Credit Analysis and Research Ltd IPO : A MUST SUBSCRIBE !!!

Price Band: Rs. 700 - Rs. 750.

Retail Discount : NA .

Face Value: Rs.10.

Minimum Lot Size: 20 Shares.

Issue opens on: 07th December 2012, Friday.

Issue closes on: 11th December 2012, Tuesday.

Listing Date on: by 21st December 2012.

Total No. of Shares offered: 71,99,700  shares or 25.22 %

Employee Reservation: NA.

Net Public Offer: 6,61,15,000 shares.

QIB Book: 35,99,850 shares or 50 % of issue.

Non – Institutional Bidders: 10,79,955 shares or 15 % of issue.

Retail Book: 25,19,895 shares or 35 % of issue.

Equity Shares outstanding prior Issue: 2,85,52,812 shares.

Equity Shares outstanding post Issue: 2,85,52,812 shares.

Total Size of the Issue: Rs. 503.97 Crs - Rs. 539.97 Cr.

IPO GRADING: Exempted for Grading by SEBI.

KEY FINANCIALS (Consolidated)	31 Mar 2009	31 Mar 2010	31 Mar 2011	30 Sept 2012 6 month
Total Income (Rs. Crs)	103.15	153.79	176.62	104.00
Net Profit (Rs. Crs)	54.67	87.04	91.05	49.76
Net Profit Margin (%)	53.00	56.59	51.55	47.84
EPS (Rs.)	19.15	30.49	31.89	17.43

CREDIT ANALYSIS AND RESEARCH LIMITED : Credit Analysis & Research Ltd (CARE) was incorporated in 1993. CARE is the second largest full service credit rating company among six players in India. They offer rating and grading services across a diverse range of instrument and industries including IPO grading and grading of various types of enterprises, including shipyards, maritime training institutes, construction companies and rating of real estate projects among others. They also provide general and customized industry research reports. It is also has international presence in Maldives, Nepal, Mauritius, Hong Kong, Eucador, Mexico & has non-binding MOU with credit rating agencies in Brazil, South Africa, Malaysia & Portugal. CARE is professionally managed has no identifiable promoter & its existing share holders include domestic banks and financial institutions such as IDBI Bank, Canara Bank, SBI and IL&FS etc. Company's list of clients includes banks and other financial institutions, private sector companies, central public sector undertakings, sub- sovereign entities, Small and Medium Enterprises ("SMES") and micro-finance institutions. They are also leading credit rating agency in India for IPO grading having graded the largest number of IPOs since the introduction of IPO grading in India. CARE ratings has completed over 19,069 rating assignments as of September 2012 since its inception in April 1993. It has a rating relationships with 4,644 clients as o 30th September 2012.

CARE, being a credit rating company in India, is exempted by SEBI from obtaining IPO grading for its Initial Public Offer. None of the rating companies including CRISIL, FITCH or ICRA graded CARE IPO.

Valuations:

The company has fixed the price band at Rs. 700-750 per share. Based on FY12 annual EPS of Rs. 40.55, CARE will be trading at P/E range of 17.27 x to 18.5 x. This is at a significant discount to peers like ICRA & CRISIL which are trading at 27 x and 35 x respectively. For FY12 the consolidated revenues from operation stood at Rs. 190 Cr with Net Profit of Rs. 116 Cr resulting in Net Margin of 61.05 % with EPS of Rs. 40.55 CARE has consistently maintained high PAT margin of 53 % with strong ROE of 34 %. It is a debt free company. 85 % of its revenue comes from ratings business. At the IPO price the P/E is in range of 17.27 x to 18.5 x & P/B is in the range of 5.3 x to 5.6 x. Net worth o the company as on 3oth September 2012 is Rs. 427 Cr with Book Value of Rs.  149/share. Company has cash equivalents of Rs. 260 Cr. CARE is expected to post FY13 profit of around Rs. 100 Cr which can lead to EPS of close to Rs. 35. 

Retail Investors can subscribe up to maximum of Rs. 2,00,000 per application. CARE has strong financial position and is high cash-generating business and which is available at very reasonable valuations.

The object of the offer is to carry out sale of 71,99,700 Equity share by selling shareholders & to achieve the benefits of listing the Equity Shares on the Stock Exchanges. The Promoters will dilute 25.22 % of their holding in the company through the stake sale. The company CARE will not receive any proceeds from the offer and all proceeds will go to selling shareholders.

Out of the Offer of a total of 71,99,700 equity shares -  24,54,400 equity shares are being offered by IDBI Bank; 21,71,200 equity shares are being offered by Canara Bank. 9,14,500 equity shares are being offered by SBI; 8,55,500 equity shares are being offered by IL&FS; 5,84,100 equity shares being offered by Federal Bank. 58,605 equity shares being offered by IL&FS Trust held on behalf of Milestone Fund. 1,395 equity shares being offered by Milestone Trusteeship held on behalf of Milestone Army Trust; 60,000 equity shares being offered by ING Vysya; 1,00,000 equity shares being offered by TATA Investment. 

The Equity Shares being offered by the Selling Shareholders under the Offer have been held by such Selling Shareholders for a period of more than one year prior to filing of the Draft Red Herring Prospectus with SEBI. CARE has mandated six bankers for managing the IPO, with Karvy Computershare Private Limited as its registrar & DSP Merrill Lynch Ltd as lead banker, other bankers managing the share sale are Edelweiss Capital Limited, ICICI Securities Limited, IDBI Capital Market Services Limited, Kotak Mahindra Capital Company Limited, SBI Capital Markets Limited. 

According to me one should look for subscribing for CARE IPO, having 85 % o its revenue coming from rating business which earns better margins is thus being offered to public at very attractive valuation. CARE will be third listed company after CRISIL & ICRA - the rating agencies India Ratings (formerly Fitch), Brickworks & SME rating are unlisted. CARE can have Market Cap of around Rs. 2,141.46 Cr with cash of Rs. 260 Cr which brings its Enterprise Value of around Rs. 1,881.46 Cr at an Upper band of Rs. 750. 

Thus, with attractive pricing & strong fundamentals with good institutional holdings the Long term investors should look into subscribing the IPO for good opportunity. Short term investor can subscribe for listing gains.

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