Credit Analysis and Research Ltd.
Company Overview
Credit Analysis and Research Ltd. (CARE) is a leading, full service
credit rating company in India. It offers a wide range of rating and
grading services across a diverse range of debt instruments and
related obligations covering a wide range of sectors, such as
manufacturing, services, banks and infrastructure. It also provides
general and customized industry research reports. Its clients
includes banks and other financial institutions, private sector
companies, central public sector undertakings, sub-sovereign
entities, small and medium enterprises and micro-finance
institutions, among others.
Key Highlights
n CARE is the second largest rating company in India in terms
of rating turnover for the year ended March 31, 2012.
n Since incorporation in April 1993, CARE has completed
19,058 rating assignments and has rated Rs. 44,036.03
billion of debt as of September 30, 2012. It has rating
relationships with 4,644 clients as of September 30, 2012.
n It is the leading credit rating agency in India for IPO grading,
having graded the largest number of IPOs since the
introduction of IPO grading in India.
n In November 2011, the Company acquired a 75.1% equity
interest in Kalypto, a firm providing risk management software
solutions. Pursuant to this acquisition, Kalypto has become
a subsidiary of the Company.
n CARE provides technical assistance to HR Ratings De Mexico
S.A. DE C.V. in Mexico, and in order to explore opportunities
in Latin America, it provides technical assistance to Summa
Ratings S.A., Ecuador with respect to providing credit ratings
n CARE is also recognized by the Capital Markets Development
Authority, Republic of Maldives to carry out ratings of debt
instruments and bank loans and facilities in respect of
Maldivian companies through its office in Republic of
Maldives.
n The Company has also been granted indirect recognition by
the Hong Kong Monetary Authority as an external credit
assessment institution for the purpose of the regulatory
capital framework in Hong Kong.
n It’s top shareholders includes domestic bank and financial
institutions like IDBI Bank, Canara Bank, SBI Bank, IL&FS,
Federal Bank etc.
Established presence in rating debt instruments and bank loans and facilities
CARE posseses over 19 years of experience in rating debt instruments and related obligations covering a wide range of
sectors. It enjoys a strong market position with respect to undertaking ratings of most types of debt instruments and bank
loans and facilities. It had rating relationships with 4,644 clients as of September 30, 2012. It is well equipped to rate most
kinds of short, medium and long-term debt instruments. This has enabled it to retain its current client base and explore new
opportunities that emerge in the industry. The Company has achieved a steady growth in its ratings business. The total
number of debt instruments it rated increased from 3,934 as of March 31, 2008 to 14,524 as of March 31, 2012, at a CAGR
of 38.6%.
Strong rating credibility and brand presence
The Company has strong brand recognition and credibility in the ratings market, gained through years of experience in the
ratings business. The credibility of its ratings is reflected in the fact that it has received certifications and accreditations from
various regulatory bodies and entities.
Strong origination capabilities and relationship management
The Company has a stable and esteemed core client base representing most of the major Indian industrial groups, banks
and conglomerates. Its client base includes banks and other financial institutions, private sector companies, central public
sector undertakings, sub-sovereign entities, SMEs and micro-finance institutions, among others. It has ratings relationships
with 4,644 clients as of September 30, 2012. Further, its strong brand and 19 years of experience in the ratings business
enables it to obtain repeat business from its existing clients and to source new business as well.
Healthy financial position and profitability
The Company's consolidated total income for FY12 and for H1FY13 was Rs. 218.8 Crs and Rs. 103.9 Crs respectively; it's
consolidated PAT for FY12 and for H1FY13 was Rs. 115.77 Crs and Rs. 49.78 Crs respectively. Its standalone income and
PAT has grown at a CAGR of 41% and 44% respectively between FY08 and FY12. It consolidated EBITDA and PAT
margins stands at 65% and 55% respectively for H1FY13. Although the margins have declined, it still remains high when
compared to its peers. It has maintained a highly liquid, strong net worth position, with no debt on a consolidated basis as
of H1FY13. The Company has paid dividends each year since its first full year of operations.
Industry Scenario
Demand for rating services is driven by overall capital mobilization in the economy particularly from the debt markets viz.
corporate bonds and commercial paper (or other market linked short term instruments) issuance. Economic growth fuels
demand for both investment and operational related funding. In a competitive business environment, many industries are
increasingly witnessing trends such as consolidation leading to demand for funding mergers and acquisitions. All these
factors result in an increase in funding requirements for Indian corporate entities, which can be met through various forms
of debt placement in the capital market, bank credit, cross border financing such as external commercial borrowing, foreign
currency convertible bonds or equity placement. Corporates raising funds through bonds/debentures or commercial papers
creates substantial demand for credit rating Historically, bank credit has been a major source of funding for the corporates.
This growth in bank credit has led to growth in debt issuances by banks in India. The implementation of Basel II standards
by the RBI resulted in large scale demand for credit ratings across sectors and geographies, which was previously limited
to a small group of clients.
Growth Strategies
n The Company intends to continue to focus on core debt instrument and bank loan and facility ratings business
through the acquisition of new clients and retention of existing clients and thereby increase its market share
n The Company intends to continuously identify and introduce new products in order to diversify and de-risk the business
profile and provide potential for further growth. As a part of its efforts to grow the pool of products, it has entered into
memoranda of understanding with several banks to offer set incentive rates for their MSME borrowers to obtain a
credit rating from CARE, and it has entered into a memorandum of understanding with Arthveda Fund Management
Private Limited to rate some of the real estate projects in tier II and tier III cities across India in which its real estate
fund invests.
n The Company also intends to capitalize on its strong brand recognition to expand, organically and by acquisition, into
new business segments, such as providing training, knowledge process outsourcing, risk management and other
support services to rating agencies and other financial institutions.
n The Company intends to expand its footprint outside of India in ratings business, as well as in the provision of
technical services to other rating agencies.
n The Company's business is impacted by changes in the volume of debt instruments issued and bank loans and
facilities provided in the Indian debt market. Any reduction in such volumes due to economic downturn or regulatory
restrictions may adversely affect the business, results of operations and financial performance.
n Any increase in interest rates and credit spreads may negatively impact the issuance of debt instruments or demand
for bank loans or facilities for which the company provides rating services.
n Over 80% of the Company's revneue is primarily on account of rating services. If it is not successfully able to diversify
its business, its financial condition and results of operations may be adversely affected.
n If the banks whose clients avail credit rating services under the Basel II framework migrate to the internal rating based
approach for credit risk (IRB Approach), it could have an adverse effect on the rating business, which may in turn have
an adverse effect on the Company's business.
n A portion of the ratings business is driven by regulatory requirements or requires accreditation, recognition or approval
from government authorities. Demand for ratings may decrease if there is a change in regulations which negatively
impacts the volume of debt instruments issued or the demand for bank loans or facilities in the domestic markets. A
decrease in demand for ratings would affect the Company's business
Valuations & Recommendation:
CARE Ltd. is currently valued at 20.1x and 21.5x of its post issue annualized H1FY13 earnings at lower and upper price band
respectively whereas it is valued at 4.7x and 5.0x on P/BV multiple. While comparing the company to its closest peers, the
company appears to be fairly valued on most of the valuation parameters.
CARE's strong market position in rating debt instruments and bank facilities, brand presence, healthy financial position
coupled with prominient client base makes the issue worth investing. However, the risk of slowdown in the credit market
remains a major concern.
We recommend Investors to Subscribe the issue.
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