Concall AI

CARE Ratings Limited — Q4 FY24 earnings call

Call held 10 May 2024

Management summary

CARE Ratings reported strong financial performance for Q4 and FY24, with consolidated revenue growing 19% and PAT by 20% for the full year. The company saw a significant shift in its business mix, with non-rating businesses now contributing 10% of revenue, up from 6% last year, driven by over 100% growth in analytics and over 65% growth in advisory. Key strategic initiatives include SEBI approval for CARE ESG Ratings and expansion into sovereign credit ratings via IFSC-GIFT City, alongside continued international growth in Africa.

Highlights

FY24 Standalone Revenue from operations: INR283 crores, up 14% YoY.
FY24 Standalone PAT: INR119 crores, up 15% YoY.
FY24 Consolidated Revenue from operations: INR332 crores, up 19% YoY.
FY24 Consolidated PAT: INR103 crores, up 20% YoY.
Q4 FY24 Standalone Revenue from operations: INR75 crores, up 10% YoY.
Q4 FY24 Standalone PAT: INR35 crores, up 35% YoY.
Rating to non-rating business mix shifted to 90:10 in FY24 from 94:6 in FY23.
Board recommended total dividend of INR18 per share for FY24.

Key financials

2 periods

Q4 FY24

Standalone Revenue
₹75 Cr
YoY +10%
Standalone PAT
₹35 Cr
YoY +35%
Consolidated Revenue
₹90 Cr
YoY +16%
Consolidated PAT
₹25 Cr
YoY +22%

FY24

Standalone Revenue
₹283 Cr
YoY +14%
Standalone Operating Profit
₹128 Cr
YoY +10%
Standalone OPM
45%
Standalone PAT
₹119 Cr
YoY +15%
Consolidated Revenue
₹332 Cr
YoY +19%
Consolidated OPM
34%
Consolidated PAT
₹103 Cr
YoY +20%

What they filed

Q1 FY27: revenue up 19.1%, net profit up 26.9% against the same quarter last year.

₹ Cr · quarterly

Line item	Q2 FY25	Q3 FY25	Q4 FY25	Q1 FY26	Q2 FY26	Q3 FY26	Q4 FY26	Q1 FY27
Revenue	117	96	110	94	136 +16%	112 +17%	131 +19%	112 +19%
Expenses	62	66	62	66	68	72	70	77
EBITDA	56	30	47	28	68 +21%	40 +33%	61 +30%	35 +25%
Margin	47%	32%	43%	30%	50%	36%	46%	31%
Other income	12	12	15	14	13	13	16	15
Interest	0	1	1	1	1	1	1	1
Depreciation	3	3	3	3	3	4	4	4
Profit before tax	64	39	59	37	77 +20%	49 +26%	72 +22%	45 +22%
Tax rate	27%	27%	26%	29%	26%	25%	26%	27%
Net profit	47	28	43	26	57 +21%	37 +32%	53 +23%	33 +27%
EPS	15.41	9.29	14.24	8.61	18.89	11.96	17.58	10.73

How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Ratings Business
14% FY24 Growth
Non-Ratings Business
10% FY24 Revenue Contribution6% FY23 Revenue Contribution
Analytics Division
100% Top Line Growth
Advisory & Consulting Division
65% Top Line Growthmarginally profitable Profitability
Africa (Mauritius + South Africa)
₹10 Cr FY24 Revenue35% FY24 PAT Margin

Guidance & targets

Market Share

Non-rating to Rating Business Mix Market Share · over time · Medium confidence 20:80

I had mentioned that progressively, we'd like to move towards an 80-20 kind of mix rate with the 20% coming from the non-rating businesses, that's over a period of time.

— Mehul Pandya, Managing Director and Group CEO

Operations

South African Subsidiary License Operations · H1 FY25 · High confidence received

But our expectation is that in the first half of the current financial year we should be getting the license from the regulator.

— Mehul Pandya, Managing Director and Group CEO

Profitability

Analytics Business Breakeven Profitability · in a couple of years · Medium confidence breakeven

And in a couple of years, we see that we will be breakeven for this entity as well.

— Jinesh Shah, Chief Financial Officer

Capital Allocation

Investment from Parent Company for Subsidiaries Capital Allocation · over a period of time · Medium confidence taper down

So they believe that and we are also quite conscious of the fact, working closely with the management of those subsidiaries to ensure that over a period of time, the investment from the parent company side has to taper down, right.

— Mehul Pandya, Managing Director and Group CEO

Risks & concerns

Volatile commodity prices and geopolitical uncertainties
medium

External headwinds for the Indian economy, requiring vigilance for sustained growth.

Management acknowledged
Sluggish private sector capex
medium

While government-led capex drives growth, private capex remains sluggish, though promising signs exist.

Management acknowledged
Non-rating subsidiaries (Analytics) operating at a loss
medium

Analytics division showed >100% top-line growth but similar loss as last year; management is optimistic about its trajectory and paramount focus on breakeven.

Management acknowledged
Potential dilution of consolidated margins from non-rating businesses
low

Non-rating businesses have different margin profiles, and their growth, while potentially impacting consolidated margins, is strategic for diversification and stability.

Analyst acknowledged

Areas of evasion (3)

Specific 5-year revenue projections for African subsidiaries
Precise quantification of research costs beyond broad figures
Detailed capital allocation plans for buyback/dividend beyond Board's prerogative

Q&A highlights

2 direct

Non-rating business profitability and breakeven timeline Partial

So for those products, certain expenses were incurred for developing the product, which qualified as a research cost, which cannot be capitalized, are put in the P&L. That is why if you see our expense other expense has gone slightly higher compared to the previous year... in a couple of years, we see that we will be breakeven for this entity as well.

Addresses investor concerns about continued losses and capital allocation to non-rating businesses, providing a timeline for breakeven.

Asked by Sahil Doshi

Rating stability and its correlation with pricing power Direct

Pricing and stability not related in any manner. So, this is purely, a pure-pure performance of the predictive capability of the ratings, which have been assigned and in correlation to that and how the movement of the rating is there. Pricing doesn't come into the picture in any way.

Clarifies that superior rating stability does not directly translate into pricing power, indicating pricing is influenced by other factors like debt size.

Asked by Devam

ESG Ratings launch, products, and revenue potential Direct

We have 6 products, 3 on the plain ESG Ratings side and 3 products are on the core ESG Ratings side. These products are mandatorily required to be put out as per the SEBI regulations... and we are ready to assign rating across these 6 product categories.

Provides concrete details on the newly approved ESG ratings business, outlining product offerings and readiness for market entry.

Asked by Rajiv Mehta

2 min read 6 chapters

Detailed narrative

Strong FY24 Financial Performance and Dividend Payout

CARE Ratings delivered robust financial results for FY24. Standalone revenue from operations grew 14% to INR283 crores, with PAT increasing 15% to INR119 crores. Consolidated revenue saw an even higher growth of 19% to INR332 crores, and consolidated PAT rose 20% to INR103 crores. For Q4 FY24, standalone revenue was INR75 crores (up 10% YoY) and PAT was INR35 crores (up 35% YoY), while consolidated revenue was INR90 crores (up 16% YoY) and PAT was INR25 crores (up 22% YoY). The Board recommended a final dividend of INR11 per share, bringing the total FY24 dividend to INR18 per share.

Strategic Shift Towards Diversification and Non-Rating Business Growth

The company is actively diversifying its revenue streams, with the rating to non-rating business mix shifting to 90:10 in FY24, up from 94:6 in FY23. Management aims to further increase the non-rating contribution to an 80:20 mix over time. This shift is supported by significant growth in non-rating subsidiaries; the analytics division's top-line grew over 100%, and the advisory & consulting division grew over 65%, becoming marginally profitable. The core ratings segment also maintained strong growth at 14% for FY24.

Expansion into ESG and Sovereign Credit Ratings

CARE Ratings is expanding into new high-potential areas. Its subsidiary, CARE ESG Ratings Limited, received SEBI approval on May 2, 2024, and is ready to offer 6 ESG rating products, including core and transition ratings. Additionally, the company is establishing an entity in IFSC-GIFT City to provide sovereign credit ratings and global scale ratings, aiming to capitalize on India's inclusion in global bond indices and fill a domestic market gap.

International Footprint and African Operations

The company's international presence is growing, particularly in Africa. The Mauritian subsidiary, operational since 2015, is profit-making and dividend-paying, contributing INR10 crores in revenue and a 35% PAT margin for the Africa region in FY24. A South African subsidiary is awaiting its regulatory license, which is expected in H1 FY25. Management expressed confidence in replicating its Mauritian success in South Africa, citing the significant bond market size there.

Macroeconomic Tailwinds and Capex Outlook

The Indian economy demonstrated remarkable resilience, growing 7.6% in FY24, primarily driven by a 10.2% surge in gross fixed capital formation. Corporate bond issuances increased 19% to INR10.2 lakh crores, and bank credit to industries grew 8.5%. While private sector capex remained sluggish, management noted promising signs with manufacturing capacity utilization surpassing long-term averages, anticipating a pickup in private investment in the near future, despite global geopolitical uncertainties.

Focus on Profitability and Technology Integration

While non-rating subsidiaries like analytics are still incurring losses, management is focused on achieving breakeven for this entity within 'a couple of years' by prioritizing credit risk management and monitoring products. The company is also investing significantly in technology, including leveraging Generative AI, to enhance analyst productivity and strengthen internal controls, aiming to become a tech-driven hub for efficiency and innovation.

This is an AI-generated summary of a publicly available earnings call transcript.

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