ICRA conducted a conference call on 28 May 2024 to
discuss the financial results for the quarter ended March 2024. Ramnath
Krishnan, MD and Group CEO, ICRA addressed the call:
Highlights:
The company has delivered
strong results in FY2024. The overall topline growth was 10.6% at a consolidated
level. The ratings business delivered a growth of 12% and the analytics
business delivered a growth of 8.6% in FY2024.
Despite significant
investment in people, technology and related infrastructure, the company was
able to deliver a strong growth in profit after tax by 11.3%.
Ratings delivered strong
revenue growth as bond insurances, bank credit and securitization continued
their healthy growth trajectory.
Analytics growth was driven
by focus on growing banking and risk business and the recent acquisition of D2K
Technologies.
The expenses for the year
includes impact of consolidation of D2K for 5 months, arbitral award and D2K acquisition
cost
The company has undergone
a transformative journey bolstering credibility and fortifying processes
enhancing people strength and insights.
Through investments in cutting
edge technology, the company has become more agile, while talent development initiatives
have ensured a diverse and empowered workforce.
Pragati Development Consulting
Services Limited (PDCSL), a wholly owned subsidiary of ICRA, has received the
SEBI’s approval for registration as a Category-I ESG Rating Provider (ERP). The
company recognises environmental, social, and governance (ESG) as a core growth
area and are committed to integrating ESG principles into our operations and
services. This development positions ICRA group among
the few entities offering holistic Risk Management Solutions including ESG
ratings and scores.
With the acquisition of
D2K Technologies, the company aims to transform ICRA analytics into a
diversified product company.
The company remains
committed to mission of providing superior ratings and comprehensive financial
services to clients both within the country and outside.
It will continue to
pursue organic and inorganic growth opportunities focusing on both expansion and
sustainability, while nurturing talent and leveraging technology to drive success.
The company has done significant
corrections in terms of aligning its pay structures with the market during last
one or two years. The company will continue to see spends over the next two to
three years essentially will be in the technology area.
The company is keen to
grow non-rating business with the focus on diversification.
The company expects GDP growth
at below 6.5% in H1FY2025 and improving to 7.2% in H2FY2025 and overall GDP
growth to land at 6.5% in FY2025.
Ratings business
The bank credit
outstanding grew significantly at 16.3% and bond insurances at 17.2% in FY24 as
the overall cost of borrowing in the global market remained elevated and large
corporates preferred to borrow domestically.
On an incremental flow
basis, the bank credit reached an all-time high level and so did the domestic
corporate bond insurances.
A buoyant economy
supported by government''s infrastructure spending and urban consumption supported
the demand for credit.
Banks issued bonds to
fund their own credit growth, while corporates and NBFCs took benefit of
moderate yields.
The commercial paper
outstanding grew 99.9% on year, as security broking firms issued commercial
paper to fund their working capital requirements and margin trading facility.
Securitization volumes
in the market grew 25%, which is after excluding the impact of the exit of a large
HFC.
Existing large originators
securitized higher volumes and new originators also came in as NBFCs and HFCs grew
their book significantly driven by an uptick in consumption.
ICRA''s Revenue growth in
FY24 reflects the trends in bank credit growth and Market debt
Ratings business outlook for FY25
The company expects the bank
credit growth may face some headwinds with higher risk weights for certain high
growth consumption segments as well as their elevated credit to deposit ratio
for which the regulator has expressed some concern.
Bond insurances are
likely to benefit from competitive funding cost domestically, which may
additionally be supported by a possible rate gut by RBI sometimes later in FY25.
The geopolitical
challenges are quite likely to keep global borrowing options dearer.
The growth in
securitization would depend on the extent to which NBFCs and HFCs are able to grow
their books.
Given the higher risk weights
for bank lending to NBFCs, securitization could become a preferred funding
source for NBFCs.
Government''s continued
thrust on infrastructure, private sector capex in select sectors, pick up in
exports and the interest rate trajectory would be critical for a sustained
growth in credit market.
Rating operations
The company finished the
year FY24 with further improvement in the rating accuracy metric namely overage
default position or ADP. The ADP was 94% for FY2024 compared with 93.3% in the
previous year and a long period average of 76%. The higher the ADP, the more
accurate are ratings collectively.
The cumulative default
rate and rating stability are also seemed to be improving consistently over the
past few years. The number of instances of defaults dipped to 5 in FY24
compared with 22 in FY23 and 42 in FY22.
The large rating change
rate also reduced to 7% in FY24 from 1.4% in FY23 and 2.3% in FY22.
The company continues to
be the preferred agency amongst leading issuers in the securitization space and
add new clients.
The company continues to
expand research and initiate strategic market outreach and events in H2FY2024.
Analytics business
Knowledge services continued
to drive growth of analytics business. The company was able to further expand value
added services. The company expects that focus will remain on business
transformation, data analytics and technology services.
The market data business
saw strong regulatory push for stress testing, risk management data,
transparency and reporting which continue to drive volumes for H2FY24.
The company expanded coverage
to provide newer services like stress testing and also entered into tie ups
with global data providers like Bloomberg, Moodys analytics.
The Outlook remains
robust driven by trends towards cloud-based information tools and related data products
and more of value added services rather than pure data. This is expected to
drive consolidation of services and products going forward.
Risk management business
The Risk Management Solutions
saw a robust growth in H2FY24 and particularly Q4FY24, driven by increasing
spend from banks. The NBFC segment also witnessed good demand in H2 and Q4.
Acquisition of D2K which
has sophisticated tools for credit monitoring and early warning signals has further
strengthened position of the company in the risk management segment.
An increased regulatory
focus on automation of credit life cycle and calibration of risk management
practices of NBFCs and strengthening of the scale based regulations continue to
drive volumes for FY24.
The outlook for risk
management business continues to remain robust. The company sees increased
opportunities for cloud-based tools.
ECL Solutions are in demand
and the company expects that this segment will continue to do well in future.
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