MAXIMUS SECURITIES LTD

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1 48 CRISIL Ltd (Calendar year ending) Highlights: Target Price: 1076 (BUY) Date: 3 rd Oct MAXIMUS SECURITIES LTD CRISIL registered strong top-line growth in 2QCY2011. The company s net sales grew by 35% yoy to Rs.203 crore led by strong growth in research segment because of addition of Pipal s revenue for the current quarter and strong growth in Irevna and CRISIL research. Net profit increased by 33.4% yoy to Rs. 44cr from Rs.33 crore in previous quarter. During the year ended December 2010 the company's consolidated income from operations grew by 17% to Rs 631 cr supported by 19% growth in rating services to Rs 285 cr contributing 45% of revenues and 23% growth in research services revenues to Rs 293 crore contributing 47% of total revenues. Depreciation rose 43% to Rs 21 crore. CRISIL being a debt free company, the interest cost is nil. During CY'10, the company rated 2,434 new clients (2,268 new clients for CY'09) in Bank loan rating category and rated about 7,800 new SME's (5,758 new SME's for CY'09). Financial Summary: Valuations: We expect CRISIL to post 20-21% CAGR in revenues over CY & maintain its leadership position. The company has benefited from its debt free model and has 50% plus RONW. At CMP of Rs. 837 we estimate the target price at Rs (29x FY12EPS). Analysts: Sakshi Vohra/ Ritesh Bhagwati

2 About CRISIL ltd: Credit Rating and Information Services of India Ltd (CRISIL) is a global analytical company providing ratings, research, and risk and policy advisory services. CRISIL's majority shareholder is Standard and Poor's. Standard & Poor's, a part of The McGraw-Hill Companies, is the world's foremost provider of credit ratings. CRISIL is the largest credit rating agency in India. CRISIL pioneered ratings in India more than 20 years ago, and is today the undisputed business leader, with the largest number of rated entities and rating products: CRISIL's rating experience covers more than 41,738 entities, including 20,000 small and medium enterprises (SMEs). As on June 30, 2011, company had more than 13,787 ratings (including over 6,800 SMEs) outstanding. CRISIL s Core Business Ratings CRISIL is the largest credit rating agency in India. CRISIL pioneered ratings in India more than 20 years ago, and is today the undisputed business leader, with the largest number of rated entities and rating product. Global Research & Analytics: (Irevna, Pipal Research) CRISIL Global Research & Analytics (GR&A) is the largest and top-ranked provider of high end research and analytics services to the world's leading commercial and investment banks, insurance companies, corporations, consulting firms, private equity players and asset management firms. Research CRISIL Research is India's largest independent research house. Through constant innovation, and comprehensive research offerings covering economy, industry, companies CRISIL Research meets the requirements of more than 750 Indian and global clients. Capital Markets CRISIL is an eminent player in the capital markets space with detailed perspective covering both debt and equity markets. Infrastructure Advisory CRISIL Infrastructure Advisory* provides practical and innovative solutions to governments, donor funded agencies and leading organizations in over 20 emerging economies across the world to: Transform efficiency of public institutions and sector Design and strengthen reform programmes to catalyse private sector participation Improve infrastructure service delivery CRISIL Risk Solutions CRISIL Risk Solutions* (CRS) provides comprehensive risk management services to banks, financial institutions, and corporates across all areas of risk including: credit, market and operational. In addition to providing innovative software products, it also extends consultancy services and analytical insights, which are focused on helping customers become Basel II-compliant.

3 Investment Rationale Robust Growth in Credit Rating Business: CRISIL currently has 60% market share of the credit ratings business and 51% market share in bank loan ratings (BLR). Nearly 20,000 of the 35,000 clients under the category of clients who have taken loan of less than Rs 10 crore are yet to be rated. The growth will come from newer clients, enhancements of the limits of the existing clients and annual surveillance fees. More growth is expected from this segment. Basel II norms specify mandatory credit ratings for bank loans above Rs. 5 crore. The recent incidence of scams is also prompting more small and medium companies to get the respectability of an independent credit rating when raising funds. Apart from that, new products like Education ratings will continue to add to growth. Research Business Revenue: During Dec'10, the company acquired Pipal Research Company which has turnover of about US$ 8 Million. Pipal research is of the same size as what was Irevna in 2005, when CRISIL acquired it. Pipal has 30 Fortune 500 clients. The entire integration process is over and CRISIL is bullish both on Irevna and Pipal for CY'11. Infact, there is a significant increase in staff cost during Q1 CY'11 as the headcount of Pipal has increased by more than 1/3rd during the quarter. In Research business, the margins for CY'10 stood at about 32% as against 36% Y-o-Y largely due to forex losses. When CRISIL acquired Irevna in 2009, CRISIL s turnover stood at Rs. 537 crores. Irevna acquired 23 new clients and its total number of clients stood at 63. This business derives its synergies from its tie ups with banks and as a provider of research for its treasury products. Acquisition of Pipal: CRISIL recently acquired Chicago-based Pipal Research Corp., one of the leading players in the knowledge process outsourcing (KPO) industry, from First Source Solution for US $13 mn (around Rs.58cr). Pipal has a strong presence in the corporate sector mainly in North America and Europe and reported revenue of US $8 mn (around Rs.37cr) in FY2010. Pipal s client base includes leading telecommunications, technology, consumer packaged goods and industrial companies.

4 Consistent Market share: During CY'10, the company rated 2,434 new clients (2,268 new clients for CY'09) in Bank loan rating category and rated about 7,800 new SME's (5,758 new SME's for CY'09). The company continues to maintain its market share of about 51% in ratings. In SME, CRISIL would complete about 20,000 client's ratings within few months. The margins are maintained despite lower ticket size and tough competition as company works on a model which covers its costs and protects its bottom line income and thereby maintains its delta. Bond Market to witness growth in 2011: The government and the regulators are currently focusing to increase access of the infrastructure sector to the bond market. For this they have increased the FII limit in corporate bond to USD 40 bn from USD 20 bn, credit enhancement schemes for infrastructure entities and new CDS draft guidelines issued by RBI. Forex Gain: There was a forex gain of Rs 1.54 crore for Q1 CY'11 as against loss of Rs 3.78 crore in the corresponding previous quarter. Forex would continue to play a big role in margins as nearly 52% of its forex revenues come in $ currency and the about 36% of its forex revenues in Pounds. Management now has adopted a simple hedge policy and so far has hedged its position to the tune of 40% i.e. 138 crore of its CY'11 forex revenues. CREST: CRISIL Real Estate Star (CREST) rating is a first-of-its kind service for retail investors in real estate sector. It provides a city specific all round assessment of real estate projects, and helps buyers benchmark and identify quality project within a city. The product has received an encouraging response from all stake holders- developers, buyers, investors and bankers. CRISIL has already evaluated 29 projects across 10 cities.

5 Strengths: Over 5500 bank loan ratings (BLR) outstanding, the largest number of BLR in India; 2434 new ratings assigned during the year. The company has crossed milestone of 17,500 small and medium enterprises (SME) ratings; 7800 new SME ratings assigned in During the year, CRISIL launched CRISIL Real Estate Star (CREST) Rating, a first-of-its-kind service for retail investors in the real estate sector. The company has also expanded operations at Global Analytical Centre (GAC) to support Standard & Poor s (S&P). It expanded geographic presence with sales office in Sydney and research centre in China. CRISIL has been Ranked # 1 firm in the world in financial services research, risk management and actuarial services, corporate finance support and financial services analytics by the Black Book of Outsourcing a Data monitor company. Assisted the Ministry of Rural Development, Government of India (GoI), in a unique and innovative public-private-partnership project to provide urban services in rural areas (PURA); the pilot project promises to be the first of many such endeavors. Helped the Ministry of Non-Conventional Energy, GoI, design the framework for exchange of renewable energy purchase obligations, and a platform for trading in renewable energy certificates. Received a renewed mandate from the World Bank to conduct training program in enhancing the regulatory reform capabilities of member regulators of the East Asia Pacific Infrastructure regulators forum (EAPIRF). CRISIL has won key accounts in the public and private banking sector portfolio of customers now includes 9 of India s top 10 banks. Entered the global arena, winning two prestigious mandates including a reputed multilateral development institution in South East Asia. Developed a loan origination system to enable automation of a bank s credit appraisal process as an important module in its internal rating platform. Risk & Concerns: Slowdown and fears of recession: If the economic crisis deepens further in future, the credit rating demand would be affected. Most of the revenue is generated from outsourcing of research services to foreign clients and corporations. The current scenario of high interest rates resulting in liquidity constraints in the market could impact the top line due to lower fresh debt issuances by the Corporates and institutions as CRISIL S rating business is dependent on credit demand. Growing Competition from other players: CRISIL currently has the highest market share of 51%. However, growing competition from players such as ICRA, CARE, Fitch Ratings and Brickwork has seen erosion in the market share. In the case of BLR (Bank Loan Rating), CRISIL S market share has dipped to 50% in 2010 from 55% in 2009.This can affect its future growth rate. Competition will continue to increase; in fact just last month, a 6th new rating agency received the license for ratings.

6 Company s Future Outlook: The Company has a downside risk with respect to the slowing down of our economy. However this may get offset by the low value 20,000 odd SME s accounts it expects to be added in Q3 of CY11. The company stock is trading currently near its 52 week high, in spite of the fact that most other stocks are trading at a huge discount of their inherent strength of the fundamentals of the company. Currently trading at 29xCY10 earning, the stock is not exactly cheap, but it commands a higher PE because of its robust financial numbers that show immunity to current economic downturn.

7 Quarterly Analysis: CRISIL registered strong top-line growth in 2QCY2011. The company s net sales grew by 35% y-o-y to Rs.203 crore led by strong growth in research segment because of addition of Pipal s revenue for the current quarter and strong growth in Irevna and CRISIL research. Net profit increased by 33.4% yoy to Rs. 44cr from Rs.33 crore in previous quarter. The other income increased by 46% as the company had sold a property worth Rs.3.3 crore in 2QCY2011. For the six months ended June 30, 2011 the consolidated total income from operations was Rs 382 crores, an increase of 29% over the corresponding period of the previous year. The net profit after tax for the six months ended June 30, 2011 was Rs 90 crores. Yearly Analysis: During the year ended December 2010 the company's consolidated income from operations grew by 17% to Rs 631 crore supported by 19% growth in rating services to Rs 285 crore contributing 45% of revenues and 23% growth in research services revenues to Rs 293 crore contributing 47% of total revenues. Depreciation rose 43% to Rs crore. CRISIL being debt free company, interest cost was nil. The company had an Extra Ordinary income of Rs 58 crore including profit of Rs. 32 crore on account of sale of shares in Gas Strategies Group and National Commodity and Derivative Exchange Limited (NCDEX) and Rs 25 crore towards profit on sale of office space vacated as part of CRISIL's relocation plan to the new office building in Mumbai. PBT after EO rose 29% to Rs 267 crore. Consolidated PAT grew 28% to Rs 205 crore.

8 Financials:

9 Notes

10 Institutional Team Mrs. Megha Vazkar Head of Institutional Dealing megha@maximussecurities.com Equities Anupam Laha Dealer - Equities anupam@maximussecurities.com Inderjeet Kaur Samir Patel Kiran Pakale Dealer - Equities Dealer - Equities Dealer - Equities Equity Research Sakshi Vohra Research Analyst sakshi@maximussecurities.com Ritesh Bhagwati Research Analyst ritesh@maximussecurities.com Registered Office MAXIMUS SECURITIES LTD. Sterling Centre, 1st Floor, Opp. Divine Child High School, Andheri-Kurla Road, Andheri (East) Mumbai Fax: DISCLAIMER This information has been compiled from the sources believed to be reliable, but we do not hold ourselves responsible for its completeness or accuracy. This is not an offer to sell or solicitation to buy any securities. Whilst all reasonable care has been taken to ensure that the facts stated are fair and accurate and the opinions given are fair and reasonable, Maximus Securities Ltd., its directors, officers or employees shall not in any way be responsible for the actions taken on the basis of its contents.