CARE Ratings Initial (Jainam)

Jainam Share Consultant Pvt Ltd Sector : RATINGS
Initiating Coverage | Ratings
21 Jan 2019
Darshan Jain - Research Trainee (darshan12330@gmail.com); 0261-6725518
Investors are advised to refer through important disclosures made at the last page of the
Research Report.
Jainam Share Consultant research is available on www.jainam.in
01-11-2018 1
Index
A. Company Overview
1. About……………………………………………………….…………….…….3
2. Investment Rationale……………………………………….…………………4
3. Risk………………………………………………….………………………….5
B. Industry Overview
1. Global Outlook………… ……………………………………………..………………………………….6
.
2. Indian Outlook………… ………………………………………………………………………..…….…..7

.
C. Business of the Company

1. Subsidiary & Associate…………………………………………………….… 13 .
2. Milestone………….…..…………………………… ………………………...14
.
3. Top Shareholders…………………………………..…………………………15
4. Management………………………………………………………………….16
D. Financial Outlook
1. Balance Sheet……………………………….……………….………………..17
2. Profit & Loss…………………………………… ………… ………………….18
. .
3. Cash Flow Statement…………………………………………………………19

4. Ratio………………………………………..… ………………………………19
.
E. Analysis
1. Peer Analysis………………………………………………………………….20
2. Valuation………………………………………………………………………22
F. Conclusion
1. Recommendation…………………………………….……………………… .25 .
2. Sources……………………………………………….………………………..26
3. Full Form & Glossary………………………………………………………….27
4. Report Gallery………………………………………………………………….28
5. Disclaimer……………………………………………………………………..29
01-11-2018 2
Company Overview
About
CARE Ratings Ltd. Latest Date 21-JAN-19

Credit Analysis & Research Ltd (CARE) is second Latest Price (Rs) 1014.50
largest rating company in India which caters 30%
52 Week High (Rs) 1440.00
of the rating market share. Rating business
accounts for around 97% of the total revenue of 52 Week Low (Rs) 950.00
the company as of now. CARE is the second
Face Value(Rs) 10.00
largest rating company in India in terms of rating
turnover. CARE has achieved a steady growth in Book Value(Rs) 184.93
its ratings business having rating relationships TTM Period 2018-09
with 15,098, increase in number of assignments
to 10,027 and cumulatively rated INR 16.47 lakh Price/BV(x) 5.94
Crore of debt. In the last few years, the company EV/TTM EBIDTA(x) 12.53
has begun expanding internationally and is
providing technical assistance service in Nepal EV/TTM Sales(x) 8.90
and Mauritius. In addition, CARE entered into Dividend Yield% 2.76
collaboration with four credit rating agencies
from emerging markets like in Brazil, Portugal, MCap/TTM Sales(x) 8.98
Malaysia, and South Africa each to provide ratings Market Cap (Rs in Cr. ) 2988.84
in those countries, set up ARC ratings in those
2959.67
countries. CARE also provides research services EV (Rs)
and it has been expanding its product portfolio to
Latest no. of shares (in Cr.) 2.95
include newer services.This company is exploring
opportunities to provide risk management
solutions and acquired 75.1% stake in Kalypto, a
firm providing risk management software
solutions in Nigeria. Commenced operations in
advisory services and launched CARE Kalypto
application in September 2013.
Exchange: BSE NSE Code:534804 Current Market Price: 1014.50 Date: 21-JAN-19
01-11-2018 3
Investment Rationale
 Increase in number of instruments rated:Overall increase in Debt rated jumped by 25% to

INR16480bn which involve around 10200 Instruments and 4079 new clients are added to the
client base this year which lead to more than 16000 clients and bank loan ratings showed a
growth of around 7.6% and 9.4% in long term debt rated and 175% growth in short term debt
rated due to higher volume of commercial papers.
 Saving on lease cost:Majority of the office spaces are owned by the company as this is the
major advantage to this company which adds to its profit margin as company does not need
external funding and can use his cash flows which will reduce his lease expense.
 Best EBIDTA margin in the industry – 63%: Care continues to focus on high margin
segment as the majority of the business is derived from the rating segment and this margin is
way higher than the industry leader who enjoys just 25% EBIDTA margin and this EBIDTA
margin of care ratings is expected to remain constant due to rising focus on low margin SME
business
 Debt free balance sheet of the company: Being the company with totally debt free balance
sheet shows that company have an investment edge over other companies and because at the
end of the year there is no interest payment due this will directly increase the company PAT
margin.
 Lower operating cost:Company enjoys the EBIDTA margin of 63% which is almost consistent
over the years. Operating income increased at a very lower rate of 0.48%. Qualified Personnel
is one of the major expense on the books of company.
 Asset light business:Business model of the care rating agency is asset light and as the
financials shows that over the years the company have reduced their fixed assets and focused
on increasing their investment over the years. Investment portion and the cash surplus
available is currently invested in government securities and mutual funds.
 Reduction in employees:Although the number of instruments and bank loan rating has been
increasing of the years but the number of employees have decrease in number from 627 to
569 employees in 2017
 Robust business model:Rating agencies are not legally liable for their opinion and can
change their ratings according to their convenience. If incase the Company default the rating
company will immediately reduce to default grade.
 Consistent tax rate:Financials of the company clearly shows that company has been
consistently paying his tax and is under the corporate tax bracket of 30% and there is no DTA
or DTL in the balance sheet of the company.
01-11-2018 4
Risk
 Default risk - Default by a client would hamper the credibility of the rating agency and affect
their brand faith in the market. It is mandatory by SEBI to disclose the default rates as this
would keep the rating agency under control of the watch guard.
 Concentration risk -CARE’s business is concentrated on rating revenues which account for
97% of consolidated revenues as compared to CRISIL and ICRA which are more diversified in
revenue profile. As a result macroeconomic concern would impact the growth of the company.
However, the company has taken small steps towards diversification with the acquisition of
Kalypto, a risk management company in Nigeria.
 Expansion risk- Company is expanding its business outside India and had already entered
Maldives, Nepal, Brazil, Portugal, Malaysia and South Africa through various route like joint
venture. As the company is entering into newer geographies and services may potentially
impact margins in the medium term. However management is comfortable sustaining
operating margins at 63% and plus.
 Reputational risk – Revenue of this business is largely dependent on brand recognition. CARE
has separated the analytic function and business development function, and analyst
compensation is not linked to business generated. CARE had moved to internal rating
committee where all ratings are assigned by internal rating companies.
 Human risk – Business of the company is largely dependent on the human resource and it is
considered as the major proportion of the company expense. The management should have
an expertise in recruiting new credit analyst who is responsible for giving ratings.
 Litigation risk – Company can come under legal supervision or litigation by the investors or
lenders to the company. Suppose Rating Company have assigned a particular corporate debt
in an investment grade category and the same company made default on their payment
obligations. Rating is just an opinion on the company debt issue and not any kind of
recommendation.
 Recovery risk- If in case the company is not able to recover its annual surveillance fees this
can hamper the cash flows of the company as the surveillance fees is recorded over the 12
months equally every year.
 Technology risk – significant security breaches and breakdown in the computer system and
network infrastructure can lead to the leakage of data and other important information about
the clients. CARE has in place kept a comprehensive IT policy.
 Information risk – Rating of the credit agency is totally dependent on the basis of
information provided by its clients and third parties. Inaccuracy of the information provided
by them can lead to the risk of giving an inappropriate rating which may impact CARE
reputation.
01-11-2018 5
Industry Overview
Global Outlook
Ratings in following segment may boost the revenue of the rating industry,if considered in India.
 SUBSIDARY RATING: It helps to manage the subsidiary risk. Today’s regulatory landscape is
Unpredictable. Multi-national companies with subsidiaries around the world need to
constantly monitor the changing regulatory environment in the event that it could affect
their ability to manage effectively their cash across the group and fund corporate
development activities.
 SWAP RISK RATINGS: A Swap Risk Rating is forward-looking opinion about the likelihood of
loss associated with a specific swap transaction.
A Swap Risk Rating takes into consideration the Ratings view on the terms of the Swap
Transaction including, without limitation, the creditworthiness of one or more reference or
underlying obligations or obligors (the "portfolio") above a certain specified threshold
percentage/amount, termination events, and potential recovery percentage or amount on
the Portfolio. All swap risk ratings take into consideration the creditworthiness of the
portfolio.
 MID-MARKET EVALUATION (MME): A Mid-Market Evaluation (MME) is forward-looking
opinion about the creditworthiness of a mid-market company relative to other mid-market
companies. It assesses a mid-market company's relative capacity and willingness to meet its
financial obligations as they come due.
 LOAN,RECOVERY RATINGS: A Loan Rating is the issue-specific rating assigned to a
borrower's syndicated loan. Loan Ratings are performed on syndicated loans comprised of
bank lenders and institutional investors. In the Loan Rating process, review Revolving Lines
of Credit, First Lien Term Loans, Second Lien Term Loans and Mezzanine Debt. Loan Ratings
are widely used in the loan market for credit risk assessment, pricing and structuring of
syndicated loans
01-11-2018 6
Indian Outlook
The fortune of the rating business is dependent of debt market and capital market of the country.
RBI has a mandatory guideline to rate the debt issuance and other commercial papers. Genesis of
the Credit Rating Industry in India, the first credit rating agency, Credit Rating and Information
Services of India Limited (“CRISIL”), was set up in 1987. Second largest rating agency, ICRA Limited
(then known as, Investment Information and Credit Rating Agency of India Limited) (“ICRA”) was
established in 1991 and a third agency, CARE, was established in 1993. Duff and Phelps Credit
Rating India (P) Limited which started its operations in 1996 was renamed Fitch Ratings India
Private Limited (Fitch) in 2001 and renamed again to India Ratings and Research Private Limited in
2012. Brickwork Ratings India Private Limited (Brickwork) began its rating business in 2008. SME
Rating Agency of India Limited (SMERA) also began its rating business in 2008. Performance of the
top line is directly proportional to performance of Indian debt market and economical condition.
As capital flows in international financial markets had shifted from the banking sector to capital
markets, credit rating had begun to make a market overseas. Credit ratings are in use of financial
market of most developed economies and several emerging countries as well. With demand rising
in foreign countries, the number of foreign based rating agencies had increased. Along with four
largest U.S raters, one other U.S, one British, two Canadian and three Japanese firms are listed
among the world’s most influential rating agencies by the financial times in its publication credit
rating-international.
01-11-2018 7
CARE RATINGS COMPANY PROFILE

GRADING AND
RATINGS
RESEARCH
Financial Public Infrastructur
Corporate Sector Finance e and MSME
-IPO
-Shipyard
-Banks
-Educational
-Credit Quality -Power institution
-Debt ratings
-Insurance -Roads -Maritime training
-Bank-loan
Ratings -State entities
-NBFC’s -Ports -Real estate project
-Issuer Ratings -Urban local
-Mutua funds -IDF -SME fundamentals
bodies
-corporate
Governance securitization -NSIC rating -Customized sector
Ratings
research
-SME rating
-CARE industry risk
metrics
-Economic research
reports
Fees structure
Initial 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
FD/Debentures/CP - 0.03% of the amount outstanding under the rated instrument subject to
a minimum of Rs.100,000.
Issuer Rating - 0.05% of the amount outstanding under the rated instrument subject to a
minimum of Rs.200,000.
01-11-2018 8
Credit Reports - Fees applicable will depend on the scope and coverage of each report and
can be obtained on specific request.
Revenue collection
Initial rating fees is collected in advance before the rating is assigned and CARE does not
carry the risk of non-payment by the clients. Rating revenue is Recognize on the basis of %
of completion method. Surveillance fees are recorded over the term of 12 months from the
date of rating assigned. Company follows the conservative approach, Fees in respect of
certain category of clients are Recognize only when there is a reasonable certainty of
ultimate collection. Income from sale of research report and subscription to information
services are recognize on an accrual basis. Certain regulatory controls have been Establish
to control the Debtors policy and ensure that reviews and surveillance are conducted in a
timely manner.
Rating services includes credit ratings for corporate, banks, bank loans, small and medium
enterprises (SME), credit analysis services, grading services and global analytical services.
Research – Research segments includes global research and analytical services, industry
reports, customized research assignments, subscription to data services, independent
equity research (IER)
Advisory and training –CRISIL provides advisory services and a comprehensive range of risk
management tools, analytics and solutions to financial institutions, banks and Corporate in
India.
01-11-2018 9
Focused business model – Care focus on large and medium sized enterprise and is
expecting a growth in the SME segment provide us positivity about the long term
fundamental prospects of the company and as the data suggest that care has been
consistently gaining market share over the last five years.
Rating procedure
01-11-2018 10
The broad evaluation criteria would be as under:

 Business fundamentals – Forecasting the long term fundamentals of the company and taking
into account the probabilities of change in fundamentals
 Financial fundamentals- Access the future cash generating capacity of the company and its
ability to meet debt Obligations, even in adverse conditions
 Management capability – Check the key managerial persons and their credibility and
reputation in the market.
 Due diligence – Check ownership pattern, organizational structure and past financial analysis
on audited accounts
 Channel pattern evaluation – SWOT analysis of channel partners and take feedback from
bankers, customers and site visit to gather ground-level information.
 Product study – Visit client manufacturing unit and study about its product and competitive
position of the clients.
 Validity of care credit ratings Short term rating letter have a validity period of 2
months .Long term rating letter have a validity period of 6 months. Care ratings are valid for
life of the instruments unless it is withdrawn. The rating may be upgraded, downgraded or
reaffirmed by the Rating Committee on periodic reviews, including annual surveillance.
 Limitations of credit ratings They do not evaluate the reasonableness of the issue price,
possibilities for capital gains or take into account the liquidity in the secondary market.
Ratings also do not take into account the risk of prepayment by issuer. Ratings neither take
into account investors’ risk appetite nor the suitability of a particular instrument to a
particular class of investors.
 Effect of implementation of new norms The implementation of Basel II standards by the
RBI resulted in large scale demand for credit ratings across sectors and geographies, which
was previously limited to a small group of clients. We are the leading credit rating agency in
India for IPO grading, having graded the largest number of IPO since the introduction of IPO
grading in India.
Tailwinds in this industry

 Dual ratings for commercial papers will help CARE ratings to grow its revenue.
 Basel III approach of liquidity guidelines will allow banks to invest up to 40% in bonds and
Commercial papers as against 10%.
 New NPA Under implementation of bankruptcy code has a specific role for rating agencies.
 Bond market is going for structural changes in upcoming future in Indian economy.
 Rating revenue in India is less then 1% of the entire credit market vs 5.6% in the US.
 New instruments such as REIT, infrastructure bonds,hybrid for insurance sector will help the
bond market development.
01-11-2018 11
Growth Drivers
 Growth by regulatory bodies Some of the measures are undertaken in the Union Budget
2018-19 for the development of corporate bond market. SEBI will also consider mandating,
beginning with large Corporate, to meet about one-fourth of their financing needs from the
bond market and to allow strong Regional Rural Banks to raise capital from the market to
enable them increase their credit to rural economy. Finance minister reduce the threshold
rating criteria and urged them to move from ‘AA’ to ‘A’ for investment eligibility.
 Growth in SME market Various states are exploring options to increase capital availability
and improve policy support to SMEs. The West Bengal government has signed pacts with BSE
and NSE to raise awareness among the State’s MSMEs to tap the capital market as an
alternative funding source.
 Growth in real estate sector The real estate sector has shown some pick up after the
implementation of RERA as has registered an average growth of 10% in Q1-FY19. Aggregate
bank deposit has grown at 7.6% yoy while the bank credit grew at 12.8% yoy in Apr-Jun’18.
This data suggest that there is an uptick in the construction activity.
 Growth in commercial papers In FY18, commercial paper showed a growth as Rs. 22.9 lakh
crore were raised, 32% higher than the issuances of Rs. 17.4 lakh crore in the previous year.
Corporate are more incline towards borrowing by commercial papers although the growth of
the corporate bond market was subdued but there has been a growth in commercial papers.
Benefits of Credit rating agency

 Credit rating agency gives a brief about the issuer’s credibility which will help investors in
making his investment decision. Higher the rating more the credibility of the issuer.
 Rating agencies keep a regular track on the companies which they have rated in the past and
post regular updates on his ratings so that investors can decide whether to stay invested in
the instrument or sell it.
 Higher the credit rating better the reliability of the issuer and it also gives assurance to the
investors about the safety of the instrument and less risk of bankruptcy.
 These rating agencies assigns rating symbol to the instruments which can be easily
understood. Instruments rated AAA ensures the highest safety, whereas instruments rated D
are in the category of default.
 Credit rating agencies provides an investor with different choice of instruments and the
choice totally depend on the risk appetite of the investor and on the basis of rating allotted
to different instruments.
 These rating agencies appoint professionals the conduct credit analysis on these companies
and rate them which save investors time and effort in analyzing the financial strength of the
company and can base his investment decision on the basis of research done by credit
analyst.
01-11-2018 12
Subsidiary & Associate
 CARE Risk Solutions Pvt. Ltd. ( Formerly known as CARE Kalypto ).

 Risk Technologies and Advisory Service Private Limited)-100%
 CARE Advisory Research and Training Limited - 78% Holding
 CARE Ratings (Africa) Private Limited – 100% Holding
 CARE Ratings Nepal Limited – 51% Holding
CARE Advisory Research and Training Limited (CART)

Advisory division - CART now offer Valuation, Business plan preparation, financial improvement
plan, bid process management, LIE services among other services.
Research division - During the year, CART undertook 9 industry research assignments for clients
to assist them in filing Draft Red Herring Prospectus.
Training division - During the year the company conducted 13 days of executive classroom
training on various topics which included customized training for a bank and an NBFC.
Care ratings (Africa) private ltd.
CRAF provides ratings for various instruments such as bonds, debentures, commercial paper,
bank deposits, structured finance and other debt instruments besides the bank facilities
including term loans, working capital limits, non-funded exposures etc.
CRAF has expanded its operations and assigned ratings to instruments in both the bond and
bank facilities domain aggregating to around MUR 20.0 billion (MUR 9.0 billion in FY17).
Care ratings Nepal ltd (CRNL)
CRNL is providing credit ratings and related services in the geography of Nepal. The rating
services of CRNL majorly include IPO grading, issuer rating and rating of debt instruments.
01-11-2018 13
New projects
 Launched grading of Industrial Training Institutes constituted under Directorate General

of Employment and Training (DGE&T).
 Launched India’s first securitization transaction backed by mortgage guarantee and also in
assigning rating to consumer durable organization.
 Also started rating partial guarantee bonds/co-guarantee structured bonds as well as
projects based on hybrid annuity model in road projects.
 Launched CARE Rating Tracker (CART), a platform which gives information
pertaining to 40,000 rated companies across more than 120 industries.
 CARE ratings in consultation with the ministry of Finance and other stakeholders
launched a new credit rating system, Expected Loss ratings (EL Ratings) for infrastructure
projects.
01-11-2018 14
Milestone
2003 ONWARDS
2005 to 2008
1997 to 2000
2009 to 2012
2001 to 2004
2013 ONWARDS
Source : CARE RATINGS LTD-WEBSITE
01-11-2018 15
Top Shareholders
Shareholders % Holding
Life Insurance Corporation of India 9.8%
CRISIL LIMITED 8.9%
Stichind Depositary Emerging Markets Equity Pool 3.8%
FRANKLIN TEMPLETON INVESTMENT FUNDS 2.6%
FRANKLIN TEMPLETON MUTUAL FUND 5.2%
THE PABRAI INVESTMENT FUND IV, LP 2.2%
DSP BLACKROCK MIDCAP FUND 2.6%
L AND T Mutual Fund Trustee ltd-L AND T TAX advantage ltd 3.3%
GOVERNMENT PENSION FUND GLOABAL LTD 2.9%
INDIA CAPITAL FUND LIMITED 2.5%
01-11-2018 16
Management
Name Designation About

 Mr. Suryakant Balkrishna Mainak, CA has
been Independent Director of Gloster Ltd.
since April 17, 2018.
 Mr. Mainak has served as Independent
Director at Capacit’e Infraprojects Limited
Chairman, since March 2018 and also serves as its
Mr. S. B. Mainak Independent Chairman.
Director  He served as the Managing Director at Life
Insurance Corporation of India since July 10,
2013 until March 28, 2016.
 Mr. Mainak served as the Chief of Investment
- Central Office and Head of Investments at
Life Insurance Corporation of India
 He worked as Executive Director of Indian
Overseas Bank between 2010-13.
 Shri A. K. Bansal is a Post Graduate in
Independent Agriculture from the renowned G B Pant
Mr. A. K. Bansal
Director Agriculture University
 He joined Union Bank of India as Agricultural
Field Officer at the age of 23 years in the year
1976
 She is a B.A. (Honours) Economics from Delhi
University and M.A. and M. Phil. from Delhi
School of Economics, Delhi University, and
Chief Financial Ph.D. from Bombay University.
Dr. Ashima Goyal
Officer  She has rich experience in the field of open
economy macroeconomics, international
finance, institutional and development
economics, in which she is widely published.
 He holds a Bachelor's degree in Mechanical
Engineering from VJTI, Mumbai and a Master
of Management Studies degree from
University of Bombay. He is a qualified
Chartered Financial Analyst and has also
cleared Level III of the CFA Program
Mr.Rajesh Managing
conducted by the CFA Institute, USA
Mokashi Director & CEO
 He has more than 27 years of experience in
finance, commerce and credit risk sectors. He
has been associated with OTIS Elevators
Company (India) Limited, DSP Financial
Consultants Limited and Kotak Mahindra
Finance Limited in the past
01-11-2018 17
Financial Information
Balance Sheet
(Fig in cr)
Particulars March-16 March-17 March-18
Assets
Non-current assets
Property, plant and equipment 55.35 52.65 51.09

Intangible Asset 0.25 0.35 1.16
Goodwill on Consolidation 7.95 7.95 7.95
Capital work in Progress 0.00 0.07 0.00
Financial assets 236.16 83.44 257.37
Other Assets 0.30 0.20 0.12
Current Assets
Financial Assets 226.38 436.38 338.70
Other Assets 9.25 3.97 2.22
Total Assets 535.64 585.01 658.61
Equity & Liabilities

Equity 469.68 520.03 596.83
Minority Interest 0.00 0.49 2.12
Non current liabilities
Provisions 5.65 4.00 4.73
Deferred tax Liabilities 10.40 11.43 5.32
Borrowings 0.00 0.00 0.00
Current Liabilities
Financial Liabilities 10.63 9.74 11.49
Other Current Liabilities 34.49 37.39 30.58
Provisions 4.79 1.93 4.27
Current Tax Liabilities 0.00 0.00 3.27
Total Equity & Liabilities 535.64 585.01 658.61
01-11-2018 18
Profit and Loss
Particular March-16 March-17 March-18

INCOME
Revenue From Operations 279.36 287.43 332.68
Other Income 8.68 33.67 25.46
Expenses
Employee benefits expense 75.63 72.60 88.90
Other expense 29.85 32.23 10.30
Depreciation and amortisation
4.17 3.39 3.14
expense
Profit before exceptional items and tax 178.39 212.48 233.07

Exceptional items - - -
Profit before tax 178.39 212.48 233.07
Tax expense 58.79 64.86 70.73
Net profit 119.60 147.61 162.33
Cash Flow Statement
Report Date (in Cr.) Mar-16 Mar-17 Mar-18

Cash from Operating Activity 106.37 118.99 138.33
Cash from Investing Activity -40.86 -21.99 -24.58
Cash from Financing Activity -66.23 -95.80 -98.65
Net Cash Flow -0.72 1.19 15.10
01-11-2018 19
Ratio
Performance Ratios 2016 2017 2018

ROA 14.85 15.74 14.95
ROE 31.49 31.85 29.30
ROCE 46.48 45.76 41.74
Valuation Ratios 2016 2017 2018

P/E (x) 22.92 33.06 21.96
EPS (x) 40.68 50.13 55.13
P/BV (x) 6.73 9.39 6.06
EV/EBITDA (x) 14.94 22.54 14.98
Du Point Analysis
01-11-2018 20
Peer Analysis
Topic CRISIL ICRA CARE
S&P owns 67.1% of Moody’s owns 50.1%

Majorly hold by
MAJOR the major of the major
mutual funds and
SHAREHOLDER’S shareholdings jn the shareholdings jn the
other FII’s
firm firm
62% of the CRISIL 70% of the ICRA

revenue comes from revenue comes from 97% of the CARE
REVENUE
its rating business its rating business revenue comes from
SEGMENTATION
and 30%from its and 20% from its info its rating business
research busines services
Total no of
No of instruments Total no of
instruments rated is
INSTRUMENTS RATED rated is 15000 in sme instruments rated is
10,273 in the SME
segment by CRISIL more than 4000
segment
Launched a new
ICRA had launched a Announces the
product called
credit rating scheme launch of certificate
NEW PRODUCTS Quantix to drive
for SME segment in courses in credit
growth in research
india management
business
Employee Cost Of Employee Cost Of Employee Cost Of

EMPLOYMENT COST
CRISIL is around 51% ICRA is around 47% CARE is around 41%
01-11-2018 21
Particulars CRISIL ICRA CARE
Current price 1664.5 3186.75 1014.50
52 week high /low 2020.85 / 1259.00 4019.00 / 3002.00 1440.00 / 950.00
Book value 150.14 678.69 196.65
Stock P/E 34.78 29.11 19.48
Dividend yield 1.67 0.97 5.41
ROCE 41.16 24.85 41.78
ROE 28.93 15.95 29.02
QUICK RATIO 1.39 2.79 1.40
CURRENT RATIO 1.39 2.79 1.40
PEG ratio 5.60 2.16 2.14
Market cap 11999.04 3075.00 2997.19
Price to cash flow 41.18 49.98 21.00
Price to book 10.91 4.69 5.33
EV/EBITDA 21.89 16.83 13.05
face value 1 10 10
01-11-2018 22
Valuations
Management is expecting a growth rate in the range of 7% -10% during FY19
Scenario 1 assumptions:
 Assuming the company grows at a rate of 7% for next 3 years .
 Current P/E of 19.34 is assumed to estimate the M.cap.
PART 1 is based on 5 years and 3 years PAT margin.
SCENARIO 1 (PART 1) FY 21
5yrs avg PAT margin (%) 3yrs avg PAT margin (%)
sales 408 408
PAT margin 50.14% 47.74%
PAT 204.5 194.77
P/E ratio(x) 19.34 19.34
M.cap (cr) 3955 3767
No. Of shares 2.95 2.95
Reasonable price 1341 1277
PART 2 is based on 5 years and 3 years EBIDTA margin
SCENARIO 1(PART 2) FY 21
5yrs avg EBITDA margin 3yrs avg EBITDA margin
(%) (%)
sales 408 408
EBITDA margin 62.58% 63%
EBITDA 255 257
Ev/EBITDA 12.14 12.14
M.cap (cr) 3100 3120
No. Of shares 2.9459 2.9459
01-11-2018 23
Scenario 2 assumptions:
Assuming that a company grows at a rate of 10% for the next 3 years.
PART 1 is based on 5 years and 3 years PAT margin
SCENARIO 2 (PART 1) FY 21
5yrs avg PAT margin (%) 3yrs avg PAT margin (%)
sales 443 443
PAT margin 50.14% 47.74%
PAT 222.12 211.48
P/E ratio (x) 19.34 19.34
M.cap (cr) 4296 4090
PART 2 is based on 5 years and 3 years EBIDTA margin
SCENARIO 2(PART 2) FY 21
5yrs avg EBITDA margin 3yrs avg EBITDA margin
(%) (%)
sales 443.00 443.00
EBITDA margin 0.63 0.63
EBITDA 277.22 279.00
Ev/EBITDA 12.14 12.14
M.cap (cr) 3365.45 3387.06
Reasonable price 1142.42 1149.75
01-11-2018 24
DISCOUNTED CASHFLOW VALUATION

Following valuation is derived by assuming the growth of 10% for the next 5years and 8% growth
from 6-10 years and 2% after 10 years in the business.
Initial Cash Flow 136.14
Years 1-5 6-10

FCF Growth Rate 0.10 0.08
Discount Rate 0.12
Terminal Growth Rate 0.02
Shares Outstanding
(Crore) 2.95
Net Debt Level -281.95
PRESENT VALUE CALCULATIONS

YEAR FCF GROWTH PRESENT VALUE
1.00 149.76 10% 133.71
2.00 164.73 10% 131.33
3.00 181.21 10% 128.98
4.00 199.33 10% 126.68
5.00 219.26 10% 124.41
6.00 236.80 8% 119.97
7.00 255.75 8% 115.69
8.00 276.21 8% 111.56
9.00 298.30 8% 107.57
10.00 322.17 8% 103.73
FINAL CALCULATIONS
Terminal Year 329
PV of Year 1-10 Cash
1,204
Flows
Terminal Value 1,058
Total PV of Cash Flows 2,262
Number of Shares 3
DCF VALUE/SHARE (Rs) 862
01-11-2018 25
Conclusion
Recommendation
Credit Analysis & Research Ltd (CARE) is second largest rating company in India which caters 30%
of the rating market share. Rating business accounts for around 97% of the total revenue of the
company.
Rating industry in India has seen growth in past few years but still there are product gaps in certain
segments as compared to rating industry globally. There is room to introduce some rating
instruments like Subsidary rating, swap risk rating, mid market evaluation, which are currently
rated in major economies worldwide.
CARE ratings is definitely a company which have a high growth potential and is consistently
growing at a good rate as compared to its industry peers. Company is also expanding his global
reach by acquiring or investing in the globally recognize rating firms.
Care continues to focus on high margin segment as the majority of the business is derived from
the rating segment and this margin is way higher than the industry leader who enjoys just 25%
EBIDTA margin and this EBIDTA margin of care ratings is expected to remain constant due to rising
focus on low margin SME business
The OPM of the company is consistent around 63% over the years and ROE of the company is also
around 30% in the past recent years. Management is quite focused towards one business segment
and also willing to expand their client base.CARE is available at lower valuations as compare to its
industry peers.
We recommend our Investors to “BUY" the stock with potential upside of 36% with Horizon of 2.5
years.
01-11-2018 26
Sources
 Annual Report (CARE RATINGS Ltd.)

 Investor Presentation
 Ace Analyser
 BSE Ltd. - Website
 S&P RATINGS - Website
 CARE RATINGS - Website
Research Analyst Details:
Name Designation Email Id

Tejas Jariwala Research Head tejas.jariwala@jainam.in
Jimit Zaveri Sr. Research Analyst jimit.zaveri@jainam.biz
Vaishali Patel Sr. Research Analyst vaishalip.patel@jainam.biz
Karan Agarwal Assistant Research Analyst karan.agarwal@jainam.biz
Vandana Pareek Assistant Research Analyst vandana.pareek@jainam.biz
Riva Patel Assistant Research Analyst riva.patel@jainam.biz
Radhika Modi Assistant Research Analyst radhika.modi@jainam.biz
Shahrukh Nalbandh Sr. Research Executive shahrukh.nalbandh@jainam.biz
Drashti Patel Jr. Research Executive drashti.patel@jainam.biz
Dhruvish Bakshi Jr. Research Executive dhruvish.bakshi@jainam.biz
01-11-2018 27
Full Form & Glossary
Abbreviation Full Form

BV Book Value
CAGR Compound Annual Growth Rate
CAPEX Capital Expenditure
COGS Cost of Goods Sold
DPS Dividend Per Share
EBIT Earnings before interest and taxes
EBITDA Earnings before interest, tax, depreciation and amortization
EPS Earning Per Share
EV Enterprise Value
FY Financial Year
GP Gross Profit
HY Half Year
MCap Market capitalization
NAV Net Asset Value
NII Net Interest Income
NOI Net Operating Income
NOPAT Net Operating Profit after Tax
NPV Net Present Value
OCF Operating Cash Flow
OI Operating Income
P&L Profit & Loss
P/E Price/Earnings Ratio
PAT Profit After Tax
PATM Profit After Tax Margin
PBT Profit Before Tax
QOQ Quarter on Quarter
RE Retained Earning
ROA Return on Assets
ROCE Return on Capital Employed
ROE Return on Equity
ROI Return on Investment
ROIC Return on Invested Capital
RONA Return on Net Asset
TTM Trailing Twelve Month
WC Weighted Average Cost of Capital
YOY Year over Year
01-11-2018 28
Jainam Share Consultant Pvt Ltd Sector : Consumer Durable
Report Gallery
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KCP Tciexpress Hotels
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01-11-2018 29
Jainam Share Consultant Pvt Ltd Sector : Consumer Durable
Disclaimer
Research Analyst Details
Name: Darshan Jain Email Id: darshan12330@gmail.com Ph: +91 0261-6725518
Analyst ownership of the stock: No
Details of Associates: Not Applicable
Analyst Certification: The Analyst certify (ies) that the views expressed herein accurately reflect his (their)
personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or
will be directly or indirectly related to the specific recommendation(s) or views contained in this research report.
Disclaimer: www.jainam.in is the domain owned by Jainam Share Consultants Pvt. Ltd.
SEBI (Research Analyst) Regulations 2014, Registration No. INH000006448
The views expressed are based solely on information available publicly and believed to be true. Investors are advised
to independently evaluate the market conditions/risks involved before making any investment decision.
This report is for the personal information of the authorized recipient and does not construe to be any investment,
legal or taxation advice to you. This report should not be reproduced to any other person in any form. This document
is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment
decision. Jainam Share Consultants Pvt. Ltd. or any of its affiliates or employees shall not be in any way responsible for
any loss or damage that may arise to any person from any inadvertent error in the information contained in this
report. Neither Jainam Share Consultants Pvt. Ltd., nor its employees, agents nor representatives shall be liable for
any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that
may arise from or in connection with the use of the information. Jainam Share Consultants Pvt. Ltd. or any of its
affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter
pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular
purpose, and non-infringement.
The recipients of this report should rely on their own investigations. Jainam Share Consultants Pvt. Ltd. and/or its
affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this
report. Jainam Share Consultants Pvt. Ltd. has incorporated adequate disclosures in this document. This should,
however, not be treated as endorsement of the views expressed in the report. We submit that no material disciplinary
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Analysis.
01-11-2018 30

CARE Ratings Initial (Jainam)

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Jainam Share Consultant Pvt Ltd Sector : RATINGS

Initiating Coverage | Ratings

Darshan Jain - Research Trainee (darshan12330@gmail.com); 0261-6725518

2. Indian Outlook………… ………………………………………………………………………..…….…..7

C. Business of the Company

3. Cash Flow Statement…………………………………………………………19

CARE Ratings Ltd. Latest Date 21-JAN-19

 Increase in number of instruments rated:Overall increase in Debt rated jumped by 25% to

CARE RATINGS COMPANY PROFILE

The broad evaluation criteria would be as under:

Tailwinds in this industry

Benefits of Credit rating agency

Subsidiary & Associate

 CARE Risk Solutions Pvt. Ltd. ( Formerly known as CARE Kalypto ).

CARE Advisory Research and Training Limited (CART)

Care ratings (Africa) private ltd.

Care ratings Nepal ltd (CRNL)

 Launched grading of Industrial Training Institutes constituted under Directorate General

Name Designation About

Property, plant and equipment 55.35 52.65 51.09

Equity & Liabilities

Profit and Loss

Particular March-16 March-17 March-18

Profit before exceptional items and tax 178.39 212.48 233.07

Cash Flow Statement

Report Date (in Cr.) Mar-16 Mar-17 Mar-18

Performance Ratios 2016 2017 2018

Valuation Ratios 2016 2017 2018

Topic CRISIL ICRA CARE

S&P owns 67.1% of Moody’s owns 50.1%

62% of the CRISIL 70% of the ICRA

Employee Cost Of Employee Cost Of Employee Cost Of

Particulars CRISIL ICRA CARE

Current price 1664.5 3186.75 1014.50

52 week high /low 2020.85 / 1259.00 4019.00 / 3002.00 1440.00 / 950.00

Book value 150.14 678.69 196.65

Stock P/E 34.78 29.11 19.48

Dividend yield 1.67 0.97 5.41

ROCE 41.16 24.85 41.78

ROE 28.93 15.95 29.02

QUICK RATIO 1.39 2.79 1.40

CURRENT RATIO 1.39 2.79 1.40

PEG ratio 5.60 2.16 2.14

Market cap 11999.04 3075.00 2997.19

Price to cash flow 41.18 49.98 21.00

Price to book 10.91 4.69 5.33

EV/EBITDA 21.89 16.83 13.05

PART 1 is based on 5 years and 3 years PAT margin.

PAT margin 50.14% 47.74%

PAT 204.5 194.77

P/E ratio(x) 19.34 19.34

M.cap (cr) 3955 3767

No. Of shares 2.95 2.95

Reasonable price 1341 1277

PART 2 is based on 5 years and 3 years EBIDTA margin

PART 1 is based on 5 years and 3 years PAT margin

sales 443 443

PAT margin 50.14% 47.74%

PAT 222.12 211.48

P/E ratio (x) 19.34 19.34

M.cap (cr) 4296 4090

No. Of shares 2.95 2.95

Reasonable price 1456 1386