Care
Ratings IPO Review
(1) Issue Highlights
Price Band
|
Rs. 700-750
|
Issue Period
|
7/12/12-11/12/12
|
Issue Size
|
71,99,700 shares
|
Face value
|
Rs. 10
|
Lot Size
|
20
|
Issue Type
|
100% Book Building
|
Listing
|
BSE,NSE
|
Registrar
|
Karvy Computershare
|
Maximum Retail Subscription
|
Rs. 1,95,500 (13
lots )
|
Industry
|
Credit Rating &
Grading
|
(2) Issue Details
Issue type: Offer for Sale by stake holders
(3) Industry profile
Credit rating business was conceptualized and pioneered in the USA. In
India, CRISIL (a subsidiary of S&P) was the first rating agency to be set
up in 1987, followed by the ICRA –a subsidiary of Moody’s (1991) - and
CARE (1993).
There are 6 credit rating agencies in India- Besides CARE, other players
are CRISIL Ltd, India Ratings & Research Pvt. Ltd (earlier known as Fitch
Ratings India Private Ltd.), ICRA Ltd, SME Rating agency of India Ltd
(SMERA)and Brickworks ratings India Pvt. Ltd.
 |
Rating agency business is continuously rising in India
|
 |
| Increasing bank credit to the industry |
corp. bonds as a % of GDP are rising
|
(4) Company profile
 |
| CARE’s rising prowess in the IPO market |
The company was established in 1993 and is mainly engaged in providing
credit rating and grading services primarily for debt instruments. Revenue from
this source accounts for the 85 % of the total income. Besides rating services,
CARE earns from investment activities.
In terms of turnover CARE holds second position among Indian rating
companies.
CARE’s client list includes reputed banks and financial institutions
like IDBI bank, Canara Bank, SBI and IL&FS. The company offers rating
services for instruments like Commercial Paper, Debentures, Bonds, Preferential
Shares, and Bank Loan Facilities etc.
Besides this, CARE also offers grading services like IPO grading, equity
grading and various types of grading for enterprises.
CARE covers a diverse range of sectors like manufacturing, services,
banks and infrastructure. CARE’s product pool includes product like SME &
MSE rating, Edu-grade (grading of educational courses), Equi-grade (equity
research and grading), Real estate Project Grading and Market Linked Debenture
Valuation.
(5) Objects of the Issue
·
This
issue is a stake sell by existing shareholders and company shall not get any
proceeds from it.
·
CARE
shall be availing listing benefits
·
Only
a few issue expenses shall be borne by the
CARE (rest shall be borne by the stake sellers )
(6) Strengths & opportunities
·
The
company has already started its operation in Maldives and intends to fortify its
presence in countries like Nepal & Mauritius.
·
The
company holds 75% stake in Kalypto- a
company providing risk management software, could turn into a game changer in future
(7) Concerns
·
High
interest regime is unfavorable for overall debt market and is capable of
hampering the new issuances of debt instruments thus negatively affecting the
profitability of the company.
·
Besides
ailing Indian economy and tight monetary policy, unfavorable global economic
and political conditions could cause a negative
impact on the Indian debt market
and the same could act negatively on the company’s profitability
·
Under Basel 2 framework banks can migrate to
IRB approach or Internal Rating Base approach and the same could turn fatal for
the company as around 24% of the total rating income (better called as income
from bank facilities which involves initial rating income and annual surveillance fee ) comes
that way.
·
Limited
exposure to overseas markets
(8) Financial Analysis #
·
All
calculations at the upper price band of Rs.750
·
FY
12 data was considered for the calculation
Parameter
|
FY 12
|
FY 13(Annualized)
|
||
P/E
|
40.5
|
21.5
|
||
P/B
|
5.7
|
5
|
||
ROE
|
30.7 %
|
23.3%
|
||
ROCE
|
26.4 %
|
21.4 %
|
||
NPM
|
53 %
|
48 %
|
||
Current Ratio
|
5.7
|
5.4
|
||
M-Cap/Sales
|
9.8
|
10.3
|
||
Profit CAGR (4 year) #
|
44.3%
|
NA
|
||
Net Asset per share
|
Rs. 132
|
149
|
||
# derived
from restated standalone/unconsolidated data
(9) Comparison with peers #
# Peer data as per moneycontrol site for FY 12
# Peer data as per moneycontrol site for FY 12
CRISIL **
|
ICRA
|
CARE
|
|
P/E
|
36.87
|
22.88
|
40.5
|
P/B
|
19.68
|
4.89
|
5.7
|
ROE #
|
44.12
|
12.99
|
30.7%
|
NPM #
|
28.39
|
35.12
|
53%
|
Profit CAGR (4 years)
|
27 %
|
17.58 %
|
44.3%
|
**CY 11 data
(10)Inference
In terms of turnover, CARE is the second largest rating agency in India
and since its inception way back in 1993 CARE has rated debt instruments worth
around Rs. 44,000 billion.
The company is registered with SEBI as a Credit Rating Agency under CRA
(Credit Rating Agency) regulations. CARE boasts an awesome client count in
excess of 4600.
The company mainly draws its income from the rating of debt instruments
in India. CARE is now treading successfully on the path of IPO grading and since
FY 11 it has been surpassing the market leader CRISIL in the IPO business. CARE
is steadily expanding its footprints abroad as mentioned earlier.
If we go by FY 12 data, CARE issue seems little expensive but its awesome
profit CAGR justifies it. CARE’s annualized FY 13 results make it a lucrative
bet with a Price to Earnings Multiple of 21.5. Besides, CARE has seen
impressive net profit margin of 44 % in FY 12 and that is a way higher than its
peers.
CARE is a debt free company and holds a consistent dividend paying track
record. In the rating business what matters is the credibility and the absence
of any foreign parentage makes it more credible in the Indian context by
ensuring absence of any possible foreign vested interest.
This stock might not give overnight returns but over a longer term this
defensive play is expected to give good returns. This stock being eclipsed by
the Bharti Infratel’s forthcoming IPO might miss retail investors’ patronage but
long term investors should go for this issue.
Disclaimer
Analysis is for the information purpose only. Though due diligence has been taken while preparing this report, analyst shall not be responsible for any error and shall not bear any financial liability to the users of the report.
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