Earnings Call Transcript - XNSE:ICRA 2026-11-04

Operator

Ladies and gentlemen, good day, and welcome to the half-yearly FY27 conference call, hosted by the company ICRA Limited. As a reminder, all participant lines will be in their lesson-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 touchstone phone. Joining us today from the management side, we have Mr. Ramanath Krishnan, Managing Director and Group CEO, Mr. Venkatesh Vishwanathan, Group Chief Financial Officer, Mr. L. Shivkumar, EVP, Business Development and Chief Business Officer, ICRA Limited, and CEO, ICRA ESG Ratings, Mr. Shailendra M., CEO, ICRA Analytics Limited. To discuss the performance of the company, followed by a Q&A session. Before we begin today's conference call, I would like to remind you that some of the statements made in today's conference call may be forward-looking in nature and may involve some risk and uncertainties. ICRA or any of its subsidiaries or the directors, officers, or employees of ICRA shall have no liability whatsoever for any loss. However, arising from any forward-looking statement or use of the investor presentation, audit contents, or otherwise, arising in connection with this conference call. With that, now I'd like to hand over the call to Mr. Ramnath Krishnan, Managing Director and Group CEO, Ikra Limited, to commence the proceedings. Thank you, Anubhut Yusufu.

Ramnath Krishnan, CEO

Thank you, moderator, and good evening, everyone. Thank you for attending this call. At the start, I would like to mention that we have decided to adopt a slightly different approach to this call. As opposed to taking you through the financial performance and the numbers and so on and so forth in detail, which I'm sure all of you would have seen from the investor presentation and from the press release that we issued last week, we thought we will focus more on our strategic priorities and some of the deliverables that we have been working on and some of the deliverables that we will continue to work on. Just to set the clock back, in January of 2022, management of ICRA presented five strategic priorities, you know, for the group that we have been working on and we will continue to work on. So these priorities have not changed. I will take you through each one of these, you know, individually. The first one relates to our ratings business. Our primary focus here was obviously to continue to grow top line year after year and to expand our margins. And some of you might recall in 2020 and 2021 our margins in this business were actually quite, you know, subdued. So these two were primarily deliverables for us. I mean, you know, as you can expect, you know, any strategic plan. We'll have, you know, financial metrics articulated, which is actually for our internal consumption and, you know, monitoring. Now, in the last five years, that is between FY21 and FY26, the ratings business has generated revenue growth at 12.4 percent, you know, CAGR. It grew from 187 crores to 336 crores. In the five years that ended March 2026. The operating margins in the ratings business, which was at 20.8% in FY21, grew to 37.6% in FY26. That's an expansion of almost about 17% over a five-year period. So this was the first strategic priority for us. The second strategic priority relates to the non-ratings business, what we now refer to as the risk and analytics business. Here, of course, we had two deliverables. One was to increase the contribution of the risk and analytics business itself overall to the group revenues. This was roughly about a third of the group revenues five years ago, at the present time, or at least as of FY26 end, this is 50 percent, so which is the sort of mix that we as a management team, you know, would like to have. This was one of the deliverables for us to rebalance our revenue portfolio, if you like. Within the risk of analytics business, We also wanted to actually work towards expanding our bank tech and cap tech, you know, verticals from a revenue standpoint and from a contribution standpoint and reduce the predominance of the no tech business. Not to suggest that the no tech business was ever meant to scale down, but we wanted to increase the contribution of the bank tech and cap tech businesses. So, this at the present time is roughly around 60-40 in terms of mix. The no-tech business contributes about 60% to the risk analytics business and 40% is contributed to by the other businesses. Growing revenues as far as the risk analytics business again was a key imperative and we have grown from 114.6 crores, which is what we were at five years before and we closed FI26. At 313 crores. The other deliverable for us was to reduce the dominance of our anchor client from a revenue share standpoint. So that is now at roughly about 50-51%, which used to be 80% of our no-tech business, you know, five years ago. From an overall group perspective, our revenues more than doubled in the last five years. Group revenues were at 301 crores in FY21, and this expanded to 346.9 at the end of FY26. So these two are the two main priorities as far as revenues are concerned, and as you can imagine, there are multiple levers that we have, you know, identified under these priorities, you know, which we keep revisiting based on how the market evolves. But there are financial metrics which we track consistent with our strategic plan. But all I can say with respect to the last five years is that we have delivered with respect to whatever expectations that we had set for ourselves and whatever we had actually discussed and agreed, you know, with the board in terms of growth, in terms of expansion in the operating margins, in terms of rebalancing of book from a revenue contribution standpoint and so on and so forth. The third priority that we had set for ourselves was with respect to human resources. I mean, there are, I won't go through this in detail. I mean, there were things that we had to do with respect to our rewards mechanism, our talent management process, succession planning, etc., etc., etc. So, when I say rewards, you know, both our fixed compensation, our variable pay, and so on and so forth, multiple other things. So, the training and development. And so we've been looking at a number of things over the last five years. We continue to look at a number of things. So this is an ongoing process, but human capital is an area that receives. A lot of our attention as a management team. The fourth pillar was technology. Till about five or six years ago, ICRA as a group did not have... A large or an extremely well-established technology function. So we hired a new CTO from the external market about five or six years ago to draw out the entire, you know, tech roadmap, if you like. We have been expanding our spends quite significantly in the technology space with a view to embedding both tech and AI, you know, agents. Targeted is enhancing client experience, productivity, controls, and so on and so forth. So this is, again, an ongoing journey, but we are at a pretty good place at the present time, and this is something that will keep evolving as we move forward. Last but not least is inorganic growth. This is the fifth pillar that we had identified for ourselves. Just to set some context, I mean, as you know, Ratings is a regulated industry, a regulated business. What we can do is entirely dictated by how the regulatory framework evolves. So we were very clear that we have to expand in the risk analytics space, and some of this… It's being done through organic growth, but we were also very clear that we had to look at inorganic growth opportunities as well, partly to use some of the liquidity, you know, that we typically sit on, but also to actually give us their fillip in terms of, you know, growth itself. So, as you know, you know, there are two acquisitions that the group has made in the last, you know, few years. We started small, there was a deliberate call with D2K Technologies, and we made a more significant acquisition more recently, that's actually Fintelix. Now, the… there is a clearly agreed, you know, framework that we work with when we look at opportunities, there are opportunities that come away very… Frequently from various sources. We evaluate them against the framework that we have. So we look at adjacencies, we look at complementarity, we look at scale, we look at profitability, both at the present time and what we expect to see going forward. And once we are convinced that the basic parameters set in the framework are actually satisfied, we take that to the board and then... Once we get the approval, then we actually get into the other, you know, areas in terms of due diligence and so on and so forth, you know, before we make the final acquisition. And the performance of these organizations that we work for, naturally, they're all monitored and tracked periodically by the management team and by the board with their framework and with respect to also additional investments that we might have to make in certain products and certain platforms and so on and so forth. But this is an area, again, that will continue to receive our attention. So, just to summarize, the five pillars are expand a ratings business, expand a risk analytics business, a subset of this, you know, rebalance a book to make sure that both the ratings and the risk analytics businesses continue to be significant, you know, players, human capital being the third pillar, fourth is technology and digital transformation, and fifth is inorganic growth. So these pillars... We continue to remain the same. We don't expect any of this to change. But what we expect to change is certainly the approach that we might have to take to deliver on some of these imperatives or some of the levers that we might have to use to deliver on some of these imperatives might have to be revisited or might have to change depending on how the market evolves. Now, at the present time, or at least it has been the case in the last year, year and a half, our focus has shifted as a management team quite significantly to the risk and analytics business. Now, to take you through details of what our own approach is, what our strategy is with respect to this business, as we move forward, I hand it over to Mr. Shalendra Pinjapa, CEO of our risk analytics business. Over to you, Shalendra. Thanks, Ram.

Shailendra Pinjapa, CEO

Hello to everybody. So, in alignment with the Group ICRA strategic pillars and priorities, within the R&A world, we have kind of started putting together our base. We started with ICRA Analytics. We had bulk of the work that we were doing, the kind of data analytics work for Moody's, which was our anchor customer. We had built some satellite offerings around asset management companies catering to their investment intelligence and risk and regulatory compliances. We had some offerings around banking risk and we offered certain consulting services. With that is the foundation. Over the last few years, we completed the acquisition of D2K, which brought with it larger capabilities around banking software, software engineering, and agile product development. D2K in itself was a much smaller entity, promoter run, but it kind of gave the base for us to start building out our products. And with Fintelix, which was a larger, more scaled-out risk and regulatory provider, it brought with it technology, delivery capabilities, and a mature operating model that we could then integrate and build our base for us to grow and scale the risk analytics business. With all of these two acquisitions complete, In Q1 of the year, the integration has also been completed. This has been a nine-month intense integration activity that we have undertaken. And as of end of September, we called that integration from an operational standpoint as complete. And now we are sitting on a case which for now... This integrated operating platform now is organized around three segments that we serve and deliver value to. One is what we call as knowledge technology, which is tech-enabled data and analytic services that we deliver to global enterprises. The second one is banking technology. These are risk, regulatory, and supervisory solutions that we serve the banking and lending universe with. Then the capital markets or capital market technology, which are market data and evaluation, investment, intelligence, services, and solutions that we may cater to the capital markets. The current way of operating is cutting across the legal entities more organized around these three divisions, as we call them, and we are now integrated from a people, process, and policy standpoint across all of these three. We have created an integrated view of our products, have a single integrated product roadmap and we have created a unified customer service organization to cater to all of our customers across the board. There will be some further simplification and improvements to the model as we go along, one of them being kind of some legal entity simplifications. As we make progress around that, we will inform the board and then. In terms of how we are kind of progressing and building on this foundation that we have laid, how we are combining our capabilities and preparing for the future, and repositioning ourselves as an organization, I just want to quickly talk about that. We do come from very deep domain expertise around financial data analytics, ESG. And, of course, the credit background gives us that depth of institutional knowledge. Along with that, we have built some very critical data assets. We are looking to enhance that. We are looking to create a more complete data offering. And we look to add a lot more proprietary data assets on top of that. Which will lead to more analytical outcomes that we can deliver, more decision support that we can deliver for our customers. Along with that, we are also significantly investing in technology and software platforms, as well as AI and agentic capabilities, so that we are future-proofing our product portfolio and reshaping our business models for the future. And a combination of all of these three, we are looking to reposition ourselves as an intelligence as a service provider to be able to cater to risk requirements of enterprises, investment, and kind of lending decisions within the banking, financial services, and capital markets. Growth opportunities within R&A and some of the key drivers that we look at, and how we're looking to expand our capabilities and offerings. I just want to touch upon that. You know, number one, We are looking at how do we expand our offerings, how do we find adjacencies, how do we create a more complete set of offerings to kind of elevate ourselves to become an enterprise risk solution provider. You know, moving from... From providing point solutions on the credit value stream, around some investment value stream, we are now beginning to look more holistically and want to become a more comprehensive provider of risk and analytic solutions. This should help us reposition ourselves as a kind of risk intelligence partner for some of the large financial institutions and global enterprises. So, that is what we do, how we are trying to redefine what we do. The second one is how we deliver value to our customers. While we continue to make more investments around creating software products and data products, we believe the true value that we deliver to our customers will be with a combination of Software and platforms, a combination of data and proprietary kind of models on top of it, and services and consulting, all brought together to essentially deliver business impact and outcomes for our customers. And this is how we are re-looking at how we deliver that value. In terms of the longer-term objectives of kind of reshaping our offerings, being prepared for a more AI-centric world, we are looking to redefine our products, reshape our products to become more AI-enabled, to have more AI-embedded capabilities, to become more AI-centric, and we are identifying select. We have opportunities to kind of make those investments and build up our technology as well as people's capabilities. This, I would say, is one of the most significant long-term strategic objectives of ours. Along with that, we are looking to expand internationally. We have identified certain markets and certain opportunities very specifically in Europe and some pieces in Europe, so US and some parts in Europe and the Middle East. We will be looking to make both organic and inorganic opportunities possible for us. So, that's broadly what we are looking to achieve, and this is where we are going to be able to expand and grow. So, I think that's broadly what I wanted to cover. With that, I want to hand it back to the moderator.

Operator

Thank you, sir. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and then 1 on your touchstone telephone. If you wish to remove yourself from the question queue, you may press star and then 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.

Operator

A reminder to all, you may press star and 1 to ask a question. A reminder to all the participants, you may press star and 1 to ask a question.

Operator

We have the first question from the line of Kunal Thunbi from Banyan Tree Advisors. Please go ahead.

Kunal Thunbi, Analyst — Banyan Tree Advisors PMS

I thank you for the opportunity. So my one question was on Ram's initial comments about, you know, the transition from, say, very high mix of Moody's and, you know, the mix of non-rating going to 50%, which we have achieved in five years. But when we look at the, say, profit mix over the same period, right, the profit mix for non-rating has actually come down. Which used to be like 50% in 2022, now it has gone down to some 36%, you know, assuming the half yearly profit run rate. So essentially, the question stems from the fact that, you know, while revenues have kind of contributed that way, but from a profitability point of view, how we think about it, because it then stems down further to the IRR that we expect on these acquisitions that we have made. Especially the Fintelix one. So that's the first question.

Kunal Thunbi, Analyst — Banyan Tree Advisors PMS

Yeah, two more questions. One is on the ratings business. So ratings business has grown slower than peers, and we have lost market share. So if you can just help us understand across the segments what has happened. And the other one is on the non-ratings business. For the last couple of quarters, it has been at roughly the same run rate of around 80 crores. So, just wanted to understand what is happening over there and if you can distill this into the different businesses, what parts are growing and if there are any segments that are also de-growing over here.

Ramnath Krishnan, CEO

Okay. Let me take the first question first. When you look at the margins in the risk analytics business, you must also understand that there are three different or distinct product verticals within the risk analytics business. One is knowledge tech, what we refer to as no tech, which used to be the dominant business. And relatively speaking, a higher margin generating business earlier. And we've got… Bank Tech and Cap Tech are the two businesses, which on a comparative basis have slightly lower margins. Now, as the contribution of these two latter verticals actually increases to the top line, will the margin profile change? The answer is yes. From our perspective, it is also a function of ensuring that we have A fairly balanced book from a revenue standpoint and where we are not reliant on just one revenue stream. I think it's a more sustainable model for us to have, and therefore it's a conscious call that we have taken. Is the margin compression something that we were actually expecting to see as the revenue mix actually changes in the risk analytics business? The answer is absolutely yes. Is this actually something that we have actually factored into our plans, and is this something… Which is included in our budgets? The answer is absolutely yes. Now, as this mix changes, I mean, there will be some change in the margin profile as well, which is what we have seen. So, we are not surprised by it. We are not disturbed by it. It's consistent with what we were planning to do and consistent with what's there in our budgets as well. That's number one. Number two, the second question was with respect to the ratings business. Now, the ratings business in the first half of this year has grown by about 15.2%. You must understand that the ratings business or growth is also a function of there are certain segments that we would like to actually have a larger share, and it is also a function of in some instances how if a credit is actually dually rated, there could be timing differences. Some of the agency may have actually issued the release, let's say, in the previous quarter, we may have issued in the following quarter, or some of them may have issued in the last quarter of the previous financial year, we may have issued in the first quarter of this financial year, or vice versa. So, there will be some timing differences. So, to compare quarter on quarter may not necessarily give you an accurate, you know, picture. Market share, to be very honest, we are conscious of tracking market share in the segments that we want to play in. Okay, so I'll leave it at that. And we believe that in those segments where we want to be a significant player, we believe that we have a significant or a healthy market share. So I think I'll leave it at that. Have I answered all the three questions or is there anything that's left unanswered?

Kunal Thunbi, Analyst — Banyan Tree Advisors PMS

So just one question on the non rating side, the quarterly revenue run rate has been around 80 crores since the acquisition, it has not moved. So if you can just decompose what is happening in the non rating side, like why is this segment not growing?

Venkatesh Vishwanathan, CFO

There are two parts to this. One is, as you know, that the dominant share part of the business, which is no tech, which is not, and we have always maintained, this has shown a muted growth. So that's one part of it. The second part, which we are talking about, generally, the bank tech business. Typically, we have seen, at least in the H1, there was some kind of moderation in sales. Having said that, typically H2 is a, you know, if you ask me, we have seen a better run rate. So if you are comparing the H2 of last year with H1, typically the H2s are better for these businesses. So we will have to wait for a full cycle to, you know, make a better comment there. And we hope that the H2 should be better. That's what we are hoping.

Shailendra Pinjapa, CEO

Yeah, and this is Shalendra here. Just to add, so, The first quarter is where we have bulk of our renewals within the bank tech, right, and we have a significant part of our revenues which are recurring or repeating in nature, and all of those usually come up for renewal in the first quarter. So, the first quarter compared to, you know, previous year, first quarter, we actually had a significant growth. And sequentially from Q1 to Q2, it will be muted. And like Venkat rightly pointed, we tend to see some growth coming through the next, the second half of the year. And then again, there is opportunity for us to, you know, bump up when we get into Q2.

Operator

Thank you. We have the next question from the line of Balaji Subramanyam from IIFL. Please go ahead.

Balaji Subramanyam, Analyst — IIFL

Hi, thanks for taking my question. I actually have three questions, if I may. Two of them are on rating. The last one is on non-rating. So on rating, you know, we have seen bond yields going up. And while, you know, the industry revenue growth has been healthy because of the surveillance volumes that have been strong for the last few quarters, you know, how do you see it, you know, in case bond yields stay elevated and considering Thank you.

Ramnath Krishnan, CEO

In the first half of this year, Balaji, the bank credit has seen growth of about 21.4%. Bond yields have been elevated, and therefore, bond issuances, in fact, if I recollect right, I mean, the volumes have grown by about 3.4 percent, I think, in the first half of this year. But the bank credit growth has actually remained quite buoyant. We expect the bank credit growth to be as buoyant in the second half as well, and that is what our view is. And to answer your question, I mean, you know, do we… Expect similar credit growth received, you know, in the second half, particularly through the bank credit segment. Assuming that the bond yields are going to remain elevated and that the activity is going to be subdued, the answer is yes.

Balaji Subramanyam, Analyst — IIFL

But typically, you know, the rating fee is higher on bond rating compared to banking. Does that mean that, you know, it will have a slightly dilutive impact on your revenue growth? Not just yours, but generally for the industry.

Ramnath Krishnan, CEO

You look at all the numbers reported by all the other agencies, Balaji, it's like very reflective of, you know, what the rate growth has been in the first half of this year, right? So... So I think it's also a function of the segments that we actually blame. So that's also a factor that is to be considered.

L. Shivkumar, CEO

See, if I may just add, Walaji, even in the first half of the year, as Ram mentioned, while the overall bond issuance growth is a subdued 3.7 and odd percent compared to last year, and bank has been significantly higher. An all-time good number of 21.4%. But if you see, to answer your question specifically, if you see our own revenue growth, it's been quite consistent if you see the last three to four years. While Ram mentioned 12.4% CAGR from 2021 and thereabouts, but if you see particularly last four years, it's been very consistent. So that in itself shows that while there is a shift. You know, within the credit market, clearly from bond to bank. At the same time, several large issuers took, you know, whenever they saw an opportunity, there was one opportunity in the... Second fortnight of June, when the yields dropped, that was the time when there was a truce in West Asia. So I'm just pointing one example. So whenever there was a good opportunity, a lot of bond issuers, the strong ones, they did come out with issues. We saw a window in Q1. Even in Q2, a lot of issuances happened, which is why you see a very strong growth in bond issuances in Q2 vis-a-vis last year. Although on a contracted base last year, but a lot of issuances happened because there was an expectation that yield will go up further. So all those who had parked their money in commercial paper, which also saw a huge growth in terms of outstanding at 20 plus percent, they quickly borrowed because they anticipated a further hike in yields over the year. So there have been opportunities within this, and it's reflected in our growth number.

Balaji Subramanyam, Analyst — IIFL

This is quite comprehensive. Secondly, the second question on rating was on how are the, you know, how is the pricing environment in general? What I gathered from my channel checks is that one of your competitors have taken a surveillance fee increase. So is that something which you have also taken?

Venkatesh Vishwanathan, CFO

I think, Balaji, the way to look at would be, we have, you know, in our agreements, we have an enabling clause for surveillance which we do, but typically we have seen negotiations also happening with the client on an ongoing basis. So we approach them, we have a conversation with them, and in some cases we have seen some kind of attraction there.

Balaji Subramanyam, Analyst — IIFL

Got it. The last question is on the non-rating piece. I appreciate your initiative or strategy in terms of reducing your dependence on the anchor customer, that is Moody's. But even if I were to look at the absolute numbers, if I am not wrong, based on your related party transaction disclosures in the annual report, the Moody's revenue has been largely flat. And, you know, if I look at your larger competitor, their engagement with their parent, the global parent has been increasing at a pretty healthy clip, 20% per annum. So, you know, I do understand that both of you follow different business models. But, you know, why, you know, is there not a long headroom for growth for you in the Moody's account as well? I understand that, you know, you want to get more into the bank tech and cap tech side to diversify your business mix, etc. But what is your long term philosophy on the Moody's relationship? Thank you.

Venkatesh Vishwanathan, CFO

On the Buddhist side, I think we do have a headroom. It's not that we are saying there's no headroom. There are different opportunities that are being pursued by different teams, so there's a conversation going on. And that is something which we are not discounting, Malaji. What we are essentially saying is, if we are able to capitalize and grow, I mean, obviously that remains a focus for us. Shaili did mention that we are investing in the US, so obviously the focus will also be to see if we are able to monetize, get closer to Moody's, and see if we can drive some of those relationships. So that remains a priority for us. There are multiple conversations which are happening, and we will continue to drive that. Thank you. To answer your question, there are opportunities and we are pursuing them.

Shailendra Pinjapa, CEO

Thanks a lot. It's not like we are dropping the ball on our relationship with Moody's. We continue to have a very healthy engagement. We continue to explore new avenues and opportunities together. But the nature of those services is being reshaped, right? With a lot of AI and automation, there's a lot of efficiency that we are getting and that we are able to deliver to Moody's as well. So, the increased level of engagement and more sophisticated level of services may not directly reflect in revenues, but it's definitely elevating our engagement and developing deeper capabilities that we would tap into. That is one. And secondly, I'll not comment on the engagement models of our competitors with their respective parent, but we definitely have good ongoing engagement, and we continue to keep an eye out for more than we can do with our parent.

Balaji Subramanyam, Analyst — IIFL

Thanks a lot. All the responses were quite helpful, and all the best.

Operator

Thank you. We have the next question from the line of Abhichit Sakhare from Kotex Securities. Please go ahead.

Abhichit Sakhare, Analyst — Kotak Securities

Hi, thanks, and good evening, everyone. I had a few questions. I'll ask them one by one. So firstly, on the non-ratings business, if you could give us some idea about what would be the organic revenue growth rate for D2K, Intel X, and the rest of the business, especially in the last few quarters. And, and what would be the current contribution as well? Second question was, if you can, again, just to help us understand the nature of the business, what percentage of the non-Moodies business is actually India versus global in nature? And if you could also give us some examples of, you know, what type of competitors or peer set that you compete with in the non-Moodies part of the non-ratings business? And I have a couple of more questions. I'll come back to those later.

Venkatesh Vishwanathan, CFO

First question, Abhijit, I'll pick up and second I'll hand out. See, we don't give any guidance. I think we've been consistent on that. So we'll not be able to tell you how much these, you know, businesses are growing. The larger question is just to, you know, since we have on a broader context, we have two segments if we break it between the no-tech and the others. The others have been reasonably growing well, and as we have communicated, there is a, the no-tech is somewhere we are seeing some kind of a moderation at this point in time. So that is a broader answer. I think that we don't give a guidance. And the second question on the, I will pass on to Shelly to, you know, respond to that on the market.

Shailendra Pinjapa, CEO

So, on the geographic spread of our revenue, we do have a very healthy mix of international and domestic. I'll say, given our presence and our customer base, more than half of it is domestic, but there is a significant part of it which is international. But all of this we have, until now, been able to acquire and deliver with very limited local presence in those markets, largely through partners or remote engagements, and that is what we are looking to change. With certain investments in specific targeted markets, we should be able to explore those further, and we will definitely have opportunities there. And the second part of that question you had was around competition that we are seeing. For the kind of risk and regulatory solutions, we find multiple types of competitors in those markets. Obviously, you have large global players, information service providers, risk and regulatory technology providers, and product providers. That is one segment of global players. Then we also come across the system integrator type of segment, the ones who offer bespoke software development, bespoke managed services and kind of knowledge services type of work. And we also have the small local slash regional players that play in this space. In certain markets, we also see that the big force also come into some of the areas that we operate in.

Abhichit Sakhare, Analyst — Kotak Securities

Yeah, got it. Thanks for that. And one more question on non-ratings. You highlighted more M&A's going forward as well. So if you could maybe kind of talk about how much cash do you plan to kind of put to use in that direction? And how does Moody's kind of help you or play a role in kind of finding some of these businesses outside India?

Venkatesh Vishwanathan, CFO

See, on the M&A side, I think what we are saying is we keep on looking for opportunities. So, we don't have any specific saying we want to put some money and keep it aside. I think it's like any other capital allocation that we have, and it is one of those areas that we look at. So, at this point in time, I think there are ongoing opportunities which keep on coming on an ongoing basis, and we do an evaluation. But it's not targeted saying we are going to do this XYZ or something, you know, on the M&A site. I think the current priorities, I think, as Ram also mentioned, is we have done two acquisitions, so one of the things that we are also trying to do is absorb this, try to, you know, integrate this, so there will be a lot of focus that we will have. If there are any, something which is quite interesting, we will look at a point in time, but our current focus is to, you know, try to see to it that we are, you know, focused on these two acquisitions, try to get them well integrated.

Shailendra Pinjapa, CEO

And just to add on, you know, we clearly have a strategy in terms of what kind of companies that we want to acquire. You know, that has to fit our framework, that has to be specifically within the areas that, you know, expand our capabilities, expand our offerings and geographic presence. But the size and scale of those will vary depending on, you know, opportunities that will come our way or that we will discover. So very difficult to comment at this point in time what the size or what capital will be deployed for those. But one thing I will say is that it has to fit our specific criteria and our framework for it to qualify and for us to evaluate for that.

Abhichit Sakhare, Analyst — Kotak Securities

Got it. And if I may, I kind of have one more follow-up on the non-ratings business. The slowdown or let's say the compression in terms of… The contribution that's coming from the anchor client. Can you give us some assessment of, you know, how much more there is in terms of hitting the bottom, where things kind of... Start to become more steady. And like you mentioned earlier, there are opportunities to increase engagements. And from that base, we can start to see some reasonable growth. Like how far are we from that base getting reached in the Moody's accounts? And one more is in terms of margins. Like we are close to about 20% odd margins. Do you think there is room for margin expansion, given some of the recent acquisitions are yet to scale up? And how should we think about it from like a two to three point of view?

Venkatesh Vishwanathan, CFO

Yeah, I'll take that. See, from an anchor client perspective, I think the margins at least have remained stable, and we don't see a significant drop. Obviously, if there are some major kind of a roll cut, if that happens in future, it's a different discussion. But based on the current scenario or current whatever, we have a visibility, we are not seeing a major drop there. In fact, there has been, you know, the effects has been positive. So, we are hoping that, you know, that trend continues. And we are not seeing a measure. On the other side, yes, there are, you know, I think one of the pointers that we have also put in the presentation is there is a fair amount of depreciation and amortization costs, which is, amortization is largely with respect to the investment costs amortization, which is actually hitting these segments. So, I think if we exclude that, I think that's a point that we have covered. In fact, we have seen around 35% growth before those costs in depreciation and amortization. To answer your questions, more specifically, is there a room for growth? I am sure there is. And if the plan towards sales that we are working towards, including the investments that we are doing outside India, those fires, I am sure there is a reasonable good chance that there is a good chance of us getting those numbers.

Shailendra Pinjapa, CEO

Yeah, and let me add on to what Venkat has just mentioned. Of course, the margins that you see today is not a true reflection of the actual economics in the business because of those amortization, depreciation, etc. But also, it is not a true reflection of what the steady state economics of the business will be at scale. Right now, we are in a build-out phase. And we believe the time is now to kind of invest behind our products and technology, invest behind growth and kind of geographic expansion and improve our customer services. But as the business scales, we'll have several levers to kind of improve and expand our margins, including kind of… You know, the operating leverage itself, expansion of recurring revenue, which requires less sales investments, and kind of AI-led productivity gains that, you know, that we believe we will be able to get, and kind of the scale of the broader integrated operating model. But at this stage, I'd say it would be too premature to start looking at those levers and trying to optimize. I think we want to stay invested in all of these, expand, scale it out, and then revisit At that scale, those levers will deliver far more beneficial economics for us.

Ramnath Krishnan, CEO

And further, if your question is, do we have a clear path to… You know, where we want to get to, and then, you know, do we know what all we need to do in the meantime to get there? The answer is yes. So, we know where we want to get to, we know what we need to do to get there, and then those are the things that Sharendra was talking about, and so that's what we like to deliver the results, desired results that we are looking for.

Abhichit Sakhare, Analyst — Kotak Securities

Got it. Two more questions. On the non-ratings business, it's good to see how margins have kind of steadily improved over the last few years. Have we reached the kind of target levels where it kind of now stabilizes or do you see some more room for growth? Obviously, operating leverage is one part, but in terms of the investments that have happened in the past, we are kind of broadly through with that.

Venkatesh Vishwanathan, CFO

Are you talking about ratings or you are talking about non-ratings?

Abhichit Sakhare, Analyst — Kotak Securities

Sorry, ratings business.

Venkatesh Vishwanathan, CFO

I think from a rating perspective, I think it is largely a function on the revenue side. I think we have been doing consistently, you know, a double-digit growth this year also. It has been good. So if we are able to maintain that, I'm sure there is a scope for, you know, margin expansion. If you are able to hit that kind of a sales run rate, and that we have consistently done over the last three years. From a productivity or investment perspective, I think we are largely, you know, from the tech side, there has been some investment is already done. So if the sales continues at this rate, I'm sure we will.

Abhichit Sakhare, Analyst — Kotak Securities

Got it. And just last one, like from a shareholders point of view, like we are sitting with a reasonable amount of cash, and given how the stock has done over the last few years, is there a plan to kind of do a buyback or a special dividend? Any thoughts on that, please?

Venkatesh Vishwanathan, CFO

We are evaluating all these proposals and we appreciate that the cash balance that we are sitting, we are conscious, we review those capital allocations. I'm sure we can't disclose what exactly we are going to do with this, but we do all these options that are available. They are under consideration at various points in time. So let's be assured that we are working. And you'll also see that from our dividend perspective, if you look at the last three or four years, there has been a gradual upping. And if there are any opportunities that are available for us, we will definitely, you know, with the necessary approvals, we will look into those options. So all these options are, you know, on the table and we keep on reviewing those.

Abhichit Sakhare, Analyst — Kotak Securities

Got it. Thanks a lot. Thanks for answering all the questions.

Operator

Thank you. We have the next question from the line of Anuj and Sharma from Steadford Investment Managers, LLP. Please go ahead.

Anuj Sharma, Analyst — Steadford Investment Managers

Yeah, yeah. Thank you for the opportunity. A couple of questions. One is again on the risk and analytics segment. Could you dive a little bit more on size and duration of client engagements? Especially the sub-segments. And what is our wallet share currently? There's some more depth into this. This is the non-anchor client I'm talking about.

Shailendra Pinjapa, CEO

Yeah. So within our portfolio, we have a variety of different products. And we serve different sub-segments within that. So, the size of the engagement varies. It could start from a 10-20 lakh ticket size. We could do multi-crore, multi-million type of a deal. So, it largely depends on the size, complexity, and scope of work that we do. But typical construct of our relationships will involve some level of software which is on a subscription model or a license and ANC model. There will be some level of services that goes along in terms of integrating those software into the client's environment. And a part of that service will become also ongoing and repeatable and packaged as managed services. And all of the recurring components together is what we track as recurring revenue, and like I said, that forms a substantial part of our business.

Anuj Sharma, Analyst — Steadford Investment Managers

Yeah, thanks. But I would still want some more clarity on, you know, what is an optimal size of a client engagement? And generally, how does the sales cycle work? Do we pitch in to take over existing client business? Or there's a competitor who's already servicing that sub segment, and then we pitch in just some more clarity will be helpful as to how exactly does the segment work? And is it is it mining that client a bigger opportunity? Or, you know, having more customers? This is a bigger opportunity for us. How do we define growth in these three sub-segments?

Shailendra Pinjapa, CEO

Okay. So, you know, again, I'll refrain from answering what is the typical ideal size of a customer. Like I said, we cater to different segments, and each of those segments, the size of engagements will vary, right? The size of an engagement with an NBFC will be very, very different from our Tier 1 private bank, and we cater to all different segments, right? And our products also have the ability to adapt to the scale and size. We have the ability to deploy on private clouds, on-prem, for large scaled-out implementations. We have the ability to have more subscription-based, SaaS kind of hosted environments. We have managed services, you know, and we have kind of retainer-based models as well. So that size varies based on segment. In terms of headroom for growth, India being the market where we have the highest concentration of customers, let me talk about that and it will give you a sense. We track our market share by different segments, private banks, public sector banks, top NBFCs and so on. With the combined portfolio that we currently serve, we have... We have a fairly modest footprint across these segments. In some, we have better penetration, in some, we have greater opportunity to grow. But more importantly, even within those customers that we have, the bulk of our customers have one product of ours compared to five that we We have within our portfolio. So, in terms of expanding those relationships, there is a lot of headroom for us. And this is typically how it has worked well for us. Penetrating a customer and then expanding with additional capabilities or offerings that we have for that specific segment. Likewise, on the capital market side, our footprint is very, very strong. Our market presence is very good in India. And there are opportunities for us to expand those relationships that we currently have. On the international market side, we have a very targeted approach to that. On a named account basis, we are pursuing opportunities. Now we want to kind of make a market-wide approach specifically around some geographies that we have identified. And that will give us opportunities to grow. I hope I have answered your question.

Anuj Sharma, Analyst — Steadford Investment Managers

Sure, we'll take this later on offline. But our third question is on the ratings business. So there is this Basel III risk weight reset, which is, you know, supposed to be effective 1st April 2027, the capital charge for credit risk. You know, what kind of opportunity we are seeing there? And are, you know, do we see a traction currently or this is yet to play out for corporates getting prepared for this transition?

L. Shivkumar, CEO

Yeah, so if I may answer that question. See, while RBI has come out with this regulation, and it is indeed effective 1st April 2027, but still some clarification in terms of the reference period and method of computation is awaited from RBI. But that said, if we go by the intent, of what RBI is trying to do, which is to bring in some amount of quality check in terms of ratings which are being assigned. There, our agency stacks up pretty well. So we feel that if RBI goes ahead with this, we as a rating agency is definitely likely to gain from this, and This message has gone across to the market, and we see a very clear preference for our ratings in the last few quarters. So this is a positive step for us. We can't quantify it at this stage, but it's a positive step.

Operator

Sorry to interrupt in between. Anuj, I would request you to please rejoin the queue again for more questions, as there are participants waiting for their turn.

Anuj Sharma, Analyst — Steadford Investment Managers

All right. Thanks.

Operator

Thank you. Dearies and gentlemen, in order to ensure that the management is able to address all the questions from the participants in the question queue, we request you to kindly limit your questions to two participants. If you have a follow-up question, please rejoin the queue again. We have the next question from the line of Lakshmi Narayan K.G. from Tunga Investments. Please go ahead.

Lakshminarayan K.G., Analyst — Tunga Investments

Yeah, thank you. Could management shed light on how annual revenue targets are framed across your rating and analytics divisions, specifically the balance between domestic board-driven objectives and strategic growth targets which are aligned to Moody's global operations? So, how the revenue targets are set, and end-to-end, how is this being done by the team domestic as well as the team at the parent?

Ramnath Krishnan, CEO

So, the way we approach this exercise is typically our budgets are approved, you know, between January and February for the financial year, you know, starting April. So, we have... That is sorted before the financial year starts. We have a rolling five-year strategic plan that is actually put together by our strategy team, which gets presented to the board. And what we actually put out in terms of our operating plan every year is in some form a subset of that. For the first year, certainly, it will be almost a replica of it. For the following years, naturally, both the strategic plan will get revisited and our operating plan will get revisited as well. So we take into account, obviously, the goals that we set for ourselves in the strategic plan, the growth that we are expected to see in the market. Any new opportunities that might come our way, for that matter, any regulatory changes that are actually anticipated, which might give us more opportunity, etc., etc. All of these factors are actually baked into our budget and into our operating plan. Our aspiration, the market dynamics. Developments in the market that we expect that might actually present new opportunities, etc., etc. And that is how our budgets are actually calibrated and presented to the board.

Lakshminarayan K.G., Analyst — Tunga Investments

Yeah, I mean, there are two parts of the business. One is, which is completely domestic, where the management would have some kind of relatively a stronger grip on how this would actually go about. And there's another part of the business, which is aligned to the Moody's global operations. So how, you know, while the first one is something which you explained very well, how does the second one happen? Like, I mean, how is it decided and what kind of, say, the Indian, I mean, how do you ensure that that revenue pool and the resource allocation as well as the profitability is calibrated maybe on an annual basis or on a rolling three-year basis? I mean, how does that get plugged in?

Ramnath Krishnan, CEO

So, on an annual basis, we have pretty good visibility because, I mean, our, you know, we have ongoing conversations, you know, if you're talking about Moody specifically, we have ongoing conversations with them pretty much, you know, through the year. So, the advantage that we have also is that their budgets are actually calibrated on a calendar year basis and our budgets are on Indian financial year basis. So, we have an advantage of almost about, you know, three months in terms of baking in some of those numbers into our budget. So, we have pretty clear visibility and our engagements are actually not extremely short-term, they find it very long-dated. So, they're reasonably well understood by us. We have pretty good visibility, and they are naturally, you know, baked into our budgets.

Lakshminarayan K.G., Analyst — Tunga Investments

So, right now, you know, what kind of visibility you would have for the global operations also, you would have a year visibility as of now?

Ramnath Krishnan, CEO

Sorry, global operations off.

Lakshminarayan K.G., Analyst — Tunga Investments

No, I think the, not the domestic, I'm talking about the Moody's business.

Venkatesh Vishwanathan, CFO

Yeah, I'll pick this up. See, typically, the way it works out is there are two kinds of business within it. One is something called as an FTE, which is a fixed term. You know, we have dedicated resources, and the other is a project. So, bulk of our, if you ask me, are typically 80 to 90 percent comes most closely from a recurring revenue there. So, it's a resource-based. So, I think, from a visibility perspective, you are asking. Budgeting-wise, we have a one-year visibility, but the recurring nature, which we are saying 80% to 85%, generally speaking, we can easily say that at least 70% to 80% can be more than a year. So it can be 1% to 2% or 1% to 3% depending upon how. So, we'll have to look at it from two different lengths. The project is where you'll have a limited visibility beyond one year, which is roughly around 10 to 20% depending on how it moves. But majority of the revenue here is on a recurring basis, on a FTE basis. There, typically, contractually, you may not have. I mean, you need a not-purchase order visibility. But generally, I've seen that as generally having a higher visibility. That's how we look at it.

Lakshminarayan K.G., Analyst — Tunga Investments

The second question is that how are you augmenting your convening power? When I say convening power, I mean that your thought leadership in the industry, while you have a strong knowledge, institution knowledge, how are you measuring your convening power with respect to government, with respect to industries? Is there a quantitative method you actually look at it? And if so, how you have performed in the last year or so, merely looking at your supremacy in industry knowledge or getting the right set of forums?

Ramnath Krishnan, CEO

I think, I mean, we are definitely acknowledged as thought leaders in the risk and analytics space. I mean, we are actually actively engaged with, well, you know, pretty much all the industry forums. We have a relationship, you know, with pretty much all the large players in every segment of the industry. We engage with their boards. With some of the government bodies, including bodies like Niti Aayog and so on and so forth. So I think, I mean, like, you know, it's, and some of the regulators like RBI and so on. So I think if you pose this question to some of these, you know, larger, you know, organizations or associations or regulators, I mean, I think, I mean, they will be able to give you a fairly clear indication of... How we are seen, or for that matter, you know, where do we figure in terms of their own picking order as a thought leader?

Lakshminarayan K.G., Analyst — Tunga Investments

I mean, and do you internally measure it, sir, in some way or the other as a part of your scorecard or KPIs and, you know, in that framework, how do you have your

Ramnath Krishnan, CEO

scorecard, not across businesses. I mean, there are certain departments which are responsible for outreach and marketing and so on. So it might feature in their scorecard, but not in everybody's scorecard. But do we track it at an entity level? The answer is yes, obviously.

Ravishindran, Other

Just to supplement what Ram said, the Ravishindran Chief Rating Officer, from the analytical team point of view, we measure something called share of voice, you know, where Ikhra's share with regard to print media, electronic media, and social media, we capture regularly across different sectors, so where Ikhra has been quite active, you know, through various codes and talk leadership articles and so on and so forth. Otherwise, Ikhra are also quite active on the industry conferences. We also hold in-person physical events. We also hold regular webinars on various topics of interest to the market. So through all these initiatives, we try to maintain our thought leadership status, and all the numbers that our media team captures shows that Ikhra is at the top of the league.

Lakshminarayan K.G., Analyst — Tunga Investments

Very good. Thank you. This is very helpful. Thank you.

Operator

Thank you. We have the next question from the line of Ravi Putohit from Securities Investment Management, Private Limited. Please go ahead.

Ravi Putohit, Analyst — Securities Investment Management Private Limited

Yeah, hi. Thanks for taking my question. So generally, you know, I wanted to ask about non-rating businesses, right? So if you look at the numbers for the D2K and Finetelix for FY26, right, I think between the two, the companies have reported a loss at the net profit level at the, like, back level of about 25 odd crores. I understand, I think we had mentioned about accelerated depreciation being taken in those companies for tech investments and all those things. Can you give us some glide path? So effectively, when we look at ICRA's number today, the profits are understated by around 25% of the pros. So if you could just help us understand when do these companies, the acquisitions that we have made, become positive, you know, EPS accretive for the company, right? And, you know, before we kind of take on another acquisition, would it like make sense or is it like an internal goal for us to first make these acquisitions kind of, you know, net profit accretive to the company? So if you could just share some thoughts as to when do you expect these companies to actually become profitable.

Ramnath Krishnan, CEO

We may have actually, Venkat and I may have explained this to you earlier. Profitability is one of the key criteria that we look at either for any of our existing operations or for that matter when we look at any of the acquisitions. We also acknowledge that when we make an acquisition for the initial first couple of years, we might have to actually invest money in certain areas where the companies may be under-invested, or for that matter, there may also be a need for them to go through some of these accounting nuances, if you like, which might actually put some pressure on the bottom line in the initial phase. But returning them to profitability and seeing sustainable profitability is a key deliverable for us as a management team and for the board. So, we are not here to make a statement saying we made an acquisition. We are not here to make a statement saying we spent this much of money to add so much to the top line. To us, bottom line, bottom line accretion is extremely important, is a very critical deliverable. Whilst it may not happen in the year of acquisition or in the following year, do we have a clear path in terms of by when we expect to do it and what is it that we expect to deliver? The answer is yes. Is that actually planned, reviewed internally, and is that shared with the board? The answer is yes. Is it actually tracked by the management team, and is it actually reviewed by the board? The answer is yes. So, sustainable profitability and delivering on that is extremely important to us as a management team. So, whilst you may not see it immediately, we certainly have clear visibility in terms of when we think we will be able to deliver on that.

Ravi Putohit, Analyst — Securities Investment Management Private Limited

Yeah, if you could share some broad timeline. D2K, it's almost third year now, right? Each of the three years that it has been there with us, it's been a loss-making entity, right? And the losses have only expanded in the last year, right? So, do you kind of draw a line in the sand saying three years is where it will turn around or four years or five years? So, and same happens also with Phenetelix, right? So Phenetelix lost about 20 crores last year. Now, or maybe you could, you know, share what kind of write-offs that we are taking in those, right? Are those tech investments that the companies have made? And those are non-cash charges and accelerated, you know, so those will kind of end this year, next year. So, some guide path will be helpful, rather than an open-ended guidance saying that it will happen. Like I said, D2K is already in the third year.

Ramnath Krishnan, CEO

I'll provide some perspective. We acquired D2K three years ago and we were actually a sixty percent shareholder. And we had the two sponsors of the business who remained invested, you know, in the business. So that's one point. So, therefore, the... And the number of changes that we could actually implement, we were somewhat constrained because of the fact that we did not have a hundred percent control. Point number one. Point number two, C2K is a business that was actually predominantly run by two individuals over the last, you know, couple of decades, and therefore the business needed... Significant investments continues to need some investments, and that is something also we had to do, but we were reluctant to make those investments till we got 100% control. And we managed to get 100% control, literally, what, about four, five months ago? Yeah. So, it is very recently that it has become a 100% sub. It is now that we have the flexibility, the latitude to do what we want to do. And therefore, investments, etc., etc., will all happen now. Now, so, do we have clear visibility into when these businesses are expected to turn profitable? The answer is absolutely yes. And now, will I be able to share with you whether it's going to be, you know, X or Y by 2027, 2028, I'm afraid we will not be able to provide that kind of guidance. Venkat, do you have anything for that, Venkat?

Venkatesh Vishwanathan, CFO

So, Ravi, just to add one point here, if you look at the segmental, though it might look flattish, we have actually added one commentary, which is essentially saying that the R&D segment grew around 35% before depreciation and amortization, which is largely the investment. So, that will give you some perspective in terms of what is the incremental hit and largely on account of depreciation and amortization which this segment is facing.

Operator

Thank you very much. Ladies and gentlemen, we will take that as the last question for today. And with that, we conclude the question and answer session. On behalf of ICRA management, we conclude this conference. I thank all the participants for joining with us today and you may not disconnect your lines.