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What can compare with Crisil? Other rating agencies, knowledge processing companies? Hardly. Consider this.
Last month, the country's first rating agency launched Inclusix, an index to measure the spread of banking products such as savings account in the country. Crisil analysts poured over reams of data to assess the reach of savings accounts before they could build the index.
Crisil has also launched initiatives for spreading financial literacy in the Northeast. It has been teaching village women basic financial concepts such as keeping accounts for expenses and income and how to make some savings for the rainy day.
In addition to these activities, what sets Crisil apart from other rating agencies is the diversity of its revenue streams. While most others rely entirely-or largely-on rating fees (which slide if credit cycles turn bearish or when interest rates rise and companies raise less debt), Crisil nets about 60 per cent of its revenue from its non-ratings businesses or research and advisory services.
Its learning from the mid-1990s was not lost on it when clients deserted it after serious downgrades, and its ratings market share dipped from 70 per cent to 40 per cent. As a result, revenues plunged and its stock tumbled to a new low. It was then that Crisil decided to diversify into research and expand its revenue base. "It ensures that we are not too dependent on our rating clients for revenue. This, we believe, allows us to be truly independent. If we have to take a difficult rating call, we are not under pressure. We have many other sources of revenue," says Roopa Kudva, managing director and chief executive officer, Crisil.
Creating new streams
Much of the research is conducted for overseas investment banks and research houses, which nets it a good chunk of foreign exchange. With 2,200 analysts in four research centres (India, Argentina, Poland and China), Crisil covers 2,000 global stocks, accounting for almost 90 per cent of the global market capitalisation. By offering a global platform for analysis and research, it believes it can attract top talent from across the world.
In its bread-and-butter business of credit ratings, it has been developing markets and eyeing a bigger share of the business from large companies. Five years back, it rated about 450 companies. That number has since increased to 12,000.
Apart from large companies, Crisil is also looking at increasing business from the small-scale sector. In coordination with the Union ministry of small and medium enterprises, it has rated over 50,000 such companies. Small enterprises like to be rated as it makes it easier for them to raise resources. Banks are more confident when an independent agency has put the stamp of approval on the financials of these small-scale enterprises. It also helps small units add professionalism to their operations and enhances their image.
Keeping costs low
To rate so many small-scale enterprises at nominal fees could result in higher costs (employing more analysts and market developers). But that is not the case. The rating agency has held its profit margins intact and kept costs low because of its robust technology platform and a strong information backbone. These make comparisons between hundreds of different companies less difficult.
The company has accumulated hundreds of man-hours of domain expertise in small enterprises. For instance, Crisil has rated 61 ship-breaking companies and 235 basmati rice companies. Hence, to rate more such companies becomes easier. Costs are also held to a minimum by taking business developers for its small-scale ratings business on retainership.
The huge advantage is that it generates further clients for the future. As small companies grow bigger, their financing requirements tend to become more complex. They then require sophisticated rating products. Says Kudva: "The whole idea is to start evaluating small companies, get them used to the idea of being evaluated by an independent third party, then work with them as they grow and offer them more sophisticated products. As a small scale enterprise grows bigger, it can graduate to bank-loan ratings."
Crisil's also taking small strides into the financial advisory territory. Here it provides mutual funds a valuation matrix utilised to assess the value of the bonds they hold. This tool assesses the net asset value of a fund. It provides the same service to the insurance sector.
Adding value to its core of analytical strengths has been its success mantra. In mutual funds, to make comparisons easier within funds for lay investors, it recently launched a raft of varied mutual fund indices. If you wish to compare a mutual fund with a bank fixed deposit, Crisil's index can throw up a return comparison within minutes. Says Kudva: "These indices help investors understand the benefits and gains made by investing in mutual funds."
Bonding with debt
Crisil is also doing its bit to develop bond markets by offering advice concerning infrastructure and policy to the government. Growth in infrastructure usually causes bond markets to expand. Crisil has employed its analytical knowledge to draw up valuation models for auction of coal blocks or to develop a trading system for renewable resources in South Africa. This wide-ranging ability has attracted other emerging markets to approach the company. Says Kudva: "It's an advisory business aimed at making infrastructure happen in India. And because of the work we have done in India, many other emerging economies in Southeast Asia and Africa have started talking to us."
All this has seen Crisil grow at a remarkable pace recently. It has also boosted its profitability. This quarter, revenues increased 22 per cent and profits, 38 per cent. The diversified business model is also reflected in market valuation. The stock now enjoys the highest price-to-earnings ratio among all rating companies. While ICRA and CARE trade at price-to-earning of 23.9 and 14.5 times, Crisil has a ratio of 36.3. The valuation speaks volumes about the confidence the stock market bestows on this rating company.
