Ladies and gentlemen, I am Mradul Mishra from the Corporate Communication Team, and on behalf of CareEdge welcome you to our Q4 FY22 and FY22 earnings conference call. We wish to inform that all participants are in listen-only mode, and there'll be a question and answer session once the CEO's address concludes.
During the Q&A session, you can click on Raise Your Hand option, which will enable me to unmute you for posing your question. Also, please note that this conference is being recorded. Mr. Mehul Pandya, Interim CEO, CARE Ratings Limited, will be interacting on this call. Hi, sir. Welcome. Now I request Mr. Mehul to take over the proceedings, please.
Thank you, Mradul. Good afternoon, everyone. I hope you all are doing well. It gives me pleasure as Interim CEO to welcome you to the investors call for Q4 FY 2022 and FY 2021-22 on behalf of the CareEdge family. I would also like to take this opportunity to thank my former colleague and CEO, Ajay Mahajan, for being a part of the leadership team since the last two years.
Let's get to the numbers now. I hope you have had the chance to go through our results for the March quarter. I'm here with the senior management of CARE Ratings to explain how the company has fared in the past quarter and address questions that you may pose after my remarks. I will also briefly take you through our vision for the coming years, which will give you a perspective of our plans.
As we all are aware, the global economy is going through a turbulent phase with high commodity prices, rising inflation, aggressive monetary policy tightening, and fear of slowing economic growth. While the Indian economy is relatively better placed in the midst of this global turmoil, there are headwinds posed by the global uncertainties and volatilities.
Inflation has emerged as a big cause of concern for India. CPI inflation at 7.8% and core CPI inflation at 6.8% in April is much beyond RBI's comfort level. The high inflation has led to a slew of measures from the central government and the RBI to control inflation. However, with global commodity prices on a boil, inflation is likely to remain a cause of concern in the coming months.
While the economy was gaining momentum post the COVID-19 crisis, the Russia-Ukraine war and the ensuing global turbulence has made the recovery process more complex. This is getting reflected in the latest GDP numbers released yesterday. GDP for FY 2022 has come out at 8.7%, which is a shade lower than the second advance estimate of 8.9%. Consumption in the economy remains weak, and rising inflation will further dampen consumer sentiments.
However, the positive aspect is that with economic opening up, the employment scenario has started improving, and that should bolster sentiments. Capacity utilization levels have started improving, and that should provide a boost to capital expenditure. The government has budgeted a strong CapEx growth of 24% in FY 2023. As far as the private sector is concerned, they intend to invest, showing improvement as per data on new investment projects announced.
However, the current uncertain economic environment could slow down the pickup in the investment cycle. The fourth quarter of FY 2022 was adversely impacted by the Omicron variant of COVID and the Russia-Ukraine war, resulted in the spike in commodity prices and the inflationary concerns. GDP for Q4 FY 2022 has decelerated to 4.1% from 5.4% in the previous quarter.
Fundraising by businesses, which has a direct bearing on the companies, presented a mixed picture. While fundraising from the corporate bond markets and commercial paper was subdued during the quarter, bank credit demand by corporates gained pace. Corporate bond issuances during the quarter totaled INR 1.53 lakh crore, which was 6.4% higher than the issuances in the preceding quarter, but 17.5% lower than a year ago.
Total issuances in FY 2022 at INR 5.77 lakh crore have been 23.5% lower than the last year. Commercial paper issuances in the fourth quarter at INR 3.60 lakh crore were 44.5% lower than the third quarter and 13.8% less than a year ago.
However, the issuances of these short-term securities during FY 2022 were 16% higher than the last year. Credit offtake from banks improved, with the bank credit witnessing a growth of 9.6% YOY in FY 2022, which was up from 4.6% in FY 2021. Retail credit has continued to be the key driver and saw a growth of 12.4% YOY in March 2022.
The industry segment registered a credit growth of 7.1% YOY in March 2022 from a contraction of 0.4% a year ago. Credit growth to large enterprises that account for 77% of the total industrial borrowing was at a low of 0.9% on a year-on-year basis. Medium and micro enterprises registered robust growth in the credit offtake driven by the Emergency Credit Line Guarantee Scheme, ECLGS.
Services sector credit growth accelerated to 8.9% in March 2022 compared with 3% a year ago. It was owing to the robust credit offtake by trade, transport operators, and the NBFCs. Going forward, India will remain one of the fastest-growing economies globally, with GDP growth projected around 7% in FY 2023.
However, we need to be cautious of the volatility and uncertainties posed by the global environment and its impact on the Indian economy. True to our aim of enhancing our brand value both in the domestic and the global arenas, CareEdge has strengthened its outreach activities further.
Our economics, ratings, and industry research published as many as 158 reports in quarter four. Be it topical updates or special analysis, our reports have been well-received across publications. Our senior management, economics, sector specialist, industry research teams, along with the business development leaders, participated in 15 knowledge-sharing forums in the quarter under review.
As Benjamin Franklin once said, "All investment in knowledge pays the best interest." CareEdge is committed to becoming an enabling knowledge hub, and with technology being one of the key identified enablers of our transition endeavor, we have been upgrading, modifying, and establishing new innovative solutions for our business as an ongoing process.
Our focus and emphasis on human resources have been continuous and with multi-pronged. Training programs have been conducted for our staff on an ongoing basis to keep them up to date with evolving and latest skill requirements. On the side of leadership, we have also hired some senior professionals to assist in the transformation of the company. Now, I would like to quickly take you through the CareEdge performance.
Referring to the published standalone results for the full year FY 2022, CareEdge reported revenue from operations of INR 219.3 crores for FY 2022. Optically, this figure looks largely the same as compared to the last year, where CareEdge reported the revenue from operations of around INR 219.6 crore. However, the previous year, FY 2021, the figures include the income of INR 9.32 crores under the head other operating income, which was part of revenue from operations last year.
That income was about the reversal of the provisions made in FY 2020 for debtors on a conservative basis due to the COVID situation. If we make the ratings income comparison for FY 2022 with respect to FY 2021, the ratings income witnessed a growth of around 4% on a year-on-year basis.
The growth in ratings income was largely attributed to the robust income generated in the initial ratings business during the year. We hope to sustain this momentum going forward. Net profit has almost been at the same level of INR 84.47 crore in FY 2022. On the profitability f ront, CARE Ratings largely reported a stable operating profit margin of around 39% on a standalone basis.
On a quarterly basis, income from operations optically appears to have declined from INR 69 crore in FY 2021 to INR 60 crore in FY 2022. However, the decline is largely on account of the same issue as explained earlier, that is, the income for quarter four FY 2021 includes the COVID provision reversal income, which was not present during this year. Overall profitability continues to remain good. Let us move to consolidated results.
On annual basis, CareEdge reported revenue from operations of INR 248 crore. Again, the previous year has provision reversal income, thus negating the same. There is marginal growth witnessed in income. However, the operating profit margin witnessed a decline on the back of two reasons. First is the elevation in employee cost and second, the provisions made for Sri Lanka business.
The elevation in employee cost was on account of incremental ESOPs and a marginal increase in manpower cost. This is largely because for the last two years we have been focusing on having the right quality people at the right places to improve the quality of analysis and provide the right mentorship and training to the analyst team. Now let us address the Sri Lanka point. One of our subsidiaries, CARE Risk Solutions, has live and ongoing projects in Sri Lanka.
However, given the current situation that Sri Lanka will not be able to remit the foreign currency funds as consideration for the risk solution products, on a conservative basis, we have taken the provisions for the same. Further, I would like to reiterate that these projects are live and ongoing for PSU banks, and we believe that as and when the situation improves, the amount could be recovered. The total exposure of CARE Risk Solutions to Sri Lanka business was around INR 9.46 crore. Adjusting for the provisions, the residual Sri Lanka exposure is limited to INR 2.35 crore.
At this point, I would like to take a few minutes to draw your attention to the diversification efforts made by the management of CareEdge. The board has approved equity infusion of INR 33.5 crore in CARE Risk Solutions and INR 10 crore in CARE Advisory Research and Training Limited. Under the risk solutions business, we have products that cater to the demand from the BFSI segment, addressing their ALM management and regulatory reporting needs.
With this infusion, we intend to upgrade the existing products and venture into new business lines like data analytics, banking solutions, et cetera, and invest in sales franchises to foray into the global markets. Under CARE Advisory Research and Training, CART, we have built robust advisory and industry research teams that cover over 50 industries with research reports.
On the ESG front, CART is now empaneled as an ESG rating provider for AMCs by AMFI. As a result, AMCs will be able to use the ESG scores provided by CART for ESG portfolio creation. CareEdge has analyzed more than 300 entities in the listed universe, which covers 90% of the market cap of the top 1,000 listed entities, and we are rapidly scaling up this coverage every month.
CareEdge has created an analytics platform that not only provides the ESG scores but also enables the analyst to perform their analysis on various key indicators on both ESG and non-ESG themes and performance indicators. With this infusion, we intend to invest in products and sales franchise and be in contention for all the RFPs or contracts with the threshold net worth requirement.
We are firmly on a transformative journey at CareEdge and have come a rather long way in a very short span of time with dedication and commitment. Our focus firmly remains on improvement in productivity, strengthening analytical rigor in ratings, and diversifying revenue streams going forward. Socrates had said, "The secret of change is to focus all your energy not on fighting the old, but on building the new." I hope with your help and our hard work, we write new chapters of success for CareEdge. Thank you.
Thank you, Mr. Mehul. Dear participants, we now will begin our Q&A session. You are requested to please click on Raise Your Hand option for posing a query. I repeat, we begin with the Q&A session. You're requested to click on Raise Your Hand option for me to pose your query. Thank you. We have a request from Deepan Sankara Narayanan from TrustLine India. Deepan, I've unmuted you. You please unmute yourself at your end and pose your query, please. Yeah, Deepan. Hi. If you could please unmute yourself.
Yeah. Am I audible?
Yes. Yes. Please go ahead.
Yeah. Good afternoon, everyone, and thanks a lot for the opportunity. Firstly, wanted to understand, what was the amount of, provision reversal reported during Q4 of last year.
Okay. Yeah. Provision reversal amount, was INR 9.31 crore in FY 2021, which is not there in the current year.
Sir, for Q4, how much it was there?
Q4 was INR 6.64 crore.
INR 6.64 crores. Okay.
Yeah.
Okay. Sir, with the credit growth of banking sector is growing at higher levels currently. Are we looking at CARE would be one of the key beneficiaries as compared to other players? Are we hopeful in gaining market share in the rating business?
See, the focus of CARE has largely been on the large and the mid corporates and lesser on the SME side.
Right.
If I can refer to my comments in my remarks. I think while the bank credit growth has increased, there is no doubt about it. Credit growth to the industry has increased, certainly. To the large corporates per se, and which I mentioned, which is constituting almost like three-fourths of the total borrowings, it had been less than 1%.
We like to see the growth happening over there. On an overall basis, to the extent that the bank credit growth to the industry increases, we believe that we are on a sound footing in terms of capitalizing, in terms of the opportunities lying over there.
Okay. India is on the cusp of CapEx recovery, so which is started to getting visible in the last couple of quarters. Are we seeing a strong growth cycle coming back over next two to three years in this rating business?
I guess the sentiments that were expressed in terms of the CapEx cycle, they were right in terms of FY 2023 onwards. This cycle has to pick up. I mean, this was long overdue, if I were to put it that way. Having said that, the volatility that we are witnessing since quarter four in terms of the Russia-Ukraine war and the overall global economy and the geopolitics that has just prompted the corporates to go in a bit of a pause mode and just wait and watch in terms of how the trajectory was.
But on an overall basis, I think for the future, we are hopeful that this CapEx cycle should get revived. To the extent that it gets revived, as one of the leading rating agencies, we hope in terms of exploiting the opportunities lying over there.
Okay, are we confident of entering double-digit growth in FY 2023 for our top line?
I wish it could be like that. Having said that, I think let's also understand in terms of how the overall industry has grown. The overall rating industry, the figures are there for the different rating agencies, and you can easily see that over the last more than three years or so, either the industry has stagnated or there has been single-digit growth .
To the extent that the overall pie increases, I think that shall be business for at least the leading rating agencies in the country. To put it in terms of having double-digit growth, I think the overall pie has to increase. At least up to 2022, we haven't actually seen the overall industry increasing at that rate.
Okay, okay. Lastly, from my side, so on the expenses, specifically employee expenses front, so, are we through with our salary raise cycle, and we are with industry benchmark comparables? Are we now expecting a normal run rate growth on employee expenses from here on?
I think to a good extent, we have had this cycle in terms of having our benchmark service. As also in terms of the hiring that we have had over the last few years at certain important positions. Going forward, we'll continue to have the right mix in terms of the lateral recruitments as well as in terms of the fresh recruits that would be coming. A combination of all these factors will strive in terms of having the employee cost at a certain benchmark level and not increase significantly.
Okay. Thanks a lot, and all the best.
Thank you.
Thank you, Deepan. The next query is from the line of Anna Yagnik. Yeah, Anna, I'm unmuting you. You please go ahead with the query.
Hi, can you hear me?
Yeah. Hi.
Hello.
Yeah.
Hi.
Your voice is a bit weak.
Hi.
Your voice is a bit weak.
Hi.
Can you please speak loudly, please? Hello.
Yeah. Just a second. Can you listen to me now?
We're able to hear.
But-
Your voice is very faint.
Yeah.
Either you could be near the mic or maybe, I can request you in terms of speaking slightly loudly.
Just a second. Yeah. Can you hear me now properly?
Yes. Much better. Thanks.
Yeah. I have two, three questions.
Yeah.
My first question is regarding like we have said that we're going to get at least 100 basis points of market share into rating business. How are we going on that track? My second question is what is the growth rate we are expecting in future going forward? The third is how we are turning our advisory business. Is it going to remain on the same level as it is right now?
I think it is less than 5%. Are we going to increase the component percentage into advisory business or because diversification is one of the risk to CARE? How are we planning to increase diversification and how much contribution we are expecting from the advisory services?
Okay. I think when your first two questions pertaining to the market share in the ratings business, and you mentioned in your first point that it's 100 basis points kind of an expectation. I think that's not what we have conveyed. What we have conveyed is that we expect the ratings business that to the extent that it keeps on growing in terms of the overall pie for the industry industry level, we'll continue to have a reasonably good share of that market, being one of the leading rating agencies. For the last few years, the overall industry had not grown or grown only in single digits. Yeah.
To the extent that this grows, I think we'll be there in terms of having the right opportunities and capitalizing on that. Your next q uestion was in terms of the future growth rate. Slightly difficult conjecture to make in terms of that, because that has to be seen in the overall context and not just in terms of looking at the company in isolation.
For us, I think taking some aspects of the first question, for us, the overall thing matters in terms of how the macros are doing, how the bank credit growth is happening, how the capital market insurances are growing, how the CapEx cycle kicks in, and how fast it kicks in. A combination of all this, that would determine the future growth rate.
As I mentioned in my remarks, what gives us the confidence is that we have seen a good growth in the initial ratings business in FY 2022, and we hope in terms of continuing that momentum. Your third question was pertaining to the advisory business and to what extent we should be seeing the traction in that in terms of having some meaningful contribution going forward.
When my concerns on that, as a part of our diversification process, we indeed are looking forward in terms of growing both the non-rating subsidiaries. On the advisory consulting side, over the last year, while in terms of the overall contribution to the top line, it has not been that significant. The fact remains that there's close to around 40%-45% growth in terms of the top line for the advisory consulting business subsidiary.
We have got some good prestigious assignments. Now that we are also going to launch our ESG services as a part of that subsidiary, I think we are at a firm footing in terms of getting the right kind of mix as far as the overall business pie is concerned, and hope to grow this subsidiary to a reasonable level over the next three years or so. In terms of an expectation of the growth rate, I think with the lower base, we should be able to do well in terms of the overall percentage growth for this.
To expect this to have come, or coming to, significantly good contribution in terms of the overall business at the consolidated level, I think we just have to be slightly more patient in terms of two more years in terms of getting a traction on this. What I can say is that we are on the right path.
Okay. Sir, if you can just quantify, like, what are the contribution you are expecting of this non-rating business to be in the overall revenue mix. Because right now, 98% comes from the credit rating. Are you seeing, like any number if you can give, like how much you are targeting for the non-rating businesses?
I think up to FY 2022, as you're rightly saying that is, ratings are the predominant component in terms of our overall income profile. Both the subsidiaries, advisory as well as the risk solutions business, they are almost in terms of some kind of a reset button as far as the overall say development of the overall product profile over there is concerned.
FY 2022 was the first year in terms of having this kind of a change in terms of the product mix. Advisory consulting business has already started getting traction in that. The other subsidiary in terms of the risk management solutions is still under that phase. As we have disclosed in our press release, the equity infusion that we are doing over there, that is aimed in terms of developing the products which can...
which could be the evaluated ones, which could be finding the right traction in the markets where we are still not there. Building upon that, I think it will be better in terms of witnessing a good contribution coming from both the subsidiaries a year down the line. FY 2023 might see ratings continuing to be the major component as far as the overall income profile is concerned. The overall product mix at both the places, that is certainly underway. That is something which I can tell you with conviction.
Okay. Yeah. Thank you.
Thanks.
Thank you, Anna. The next query we'll take from the line of Mr. Vivek Ganguly from Nine Rivers Capital. Yes, Vivek, please go ahead.
Yeah. Thank you for the opportunity. I have two questions. One is on the earlier exit of Mr. Mahajan. This was very, you know, unexpected and abrupt. Also we see, you know, that the notification went to BSE late in the night. Can you shed a little more light on what exactly, you know, within the confidentiality clauses that you're in, what exactly, you know, transpired? Second is, where are we on, you know, finding a replacement for the top-tier position?
Okay.
What are the kind of, you know, things that you're looking for in-
Okay.
in the person?
Right. As far as Ajay's resignation is concerned, as we have disclosed, it's for the personal reasons. We hope and we wish him well on that. As far as the replacement is concerned, I think the board will be taking the decision at the right time. There'll be certain processes they need to be done and over a period of time, you should be seeing the decision of the board forthcoming on in that area. At this juncture, I don't have anything more to add on this.
Okay. That wasn't too enlightening, but and I respect your constraints. One small, another query that we have. In the provisioning that you'll have done for this year, one is the Sri Lanka provisioning that you'll have done, and the second is the ESOP. How much of an ESOP provisioning has been done?
Yeah. Just give me a moment. I think the total ESOP charge for FY 2022 is INR 6.29 crores, which was INR 3.56 crores in FY 2021.
Okay.
Right.
Got it.
And, uh-
Thank you.
As far as Sri Lanka is concerned, we have already disclosed. With the provisions that we have made, the residual exposure is around INR 2.35 crores. The total provision made is INR 7.12 crores.
INR 7.12 crore. Okay. All right. Thank you. I'll come back into the queue.
Thank you.
Thank you, Vivek. The next query we'll take from the line of Mr. Rohit Puri. Yes, Rohit, please go ahead.
Yeah, thank you for the opportunity. This is in sort of a follow-up to the previous participant's question itself. On a more general basis on attrition. He referred to Mr. Mahajan in particular, but I was curious about the attrition of the organization in general, because what I see is we are seeing attrition across the board from senior to mid to lower as well.
In addition to Mr. Mahajan, I noticed that Mr. Sudip Sural, who was brought in to head the advisory and the risk solution, he's exited as well. I did notice through LinkedIn research, et cetera, that a lot of a couple of VPs also have exited who had joined newly to other organizations.
I also understand that a lot of mid-level salespeople, et cetera, have left for fintech startup space in India. I mean, so the general sense what one gets is that there is a lot of attrition from CARE. While there is attrition in other rating agencies as well, that seems to be restricted to the lower end of the lower level employees, or at least till the mid-level employees. But in particular, we have seen attrition across the entire spectrum. Could you speak about that a little more, please? That would be great to hear.
Sure. I mean, valid concern. What I like to point out is that it is true that certain exits, they have happened. You also need to look in terms of the overall context, in the sense that senior level hiring has also been happening. As I mentioned in my remarks also, I think we have had a good hiring at the senior levels across the functions.
If you look at in totality, I think all in all, we are net gainers in terms of having the talent incoming rather than outgoing. In terms of the attrition at the mid to the lower level, I think it's an industry phenomena. FY 2022 has actually seen most of the industries faced with attrition. We are certainly not an exception to that.
At the same time, what I can tell you that in terms of the overall management of this aspect is concerned, we have done reasonably well. During this year we have had lateral hires. We have recommenced our hire of the freshers, which we believe that over a period of time, having the right mix can go on and address the situation.
Because at the end of the day, at a certain level, we have to be ready in terms of having a certain industry marked kind of attrition levels and in terms of be ready for that. Right? From overall perspective, I think the organization is net gainer when it comes to having the incoming flow of the right talent.
In the past, what we have done is we have disclosed who the senior levels who have come in and who are expected to transform the organization positively. I remember a presentation where reference was made to Mr. Sachin Gupta as the Chief Rating Officer, Mr. Sudip Sural, Mr. Ajay Mahajan, and a couple of others also.
Could we do that in the next presentation where we can show that who's the? You've mentioned that there is a net gainers, but it would be great for our shareholders to know who these new people who have come in are at least the senior level positions, if not all. I mean, obviously not expecting the entire hiring that you've done, but at least the senior level positions, it would be great to know.
It will be important information, at least for me as a shareholder in the business. Am I right in thinking that, you know, Sachin Gupta continues to be with the organization?
That's right. He's there on the call.
Okay, perfect. The last question I have is a recurring theme that I think a lot of shareholders have consistently put across with the management. I mean, why it just doesn't make sense to us that you're not considering a buyback.
I think 1/3 of the market cap today is cash and I mean, I understand we have growth initiatives, and we have done investments into the subsidiaries. What is stopping us from, let's say, doing an INR 50 crore-INR 100 crore buyback? A dividend is not as tax efficient as a buyback is under the current tax laws. What exactly is stopping the management from doing a buyback?
Because instead of, I mean, it just seems to indicate that we are not as confident in our business because the best investment is in our business itself. When it is trading so low, what is stopping us from doing a buyback and showing that confidence in the company itself? It could come at the cost of some amount of dividend.
I take your point, Rohit, and, it's a very, I would say valuable suggestion. All I can say at this juncture is that we absorb your suggestion. Certainly this will be conveyed to the board, and it's the board that has to decide on this. Right? But that notwithstanding, the fact remains that our confidence in our business sustains.
There's no question in terms of not having that thing, having a rating agency which has been in operation since almost three decades now. I think, we are confident in terms of, our core business as also in terms of growing the other pieces of the business at the group level.
That has prompted in terms of taking the decision of further capitalizing the subsidiaries so that they are in a better position to go for value-added products, which can actually help in terms of growing thereby in terms of the core contribution at the group level. Our confidence both in our core business as well as in the business of our subsidiaries sustains.
Thank you. I mean, just a reiteration that this particular buyback question, I've been in the AGM, let's say two years back as well. Since then we've been conveying this to the board.
Right.
Other than the fact that the board will take it into consideration, there has not been any update on this. Which is why it'll help if the board, through the management, can explain why we are not doing a buyback. Two years or two and a half years is a long enough time to take this into consideration, I would think. It'll be great to get I mean, if there's an explanation that would be perfectly understandable, but the only answer we get is that it'll be considered and it'll be discussed by the board and nothing more. That's all from my end. Thank you so much.
Thank you. Thank you, Rohit.
Thank you, Rohit. The next query we'll take from the line of Mr. Rama Krishna Neti from ZEN Money. Yeah. Mr. Rama Krishna, if you could please self-unmute yourself. Hello? Yeah, Mr. Rama Krishna, can you hear us? Okay, we'll come back to him later. The next query we'll take from the line of Mr. Gopinath Reddy.
Yes, sir. Am I audible?
Yes. Yes, please.
Sir, the same question. Even I want to ask the same thing. You say you, not only you, I mean to say anybody who comes into conference calls, they say buyback is something we convey to the board. It looks like board is not at all answerable to minority investors. They are neither kings nor any law or something. Like, they got to answer us. You got to convey it to us also from them, saying why there is no buyback. There are two buyback types. I'm asking two questions here.
Yeah.
In buybacks, there are types. One is normal buyback. There is no answer for why there is no buyback. That is one question. The second thing is, whatever amount, we are not talking about the normal full-fledged buyback. We are talking about the second item, which is whatever amount you are giving as dividend.
Right.
The same thing if you give through tender buyback, where everybody participates.
Right.
There is a tax saving to every investor. Here, the logic is, it looks illogical not to give the buyback, the dividend amount through tender buyback offer, which all the big companies like TCS, Infosys, every damn company in this country is doing and saving tax with all investors. Why not CARE? This is not answered. This is to be answered, right? Every time conveying, but what are we for? Why are we asking this question? I don't understand.
No, Mr. Reddy, your point is valid. In that case, in terms of the tax efficiency of buyback vis-a-vis the dividends, I mean, that point also is quite valid. Certainly this aspect we'll convey to the board. My answer does not change, but that does not take away the fact that the suggestions are not welcome, or for that matter, the suggestions are not taken into consideration. Right? Certainly these aspects.
But-
will be conveyed to the board.
There should be an answer, no, sir, from anybody, either from the board or through the board. What is the answer that is coming to you at least that we should get to know, right?
I appreciate-
We have been asking for not even two and a half years. I think three years, four years we have been asking this question.
Right. I appreciate your concern, and I appreciate your suggestion. Certainly, I mean, this shall be conveyed to the board. There's no deviation.
At least we should be knowing whether the board is not answering us at all. That also is an answer.
Right. No, certainly this aspect shall be conveyed.
Okay. It is just conveyed already. Is it, sir? From the past three years, is it conveyed or is there any response at least we get it?
Yeah. As you would have also seen, I mean, the investors have rightly pointed it out in the AGMs also. This aspect has been absorbed at the board level, and certainly we'll once again convey it to the board.
My only concern is if not in quarterly reports, quarterly conference calls, at least at the AGM level, there must be board members also. Even there is no answer. That's really wonderful, you know.
Yeah, Mr. Reddy. In the AGM, certainly the board members are there. Right?
They're not answering. That's what I'm wondering, what is the board's mind? If a rating agency is behaving like this, what's the point in being a rating agency itself? It's a shameful act to the CARE Ratings agency and to the board of the company. I want it to be strongly conveyed to the board that it's shameful to be a board of a rating agency this way. Not answering minority investors.
Take your point, and thank you for bringing it so solidly. I so appreciate your concern.
Sir, it's.
Appreciate your concern.
It's shameful in India in a way, in this way, you know. I just want to convey it in this way.
Sure. Sure.
Thank you.
Thank you, Mr. Gopinath Reddy. The next query is, we'll take from the line of Mr. Mudit Minocha, from M3 Investments.
Yeah, Mudit. You can please unmute yourself and yeah.
Hi. Am I audible now?
Yes, Mudit.
Yes.
Yeah.
Hi. Thanks for the opportunity. I have one question and comment thereafter. I wanted to ask that rating pie itself anyway is so small, so why are we so picky of not creating a model that can tap an SME segment as well?
What are your views on gaining market share there? I understand the economics of SME segment would be very different from the bank loan rating or the other ratings. Is there a case to be made where we create a model which is suitable for an SME segment? I would want your views on the same. Have you a thought on that?
The other part that I also wanted to reiterate is that the shareholder wealth hasn't been created for so long by CARE Ratings. Which is why you could see the earlier participants you can say the emotional outburst.
I just wanted to reiterate that buying back a company lower than intrinsic value creates instant shareholder value and also showcases the trust in your own business. What is that which is not visible to the board, and why is it not being considered till now? I think enough has been said, but please do convey our remarks to them. Thanks.
Thanks, Mudit. In your first aspect in terms of the rating of the MSMEs and the model-based approach, we do have models in terms of the various industry segments and MSMEs also, they are a part of that. So it's not as if that we are not targeting that segment or we are completely away from that segment.
It's just that in terms of the overall focus for the organization, we are continuing to have the focus on the large corporates. We are continuing to have the focus on the mid corporates, the non-MSMEs per se. Right. More from the angle of having the better value addition coming from their side. Right.
Nevertheless, in terms of completely shifting to a model-based approach, I think that's also something that is a kind of a work in progress over there. We do have models. We are augmenting that thing. Over a period of time, I think implementation of this all this aspect can help us in terms of addressing much larger volumes in that segment. All in all, I think our focus, we are quite clear that we'll continue to remain on the large and medium corporates.
Sorry.
Please go ahead.
I'm sorry. I might have not conveyed my thought properly. What I wanted to share was, since rating revenue market size itself is quite limited, giving up a part of a segment does not seem very intuitive where the ROEs of all three businesses are quite good, as showcased by other rating agencies. Why not create a model?
I mean, I was suggesting that a low-cost model for a segment which is less remunerative could create a decent sizable income in that side. I just wanted to know your thoughts. Are you putting any efforts to rejig the way that business is done so that we can also gain market share there and not only focus on.
The key aspect when we are talking about the MSMEs is also the fact that when it comes to the overall requirement of the rating in that segment, I think the change in the threshold of the various banks that has also impacted the overall ratable universe in that segment.
That is over a period of time and most of the rating agencies in terms of the coverage of the MSMEs, it has certainly come down. Taking into consideration the other piece of the MSME, where we are talking about the non-bank loan ratings for them. As per the regulatory requirements, some of the assessments that we are doing, which were non-BLR in nature, that has been transferred to our subsidiary.
In terms of the overall assessment, that segment while it has large volumes, and a model-based approach as you were suggesting, that's something which we also have been implementing at our end. In an overall basis, I think it's not out of our radar.
Let me reiterate on that aspect. Your suggestion is welcome, but in terms of our focus areas, they would be the large and the medium corporates. MSMEs are not out of the radar, but it's more of a question of in terms of the current offering that we are doing, and that is in terms of the BLR and the capital market instruments.
As far as the core credit rating services are concerned, in terms of BLR, what has impacted, as I mentioned, is in terms of the change in the threshold. Generally, this segment is out of the purview, most of the time when it comes to the capital market, issuances are concerned. It's a combination of both these, which potentially could be giving, in terms of the optics that, this segment is not getting addressed as far as the rating service offerings are concerned. That's actually not the case, except for the fact that in terms of both these, core aspects, the underlying reasons are such. Right.
In terms of the overall entities that we are rating, I mean, we have a sizable share in terms of the MSME segment also, even currently.
Okay. Appreciate that. Thanks. I'll join back in queue.
Thank you, Mudit. The next query we'll take from the line of Sir Rohan Samant from Multi-Act. Yes, Rohan, if you could unmute yourself. Yes, Rohan.
Yes. Hello. Thanks for the opportunity. My first question is, there is an item regarding impairment of, you know, asset. What is that INR 21 lakh?
You're referring to.
Impairment of
Jinesh, can you take that? Our CFO.
Yeah, sure. Am I audible?
Yes.
Yes.
Yes, go ahead. Yeah.
Thanks for the question. In one of the subsidiaries, CART, we previously had a training business. For that, one software was developed, which was used to provide their training. From last year, we have discontinued that business, so that software got impaired. Around INR 21 lakh was the impairment cost, which is not, you know, used for providing the training.
Okay. The provision for this Sri Lanka business would be where? It would be in the other expenses?
Yeah. It is into one of the subsidiary in the other expenses. That's correct. Under provisions.
Okay.
In other expenses.
Okay. Lastly, on the cash balance, right? Like, if I look at the balance sheet, there is significant amount now standing under other financial assets. So why is it not under investments, cash or bank balance?
That's correct. Whatever fixed deposit we have placed more than a year, it should be classified under non-current. It's just a classification based on the tenure for which we have placed the fixed deposits. Up to one year we can show under cash and bank balances and whatever is above one year should go under non-current financial.
Okay. Those are fixed deposits. Okay, fine.
Yeah, yeah.
Sorry.
Clarification. Yeah. Yeah.
Okay. One more last question. On the employee cost, so this quarter we have seen a bit of a dip in the employee cost run rate. Should we assume that this is the run rate that would continue going forward?
See, employee cost reduced in this quarter is mainly because of the ESOP charge one, because last year, the ESOP was given in second half. In the first year, we have around 67% of cost in P&L, and then the cost reduced year-to-year basis because we have a graded ESOP given to the employees. Yeah, you can see this till the time further ESOPs are announced or whatever. Otherwise this would be the run rate.
Okay, thanks.
Thanks, Rohan.
Thanks, Rohan. Next query, this will be probably the last question for the day because we are running short of time. I'll take this from Yash Shah. Yeah, Mr. Yash, if you could please self-unmute yourself.
Yeah. Am I audible?
Yes, please. Go ahead.
Yeah. The question basically relates to the fixed deposits that we have kept for maturities over one year. That is a sizable amount. I would just like to know whether there is any specific reason that we have moved this amount from other investments like mutual fund and other investments to fixed deposits, which fetch a very low rate of interest. Any specific reason for the same? Hello?
Yes, Jinesh. Jinesh?
In the last certain FMPs were there which got matured and due to the current scenario, it was prudent to put the monies in the safe fixed deposits and that's why we have kept it in the fixed deposits.
Okay. As everyone is aware, fixed deposits do not fetch anything beyond 6% or 7%. Keeping surplus cash instead of returning, as previous investors have also highlighted, that instead of keeping such money in fixed deposits fetching such low returns, isn't it prudent to return the amount to the shareholders if the company isn't able to generate sufficient returns on it?
Yeah. As mentioned earlier, we will have this conveyed to the board and have appropriate decision.
Point taken, Yash. Correct.
Yeah. We have been waiting since many, I guess years now. It's been three years. We expect, and, I guess Mr. Mahajan also had committed last time that he'll be back with an answer in the next call. We were expecting an answer this time also. I hope the next time we get an answer, maybe in the AGM, which may happen before the investor call.
Yeah, Yash. As I mentioned earlier also, so these are suggestions from the various investors and so we appreciate that and certainly that will be conveyed to the board. Thank you.
Yeah. Thank you so much. Take care.
Yeah. Thanks.
Thank you, Yash. With this, we are time up now. I'll be ending the session. Thank you to all the attendees for participating in our earnings call. Goodbye for now. Thank you.
Thank you.
Thank you.