2. Credit Analysis and Research Limited (CARE)
• Incorporated in April 1993, is a credit rating, information and
advisory services company promoted,
• By Industrial Development Bank of India (IDBI), Canara
Bank, Unit Trust of India (UTI) and other leading banks and
financial services companies. In all CARE has 14
shareholders. Canara Bank, UTI, Credit Capital Venture Fund (I)
Ltd, Sundaram Finance Ltd, The Federal Bank Ltd, The Vysya
Bank, First Leasing Company of India, ITC Classic Finance Ltd,
Kotak Mahindra Finance Ltd, IFB Leasing and Finance Ltd,
Kalimati Investment Company Ltd, The Investment Corporation of
India Ltd, Varuna Investments Ltd, and 20the Century Finance
Corporation Ltd.
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3. Credit Analysis and Research Limited (CARE)
Services offered by CARE are
1. Credit rating
2. Information services
3. Equity research, and
4. Advisory services
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4. Services Offered by CARE
1. Advisory Services:
• Credit Reports - CARE offers credit reports on companies based on
published information and CARE's in-house data base. These
confidential credit reports are useful to entities considering financing
options, joint ventures, acquisitions and collaborations with Indian
companies.
• Sector Studies - CARE from time to time conducts studies on select
sectors of the Indian economy, particularly those which were largely
government controlled and funded till recently, but have been thrown
open for private investment. Studies on the Indian Power Sector,
Fertilizer Industry and Municipal Finances have been completed. CARE
has also prepared reports on twelve of the larger states of the Indian
Union, which account for the bulk of foreign direct investment into
India. CARE also regularly prepares reports on important segments of
the Indian economy. These reports are used by industry participants,
financial intermediaries and also by analysts in CARE for their rating
reports.
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5. Services Offered by CARE contd….
• Project Advisory Services - For financing its infrastructure,
India is increasingly relying on private sector participation.
CARE uses the expertise gained in evaluating the credit risk of
projects in areas such as roads, ports, power and telecom to
advise investors and banks about the regulatory framework, the
specific project risks and the ways of risk mitigation. CARE has
helped independent power producers in India understand the
functioning of the principal power purchasers, the State
Electricity Boards and evaluate options for mitigating purchaser
risk. CARE has also worked closely with project sponsors to
structure their debt securities based on estimates of cash flows.
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6. Services Offered by CARE contd….
• Financial Restructuring - The business risk faced by Indian companies
increased following the liberalisation of Indian economy in 1991. To
compete in the changed environment, companies have had to reassess
their capital structures. CARE uses its knowledge about various industry
sectors to advise companies about the optimal capital structure and the
financial restructuring options.
• Valuation - CARE carries out enterprise valuations for company
managements, prospective and exisiting business partners or large
investors. The Disinvestment Commission, Government of India, has
used CARE's services for valuing 20 state owned enterprises.
• Credit Appraisal Systems - CARE helps banks and non banking
finance companies to set up or modify their credit appraisal systems.
• Debt Market Review - CARE's Advisory division also publishes a
monthly bulletin "debt market review" on the happenings in the debt
market and general development in the economy in the previous month.
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7. Services Offered by CARE contd….
2. Credit Rating Services
- CARE's Credit Rating is an opinion on the relative ability and
willingness of an issuer to make timely payments on specific debt or
related obligations over the life of the instrument.
- CARE rates rupee denominated debt of Indian companies and Indian
subsidiaries of multinational companies.
- CARE undertakes credit rating of all types of debt and related
obligations (all types of medium and long term debt securities such as
debentures, bonds and convertible bonds and all types of short term debt
and deposit obligations such as commercial paper, inter-corporate
deposits, fixed deposits and certificates of deposits).
- CARE also rates quasi-debt obligations such as the ability of insurance
companies to meet policyholders obligations.
- CARE's preference share ratings measure the relative ability of a
company to meet its dividend and redemption commitments.
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8. Credit Analysis and Research Limited (CARE)
• Long term debt instruments-Rating Symbols
CARE AAA : Highest Safety
CARE AA : High Safety
CARE A : Adequate Safety
CARE BB : Inadequate Safety
CARE B : High Risk
• Medium term debt instruments-Rating Symbols
CARE AAA : Highest Safety
CARE AA : High Safety
CARE A : Adequate Safety
CARE BB : Inadequate Safety
CARE C : High Risk
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9. CARE
Short term debt instruments Rating Symbols
PR 1: Superior capacity
PR 2: Strong capacity
PR 3: Adequate capacity
PR 4: Minimal degree of safety
PR 5: Default or likely in default on maturity
.Credit Analysis Rating
CARE 1: Excellent Debt Management Capacity
CARE 2: Very good Debt Management Capability
CARE 3: Good capability for Debt Management
CARE 4: Barely satisfactory capability for debt management
CARE 5: Poor capability for debt management
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10. Services Offered by CARE contd….
3. Other Rating / Grading Services : IPO Grading
- CARE's IPO grading is a service aimed at facilitating the assessment
of equity issues offered to public.
- CARE's IPO grading is an independent and professional opinion on
the fundamentals of the issuer.
- The grade assigned to any individual issue represents a relative
assessment of the 'fundamentals' of that issuer.
Utility to market participants
- CARE’s IPO grading would help the investors particularly the retail
investors better appreciate the meaning of the disclosures in the issue
document to the extent that they affect its fundamentals. IPO grading is
expected to be one of the inputs in the investor’s decision making
process.
- Moreover, such a service would be particularly useful for assessing the
offerings of companies accessing the equity markets for the first time
where there is no track record of their market performance. Issuers
would also benefit from CARE's IPO grading as it would help them in
benchmarking themselves in the market place.
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11. Services Offered by CARE contd….
3. Other Rating / Grading Services : IPO Grading
What IPO Gradings are not?
• As IPO grading does not take cognizance of the price of the security, it
is not a recommendation to buy, sell or hold shares/securities.
• They are not a comment on the offer price or the listed price of the
scrip.
• They do not imply that CARE performs an Audit function or forensic
exercise to detect fraud.
IPO Grading scale
• CARE would assess the overall fundamentals of an IPO on a five-point
scale. Highest score to be assigned by CARE to any IPO would be 5
and the lowest score would be 1.
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12. Services Offered by CARE contd….
IPO Grading Scale
CARE IPO Grade Evaluation
CARE IPO Grade 5 Evaluation
CARE IPO Grade 4 Strong fundamentals
CARE IPO Grade 3 Average fundamentals
CARE IPO Grade 2 Below average fundamentals
CARE IPO Grade 1 Poor fundamentals
IPO Grading Process
Client CARE
Requests for grading 1. CARE's grading team commences assignment
Submits offer document & other information 2. The grading team analyses the information.
Interacts with the grading team, responds to 3. The grading team interacts with clients, undertakes
queries raised and provides any site visits, and analyses data submitted by the client.
additional data
4. Internal committee previews analysis.
5. GRADING COMMITTEE awards grading to IPO
Accepts grading * 6. Notification in press
* Client may ask for a review of the grading assigned and furnish additional information for the
purpose. However, clients do not have the option of not accepting the final grading
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13. Services Offered by CARE contd….
IPO Grading Criteria - CARE would assess the fundamentals of an
issue based on the following factors:
Quantitative – growth prospects of the industry, financial strength &
operating performance of the issuer
Qualitative - business fundamentals & prospects, management
quality, promoter evaluation, accounting policies, corporate
governance practices, project risk, and compliance and litigation
history.
CARE would consider a time horizon of around 3 years for its
assessment.
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14. RATING METHODOLOGY OF CARE
CARE has prescribed a format for obtaining requisite information
required for rating the instruments. These are different formats
for manufacturing company, and for financial services
company.
The formats collects information relating to key factors business
analysis, financial analysis, management evaluation, regulatory
and competitive environment, and fundamental analysis.
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