H2 will be better than H1; higher credit growth a plus:CARE

Sonia: If you can take us through the quarter gone by, what has led to the better performance this time?

A: Yes, we had a good quarter. The CARE profile is a little better if you look at our modified CARE rate ratio which is good. I think that shows though credit growth has not been that good but because of our focus on catering to our existing clients, go deeper into providing some other services to our clients. This has resulted in around 14 percent increase over last quarter.

In fact you should look at our business from year-to-date, so six months ended September 2014 our numbers are up as far as operating income is concerned. In total income, you will find 37 percent growth in Q2 but if you look at six months numbers, we are up at around 27.6 percent. Expenditure though grew because there was one extraordinary expense and additional depreciation charge because of change in company laws on depreciation of Rs 6-9 lakh that amounted to a growth of around 31 percent but even if you don’t take this extra charge, our expenditure has grown at around 26 percent during the half year against income growth of 27.6 percent, that is why our margins are a little better than the last half year.

Latha: What is going right? First give us a word on the jargon itself, what do you mean by surveillance income, that seems to have done very well and secondly, are there more people in the debt market asking you to rate simply because interest rates are headed lower?

A: Surveillance income is the income on those accounts which we have rated last year and we keep those under surveillance. If they are accepted and both Sebi and RBI make it obligatory on rating agencies to keep the investors alive of the current credit profile of a company, so a company which gets rating, it accepts it and uses a rating, has to keep the rating reviewed by rating agencies all the time.

Latha: For how long?

A: Till they are paid and we rate some of the loans which are almost perennial, we rate working capital loans, we rate fixed report, we rate commercial paper which are almost perennial.

Latha: So this is carry on business?

A: Yes, this is annuity business.

Latha: What about the general increase in the number of people who are asking for the rating simply because now there is some improvement in the CP and CD markets?

A: Yes, I think capital market is not that substantial change as of now but we have added 761 new clients during Q2 FY15 so that shows that though credit growth is very bad, you know that corporate credit growth numbers for September are negative. So whatever growth is happening in the segment is basically in the retail segment so both services and corporates are down. But in this tough scenario, we have done well but certainly from the higher modified credit ratio you get the message that credit outlook is positive. So it is only a matter of time when investment cycle starts coming in.

Sonia: Can you tell us about the volume of debt that went up about 15 percent this quarter? Do you think you can replicate this in the second half of the year, what could the numbers be?

A: It was more so in bank loan ratings because though credit growth in corporate sector has not grown up but there are existing clients who go for enhancement working capital investment, there are some unrated clients which come to the industry that is why this kind of growth in the bank loan segment in volumes was there. We hope that if investment cycle improves, things should be better than this.

Latha: You signed an MoU with banks for the MSME segment?

A: Yes, we are a very small rating agency as far as MSEs are concerned because our way of doing MSE ratings is much different from what industry adopts. We do everything in-house, we don’t outsource this business from anyone else and that requires a lot of logistics all over the place and we are trying to build that so while we have only 13 offices, but there are around 70 locations where our clients have access to our people in 70 locations so you have to build this, maybe we go to 30-40 more locations by the year end and reach SME clusters in every nook and corner of the country and we will do better. That is one reason why you find our staff cost has gone up because we are making these people available at the SME clusters.

Latha: Second half revenue could be higher you think than the first half?

A: I think you said right that our March quarter - annual results starts coming in somewhere in the month of July-August-September so virtually Q1 is not good but then Q2-Q3-Q4 are much better quarters for us. So by that logic you can deduce that H2 numbers should be better than H1 numbers and I think we have established that all the time.