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Akshita is an equity research analyst working with a US Research firm and an aspiring CFA charter. With a keen interest in financial modeling and valuation, she prepares exemplary-detailed research reports.

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Contributor since: 2022







Equity Research: Care Ratings Ltd

A full-service rating organization that provides a variety of rating and grading services across industries is Credit Analysis & Research Ltd. (CARE). In less than 30 years, CARE, which was founded in April 1993 and was supported by several banks and financial organizations, has grown to become the second-largest credit rating agency in India in terms of rating income. Additionally, CARE Ratings has emerged as the industry leader in several rating areas, including those for banks, sub-sovereigns, and IPO grading. Bank loan ratings, bond ratings, and SME ratings make up the majority of the company's revenue.

Care Ratings Ltd


A full-service rating organization that provides a variety of rating and grading services across industries is Credit Analysis & Research Ltd. (CARE). In less than 30 years, CARE, which was founded in April 1993 and was supported by several banks and financial organizations, has grown to become the second-largest credit rating agency in India in terms of rating income. Additionally, CARE Ratings has emerged as the industry leader in several rating areas, including those for banks, sub-sovereigns, and IPO grading. Bank loan ratings, bond ratings, and SME ratings make up the majority of the company's revenue.

Financial sector rating services provided by the company cover banks, mutual funds, capital protection-oriented schemes, insurance, NBFCs, securitization, and housing finance companies. Public finance rating services cover ratings of state government entities and urban local bodies, as well as project financing, infrastructure financing, and recovery rating services. Additionally, it provides grading services for educational institutions, initial public offerings (IPOs), industrial training institutes, construction firms, shipyards, maritime training facilities, renewable energy service firms, system integrators, microfinance institutions, and energy service firms, as well as equity research and grading services, real estate project star and REIT rating services.

The registered office of CARE is in Mumbai and its regional offices are in Ahmedabad, Bangalore, Chennai, Hyderabad, Jaipur, Kolkata, New Delhi, Pune, Coimbatore, and Male in the Republic of the Maldives. CARE Ratings has been cultivating international chances and making excursions in many formats to broaden the reach of its operations.



“While the Indian economy has been recording healthy growth, there are concerns for the external sector. With the global economy slowing down, India’s economy will definitely feel the pain. At this crucial juncture, the critical aspect would be for the domestic demand revival to be sustained. With capacity utilization levels improving, the private sector’s intent to invest has improved. Hence, our initial ratings business continued to witness good growth from the bank loan rating as well as the capital market segments. We could expect a gradual rise in private investment in the coming quarters, even while the global and domestic economic uncertainties will prevent a dramatic turnaround, said Mehul Pandya, MD & CEO, CARE Ratings Ltd.”


The Indian economy has made resilient progress in FY23, despite the drag from the global spillovers. The economy is expected to grow by 7% in FY23 as per the first advance estimate. High-frequency economic indicators, like petroleum consumption, railway passenger traffic, GST Collections, e-way bills, and industrial production, continue to reflect improvement. However, with the global economy slowing, the export sector is showing weakness. Inflation has started to moderate, though core CPI inflation continues to remain sticky. As a result of moderation in CPI inflation, RBI moderated the policy rate hike to 25 bps in December from 50 bps rate hikes in the previous meetings. 

Fundraising by businesses showed mixed performance in the first nine months of this fiscal year. Corporate bond issuances during April-December 2022 stood at Rs 5.7 lakh crore, higher by 20.8% compared to the corresponding period of the previous year. However, during the same period, issuances of commercial paper stood at Rs 10.5 lakh crore, 36.9% lower compared to the corresponding period of the previous year. Gross bank credit continued to record healthy growth in the current fiscal. Bank credit grew by 9% in November 2022, when compared with March 2022. In the same period last year, credit growth was muted at 1.9%. Credit to industry grew by 4.4% in November 2022 when compared with March 2022, as against the de-growth of 0.7% in the corresponding period of the previous year.


Q3FY23 Result Update

CARE Ratings’ standalone income from operations was up by 12% to Rs. 54.55 crores in Q3FY23, compared with Rs. 48.65 crores in the corresponding quarter of the previous year. Total income was up by 18% to Rs.65.58 crore in Q3FY23, compared with Rs. 55.45 crores in Q3FY22. Total expenses have increased by 8% to Rs. 38.30 crores in Q3FY23, compared with Rs 35.60 crore in Q3FY22. Operating profit increased by 49% to Rs. 22.25 crore in Q3FY23 from Rs. 14.93 crores in Q3FY22. Net profit increased by 44% to Rs. 21.40 crore in Q3FY23 from Rs. 14.90 crores in Q3FY22. Operating profit margin and net profit margin were 41% and 33% respectively in Q3FY23, which reflected good growth compared to the corresponding quarter of the previous year.

Income from operations was up by 13% to Rs. 180.79 crores in 9MFY23, compared with Rs. 159.73 crores in 9MFY22. The Bank loan rating segment led this growth, with sustained momentum in the initial rating business. Total income was up by 15% to Rs.207.77 crore in 9MFY23, compared with Rs. 180.70 crores in 9M FY22. Total expenses have decreased by 3% to Rs. 104.78 crores in 9MFY23, compared with Rs 107.90 crore in 9MFY22. Operating profit increased by 50% to Rs. 85.96 crores in 9MFY23 from Rs. 57.25 crores in 9MFY22. Net profit increased by 40% to Rs. 77.95 crores in 9MFY23 from Rs. 55.55 crores in 9MFY22. Operating profit margin and net profit margin were 48% and 38% respectively in 9MFY23, which reflected good growth compared to the corresponding 9 months of the previous year. The Board of Directors has declared an interim dividend of Rs.10/- per share (of Rs.10/- face value per share) for the third quarter of FY23.


  • Oligopolistic market structure in the rating business prevalent in India, favorable regulatory regime:

CARE operates in an oligopolistic market structure, which benefits the business. The firm only has three major competitors (CRISIL, ICRA, and CARE) and four additional players, but it nevertheless has a sizable market share. The amount of borrowing that businesses take out from banks is directly correlated with how well their businesses perform. The need for ratings would increase as borrowings increased, which would increase demand for the company's services and goods. According to management, the volume expansion was a result of numerous structural adjustments. For the issuing of bonds, 3 bps for monitoring, and 4 bps for bank ratings, CARE typically levies fees of 10 bps each.

  • Government capex could drive higher bond issuance:

The finance minister significantly increased government spending in the FY23 budget as India began to recover from the COVID-19 pandemic. Over time, this will encourage delayed private investments. In its budget for 2022–23, the government boosted capital expenditures (capex) by 24.47% over the previous year's budget, bringing it to Rs 7.5 lakh crore (vs. the revised projection for 2021–22 at Rs 6.02 lakh crore), or about 2.9% of GDP. By enhancing connectivity and addressing logistical and supply-chain issues, the higher expenditure would help to increase economic activity.

Budgeted at Rs 10.67 lakh crore, or 27% more than the RE of 2021–22 at Rs 8.40 lakh crore, effective capital expenditure for FY23 includes grants in aid for the creation of capital assets (including MNREGA works). Higher bond issuance is likely to result from this. Given that it is the final budget of the present administration, the government could continue to prioritize capital expenditures even in the FY24 Union Budget.

  • Recent RBI norms could lead to an increase in NPA:

For non-banking financing organizations, the RBI's clarification on non-performing advances (NPA) accounting is projected to increase NPAs by about one-third (NBFCs). An account is often classified as stage 3 by NBFCs when payment is more than 90 days past due. However, the account is withdrawn from NPA classification and classed as a standard asset, even though it still falls under the overdue category, if the borrower makes a partial payment so that the total amount owed is less than three installments. However, according to an explanation from the RBI, a stage 3 asset won't become standard until all past dues and arrears—including interest—have been paid.

The RBI circular further specifies that daily stamping of accounts, as opposed to monthly or quarterly stamping, should be used to track the number of days that accounts are past due. Once more, this would cause accounts to recognize NPAs at a faster rate. This might result in more debts being restructured, which would be good for CRAs.

  • Higher scrutiny by banks while lending:

Overall NPA levels were improving after a substantial rise in corporate-led NPAs and the ensuing write-offs. Banks are becoming more cautious when making loans without a rating assessment. The Reserve Bank of India (RBI) recently announced that banks will not take into account rating agencies' assessments of bank loans when calculating their capital requirements. This is good for rating agencies in the long run and will probably result in more business in the years to come.

  • Bank credit growth improving:

According to the RBI data, credit growth has begun picking up after stagnating until 2021 as a result of COVID-19 and significant corporations' deleveraging of their balance sheets. Credit expansion would boost demand for ratings, which would be advantageous for companies like CARE. According to the most recent data from the RBI, non-food bank credit grew by 17.6% YoY in Nov'22, significantly higher than the 7.1% level from a year earlier, despite a rise in the industry's credit offtake. From 3.4% in the same month last year to 13.1% on November 22, according to the RBI, lending growth to the industry increased. With an increased hunger for development and an enhanced capital position, banks should be able to maintain their current success trajectory.

  • Boost for private participation in the bond market:

The SEBI stated numerous actions that were put into action this year to help extend and deepen the bond market, which has resulted in a development in the private sector as well. Since January 2023, corporations will be authorized to issue bonds with a face value of Rs 1 lakh, down from an average of 90% of bonds that entered the market through private placement over the past few years. This will aid in bringing regular investors and the bond market closer together. While the development of the bond market must be considered, SEBI is striving to lower the starting price of each bond and the value of private placements to increase the participation of retail investors. The bond market will grow in tandem with the expansion of corporate engagement, which will also encourage the opening up of new participation opportunities for institutions. This might encourage corporates to issue more bonds.

  • Geographical diversification and new ventures to de-risk its revenues to some extent:

Three subsidiaries and one joint venture belong to Care Ratings. Outside of India, there are two subsidiaries—one in Nepal and the other in Mauritius, an African nation. To increase its top line, its global diversification will aid in acquiring market share. Its advisory research and training team conducts classroom-style training where they recruit participants and impart capital market knowledge to them. The life insurance company in Nepal is a joint venture with the Vishal group.


  • Rate hikes by RBI could result in a slow-down in borrowings which would be unfavorable for CARE

If the RBI does not stop raising repo rates, interest rates may increase even further. A rate increase is always a worry because fewer investors are willing to borrow.

  • Competition from new players could hurt growth in revenues

In this market, there are already three well-known firms. As a result, while it is a benefit, it also poses a threat since under this type of market structure, businesses typically tend to be price takers and must contend with fierce competition. The market leader is CRISIL. Despite being quite small, four additional businesses only serve to worsen the issue (India Ratings, Brickworks, Acuite & Infomerics).

  • An economic slowdown could reduce business volumes

The number of credit ratings and a country's economic development is closely related. In times of slowness, total volumes may suffer, lowering the company's potential earnings.

  • An increased shift of borrowers from banks to MFs

The high increase in resources going to mutual funds (MFs) indicates that India's habit of using financial savings has changed significantly. This opens up a lot of room for possible borrower migration from banks to mutual funds.


After Crisil, CARE ratings is the second-largest credit rating company in India. The COVID-19 outbreak caused business disruptions and a decline in rated volumes. However, the economy is once again headed toward recovery. Businesses have revealed large capital expenditure intentions, while the government has revealed a 25% rise in capital expenditures for 2022–2023. Along with the economy, the need for credit ratings is anticipated to increase. In the next five years, it's anticipated that initiatives like the PLI plan and improved company accessibility will enhance capital expenditure. The long-term value proposition of CRAs appears to be unaffected given that bank lending is anticipated to grow over the next five years. Given that it takes time to build up the business and relationships, revenue growth is guaranteed (though the rate may change), and margins are good in a low capital intensity business, the stock's current valuation is not demanding.

After the instability in the top management in 2021, the company is back to the right management strategy. Even with foreign promoters owning shares in the other two competitors, there remains a significant valuation differential between the two rivals. On September 30, 2022, CARE will also have cash and cash equivalents worth Rs. 187 per share (30% of its current market price). In FY22–FY25E, we anticipate CARE's revenue to expand at a 15% CAGR, driven by an increase in the number of debt-rated loans and operating efficiency.








I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure:

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Stocx Research Club). I have no business relationship with any company whose stock is mentioned in this article.

Disclosure legality:

I am not a SEBI Registered individual/entity and the above research article is only for educational purpose and is never intended as trading/investment advice.


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