The September quarter results reflect a company navigating the delicate balance between revenue growth and margin sustainability. Whilst net sales expanded 8.29% year-on-year to ₹136.58 crores, the sequential acceleration of 9.71% from Q1 FY26's ₹124.49 crores suggests improving business momentum. However, the stock's bearish technical trend—which commenced on January 9, 2026—and its position below all key moving averages paint a cautionary picture for near-term investors.
ICRA's proprietary Mojo Score of 37 out of 100, firmly in "SELL" territory, underscores the divergence between operational performance and market sentiment. The rating agency's shares have underperformed the broader market significantly over the past year, declining 1.05% compared to the Sensex's 8.49% gain, translating to a negative alpha of 9.54 percentage points.
| Quarter | Revenue (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | PAT Margin |
|---|---|---|---|---|---|
| Sep'25 | 136.58 | +9.71% | 47.81 | +12.65% | 35.16% |
| Jun'25 | 124.49 | -8.60% | 42.44 | -23.86% | 34.35% |
| Mar'25 | 136.21 | +12.69% | 55.74 | +32.62% | 41.11% |
| Dec'24 | 120.87 | -4.16% | 42.03 | +14.46% | 34.93% |
| Sep'24 | 126.12 | +9.84% | 36.72 | +3.38% | 29.42% |
| Jun'24 | 114.82 | -7.37% | 35.52 | -24.22% | 31.26% |
| Mar'24 | 123.96 | — | 46.87 | — | 37.96% |
Financial Performance: Margin Compression Amidst Revenue Growth
ICRA's Q2 FY26 financial performance reveals a nuanced picture of operational dynamics. Net sales of ₹136.58 crores represented healthy year-on-year growth of 8.29%, though the sequential 9.71% jump from Q1 FY26 demonstrates improving quarterly momentum. The rating agency's revenue trajectory has remained relatively stable, with the company posting consistent topline growth across recent quarters despite cyclical variations in the credit rating industry.
Operating profit excluding other income stood at ₹48.54 crores in Q2 FY26, yielding an operating margin of 35.54%—a substantial 283 basis points improvement from the year-ago quarter's 32.71%. However, this metric remains below the exceptional 43.43% achieved in Q4 FY25, highlighting the inherent quarterly volatility in the capital markets sector. The company's gross profit margin of 50.21% for the quarter indicates strong pricing power and favourable business mix.
Employee costs, the primary expense driver for this knowledge-intensive business, totalled ₹72.49 crores in Q2 FY26, representing 53.07% of revenues. This reflects a marginal increase from Q1 FY26's ₹69.71 crores but remains higher than the year-ago period's ₹70.39 crores. The elevated employee cost ratio underscores the competitive talent market in financial services and ICRA's investment in maintaining analytical capabilities.
Net profit after tax of ₹48.02 crores (standalone) translated to a PAT margin of 35.16%, up 574 basis points year-on-year from 29.42%. The consolidated net profit of ₹47.81 crores grew 30.20% year-on-year, significantly outpacing revenue growth and demonstrating operational leverage. However, the sequential comparison reveals the March quarter's ₹55.74 crores profit remains the peak, with Q2 FY26 representing a 14.22% decline from that high-water mark.
Other income contributed ₹20.91 crores in Q2 FY26, down from ₹24.36 crores in the previous quarter but marginally ahead of the year-ago period's ₹20.05 crores. This non-operating income stream, derived primarily from treasury operations and investments, constitutes approximately 15% of total operating profit, providing a valuable cushion during periods of subdued core business activity.
Capital Efficiency: Exceptional Returns Masking Growth Concerns
ICRA's capital efficiency metrics present a paradoxical narrative. The company's average return on capital employed (ROCE) of 683.25% represents an extraordinary figure that reflects the asset-light nature of the rating business. With minimal fixed assets (₹78.44 crores as of March 2025) and negligible debt (₹0.63 crores), ICRA generates substantial profits relative to its capital base. The latest ROCE of 5,394.38% appears inflated due to the denominator effect of minimal capital employed.
However, the return on equity (ROE) of 15.18% on average—and 17.29% for the latest period—tells a more grounded story. Whilst respectable, this ROE trails several peers in the capital markets sector and reflects the challenge of deploying shareholder capital productively in a business with limited reinvestment opportunities. The company's shareholder funds stood at ₹1,053.23 crores as of March 2025, up from ₹976.49 crores in the previous year, with reserves growing through retained earnings.
ICRA maintains an enviable balance sheet with net cash status (net debt to equity of -1.00), positioning it as essentially a debt-free enterprise. Current assets of ₹1,128.12 crores as of March 2025 dwarf current liabilities of ₹177.10 crores, providing ample liquidity cushion. The company's book value per share stands at ₹1,091.29, though the current market price of ₹5,913.75 implies a price-to-book ratio of 5.25x, suggesting investors are paying a significant premium for intangible assets and franchise value.
Growth Trajectory: Moderate Expansion Raises Questions
ICRA's five-year sales compound annual growth rate (CAGR) of 10.96% and EBIT growth of 17.22% represent moderate expansion in an industry characterised by regulatory tailwinds and increasing credit market sophistication. The company's sales have grown from ₹328 crores in FY2019 to ₹446 crores in FY2024, whilst operating profit (excluding other income) expanded from ₹112 crores to ₹148 crores over the same period. However, this growth trajectory lags the broader capital markets sector's dynamism, raising questions about market share retention and competitive positioning against larger rival CRISIL.
Institutional Confidence: Mutual Funds Increase Stakes Whilst FIIs Retreat
The shareholding pattern reveals evolving institutional sentiment towards ICRA. Promoter holding remains rock-solid at 51.87%, with Moody's Investment Company India Private Limited (31.66%) and Moody's Singapore Pte Ltd (20.20%) maintaining unwavering commitment. This 51.87% promoter stake has remained unchanged across recent quarters, providing governance stability and strategic continuity.
Mutual fund holdings have witnessed a notable uptick, rising from 17.01% in December 2024 to 20.66% in December 2025. The sequential increase of 93 basis points from September 2025's 19.73% suggests domestic institutional investors are accumulating shares despite the stock's bearish technical trend. With 10 mutual fund schemes holding stakes, the diversified domestic institutional base provides some support to valuations.
Conversely, foreign institutional investors (FIIs) have reduced exposure, with holdings declining from 9.06% in December 2024 to 7.25% in December 2025. The sequential increase of 38 basis points from September 2025's 6.87% represents a minor reversal of the broader retreat. With 70 FII entities holding stakes, the fragmented foreign ownership suggests tactical rather than strategic positioning.
| Quarter | Promoter | FII | Mutual Funds | Insurance | Other DII |
|---|---|---|---|---|---|
| Dec'25 | 51.87% | 7.25% | 20.66% | 2.49% | 2.40% |
| Sep'25 | 51.87% | 6.87% | 19.73% | 2.74% | 3.68% |
| Jun'25 | 51.87% | 8.66% | 17.56% | 2.84% | 3.98% |
| Mar'25 | 51.87% | 8.78% | 17.33% | 2.87% | 3.97% |
| Dec'24 | 51.87% | 9.06% | 17.01% | 2.86% | 4.05% |
Insurance companies hold 2.49% as of December 2025, down from 2.86% a year earlier, whilst other domestic institutional investors (DIIs) have reduced stakes from 4.05% to 2.40% over the same period. Non-institutional holdings have remained stable at approximately 15.35%. The aggregate institutional holding of 32.79% provides a reasonable float, though the declining insurance and other DII participation warrants monitoring.
Peer Comparison: Valuation Premium Amidst Sector Leadership
ICRA's positioning within the capital markets peer group reveals a company trading at moderate valuations relative to operational metrics. The price-to-earnings ratio of 30.36x sits above the sector median but below high-growth peers such as Cams Services (37.94x) and Prudent Corporate Advisory Services (45.92x). However, ICRA's PE multiple appears elevated relative to its 15.18% ROE, which trails significantly behind sector leaders.
The company's return on equity of 15.18% represents the lowest amongst the peer set, with Indian Energy Exchange leading at 38.97%, followed by Cams Services at 41.36%. This ROE gap explains ICRA's relatively modest price-to-book ratio of 5.25x compared to Cams Services' 14.45x and Indian Energy Exchange's 9.20x. Investors are evidently assigning lower quality multiples to ICRA's earnings stream.
| Company | P/E (TTM) | P/BV | ROE (%) | Div Yield (%) | Debt/Equity |
|---|---|---|---|---|---|
| ICRA | 30.36 | 5.25 | 15.18 | 1.01 | -1.00 |
| Cams Services | 37.94 | 14.45 | 41.36 | 1.73 | -0.61 |
| UTI AMC | 19.90 | 2.92 | 15.72 | 4.81 | 0.00 |
| Indian Energy Ex | 24.52 | 9.20 | 38.97 | 2.33 | -1.11 |
| IIFL Capital | 18.54 | 3.86 | 23.93 | 0.86 | 0.62 |
| Prudent Corp | 45.92 | 12.36 | 30.65 | 0.11 | 0.04 |
ICRA's dividend yield of 1.01% lags the peer average of approximately 2%, with UTI Asset Management Company offering an attractive 4.81% yield. The company declared a dividend of ₹60 per share with an ex-dividend date in July 2025, representing a payout ratio of 63.88%. Whilst this demonstrates shareholder-friendly capital allocation, the modest yield provides limited income attraction for yield-seeking investors.
From a leverage perspective, ICRA's net cash position (debt-to-equity of -1.00) mirrors the capital-light business models prevalent across the peer group. All companies maintain minimal debt, with Indian Energy Exchange similarly positioned at -1.11. This financial conservatism provides strategic flexibility but also highlights the challenge of productively deploying excess capital in businesses with limited growth capital requirements.
Valuation Analysis: Premium Multiples Amidst "Very Expensive" Territory
ICRA's current valuation of ₹5,913.75 places the stock firmly in "very expensive" territory according to proprietary grading metrics. The price-to-earnings ratio of 30.36x represents a premium to the broader capital markets sector PE of 40x, though this sector multiple appears distorted by loss-making constituents. On an absolute basis, ICRA's PE multiple of 30x implies investors are paying ₹30 for every rupee of trailing twelve-month earnings.
The enterprise value-to-EBITDA multiple of 24.39x and EV-to-EBIT of 26.78x suggest the market is pricing in continued margin stability and modest growth. However, the PEG ratio of 1.25x—calculated by dividing the PE ratio by the earnings growth rate—indicates the valuation premium may be justified by growth prospects, though this remains elevated compared to value-oriented thresholds below 1.0x.
ICRA's price-to-book ratio of 5.25x implies the market values the franchise at more than five times its net asset value. Given the company's ROE of 15.18%, this P/BV multiple suggests investors are paying for intangible assets including brand reputation, analytical expertise, regulatory relationships, and market positioning. However, this multiple appears rich relative to the modest ROE, particularly when compared to high-ROE peers commanding higher P/BV ratios.
Fair Value Assessment
Based on peer multiples and historical trading ranges, ICRA's fair value appears to be in the range of ₹5,200-5,600, implying 5-12% downside from current levels. The stock's historical valuation grade has oscillated between "expensive" and "very expensive" since March 2020, with the current "very expensive" designation suggesting limited margin of safety. Investors seeking entry points may find better risk-reward at sub-₹5,000 levels, representing approximately 15% downside from current prices.
Stock Performance: Underperformance Across Timeframes
ICRA's stock price performance reveals persistent underperformance relative to broader market indices across most meaningful timeframes. Over the past year, the stock has declined 1.05% compared to the Sensex's 8.49% gain, generating negative alpha of 9.54 percentage points. This underperformance accelerates over shorter periods, with six-month returns of -9.71% trailing the Sensex's 1.80% gain by 11.51 percentage points.
The three-month performance paints a similarly challenging picture, with ICRA declining 6.22% against the Sensex's 2.70% fall, implying relative underperformance of 3.52 percentage points. Even the one-month return of -3.72% compares unfavourably to the Sensex's -3.17% decline. The stock's year-to-date performance of -2.53% marginally outperforms the Sensex's -3.37% decline, offering scant consolation to investors.
| Period | ICRA Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -3.45% | +0.53% | -3.98% |
| 1 Month | -3.72% | -3.17% | -0.55% |
| 3 Months | -6.22% | -2.70% | -3.52% |
| 6 Months | -9.71% | +1.80% | -11.51% |
| YTD | -2.53% | -3.37% | +0.84% |
| 1 Year | -1.05% | +8.49% | -9.54% |
| 2 Years | +6.95% | +16.47% | -9.52% |
| 3 Years | +32.98% | +38.79% | -5.81% |
| 5 Years | +112.07% | +75.67% | +36.40% |
Longer-term performance metrics offer more encouraging data points. The five-year return of 112.07% significantly outpaces the Sensex's 75.67% gain, generating positive alpha of 36.40 percentage points. Similarly, the four-year return of 65.59% beats the Sensex's 43.96% by 21.63 percentage points. However, the ten-year return of 53.77% dramatically underperforms the Sensex's 236.52%, highlighting the stock's cyclical nature and sector-specific headwinds.
From a technical perspective, ICRA currently trades below all key moving averages—5-day (₹5,986.49), 20-day (₹6,096.37), 50-day (₹6,113.34), 100-day (₹6,249.50), and 200-day (₹6,290.04)—signalling pervasive bearish momentum. The stock's beta of 1.35 indicates higher volatility than the broader market, with 27.32% annualised volatility compared to the Sensex's 11.24%. This elevated volatility amplifies both upside and downside risks.
Investment Thesis: Quality Business Facing Valuation and Momentum Headwinds
ICRA's investment thesis rests on three pillars: quality fundamentals, challenging valuation, and bearish technical momentum. The company's "good" quality grade reflects solid long-term financial performance, characterised by negligible debt, consistent profitability, and exceptional capital efficiency metrics. The rating agency's market position as India's second-largest player provides competitive moat advantages through regulatory relationships, analytical expertise, and brand recognition.
However, the "very expensive" valuation grade presents a significant headwind. Trading at 30.36x trailing earnings and 5.25x book value, ICRA offers limited margin of safety despite its quality attributes. The modest 15.18% ROE fails to justify the premium valuation multiples, particularly when compared to higher-ROE peers commanding similar or lower multiples. The PEG ratio of 1.25x suggests growth expectations are already priced into current levels.
The technical picture compounds valuation concerns, with the stock firmly in bearish territory since early January 2026. Trading 17.12% below its 52-week high and below all moving averages, ICRA faces meaningful resistance at the ₹6,096-6,250 zone. The MACD indicator shows bearish signals on both weekly and monthly timeframes, whilst Bollinger Bands suggest continued downward pressure. Volume delivery data indicates institutional distribution rather than accumulation.
"ICRA represents a quality franchise trapped in valuation purgatory—solid fundamentals meet expensive multiples amidst deteriorating technical momentum, creating a challenging risk-reward proposition for fresh capital deployment."
Key Strengths & Risk Factors
KEY STRENGTHS ✓
- Market Leadership: Second-largest credit rating agency in India with established brand equity and regulatory relationships
- Debt-Free Balance Sheet: Net cash position with negligible leverage provides financial flexibility and resilience
- Exceptional ROCE: Capital efficiency metrics exceeding 680% reflect asset-light, high-return business model
- Consistent Profitability: Uninterrupted profit generation with PAT margins consistently above 30%
- Strong Promoter Backing: Moody's ownership at 51.87% provides strategic support and governance stability
- Growing Institutional Interest: Mutual fund holdings increased from 17.01% to 20.66% over past year
- Shareholder-Friendly: Dividend payout ratio of 63.88% demonstrates commitment to returning capital
KEY CONCERNS ⚠
- Modest Growth Trajectory: Five-year sales CAGR of 10.96% lags sector dynamism and raises market share concerns
- Low Return on Equity: ROE of 15.18% trails peer group significantly and fails to justify premium valuation
- Expensive Valuation: PE of 30.36x and P/BV of 5.25x offer limited margin of safety at current levels
- Bearish Technical Trend: Stock below all moving averages with deteriorating momentum indicators
- FII Exodus: Foreign institutional holdings declined from 9.06% to 7.25% over past year
- Persistent Underperformance: Negative alpha of 9.54% over past year versus Sensex benchmark
- Limited Reinvestment Opportunities: Asset-light model constrains ability to deploy capital for growth
Outlook: What to Watch
POSITIVE CATALYSTS
- Sustained revenue growth above 10% quarterly with margin stability at 35%+ levels
- Market share gains in corporate bond rating segment driving topline acceleration
- Continued mutual fund accumulation pushing institutional holdings above 35%
- Technical reversal above ₹6,250 resistance with improving momentum indicators
- ROE improvement trajectory towards 18-20% through operational leverage
RED FLAGS
- Revenue growth decelerating below 8% quarterly signalling competitive pressures
- Operating margins compressing below 33% due to elevated employee costs
- Further FII selling pushing foreign holdings below 6% threshold
- Technical breakdown below ₹5,850 support accelerating downside momentum
- Flat or declining financial trend persisting for two consecutive quarters
The Verdict: Quality Franchise, Wrong Price
Score: 37/100
For Fresh Investors: Avoid initiating positions at current levels. ICRA's quality fundamentals are overshadowed by expensive valuation multiples and deteriorating technical momentum. The stock offers limited margin of safety with meaningful downside risk towards ₹5,200-5,400 levels. Patient investors should await a 12-15% correction or technical trend reversal before considering entry.
For Existing Holders: Consider partial profit-booking, particularly for positions acquired below ₹5,000. The stock's inability to sustain above ₹6,000 despite strong quarterly results signals persistent selling pressure. Retain core holdings given the quality franchise, but reduce exposure on any technical bounce towards ₹6,200-6,300 resistance. Re-evaluate if the stock breaks decisively above ₹6,500 with improving momentum.
Fair Value Estimate: ₹5,400 (8.7% downside from current levels)
Rationale: ICRA's "SELL" rating reflects the confluence of expensive valuation (30x PE, 5.25x P/BV), bearish technical trend (below all moving averages), and modest growth trajectory (10.96% sales CAGR). Whilst the company maintains good quality fundamentals with negligible debt and consistent profitability, the risk-reward equation favours caution. The 15.18% ROE fails to justify premium multiples, and persistent underperformance versus benchmarks suggests limited near-term catalysts. Quality investors should await more attractive entry points.
Note— ROCE = (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ 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. Past performance is not indicative of future results. All investments carry risk, including the potential loss of principal.
