Credit Analysis & Research (CARE)

What business is Credit Analysis & Research (CARE)?

CARE's business can be divided in to 2, Credit Rating & Research & information services. Ratings business accounts for 98% of the revenues.

Bit of History

Started in 1993, largest shareholders are IDBI, Canara Bank & SBI. CARE has over 20 years exp.

Industry Overview

There are 6 credit rating agencies in India, biggest being CRISIL, ICRA & CARE

Credit rating, its an opinion on the relative degree of risk associated with timely payment of Interest & Principal on a Debt Instrument.

Benefits of having a good credit rating

	Illustration of capital-saving potential by banks on a loan of Rs.1000 Million Rating Basel I Basel II Risk weight Capital required 1 Risk weight Capital required Capital saved (rs. mn) (rs. mn) AAA 100% 90 20% 18 72 AA 100% 90 30% 27 63 A 100% 90 50% 45 45 BBB 100% 90 100% 90 0 BB and below 100% 90 150% 135 (45)
	1 Capital required is computed as loan amount x risk weight x 9 per cent. What's exciting about the business? Second largest player Best in class EBITDA margin of 60%+ & PAT of 50%+ Asset light PE much lower than peers, currently trading at 24.4 compared to industry standard of 44. Dividend payout has increased from 30% to 63%, with estimates of reaching 72% ROE of 39% with estimates of going up to 47% Industry penetration is around 12% of GDP, compared to 17.2% for East Asia & 19.9% for Japan Big Concern RBI is allowing Banks to migrate to Internal Rating Based (IRB) approach for approved banks. This mean banks can have their own internal estimates. BLR is a big component for CARE Annual Numbers Mar 12 Mar 13 Mar 14 Mar 15 TTM Sales 178.08 198.77 229.46 257.21 262.77 Sales growth 12% 15% 12% 2% Expenses 54.90 64.89 82.83 95.14 96.84 Operating Profit 123.18 133.88 146.63 162.07 197.78 OP growth 9% 10% 11% 22% OPM 69.17 67.35 63.90 63.01 73.27 Other Income 28.21 28.63 35.66 43.56 31.65 Interest 0.00 0.00 0.00 1.30 1.30 Depreciation 1.88 2.63 2.89 4.95 4.61 Profit before tax 149.51 159.88 179.41 199.38 191.87 PB growth 7% 12% 11% -4% Tax 41.97 46.55 50.73 59.05 60.64 Net Profit 107.54 113.33 128.67 140.33 131.23 NP growth 5% 14% 9% -6% EPS (unadj) 36.05 36.39 39.63 34.70 Quarterly Numbers Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sales 63.30 34.69 65.28 53.84 75.67 42.68 74.26 62.43 77.74 48.34 YoY growth 20% 23% 14% 16% 3% 13% Expenses 19.51 19.36 17.69 21.37 24.41 22.59 22.73 23.98 25.84 24.29 Operating Profit 51.88 30.93 53.03 39.18 59.15 34.92 74.22 41.28 55.20 27.08 OPM 81.96 89.16 81.23 72.77 78.17 81.82 99.95 66.12 71.01 56.02 Other Income 8.09 15.61 5.45 6.71 7.89 14.84 22.69 2.84 3.20 2.92 Depreciation 0.53 0.53 0.79 0.72 0.85 1.41 1.27 1.18 1.10 1.06 Interest 0.00 0.00 0.00 0.00 0.00 0.00 0.19 1.10 0.01 0.00 Profit before tax 51.35 30.41 52.24 38.46 58.29 33.51 72.76 39.00 54.09 26.02 YoY growth 14% 10% 39% 1% -7% -22% Tax 15.74 6.11 17.19 10.44 16.99 6.93 20.35 12.76 19.00 8.53 Net Profit 35.61 24.30 35.05 28.02 41.30 26.58 52.41 26.24 35.09 17.49