Good afternoon, everyone, and a warm welcome to CRISIL's analyst call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. Before we start, as a standard disclaimer from CRISIL, we would like to state that certain forward-looking statements during our interaction today are based on our current understanding of the company profile and market conditions. These are subject to change based on changing policies of the company and microenvironment. The company does not undertake to update the forward-looking statements or other information contained in the presentation, whether as a result of new information, future events or otherwise.
As a policy, company refrains from giving specific quantitative guidance on its future performance, furthering the interest of fair disclosures to investors. Operational details relating to specific business segments, customer contracts will not be possible to be disclosed. Let me now hand over the call to Ms. Priti Arora, Chief Strategy Officer and Business Head, CRISIL Global Analytics Centre, to commence the proceedings.
Thank you, Meera. Good afternoon, good evening, and a very warm welcome to everyone who's joined us today virtually for the annual analyst call at CRISIL Limited. I'm Preeti. I'm delighted to be speaking to you today and set the context and agenda for today's call. As you would have seen in the earnings release, CRISIL delivered strong growth in Q1 2023 and 2022. The robust performance, especially during the present uncertainties and challenges, validates our strategy, its execution and commitment of our leadership and team at large. CRISIL has progressed in creating elevated impact for all our stakeholders. We continue to provide our clients with actionable insights to enable effective decisions through our cutting-edge ratings, analytics, benchmarks, research and risk solutions. We've made significant strides in building a future-ready organization by nurturing and enabling our diverse talent pool.
This, coupled with our continued investments in digital infrastructure and emerging technologies, provides us with an ideal platform to deliver growth in the future as well. We are committed to building a future-ready, agile, inclusive and vibrant CRISIL. I would like to introduce to you the panelists present at the call today. Mr. Amish Mehta, Managing Director and CEO, CRISIL Limited. Sanjay Chakravarti, President and CFO, CRISIL Limited. Gurpreet Chhatwal, Managing Director, CRISIL Ratings Limited. Andre Cronje, President and Head of International Business, CRISIL Limited, and Ashish Vora, President and Business Head, CRISIL Market Intelligence and Analytics. We're also joined by our management team to answer any questions that you may have towards the end of the call. Let me hand over to Amish to start the presentation. The presentation was uploaded on our website and exchanges.
You can refer to that as a part of the discussion today. We will be taking the Q&A post our presentation. Over to you, Amish.
Thank you, Priti. Hi. Good evening, everyone, and a very warm welcome to each one of you. I am pleased to share that during 2022 and the first quarter of 2023, CRISIL continued to demonstrate resilience and a steadfast commitment to elevating impact for all its stakeholders amid macro and global market uncertainties. I'm going to start from slide four, giving a little bit of overview on CRISIL. CRISIL is a leading agile and innovative global analytics company driven by a mission of making markets function better. We provide ratings, benchmarks, analytics and solutions to enable our clients to make decisions with conviction. Last year, we consolidated our offerings under the CRISIL Market Intelligence and Analytics umbrella in a bid to leverage our diverse capabilities and present a unified offering to our clients.
Our reporting is now under two segments. One, rating services, which includes CRISIL Ratings and the GAC, which is our Global Analytical Centre. The second one is under research, analytics and solutions segment, which includes our global businesses, Global Research and Risk Solutions, Global Benchmarking Analytics, and the Market Intelligence and Analytics services. If I look at slide five, the CRISIL family is now 4,700 strong in terms of employees. Our employees today comprise 40-plus nationalities and operate across 12 countries, elevating representation through diversity, equity and inclusion. I'm pleased to report that women account for approximately 39% of our workforce today. We remain committed to building an enabling environment driven by a shared sense of purpose, encouraging all employees to create an impact through meaningful work and making a difference.
Our focused work has led us to multiple recognitions in various forums. you know, some of them are listed on the slide. Great Place To Work 13 in a row. recognized amongst 100 best companies for women in 2022 for the 7th consecutive year. A testimony to our innovation in the RiskTech100 Award for model validation category. you know, our good work in CRISIL Foundation has won us the National CSR Award 2020 in the category of corporate awards for excellence in CSR, which was announced in 2022. This is our 2nd win at the awards, and the 1st one was in 2018 for CSR in challenging circumstances Northeast. If I move on to slide seven, let me just talk about our perspective on the Indian and the global economy outlook.
Last year as the pandemic abated, the world witnessed significant geopolitical events that led to a very high inflation. What followed was coordinated efforts by globally important central banks to raise their policy rates at an unprecedented pace. We expect this impact of high interest rates to play out in 2023, and growth forecasts for major advanced economies for 2023 have been revised downwards. The IMF expects global GDP growth to slow to 2.7% for calendar year 2023 from 3.4% in 2022. CRISIL expects Indian GDP to grow at 6% in fiscal 2024, with risk tilted to the downside compared to 7% in fiscal 2023.
The slowing global growth is leading to reduced demand for India's exports, while the lagged impact of RBI's interest rate hikes are expected to manifest through slowing demand in the coming months. If I move to slide 8. We believe the following will be the key trends in 2023, which are likely to shape the market. On the global front, the recent merger acquisition of a large global bank and the collapse of some regional banks in the US will keep the uncertainty quotient in the global financial institutions high. Global banking clients continue to focus on operational efficiency and spend related to regulatory requirements, sustainability and business transformation. We see financial institutions sharpening focus on non-traditional risks such as cyber risk, climate risk and operations risk emerging from business transformation.
Further, the movement of capital to passive, alternatives and private markets is opening up new avenues for data, analytics and research. We continue to see significant spend by financial institutions in digital transformation as firms look to leverage the use of technological solutions towards optimizing spend and dealing with cost pressures. There has been an increasing focus on sustainability decision-making for corporates, lenders, investors and policymakers, specifically towards energy transition, adapting to evolving global standards and operationalizing net zero investments. Coming closer home to the domestic environment, healthy corporate balance sheets, a robust banking system and the thrust of the government on CapEx will be supportive of the domestic activity. Let me move to slide 10 and cover a little bit on the performance of the organization.
We saw growth across our businesses amid macro and global market uncertainties thanks to our differentiated positioning, global talent pool and portfolio of IT-led services. We delivered double-digit revenue growth and robust margins, and you will hear more about this from Sanjay in the next few slides. A sharp movement in the US dollar versus the rupee and the pound contributed to profitability in the year ended December 31, 2022, which also includes INR 30.1 crore from revaluation of a subsidiary loan. The rating services segment growth was supported by higher corporate bond issuances and bank credit growth. While the research analytics and solutions segments saw traction for risk solutions, benchmarking, sustainability and infrastructure consulting. We recently completed the acquisition of 100% stake in Peter Lee Associates, an Australian research and consulting firm.
This acquisition will accelerate our strategy in the Asia Pacific region to be the foremost player in the growing market of benchmarking analytics across the financial services globally. We continue to make significant investments in our talent and technology since they are the foundation for growth. CRISIL continued to drive visibility and impact in global markets with references across 50-plus global publications, and we have been recognized as an iconic brand at the 5th edition of The Economic Times Iconic Brands Conclave 2022, as one of the few that redefined the benchmark in their respective fields in India and the global markets. This year in 2023, we celebrate the 10th anniversary of our Crisil Foundation.
Over the past decade, our Crisil Foundation has contributed enormously to the cause of sustainability and made a visible impact to the lives of communities and the environment through many initiatives. I'm looking at slide 11. CRISIL has continued to demonstrate steadfast commitment to elevating impact for all its customers. This sharp focus on customer centricity bore fruit with enhanced client engagement across businesses. CRISIL has maintained its market-leading position in corporate ratings, driven by investor preference for best-in-class ratings. We generated new insight for commercial and investment banks, investment banking clients with combined datasets from Coalition and Greenwich. Our wallet share has grown across key clients in global CIBs and asset managers, and also among domestic financial institutions. We strengthened our credit monitoring practices for global banks by benchmarking and streamlining processes. If I move to slide 12. Talking about technology and talent.
CRISIL continues to invest in digital and cloud capabilities and in information security to enhance the experience of clients and employees. We ramped up our digital and foundational technology infrastructure. Our agile approach for all technology initiatives ensured many successful product launches, such as the FuSquare and Phoenix, and rollout of upgrades to Fulcrum, Confix and AlphaTrax. Some of these are our platforms and offerings to our clients in different markets. Our global talent pool is our IP and helps us deliver stakeholder value. We continue to make investments in our talent pool through upskilling, developing leadership pipelines, keeping pace with market practices and being future ready. We continue to drive engagement and a shared sense of purpose. With this overview and looking at the opportunity, I'm gonna request Sanjay to talk through the financial performance in detail. Over to you, Sanjay.
Thank you, Amish. I move on to slide number 14, which gives the performance for the year 2022 and for the first quarter of 2023. I will start with the annual performance of 2022, which is a set of graphs, which is in the middle of the slide. 2022, as Amish pointed out, was a strong and a robust year for us. We saw growth across all our businesses and in both the segments that we report. This again, we have saw very good flow-through from that growth of revenue. Hence, we see profits and margins have also shown healthy growth driven by the expansion and the growth that we've seen in revenue across all our businesses.
Now, the one point that we do need to keep in mind when we look at the performance of 2022 as compared to 2021, the US dollar sharply appreciated against the rupee, in almost the whole of 2022. Given that 65% of our business is export business, overseas business in which our billing is in dollars, this kind of depreciating rupee supported profitability in the year in addition to INR 30 crore, which came from a revaluation of a dollar loan given to a subsidiary. I will now move on to the first quarter performance of 2023. Again, exiting out of 2022, Q1 2023 also saw continued robust growth across all our businesses and both our segments. In the ratings segment, Crisil Ratings saw performance being strong in both bank loan ratings and in bond ratings.
In our risk analytics and solutions segment, our global businesses grew strongly across research, risk solutions and benchmarking. Whilst the Market Intelligence and Analytics business saw momentum in sustainability research and consulting offerings. Again, this healthy growth in revenue allowed good growth in the profits of Q1 in 2023, as you can see. A 14% growth in profit before tax and a 20% growth in profit after tax. Now, here again, I would want to point out the impact of foreign exchange. Unlike 2022, the rupee and the GBP actually appreciated against the dollar and had an adverse impact on the year's results. Hence, the movement of FX in 2022 and when I look at Q1 2023, have actually been counter directional.
This FX impact, I would like to remind everyone who's joined, is almost entirely sitting in our risk analytics and solutions business, which is where our global business sits. When we go through the performance and the numbers of this particular segment, I would urge everyone to keep that perspective in mind when we look at the risk analytics segment performance further down in the presentation that we have. That really was a synopsis of the performance of 2022 and the performance in the first quarter of 2023. We will be taking questions once the Q&A session is open. I will now hand over the presentation to Mr. Gurpreet Chhatwal, Managing Director of Crisil Ratings Limited. Gurpreet.
Thank you, Sanjay, and good evening, everyone. I'll take you through the segmental performance of ratings for Q1 2023 as well as for calendar year 2022. I'm on slide 16, and I will speak about the two main drivers of the revenue pools for the ratings businesses or rating agencies in India, which is the corporate bond market as well as the bank credit growth. We witnessed a strong growth in the corporate bond market in Q1 2023 of over 40%, though it was on a lower base of last year. The corporate bond market displayed signs of recovery from Q4 2022 onwards. After many quarters of either muted growth or decline, the interest rate environment has now become relatively stable in favor of the corporate bond market, with interest rates on bank loans having increased now.
In 2022, we saw an increase in the number of issuers tapping the bond market after, I mean, the fact that these issuers stagnated for over the last previous actually 4 years. We can also see that the credit growth of the banking sector inched up quite well in 2022, though it moderated somewhat on a higher base in Q1 2023. The segments of bank credit that is of relevance to us and grew well in both these periods are the services space that includes NBFCs, infrastructure and mid corporates. Even large corporate borrowing has inched up during this period.
CRISIL Rating estimates that the growth rate for bank credit and NBFC sector to be 14%-15% and 13%-14% respectively in FY 2024. Let's move to the next slide, which is slide 17, and I'll speak through CRISIL Rating's superior analytical rigor. We have consistently displayed one of the best default rates and stability rates in the domestic credit rating agency space. This slide shows the one-year investment rate default rate averaged over the last 10 years for CRISIL Ratings, as well as some of the other credit rating agencies. This is a part of the rating agency's regular disclosures as mandated by SEBI.
We believe that this is one of the very important parameters that lenders, bankers, and investors look very closely at when they evaluate a rating agency's performance, as well as determine the rating agency of their choice. Everything else remains the same. The lower and more consistent the default rates of a CRA, the better the risk-adjusted return for an investor. We believe that our consistent performance stands us in good stead with investors in the lending community. Now let me move on to slide 18. You can see the segmental performance for FY 2022 as well as for first quarter 2023. The domestic rating revenues benefited from increased borrowing by large corporates as well as mid corporates in 2022, and the mix was more favorable towards bank borrowings in 2022.
However, in Q1 2023 we saw bond markets, bond market borrowings improve as well. In addition, we saw a few corporates took ratings in anticipation of rate hikes. We continued our focus on client engagement initiatives and centered our leading position in share of voice in the Indian media amongst the CRAs for our thought leadership publications and webinars. Global Analytical Centre saw robust sovereign scope delegation from S&P Global Ratings. Overall, the ratings segment grew by 16.1% year-over-year in the quarter. I'll now pass on to my colleague, Ashish Vora, who heads domestic research business.
Thanks, Gurpreet. I really wanna cover the segment performance for research, analytics and solutions as part of this module, along with Andre. I'm on slide 20. I'll start off with a quick introduction of the Market Intelligence and Analytics business and some of its key drivers. The Market Intelligence and Analytics segment houses, like Gurpreet said, the India-focused non-ratings business of CRISIL. Under this umbrella, we offer financial and non-financial data, research insights, analytics, risk solutions, platforms, and consulting solutions in areas related to planning, strategy, implementation and risk management. We create value for our clients by bringing together unique data sets and deep domain expertise to help them craft growth strategies and for managing risk. We work with the government, with regulators, multilateral institutions, lenders, asset managers, and corporates.
Our offerings span a large swath of the Asian economy. Our macroeconomic research offers forecasts and insights on economic growth, interest rates, currency, inflation, and commodity prices. Our fixed income research supports investors and asset managers in markets through unique data, valuation, and asset class-based research insights. Equally, lenders get access to financial and non-financial data, scorecards, risk assessment models that enable credit origination and risk management. The macroeconomic services to investors and lenders is augmented by robust sector research, which spans 70 subsectors, covering more than 95% of India's economy by trade revenues and market value. The strong data research and risk infrastructure forms the backbone of offerings for MI&A around platforms, analytics, and consulting services. CRISIL's integrated credit platforms, financial institutions, for instance, provides data scorecards, risk models, for enabling loan origination and risk management through early warning indicators.
Similarly, consulting services on roads, ports, and airports rely on CRISIL's commodity trade data and district-wide economic activity to generate industry lending estimates on traffic that underpin commercial due diligence. While economic growth is the main driver, healthy loan growth, financialization on savings, and capital formation are more proximate growth drivers for the MI&A business. The past 4-5 years, asset quality challenges resulting in higher gross non-performing assets referred to Prompt Corrective Action framework in a number of cases, and limited capital buffers have constrained capital growth, particularly for public sector banks. Now, with a significant cleanup and strengthening of balance sheets and low credit losses, as you can see on the charts, are now enabling banks to plan strategies to gain or protect market share, lend more to infrastructure, farmers, SME, and for household asset creation.
Banks are looking at digitizing and automation as a way to address these issues, leading to demand for CRISIL's integrated credit platforms that connect data, create data marts, and automate the entire credit life cycle. Similarly, financialization of savings and steady increase in assets under management have been accompanied by an increased demand for innovative products by investors. This combination has led to demand for indexing products, need for research insights that deliver alpha for reaching customers who are digital, and for reaching customers through a digital interface. This has sparked demand for our services around indices, valuations, benchmarking, risk management offered to be delivered via digital platforms.
Moving on to slide 21. Capital formation is another proximate growth driver for the business. We anticipate both infrastructure linked CapEx primarily driven by government and industrial CapEx principally driven by the private sector to increase. Substantial increase in budgetary outlays for CapEx at both the central and the state level is poised to take infrastructure activity to a higher level. Similarly, PLI linked activity is poised to sharply increase industrial CapEx in the next 3-4 years. The government multilateral institutions and the corporate sector are looking to finalize implementation roadmaps, perform due diligence, conclude financial closures to hasten the creation of assets. CRISIL, with its near 3-decade experience in infrastructure consulting, is one of the leading partners for stakeholders in this space. CRISIL is also leveraging its expertise in the rapidly evolving India infrastructure experience to other developed nations in Asia and Africa.
I'm gonna pass this on now to Andre to cover the global business.
Thank you, Ashish. I am on slide 22 of the presentation. I'm gonna be talking about two businesses that I'm responsible for, forms collectively the International Business, which is Global Benchmarking and Analytics and Global Research and Risk Solutions, GR&RS. On slide 22, we've got two graphs. The one focuses on the revenue pools for CIBs and the other one on the returns on equity. As far as the revenue pools are concerned, the revenue of the global CIBs that we cover has been slightly reduced in 2022, principally as a reduction in marketing activities, markets activities, and the IBD M&A activity.
However, that has been contradicted or for supported by growth in lending revenue, which has been driven by increased margins, and obviously the requirement for more debt capital to be made available. On the return on equity side, balance sheet optimization and the growth of the capital base of big banks continues to be a focus. Three things principally feeds into this. This is, there's a drive towards simplification to drive cost out of the business. Cost reduction programs continue, and then ultimately a big focus on the optimization RWA reduction, which drives an improvement in ROE. That has continued. Overall, the return on equity is slightly reduced.
The balance sheets of the big banks are in rude health, as we would have seen through the pandemic, as well as the disruption in the last most recent quarter. If I move on to slide 23, opportunities in an evolving global market. In a way, the business that we are responsible for, both on the benchmarking side as well as in risk solutions, thrive in an environment which is somewhat uncertain and turbulent. In the current environment where there's high focus on regulatory scrutiny, many more regulations coming, infrastructure spend growing, sustainability, which are huge theme, and obviously digitalization, which I said feeds into the efficiency of these banks, we are very active in all of these. Thematically, it really fits into what we do. The benchmarking business provides the insights.
The services business that we offer through GR&RS provide solutions that help solve some of the problems that we identify through the insights that we do. If I move on to slide 24, just in terms of the financial performance of the business. For the year, as Sanjay has indicated in his introductory comments, we've had strong revenue growth in the international business. 33.2% revenue growth, that has been continued in the last quarter. As I said, there's no drop-off in demand for the services that we offer. We expect in the current environment, with the uncertainty that prevails, that our services will be sought after and will continue throughout the year. I'll now hand over to Sanjay, who's gonna deal with the risks for the business.
Thank you, Andre. What we've listed on slide number 30 of this presentation are really the overall risks that we see which are a part of the business and the environment in which we conduct our businesses. Some of the key risks that I would want to point out, starting with currency movement. I spoke about how currency movement was counter-directional in the two reporting periods that are in this deck. Given that 65% of our business is on foreign currency, this is a key risk for us. Second is cybersecurity risk. That is a risk that is omnipresent in today's time. Finally, people cost inflation. Ours is a people business.
Our main IP is people, so that is also a key risk that I think we need to keep our minds open for. With that ends our deck that we have uploaded. We've also given you a commentary on the businesses and the comments. I am now requesting Meera to open the call for questions and answers. As Priti mentioned, the management team is available. Please go ahead and ask questions based on the performance and insights. Meera, you can open the lines.
Thank you very much. We would now like to open the floor for questions. Anyone who wishes to ask a question may press star and one on their touch-tone telephone.
If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask the question. The first question is from the line of Kunal Thanvi from Banyan Tree Advisors. Please go ahead.
Hi. Hi. Thanks for the opportunity. I had few questions on the rating side of the domestic rating side of the business. The first one was on, you know, the bond market. We've seen very strong growth in this quarter. Can you help us understand, like, what is our sense in terms of sustainability of the volumes, you know, going ahead in this financial year and beyond? Because, you know, the regulators have been talking about, you know, deepening the bond market, like, are we seeing any signs of, you know, structural improvement on the ground? The second question was on the ESG rating.
Recently, you know, SEBI chairman had, you know, talked about ESG rating and that it has to be mandatorily done by the rating agencies registered with SEBI. If you can throw some light on the how big the opportunity can be there and, like, what is our right to win in the ESG side of the business?
Okay. These are two questions, right?
Yes.
Okay. On the bond market, I think, two or three things which I'd talk about. I think the first is it's a strong growth in Q1, but you have to also take into fact that, you know, the market which was kind of stagnating for about 18 odd months. This growth is on a lower base of last year Q1. Having said that, I think, bond markets are sensitive to interest rates in the sense that the alternate to bond borrowing through the bonds is bank loans. In a rising interest rate scenario, you typically see that the market typically shifts towards the bank borrowings because they are relatively cheaper, and the bond markets factor in the interest rate hikes much faster than the banks.
Conversely, when the interest rates start going down or are stable, bond markets typically tend to offer a more competitive position vis-a-vis bank loans in certain rating segments, which is the high rating segments. We are now in a situation of, I mean, the interest rates have stabilized with RBI deciding not to increase interest rates, we are in that situation. At this juncture, I think they're broad evenly poised. We are seeing people who want to raise money through bonds are now preferring bonds and not going to the alternative, which is bank loans. Also as we see rest of the year, after at some point in time we'll start seeing the interest rates go down. I think that usually is much beneficial for the bond market.
I think that's where we are. Structurally, if you were to see the borrowing needs of the Indian corporates are gonna be satisfied from these two, these two segments. We as an economy, we put out our growth numbers. I think we are looking at a little bit of slowdown in FY 2024, which is about 6% from 7% previous year. Going forward, for the next 3-4 years, we are looking at about 6.8%. Our sense is that the borrowing markets are gonna be strong. I mean, we've translated this into a bank credit estimate, which our banking sector team has put out about 15 odd percent. They anticipate that to continue.
Our sense is that there will be tailwinds to the bond market. Bond markets are usually more accessible for high-rated corporates. The other aspect which we believe, which will always also be favorable for the high-rated corporates are they are de-levered significantly over the last few years. It's the right time for them to start investing. I mean, I'm not predicting the investment. That's what I'm saying, that when they start investing we will see the prep for the bond side, and that's what really benefits that. Largely our research team has said that basically the second half of the FY 2024 we'll start seeing more investments. I think that's largely where we are.
I mean, on the ESG rating and, Amish, if you want to take lead on that.
Maybe I can start. I think on ESG ratings, we are likely to see an opportunity clearly for our ratings business. We are waiting for final details to come out to understand, you know, how we will be able to shape the opportunity. Clearly the opportunity and as you know, ESG is evolving globally and in India. At CRISIL we have already launched our scores for 580-plus companies. Globally there is demand for ESG evaluation, ESG ratings, third-party opinions, you know, on various aspects related to sustainability and ESG. I think we would expect the market in India to evolve to provide that larger opportunity for CRISIL and our ratings business.
We are waiting for the final details to see, you know, how we can shape that opportunity. Clearly the market will evolve over the next, you know, couple of years. The regulatory landscape will evolve. As you know, ESG is something which every regulator across the world is looking at.
With greenwashing and, you know, I think trying to understand. India has taken the lead from a BRSR perspective disclosures. I think there's lots happening in this space. We expect disclosures to improve. We expect investors, corporate stakeholders, regulators, and governments to start looking at ESG in a much broader sense, and that should open up many opportunities for our business, including rating systems.
Sure. In terms of, you know, as you said, regulatory is yet to, you know, come out with a final details to the pricing and you know, how one can price the product. All those details are still awaited, right?
That's right.
Sure. Although, you know, if you look at the bank loan side, you know, of course we have said that there's been some softness there because, you know, the bonds have been doing well. Generally, you know, how has been the competitive intensity? Till last year with the market during the COVID and even prior to that, with the market, you know, being so competitive, there was, you know, very high pressure on the pricing for the BLR segment. Any kinds of improvement there, even with, you know, one player about to, you know, exit the industry, if you can provide some color on that?
Let me answer it in not exactly the format you have asked. We are a six or seven rating agency market. It is bound to be competitive. It remains competitive. I think to that extent, we continue to see that pressure. The other side is that we've seen the banks going through a pretty tough time during 2014-2018 with large NPAs. I think what we've seen, with some and/or many of the larger banks becoming very discerning when they look at a rating agency or when they look at large exposures.
I think for rating agencies which have good I would say default statistics and who have a consistent performance, I think there is we've seen both private and public sector banks having an opinion which rating agency or which view they would like to look at. I think that we've seen helping us over the last few years. The market remains competitive in that sense.
Sure. I get it, man. The last one, if I can squeeze in, is on the securitization. Like again, we are seeing strong volume growth for the industry in securitization. If you can share some thoughts on the sustainability of those volumes. You know, again, this is a dual rating market. The pricing, you know, how, like, do we see competition, you know, competitive pricing in the securitization also, or it is, you know, fairly better market compared to, say, a BLR and bond?
I think securitization market also has kind of evolved over the period of time. Yes, the volumes are, FY23, I think we did a press release a couple of days back. This is the second-highest volumes we've seen, I mean, it was a phenomenal year. Most of that, a good portion of that came in the last quarter. Let me on the pricing part, I think securitization is possibly one of the most competitive segments in the whole space. It is for two reasons. I think the, while the volumes are not largely... I mean, while there is a PTC segment, which is what is the marketable listed, where you will put it out and will get surveyed, that's roughly about 40%.
The 60% is the direct assignment where the banks directly take it. That's not, that's not public. It is to do rated from loss estimates, and that's a private report. Because of the unique nature and the investors being just banks and it is not a widely dispersed, it has over a few years become possibly one of the most competitive markets from competition and from a pricing perspective. I think that's where it is.
Sure.
You know, as we go forward from a growth perspective, we continue, we believe, I think NBFCs are back in shape growing. They need, and it's a wholesale market for them, largely for many of them from a borrowing perspective. They will continue to use diverse sources. It's not gonna be bank loans, it's not gonna be bonds only. It is gonna be securitization, it is gonna be co-lending. It is if they get an opportunity to probably borrow from the ECB market when that becomes lucrative. They will practice a diversified strategy rather than just looking at one. Securitization will remain a key source for borrowings from, for the non-banks for sure.
Sure. Thank you so much. I'll get in touch with you. All the very best.
Thank you very much.
Thank you. Next question is from line of Rajiv Mehta from YES Securities. Please go ahead.
Yeah. Hi, good evening all. Thank you for taking my question. On the margins of risk, research and analytical solution segment, while Sanjay, sir, alluded to the fact that you have to attribute the Forex loss to this particular segment. If I were to adjust for this INR 6-7 crore Forex loss in for this segment's profits and add it back, then the margins are stable on a sequential basis and even slightly stable on Y-o-Y basis. Would that be the right way to look at it?
That is right, Rajiv. There is about 10-20 basis point expansion on a sequential and a Y-o-Y, it's more or less the same number.
Okay. Okay. Still the question remains is that while you've been growing at 20 what % in this segment, for multiple quarters. If the Y and Y margins are flat, what is not allowing any margin expansion to come through? I mean, is there typically a scope of operating leverage in the business? If you are growing at 20% consistently, ideally there should have been some room for expanding margins on Y and Y basis.
The way we need to see this, Rajeev, is and we had mentioned this last year also. Yes, you're right. There's robust growth and growth is coming in good. We will not grow any business or not pursue growth at the cost of margins. Hence, you are seeing the margin expansion that you have even after adjusting for the FX. Now, one part is as an export business, FX will play a part, but even if you adjust for FX, one has to keep in mind that our investment program into two of our biggest pillars, whether in this business or in the other businesses, are people and technology. We did mention that we will be investing in people and technology across two to three years, and that is...
this is the investment period where we are seeing the investments going into the business. Hence, the flow-through to that extent is, I would say limited. Even as the investment starts turning around and starts delivering results, we will see faster and enhanced expansion of margins.
Okay. How should we look at, you know, incremental revenue growth determining margins from here on? Is it a step function, which will play out that we have invested, in people last year? Because I can see there's a significant employee addition, for the company last year and the cost is coming. Now that incremental growth will lift margins. How should we see this?
The growth will come on revenue. There are opportunities and the market is very large for this business. And even as flow-through improves, you will see flow-through will improve with the investments kicking in with the results. I think the margins will also expand. I will not be able to give you a mathematical number. As you know, we don't give future guidance. But even as the flow-through keeps increasing with the investments rectifying on the results, you will find that the flow-through will keep increasing and the expansion in margins will be higher.
One question is, see in the light of this increased fragility of global financial system, are we somewhat noticing any adverse change in the traction of, say, new client addition, new deal wins, deal renewal cycles getting slightly elongated or longer, deal sizes getting smaller in the global businesses? Any signals on that?
It's Andre Cronje speaking. Not really. I think the type of services we offer, and as I explained when we set the presentation, are non, voluntary spend to a certain extent for the organizations we deal with. In that context, the demand is probably higher than what it was. I think there is certainly a harder decision cycle with regards to whether they can spend the money because clearly, most of the organizations we deal with are now very cost conscious, so that's a change we see. It's more the decision making, but the demand and the type of services we offer is certainly on high demand.
Okay. My next question is on the ratings segment profit growth or margins. While we have seen a significant pickup in domestic ratings segment revenue growth, again, here the margins when I look at the segmental level reported margins, they've been moving in the same band. This I believe is a slightly more operating leverage business than global business. If you can provide an answer why the margins are not improving here despite significantly strong revenue traction, in the context of how, you know, the revenue mix is moving in terms of initial rating fee and surveillance fees, and how the revenue mix is moving in terms of the share of bond ratings and bank loan ratings.
We don't give a breakout of that margin, Rajeev. I think the way again, we need to look at it is there's significant, as Gurpreet also mentioned, there's significant competition out there in this particular business and we need to invest in talent and people as far as this business is concerned. Because the IT in this business is our people, and every time we lose good talent, it's like, you know, losing cash from the main door. We've continued to invest in people, and I think we'll have to look at it over a traction period of a full cycle, which is a 12-month period, to be able to see the kind of growth we are looking at. If you look at the last 12-month period, which is a period in which the contraction did happen.
Again, like I said, we have invested in our people. We have retained talent and very key talent in that business. Even as that investment period comes through, we will start seeing growth in margins.
Yeah. I think the second trend, which is not which I think we should also talk about, is the fact that the regulation has or regulatory intensity has been, I mean, it's been quite intense. Let me put it this way. What it does is that to be, to be ahead of that, and if you see some of the circulars which have come over the last four years, it does require a good amount of operational cadence to be fair to it. Which essentially means you will have to invest both in technology and people to be able to do it. It isn't only a simple people scale. We have been investing in both of that. I think that's one of...
It is going to be an important parameter as we go down in terms of competitive intensity. Please note that is not only people. It is the investments in technology and regulatory compliance. I think that also is something which is keeping pace. Basically, we haven't seen any drop because of that, so all of that's been absorbed with the same margins. If you... I mean, I would request you to see the margins from the 2014 to now. I think there's a significant change. I mean, I think I would look at it in the full full perspective.
Sure. Sure. Just last thing I wanted to check upon is whether in the domestic rating business, would we have significantly higher delta to bond market revival versus, say, a bank loan rating activities? As I see that the bond market reviving in this quarter and our growth rates have significantly picked up in Q1 of the current calendar year. Is it a function of our more stronger market position in the bond market ratings? Would that be the right way to correlate in the future as well?
Help me with the question. I'm not able to fully get the question. You're asking which will grow faster or you are trying to?
No. I would say our sensitivity to what grows faster, in terms of our growth. Would the bond market issuance as being cannibalizing bank loan market may be better for us or would it be the other way around?
See, bond market pays you better. It is the fees are far better than the bond market. That is a well-known fact. To be fair to it, I think bond market is smaller. Let's also take that. The bank loan market for large corporate is also larger. If the bond market grows and, I mean, like in assuming that's what you're asking, if INR 100 comes from bond or INR 50 comes from bond, INR 50 from bank and it becomes 60-40, yes, it is beneficial. You'll also have to see the growth on an overall basis. We've broadly, our sense is that it's an even split. I mean, it's more here and there, so it's difficult to put that number up. But yeah, bond pays you.
Bond is more, I would say, value creative than bank.
Yeah. No, no. I think, the precise question is whether CRISIL's market positioning, in bond issuance rating, is much better than bank loan ratings? Your market share.
Okay. Let me, let me put it differently. If we have... I mean, today as a rating business, I can give you 8 or 9 ways to calculate market share. Sometimes we also get a little bit confused about it. You have to understand 2 things in the bond market share, while our market share is very strong, but bond market is a multiple issuer market. You can have an issue with 4 rating agencies. The denominator for that, it could be as high as 180%, 190%. Bank loan market, on the other side, is a single issuer or best case in some of the large, 2 issuer, and that also is, is different. It isn't right to compare market shares and, and the multiplication to revenue.
That's a simple point. It may not be that unique. Yes, I would say that our market position, both the markets are strong.
Okay. Thank you so much for answering all my questions.
Thank you. Next question is from the line of Balaji from IIFL Securities. Please go ahead.
Thanks for taking my question. Congrats on a good set of numbers. My first question is on this particular line that is there on slide 24, which talks about increased regulatory oversight and cost pressures across financial services clients. How should one look at this? Is it positive or negative? Because one way to look at it is that your GR&RS business will probably benefit because of this. While on the other hand, GBA, which is more linked to discretionary spending, might see some pressure. That is question number 1. The second question would be more, you know, following up on the discussion which we had just now on bonds being more value additive.
In light of the recent regulatory changes in the budget where the taxation has changed for debt mutual funds, would you kind of, you know, do you think that at the industry level there could be, you know, some bit of credit requirements being met incrementally more through banks versus bonds? In a way, do you see this as a negative development for the industry?
I'll just deal with the first question with regards to the current environment and the impact it has on our benchmarking business and our services business. Firstly, as far as the benchmarking is concerned, on the contrary, yes, you're right, it is probably discretionary spend, but the type of insights we provide and the clients we have are so dependent on these insights. I'm not just saying this because it sounds it is the right thing to say. We haven't seen a drop-off at all for the type of insight that we provide. In fact, there's probably more requirement for what we have. Really no impact, frankly. Then obviously for our services business, the current environment is really conducive to getting, doing more work and increased demand.
Your question on the taxation of debt mutual fund, I'll try to answer to my best ability. I'm sure we have listed mutual funds. They would be able to give you a much more better flavor on how they see the movement between bank and mutual funds.
See, mutual funds, from a corporate bond market, I think possibly, and I don't have the exact numbers, but my estimate is that it's about one-fifth or less than one-fifth of the outstanding corporate debt is them as investors. It really depends on how the flows to debt mutual funds are impacted because of this. I mean, when you are in a declining interest rate scenario, the mutual funds possibly will show better returns. Some of this may get masked in that perspective. You know, I mean, see a lot of debt mutual funds aren't only individual investors. They're corporate investors to a large portion of corporate investors. I don't have the numbers.
They are not really bothered about the three year, usually they will look for what the returns are in the INR 2 lakh. How much are the individual investors in that proportion? I'm not 100% sure. At least our broader estimate is it may impact in the short run a little bit, but in the longer run it shouldn't have any large impact. That's at least our internal house view.
Thank you. I had just one quick follow-up. Then one can see that your employee count has almost risen by 20% in the last 12 to 15 months, and that also reflects in some of the increase in the employee cost that we have seen. In case, if the overall demand conditions were to deteriorate a little bit, especially for the global business, I mean, what kind of, you know, leeway do we have in terms of kind of cutting the fixed costs?
Yeah, I'll take that question. Thanks for that. This is Anupam Kaura. I look after the HR function for the company globally. The way we look at it, I think a lot of this is self provided for by the kind of attrition that we've seen over the years, the normal natural attrition in that sense. This wouldn't be something that we would be unduly concerned about. I think it should be a reasonably manageable situation the way we see it.
I would only add to what Anupam is saying. I think the first fact is the environment, and as Andre, and you know, Gurpeet and Ashish spoke about, the environment and the opportunity for us, I think continues to be positive and the demand for our services. I think we expect, you know, that to be the driver from our perspective. I see a scenario where, you know, our demand for our talent is likely to continue and if there's any challenge, then of course attrition should take care of that. That is how we would look at it.
Okay. Thanks a lot, Amish. This is quite helpful. All the best.
Thank you.
Thank you.
Thank you. The next question is from the line of Pranav from Rera Enterprises. Please go ahead.
Hi, sir. Just about the employee cost. Employee cost has a seasonality, I understand that. This INR 393 crore for this quarter, how should we think about this going forward? Like it is quite fluctuating quarter-on-quarter.
I think, you know, the staff costs is a combination of headcount add, right, the incentives, the true up of bonuses, based on the performance of the organization, and, you know, the long-term incentive program. It's a combination of things that we work on. And also it's reflective of in some cases, the business growth that we would have in a particular quarter. I think each business is a different driver. Let's say in the Global Research and Risk Solutions business, you know, your headcount add will be dependent upon the business that you're adding, which might not be the case in other businesses.
Hence it is very difficult to, you know, to say that this is how the staff cost line is likely to move quarter-on-quarter. I think our general guidance is always to please look at those numbers at an annual level so that, you know, you don't see the fluctuations happening in each of those quarters. I would request you to, you know, look at the numbers at an annual level. That will give you a much better perspective in comparison to the overall growth in the business and what's happening in the environment on the people cost side.
Right. Right. Right. Also last year, research and analytics had, say, 24% margin in the same quarter, and like I'm calculating the segment is given by you, and this quarter is 21 roughly. The 300 basis points, how much of this is currency? How much of this is investment in future growth? How is the future pipeline of growth looking in research and analytics? Can you just spend some time on that?
Pranav, the growth as far as margin expansion is concerned, if you strip out the FX, it's roughly around 10 to 20 basis points, because in 2022 FX was favorable, whilst in the first quarter FX has been adverse for us. As far as the breakdown between the margin of the breakdown of the investment and FX, I'm afraid we don't give that breakup. Going forward, I think both Andre and Amish did say that the opportunity in the business is very large. We'll continue to, you know, pursue those opportunities. We believe the opportunities for top-line growth will be quite large. We spoke about the opportunities.
I think we are very clear that even as we continue our investments, even as we continue revenue growth, we will do so along with expansion of margins. We will not pursue growth at the cost of margins, Pranav.
Right. Right. In your PPT presentation that you have sent, you have mentioned that CIB revenues actually faced some challenge on a industry level because of capital market activity. We have actually gained market share in like to like business, right? Like, I understand that there will be a seasonality and then there will Q4 it was 645, 528 across this quarter. The challenge that has impacted the industry, how is that playing in our numbers?
I think we just try to provide a sort of a broader thematic backdrop to the performance of the companies that we typically cover. As I said, the backdrop for banks globally, revenue pulls are slightly down as a result of conflicting pressures on the business. Markets were sort of somewhat down, lending and banking was growing. Against that backdrop, we've seen a slight reduction in the overall revenue. As we've mentioned so many times now, we don't see that necessarily as an indication that our ability to grow the business or for that matter, grow the revenue line is gonna be diminished.
Right. Right. We should not draw any conclusion that there is a short-term trend of revenue going down because this will.
Yeah.
come up according to seasonality. Is that right?
No. No, not necessarily.
Just last question from my side. In this quarter and on the base quarter last year, is there any inorganic growth that we are seeing or everything is organic, right? Organic in the sense or whichever acquisitions were done before Q1 of last year.
No, there is nothing inorganic. Pranav, there is nothing organic. There is a very small element of the Peter Lee acquisition, but it is very immaterial because it's only been consolidated for 14 days.
Right. Right. What is the annual revenue for Peter Lee Associates, if you have actually revealed that?
We've not put it out in the-
Okay.
We've not put it out in the public domain from our understanding.
Perfect. Perfect. Perfect. Thanks a lot, sir.
Thank you. The next question is from the line of Gaurang Vaid from Vaid Capital Advisors. Please go ahead.
Thanks for the opportunity. Hello, team CRISIL. Congratulations on good set of numbers. My question pertains on rating business. I understand we don't give any forward-looking guidance, but my question is more related to qualitative comments from your side. If we look at a quantum of new bond issuance during the year, it is same at around INR 7,000 billion range from many years. Even if we see IBC resolution timeline and recovery rate, there is no significant improvement even after six years of its implementation. When do you see significant improvement in new bond issuance and bond markets? Do you see any significant change coming in IBC regulation going forward? Thank you.
Okay. Thanks. I'll try to answer to the best of our ability. I think these are difficult questions. I think bond issuance, I think for the last, as I said, 18 months or so, has been hampered by the increasing interest rates. We are now after many years getting into a declining interest rate scenario. We are hoping that the bond markets will touch higher heights. I think the numbers for us, you're right, for a couple of years have been stagnating about 16% of GDP. I think as we go down the road, we will see that. Obviously, we are also looking forward towards the corporate CapEx picking up.
At some point in time, I think over the next 12 months or so, we will start seeing at least gradual signs and then later on, hopefully, more intense activity on the corporate CapEx. That typically supports the bond market. The other change which we are hoping as we go down the road is the infra space. Infra space usually most of the time had been a bank loan market. You would spend for that If, I mean, you would have ups and downs but largely linked to the bank loan market. Now with the InvITs coming in and recent InvITs coming in, and we are seeing more positivity in that and a lot of companies talking about it now and going forward in the future.
Some of them are going to become larger. I think those are will have another when I say aspect. Most of them will then come to the bond market. Because if you are a triple A in, InvIT, it does make sense for you to be in the bond market. We've seen some of the listed ones, unlisted ones actually preferring the bond market for that. The third underlying is that we've also seen, I think the non-banks are one of the larger parts of. Non-banks as well as the banks, I think also have an element which comes to the bond market that wasn't there in any significant force over the last three to four years because of the issues in, on both sides.
I think both of them are now looking at these decent growth over the next three to four years. I think we are looking forward and we are, I mean, in some cases projecting it, some cases hoping that they will have larger portion in the bond market. Three, four things I think my sense is that we will go forward and whether that happen in six months or a year or more, but I think there are positive tractions which have been a positive for the bond market in addition to what we already talked, declining interest rates, that's positive. That's one aspect.
When you look at all this INR 7 lakh which we've seen over the last three, four years, have been times when most of these trends were negative. That's one. The second is on the IBC, I think what we need to understand is the IBC resolution for assets under vintage. Let me articulate it differently. IBC has been a regulation which has initially helped resolve some of the assets very quickly. Now what is left in some of those that is left is due is vintage assets. What IBC or the regulation also doing is a lot of resolutions are happening outside the IBC. Pre-IBC process, which is the banks are using the IBC as one of the tools to try to solve many of the things in a pre-IBC manner.
Which means it doesn't go to the IBC, but it gets resolved. Our broader sense, and I don't have numbers, and I can unfortunately, I don't have it, but I think the resolution rates today for stressed assets are far better than what they were in the past. I don't have numbers on that. That's my qualitative sense on this. Does that help?
Yeah. Perfect. That was quite helpful. Thank you very much, and wishing you all the best.
Thank you.
Thank you.
Thank you. The next question is from the line of Devansh Nigotia from SiMPL. Please go ahead.
Thanks for the opportunity. One question regarding ILT rating.
Devansh, sorry to interrupt you. Your voice is not coming clear.
Yeah. Am I audible?
Yes.
Yeah. Also, SEBI just released a draft for the ILT rating where they mentioned the scope. Based on that, I mean, can we have an assessment that can analyze how much time is it required to do a bank rating or a bond issuance rating, and how much time is, you know, required to do a ILT rating to understand how big is the scope of work or some parallels if you can, you know, if we can draw?
I think the draft paper, they finalized it. I think the final paper is gonna come in. Maybe it's a good idea to look at that in terms of the overall market sense. Depending on what rating you do, I mean they've also delineated whether it's a issuer-paid model or a investor-paid model. I think they are different in their approach and in the time it takes. I mean, an investor model where you will actually put out 1,000 ratings without talking to the companies or, I mean, using public disclosures and limited interactions, I think the time taken is far lesser. It is a large database management.
Also a good amount of judgments you will have to use to populate data which you don't have based on your understanding of the industry, company, economy and various aspects. If you're an issuer-paid model, where you'll have to meetings, et cetera, et cetera, I think it shouldn't be very fundamentally different than what it takes to rating for a new company on the bond market. Maybe... I mean, I don't wanna hazard a guess, but it shouldn't be very different from that. Depends on which model you choose, what are you doing, how that factors in. Finally, we still have to look at the final guidelines because if there are requirements, we will have to factor that in. That's, that's where it is.
Usually we understand when you do rating assessments, it is also a factor of a lot of time you spend before to benchmark and put the criteria in place. I think that's a lot of work because it's an entirely new thing. You need to really think through it. There has to be a predictive element to that whole criteria. That takes its own time. I mean, when we did bond rating or when we started asset, adding new asset classes like or new institutions, I think we also spend a lot of time, but that's a different perspective.
Okay. With this, change in the taxation that has happened for the tech markets, do we see, that impacting bond issuances? Any, impact do we assess or any outlook if we have, for the same?
Yeah, I just answered. I'm not the expert, but I might. I mean, I keep it short. I don't see. People have raised a lot of money on March 31st because of the taxation moving. Debt mutual funds ideally should have money for the next few months. We will have to see how the inflows to the debt funds happen. Just, just be aware of the fact debt funds are possibly 1/5 or less than 1/5 of the total bond market. A good and a decent portion, I don't have the numbers with me, maybe mutual funds they will tell you better. A good portion of that is done by corporates, investment in debt mutual funds.
That is not, I think that is agnostic to the taxation because they usually shut them in for liquid assets. My broader sense is that, it may not have any significant long-term impact, though there could be short-term impact depending on how the flows happen during the second half of this year. I think it's a better way to figure out from mutual funds, and that's our assessment as well.
Thank you, sir. That concludes my questions.
Thank you. The next question is from the line of Bhavin Pandey from Trust Dutus Wealth Managers. Please go ahead.
Yeah. Hi, Shiv. Congratulations on a wonderful set of numbers.
Bhavin, sorry to interrupt you. Your voice is not coming clear.
Okay, am I audible now?
Yes.
Yeah. Just looking at the margins and some of the margins we have in the ratings business is two-fifths of what we have in research and analytics business. The sales contribution from ratings business is pretty less. Like, I mean, looking at such lucrative margins, why don't you sort of focus on scaling up the ratings business and also scale the research and analytics business when the margins come along? Secondly, how does sort of cash collection cycle work in this business? Maybe I get that the information is not disclosed usually, but can you throw some sense on how the fee structures work over here? Thanks.
If you look at the how the business has come about and how the initiation of the risk analytics and solutions business, Bhavin. The whole idea for us was when we went into the risk analytics and solutions business by Sorry, the research analytics and solutions business by our first acquisition, which was Redna. The idea was to progressively de-risk our ratings business. The ratings business has higher margins, is smaller than the research analytics and solutions business.
The fact is that we are also able to create that moat from the ratings business and therefore de-risk the ratings business, which also allows us, remember, to protect the margins because it is because of this that we know that we can walk away from businesses that, you know, which are either giving lower margins or where clients are not willing to accept the kind of ratings we give because our ratings are clearly driven by a certain process, by the strength of analytical rigor. That is one. The second part is, I think, it is also important to understand the size of the opportunity. Even as bond markets will grow, which they haven't, actually over the last five, 10 to 15 years. Even as the bond markets in India grow, I think our ratings business will grow accordingly.
If you look at simply as a comparative and the environment in which the two segments are doing business, I think that also needs to be considered when you look at the growth focus in both these two segments. You had a question on cash cycle, right?
Yeah. Correct.
ratings is essentially a negative working capital business because we do collect initial rating fees up front, and then the remaining surveillance fees also comes in upfront. We do have better days in the research analytics and solutions business. Again, we are particularly focused on collections and keeping better days at the lowest level possible. That is where you see essentially the better days in the overall consolidated business.
So, you know, when we think of fees as a percentage of the amount that is being raised, can we throw some sort of light on what sort of basis points we charge? Do clients negotiate in terms of pricing if, you know, they have the opinion that XYZ is providing us rating than best price, so can you guys negotiate lower rating or something like that?
So I'm-
We're not able to understand your question.
I understand you. See, you're not very clear, Bhavin. Your voice is quite muffled.
Sorry. Am I clear now?
Yeah. I mean, as of now you're clear. Even as you're going through the question, it gets muffled. Go ahead and ask your question.
Yeah, sorry. Hello.
Yeah, yeah. Go ahead.
I just wanted to understand what sort of fees do we charge in terms of business points as compared to the total amount that is being raised? Secondly, is there any sort of negotiation from clients' end when we are going through the whole process? That's it.
We will not be able to respond to your first question, Bhavin. That is not something that's in the public domain. On the second, please understand, and Gurpreet alluded to this, I think, right at the top of the conversation. It's a very competitive market.
Okay.
Yes, almost every deal gets negotiated, but, we do have a premium positioning in the market. Gurpreet, I think you want to-
Yeah. Got it. Thank you.
Okay. Yeah. I guess that answers all my questions. Thanks.
Thank you. Next question is from the line of Anuj Sharma from M3 Investment. Please go ahead.
Yeah. Hi. Two questions from my side, you know. Could you give some insight into the Global Analytical Centre and what are we doing to increase the market share with respect to S&P outsourcing? My second question is, you know, over the years we have made couple of acquisitions, some of them have really done well. You know, when we look at it from now on, what are the key acquisition criterias we look at before acquiring a company? Thank you.
Okay. I can take the first question about the Global Analytical Centre. See, we've had a very successful partnership with S&P Global for over two decades now. The kind of work that we do for the ratings services is primarily on the surveillance side, where we're helping the primary analysts with their desktop research work in support of their production of ratings. We also help them with their data and their technology transformation projects.
I'm sorry to interrupt you. Ma'am, you're sounding slightly distant from the phone.
Okay. Can you hear me now?
Yes, ma'am.
The couple of areas that we work within the Global Analytical Centre, one is on the surveillance piece, where we're working very closely with the analytical practices within the rating services, helping them with their desktop research work in order to help with the production of ratings. We're also helping S&P with their data technology transformation projects. We have some ancillary capability and services that we provide to some of the other functions like risk and control and the like. I think in terms of the future prospects, again, we're very excited about working with our parent company, primarily, one, because there are new areas of common growth and strategic areas like sustainable sustainability as well as other emerging areas of risk.
Secondly, I think that post the IHS Markit merger as well, it's a much larger enterprise of about $12 billion, with 40,000 employees. Clearly in terms of our ability to provide more capabilities to them, at a larger scale, is something that we're excited about.
Amish, you wanna take the M&A piece?
I think, you know, CRISIL has always been, you know, growing both organic, inorganic. I think the way we think about our businesses is, you know, we want to be market leading in the businesses we operate, geographies we operate. Inorganic would be, you know, would complement that strategy. It should be a strategic fit. It has to be in line with the market opportunity. It has to help us accelerate our strategy execution. I think we look at multiple parameters. Of course, you know, one would look at the valuation and the returns that would get generated. I think these are some of the, you know, key things that we would look at when we evaluate inorganic from time to time.
All right. That's helpful. Thank you so much.
Thank you. Next question is from the line of Aalok Shah from Monarch Networth Capital. Please go ahead.
Thanks for the opportunity, and congratulations on great set of numbers, sir. Just one question from my side. How's been the surveillance revenue on the ratings part of your business?
Our Surveillance has also shown robust growth, both in the first quarter, Alok, as also last year.
Okay. Are we saying that the trend that we saw the last year same time is kind of continuing also in this period as well?
As far as Q1 is concerned of this year, that is correct.
Okay. Thanks. That's it from me.
Sure.
Thank you. The next question is from the line of Rahul from Credent Research. Please go ahead.
Hello.
Yeah, you're audible. Go ahead.
Thanks for the opportunity. I had a question regarding, pertaining to the rating business. Like, in Q1, for the past few years I was tracking that the rating business, the margins are approximately 48%. and the remaining part of the year it is declining to 40%, 40%-42%. Can you please tell me the reason for that?
Again, I go back. I think Amish also alluded to this, a little earlier to another question, Rahul. It will be incorrect to see any of our businesses over a single quarter. You have to see the business performance over the full 12-month period because that covers all possible, I mean, almost of the cycles that a business has to see. It wouldn't be right. Whilst you have a YOY comparative, I think that's the one to see rather than a sequential. If you want to truly see the accurate performance of a business, I would urge you to see it over a 12-month period.
All right. Thank you.
Thank you. Next question is from the line of Varun Bank from Branston Investments. Please go ahead.
Hello. Good evening. Just on the global business that we have with S&P, how is the pricing being negotiated in these contracts? How is the benchmarking done in terms of pricing these contracts? Is it possible to give color on economics of this business? Also just second part to this question, are there any constraints in terms of sourcing business from S&P? Are there any regulatory constraints, or do you foresee any risks to this business?
On the pricing, the pricing is based as per arm's length, based on the Income Tax Act. We've also gone through assessments on this arm's length pricing, and so far there have been no objections raised by the income tax department. As far as constraint on business is concerned, it will be the regulations that S&P Ratings works under, and those regulations also subject to GAAP. S&P being a company which is governed by the highest standards, obviously we go by the regulatory ring-fencing that is required under the ratings business there. Have we been able to answer your question, Varun?
Yeah. I mean, I was just trying to understand how is the benchmarking done in terms of pricing these contracts?
When you say benchmarking, are you talking about what is the process of benchmarking? What do you mean by benchmarking?
No, not process. I mean, just, is there any benchmarking method that we have in terms of pricing these contracts? Also if it is possible to give color on economics of this business, that would be helpful.
We don't give a color on the economics. What we do as a benchmarking exercise is a comparable transaction margin globally that would be charged between companies of this size, similar size, and companies giving similar service. That is the comparability that we have.
Okay. That's it. Thank you.
Thank you. The next question is from the line of Drashti from Thinqwise Wealth Managers. Please go ahead. Drashti, may I request you to unmute your line from your side and go ahead with your question, please.
Hello, can you hear me now?
Yes, we can hear you now.
Thanks for the opportunity, sir. Just to add on the question of what a previous participant asked regarding the cash cycle. When I look at your debtors, the debtor days is around 100 days in December 2022, and even it was higher in December 2021 at around 86 days. It's substantially increased in the last two years versus average before of 50 days. Could you just elaborate on exactly this is? You mentioned our working capital cycle is negative, but because the debtor days are so high, actually the our working capital days is higher. If you could just explain this. Thank you
Drashti, there are two parts to this. I said that our working capital is negative in one part of our business, which is in the ratings business. The debtor days essentially resides in our research analytics and solutions part, which is essentially the global businesses and MENA. The reason why you see an expansion in the debtor days as far as 22 is concerned is because there's a bit of timing difference here. Some of the key clients whose payments were expected to come in by December actually came in January, which kind of bumped up our outstanding as of 31st December, which bumped up the debtor days that you see.
You will also need to look at the expansion in the value of debtors, based on the expansion in our revenue also, which is reflective of the debtor days. Again, the bulk of the expansion in debtor days is more on account of a timing difference in collections, that happened last year. Incidentally, that, those debtors which didn't get paid in December, actually the money did come in the first quarter.
Okay. What typically is our debtor days, generally for a research business?
It, inside our research business, as in you mean the segment?
Yeah. Because that's where most of the... You just mentioned, right? Like, debtor days are more heavily related to that segment.
It is different in the different businesses in the segment. It is more or less reflective of the debtor days that you see on the balance sheet.
All right. Thank you so much.
Thank you. Next question is from the line of Anand from Lightrock India. Please go ahead.
Thank you for the opportunity. I have 3 or 4 questions. First is, from, opportunity perspective, do you see Basel IV as a reasonable opportunity, given the size of our existing business?
Basel IV.
Basel IV.
Yeah. Yes, we see it as a big opportunity. FRTB, capital optimization is a big theme, as I said, when we looked at the slides. We see it as a material opportunity for our markets business. We are actually having, live conversations with a number of the clients that we service specifically on this topic.
Noted. Noted. Given the implementation is 25 in some countries or by 2026 in calendar year 2026 in others, when does our work begin? Is there some timeline that you can give a sense of?
I mean, many of our conversations have actually started a while ago, to be honest. Many of the preparatory things that organizations need to do to prepare for the regulations have been known for a long time. We've actually been active on these topics for many months, actually probably predating this, my sort of arrival. It isn't really just a case of people step up when the regulation becomes live. The preparatory work that needs to happen for these regulations typically two to three years in advance. We're very active at the moment.
Noted. Noted. When it comes to Vintage, and Coalition, we see some contrasting trends. Coalition has done well, whereas Vintage hasn't. Can you give us a sense of what's driving these contrasting trends? Is there any, you know, underlying factor? This is one-off, or broadly would you expect these trends to be continuing, like, they're moving in different directions as per the dynamics of their business?
I would say you should look at the global benchmarking business and not look at individual company perspective because the billing, you know, the structuring of the billing is, it could be very different, right? I think what is important to see is on the, at the segment level, the entire combined entity, you know, or the combined business performance of global benchmarking analytics, which is across the CIB and the non-CIB space. I think that is what, you know, we would, you know, typically look at as we run the business.
You know, I think the numbers which might have been sitting in the subsidiary performances, I think they are not reflective of the business because the contracts could be structured depending on which country and, you know, what businesses are actually servicing those businesses.
Noted. Noted. If I understand correctly, there's some noise in here, and hence the margins and revenue growth and so on might throw off on this off track. We should look at, as you said, at the segment as a whole. Am I understanding correct?
That's right.
That's right.
Yeah. Yeah. Now, when it comes to our engagement, in GR&RS, I presume this is also a ongoing engagement the way it's in ratings, like initial rating and then surveillance. Is GR&RS having similar revenue profile as in initial fee and then continual engagement, or is it more driven by one-off projects or it's a mix? If it's a mix, can you give us some sense of what kind of mix is it?
About 30%-35% of our revenue in that business is annuity revenue, Anand.
Noted. Noted. Noted. For the remaining business, which is project-driven, Are these projects like one-off or they recur every three, five years? How should we think of it?
Combination of both, Anand. There would be renewable projects and there would be projects which come in for a short period and then-
Got it. Got it. I have a couple of more questions. I'll come back in the queue. Thank you.
Thank you. Next question is from the line of Himanshu Bhadia from o3 Capital. Please go ahead.
Yeah. Hi. I had a question on, we have written in our annual report for the last few years that, we want to diversify beyond financial risk also and compliance and all those services. How large is that business opportunity and what are our strengths in that business? How do we think, where are we in that journey of, diversifying further into those types of services?
Non-financial risk is possibly the biggest risk that our clients currently deal with, so it is a very substantial opportunity for us. We are in the process of building out our business, because we see it as a very material opportunity. That's where we are.
Do these cover beyond financial companies also? Primarily, currently we are focusing on only mostly financial institutions, but non-financial risks, are we going to focus on industries beyond financial? Should we understand that?
No, at the moment, we are principally focused on financial institutions. We're obviously dealing with banks, as we said, so we expand that more probably into the asset servicing side, asset management side, but beyond, nothing beyond financial services.
Okay. One more thing. You stated about recurring revenue 35%. If I understand, we have also written about products and platforms development, something like ICON, Fulcrum, IT-driven businesses. Okay. How is that segment overall moving, and what is the level of maturity of our products? Have we reached a substantial scale where we can roll out across the world and across. There can be a substantial margin improvement in that whole business of research and rating analytics with these products on the floor?
Absolutely. If you look at the ICON product, it is a product that helps digitize the entire credit underwriting process. That is a product that is pretty much used by all the large banks in India, both across the public as well as the private sector. The idea really is to now take it international, which is largely in the geographies around the Middle East as well as in, as well as to North America.
Okay. Okay. The IT remains with CRISIL for these products, whatever we have, ICON and Fulcrum and all these products.
Yeah, absolutely.
These are main. Besides these two products, are there anything more we are working on or these are the two products which are at a maturity stage right now?
We do have a suite of products. Some of them are platforms like ICON, which help digitize credit processes. We do have products or platforms which, where we actually have the ability to be able to take data to our clients. That is where, you know, we mentioned during the initial conversation that we leverage a lot of the data that we generate out of our research, both the macro as well as industry business, which we, you know, offer clients to be, have, you know, to get access to. Yeah.
One last thing. If you look at FY 2021 and the revenue mix, the geographical revenue mix, it seems that FY 2021, the revenue grew by 20% in domestic market. At 2022, it grew by 9% only. Okay. We had stated that domestic rating business grew by 13%. What are the business which are dragging? It was expected that FY 2022 should be better than 2021 because the economy has done better. Why did FY have been slow, lower growth than FY 2021?
I think the mix of the businesses is what is important to look at, right? I mean, we could have, let's say, you know, in our advisory segment, which we used to have earlier, that we had all worked with government clients. Let's say some, you know, significant contracts could have got over, which might not be there in the next year. I think, you know, what I would request is to see it more holistically. You know, our businesses are different. As we scale up different businesses, growth will be, percentages could be different. And I think that is where you need to keep that perspective.
Okay. Thank you. I'll join back in the queue.
Thank you very much. Ladies and gentlemen, in the interest of time, that will be the last question for today. I now hand the conference over to Mr. Amish Mehta to conclude the session.
Thank you, everybody for joining the call. I, from our perspective, I think we continue to look at the opportunity. You know, there is uncertain environment globally. I think India, the economy remains robust and resilient. You know, we expect growth in the economy to continue. I think as we discussed over the call, most of our offerings are in the non-discretionary space for our clients, which continue to drive buoyancy in terms of demand and growth. You know, we continue to be optimistic from a business perspective. Thank you very much.
Thank you, sir. That concludes the call for today. Thank you everyone for joining us, and you may now disconnect your lines.