Subscribe to CARE Ratings IPO, says KRChoksey
KRChoksey has come out with its report on Credit Analysis & Research (CARE Ratings) IPO. The research firm expects 15% listing gains on the issue from upper band. One can subscribe to the issue with medium term investment objective, says KRChoksey.
December 05, 2012 / 12:51 IST
KRChoksey has come out with its report on Credit Analysis & Research (CARE Ratings) IPO. The research firm expects 15% listing gains on the issue from upper band. One can subscribe to the issue with medium term investment objective, says KRChoksey.
CARE Ratings grew rating revenues 38.7% CAGR outpacing peers (Crisil and ICRA) over FY08-FY12. We believe enhancing analytical capabilities & product portfolio, customer relationship focus, favorable regulatory developments and expanding industry research coverage helped to show strong growth in rating business in last few years. The company has added many income generating pool of products such as SME rating, MSE rating, Edu-grade, Equi-grade, Real Estate and market linked debenture valuation etc. CARE has strengthened its position in IPO grading market by capturing ~ 49.4% market share.Also Read: SME IPO: Veto Switchgears subscribed 70% on Day 2The Planning commission has estimated Rs40 lacs crore infrastructures spending in 12th five year plan, out of that 50% would come from private sector. This will create huge demand for debt capital to support infrastructure funding which in turn require rating services. We believe CARE Rating business is well positioned to reaping benefits from long term business opportunity from bond market development and increasing private sector debt capital requirement in infrastructure sector.CARE rating has been consistently generating superior PBT margins in last few years. The company has delivered 72.6% PBT margin in FY12, significantly higher than ICRA (38%) and CRISIL (39.6%). 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.The Company has expanded its footprint outside India in rating business, as well as in the provision of technical services to other rating agencies. CARE ratings is adopting joint venture route with local credit rating agency for entering various markets. We believe experience and knowledge in India favorably positions CARE ratings to continue to explore opportunities in other developing markets, either directly, through joint venture and partnerships, or by acquisition. Further, the company may explore opportunities to open offices in other cities in India.Valuation & Outlook: Fastest growing rating agency, huge long term growth opportunity driven by higher private sector infrastructure spending, favorable regulatory developments & development of bond market, superior margins & return ratios and diversifying products & geographies are key value drivers for CARE Ratings in our view. CARE Ratings issue is quoted 21.4x FY13 annualized earnings. Rating business are traded at 35-37x in the market, we believe strong growth, better margins, superior return ratios and likely diversification should command valuation multiple closer to peers valuation. Hence we recommend subscribe to the issue with medium term investment objective. We also expect 15% listing gains on the issue from upper band.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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