CARE Ratings Fits Buffett’s Investing Style

On Jun 29, 2017 CRISIL bought 26.22 lakh shares of CARE Ratings for ₹436 crore, or ₹1660 per share. Fitch is also looking to buy stake in CARE Ratings.

CARE was founded in 1993 by leading banks and financial institutions in India.

CARE Ratings is the second largest credit rating agency in India with a market share of 29%. CARE rates the creditworthiness of issuers of debt and generates revenue. CARE derives 90% of its revenue from corporate bonds and bank loan rating.

The other big players are CRISIL, ICRA and Fitch. Ratings business globally is a high entry barrier market.

A credit rating assesses an issuer’s future ability to pay back, on time and in full, the money owned to the investors who buy the bonds.

A credit rating is an independent opinion on a borrower’s future ability to meet its debt obligations.

CRISIL bought CARE at a valuation of 32x PE, which is at a discount to the valuation of CRISIL at 42x PE.

PE Analysis:
In the last 3 years, CARE had a strong support around 25x PE, which is ₹1378.

care-pe-3-yrs

Valuation:
15-Jun-2018:
At the CMP of ₹1360, CARE is trading at 25 PE. It’s available at 22% discount to CRISIL’s buy price of ₹1,660.

Should you invest in stocks of credit rating agencies?
Read more: [ET Wealth]

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