Recommendations from Ratings Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

CARE RATINGS LIMITED : CREATING LARGER FOOTPRINTS

HERE IS WHY
✓ Credit rating agencies to play a crucial role in the coming years
✓ An ambitious global expansion programme to trigger the company’s growth

The credit rating industry has benefited from an upbeat expansion in gross fixed capital formation at 9 per cent year-on-year (YoY). This has contributed to better-thanexpected growth in both bank credit and bond issuances in FY24, with each segment building on a strong base from the previous year. Corporate bond issuances reached ₹10.2 lakh crore in FY24, marking a 19 per cent YoY increase, while commercial paper issuances held steady at ₹13.8 lakh crore, matching last year’s levels. To become the world’s third-largest economy by fiscal 2030-31, the nation requires significant development, which will fuel the growth of companies and businesses in India. In this context, credit rating agencies will play a crucial role in evaluating these entities. Accordingly, for this issue of our magazine, our recommendation is CARE Ratings, a leading credit rating agency of India covering various rating segments such as manufacturing, infrastructure, financial sector and non-financial services. It offers a wide range of credit rating services to help corporates raise capital and investors make informed decisions based on credit risk and expectations.

In Q2FY25, on a consolidated basis, the company’s revenue increased by 21.70 per cent YoY to ₹117.37 crore compared to ₹96.44 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 48.72 per cent. The PBIDT excluding other income increased by 32.95 per cent to ₹55.72 crore YoY as compared to ₹41.91 crore from the previous year’s same quarter, while sequentially increasing by 155.33 per cent. The net profit stood at ₹46.88 crore compared to ₹35.74 crore, a YoY increase of 31.18 per cent, while sequentially increasing by 119.22 per cent from ₹21.38 crore.

The company has been improving its rating operations and leveraging technology to do so. In FY24, CARE Ratings embarked on a partnership with a technology service provider to build a rating platform by using cutting-edge secured technology and leveraging machine learning (ML) and artificial intelligence (AI). As part of the business transformation programme, the company has implemented enterprise cloud-based solutions for its financial management.

The foundations laid in FY24 have already begun to bear fruit and the company has declared strong results for Q2FY24, reflecting efficient management and solid performance across its business segments. The company recently announced its ambitious global expansion plans, positioning itself as the first Indian rating agency to enter the sovereign and global scale ratings market. Through the launch of CareEdge Global IFSC Ltd., CARE Ratings Limited will now provide ratings for 39 countries, expanding its footprint across key international markets.

Its subsidiaries, CareEdge Africa and CareEdge Nepal have reported solid business growth, while CareEdge ESG issued its first rating to promote sustainability initiatives. Additionally, CareEdge Analytics and CareEdge Advisory have reported improved performance, contributing to the company’s diversified growth strategy. The company is currently trading at a PE of 36.9 times as against the industry PE of 44.1 times and higher than its three-year median PE of 23.4 times. Taking into account the company’s business potential, we recommend BUY.