CRISIL gains from benchmarking demand, client diversification and stronger domestic ratings pricing

Investment View and Valuation

Kotak Securities remains constructive on CRISIL following a meeting with Amish Mehta, Chief Executive Officer, and Dinesh Venkatasubramanian, Chief Financial Officer. The broker maintains its ADD rating with a 12-month holding period and has raised fair value to Rs 5,000 from Rs 4,800 previously.

Improved Outlook for the Non-Ratings Business

The central positive in Kotak’s view is the outlook for CRISIL’s non-ratings business. Management commentary indicated robust demand in the benchmarking segment, while meaningful client diversification has reduced the business’s dependence on sell-side revenues.

Kotak believes the non-ratings growth outlook has improved over the preceding 12 months. Its assumed revenue CAGR of 9–10 per cent for this business is viewed as conservative, creating potential upside risk if benchmarking demand and client diversification continue to support growth.

Domestic Ratings and Revenue Resilience

Kotak also sees the domestic ratings business as well placed and assumes an 18 per cent revenue CAGR. The ratings operation has benefited from improved pricing in bank-loan ratings, which the report characterises as an industry feature. Kotak adds that RBI initiatives intended to strengthen discipline in the bank-loan ratings market could provide a further benefit to the business.

CRISIL’s revenue growth remained close to 17 per cent during the past 12 months, despite weak bond issuances over the same period. Kotak views this resilience as a supportive factor for its constructive stance.

Key Risks and Potential Catalysts

The principal concerns identified by Kotak are the overhang from artificial intelligence and competition from global capability centres. GenAI and GCCs remain important structural themes, but management indicated that competitive pressure has not intensified over the past year. Weak bond issuance activity is another operating headwind.

The investment case could strengthen if benchmarking demand and client diversification sustain non-ratings growth above Kotak’s assumptions, or if ratings-market discipline and pricing improve further. It could weaken if AI or GCC competition intensifies, bond issuance remains subdued, or ratings and non-ratings revenue growth falls short of the broker’s assumptions.

Basis for the Higher Fair Value

The higher fair value appears to reflect the improved outlook for the non-ratings business alongside the favourable positioning of domestic ratings. The summary does not disclose a valuation methodology or earnings estimates.