Diwali, especially Muhurat Trading, is considered a very auspicious time to invest money. Like the previous Diwali, this Diwali too we are coming up with a selection of stocks one can invest money in and hold for LONG term (Atleast 1+ Years). Long Term investments must be in companies which create wealth consistently and should have a track record of healthy returns. In this post we analyze CARE.
Credit Analysis & Research Limited is a Rs. 4000 Crores company engaged in the business of credit rating. It commenced operations in April 1993 and it's major shareholders are Domestic Banks and Financial Institutions.
Currently, CARE is trading at levels of 1374 (22nd October, 2014). At this price, the valuations work out to:
Book Value: Rs. 176.17
As on 31st March, 2014: The company has healthy reserves of Rs. 455 Crores and it is completely DEBT FREE. 5 Year CAGR stands at 19.5% for Sales and Profit as well. Sales have grown from Rs. 136.2 Crores in FY 09-10 to Rs. 229.46 Crores in FY 13-14. PAT has grown from Rs 85.6 Crores to Rs 128.67 Crores. The 5 years Return on Equity stands at a healthy 32.69%. Going forward, assuming that the company grows at 20%, we expect the Revenues for FY 15-16 to be around Rs. 271 Crores and with a 55% NPM the PAT to be around Rs. 149.05 Crores. The expected EPS for FY 15-16 comes to 51. Giving a multiple of 35, the expected target comes to around 1785-1800 levels which means almost 33.5% returns from current levels. The stock has a high yield of 1.67%, low CAPEX requirements and thus it can command a higher P/E of 30-35. If CARE starts trading at a P/E of just 16, it's yield will be almost 3.2% and thus we have put a P/E of 35 for arriving at the expected price target. The shareholding pattern as on 31st March, 2014 shows a very low holding (Just 7%) of retail shareholders. The remaining 93% is held by Banks, DII's and FII's. The company expects strong growth in the SME rating sector and has the infrastructure to tap the potential in that sector. The Corporate bond and Debt market in India is still maturing and this gives the company a good chance to show strong growth. The company is strongly managed by professionals. CARE is a good company to hold in the portfolio and it could turn out to be a good compounder and provide some decent returns in the long term.