CARE Ratings Limited

I liked your point about reputation loss may not result into market share loss as much as Prof pointing out to.
What i think is their low cost model is okay to serve this but i agree with you if salaries have to go up the number of debt instruments needs to be rated has to go up to kick in operating leverage into play on up side.
Salaries will go up and number of debt instrument rates should match that over time.

CRISIL does 30% of its revenue from rating (ICRA i think 50-60%) and CARE 90% of revenue from from rating .
so, lets not compare margin likewise.

Interesting Debate … I would like to simplify my understanding

Lets look at things that get rated in life

  1. Food & Medicines
  2. Students through various testing agencies
  3. Employees
  4. Financial Instruments
  5. Car on Safety , customer satisfaction,

and many others …

Are they perfect … None of them are – and issues & fraud get raised on Food rating , Student exam rating etc … all the time …

But do we stop referring to them … Actually I haven’t seen that happening …

Actually these are anti fragile business … They keep on improving with each crisis …

This time around Auditors - CRAs and Management are made responsible for issues …

"When many are responsible for crisis - No one is responsible for crisis …"

So will Credit rating business stop - I don’t think so

Will CARE specifically die - Yes if it was the only one who gamed the system … But the issue is everyone was wrong here … So few heads will roll - but things will go one like it happened with Corporate banks …

The key is what will be sustainable profits for this business and hence Intrinsic Value .

.Now this is real big issue … Time will tell what we should have paid or pay for this business …

But looking at how people are looking at ICICI and AXIS after thousands of crores of NPA … Indian investors have very short memory …

CRISIL ( intelligent private buyer ) thought Rs 1600 / 1700 was right price for CARE - but it was in different conditions and context. So sustainable profit assumption can be more conservative - how about 50% MOS or 70% MOS or 90% MOS - It is up to us

Lets understand Parbai and Prof Bhakshi view - they are Ardent Buffett followers … They will do what Buffett has done

Buffett after saying Moody is greatest business - Never to sell kind of – He sold it in 2009 when it collapsed from 60 + to 20 odd … when Rating business was blamed for financial crisis …

Look what happened to stocks post 2010 … Now you can take your call

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Thanks for the great learning. Completely agree to what you said Prof bakshi @Sanjay_Bakshi . Only issue is how to deal with this

Once its discovered that things have started improving, markets will start recognizing very fast and then one has to average on the way up with limited possibilities of very high returns . Then theres the fear of missing out too . How to deal with that ?

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Well it boils down to choosing between:

  1. Buying early when there is lots of downside risk;or

  2. Buying at a higher price and earn a lower return when downside risk is substantially eliminated.

People who focus on returns pick 1. And sometimes they will be right and sometimes they will be wrong.

People who focus on capital preservation first and returns later, pick 2. The risk adjusted return is what they focus on. In this scenario the chances of being wrong is lesser and therefore the probability of a loss scenario materialising is also less remote.

Incidentally, those choices are not necessarily mutually exclusive. Perhaps a tiny position is taken with the first choice and averaging up is done when more conviction comes - choice 2. Notice a smaller percentage return in the 2nd scenario can be offset with a higher position size.

In the end, what matters is not just percentage returns on a position (which we like to brag about a lot) but how the position contributes towards the performance of the portfolio. Making 10x on a 1% position is the same as making 2x on a 5% position.

I like this situation from an analytical perspective because it serves as a wonderful live case study on how people think (or should think) about the decisions they are required to make in the world of investing.

So much fun!


This is so insightful. This cleared my wrongly held misconception. Thanks so much Prof Bakshi @Sanjay_Bakshi

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just trying to draw parallels - Moody’s fell 74% in the 08-09 Crisis :slight_smile:
In hindsight many threw baby with the bath water.

CARE from all time high has fallen 72%. Allegation is that there is no baby in the bathwater.

Also, we should not lose the sight from long term value creation thesis due to short term events happening now.

IBC has been game changer for bond markets in many other other countries.
The corporate DEBT / GDP doubled after the implementation of bankruptcy code in many other countries.

Due to IBC we should see Corp Debt markets maturing in India and corp debt to GDP should improve over time.

Our CRA are tiny compared to global peers. There is lot of room for new bond like instruments opening up for them.


I am comparing rating business Margins - CRISIL is 36 % and ICRA at 40 to 43 % .

AVG Salary Per employees for ICRA is 20 L in 2018 vs 13 Laksh in for CARE while 2017 ICRA 17 lakhs vs 12 Lakhs for CARE.

2019 2018 2017 2016 2015
Rev per emp ` 0.53 0.504 0.51 0.40
Profit per emp 0.26 0.260 0.23 0.21
627 569 552 655
Salary per emp 0.13 0.12 0.14 0.11

This can be relate with CARE debate we had - Off topic but relevalent.


About comparison with Moody’s. If we have to do it, we should do it properly. Not just by looking at the beautiful long-term stock price chart.

The US markets are the most bonded markets in the world. That’s not the case here. And interest rates there are a fraction of the interest rates here. Those are just two reasons why I am reluctant to compare apples with oranges. There are others (for example sample size of 1 data point!).

But some people have been pointing to the Moody’s chart. So, if you have to do it, you should do it properly by asking two questions:

  1. What happened to the earnings when the scandals broke?

  2. And what happened to the stock price?

First, the earnings. See how they fell off a cliff.

It took Moody’s 7 long years to get back to the earnings level it delivered in 2006. As I wrote earlier, it takes a long long time for earnings to get back. And when I write this, I am not just referring to one data point about what happened to rating companies in the US. Rather, I am referring to what happens to companies and their earnings when there are serious accusations about some moral issues relating to their business practices.

In India, the pain in earnings has just started. And if you think that India will follow the US experience, then given Indian interest rates, how would you value an earning stream that would shrink for 7 years before expanding again? Think…

Second, if you have to look at the chart, then please also look at the price movement of the stock when the earnings were declining. The stock basically fell by about 75%.

Just keep those two things in mind!

Cheers everyone!

No Position.


Your Comment . In India, the pain in earnings has just started… Is it for Ratings Agencies or for Care ( due to loss in mkt share ) or Listed Indian space or Indian earnings( we were already down in earning since last 3 years ) @Sanjay_Bakshi. Thanks Sir

Completely agreed Prof Bakshi . However if one is holding any stock which is good but suddenly faces brand erosion due to accusations, it definitely makes sense to exit as one doesnt know how long will be the pain and whether its actual issue or perceived ( not for ratings but for stocks in general ), still it takes a long time ( if at all the earnings come back ) for the markets to recognize it or bringing its earnings power to normalcy . However how to decide whether it’s a ‘Nestle’ like temporary issue or permanent impairment ( which might take a long time to recover as per your example above , if at all it recovers ) and accordingly whether to hold on or exit ? As if in Nestle if one had exited , he would have lost on the opportunity of compounding . Even 'Nestle ’ issue seemed serious at that time although now it seems minor in hindsight

Looks like we all are convinced it will go up but not sure about
when ?
how ?
and how much ?

That’s a good thing because it points towards at least one thing there will be a return of capital . but same we cannot strongly put for the Crisis hit lenders like DHFL, Yes Bank, etc.

A Crisis-hit Credit rating agency is a much more fertile hunting ground than a Crisis-hit bank or nbfc.
As we have a direct comparison of Lehman Brothers Vs Moody’s.

Is there a chance it may not come back because who knows what are regulators going to do? but they will not kill just CARE for what happened in IL&FS as till 2017 CARE, ICRA and CRISIL were rating them then BRICK WORKS replaced CRISIL in 2018.

For some reason, I find people more Biased towards CARE the feeling comes as if they are the most tinted but contrary to everyone’s belief I found more direct allegations towards BRICK works guys and ICRA in Grant Thornton report (

I can say of big three CARE is clearly the least competent one but that doesn’t mean they are the most tinted one.

Whereas if you study all the big Frauds happened in history you might end up finding a correlation between Fraud with Most competent ones.

and from regulators point of view killing them all doesn’t sound like a great idea. I find it hard also to think about the scenario that we will take a very different path than the rest of the world and plan to live without rating agencies.

I think at max there will be some change in regulation, like what happened in U.S after the Crisis. The change was simple - they introduced The Dodd-Frank Act increased the liability for issuing inaccurate ratings.

I think the real Joy moment for everyone going to be when SFIO finds out individuals who took bribe from IL&FS and jail them. This will send the fear inside the spine of all the people doing wrong in CRA businesses & this fear will be good for the system rather than a stupid regulation issuers or investors pay etc.

There is a lot of debate over issuers or investors pay - You can read this nice article gives good perspective why things are the way they are

Now, coming back to questions of being precisely right about -
when ?
how ?
and how much ?

Who knows, I don’t think we can find the bottom. In this business, it’s okay to be roughly right than precisely wrong.

I am more worried about being precisely wrong -
My fear is if you look at u.s the market share is dominated by big two Moody’s and S&P - 85% ( roughly equal ) and Fitch is 15%.

Over time what if that happens with CARE? Will they lose market share from 36% to 15% and lose it to CRISIL & ICRA.

Do we have data how markets share shifted in US over time ? Specifically before and after financial crisis. ( I am looking but can’t find )

I think that’s the only scenario where there will be potential risk of not making money here and i can’t think of any other reason the guys selling at lower circuit everyday potentially be worried about.

I would love to hear from them what’s their worry? anyone here trying to get out of it everyday please let know your worries.

Secondly, i strongly believe this pain going to improve the industry rather than going to kill them, there are lots of evidence pain kill banks and NBFCs not CRAs.

If someone can help here figuring out how marksahare of CRAs other countries moved over time would be very helpful.



To understand this we need to understand why this hasn’t happen with CARE in last 25 years ? why they are the 2nd biggest by market-share ? If we understand that then we can see what that might change due to this crisis or general changing environment.

I think CARE defiantly has cost competitiveness over the other too, This could be one the reason they have market share where the issuer don’t really care about being rated fairly or issuer don’t want to pay too much for just having a stamp on it ( like many SMEs) .

Infact CARE gained market-share in last decade or so

CARE gained almost 9% market share - Due to market share gain in SME segment. Which should due to their low cost of rating. ( low employee cost compared to others).

I think SMEs are hit the most in this downturn and its reflecting in the Q1 numbers, Its also possible some SMEs have just delayed the fee and over the years number may come out to be okay.

If rating going to remain commodity like product, under certain cases it is then CARE business model works. i don’t see them losing market-share. Its not that SMEs are moving towards CRISIL or ICRA in recent time bcoz they happy to pay higher fee for more trusted ratings.

Q1 number doesn’t suggest that - although some analysts were making this conclusion over the conf call.

Perhaps the reason why CRISIL bought the stake in CARE, If they don’t see any moat in CARE business model then why they would have invested.

More i think about least i feel there is much risk in the stock contrary to markets.I am always scared of going against market as most of the time they are correct but in this case looks like consensus is wrong.


Sir - In drawing parallel to the US economy of 2008, are you trying to say that current situation in India is similar to 2008. Or Is it just a comparison from the past to depict how worse the situation could be in case of CARE. If its the former, then it is going to impact all the rating agencies and not just CARE. If it is the latter case, then the recovery in debt market might not take that long. CARE has enough cash on it balance sheet to cover for the operating cost and there will be some revenue going forward (it will not go down to 0) to cover the operating costs. Unless CARE looses market share to other CRA what could be the worst possible scenario ?

Dear @Sanjay_Bakshi Sir,

Part A

I think that the comparison between care in 2019 and moody’s post 2008 crisis is not justified :

  1. Credit/Liquidity crisis in India in 2019 is nowhere close in its magnitude in USA & world wide in 2009 : Which means that the time taken by Moody’s to recapture its revenues and income levels (7 years as per your chart) may not be as long as for CARE.

  2. Business cycle which Moody’s was in 2003-06 is not the same as business cycle which India is in 2016-19 : Moody’s as per your table had grown its revenues by 80% and PAT by 100% in 2003-06. On the other hand CARE in past three years has grown its revenues and PAT by just ~10% in past 3 years (not CAGR). This means that in India, as opposed to US of 2008-09, we are no where close to the peak of a high credit growth business cycle or anything like that. Infact, in India, credit growth cycle did perhaps hit the bottom somewhere in FY18 and is likely to pick up. Business cycles are very important to understand the growth of debt in the economy and hence the growth of earnings for any credit rating company.

  3. One more important factor can be the real GDP/credit growth in India over the next 7 years compared to 2006-13 in the USA are not the same and hence growth in revenues for ratings firm in India vs USA - arguably the possibilities are much higher for Indian firms. Especially relevant if one considers the credit and business capex cycle we are in as I explained in previous point.

Part B

Now for a moment, let us ignore Part A and assume that the two cases are comparable, let us look at investment returns (cause ultimately we are in this trade for returns not just analysis) post the scandal broke for Moody’s.

Firstly we have to note that the market has already priced in a lot of bad news as CARE Ratings has fallen by more than 60% in the last one year. The stock price that we are talking about today is a very relevant metric. We are not talking about Moody’s at USD 70 per share, we are talking about Moody’s at USD 30 per share when it had fallen by 60% from its highs- which grew by 7x to USD 210+ in the next 12 years.

Also, this 7x is in USD terms, in rupee terms it is up ~12x (Rupee depreciated from 40 to 70 in the same period). 12x in 12 years (after the scandal broke) is a sensational return - a CAGR of 23% - not to add the constant dividends yield which can be as high as ~4-5% - this means that for any buyer in the USA of Moody’s post its 60% fall once the scandal broke - made 25+% CAGR in rupee terms over the next 12 years - an absolutely sensational returns. I think most of the people in India would be supremely happy with just 15% over 12 years.

Disclosure: Less than 0.25% of portfolio bought after Q120 results to study further.


Excellinet point Sarvesh on Credit Cycle - Since 2007-08 financial crisis the corporates and banks went through very long deleveraging cycle and it seems to be bottoming out. May be final leg of pain left. In 2015 the degrowth in corporate capex hit -25% since then it has been recovering today its around -10% but honestly i don’t know when cycle will pick up but we can safely say that cycle seems to be bottoming out and the odds are cycle may pick up in next 5 to 10 years due to various reasons we discussed already like –

  • Twin balance sheet problem in on its way to recovery.
  • IBC – The biggest game changer for bond markets.
  • Bottoming out of Corporate Debt cycle.
  • The flow to Debt MF and Insurance will continue to grow.


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RCap accusing CARE for unjust rating action.pdf (204.5 KB)

Acc to Reliance Capital they activated the payment of interest on NCDs due on 9th Sep on the same day but the payment didn’t go through due to some technical glitch in bank server. The payment went through on the next working day or 11th Sep.
Reliance Capital accuses CARE rating for not paying heed to this fact and downgrading it from BB to D:

" CARE’s pre-meditated and prejudiced actions are further borne out by the manner in which it conducted the SEBI prescribed review process.

Despite the Company making a specific request in writing for a meeting with the Review Committee, and despite having allowed such meetings in the past, CARE did not allow the same in this instance, and went ahead and unilaterally completed the alleged review upholding the proposed rating action in the Company’s absence.

The final mockery of the process was CARE informing the Company, AFTER the review meeting had already ended and a decision taken in the company’s absence, that a meeting could be scheduled- which obviously would have been an exercise in futility as the review had already been completed.

Even then, CARE did not give any reasonable time for such a meeting and also insisted that the meeting be held in an altogether different city, and gave just 24 hours time to company officials to plan their travel and participate in the same.

CARE is functioning without a CEO as the previous CEO was sent on leave. The acting CEO was on vacation and refused to be engaged.

The highly unprofessional, biased and prejudiced and unjustified actions of CARE will precipitate a chain sequence of events that will gravely harm the interests of millions of retail and institutional investors having direct and indirect exposure to securities of the Company. "

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Sorry. I don’t agree with you on this. CARE has done what it is getting paid to do. This kind of move is possibly not seen before as the regulatory/ fiduciary bodies were heavily influenced by cronies and more often than not dancing to their tunes. Things are changing and it is changing in the right direction. Reliance capital has released a press note to explain their stand and they have every right to do so.
A default is a default(payment did not go thru due to a technical glitch! Wow we are talking about Reliance ADAG.


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