September 11, 2005
I am looking at the financial numbers of crisil. My thinking was that CRISIL and any other rating agency would have a good business model. On looking at the numbers i have been completely blown away.
- Return on networth - 20 % +
- Return on capital employed in business - 80 % (approximate ). The company has about Rs100/share of investment
- Net profit is almost equal to cash flow as a rating agency would not have too much fixed expenses (other than offices which can be bought or leased)
- Not much of working capital requirement (close to zero)
- Net margins of 20% +
- Strong competitive advantage in the form of a strong brand name ( CRISIL or ICRA etc ). Any company wanting to get rated will have to go to these companies ...sometimes to all of them ( and i cant think of new companies being able to get into this business easily)
- additional lines of business through these relationships with companies like advisory services, research services etc which provides additional revenue streams.
So if everything is so good , why not buy the stock ...?? looked at the price and ofcourse the market is smart enough to recognise a good business. The stock sells at a PE of around 35. So it seems to be a great business available at not a great price. I will give it a pass ..but will continue studying the business model
Posted by Rohit Chauhan Labels: Industry analysis