening (14 per cent growth in FY23 and 16 per cent growth in Q1 FY24). An evolved business approach (focus on revenue share and not volume share), raising of pricing threshold (aligned to ratings quality) across sectors/customers and transmission of employee cost inflation has also aided growth.

Our estimates do not factor revenues from ESG offerings and any acquisitions which co. has been evaluating in non-ratings segment. Stock trades at 32x 1-yr roll. fwd. P/E and it has traded at higher multiples in preceding rating cycle. We continue to prefer ICRA over Crisil.