CARE may grow 15-17%, better margins: Angel Broking

Vaibhav Agrawal of Angel Broking, says that he expect CARE to give an upside of 10-12 percent going forward and the stock at Rs 900, is trading at similar valuations on a trailing basis in PE terms according to ICRA. He also says that CARE has better margins compared to its peers.

Also read: CARE debuts on bourses at 25% premium over issue price

Below is the edited transcript of his interview to CNBC-TV18.

Q: What is your view on CARE at Rs 900?

A: CARE is close to our fair value estimate for the stock. At Rs 900, it is trading at approximately similar valuations on a trailing basis in PE terms to ICRA, which is more or less a fair level. From these levels, we expect the stock to give an upside of 10-12 percent going forward.

Q: CARE did about Rs 40 in FY12. What is your expectation from FY13 in terms of what they can do on the earnings parameter?

A: We expect earnings to be around Rs 44-45. Although their volume growth in terms of the amount of debt they have retained they should continue to grow in line with the credit growth at around 15-17 percent but realizations to an extent would come down because a lot of the initial ratings exercise has already been done in the past years and now it is more of the maintenance work that is coming in.

Secondly, at the same time their margins are very high as compared to their peers. There is some downward bias to their margins as well because of which we expect earnings growth to be lower than the volume growth. We expect earnings growth to be around 10-12 percent.

Q: Where do you think the margins will gravitate to over the next year?

A: Margins in the first half will be bit lower than second half margins, there might be some normalization in the second half but on a year to year basis we would expect around 300 to 400 basis points lower margins for CARE. Even then they could be almost 20 percentages points higher than their peers. So, some downward bias may be seen.

Q: At above Rs 900 will you buy or avoid this stock?

A: It will be hold at current levels. In the long-term one can expect an upside of 10-12 percent earnings growth because in PE terms at current levels it is close to ICRA which is where we believe it should be round about the trading. The discount to Crisil would persist to an extent.