CARE Ratings

CARE Ratings reported a modest increase in total income to ₹55.45 crores for Q3 FY22, up from ₹54.83 crores in the preceding quarter, representing a 1.13% sequential growth. However, Profit Before Tax (PBT) declined to ₹19.85 crores from ₹21.05 crores, with PBT margins at 31%, and Profit After Tax (PAT) stood at ₹14.90 crores, yielding a 27% margin. Expenses for the quarter increased by 5.4% to ₹35.6 crores, primarily driven by employee costs and other operational expenses.

Management expressed strong optimism regarding India's economic prospects, citing the finance minister's projection of 9.2% growth in FY23. The Union Budget was lauded as 'forward-looking,' with a significant focus on infrastructure, green development, and all-inclusive welfare. Key allocations include ₹10 trillion for CapEx in infrastructure, ₹3 trillion for wasteland development, and an extension of the ECLGS scheme to ₹5 trillion, all expected to crowd in private sector investments and support the MSME sector.

Corporate bond issuances in Q3 FY22 totaled ₹1.45 lakh crores, marking a 19% sequential decline and a 15% year-on-year decrease. In contrast, commercial paper issuances were robust, reaching ₹6.5 lakh crores, up 4% QoQ and nearly 50% YoY. Bank credit offtake showed improvement, with incremental growth of 6.7% as of December 2021, compared to 3.2% in 2020, though this was primarily driven by the retail segment, with industrial and services credit remaining in contractionary territory.

CARE Ratings is undergoing a transformative journey, structured around four pillars: Group approach, Technology, Talent, and Re-branding. The company recently rebranded as 'CareEdge' to reflect its vision of becoming a 'financial powerhouse' and 'Knowledge Purveyor.' Efforts include strengthening analytical rigor, diversifying revenue streams, and enhancing outreach through various knowledge-sharing forums and digital content, including webinars and social media.

The company's diversification strategy through its subsidiaries showed mixed results for the first nine months of FY22. The Africa subsidiary demonstrated strong growth, with revenues increasing 53% to ₹5 crores from ₹3.29 crores. The Advisory business also performed well, growing 55% to ₹5.7 crores from ₹3.68 crores. The Nepal business saw a 7.24% revenue increase. However, the IT technology-focused subsidiary experienced a 16% revenue decline, attributed to an exodus of tech talent and market inaccessibility.

Management emphasized technology as a key enabler for its transition, with ongoing efforts to upgrade systems and establish innovative solutions. While acknowledging some delays in technology projects due to talent efflux, the company reiterated its firm commitment to building a 'tech-led business.' Technology is seen as crucial for improving productivity, enhancing product quality, and deploying third-party products in risk solutions and advisory services.

Analysts raised concerns about CARE Ratings' growth trajectory compared to competitors and the lack of progress on a share buyback. Management stated that 9-month operating revenue growth was 'broadly in-line' with peers (6% or 7.1% adjusted). Regarding a buyback, management acknowledged it as an important internal deliberation but indicated that the Board is not formally considering it at this moment due to 'strong regulatory issues,' leading to investor frustration.