The harsh portfolio!

This Nirmal Bang interview (link) provides a lot of insights into how the business is doing and how it might unravel going forward. My broad interpretation is that the company should do revenues of ~350cr. in FY23 (as per management guidance). Profitability will be much lower than in the past because they have finally decided to pay their employees properly and want to build a quality rating house (thats what the management pretends currently). Plus, they are investing more in technology to take care of smaller ratings (they are talking about algorithmic based ratings).

Lets speculate about margins, CRISIL makes a net profit margin of 20-25%, ICRA does 20-30%. Lets say with operating leverage playing out, CARE is able to meet 25% margin in FY23 (PAT ~ 87.5cr.). Now put a PE on it, in good times this business will be highly valued because its capital light and if they are able to diversify revenue lines, there is no reason why they should trade at large discounts to ICRA/CRISIL.

This might play out quite similar to what Sanjay Bakshi commented in the CARE thread

As for me, I stay invested and will increase my position size if management starts achieving their promises. Its quite cheap right now.

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