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    CARE Ratings

    CARERATINGGood
    Financial Services·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

    8
    • 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

    Metrics

    11

    Periods

    2

    Q4 FY24

    4
    • 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

    7
    • Standalone Revenue
      ₹283 Cr
      YoY+14.0%
    • Standalone Operating Profit
      ₹128 Cr
      YoY+10%
    • Standalone OPM
      45%
    • Standalone PAT
      ₹119 Cr
      YoY+15%
    • Consolidated Revenue
      ₹332 Cr
      YoY+19%

    Segment breakdown

    Ratings Business
    14.0% 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
    List

    Guidance & targets

    4
    CategoryTargetPriority
    Market Share
    Non-rating to Rating Business Mix
    20:80
    Medium
    Operations
    South African Subsidiary License
    received
    High
    Profitability
    Analytics Business Breakeven
    breakeven
    Medium
    Capital Allocation
    Investment from Parent Company for Subsidiaries
    taper down
    Medium

    Risks & concerns

    7
    RiskSeverity

    Volatile commodity prices and geopolitical uncertainties

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

    medium

    Sluggish private sector capex

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

    medium

    Non-rating subsidiaries (Analytics) operating at a loss

    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

    medium

    Potential dilution of consolidated margins from non-rating businesses

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

    low

    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

    3

    “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

    2 min read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.