CARE IPO - Subscribe - Anand Rathi

Strong parentage, experienced management and a burgeoning debt market make for bright prospects for Credit Analysis and Research (CARE). With its strong financials, the share at the upper end of the band is attractively priced relative to peers. We recommend Subscribe to the issue.

- Profile. At end-FY12, the second-largest domestic credit-rating company in India, in terms of rating turnover (FY12). CARE was incorporated in Apr'93 by IDBI, Canara Bank and the SBI. The strong institutional backing in early stages facilitated its scale-up in domain expertise, offered clientele access and nurtured credibility for its ratings. CARE has since demonstrated expertise in rating debt instruments and bank loans and at present has rating relationships with over 4,600 clients.

- Burgeoning debt market, international diversification to drive growth. CARE's business comprises ratings, grading and research. Ratings bring in more than 85% of overall income. The Indian corporate debt market, at 4% of GDP, is small. The government's emphasis on developing the debt market and the penetration of rating agencies in the debt market augurs well for future business. CARE has expanded its product profile to introduce SME, MSE ratings, Edu grade ratings. To geographically diversify, CARE plans to expand internationally. It is indirectly recognised by the Hong Kong Monetary Authority. It has rating joint ventures in Nepal and Mauritius. Further, it has acquired a 75.1% stake in Kalypto, a company providing risk management software solutions.

- Objects of the issue. CARE will not receive the proceeds, which would be utilised for the partial exit of existing shareholders.

- Recommendation. At the upper end of the band (Rs.750), the stock would trade at a P/E of 18.5x FY12, at a discount to its listed peers. We recommend subscribe from a long-term perspective. Risks: A slowdown in GDP may impact rating volumes, high interest rates may affect the number of debt issuances.

Source : Equity Bulls

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