CARE Ratings Limited


(Tauqeer) #222

Wonderful analysis @AKGupta.

Just to re-iterate that I am getting this correct , the OTHER INCOME comprises of income from foreign subsidiary , training and research where CARE is trying to venture now. I mean iNCOME from new business lines of CARE.

I also firmly believe that rising interest rate scenario is not too conducive for such companies apart from kenneth discussion you referenced above.

The business cycle is at an inflection point and as you rightly said that “Nobody can time it exactly though…”


(AKGupta) #223

It’s income from investments mainly, income from subsidiaries is immaterial in amount for now. You can refer to the ARs to find the break up of Other Income. Will be able to find it in the Notes to FS.


(dprashant) #224

Any idea when is the management concall happening and details for joining it.


(Tauqeer) #225


(Tauqeer) #226

If someone has an idea or pondered on that "WHAT % of REVENUE CARE expects to derive from NON-RATING business in say next 5 years ?.


(bkasal) #227

New biz model on cards for rating companies

Also, might refer SEBI site…


(AKGupta) #228

This looks bad. How would investors be made to pay to rating agencies and who’ll decide the charges? Are the fixed charges a floor or a ceiling or fixed in absolute terms ?

Will investors be required to pay the cost of rating as a part of subscription to the issue ?

If not, who ensures that the credit rating report is not getting leaked online and is accessible to all prospective investors for free without payment ?

What will be the criteria for selecting a rating agency now if price is fixed for all say by SEBI ? And who in the first place will select an agency - issuer or investors ?

Does this even make a difference who’s paying a CRA for its work - okay so investors pay and CRA becomes an agent of the investors, fine but will it affect how CRA’s execute projects? I don’t think so. Events like ILFS will still happen if for eg. the books are cooked and the quantum of data shared by companies with CRA will not change either with this “investor pays” model.

This will finish any incentive to cross sell consulting or other services by CRA to companies and will erode their pricing power as well.

This does eliminate the apparent conflict of interest though. Why not such a measure for auditors as well ?

Frankly I didn’t expect this big a disruption in such a benign business model! :persevere:


(Shailesh) #229

The new model is more interesting -

Lets say HDFC AMC want debt rating for XYZ bond - It will enter in contract with CARE / CRISIL and pay fixed fee for each rating done.

Similarly ICICI , AXIS AMC will do the same for same rating .

++ Insurance companies , FPI , and many other institutional investors will do the same .

This will increase opportunity to earn more per rating

This is how AC Nielsen does its Retail Audit business and mind you it is profitable business .

Will they make mistakes … Sure they will .

Often HUL / COLGATE say AC Neilsen audit is incorrect …

This will what companies which are raising debt will say if they get bad rating …


(hazariwalapu) #230

Even if investor pays for rating, there is no surity of proper information shared by company.


(AKGupta) #231

According to this article, investors will have to pay credit rating agencies to see the ratings assigned by their selected CRA to the new issuer.

The system will be part of the process of subscribing to a new issue - if I’m interested in buying some debt security I’ll go on the exchange platform and read through the prospectus, then pay the fixed fees to see the rating assessment & then make investing decision.

But in an issuer pays model, ratings are freely available on company website & highly publicised by media for investors to see!

In investor pays model, though institutional investors will be subscribing to the paid rating, I doubt retail investors will do the same. Will the rate then be different for different types of investors? So many unknowns here :thinking::thinking:


(Tauqeer) #232

Too early to make any judgemental call however irrespective of which way pendulum goes the investors in CARE emerge stronger on following grounds

  1. Initial payment for RATING in the first place.

  2. Again payment to see those ratings,:grinning:

Its good to see that relevance of RATING agencies being more SIGNIFICANT is being deliberated and the bigger role they will play in CAPITAL markets in time to come…

With IBC and from 1st April 2019 mandate to get 25% liquidity at least from bond market for AA rated papers augurs well for RATING agencies …


#233

Nice to see some better operating model being envisaged here. Just imagine equity research fees being paid by the corporate themselves. At least sell side research fees are paid by the investors directly or indirectly. In fact I don’t understand why do we need to follow western model of rating agencies. Why can’t rating agencies become debt brokers and deal in debt securities like other equity brokers and face consequences for their ratings. It is quite funny that we have so many AAA rated companies as I saw it on social media.


(Tauqeer) #234

Knowing the future accurately can be done only by GOD so lets not dive into details of no relevance.

Before even we dive into future lets FIX auditors who look at current data and still cant guarantee 100% accuracy and sanity and Balance sheets blow on investor’s face.

For CARE the thesis is

  1. Is business relevant and required.
  2. Would it exist 10 years from now.
  3. Would it be bigger and better where it is now.

and so far the answer is YES and hence comforted.


#235

Wow! did I see this argument that everything will be great in 10 yrs so no point discussing its relevance? Some few months back half of retail guys were basking in their glory of successful coat tailing. Whether you like it or not the biz of rating agencies is past its sell by date. Auditors have started facing the heat and its the turn of rating agencies sooner than later. We are in the middle of a process to find a more accountable operating model which has implication for investors. The free option to write anything and make a decent package is getting closed. The answer to your 3 questions is uncertain and definitely not YES. It might be true for the sector as a whole though. Adding extra datapoint on Care for whatever its worth… it is flat for the last 5 yrs price wise and valuation wise.


(Sidhant) #236

A good interview on Investor pays model versus Issuer pays model. Comparison of Indian rating agencies’ ratings to that of global ones. How default rates are calculated and what regulator and RBI can do.


(AKGupta) #238

Thanks for sharing. He made some very good points:

  1. Regulator pays or investor pays or compulsory rotation are unlikely to work.
  2. Stricter supervision & heavier fines including ultimate revocation of license is warranted.
  3. Rate shopping is a reality and investors know the difference between ratings assigned by different agencies already. As such, investors always rely on internal assessment and selection criteria to evaluate investments and not just take their decision on the basis of ratings assigned.
  4. Cross selling other services like research, consulting etc is miniscule anyway so stricter restrictions on cross selling are unlikely to work.

(koti) #240

https://www.google.com/url?sa=i&source=web&cd=&ved=2ahUKEwj8nM21rfrgAhVNDOwKHeKHBMoQzPwBegQIARAC&url=https%3A%2F%2Fm.economictimes.com%2Findustry%2Fbanking%2Ffinance%2Fbanking%2Frbi-may-bar-dual-functions-of-rating-agencies%2Farticleshow%2F68342935.cms&psig=AOvVaw2zSZcpASM9640N-Q-nko5U&ust=1552402852015153


(AKGupta) #241

I think this will have minimum impact on CARE as 99% of its revenue is from ratings only. Advisory is a very negligible portion. CRISIL and ICRA have a lot of revenues from advisory business. I think CRISIL just had 30-35% from ratings and rest from research and advisory.


(rkatikam) #242

DHFL has asked for an independent auditor’s report which was obviously paid by them. Everybody knows what happened. Bloomberg quint had been publishing details on what actually happened and how funds might have been siphoned off after the independent auditors report where as the independent auditor doesn’t seem to know much of this.
All this argument that auditors facing heat and ratings agencies facing heat, is mere hope. Investors whether retail or instiuttional need to do their own work


(Karthik) #245

The below article just shows that if we think the Indian economy has to grow as some of us envisage it to, then bond market has to play bigger role with a bigger market. This indirectly means that credit rating agencies will have a bigger role to play. The recent fiasco of credit rating agencies as per understanding is a great opportunity to buy these companies as they are trading significant discounts to their historical PE’s. These companies also are participating in bond market of other developing markets which still are in the nascent stages.So as these countries develop their share in those market would also increase.One can also compare the bond market size of developing countries and developed countries to get a fair idea.

Disc invested in CARE and ICRA.