Credit Analysis & Research (CARE Ratings) is coming out with its initial public offering between 7-11 Dec.
It will raise Rs. 540 Crore at the upper end of price band. It is 25.26% of post issue share capital.
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 instruments and industries. It also provides general and customized industry research reports.
CARE Ratings has relationship with 4644 clients. As of September 30, 2012 the company has 519 employees supporting analysis and business development activity.
The company has international presence through joint venture in Maldives. Now the company wants to increase its footprint in other countries including Nepal and Mauritius. The company is exploring opportunities to provide risk management solution and training in risk management practices to banks and financial institutions. In November 2011, CARE ratings acquired a 75.1% stake in Kalypto, a firm providing risk management software solutions.
CARE rating has been consistently delivering superior margins in last few years. The company has delivered 72.6% PBT margin in FY12, significantly higher than ICRA (38%) and CRISIL (39.6%), although this margin will reduce going forward due to increasing share of SME rating (low profitability) and competition in rating market. As per management strategy of diversifying if there is KPO kind acquisition comes through, it will create margin pressure in short term. CARE ratings has been delivering superior ROEs ~ 41.7% in last four years and expects to sustain strong ROEs in medium term by operating leverage and improving efficiency.
A key risk here is that the Rating business is highly corrected with credit demand in the economy , so deterioration in macroeconomic indicators such as GDP growth, credit growth, interest rates and macro environment will impact demand of credit and issuance of debt in economy, which in turn will adversely impact rating business.
It is the fastest growing rating agency, along with huge long term growth opportunity mainly driven by higher private sector infrastructure spending, favorable development in bond market. Superior margins & return ratios are key value drivers for CARE Ratings. CARE Ratings issue is quoted 21 times its expected fy13 earnings. Rating business are currently traded at 30-35x in the market, leaving strong headroom for upside at the time of listing.
So i suggest a subscription under retail quota for maximum amount of 2 lacs.
According to my estimates the listing can happen between 950-1050 band, leaving a potential upside of 30%+ on issue price.
Update: Care listed at Rs. 940 and touched an intraday high of 985 on 26 Dec 2012.