Subscribe to CARE IPO, says IIFL

IIFL has come out with its report on CARE IPO. According to the research firm, this IPO is a pure offer for sale by existing shareholders viz IDBI Bank, Canara Bank, SBI, Federal Bank and ING Vysya Bank among others. Therefore, CARE will not receive any proceeds from the issue but listing benefits.

CARE is the second largest rating company in India by rating turnover. It offers a wide range of rating and grading services across a diverse range of instruments and industries. Since incorporation in April 1993, CARE has completed 19,058 rating assignments and has rated Rs44tn of debt as of Sept 30, 2012. Presently, it has rating relationships with 4,644 clients. CARE has strong brand recognition and credibility in the ratings market gained through years of experience. Fees from rating of debt instruments, bank loans and facilities and deposit obligations form bulk of revenues. In recent years, CARE has expanded its rating product portfolio to include SME/MSE rating, Edu-grade (educational institution rating), Equi-grade (equity research company rating), Real Estate (project rating) and market linked debenture valuation IPO - Offer for Sale
This IPO is a pure offer for sale by existing shareholders viz IDBI Bank, Canara Bank, SBI, Federal Bank and ING Vysya Bank among others. Therefore, CARE will not receive any proceeds from the issue but listing benefits. Also Read: Prabhudas Lilladher say subscribe to Bharti Infratel IPO Recommend 'Subscribe'

• CARE, one of the leading rating companies in India, is a proxy play on economic growth. It is likely to materially benefit from rising secular demand for rating services from corporate and banks. Expansion of rating product portfolio would also support a strong revenue growth in the medium term.
• CARE is the most operationally efficient rating company earning significantly higher operating margin than listed peers (65-70% v/s 30-33% for peers during FY12). Superior profitability is underpinned by high employee productivity and a relatively low-cost resource base.
• Though competitive dynamics may sober margin going ahead, healthy earnings growth could still continue driven by strong headline growth.
• The top end of the price band values the company at 21.5x annualized H1 FY13 earnings. This is significantly cheaper than extant valuation of CRISIL (33x annualized 9M CY12 earnings) and ICRA (31x annualized H1 FY13 earnings).

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