Centrum recommended hold rating on Credit Analysis And Research with a target price of Rs 1560 in its research report dated November 16, 2017.
Centrum's research report on Credit Analysis And Research
We retain Hold on Credit Analysis And Research (CARE) with TP at Rs1,560 (vs. earlier TP at Rs1,600). Q2’18 reported revenue was a tad higher to our estimates and follows the change in accounting policy towards surveillance related income recognition. Margins, though saw some moderation and we expect trend therein to continue. H2’18 promises to be better than H1’18 and is given the favourable regulatory framework its likely impact on the rating revenues for the credit rating agencies (CRA’s). CARE with its strong business model and respectable market share remains one of the key beneficiaries. While we remain positive on CARE, valuations at 22.4x FY19E EPS limit near-term upside.
We have tweaked our estimates for FY18E/ FY19E marginally and are now building in 14.5%/ 13.9% CAGR in revenues/ EBIDTA over FY17-19E. We continue to like CARE for its business model and the free cash flow yield. Valuations at 22.4x FY19E EPS however limit near term upside. Retain Hold with TP at Rs1,560 (valued at 25x FY19E EPS). In our earlier notes, we have argued for higher valuation multiples for CARE (discount gap with peers to narrow) and we expect the trend to continue as more signs of superior growth get visible. We continue to prefer CARE as a proxy play to revival in rating opportunities. Lower-than-expected volume growth/ price reduction are key risks.
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