Shares in Credit Analysis and Research Ltd (CARE) rose as much as 31.3 percent in their trading debut on Wednesday, after the credit rating service provider attracted strong response for its Rs. 540 crore initial public offering. CARE shares on the National Stock Exchange were up 23 percent at Rs. 923.50 as of 12:13 p.m. from its IPO price of Rs. 750 rupees. The shares had opened at Rs. 940 and risen to as much as Rs. 985). Other peers such as CRISIL and ICRA were down 1 per cent at Rs. 1,455.10. The broader Sensex traded 159 points or 0.8 per cent higher at Rs. 19,414.
Investors were attracted by CARE’s fundamentals as the ratings provider was seen as having a strong net worth position and no debt on a consolidated basis, analysts said. CARE also allocated most of the shares in its IPO to institutional investors, analysts added, boosting the retail bid on the listing day.
“Since people have not been able to get decent allotment in the CARE IPO, there is lot of appetite on the day of listing as investors are looking at this stock as a good long-term bet,” said Hiten Gala, senior manager advisory at Brokerage Sharekhan.
CARE had raised Rs. 540 crore in an IPO that was over-subscribed by nearly 41 times, receiving overwhelming response from institutional buyers. The listing price was higher than the Rs. 900 IPO price expected by most analysts.
Care Ratings shares are no longer cheap in terms of price earnings when compared to peers such as ICRA and CRISIL. The stock trades at over 26-times FY13 PE as compared to CRISIL, which trades at 25.5-times and ICRA, which is available at 22.30-times.
O.V. Bundellu, chairman of CARE told NDTV Profit that the second half of the year is slightly better that the first half for ratings companies. A lot depends on bond market credit off take and market revival, he added. The market is looking forward to interest rate reduction, which will give a boost to credit off take and boost ratings agencies’ performance, he said. “The underlying demand for ratings opinion is vital from lenders’ perspective. Though credit rating is not compulsory in bond markets, institutional investors ask for it, which is a sign of mature market,” Mr Bundellu added.
In the past, analysts have been concerned with CARE’s one-dimensional revenue model as compared to CRISIL, which has a differentiated model. Some analysts also expect the ratings business to take a hit once banks get permission to start their internal rating in 2014. However, Mr Bundellu said even if the Internal Ratings Based Approach (IRBA) comes in, the company will continue to see substantial growth in business.
Hi All, Request opinion from fellow boarders for investment in credit rating company. Vivek, Hitesh, Donald, Rudra, Dhwaneel, etc. - how should we look at this one from a 3-5 years timeline?