CARE Ratings Limited

(abhishekshete) #123

Here’s my analysis from my blog -
Note for moderators - No promotion intended. The blog post contains additional source material such as videos and other brokerage reports. I hope this helps other readers.

CARE Ratings is the 2nd largest credit rating agency in India established in 1993 that enjoys a 30% market share. The company rates creditworthiness of bank loans and corporate debt i.e. bonds and other financial instruments. Credit rating agencies help big institutional investors and banks to measure the risk against their lending. Their ratings directly affect the interest rates that are being charged on bank loans or issued bonds. These ratings differ from AAA to BBB and even lower which directly affect the implied interest rates anywhere from 6 to 10 %. ‘AAA’ means a borrower can sufficiently repay its debt whereas ‘BBB’ means the company can barely make their timely payments. Better the rating – lower the interest rate on borrowings and vice versa. Being a full-service rating agency, CARE has developed various products apart from debt ratings such as Infra ratings, MFI Grading, Real Estate Star Rating, Edu-Grade, REIT Rating, RESCO Grading, ESCO Grading, IPO Grading, ITI Grading, Shipyard Grading etc.

Credit rating business has a fantastic economics that attracted my attention. They enjoy robust operating margins at 65% consistent and return on equity of about 30%. Return on capital employed is at an average of 30%. The business requires no debt. The only expense on their books is qualified personnel. Moreover, the company has been paying out half of their earnings through dividends with an average dividend payout ratio close to 50%. There are very few businesses on the planet that enjoy such a good economics.

The sales growth has been low in recent years. The main driver for this business to grow is the credit growth or credit offtake i.e. increment in borrowed money. There are two major ways credit growth takes place – increased borrowing from banks and corporate debt i.e. issued bonds. Credit growth is also related to the GDP growth of the country. Statistics show that credit offtake is 1.5-1.7 times the GDP of the country. At the current GDP of 7.5%, we are looking at 11-12% growth in the overall corporate debt issued in India. I think this is a conservative estimate considering the transformation shift happening in the Indian bond market describe further below.

An interesting caveat of this business is contractual nature of rating assignments. Clients are required to continuously cooperate with the same rating agency for carrying out a review of ratings. Thus, they are required to pay surveillance fee on an annual basis. Credit rating assigned correlates with the risk weightage to the bank loan and/or bonds issued. Higher the risk weightage – higher the interest rate and vice versa. In case of an unrated borrower, RBI had earlier stipulated a risk weightage of 100%, however for BB or lower rating, risk weightage was 150%. Hence many borrowers whose rating deteriorated from BBB to BB did not share information with rating agency due to which their rating got suspended. Thus, they were classified as unrated and got better risk weightage of 100% as against 150%. Under the new rule from RBI – the corporates which got rating suspended would immediately carry risk weightage of 150-200% depending on the last rating. Hence there would be no incentive for the borrower to get the rating suspended. if anything, unrated borrowers will try to get rated to have lower interest and better incentives on their debt. Thus, recurring revenue is going nowhere!

CARE Rating earns 98% of its revenue from rating business and has recently launched risk solutions and research subsidiaries to create organic growth. CARE Kalypto Risk technologies provide risk management solutions which are a niche financial area where the bank needs to spend significant funds to purchase the solution. CARE Advisory Research and Training Ltd works in research that supplements their rating business. People who register in CARE Advisory have to go through an established course which later assures them a job as well as quality personnel for CARE.

CARE Ratings (Africa) Private Limited (CRAF) is a subsidiary of CARE now operational and has also completed a few rating assignments. This venture aims to leverage opportunities in the African continent. CRAF has also got the recognition from Bank of Mauritius (BoM) as an External Credit Assessment Institution (ECAI) for all market segments w.e.f. May 9, 2016. Further, The African Development Bank has taken up close to 10% stake in CRAF

In 2017, CARE Ratings signed a MoU with Vishal Group Limited and Emerging Nepal Limited to start a credit rating agency in Nepal to be called CARE Ratings (Nepal) Limited with CARE as majority stakeholder. CARE owns a 10% stake in Malaysia’s leading credit rating agency, MARC. CARE also owns 10% stake in ARC Ratings, a credit rating agency based out of Europe.

CARE has also entered into a technical tie-up with Japan Rating Company. The main purpose of JV is to develop a mutually beneficial relationship. CARE now has an alternative for the client who wants an international rating and does not want to go to two established players. Similarly, JRC would assist CARE in getting business from the investment happening through Japanese investors. CARE has consistently increased their market share for the last 10 years that can be seen below.

Warren Buffet and other value investors often encourage to find a business that has deep moats. Rating business is certainly one of them that imposes a high entry barrier which is the reputation of the established players. In India, there are only 3 main players CRISIL, CARE & ICRA that hold 85% market share. Not long ago, CARE has become the 2nd largest player surpassing ICRA. There are 3 more agencies that are formed recently but it will take a lot of time for them to gain such a big market share. You can see below that CARE has the best margins among industry which is due to low employee costs and higher productivity per employee.

Global rating agencies
Globally, credit rating is a high niche business where only 3 companies dominate 90% of the market share. They are S&P (40%), Moody’s (40%) & Fitch (10%). All 3 of them are based out of U.S and have enjoyed deep moats for almost a century. These agencies also rate the sovereign debt issued by all the countries i.e government bonds. Here’s a really good video to understand more about global rating agencies.

The business for credit rating agencies is robust because they are not liable for providing wrong rating against any company or country and their obvious excuse is – ‘things change’. In simple terms, it’s like asking ‘how do I look ?’ after dressing up. Moody’s gets paid to say ‘good or could be better!’ Later if the makeup runs off and you look ugly – Not Moody’s business anymore. Such was the case during the subprime bubble in 2007 where high-risk mortgage-backed securities by Lehman brothers were AAA rated only until they filed for bankruptcy. The ratings were immediately and conveniently reduced to Default grade. There were many allegations against these credit rating agencies due to wrong ratings and lack of research and everybody thought that this business is gone for long. Even Warren Buffet who was the largest shareholder at the time with 13% stake in the company was subpoenaed to give his opinion about Moodys and you can watch his videos on youtube where he agrees that they did some mistakes but thinks that business is robust. Turns out, Moody’s got away with paying only $864 Millon for causing such a catastrophe after 10 years in 2017. Read here. As for the investors, Moody’s stock tanked from $72 in 2007 to $18 in 2009, only to rise up to $183 today. A small note – CARE does not evaluate sovereign debt for countries. Only S&P, Fitch and Moodys are able to do that.

This monopoly has continued its way in Indian markets as well. S&P has a majority stake in CRISIL whereas Moody’s is a parent holder of ICRA and India ratings is owned by Fitch. These global parent companies help their babies with global tools, processes and offshore revenue to grow themselves. CARE, however, is a non-promotor owned company and thus becomes hostile for acquisition. Last year, CRISIL bought 9% stake in CARE Ratings as an investment after which SEBI issued a guidance that a rating agency cannot be a major stakeholder for a competitive rating agency and cannot get a board seat – Read here. This event shows that CRISIL thinks CARE is a better business to buy than buying back their own shares. An interesting video speaks about the history of consolidation in global rating business – watch here

Competitive advantages

CARE’s moat is very deep and has lots of alligators to defend their castle.

Monopoly – This is a high entry barrier business due to the reputation of existing established players as explained earlier.
Robust nature of business – Rating agencies are not legally liable for their opinions and can change their ratings conveniently.
Higher switching costs – Switching to other rating agency is a time-consuming process & costs additional money. An existing rating agency would have a thorough understanding of the business along with a detailed database of the company. This would save precious time/ effort for existing rating agency
Network effect – Established players that provide quality service enjoy brand recognition and a strong industry network which attracts new borrowers.
Consistency and credibility – Most corporate borrowers would desire consistency and comparability in credit opinions. Also, investors preference for CRA’s with a long-standing track record would ensure that newer players would take substantial time to gain investor confidence

India Macros

The growth of credit rating agencies is tied to credit offtake i.e. loans issued by banks and corporate debt (bond) issuances. Thus, it is important to know about macros of the Indian economy and developments around corporate debt to gauge the future growth for credit rating agencies.

The above image shows India’s domestic credit growth inclusive of corporate debt and bank loans on a YoY basis. The credit offtake has been slowing down since 2011 and hit a multi-year low in 2017 due to transformational changes in the last couple of years such as demonetization & GST. These are actually beneficial changes for the long-term prospects of the economy and credit offtake is likely to pick up from here.

The bank loan growth was subdued due to NPA issues for majority public-sector banks in India. The rating business in the last few years has been somewhat challenging considering that, as the market matures the volumes are dependent on what comes on the borrowing floor. When the economy does not grow at the desired rate, the level of borrowing slows down which then impacts the rating industry canvas. In the past, there was space to be sought on the bank loan rating piece when the Basel II approach was implemented in 2008. It was easy to grow business as there were many unrated companies. Progressively with time, as the backlog of unrated bank loans reduces, the overall mass of the ratable universe becomes dependent on growth in credit.

Currently corporate debt market in India is only 15% as compared to 40-45% of developed countries. The bond market in India is still developing and there has been a substantial growth noticed in recent years. Thanks to the Modi Government. It is showing signs of a higher growth trajectory with issuances being steady.

RBI in May 2016 issued new guidelines for banks whose exposures of specified borrowers over a specified limit would attract a higher capital risk weight than before. This would encourage such borrowers to approach the bond market for lower interest rates. Banks can subscribe to bonds (issued by corporates who have reached the NPLL.) and may help such issuers. This is likely to be in effect in March 2019.

The latest regulatory framework for banks – Basel III allows banks to have their internal rating for loans. There was much news about this implementation taking away the rating agency’s business. However, RBI has clearly encouraged banks to use external ratings to measure the credit risks. Moreover, With the NPA issues in hand, banks will not want to be held accountable if a large loan goes bad.

Small & Medium Enterprises (SME) is a highly untapped market in India. The penetration level is less than 5% in this market. Although, CRISIL is the major shareholder of this market. CARE is all set to get more business from this growing sector. Also, Care’s approach to the SME business is based not just on getting more assignments but works on the assumption that they would become larger with time and be potential borrowers in the debt market. This strategy has helped the company to continuously increase their client base from 5,263 in FY13 to 15,908 in FY17.

Challenges in the Indian bond market

One of the reasons why investors are not willing to participate in the bond market is the mismatch between the price of the bonds and the actual risk they carry. To create a more attractive environment for investments, the credit rating industry must be transparent and adhere to international best practices. By doing so, investors can take advantage of an international standardized rating, which will, in turn, make the market more transparent and reliable. This will attract both domestic and foreign investors. CARE, although does not have any international MNC backing, has laid out their rating process on their website for various instruments and is transparent with its credit ratings business.

Overall, there is a transformation shift in the capital market in India which is likely augur well for CARE and other rating agencies going forward. Corporates will have to borrow money if India is to grow at 7-8% GDP rate.


Downside risks

Even though the business is very robust, it does not make it bulletproof. Some of the key risks that arise are a conflict of interest, fraud vigilance, & reputational risk.

Conflict of interest – There is a conflict of interest since companies who wish to get rated for their creditworthiness pay the fees to these credit rating agencies. Moreover, credit rating agencies assist in compiling complex financial instruments for big institutions to invest into and rate them. During 2008 subprime bubble in the U.S, Moody’s rated the complex mortgage-backed securities by Lehman Brothers as AAA which had gone bankrupt. This has been a topic of long discussion, but no major changes have happened globally except that there is a formation of INCRA which is a nonprofit credit rating agency formed to rate the sovereign debt.

Fraud vigilance and accountability – CARE’s reputation could be adversely affected by fraud or breach in confidentiality that it owes towards its clients committed by employees, clients or third parties. To mitigate the same, CARE has adopted a comprehensive code of conduct and takes annual declarations from employees, directors and rating committee members as stipulated in the code. CARE has adopted a Whistle Blower Policy as a necessary mechanism for employees to report to the management, concerns about unethical behavior or actual or suspected fraud or violation of the Company’s Code of Conduct. Further, no member of staff has been denied access to the Audit Committee

Reputational risk – CARE’s business is largely dependent on its brand recognition. CARE has separated the analytics function and the business development function, and analyst’s compensation is not linked to business generated. On April 01, 2017, CARE has moved to an Internal Rating Committee system where all ratings are assigned by senior personnel of the company. As per SEBI guidelines, MD & CEO is not a part of such Rating Committees. CARE, on its website, discloses the rating process that it adopts for rating any instrument or facility. The website also gives a comprehensive insight into the various methodologies adopted by CARE for rating different financial instruments.

Management ( I am still skeptical about management for capital allocation skills)

Management strategy continues to be in the direction of enhancing the rating business by widening the client base and deepening relationships. The number of clients is very important because even if the business procured is of a smaller magnitude, it has the potential to grow in the future. Management is vigilant about enhancing their presence in the country. Their website can show you all the interactions that company’s directors have on a monthly basis with business challenges in India such as ET now & CNBC. You can simply do a quick youtube search and find out multiple interviews of CEO Rajesh Mokashi.

As per sources, the attrition rate in CARE is very high at entry level. The stable middle and top management kind of provide stability to the operations, however, given the importance of manpower, the company may face problem in case attrition rate continues to remain high. In that case, if the company increases salary to align pay at entry level with its peer, then the operating margins which are highest among the credit rating players would likely to decline. CARE has a training center in Ahmedabad which should help them hire better quality employees moving forward.


The operating margins have been sustained between 65-70% for the last 5 years. I suspect them to drop further by at least 5% by end of next decade considering CARE has started to invest in research & international rating business. Average taxation to remain at 24%. Overall, I anticipate 12-15% growth in the rating business. Any other inorganic growth from international rating business & research solutions will be icing on the cake. Thus, DCF calculation with an assumption of selling the business at 15 times its 10 year’s earnings gives an intrinsic value in the range of Rs 1041 to Rs 1665.

An interesting thing that I noticed is that ICRA & CRISIL both have P/E ratios of 40 & 30 respectively, whereas CARE is at 23 times its earnings. Surprisingly, their (ICRA & CRISIL’s) growth has been mediocre than that of CARE in the last 10 years ranging between 7-10%. The only logical reasoning I could find is the parent holding of S&P and Moody’s.

Some tailwinds for rating business

RBI – (Jan’ 17) mandated dual ratings for commercial paper growing forward which will help CARE reap larger revenue.
Rating revenue in India is less than 1% of the entire credit market vs 5-6% in the US. Increasing funding in mutual funds, debt markets, and infrastructure development will augur well for rating industry.
Rating agencies role per RBI’s guidelines for large corporate borrowers and will provide a basis for rating agency moving forward.
Basel III liquidity guidelines will allow banks to invest up to 40% in bonds and CP’s as against 10% which would encourage borrowers to issue bonds and thus get rated.
New instruments such as REIT’s, Infrastructure bonds, Hybrids for insurance sector will help the bond market development.
The new NPA resolution under Implementation of bankruptcy code (IBC) has a specific role for rating agencies and CARE is expected to gain more business in this area.
Conclusion –

Credit rating is a very indispensable and robust business that has high entry barriers. It is an asset-light model that requires no debt. The business enjoys high ROE, ROCE & free cash flows that have made its way back to shareholders through dividends. Indian bond market is not developed yet. However, there is only one side things can go from here and that is up. This is highly possible with recent transformational events such as demonetization and GST. If India’s GDP has to grow at 7-8 %, then companies will have to borrow money. Banks facing NPA issues, corporates are going to shift towards the bond market for better interest rates. All this augurs well for rating agencies where clients show up on your doorstep every single day asking for a better rating to borrow more money. What’s more is they pay you an annual fee just to maintain their rating. It is important to be one of the established companies in this business since reputation is everything. And that is the case for CARE Ratings Ltd in India with 30% growing market share. The management seems focussed on their core business as well as developing other revenue streams. I think CARE Ratings will be a compounder 10 years down the line.

Personally, I like this business to invest 5-10% of my portfolio but the valuation does not attract me at the moment. I have taken a tracking position with 3% of my portfolio and will add more if the stock price falls below Rs 1050/-. The stock price of Rs 1280/- seems fairly equivalent with the intrinsic value of the company at the moment. At the end, I would like to quote Warren Buffet here – “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Disclaimer: This is not a stock tip. These are my personal opinions for educational purposes only. Anyone who invests in any company needs to do their own due diligence and are themselves fully responsible for the outcome.

(AKGupta) #124

Just started following the business and came across this: CBI files case against CARE, IDFC, Deccan Chronicle, officials of United India in Rs 30 cr fraud
The case pertains to privately placed short term unsecured redeemable non convertible debentures bought by United India that led to a loss of Rs 30 crore

This materialises the reputational risk ratings business in general faces that some have talked about in previous posts too.

But again if the subprime crisis couldn’t shut shops in the US, it’s unlikely to Happen here.

My main concern for now is the lack of a solid promoter. I’m not comfortable holding companies with enough of promoter’s own skin in the game. (Laws of incentives).

At this point, I’m also looking for a reasonable explanation for the valuation gap between CARE and other 2 listed companies.

I will also go through recent CEO interview for poor Q1 results and will share my observations here.

Expanding in other markets through acquisitions/strategic investments is a good approach in fending off emerging competition. Will also bring about some growth.

Disclosure: not invested but looking for an entry points current price looks relatively reasonable.

(RadheyShyam Aggarwal) #125

Skill, Will and Hill problem. Don’t think that we can generalize the fact that all guys who have been promoted internally would have a “Hill” problem. Many of the entrepreneurs start small and create big companies . They are also like the guys who have been promoted internally as they are part of the journey - from a smaller to big company.

(AKGupta) #127

Well Q1 FY19 results are a bit confusing specially the revenue downside due to change in revenue recognition policy.

From what I could make out from the earnings release till now:

PBT is at 32 crore down about 13 crores yoy because of:
-Lower core revenue by 4 crore,
-Lower other income by 2 crores (lower mtm gains on investments)
-Employee expenses up by 6 crores (ESOP charge of 3.6 crores),
-Higher other expenses by 0.4 crores

The reason behind lower core revenue is, as per company, change in revenue recognition policy. Retrospective changes in Q1 FY2018 results would actually result in a 6.70% increase in core revenue.

So what is this change in revenue recognition policy?

I came across a Nirmal Bang report ( which said that YOY revenue growth in Q1FY18 was because of another change in rev rev to %age of completion method for surveillance income.

So if this change happened in Q1FY18 and was causing an upside, why is it causing revenue downside now? I’m not able to buy this change in accounting policy as reason for underperformance.

I’d like to understand this more if anybody knows.

One reason for valuation difference could be the over reliance of CARE (99% from ratings), vi’s a vi’s CRISIL (37% from ratings) and ICRA (58% from ratings), on ratings revenue.
To mitigate this, geographic expansion, risk solutions business and focus on expanding SME ratings business are first steps in the right direction imo.

That said, the business model is quite durable, requires no debt of itself (but requires others to do so!), and produces strong free cash flows. In other words, a slow but sure compounder!

I’ll make another post on CARE’s ESOP policy as this is a major expense category.

(Arun S G) #128

If my memory of Basel recommendations serves me right, a Credit Rating Agency should not have any other business associated with it to avoid conflict of interest. If so, it is quite possible that the other rating agencies might have to spin off their non-rating businesses.

(AmitContrarian) #129

Its actually good , its all about how you recognize revenue .
On completion of project or intermittently ? Basically now they are delaying the revenue recognition.

Nothing changes as such w.r.t annual Cash Flow.


(Dhiraj Dave) #130

Let me try to address this. I am not CA and my undetanding may be wrong. Would appreciate if I made any mistake.
Pre FY18, the company was booking surveilance fees based accruals. From Q1FY18, it started recognisation of surveillance income based esimate efforts and percentage completion method. As a result, in Q1FY18, the income was higher by Rs 6.92 Cr as presented in June 30 2017 results, Notes 4

So the last year Q1FY18 base has higher income of ~ Rs 7 cr against which Q1FY19 sales/opeating revenue are considered. Given the higher base, growth is lower n Q1FY19 when compared with last year. However, this was one time change and hence forth (may be after FY19 all quarters) we would have comparable quarters. In Q1FY18 and Q2FY18, the company benefited from higher revenues of surveilance income, while in Q3FY18 and Q4FY18, it reported lower surveilance income. So one may expect further adverse impact of change in accounting policy in Q2FY19 and while would so relatively higher growth in Q3FY19 and Q4FY19, due to last year change accounting policy. The best way to address is to compare annual number which would smoothen all this issues.

(AmitContrarian) #131

absolutely correct ! Nicely explained.

(Dhiraj Dave) #132

Well some of point are very valid. However, you can not have skin in the game in certain sector like Bank and rating agency where regulators, in order to avoid conflict and control of ownership with one business group/ team given the critical role they play. Any change in ownership would need RBi approval and RBI give license after knowing ownership pattern.

On another important aspect about Care being made accuses in charge sheet I did not find any content which draw specific mention of care in wrong conduct. Just because insurance company relied on rating and the company defaulted can not be considered as ground for conspiracy in my opinion. In past, even other rating had some cases which become much larger issue of default. One example is enclosed for everyone reference

Please note that there is no chargesheet filed by any agency in the news I shared while Care has been named. The limited point i bring to attention is rating is opinon and it can go wrong. Further, given that nearly 100% of Care profit is coming from rating, as against CRISIL and ICRA, which has moderately diversified revenue and profit, it would be in interest in Care to be extra deligent while doing credit rating. That is the only thing they are doing for 25 years and if made bad reputation, it would raise question to its survival.

Your concerns are valid and one has to evaluate investment subject to own risk profile. Thanks for sharing the link with critical news related to Care and bringing valid points on discussion.

Discl: I have investment in Care rating and my view may be biased. Investors shall do there own due diligence before making any decision about investment.

(AKGupta) #133

Thanks for explanation.
I still have questions related to this: What was the basis of accruing revenues before FY18?
Generally accrual is on the basis of expected income. I mean to say that CARE must be accruing inc.ome in advance say for a 10 crores contract, 2.5 crores accrued at the beginning of the quarter in FY17. Then, from FY18, they started booking income on the basis of %age of comepletion method. So say another 10 crores contract for FY18 (because we are assuming it’s just an income smoothing issue here) was completed 35% in Q1 itself resulting in CARE booking 3.5 crores in Q1 FY18 which explains growth vs Q1 FY17.
Then in Q1 FY19, CARE received another 10 crores order and completed 25% of it in Q1 and booked 2.5 crores. This will mean an income decline vs Q1 FY18.
This explanation seems okay to me. But what I don’t understand is the point made by mgmt that “some income from previous quarter was unavailable in the current quarter”.
Is this the same thing I have illustrated here?

(Dhiraj Dave) #134

@AKGupta @AmitContrarian
We need to wait for FY18 annual report to get exact accounting of Revenue of surverilance income. However, I am trying to read FY17 surveilance fees booking and comparing same with FY18 Q1-Q4 notes to accounts.

Find enclosed FY17 revenue recognisation for CARE

So let us assume Surveilance fees of 1 Cr to be booked in FY17 and FY18.

In my understanding, let us assume 25 Lakhs(25% assumed rate being portion of surveilance income as fees for efforts), would be booked in Q1FY17 and Balance 75 Lakhs would have spread during 12 months giving approximate revenue of Rs 6.25 Lakhs per month. This was accounting in FY17.

Now in FY18, if nearly 70% work is being completed in Q1 and balance 30% is compared in Q2, then Company would book Rs 70 Lakhs in Q1FY18 and Rs 30 Lakhs in Q2FY18. There would be no monthly booking of Surveilance fees in rest of month. So Q1 FY18, has excess income of Rs 26.25 Lakhs ) (70 Lakhs in Q1FY18- 25 Lakhs of effort fees in Q1 FY18 booked - 18.75 Lakhs (3 months residual surveialance fees assuming rating surveilance was due on April 1).

In Q2 FY18, there would additional fees of 11.25 Lakhs (Q2 Fy18 30% of 1 Cr , Rs 30 Lakhs book as against 3 monthly surveilance booking in Q2 FY18 of 6.25 per month i.e. total 18.75 Lakhs)

In Q3 FY18, surveilance fees would be nil (as 70% booked in Q1FY18 amd 30% booked in Q2FY18, based on project completition method) as against 3 monthly surveilance booking in Q3 FY18 of 6.25 per month i.e. total 18.75 Lakhs.

Same would case in Q4FY18 were surveilance revenue would be lower as compared with Q4 FY17 by Rs 18.75 Lakhs.

Now when same 1 Cr is booked in Q1 FY19, we would have Rs 70 Lakhs (assuming project completion ratio of 70% being same even in Q1FY19) as compared with Rs 70 Lakhs in Q1 FY18. While there is no nominal growth in Q1FY19, the point management is trying is that Q1FY18 already have higher base of 26.25 Lakhs excess when compared with Q1FY17, which would be adjusted during the rest of quarter as we move forward.

This is over simplification and also subject to limitation of assumption. Any change percentrage completion would lead to different outcome. However, in essence, this is my understanding in CARE revenue bookig of Surveilance fees and rationale given by management on conference call.

Please let me know in case there is some errror in my understanding.

Discl: Among my Top 10 holdings and my view may be biased.

(AKGupta) #135

Does anyone have recent conference call transcripts for CARE?

(Mikesingh) #136

Pabrai investment fund buys carerating again, today he pocketed 2.8lkhs shares.

(AmitContrarian) #137

Plz mention the source …

(Mikesingh) #138

(..pd..) #139
  • 2.32lkhs bought on NSE

(Abhinav Mehrotra) #140

A detailed article on how a new startup is trying to enter the rating industry in the US. All the tactics, strategies that can create an opening.

2008 was the perfect storm to disrupt the status quo in the ratings industry but this is what happened, “That’s where I scratch my head,” says Powell. “You can’t dispute that the ratings agencies were complicit in the financial crisis, yet investors are still requiring them to rate deals.”

And this captures the entry the barriers very well, “Even though the scandals made an opening for new competitors, breaking into the business has still been a long slog.”

The article also provides the failings of an investor paid model and regulator assigned rating agency. Investor have their own biases which they would want to be reflected in the ratings, same as companies do now. Also, there is the case that ratings should be publicly available and no investor wants others to free ride on their investment.

In a regulator assigned or rotating agency model, the article says that any incentive for thorough research is eliminated as the rating business is assured. I somewhat agree with them, the problem this model creates is of differentiation. A rotating model would ensure perfect division in market share, this would mean that the only way to increase earning is with reducing costs, and all agencies will reduce research costs to maintain the same amount of quality level.

What is to be noticed is that even after being given the perfect point of entry after the GFC, disruption in this industry is a very slow process. If at all, it is the regulatory disruption that could swiftly change the landscape of this industry.

(AmitContrarian) #142

where do you see the result ? oohh you r talking abt the June Quarter .
Its a change in Rev Recognition one time adjustment.

(Dazzled beginner) #143

Yes message number 123 of this thread answered my queries hence withdrew my post… Sorry cud not quote the message (tried and :-1::frowning::-1:)
@AKGupta waiting for ur post on care’s ESOP policy as it was main factor to increase the employee expense by about 3.6 crores…

(AKGupta) #144


I will post as soon as I’ve something. Actually began looking at some other stocks so kind of lost track of CARE. But will post soon. Thanks.