CARE Ratings Limited


(NMB) #21

I tried over 6 months…and AT LAST…I got a meeting with a senior psu banker recently and I asked him about CARE! Here is how it went:-

1- RBI has allowed just 6 banks as of now to try internal ratings. Its more of an experimental thing.

2- There is huge amount of apprehension within banks to migrate to this system largely due to 2 reasons:- A) No one wants to be held accountable if a large loan goes bad. B)They are YEARS away from developing systems and expertise in this area.

3- Internal ratings ARENT compulsory. Banks will always prefer if outside ratings agengies validate their ratings.

All in all, the senior banker said that these internal ratings will not be a factor for another 3-4 years atleast. And by then, the corporate bond market and capital market revenues will keep increasing and the share of debt ratings will keep decreasing anyways (Just like the US and EU).

*Another major factor was that LIC has just bought a huge chunk from IDBI and Canara bank’s selling has also stopped since last 10 days and today we saw the first signs of the lift from this TECHNICAL OVERHANG as CARE shot up 9.5% intraday!

*This lack of interest is precisely why I feel great things are coming CAREs way in terms of stock price action. I love that everyone is apprehensive and is not touching it!!

Warm regards

Neil Bahal


(rajesh) #22

i have invested here precisely for the same reason + Capex boom that can start atleast 2 years down the line which could lift Care’s earnings. Anyway earnings were decent even in the worst years of economy during 2010 to 2014.


(Arun S G) #23

Its interesting to refresh oneself about those days of 2008-9! The absolute refusal to see any bad in any credit was amazing in hindsight. What Moody’s did back then, and what CARE does today are not much similar, since Moody’s packaged home mortgage assets as low/no risk assets and with layers and layers of packaging, no one could tell what the underlying assets really were, whereas CARE is into more staid bank and SME debt ratings.

Definitely there are lessons to be learnt from those days, but CARE is nowhere in that league.

Interestingly, after Buffet sold Moody’s at mid-20s in 2009, the stock has since trebled in the next 6 years!

Here’s what he says:

Buffet breaks silence on Moodyas.

http://blogs.wsj.com/deals/2010/06/01/warren-buffett-to-break-his-silence-about-moodys/

Here’s how, Buffet turned Moody’s ownership to his advantage :wink:

http://www.quora.com/Did-Warren-Buffett-use-his-stake-in-Moodys-to-influence-the-Heinz-buyout

Regards

Arun

Disc: Invested.


(NMB) #24

Wow. Care hit 1750 today!! Absolutely brilliant. I hope the company follows this up with a 15-17% EPS rise.

If that happens, I think the stock will make a move towards 2000/share.


(Sambath) #25

Thanks for the meeting update Neil,very helpful.

CARE is proxy to economic growth,this is one such stock where you buy right (at good valuations) and sit tight.

Only risk is more than 85% of earnings are from ratings segment only whereas CRISIL and ICRA get 30% to 40% from this segment and well diversified into research reports,advisory.Until the Internal Ratings Based approach for bank loan facilities becomes a serious threat,it is safe bet to stay invested.

Significant growth driver is SME ratings which is vastly under penetrated(1% of SME’s have their loans rated) at the moment.


#26

985).

Valuations:

Management commentary:

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(Shan) #27

Stock is almost at its 52wk low. I don’t see any reason for such a bad hammering (or am I missing something). Business fundamentals I.e. Asset light model and plenty of FCF seems intact. Is this a buying opportunity?

Disc : no position yet, still investigating


(Aman Vij) #28

The recent problems in Amtek group where CARE was the major rating agency might be reason for the fall of share price.

Not my own views but of someone who keenly tracks the stock


(Shan) #29

According to http://www.livemint.com/Money/HM3ld76p9bRn49t0bgTzQN/Amtek-Auto-crashes-43-in-fourth-day-of-losses.html

On 7 August, Care Ratings had suspended ratings of Amtek Auto. “The ratings have been suspended as the company has not furnished the information required by Care for monitoring of the rating,” Care Ratings had said in a release.

So looks like CARE did the right thing here. Why should CARE get hammered in this case? It’s intriguing.

Disc: no position yet, but actively considering


(Aman Vij) #30

According to me the problem in Amtek group didn’t arise in August only they always had huge debt and cash flow problems as they are in constant acquisition mode. So even if CARE have suspended rating now it doesn’t mean that they are not at fault for giving them good ratings before (AA-).

But this should be a temporary setback only given that even the other players have made similar errors Case of CRISIL giving high rating to Helios inspite of the latter not paying to FD holders is a recent example that comes to the mind


(mukesh) #31

Care fundamental are really excellent & not changed. They are recruiting more & more new clients. This is really good opertunity to Enter.
Disc…may be biased as bit invested


#32

Selling pressure in care is only due to canara bank`s constant selling of shares in the open market . once a strategic investor comes into the play , significant re rating is possible.


(Sagar Saxena) #33

CARE has done similar things in the past too.


(Sreekanth) #34

@theashworld, @Rokrdude If you go through the report history carefully this is what CARE has done…

On August 7th they have come out with Amtek Report on Suspending the Rating with the following statements:
"CARE has suspended, with immediate effect, the following ratings of Amtek Auto Ltd. The ratings have been suspended
as the company has not furnished the information required by CARE for monitoring of the ratings."
This is something very absurd in the sense that Amtek group is a publicly listed company; at least an updated information on company’s financials would have very well been available to public.

Secondly if you closely observe they had also released rationale report in May 27, 2015 wherein they downgraded the ratings from AA to AA- with the following rationale:
The revision in the LT rating takes into account the decline in financial profile marked by drop in sales and profitability in Q2FY15 (refers to the period January 1 to March 31) and risks related to aggressive pace of acquisitions made by the company in the recent past. The ratings, however continue to derive strength from the experience and resourcefulness of the promoters, AAL’s established market position, diversified client base, long-standing relationships with automobile companies as the preferred Original Equipment (OE) supplier and healthy profitability levels. The ratings are, however constrained by high gearing levels, relatively elongated operating cycle and exposure to foreign subsidiaries and business associates.
Going forward, continued scale-up of operations, improvement in overall gearing and the extent of AAL’s exposure to its subsidiaries/business associates will be the key rating sensitivities. Further, the continuity of recovery of demand in the auto sector shall also be key rating sensitivity.

So the real question is how can you suspend a rating sighting lack of information when you just released a rating report three months ago? Seems to me more that they knew that something was amiss in the company and chose to safeguard its interests and reputation.


(Aman Vij) #35

If you see the business model of any rating agency it relies heavily on relationship management. So even if CARE knew not everything is right with business they continued to give rating till the company kept paying interest regularly. And the rating is not only based on publically available financials it is also dependent on whether the company is paying interest regularly or not which can only be found after talking to different banks.

So my educated guess is CARE continued to give good rating till the time the group was paying interest. The decline in company’s financials and non payment of interest started may have stated in June so CARE might have asked for some information from Amtek and post the refusal to share more info. may have found an opportune time to stop the rating.

Isn’t it little treading on the line of being unethical. Probably yes but this is how rating business have worked traditionally and similar things should be expected from future as well.


(Sreekanth) #36

“CARE knew not everything is right with business they continued to give rating till the company kept paying interest regularly.”

Again I beg to differ here…

If a company deserved a good rating only if it were to pay its debt servicing regularly then it would mean every debt servicing company backed by sound repayment should be given a better rating!

Also secondly the servicing of debt repayments information could have been easily availed from lenders and not the company who are one of the end investors for the ratings, I seriously doubt such information could have been withheld from a rating agency. And if they seriously knew something has been cooked up then it should have been clearly highlighted.

Its a pure case of misguidance to investors showing that if you could suspend a rating clearly when you have rated it earlier. I doubt one should pay such high premiums for company which lacks ethics…


(Aman Vij) #37

Sreekanth let me try to rephrase my point

There are many companies in India who have huge debts but who are banking on turning of the economic cycle to drive their sales/business in the future. The rating is not only based only on the current status but expected cash flows from company. Say somewhere after the initial rating the company realises that it has overestimated the product offtake and the cash flow, shouldn’t the rating agency change the ratings when new data emerges. Isn’t it similar to what investors or equity analysts do, assign a intrinsic pe to a business based on expected cash flows and if the things doesn’t plan out as expected adjust the intrinsic multiple/pe.

At the same time I don’t think CARE is totally innocent in this matter. But I believe this kind of thing is fundamental to the business model of the rating companies wherein they tend to underrate/underestimate the risk because they are getting business from the party so conflict of interest will always be there. The only thing we should watch out for is the frequency of such incidents and what corrective measure the rating agency takes to minimize similar situations in the future. If the biggies in developed parts of the world are doing similar things what can you expect from an Indian rating agency who is trying to diversify their customer base?

Disclaimer Recently took tracking position


(Shan) #38

All good points. My understanding is that a rating company rerates the debt only periodically and not on a continuous basis. If that is true (can someone confirm please) then it would mean that consumers of the rating report do not expect updates on an ongoing basis. Otherwise how can rating agencies rate 10000s of debt products?
So you are in the business of assessing a debt product at a point of time and not continuously going ahead. Today the debt looks serviceable so you’re gonna give a rating accordingly. Tomorrow things might change. That’s not in the rating service’s control.
Basically if the debt was unserviceable when rated then it’s cares fault. If it became unserviceable later it’s not their fault.
If it was unserviceable then the company would not have asked it to be rated anyway (which is what happened now and hence no rating anymore).
From an investor point of view, I see this as a good business. It’s like asking “how do I look” after dressing up. CARE gets paid to say “good”. Later the make up runs off and you look ugly. not CAREs business anymore.

I’m not too keen on judging the business based on whether their prediction qualities are great. No “expert” can predict anything anyway. (Read Taleb)

But I believe that their long term cash flows are not going to suffer because of this.

Disc: long


(nikhil) #39

flat results for the qrt…and they have allotted shares to employees at around 600 Rs which is why market gave a thumbs down for results …


(Rejinoldo) #40

Does the major chunk of revenue still come from PSU ratings ? anyone closely tracking care ?