Business strategy

The company has adopted a strategy of diversifying into different business segments across
various geographies to mitigate the risk arising from high dependence on any one geography
for revenues. While India contributed ~32% of the total consolidated revenue in CY15, North
America and Europe contributed ~33% and ~30%, respectively. The company operates from
7 research centres across Argentina, China, India and Poland.

Market leader with strong parentage

CRISIL is the largest credit rating agency (CRA) with a market share of around 60% and
enjoys leadership position in the rating business including SME ratings. Besides, it is also one
of the biggest research houses in India and 90% of India's commercial banks use CRISIL’s
industry research for credit decisions. Further, it has strong parentage of Standard and Poor's.
Strong rating credibility and brand presence Credibility plays a vital role in the rating
business. Brand CRISIL enjoys a high level of rating credibility in the industry which is
evident from the fact that one out of every two companies rated in India has a CRISIL rating.
It has robust rating process and rigorous quality control team which performs in depth
reviews of all rating proposals and acts as an independent filter in the rating process. Further,
CRISIL has strong brand recognition in the ratings market with over 29 years of experience
in rating financial instruments.

Diversified revenue streams to tide over cyclical revenue growth

From being a credit rating agency, CRISIL successfully diversified its revenue base into
three different business segments (research, rating and advisory) over the last few years to
mitigate the risk arising from high dependence on any one business. Therefore, it is less
exposed to concentration risk as bank loan rating (BLR) revenue would be at risk in the
future if banks move to internal rating based (IRB) approach to measure credit risk. CRISIL
has also diversified its business model in terms of geography. Superior business model with
diverse revenue streams enabled CRISIL to mitigate the current phase of systemic slowdown.
CRISIL’s consolidated revenue grew at a healthy CAGR of 11.7% over CY13-16. Further,
we expect CRISIL to register a CAGR of 13.9% in revenue over CY16-18E.

GR&A to drive research revenue

CRISIL’s research division posted an aggressive 18.8% CAGR over CY11-16 on the back of
inorganic growth. While depressed investment cycle and weak performance of banks
impacted India research business, research revenue growth was primarily driven by CRISIL
GR&A’s (Global Research & Analytics) risk and analytics. A series of acquisitions and their
integration strengthened the research capability and widened the product portfolio of GR&A.
It acquired Pipal Research (a Chicago-based leading knowledge services firm delivering
highquality financial and business research to organisations worldwide) in CY10 and
Coalition (a UK-based analytics firm serving leading global investment banks) in CY12.
These acquisitions strengthened its product bouquet as well as its presence in global research.
As a result, the research revenue contribution has increased to 64.8% in CY16 from 46.6% in
CY10. Further, GR&A won various mandates in CY16 which are expected to support future
growth. Therefore, with revival in global economy, we expect its research revenues to grow
at a CAGR of 15.0% over CY16-CY18E

Rating revenue to show healthy traction

CRISIL derived 30.2% (CY16) of its total revenue from Indian rating business and is the
market leader in the domestic rating industry. However, CRISIL’s rating revenue saw modest
7.5% CAGR over CY11-16 owing to subdued investment by private sector and sluggish
credit off take in the recent years. Further, SME Ratings was also impacted due to reduced
budgetary support by the government. However, we expect rating revenue to show healthy
traction with 11.2% CAGR over CY16-CY18E on the back of pick up in corporate bond
issuances, gradual but steady improvement in bank credit demand with improving investment
climate and declining interest rates.

Key Risks:

➢ Foreign exchange earning risk: CRISIL's foreign currency revenue earnings are
significant and any appreciation or depreciation in the rupee can have a significant impact on
revenue and profitability

. ➢ Introduction of internal rating-based (IRB) approach: Under Basel III, banks are allowed
to use internal rating of credit risk (known as the IRB approach). Migration towards IRB may
negatively impact the ratings revenue of the company

. ➢ Pricing pressure: CRISIL enjoys the highest market share in industry. However, growing
competition from players such as CARE, ICRA, Brickwork, Fitch Rating and SMERA can
increase the pricing pressure which could lead to rationalization in margins enjoyed by the
company.
➢ Attrition risk: Employees are the core asset for a credit rating agency and hence attrition
can be a huge risk. The risk of employee movement (especially at the middle / senior
management) level.

Macro and Micro environment assessment:

In the course of recent years, India's FICO score industry has assumed a urgent job in raising
models and reinforcing the credit culture that wins in the nation. With 20,000 firms
appraised, India has one of the biggest pools of evaluated organizations comprehensively.
While a few evaluations have been addressed, the issue of "wrong" appraisals is in no way,
shape or form across the board. People in general accessibility—for nothing out of pocket—
of rating methods of reasoning on 20,000 firms has altogether enhanced straightforwardness
in the framework. The inclusion of littler organizations has conveyed them to the notice of
speculators and banks, and upgraded their raising money openings. As evaluations subject
organizations to open examination, organizations are more cognizant about money related
order and opportune adjusting of their obligation. Autonomous benchmarks given by
appraisals enable markets to value obligation all the more proficiently.

PESTLE ANALYSIS

POLITICAL FACTORS

Political risk

 Stability and legitimacy of political institutions;

 Popular participation in political processes
 Orderliness of leadership successions;
 Transparency in economic policy decisions and objectives;
 Public security;
 Geopolitical risk.

ECONOMIC RISK
 Prosperity, diversity and degree to which economy is market-oriented;
 Income disparities;
 Effectiveness of financial sector in intermediating funs availability of credit;
• Competitiveness and profitability of non-financial private sector;
 • Efficiency of public sector;
• Protectionism and other non-market influences; and
• Labour flexibility

Technological risk

The Company's capacity to direct business might be unfavourably affected by a disturbance in the
framework that underpins its organizations. This may incorporate a disturbance including physical or
mechanical framework whether because of human blunder, equipment disappointment, cataclysmic
events, control misfortune, media transmission disappointments, break-ins, disrupt, deliberate
demonstrations of

vandalism, demonstrations of fear mongering, political turmoil, war or something else.

LEGAL RISK

The Company agrees to all the material laws, tenets and controls, and settles on business
choices based on far reaching exhortation gave both by its own authorities and by recognized
outside pros. Lawful dangers emerge as a result of changes in corporate laws, SEBI FICO
score controls, bookkeeping models, impose laws, and additionally some other material
standards and directions as might be revised now and again.

PORTERS FIVE FORCE MODEL

Threat of New Entrants

Risk of new participants is low in light of the fact that the FICO score organizations like
ICRA, CRISIL, CARE have officially obtained the real part or the market. So the danger of
New Entrants will be low

Threat of Substitutes

Threat of Substitutes will be high as CRISIL have high competition in the sector. CRISIL
have threats from companies like ICRA, CARE etc

Bargaining Power of Suppliers

Haggling intensity of providers will be low as the providers expected to give data and
financials to the FICO score office so the organization can be Graded , Rated or given the
investigation.

Bargaining Power of Buyers

Bartering intensity of Buyers will be low as they need there organization rating and reviewing
as quickly as time permits and exact.

BOUNDARIES OF FIRM( vertical, horizontal, geographic scope)

These are the boundaries of the firm:
Ratings

SME Offerings

India Research

Global Research

Global Analytics

Infra
Advisory

Risk Solutions

Industrial Value Chain

Crisil 360 Degree was built up with an attention on giving tweaked assessments of
counterparties that establish the store network system of huge corporates and business
arrangement of banks/NBFCs. It is the chief supplier of little and medium undertaking
evaluations.

We assume a key job in assessing and benchmarking execution of merchants and of huge
corporates and banks/NBFCs. Our assessments encourage a 360 degree knowledge into the
financials, the executives abilities and business dangers of SMEs, which have helped the
corporates and money related establishments enhance their activities and commitment with
their SME counterparties.

Notwithstanding evaluating SMEs, CRISIL 360 Degree offers the accompanying

administrations:

CRISIL Dealer Evaluation Service

CRISIL merchant assessment administrations help corporate elements benchmark their

current merchant arranges and assess potential merchants. The appraisal structure received is
a blend of quantitative and subjective parameters incorporating territories, for example,
Business activities, the board and money related hazard and the financial soundness of the
substance and its advertisers. CRISIL's one of a kind 360 degree assessment process
incorporates site visits, interfaces with brokers and clients, and point by point examinations
of reviewed asset reports, benefit and misfortune (P&L) and bank explanations. CRISIL
likewise investigations the execution of the merchant's gathering substances. The
examination finishes in a SWOT investigation and score or review that is effortlessly similar
to that of different merchants.

Having conveyed in excess of 25,000 merchant/merchant/client assessment reports to date,

CRISIL draws on a few all inclusive parameters, benchmarks, and weights to help modify the
assessment exercise to meet the explicit needs of corporate elements.

The extension is tweaked in exchanges with corporate customer in order to accomplish their
particular business goals.

 CRISIL Vendor Evaluation Service

Sellers being key accomplices in each business, it is fundamental to comprehend the monetary
and the executives qualities of merchants, the decent variety of their exercises, and the business
conditions in which they work. CRIS-Vens ;furnishes corporate elements with this basic data. The
goal of merchant evaluation is to decide the degree to which a specific seller will have the
capacity to meet his/her conveyance commitments, both now and later on. The look for a
satisfactory provider can be incredibly helped by receiving an efficient way to deal with seller
examination and assessment.

CRISIL's scientific quality structures the center of this administration. It incorporates examination
of both money related and non-monetary information accumulated from the merchant's P&L
explanation, asset report, bank proclamations, the executives talks, and criticism from brokers,
clients, providers, and other important sources. Site visits are likewise led to assemble ground-
level data.