Release Date: April 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CRISIL Ltd (BOM:500092, Financial) demonstrated resilience and significant impact through sustainability efforts in 2023 and Q1 2024.
- The company operates in 12 countries with a strong employee base of over 4,600, emphasizing diversity, equity, and inclusion.
- CRISIL Ltd (BOM:500092) received multiple recognitions, including being certified as a great place to work for the fourth consecutive year.
- The company saw strong growth in its ratings segment, consolidating its market leadership with healthy revenue growth.
- CRISIL Ltd (BOM:500092) continues to invest in digital technology, talent, and new solutions, enhancing its client offerings and internal workflows.
Negative Points
- The global businesses experienced a slowdown in discretionary spending by financial institutions, impacting revenue growth.
- The first quarter of 2024 saw a 5.5% decline in PAT due to increased tax rates in one of the ex-India jurisdictions.
- The research, analytics, and solutions segments faced challenges due to macroeconomic uncertainties and slower decision-making cycles.
- The capital market issuances are expected to remain sluggish in the near term due to high interest rate conditions.
- Geopolitical risks, including conflicts and elections in over 60 countries, pose significant uncertainties for the business environment.
Q & A Highlights
Q: Just a few questions on Q1 results, and then I have a couple of questions on an overall strategy basis. That Q1, you had a heavy quarter last year, and because of which this quarter was a bit [benign]. On top of that, is there any slowdown that is being witnessed in this quarter, which has also led to a little bit of comparatively sluggish numbers? And if yes, will that slowdown also persist in terms of numbers throughout the calendar year '24 also?
A: So, I think, like I mentioned, Harsh, that in the global environment, we are seeing some slower decision-making and impact on discretionary spend by our global financial clients, which has had an impact during the quarter. And I think we will continue to see that play out for the next few months or depending on when the decision-making cycle turns around for discretionary spend. But to address that from our perspective, I think we have put a strategy in place to look at the white spaces, to reach out to stakeholders, identify areas of opportunity on the risk regulatory side, data analytics, sustainability, private markets, and create new offering and solutions, which we try to meet up with our existing stakeholders within the banks as well as the new stakeholders that we are looking at and new clients. So, there is a plan that we have put in place. So, I think those are some of the actions that we are putting in place to help address the challenge which might be there in the environment, given the impact on discretionary spend by some of our global clients.
Q: My question is on the research division. So, if we see last few quarters, the margins have been very volatile, ranging from 18% to 24%. And this quarter, it was around 16%. So, what should we consider as a steady-state margin when it comes to the research services?
A: I think, Nirali, you should always look at the annual margin, not look at quarterly margins. So, from our perspective as an organization, our focus is to grow margins across all our businesses on a consistent basis. I think that is where we continue to focus. We continue to build our IP. We continue to build our domain solutions, working with our clients to create that impact. So, I would request you to look at the annual margin numbers and not look at the quarterly numbers because there would be various aspects which are sitting in quarterly numbers. I think it is always better to look at the annual margin profile.
Q: Do we have enough arsenal at our disposal that we can have a double-digit growth and also margin improvement on a full year basis?
A: So, Harsh, I just mentioned some time back that we do not discuss forward-looking outlooks. So, I will not be able to comment on that. However, I mentioned that as an organization, our focus is to drive growth and continuously improve margins. So, that is something that we will continue to work as an organization.
Q: In terms of ESG rating license, where are we and at what stage we are?
A: So, we have applied for the license as we have disclosed publicly and we are awaiting feedback from SEBI on the next steps.
Q: The merger with IHS Markit has been for some time. Now, in terms of opportunities, in terms of outsourcing, could you just help elaborate what is the opportunity as the journey yet started or there's not much there to look forward to?
A: So, you are asking about the merger of IHS market with S&P Global, I'm assuming? So, I think as you would be aware that there is a large footprint which IHS market and S&P Global have in India beyond CRISIL, right? And I think we continue to look for opportunities as CRISIL. So, we work very closely with the S&P Global Ratings. We have a captive which is the Global Analytical Center where we are working very closely with the S&P Global Ratings business. We are looking for opportunities to partner with different divisions of S&P Global and identify opportunities where we can partner based on the capabilities that we have. And that's something that we are wanting to grow in terms of business. So, that is something that we are continuously evaluating and working on. We have had some success in some of the businesses and I think that's something that we will continuously evaluate.
Q: What are the trends in pricing and yields in the Ratings segment?
A: Ratings has been a competitive market throughout. So, I guess it isn't very different. When the market grows, I think it helps both sides. In a growing market, there is enough pie for everybody. So, I think what we've seen, we saw a couple of very difficult years after the IL&FS and the DHFL incidents. Incidentally, we didn't rate both of them. But I think that they were tough for the market. The last few years, we've seen growth in the industry across. So, that has kind of created enough opportunities for everybody.
Q: Could you help with the split in the Ratings segment between bonds, bank, and bonds directionally if you want to split?
A: We don't give a segmental split, sub-segmental split of our businesses within a segment. It's actually not also easy to do it. I mean, typically, you will have I mean, some of it is issue-based pricing, some of it is pricing, which is bulk. So, people will shift between bond and capital market and sometimes. I mean, it is not easy for us to put that out. Ourselves as well. I mean, I'm not saying that from public domain, but internally also, if you divide it is we can argue it's best in apportionment process, but usually, sometimes I'm not able to make that differentiation.
Q: Can you give split bit of the employees between how many are in India versus outside?
A: We do not give a headcount split, but about the bulk of our employees, 75% to 80% of our employees are in India. We do not give a business-wide or segment-wide split. As far as margins are concerned, again, I think Amish alluded to this, that by one quarter on margins will not be reflective or in any way symptomatic of the underlying potential of the health of the business. If you look at the way we performed in '22, the research segment had 21% on margins. We were at, again, a 21% margin in '23. The idea across all our businesses and our segments is to have revenue growth along with margin expansion. There will be cycles in between where we will see margins getting hit, and when I say hit, I mean the expansion of margins might see some level of slowdown, but as an organization,
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
