The share price of Credit Analysis & Research Ltd (Care Ratings) rose 23.6 per cent on its debut on Wednesday. The credit rating service provider’s stock opened for trading at Rs 949 on the Bombay Stock Exchange (BSE) and Rs 940 on the National Stock Exchange (NSE) against the issue price of Rs 750. The share closed at Rs 923 and Rs 927 on the BSE and the NSE, respectively.
Care Ratings’s hefty premium has been driven by the huge demand for its Rs 540-crore initial public offering (IPO). The offering was subscribed 41 times, with categories meant for institutions, high net worth individuals (HNIs) and retail getting covered by 46 times, 111 times and six times, respectively.
According to analysts, Care Ratings’s fundamentals attracted investors as the ratings provider was seen as having a strong net worth position and no debt on a consolidated basis. Care Ratings also allocated most of the shares in its IPO to institutional investors, which saw high retail demand.
During the day, Care Ratings hit a high of Rs 986 and a low of Rs 896. The market capitalisation for the company at on Wednesday’s closing price stands at Rs 2,638 crore.
Care Ratings is among the first of three IPOs to make their debut this week. Jewellery retailer PC Jeweller will start trading tomorrow. The company had raised Rs 609 crore at Rs 135 a share. Telecoms tower operator Bharti Infratel will get listed on Friday. The company had raised Rs 4,500 crore at Rs 220 per share, making it the country’s largest IPO in two years.
The share price of Care Ratings’s peer Icra fell 1.96 per cent on Wednesday at Rs 1,440, and Crisil was down 0.36 per cent at Rs 1,038. At current valuations, Care Ratings’s shares are trading at a price-earnings (P/E) ratio of 22, while Icra is trading at a P/E of 24 times. According to analysts, both these firms derive 70 per cent of their revenues from ratings business.
Analysts with a local brokerage house said ratings business might not see much traction over the next one year. The Reserve Bank of India (RBI) has not reduced either the cash reserve ratio or the base rate, which shows that borrowing costs may remain high and investment activity subdued.
According O V Bundellu, chairman of Care Ratings, the underlying demand for ratings opinion is vital from a lender’s perspective. He said that although credit rating is not compulsory in bond markets, institutional investors ask for it, which is a sign of mature markets. However, some analysts are of the opinion that ratings business may take a hit once banks get permission to start their internal rating in 2014.