ICRA – Review and Recommendation

ICRA is India’s number two credit rating agency after CRISIL. Historically, the income of these agencies is directly proportional to the mood on Dalal Street. Moody’s have significant stake in ICRA and will be in full control of the company.

The current IPO, is an offer for sale and none of the proceeds will goto the company where you will be a shareholder. IFCI, SBI and UTI are selling their stake and Moody’s will get control of the company. ICRA still has 399 public issues under its belt and they are actively involved in rating the country’s debt instruments as well. The company will also benefit from Rating outsourcing services, Technical and Analytical Research of parent company’s clients from Wall Street.

On the FLIP side, ICRA has borrowed Rs 50 crore from banks to fund the ESOS Welfare Trust (ESOSWT) for subscription to the preferential allotment made to it under the employee stock option plan (ESOP). The interest costs will take a direct hit on the bottom line of the company.

The company doesn’t have any topline growth YoY. Total Income for FY2002 was Rs 31.5 crore and for FY2006 it was 35.1 crore. For the 9 Months ending Dec-2006, the company had a top line of Rs 31.9 crore and a PAT of Rs 11.7 crore. Annualizing the company’s results on fully diluted equity(Rs 10 crore) ICRA will report an EPS of Rs 15.6 for March-2007.

IPO Offer:
Fully Diluted Equity after IPO: Rs 10.00 crore.
Offer Price: Rs 275 to Rs 300
Retail Offer: 903,385 shares. Issue Size of Retail is mere VERY VERY Small – Rs 24.8 crore to Rs 27 crore.

ICRA has very good promoters and is a very small company with good opportunities for growth. ICRA has been offered at a P/E of 19.2 at higher end. Comparing this to CRISIL which currently trades over a P/E of 40+, one maybe tempted to apply. However, CRISIL’s price at a P/E of 40+ is highly unjustified [You can justify in comment, if you like].

Personally, I like to chase growth stocks [Amtek Auto, Punj Lloyd, Tech Mahindra, etc] and ICRA has to prove that its a growth stock by getting Business and increasing its topline which it hasn’t done in the past 4 years. Also since the issue is very small, I am personally skipping the issue since the allotment will be in lottery.

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