CARE, which is among India's top-three rating companies by market share, is a pure play on the rating business with most of its core revenue generated from the rating segment
This is one analysis that doesn't seem to have worked to the tee.
Shares of CARE Ratings have dropped over 20% since its larger rival Crisil bought about an 8.9% strategic stake in the promoter-less rating firm for an estimated Rs 435 crore cash in June 2017.
The CARE Ratings stock, which had gained nearly 17% intra-day after Crisil's stake purchase news came out, eventually hit 52-week high of Rs 1,800 a piece on July 10 following speculation of a likely takeover by Crisil. However, the stock value dwindled since then as no material stake increase by Crisil happened and CARE posted a muted growth (FY15-17 revenue/profit after tax CAGR 4.4%/3.9%).
CARE stock closed at Rs 1,228.20 on April 25, 2018 on the BSE, valuing the ratings firm at Rs 3,618.3 crore. In the same period – June 2017 to now – Crisil shares have moved up from Rs 1,920-levels to Rs 1,950, valuing it at Rs 14,002.36The drop in CARE stock price has sparked off concerns that S&P Global Inc-controlled Crisil paid too much for a foothold in a competitor that is known to be strong in the bank loan rating (BLR) and bond market space. However, Crisil, which had bought over 26.2 lakh shares at nearly Rs 1,660/scrip in CARE in a block deal from Canara Bank last year, has reaffirmed its strong conviction and confidence in the potential of the ratings business.
Responding to a DNA Money query, Crisil said, "Our investment in CARE is for the long term and strategic in nature, reflecting our strong conviction and confidence in the potential of the ratings business and our in-depth knowledge of the ratings sector."
CARE, which is among India's top-three rating companies by market share, is a pure play on the rating business with most of its core revenue generated from the rating segment. The highlight of CARE's business is its attractive Ebitda (Earnings before interest, tax, depreciation and amortisation) margin and strong operating cash flow, said a fund manager.
Despite the fall in price since Crisil's entry, a few analysts have assigned stock target prices of Rs 1,700-1,750/share for CARE Ratings, which debuted in 2012 via a hugely-subscribed initial public offering. Besides Crisil, CARE competes with SME Rating Agency of India, India Ratings and Research (formerly Fitch Ratings India), Icra, Infomerics Valuation and Rating and Brickwork Ratings India. CARE Ratings commenced operations in April 1993.
S&P Global Inc accounts for the investment in CARE by Crisil as available-for-sale using the fair value method of accounting. The change in the fair value of this investment is reported in accumulated other comprehensive loss in S&P Global Inc's consolidated balance-sheet.
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CARE stock closed at Rs 1,228.20 on April 25, 2018 on the BSE, valuing the ratings firm at Rs 3,618.3 crore. In the same period – June 2017 to now – Crisil shares have moved up from Rs 1,920-levels to Rs 1,950, valuing it at Rs 14,002.36The drop in CARE stock price has sparked off concerns that S&P Global Inc-controlled Crisil paid too much for a foothold in a competitor that is known to be strong in the bank loan rating (BLR) and bond market space. However, Crisil, which had bought over 26.2 lakh shares at nearly Rs 1,660/scrip in CARE in a block deal from Canara Bank last year, has reaffirmed its strong conviction and confidence in the potential of the ratings business.
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