CARE Ratings (CARE) beat estimates with 21% consolidated major-line development in Q4FY21. It outperformed peers amidst marginally decrease credit development top to 1% development in all round FY21 sales. With 39% decline in other costs, Ebitda grew 2x y-o-y (40% above estimates).
With the new management group in spot, CARE is hunting to regain market place share and accelerate income development, boost technological prowess, HR and rebrand the group. CARE arrested market place share loss in FY21. We anticipate its market place share to develop led by sharpened focus, and revise several to 25x (22x earlier) Q1FY23e, a 32% discount to peers. In the wake of enhanced overall performance, we revise up FY22/23e EPS 10/12%. Maintain Buy with revised TP of Rs 825.
Robust overall performance: Q4FY21 ratings income jumped 19% y-o-y (31% ahead of estimate) – highest more than the previous 3 years – outperforming peers (CRISIL with domestic ratings development of 6% y-o-y and ICRA’s ratings income dip of 8% y-o-y). This was amidst marginally decrease credit development of 3.4% (4% in Q4FY20) as sector credit development picked up to 5.7% (4% in Q4FY20), although services slumped to 2% (from 9%). For FY21, income grew 2% y-o-y, with ratings up 1% y-o-y amidst a soft credit market place (at 5.6%) and debt issuances supported with TLTROs. Going forward, management expects bond markets to be steady and wholesale credit to choose up.
Transformation underway: CARE is undergoing a transformational journey with alterations across the whole CSuite–new CFO, new Ratings Officer and cultural officer. Focus on overhauling the existing processes is underway.
Outlook: Gains anticipated – While the 1st two months of FY22 have been weak for debt markets, we anticipate CARE to recoup and get market place share beneath the new group. We raise target several to 25x Q1FY23 and revise TP to Rs 825 (Rs 655 earlier), in line with 5-years’ typical, a 32% discount to CRISIL’s target several.