Care Ratings Stock Analysis

Care Ratings

Care Ratings Limited (“CARE” or the “Company”) is the second-largest credit rating agency in India.

CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations.

CARE Ratings covers many rating segments including manufacturing, infrastructure, financial sector including banks, non-financial services among others.

CARE Ratings has regional offices at Ahmedabad, Bengaluru, Chandigarh, Chennai, Coimbatore, Hyderabad, Jaipur, Kolkata, New Delhi and Pune.

The Company’s list of clients includes banks and other financial institutions, private sector companies, central public sector undertakings, sub-sovereign entities, small and medium enterprises (“SMEs”) and microfinance institutions, among others.

The Company also provides issuer ratings and corporate governance ratings and offers rating of innovative debt instruments, such as REITs, expected loss (for infra), perpetual bonds etc.

CARE Ratings Revenue Model

The Company charge rating fees which is separately computed separately on each instrument issued. Issuers are liable to pay rating fees, regardless of whether they accept CARE’s rating or not. Full rating fee is to be paid up front.

Rating Fees

Fixed Deposits

0.10% of the outstanding amount of Fixed Deposits subject to a minimum of Rs.200,000

Debentures

0.10% of the issue amount subject to a minimum of Rs.200,000

Commercial Paper

0.10% of the issue amount subject to a minimum of Rs.200,000

Issuer Rating

0.05% of all the outstanding debts as on last balance sheet date subject to minimum of Rs.300,000

·       Annual Surveillance Fees on FD/Debentures/CP: 0.03% of the amount outstanding under the rated instrument subject to a minimum of Rs.100,000

·       Annual Surveillance Fees on Issuer Rating – 0.05% of the amount outstanding under the rated instrument subject to a minimum of Rs.200,000

·       Credit Reports: Fees applicable will depend on the scope and coverage of each report and can be obtained on specific request.

PROFESSIONALLY MANAGED COMPANY

Top 20 Shareholders

Particulars

Shareholding (%)

Life Insurance Corporation Of India

9.85

Crisil Limited

8.90

Franklin Templeton Investment Funds

8.13

L And T Mutual Fund – L  And T Tax Advantage Fund

4.80

Stichting Depositary Apg Emerging Markets Equity P

4.46

Morgan Stanley Asia (Singapore) Pte.

4.24

Lloyd George Investment Company Public Limited Com

4.04

Pinebridge Global Funds – Pinebridge India Equity

2.05

Bajaj Allianz Life Insurance Company Ltd.

1.92

Russell Investments Limited

1.80

Baobab Global Fund Ltd

1.71

India Capital Fund Limited

1.69

Bajaj Holdings And Investment Ltd

1.69

Government Pension Fund Global

1.50

White River Partners, L.P.

1.39

India Insight Value Fund

1.34

Vanguard Emerging Markets Stock Index Fund

1.25

Tata Steel Limited

1.20

Vanguard Total International Stock Index Fund

1.05

Tata Investment Corporation Limited

1.05

Financial Performance

Particulars

FY15

FY16

FY17

FY18

FY19

Revenue (In Rs. Cr.)

260.55

279.37

287.43

332.68

318.97

Growth

7.22%

2.89%

15.74%

-4.12%

EBITDA (In Rs. Cr.)

159.56

173.88

182.20

210.76

174.67

EBITDA Margin

61.24%

62.24%

63.39%

63.35%

54.76%

EBIT (In Rs. Cr.)

154.47

169.71

178.81

207.61

171.34

EBIT Margin

59.29%

60.75%

62.21%

62.41%

53.72%

PBT (In Rs. Cr.)

196.87

178.39

212.49

233.08

201.73

PAT (In Rs. Cr.)

137.82

119.60

147.64

162.41

137.47

PAT Margin

52.90%

42.81%

51.37%

48.82%

43.10%

EPS (In Rs.)

47.53

40.68

50.13

55.13

46.66

EPS Growth Rate

-14%

23%

10%

-15%

Historic P/E (Closing Price of 31st March)

31.13

23.02

33.77

21.93

21.28

CURRENT P/E (based on price of 24th Jan– Rs. 657.45)

16.55

D/E

0.00

0.00

0.00

0.00

0.00

Interest Coverage

NA

ROCE

44.45%

42.55%

35.00%

35.19%

31.62%

ROE

38.40%

29.27%

28.39%

27.21%

25.00%

Quarterly Performance

 

Q2 FY 2019

Q3 FY 2019

Q4 FY 2019

Q1 FY 2020

Q2 FY 2020

TTM

Q-o-Q %

Y-o-Y %

Revenue

96.65

72.91

89.41

49.92

71.63

283.87

43.49%

-25.89%

EBITDA

62.37

37.22

50.10

12.17

36.46

135.95

199.59%

-41.54%

EBITDA Margin

64.53%

51.05%

56.03%

24.38%

50.90%

47.89%

 

 

PAT

45.48

30.55

36.45

13.18

36.49

116.67

176.86%

-19.77%

PAT Margin

47.06%

41.90%

40.77%

26.40%

50.94%

41.10%

 

 

EPS

15.43

10.49

12.37

4.47

12.39

39.72

177.18%

-19.70%

H1 FY2020 Highlights:

  • Revenue was down 22.4% to Rs. 155 Cr. as compared to Rs 156.65 Cr. in the year-ago period.
  • The major factors affecting results include, the prolonged period of headwinds faced by the non-banking financial company (NBFC) sector, decline in capex formation in private sector and substantial decline in economic growth.
  • The total number of assignments completed was 2635 as against 4276 last year.
  • In the first half of FY2020 the volume of debt rated decreased to 5.67 lakh Cr. from 8.13 lakh Crores in the first half of last year. This comprises of 2.3 lakh Crores in bonds, 2.11 lakh Crores bank loans and 1.25 lakh Crores in short-term rating including CP.

Peer Comparison

Care Ratings

WHAT’S DRIVING THE STOCK?

Professionally Managed Company.

  • Crisil’s Promoter is S&P – S&P holds 67.40% in Crisil and ICRA’s Promoter is Moody’s – Moody’s owns 50.54% in ICRA, Care Ratings has always been considered a home-bred entity.
  • Crisil holds 8.90% stake in CARE.

Undervalued Stock

Care Ratings’ stock has corrected sharply after the IL&FS crisis and the current discounted valuation gives good opportunities in them as they are likely to benefit from the regulator’s aggressive push for a better bond market in India. The Company is currently trading much below its historical valuations.

Cautiously Optimistic Guidance for H2 FY20

The Company is cautiously optimistic for the second half of the year. There is some optimism due to the hope of increase in consumption demand on account of festival season and good Kharif harvest that should result in a better spending. If it does materialize it will lead to higher investment next year if not this year. However the Company is still concerned about the state of the financial sector and the pace at which the NBFC crisis is resolved will largely determine the health of the segment.

WHAT’S DRAGGING THE STOCK?

SEBI on 26 December 2019 slapped Rs 25 lakh penalty on CARE Ratings pertaining to assigning of rating to various non-convertible debentures (NCDs) of IL&FS. SEBI noted that credit rating agency failed in assigning rating to various NCDs of IL&FS. As per SEBI, while there was no allegation of mala fide on the part of the rating agencies, their failure was serious considering the responsibility bestowed upon them by investors and regulators.

Poor Quarterly Performance

CARE Ratings performance for the H1 FY 2020 continues to be constrained on account of overall slowdown on the economy front. In H1 FY2020 the volume of debt rated decreased to 5.67 lakh Cr. from 8.13 lakh Cr. in the first half of last year. This comprises of 2.3 lakh Cr. in bonds, 2.11 lakh Cr. bank loans and 1.25 lakh Cr. in short-term rating including CP.