The current quarter results shows that all is not lost at CARE - the balance sheet quality is not deteriorated and the dividend policy is consistent. EPS of Rs. 12 in current economic scenario is commendable.
Some interesting facts to note -
Despite a near 24% drop in revenues YoY the employee cost is up 18% - shows a clear commitment to invest and retain the best of people.
Strong effort on cost control evident from a 24% drop in other expenses YoY.
The increase in receivables by 4% despite the 24% drop in revenues shows the cash crunch the customers are facing(or an early sign of accelerated revenue recognition??)
The dividend of Rs.8 for current quarter as compared to Rs.6 last year same quarter must be to bring back some investor appetite at best. The dividend yield should support the valuations in near team.
Have a look at the Q2 financials and Investor presentation.
Also, much cheaper than its competitors, CRISIL and ICRA in terms of P/E. Should economy come back, more credit off take should see their top line grow.
However, itās good that the price has been subdued for a long time for us to sow the seeds!
Newbie question.
What are the entry barriers for credit rating agencies. I am asking since I see new rating agencies coming like brickworks, India ratings etc
A) What is the fine.penalty for PMS/Mutual fund Managers for investing into companies that go for bankruptcy or dies with time or outcome is being a wealth destroyer.
They charge % of AUM irrespective of outcome and that too from Mark to Market and at times share profit too.
B) Bank going burst then what is the fine for RBI.
RBI is paid irrespective of outcome.
C) Economy / GDP going for a toss then what is the fine for the government.
Govt. enjoy all the privilege irrespective of the outcome.
D) Every brokerage house publish stock / price target and where is the penalty of false outcome.
E) Media full blown publish data / reports which may or may not be true and where is the penalty of false outcome.
F) What is the penalty for BANKS for lending money and later unable to recover and amount written off. Thatās a tax payer money.
Now lets look at the Rating agencies ā¦ They look at the same data/facts which anyone can see and try to forecast the likelihood of debt being honored. What they get is max. 10 bps that too from the client.
Every report clearly states that this is the OPINION and there is nothing like casting stone.
Now go back and check the accuracy level and sanity of every organization and you will appreciate the ROLE and IMPORTANCE of rating agencies for the health of the financial market.
The penalty is not about money ā¦ Its about the reminder of the SIGNIFICANCE of these organizations.
You make all fair points. Though, Iād say over the last few years, action against wrong doing has been swift & adequate. Few examples belowā¦
RBI has penalised both private and public banks for lax lending or evergreening practice by making heads roll at the top & putting them in Prompt corrective action so as to curtail their loan book growth. There has been positive action as well - that of recapitalising weak banks & merging weaker with stronger ones.
Corrupt promoters have had to lose control of their companies via action under IBC law.
Excessive pledges by promoters have been punished by the investors.
Independent directors too have had to resign, there is increased scrutiny on ID roles, responsibility and selection criteria.
Auditors have had their licenses suspended in some cases. Similarly, rating agencies have had their CEOs removed & debt issuers have moved to competitors perceived to be of good quality. There is also talk of more regulation by SEBI.
Wherever action is not taken by govt/regulators, market makes sure people who are not doing their jobs - be it owners, mgmts, auditors, ratings agencies, banks, intermediaries - are penalised by pummeling the stock.
On the contrary, people who are doing their jobs well are being rewarded - which is apparent from the rich valuations of select few companies in the market!
I see it as a very positive development for investors if all institutions of the market fulfill their mandate (at least try to do it) & deepen trust & investor confidence.
Very interesting. The trade therefore is in companies that erred earlier and got punished and are looking to be more transparent, cleaner and follow better business practices in the future. Would you then put CARE in that bucket of becoming a cleaner operator?
Incidentally CRISIL bought a stake in CARE in 2017.
Looking to be more transparent is a statement which may appear to be correct now but canāt be predict for long term. Is like PSU banks which we expect that they would do proper due diligence in future but who knows , the situation may be same after few years.
We trusted them in the past .But when the ratings moved from North to South in a short span along with allegations of graft, business considerations etc and investors lost heavily, the trust with rating agencies and auditors was lost.Thete wasnāt a fire within a smoke.
I, as an individual, will go with best of management rather than the ratings of these agencies.
Below should result in more sticky business for relatively more established rating agencies such as CRISIL
āIf an issuer has all the outstanding ratings as non-cooperative for more than six months, then the CRA shall downgrade the rating assigned to the instrument of such issuer to non-investment grade with INC status. If non-cooperation by the issuer continues for further six months from the date of downgrade to non-investment grade, no CRA shall assign any new ratings to such issuer until the issuer resumes cooperation or the rating is withdraw,ā Sebi said in a circular posted on its website.
The regulator said in case of multiple ratings on an instrument,where there is no regulatory mandate for multiple ratings, a CRA should withdraw a rating earlier provided the CRA has rated the instrument continuously for three years or 50% of the tenure of the instrument,whichever is higher and received a no-objection certificate from 75 % of bondholders of the outstanding debt for withdrawal of rating.
When a rating agency gives an objective or fair assessment, it is actually insurance for lenders. Why not make the lenders pay at least a part of the fees that rating agencies receive?
Proposed to hike Foreign Portfolio Investors (FPI) limit in corporate bonds from 9 per cent to 15 per cent. This should benefit Rating agencies including Care Rating.
