Dec 07, 2012, 03.18 PM IST
CARE’s offer at the lower end of the price band (700) itself discounts its FY12 EPS and Book Value 17.3 times and 5.3 times respectively. As compared to CRISIL and ICRA, CARE may perhaps look cheap, says V S Fernando.
By V S Fernando
In the initial stages the rating agencies faced several challenges as the corporate debt market in India was nascent. In 1992 credit rating became mandatory for the issuance of debt instruments with maturity of 18 months and above. Subsequently, the RBI guidelines made rating mandatory for issuance of commercial paper. RBI also made rating of public deposit schemes mandatory for NBFCs. Since then credit rating has made rapid strides in terms of the number and value of instruments.
At end of fiscal 2012 CARE was reportedly the second largest rating company in India in terms of rating revenue. Besides offering a wide range of rating and grading services across a diverse range of instruments and industries, CARE also provides general and customized industry research reports. Since incorporation in April 1993, the company claims to have completed 19,058 rating assignments and have rated Rs. 44,03,603 cr of debt and had rating relationships with 4,644 clients as of September 30, 2012.
CARE does not have a perceivable promoter. It is being run as a professionally managed company with a Board of Directors comprising a majority of independent directors. It has about 30 shareholders who include domestic banks and financial institutions, such as IDBI Bank (25.79%), Canara Bank (22.81%), SBI (9.61%) and IL&FS (8.99%). The shareholding of the above four will be reduced from 67.2% to around 45% post-offer.
Track & Prospects
Demand for rating services is driven by overall capital mobilization in the economy particularly from the debt markets (corporate bonds and commercial paper or other market linked short term instruments). Since rating service industry prospects largely depend on economic growth, given the current scenario, CARE may find it difficult to maintain its recent revenue growth and profit margin.
For the selling shareholders who have already earned fabulous dividend returns the current offer of sale is indeed a great bonanza. But, will the investors in the present IPO get such returns in the years to come? Well, if future return is likely to be as attractive as the past, if not more, why should the existing major shareholders dilute their stake?
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