1. I P O N O T E
C r e d it A nal ys i s A n d R e sea r c h L t d . December 07, 2 012
Price Ban
nd : `700 - 750 per sha
are
Minimum Bid Lot Size
m e : 20 Equ Shares
uity
IPO open during
ns : Dec 07 – 11, 2012
7
Book Run
nning Lead Manager
M : Edelw
weiss Financi Service Lt DSP Merr Lynch Ltd
ial td, rill d
Kotak Ma
ahindra Capi Company Ltd, ICICI S
ital y Securities Ltd
d
IDBI C
Capital Marke Services L
et Ltd.
To list on
n : NSE & BSE
PE : 17.3x (based on b
base price)*
: 18.5x (based on c price)*
cap
Market Cap post-listin
ng : `1999 or $370m (based on the cap pric
9Cr mn n ce)
Market Cap of Free Float : `2141 or $396m (based on the cap pric
1Cr mn n ce)
*Based on FY12 EPS
n
2mn equity shares of `10 each aggre
IPO of 7.2 s 0 egating to `540Cr or $99.
.2mn (at the cap price).
Shareholding Pattern
n
Pre-Issue Post-Issue
No. of S
Shares % Holding No. of Shares % Holding
Pre IPO Inv
vestors 2,85
5,52,812 100.00% 2,13
3,53,112 74.78%
QIBs exclu
uding MFs 0 0.00% 34
4,73,855 12.17%
Mutual Fun
nds 0 0.00% 1,25,995
1 0.44%
Non Institu
utional Investors
s 0 0.00% 10
0,79,955 3.78%
Public 0 0.00% 25
5,19,895 8.83%
Total 2,85
5,52,812 100.00% 2,85
5,52,812 100.00%
Executive Summary
e
CARE is a leading, full service cred rating com
dit mpany in India and for the year ended March 31, 20
a, e 012, it was
the secon largest rating company in India in te
nd y erms of rating turnover. T Company offers a wid range of
g The y de
rating and grading serv
d vices across a diverse rang of instruments and indu
ge ustries.
Credit rating is a mandatory requirement for iss suance of deb instrument in India, wh
bt ts hich make it a lucrative
business. Further, the rapid growth has seen in t internation markets w
the nal which include fast growing Asia.
CARE is t second la
the argest rating company in I rnover for the year ended March 31,
India in terms of rating tur
s e
2012. It is the leading credit rating agency in Ind for IPO gr
s dia rading, and ggraded larges number of I
st IPOs since
the introduction of IPO grading in India.
CARE has long track record of 19 y
r years in rating business. It enjoys a stro market p
g t ong position with r
relationship
with 4,644 clients as of September 3 2012.
4 f 30,
CRISIL w acquired by S&P and IC
was b CRA by Mood dy’s, which lim their exp
mits pansion in the global marke as S&P
e ets
and Mood dy’s have already presen nce in many countries. H However, CA ARE is well s to expand in many
set d
countries..
The comp pany’s IPO prriced at 21.5x annualized EPS of FY13 which is far inexpensive vis-à-vis pee CRISIL
x 3, r e ers
which trad at 36.9x and ICRA 30.9x to annualized EPS for F
des a FY13.
Keynote Capitals Ltd. Page 1

2. Our View
w
We recom
mmend investors to invest in CARE IPO on account o inexpensive valuation.
O of e
Company Backgroun
y nd
CARE is a leading, full service cred rating com
dit mpany in India and for the year ended March 31, 20
a, e 012, it was
the secon largest rating company in India in te
nd y erms of rating turnover. T Company offers a wid range of
g The y de
rating and grading serv
d vices across a diverse ran of instrum
nge ments and inddustries. It als provides general and
so
customize industry research repo
ed r orts. Since incorporation in April 199 it has co
93, ompleted 19,058 rating
assignme ents and has been rated Rs. 44,036.03 billion of debt as of September 3 2012. It had rating
30,
hips with 4,64 clients as of Septemb 30, 2012 The Company’s existing shareholde include
relationsh 44 s ber 2. ers
domestic banks and finnancial institutions, such as IDBI Bank, Canara Bank SBI and IL&
s k, &FS, among oothers.
Promoter and Manag
rs gement
Mr. D.R. D aging Directo and Chief Executive O
Dogra (Mana or Officer)
Mr. Rajes Mokashi (Deputy Mana
sh aging Director)
Mr. P.N. S
Sathees Kum (Chief Ge
mar eneral Manag Ratings)
ger, )
Industry Overview
Global Cr
redit Rating Industry
Evolution
n
The credit rating busin ness traces its origins to th mercantile credit agenc
s he e cies in the Un
nited States o America.
of
Their func ction was to rate merchan ability to honour their financial obligations. The first such ag
nts’ e gency was
establishe in New York in 1841 by Louis Ta
ed Y appan. Robe Dun subs
ert sequently acqquired the ag gency and
published its first rating guide in 1859. A simila mercantile rating agenc was formed by John Br
gs ar cy d radstreet in
1849. The expansion of the ratings business to securities ra
e o s ating began in 1909 when John Moody started to
n y
rate US r railroad bonds and subse
s, equently utility and industrial bonds. Po
y oor’s Publishing Company issued its
y
first rating in 1916, St
gs stics Company in 1922, and the Fitch Publishing Com
tandard Statis mpany in 192 In 1941,
24.
Poor’s Pu ublishing and Standard S
d Statistics mergged to becom Standard & Poor's Co
me orp. Other innternational
rating age encies include Japan Credit Rating Agency Ltd (JCR and A.M. B
e RA) Best amongst others.
The Cred Rating Ind
dit dustry in Indi
ia
In India, the first credit rating agenc Credit Rating and Infor
t cy, rmation Servi ices of India Limited (“CRISIL”), was
set up in 1987. A sec cond rating a agency, ICRA Limited (the known as, Investment Information and Credit
A en
Rating Ag gency of India Limited) (“IC
a CRA”) was esstablished in 1991 and a th agency, CARE, was e
hird established
in 1993. D Duff and Phe elps Credit Rating India (P Limited wh
P) hich started its operations in 1996 was renamed
s s
Fitch Ratiings India Private Limited (Fitch) in 200 and renam again to India Ratings and Research Private
01 med s
Limited in 2012. Brickw
n works Ratings India Private Limited (Bri
s e ickworks) beg its rating business in 2
gan 2008. SME
Rating Ag gency of India Limited (SMERA) also be
a egan its rating business in 2008.
g
Historicall bank credit has been a major sourc of funding for the corpo
ly, ce orates. Banks in India enj relative
s joy
advantage of extending loans as different from investing in debt papers, w
e which are not required to b ‘marked
t be
to market’. This provides them with an advantag in the rising interest rate scenario. Banks in India also enjoy
ge g e
the benef of lower cost of funding as the interest on savings deposits is r
fit s regulated. Th growth in b
his bank credit
has led to growth in de issuances by banks in India. These banks have raised consid
o ebt s derable amounts of debt
from mark to meet gr
ket rowing capital requirement either by issuing Tier-II b
ts ssuing hybrid bonds.
bonds or by is
within Basel II, the second of the Base Accords wh
Further, w d el hich contains recommendations on banking laws
s
and regul lations issued by the Bas Committe on banking supervision various ap
d sel ee n, pproaches for banks to
determine credit risk have been pre
e escribed with progressively increasing r
y risk sensitivity The RBI introduced a
y.
phased approach to th implement
he tation of Base II in India. In the first st
el tage, Indian b banks were r
required by
the RBI t adopt a ‘standardized approach’ f credit risk. Under the ‘standardized approach the RBI
to ‘ d for e h’,
recognize certain rating agencies a eligible cre rating age
ed as edit encies and In ndian banks a required to use such
are o
Keynote Capitals Ltd. Page 2

3. eligible cr
redit rating ag
gencies to ass
sess their credit risk in order to determin complianc with capital adequacy
ne ce
requireme ents.
Business Operations
s s
CARE is primarily engaged in the b business of providing ratin services. T company also provide research
ng The es
services and risk ma anagement so olutions (thro
ough Subsidiary). It is ex
xpanding foo
otprint internaationally to
provide raating service in other c
es countries and technologica assistance services to other rating agencies
al e o g
located ouutside of India. CARE’s un
nconsolidated total income has increas from Rs. 549.11mn for the FY08
d e sed
to Rs.2, 171.93mn for the FY12 at a CAGR of 4 41% during such period; a unconsoli
and idated total in
ncome was
Rs. 1,0255.38 million fo the six mon
or nths ended S September 30 2012. The company’s P
0, PAT has incre eased from
Rs. 266.8 mn for the FY08 to Rs. 1
85 1,157.02 million for FY12 a a CAGR of 44.3% during such period and PAT
at f d,
was Rs. 5500.49mn for the six month ended Sep
hs ptember 30, 22012.
The comp
pany engage in the follo
ed owing business operatio
ons
Rese
earch Service
es
R
Risk Managem
ment service
es
Rating Ser
rvices
CARE Ltd.
C
The follow
wing table se out key o
ets highlights for the periods indicated:
operational h s
Dur
ring the six
mon
nths ended
During the f
financial yea ended Mar 31,
ar rch
Sep
ptember 30,
2009 2010 2011
2 20
012 2012
Total new assignments completed
w 1,579 1,808 2,187 5,980 3,237
Total deb instruments cumulatively rated (up
bt
to the ye ended March 31 / six m
ear months 5,452 7,206 9,225 14
4,524 17,237
ended September 30) )
Total vol
lume of debt rated (Rs. in Billions)
r 5,910.66 6,527.00
6 8,0
068.78 9,26
68.61 3,571.20
Total ind
dustry researc reports com
ch mpleted 58 134 167 205
2 136
Total eco
onomic resea
arch reports completed* 11 19 60 73
7 39
* Excludes t
the Daily Debt Market Update, w
M which is published four days a w
week from Tues
sday to Friday, a
and the Debt Ma
arket Review,
which is pub
blished monthly.
CARE ent tered into a non-binding m
n memorandum of understand ding with four credit rating agencies, ea located
r ach
in Brazil, Portugal, Ma alaysia and South Africa, t establish a international credit ratin agency, which would
to an ng
provide innternational scale ratings to assist loca issuers in mobilizing re
s al esources from internationa financial
m al
markets. The compan received a no object
ny tion letter fro SEBI to enter into a joint ventu
om ure for the
establishmment of an in nternational credit rating agency, subject to satisfac ction of certain conditions mentioned
therein.
Keynote Capitals Ltd. Page 3

4. Strengths
s
Establ lished prese ence in rating debt instr ruments and bank loans and facilitie CARE ha over 19
d s es: as
years o experience in rating deb instruments and related obligations c
of e bt s covering a wid range of se
de ectors, and
as of SSeptember 30 2012, The company ha rating relat
0, ad tionships with 4,644 clients. It is well equipped to
h
rate mmost kinds of short, medium and long
f g-term debt instruments, such as com mmercial pap per, bonds,
debent ence shares a structured debt instrum
tures, prefere and ments; bank loans and fac cilities, both f
fund-based
and non fund-based; and dep posit obligatio
ons, such a inter-corpo
as orate deposit fixed dep
ts, posits and
certific
cates of depossit.
Domai experienc across a range of se
in ce ectors: CARE has rated d
E debt instrumeents covering a diverse
g
range of sectors, su as manuf
uch facturing, ser
rvices, banks and infrastru
ucture. It has experience in providing
n
debt aand issuer ratings to man types of e
ny enterprises, in porates, bank financial institutions,
ncluding corp ks,
public sector undertakings, stat governme undertakin
te ent ngs, sub-sovvereign entitie NBFCs, S
es, SMEs and
micro-ffinance institu
utions.
Strong rating cred
g dibility and b
brand presennce: CARE’s brand repres evel of rating credibility,
sents a high le
as ratings display high ordinality In order fo ratings to b used as a reliable indi
h y. or be icator of cred risk, the
dit
compa any believe that it is critical for a rating agency to demonstr
t rate, over a period of tim strong
me,
correla
ation between the actual pe
n erformance o the rating it assigns and what the rating itself conv
of veys. Since
2007, it has publish default an transition s
hed nd studies evaluaating the perf
formance of raatings, with m
most recent
default and transitio study published in 2012 covering the nine year p
t on 2 e period from March 31, 2003 to March
31, 2012.
Strong financial position and profitability Since inco
g p d y: orporation in April 1993, CARE has completed
19,058 rating assig
8 gnments and has rated Rs 44,036.03 billion of deb as of September 30, 20
s. bt 012. It had
ratings relationships with 4,644 c
s s clients as of S
September 30 2012. The v
0, volume of deb rated by the company
bt e
increas from Rs. 4,325.84 billi as of Mar 31, 2008 to Rs. 9,268.61 billion as of March 31, 2012, at a
sed ion rch
CAGR of 21.0% du
R uring such pe eriod. CARE posted unco onsolidated to income o Rs. 2,171.9 mn and
otal of 93
PAT o Rs. 1,157.0 million in FY12. The co
of 02 ompany postted strong EBBITDA margin of 81.3%, 7
n 76.4% and
75.3%, respectively for the financial years 2
y, 2010, 2011 an 2012. It has posted EB
nd BITDA margin of 74.9%
n
and 699.0%, respect tively, for the FY12 and the six months e
e ended Septem mber 30, 2012.
Objects o the Issue
of
1. Th objects of the Offer are to carry out the sa of 7,199,700 Equity Shares by t
he f y ale the Selling
Sh
hareholders and to achiev the benefit of listing th Equity Sh
a ve ts he hares on the Stock Excha anges. The
Co
ompany will not receive any proceeds from the O Offer, and all proceeds s
shall go to t
the Selling
Sh
hareholders.
Investme Risks
ent
(Please re to the RH for a comp
efer HP plete listing of risk factors)
f
• CARE business and revenues are impacte by change in the volu
E’s ed es ume of debt instruments issued and
bank loans and fac cilities provide in the India debt mark Any reduc
ed an ket. ction in such volumes may adversely
y
affect its business, results of op
t perations and financial perf
formance.
• Comp pany’s revenu and finan
ues ncial condition are primaril linked to th demand fo rating serv
n ly he or vices in the
se t redit spreads may negative impact the issuance
Indian debt market. Any increas in interest rates and cr
n ely e
of deb instruments or demand f bank loans or facilities for which the company pro
bt s for e ovide rating s
services.
• Comp petition may affect market share or profitability wh
hich could ha
ave an adver
rse effect on business,
n
financ condition and revenues
cial s.
Keynote Capitals Ltd. Page 4

5. Peer Com
mparison (RsCr)
Company Name
y CRISIL ICR
RA CARE
Net Sales s 806.9
96 207.46 190.48
Profit Afte Tax
er 200.8
83 45.13 115.77
EBITDA M Margin 32.5% 30.1% 71.1%
Paid up EEquity Capital 7.0
02 10.00 28.55
Market Ca apitalisation 74446 1384 2141
Latest P/E Ratio(x) - Annualised FY
E A Y13 36
6.9 30.9 21.5
Price (Rs) ) 10223 1384 750
Face Valu ue 1 10 10
Valuation
n
CARE’s IP priced at 21.5x annualized EPS of F
PO 2 FY13.
Profit & L
Loss Stateme
ents - Conso
olidated (R
RsCr)
For Perio ended
od 30-09-2012 31-03-2012
3
Income
Revenue From Operations
e 91.21 190.48
Other Inc
come 12.76 28.32
Total Inc
come 103.97 218.80
Expenditture
Employee Benefits Ex
e xpense 24.32 41.64
Other Expenses 7.87 13.33
Deprecia
ation 1.91 2.14
Total Expenses 34.10 57.11
Restated Profit befor Tax
d re 69.88 161.68
Current T
Tax 19.34 45.22
Deferred Tax Expensee 0.85 0.67
Total Tax Expense
x 20.19 45.89
Minority interest -0.09 0.02
Restated Profit after Tax
d 49.78 115.77
Keynote Capitals Ltd. Page 5

6. Balance S
Sheets – Con
nsolidated (RsCr)
As at 30-09-2012 31-03-2012
3
Non Cur rrent Assets
Fixed Asssets
Tangible Assets 47.85 48.47
Intangible Assets
e 0.30 0.60
Goodwill on consolida
ation 7.2
23 7.23
Total Fix Assets
xed 55.38 56.29
Non Curr
rent Investme
ents 105.10 95.49
Long Ter Loans and Advances
rm d 12.83 11.75
Other No Current Assets
on 0.56 0.92
Total No Current As
on ssets 173.87 164.45
Current AAssets
Current Investments 232.4
42 170.45
Trade Reeceivables 52.83 15.97
Cash and Bank Balances
d 28.15 70.25
Short Ter Loans and Advances
rm d 1.51 1.27
Other Cuurrent Assets 5.67 7.22
Total Current Assets
s 320.57 265.16
Non Cur rrent Liabilitie
es
Deferred Tax Liability (Net) 4.35 3.50
Long term provisions
m 3.66 2.28
Total No Current Liabilities
on 8.02 5.78
Minority interest 0.50 0.59
Current Liabilities
Trade Paayables 0.05 0.09
Other Cu
urrent Liabilitie
es 54.95 39.21
Short Ter Provisions
rm s 4.31 7.10
Total Current Liabilit
ties 59.31 46.40
Net wort
th 426.61 376.84
Net wort represente by:
th ed
Sharehoolders' Fundss
Share Ca
apital 28.55 28.55
Share Ap
pplication Mon
ney - -
Employee Stock Option Outstandi
es ing - -
Reserves and Surplu
s us
General RReserves 103.71 103.71
Securities Premium
s 2.01 2.01
Capital R
Redemption Reserves
R 0.2
23 0.23
Profit and Loss Account
d 292.11 242.34
Total Reserves & Surplus 398.06 348.29
Net wort
th 426.61 376.84
Keynote Capitals Ltd. Page 6

7. Keyn
note Capitals Ltd.
s
Member
tock Exchang Mumbai (INB 23093053
St ge, 39)
National Stock Excha
ange of India Ltd. (INB 010
0930556)
Over the Counter Exch
hange of India Ltd. (INB 20
a 00930535)
Central D
Depository Se
ervices Ltd. (IN
N-DP-CDSL-152-2001)
Re
egistered Off
fice
Th Ruby, 9th Fl
he loor
Senapati Bapat M
Marg
Dadar (W Mumbai – 400 028.
W),
T: +91-22-302
266000, F: +91
1-22-30266088
8
www
w.keynotecapita
als.com
er
Disclaime
This repo by Keynot Capitals L
ort te Ltd. is purely for informat
y tion purpose and is base on the Re Herring
ed ed
Prospectu for the pu
us ublic issue o the compa
of any under coverage, pub blished financial statements, public
informatio and the rec
on cent analyst mmeeting of the company. N
e Neither the infformation nor any opinion expressed
r
in this rep
port constitut an offer, or an invitation to make an offer, to b or sell th securities mentioned
tes buy he
herein. Directors, offic
cers, clients o employees of Keynote Capitals or its affiliates may have p
or s e positions in
securities covered in this report or in related in
t r nvestments. Keynote Cap pitals Ltd may also have proprietary
y
trading positions in securities cov
s vered in this report or in related inv
s n vestments. OOpinions and estimates
mentioned herein, if an are based on workings of Keynote C
d ny, Capitals only. Investors in t issue are advised to
the
read the RRHP carefully before subs
y scribing to the issue. Keyno Capitals L or any of its directors, officers or
e ote Ltd. f
employee shall not in any way be responsible for any loss arising from the use of th report. Inv
es n e his vestors are
advised to apply their own judgment before actin on the cont
o o ng tents of this re
eport.
Keynote Capitals Ltd. Page 7