Buy CARE; target of Rs 1452: Edelweiss

Edelweis's research report on CARE

CARE’s revenue jump of 3.5% YoY in Q2FY17 belied our estimate by 6.0% due to bunching up of surveillance income in Q1FY17. However, EBIDTA and PAT surged 7.3% and 14.2% YoY, 1% and 2% ahead of estimates, respectively. Following the 36% and 26% YoY jump in volume of corporate debt and bank loan ratings, respectively, CARE’s H1FY17 sales grew 9.1% versus 8.4% and 5.9% for ICRA and CRISIL, respectively. With anticipated pick up in manufacturing, uptick in corporate bond market, consumption and marginal pick up in utilisation in industrials, management estimates H2FY17 sales growth to be superior than H1FY17. Ergo, we forecast 13% and 19% sales and PAT CAGR coupled with 517bps RoCE expansion to 51.7% over FY16-18. Maintain ‘BUY’ with INR 1,452 (25x FY18E operating EPS) TP.

With outperformance in H1FY17 and estimated pick up in manufacturing, we estimate 13% and 19% sales and PAT CAGR coupled with 517bps RoCE expansion to 51.7% over FY16-18. We maintain ‘BUY’ with TP of INR 1,452, based on 25x FY18E operating EPS, adjusting for cash. The stock currently trades at 27.6x and 23.9x FY17E and FY18E EPS, respectively.