Subscribe to CARE IPO - SKP Securities

Credit Analysis and Research Limited (CARE) is a full service credit rating company and is the second largest rating company in India in terms of rating turnover. It offers a wide range of rating and grading services across a diverse range of instruments and industries.

Investment Rationale

- CARE have over 19 years of experience in rating debt instruments and related obligations covering a wide range of sectors, such as manufacturing, services, banks and infrastructure. The main rating product is rating of debt instruments & bank loans & facilities, which provides the company with higher volumes than other products.

- As of September 2012, CARE has completed 19,058 rating assignments, rated Rs. 44,036.03 billion of debt and has relationships with 4,644 clients. As the rating of debt instrument/bank loan or facility used by the clients remains under surveillance until the entire debt is repaid, the company continues to charge surveillance fees over the lifetime of the debt, thus providing it with annuitized revenue.

- CARE has better margins than its two listed competitors; CRISIL & ICRA. This is because it has a lower contribution of its revenues coming from SME rating which is a relatively lower margin business due to the size of the debt being rated. CARE has recently entered into the SME rating space & SME rating contributes less than 20% to the topline currently.

- The object of the offer is to carry out the sale of 0.72 crore equity shares by the selling shareholders. The company will not receive any of the proceeds from the offer for sale.

Key Risk

Credit market disruptions along with economic slowdown have negative impact on the volume of debt instruments issued, thereby impacting the operations of the company negatively.

Outlook & Valuation

We rate a subscribe rating on the issue, as it enjoys the second dominant position in the Indian rating industry coupled with domain experience across a range of sectors and strong rating credibility and brand presence. Our rating also underpins the CARE experience management, well established business with sustained revenues and profitability margins.

Post issue, the stock would trade at a price to book value (P/Bv) of 4.7x on the lower side and 5.1x on the higher side of the price band respectively of its 6MFY13 book value of Rs. 149.4/share. Considering the price to earnings (P/E) valuation, the stock is available at a P/E of 17.3x on the lower and 18.5x on the higher side of the price band respectively of its annualized FY12 EPS of Rs. 40.5/share (valuation is lower compared to its two listed peers).

Source : Equity Bulls

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