The quarter showcased CRISIL's ability to maintain operational momentum with net sales rising 8.09% sequentially to ₹911.24 crores and 12.24% year-on-year. The company's profitability metrics remained robust, with PAT margin improving to 21.19% from 20.35% in Q1 FY26, reflecting disciplined cost management and operational leverage. Despite these fundamentals, the stock faces significant pressure from valuation concerns, trading at a demanding P/E ratio of 47.18x and carrying a proprietary Mojo Score of just 42 out of 100, warranting a "SELL" rating.
Financial Performance: Margin Expansion Drives Profitability
CRISIL's Q2 FY26 results demonstrated consistent revenue momentum and improving profitability. Net sales of ₹911.24 crores represented the company's strongest quarterly performance in recent periods, driven by broad-based growth across its ratings and research segments. On a sequential basis, revenue growth of 8.09% reflected strong demand for the company's analytical services, whilst the year-on-year expansion of 12.24% underscored sustained market leadership.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | YoY Growth | PAT Margin |
|---|---|---|---|---|---|
| Sep'25 | 911.24 | 8.09% | 193.10 | 12.56% | 21.19% |
| Jun'25 | 843.02 | 3.67% | 171.57 | 14.30% | 20.35% |
| Mar'25 | 813.18 | -10.92% | 159.84 | 16.06% | 19.66% |
| Dec'24 | 912.91 | 12.45% | 224.69 | 6.93% | 24.61% |
| Sep'24 | 811.84 | 1.82% | 171.55 | 12.87% | 21.13% |
| Jun'24 | 797.35 | 8.09% | 150.11 | -0.31% | 18.83% |
| Mar'24 | 737.68 | -19.62% | 137.72 | -5.51% | 18.67% |
| Dec'23 | 917.74 | 24.71% | 210.12 | 32.97% | 22.90% |
Operating profitability showed notable improvement in Q2 FY26. The operating profit margin (excluding other income) expanded to 28.89% from 28.32% in Q1 FY26, marking a 57 basis point sequential improvement. This margin expansion occurred despite employee costs rising to ₹492.03 crores, up 6.33% quarter-on-quarter, suggesting effective operating leverage and pricing power. On an absolute basis, operating profit (excluding other income) reached ₹263.23 crores, up 10.25% sequentially and 17.60% year-on-year.
The quality of earnings remained solid with PAT margin improving to 21.19% from 20.35% in the previous quarter. Tax efficiency also improved, with the effective tax rate declining to 26.37% in Q2 FY26 from 29.67% in Q4 FY25, though still elevated compared to the 23.74% recorded in Q1 FY26. Other income contributed ₹36.98 crores, up 57.16% sequentially, providing additional support to the bottom line. Interest costs remained minimal at ₹5.98 crores, reflecting the company's zero-debt capital structure.
Operational Excellence: Strong Capital Efficiency Drives Returns
CRISIL's operational metrics underscore its position as a high-quality franchise with exceptional capital efficiency. The company delivered a return on equity (ROE) of 28.37% in Q2 FY26, significantly above the 15-20% threshold typically associated with quality businesses. This strong ROE reflects the company's ability to generate attractive returns on shareholder capital, a testament to its market-leading position in the ratings industry and the asset-light nature of its business model.
Key Strength: Exceptional Capital Efficiency
CRISIL's return on capital employed (ROCE) of 61.10% ranks amongst the highest in corporate India, reflecting minimal capital intensity and strong pricing power. The company's five-year average ROCE of 55.25% demonstrates consistent capital efficiency, whilst its zero-debt balance sheet provides financial flexibility and insulation from interest rate volatility. This combination of high returns and conservative leverage positions CRISIL favourably for sustained value creation.
The company's balance sheet strength remains a defining characteristic. CRISIL operates with zero debt and maintains a net cash position of ₹1,369 crores, providing substantial financial flexibility for potential acquisitions, dividend distributions, or share buybacks. Shareholder funds stood at ₹2,564.82 crores as of December 2024, with reserves growing steadily to ₹2,557.51 crores. The debt-free structure translates into an interest coverage ratio exceeding 100x, effectively eliminating financial risk from the investment equation.
Operating cash flow generation has been consistently robust, with the company generating ₹765 crores in operating cash flow during calendar year 2024, up from ₹780 crores in 2023. This strong cash generation capability supports the company's dividend policy, with a five-year average payout ratio of 59.84%, whilst still allowing for reinvestment in technology and talent. The combination of high ROE, strong cash flows, and zero leverage underscores the quality of CRISIL's business franchise.
Market Context: Premium Valuation Under Pressure
Whilst CRISIL's operational performance remains solid, the stock faces significant headwinds from valuation concerns and weakening technical momentum. Trading at a P/E ratio of 47.18x and a price-to-book value of 13.39x, the stock commands a substantial premium to both historical averages and peer group multiples. The PEG ratio of 3.95x suggests the valuation may not be justified by the company's growth trajectory, particularly given the 13.44% five-year sales compound annual growth rate.
Valuation Concern: Premium Pricing Despite Momentum Loss
CRISIL's valuation multiples remain elevated despite the stock's 29.76% year-to-date decline. The current P/E ratio of 47.18x compares unfavourably to the sector average and reflects limited margin of safety for investors. The company's EV/EBITDA of 33.83x and EV/Sales of 9.82x further highlight the premium pricing, which becomes increasingly difficult to justify in the face of moderating growth and technical deterioration.
The stock's technical picture has deteriorated meaningfully over recent months. CRISIL currently trades in a "mildly bearish" trend, having transitioned from bearish on October 15, 2025. The stock is trading below its 50-day, 100-day, and 200-day moving averages, with the 50-day moving average at ₹4,951.22 representing immediate resistance. Key technical indicators including MACD, Bollinger Bands, and KST all signal bearish or mildly bearish trends, suggesting continued near-term pressure.
| Technical Indicator | Weekly Signal | Monthly Signal |
|---|---|---|
| MACD | Bearish | Mildly Bearish |
| Bollinger Bands | Mildly Bearish | Mildly Bearish |
| KST | Bearish | Mildly Bearish |
| Dow Theory | Mildly Bullish | No Trend |
| OBV | Mildly Bullish | No Trend |
Industry Leadership: How CRISIL Compares to Peers
Within the ratings and financial services sector, CRISIL maintains its position as the largest company by market capitalisation. However, its valuation premium has become increasingly pronounced relative to peers. The company's P/E ratio of 47.66x significantly exceeds the peer group average, whilst its ROE of 28.37%, though strong in absolute terms, does not command as substantial a premium over competitors as the valuation multiples suggest.
| Company | P/E (TTM) | P/BV Ratio | ROE % | Div Yield % |
|---|---|---|---|---|
| CRISIL | 47.66 | 13.52 | 28.37% | 1.22% |
| 360 ONE | 44.84 | 6.70 | 15.25% | 0.50% |
| Multi Comm. Exc. | 72.93 | 25.25 | 29.72% | 0.32% |
| ICICI Securities | 13.72 | 6.44 | 46.09% | 1.91% |
CRISIL's P/BV ratio of 13.52x, whilst justified by its strong ROE, appears stretched compared to peers such as ICICI Securities (6.44x P/BV with 46.09% ROE) and 360 ONE (6.70x P/BV with 15.25% ROE). The comparison highlights that whilst CRISIL operates a high-quality business, the current valuation leaves limited room for error or disappointment. The dividend yield of 1.22%, though higher than most peers, provides modest income support but insufficient compensation for valuation risk.
Valuation Analysis: Premium Difficult to Justify
CRISIL's current valuation metrics suggest the stock is trading at levels that embed optimistic growth expectations and leave minimal margin of safety. The P/E ratio of 47.18x represents a significant premium to the broader market and sector averages, whilst the price-to-book value of 13.39x reflects elevated expectations for future return on equity. The company's proprietary valuation grade of "Very Expensive" has been in place since March 2023, when the stock traded at ₹3,063.95, and the subsequent 53% rally to ₹6,955.40 followed by the current 32.50% correction underscores the volatility associated with premium-valued stocks.
The enterprise value multiples paint a similar picture. EV/EBITDA of 33.83x and EV/Sales of 9.82x both suggest limited value for new investors at current levels. The PEG ratio of 3.95x, well above the 1.0-1.5x range typically associated with fairly valued growth stocks, indicates the market is pricing in growth that may prove challenging to deliver consistently. Historical valuation patterns show the stock has spent extended periods trading at lower multiples, suggesting mean reversion risk remains elevated.
Shareholding: Stable Promoter Base, Gradual Institutional Accumulation
CRISIL's shareholding pattern reflects a stable ownership structure with S&P Global maintaining its 66.64% promoter stake consistently over recent quarters. This stable promoter holding provides governance comfort and strategic continuity, with S&P India LLC holding 42.68% and S&P Asian Holdings Pte. Ltd. holding 15.76%. The absence of any promoter pledging further underscores the financial strength and alignment of interests between promoters and minority shareholders.
| Shareholder Category | Jun'25 | Mar'25 | Dec'24 | QoQ Change |
|---|---|---|---|---|
| Promoter | 66.64% | 66.64% | 66.64% | 0.00% |
| FII | 8.07% | 7.69% | 7.55% | +0.38% |
| Mutual Funds | 6.63% | 6.67% | 6.84% | -0.04% |
| Insurance | 4.98% | 5.23% | 5.36% | -0.25% |
| Other DII | 0.46% | 0.49% | 0.49% | -0.03% |
| Non-Institutional | 13.22% | 13.28% | 13.12% | -0.06% |
Foreign institutional investors have shown gradual accumulation, increasing their stake from 7.55% in December 2024 to 8.07% in June 2025, representing a 52 basis point increase over two quarters. The number of FIIs holding the stock increased from 222 to 223, suggesting broadening interest amongst global investors. However, mutual fund holdings declined marginally from 6.67% to 6.63% in Q1 FY26, whilst insurance company holdings fell more notably from 5.23% to 4.98%, indicating some profit-booking by domestic institutional investors following the stock's earlier rally.
The increase in non-institutional shareholders from 61,765 to 68,499 reflects growing retail participation, though the marginal decline in their collective holding from 13.28% to 13.22% suggests this growth came through smaller individual stakes. Overall institutional holdings of 19.67% provide reasonable liquidity and professional oversight, though the modest sequential changes indicate institutional investors are adopting a cautious stance at current valuation levels.
Stock Performance: Significant Underperformance Across Timeframes
CRISIL's stock performance has deteriorated markedly across most meaningful timeframes, with particularly acute underperformance in recent months. The stock has declined 29.76% year-to-date compared to the Sensex's 7.44% gain, resulting in negative alpha of 37.20 percentage points. This underperformance accelerated in Q2 FY26, with the stock falling 20.79% over three months whilst the broader market gained 2.06%, generating negative alpha of 22.85 percentage points.
| Period | CRISIL Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 0.15% | 1.76% | -1.61% |
| 1 Month | -7.45% | 1.52% | -8.97% |
| 3 Months | -20.79% | 2.06% | -22.85% |
| 6 Months | 3.21% | 6.87% | -3.66% |
| YTD | -29.76% | 7.44% | -37.20% |
| 1 Year | -1.49% | 3.64% | -5.13% |
| 2 Years | 21.23% | 26.38% | -5.15% |
| 3 Years | 52.52% | 43.73% | +8.79% |
| 5 Years | 162.62% | 109.97% | +52.65% |
The one-year return of -1.49% compares unfavourably to the Sensex's 3.64% gain, whilst the six-month return of 3.21% significantly trails the index's 6.87% advance. These negative returns occurred despite solid operational performance, highlighting the impact of valuation compression as investors reassessed the premium multiples. The stock's volatility of 35.58% over the past year, nearly three times the Sensex's 12.54%, underscores the elevated risk profile associated with the investment.
Longer-term performance provides more favourable context, with the stock generating 52.52% returns over three years and 162.62% over five years, both meaningfully ahead of the Sensex. However, the recent deterioration in relative performance, combined with the stock's classification in the fourth quartile (underperformer) for YTD, Q2 FY26, and calendar year 2024, suggests momentum has shifted decisively negative. The beta of 1.20 indicates the stock tends to amplify market movements, which becomes a liability in corrective phases.
Investment Thesis: Quality Business at Unattractive Valuation
CRISIL presents a challenging investment proposition – a high-quality business franchise trading at valuation levels that offer limited upside potential and substantial downside risk. The company's operational fundamentals remain solid, with consistent revenue growth, expanding margins, exceptional capital efficiency (ROE of 28.37%, ROCE of 61.10%), and a fortress balance sheet with zero debt and net cash of ₹1,369 crores. These attributes position CRISIL as a "Good" quality company that has maintained this status for 47 consecutive quarters.
However, the convergence of stretched valuation multiples, weakening technical momentum, and "Flat" financial trend classification creates an unfavourable risk-reward profile. The P/E ratio of 47.18x and PEG ratio of 3.95x embed optimistic growth assumptions that leave minimal margin of safety. The stock's proprietary Mojo Score of 42 out of 100, firmly in "SELL" territory, reflects these concerns. Technical indicators uniformly signal bearish or mildly bearish trends, suggesting continued near-term pressure.
KEY STRENGTHS
- Market-leading position in credit ratings with strong brand equity and regulatory moat
- Exceptional capital efficiency with ROE of 28.37% and ROCE of 61.10%, amongst highest in corporate India
- Zero-debt balance sheet with net cash position of ₹1,369 crores providing financial flexibility
- Consistent profitability with 10+ years of uninterrupted earnings growth
- Strong cash generation with operating cash flow of ₹765 crores in CY2024
- Stable promoter holding of 66.64% with S&P Global backing and zero pledging
- Healthy dividend payout ratio of 59.84% with current yield of 1.24%
KEY CONCERNS
- Excessive valuation with P/E of 47.18x and PEG ratio of 3.95x leaving minimal margin of safety
- Significant YTD underperformance of -29.76% versus Sensex gain of 7.44%, generating -37.20% negative alpha
- Deteriorating technical picture with bearish signals across MACD, Bollinger Bands, and KST indicators
- Trading 32.50% below 52-week high of ₹6,955.40 with multiple resistance levels overhead
- High volatility of 35.58% versus Sensex's 12.54%, amplifying downside risk
- Flat financial trend classification for two consecutive quarters suggesting growth moderation
- Gradual reduction in insurance and mutual fund holdings indicating institutional profit-booking
Outlook: What to Watch
Looking ahead, CRISIL's investment case will depend critically on valuation normalisation and restoration of growth momentum. The company's fundamental strengths remain intact, but the current valuation leaves investors vulnerable to any disappointment in growth delivery or margin trajectory. The path forward requires either substantial multiple compression to create value, or a meaningful acceleration in earnings growth to justify current pricing.
POSITIVE CATALYSTS
- Meaningful valuation correction to P/E of 30-35x range creating attractive entry point
- Acceleration in revenue growth beyond current 12-13% run rate driven by market share gains
- Further margin expansion beyond 28-29% range through operating leverage and pricing power
- Strategic acquisitions or partnerships leveraging strong balance sheet to drive growth
- Increased institutional buying particularly from mutual funds and insurance companies
RED FLAGS
- Breakdown below ₹4,400-4,500 support zone triggering further technical selling
- Growth deceleration below 10% in coming quarters validating "Flat" trend concerns
- Margin compression from competitive pressures or regulatory changes impacting pricing
- Continued institutional selling particularly from insurance companies and mutual funds
- Broader market correction disproportionately impacting premium-valued stocks
"CRISIL exemplifies the challenge facing investors in premium-valued quality stocks – impeccable fundamentals colliding with stretched valuations and deteriorating momentum."
The Verdict: Quality at the Wrong Price
Score: 42/100
For Fresh Investors: Avoid initiation at current levels. The combination of premium valuation (P/E 47.18x, PEG 3.95x), negative technical momentum, and YTD underperformance of -29.76% creates an unfavourable risk-reward profile. Consider accumulation only on meaningful correction to ₹3,800-4,000 levels where valuation multiples normalise to P/E of 32-35x, providing adequate margin of safety.
For Existing Holders: Consider partial profit-booking, particularly for holdings acquired below ₹4,000. The 32.50% decline from 52-week highs has created an opportunity to reallocate capital to better-positioned opportunities. Maintain core holdings only if conviction in long-term franchise value justifies riding through potential further volatility. Use any technical bounce towards ₹5,000-5,100 resistance zone as exit opportunity.
Fair Value Estimate: ₹3,950 (15.87% downside from current levels) based on P/E of 35x on FY26 estimated earnings, providing reasonable premium to quality but acknowledging growth moderation and technical weakness.
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
