Ladies and gentlemen, good day and welcome to CARE Ratings Limited Q4 and FY 2023 earnings conference call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participants will be in a listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes.
Should you need assistance during the conference call, please signal an operator by pressing star and zero on your touchtone phone. Please note this conference is being recorded. I now hand the conference over to Mr. Mehul Pandya, Managing Director and Chief Executive Officer. Thank you. Over to you, sir.
Thank you. Good afternoon, everyone. I hope all of you are doing well. I extend a warm welcome on behalf of the entire CareEdge family to the Q4 FY 2023 and FY 2023 investors call. I trust that each of you has had the opportunity to thoroughly review our quarterly results. Today, alongside the valued senior management of CARE Ratings, I'm interacting with you to provide an in-depth analysis of our company's performance over the past quarter and to address any queries you may have following my initial remarks. I will also take this opportunity to offer a brief overview of our strategic roadmap for the future. Together, we will navigate through our plans and outline the path forward for CareEdge. Thank you for joining us today, and I look forward to engaging in a productive and insightful discussion.
Last year, the world economy was faced with challenges from the geopolitical conflict, high commodity prices, a surge in inflation levels, tightening of monetary policy by central banks and slowing growth. This year, the challenges have been amplified by the recent turmoil in the global financial sector. In the midst of such turbulent global conditions, the Indian economy has held a relatively stable footing compared to emerging and advanced economies. The domestic economy is estimated to have grown by 7% in FY 2023 as per the second advanced estimate.
While the manufacturing sector faced challenges from high commodity prices and uneven consumption demand, the rebound in services sector supported the growth in FY 2023. Several high-frequency indicators such as GST collections, e-Way Bill generation, manufacturing, and services PMIs have been recording a healthy performance. Consumption demand in the economy has been uneven due to lagged rural demand recovery.
The recovery in the rural demand is expected to be aided by moderating inflationary pressures and an upbeat Rabi harvest. However, weather-related uncertainties pose some downside risks. Investment in economy has been steered by the center with a strong CapEx growth budgeted for FY 2024, while private sector investment has been lackluster so far. However, the ground is set for a pickup in the private CapEx with improving capacity utilization levels and the private sector showing intent to invest. Given the uncertain economic environment, we expect the pickup in the private CapEx cycle to be gradual. Retail inflation at 5.7% in March was back within RBI's tolerance band after staying above the 6% mark for most of FY 2023.
A favorable base, some waning of the pent-up demand and a robust Rabi harvest are supportive of further moderation in retail inflation.
The stubbornly elevated core inflation above the 6% mark remains concerning. With the full pass-through of the policy rate hike, which have been impending, the RBI decided to keep the policy repo rate unchanged at 6.5% after hiking by cumulative 250 basis points in FY 2023. Gross bank credit grew by a healthy 15% in FY 2023 as against 9.6% in FY 2022. Credit growth was steered mainly by the retail segment recording 20.6% growth, followed by services with 19.8% growth. Industrial credit grew by a subdued 5.7% in FY 2023, as against 7.5% last year.
Credit growth to large industries accounting for nearly 75% of the total industrial credit witnessed a marginal pickup to 3% when compared with 2% last year. Fundraising by businesses showed a mixed trend in FY 2023, with upbeat corporate bond issuances, while CP issuances were subdued. Corporate bond issuances clocked a growth of 32%, rising to INR 8.5 lakh crore in FY 2023. The higher bond issuances were driven by financial institutions to meet the growing credit demand amid tight liquidity conditions. Commercial paper issuances were subdued on account of sharp increase in short-term interest rates. CP issuances were at INR 13.7 lakh crore in FY 2023, 32% lower as compared to the previous year. On the external front, spillovers from the challenging global scenario continued to pressure merchandise exports.
Lower imports on account of easing commodity prices have translated into a moderation in the merchandise trade deficit. The upbeat trend in India's services exports and remittances has supported a moderation in India's current account deficit. Thereby reducing our external vulnerabilities. The Indian economy remains resilient despite several global headwinds. The domestic economy will have to tide over challenges emerging from an uncertain global scenario and some lingering domestic challenges. Let me assure you, CareEdge is prepared to take these challenges head-on, and we have been going the extra mile in further cementing our position in the market. To enhance our brand value, CareEdge has significantly bolstered its outreach activities. Our dedicated teams in economics, trading, and industry research have diligently produced an impressive number of 155 reports through the quarter.
These reports, ranging from timely updates to specialized analysis, have been widely acclaimed and featured across renowned publications. In addition, our senior management, economic experts, sector specialists, industry research team, and the business development leaders actively participated in 35 knowledge sharing forums during the review period. This commitment to sharing knowledge and expertise reflects our dedication to fostering growth and progress within our industry. Furthermore, our presence across media platforms has witnessed a remarkable surge in the past year and continues to expand in the current quarter.
From our Powerpack monthly edition of Foresights to engaging blogs and thought-provoking podcast, we are actively disseminating valuable insights to our audience. Continuing the tradition of hosting prominent and insightful events, I'm happy to announce that in our 30th anniversary year, we will be hosting our flagship events at major metros in Q1 .
The COVID-19 pandemic had prevented us from conducting this in the past two years, but we got back on track in FY 23 and will continue to provide platforms for inspiring discussions and meaningful exchanges, thereby further solidifying our commitment to driving positive changes in our industry. As the late president, Dr. S. Radhakrishnan had said, "Knowledge is power, and the implementation of knowledge is wisdom." We at CareEdge have been putting into action the growth strategies devised in the past two years. From fresh talent to technological advancement, we are committed to unlocking the immense potential that lies ahead.
For the past few months, I have been personally engaging in regular interactions with the young blood at the organization to get a thorough understanding of what the future leaders of CareEdge want from the organization and how best we can all grow together.
We are also focusing heavily on the human resources front to ensure your company is one of the best places to work at. To support this plan, we have come up with multiple training and incentive programs that have been well received by the staff. I would like to quickly take you through the CareEdge Group's performance. Referring to the published standalone results for the full year FY 2023, CareEdge reported revenue from operations at INR 248.8 crores. This shows a growth of 13% as compared to last year, where CareEdge reported the revenue from operations of around INR 219.3 crores. 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 been higher by 23% at INR 103.8 crore in FY 2023. On the profitability front, CARE Ratings has reported a stable operating profit margin of around 46% on a standalone basis. On a quarterly basis, income from operations has increased from INR 60 crore in Q4 FY 2022 to INR 68 crore in Q4 FY 2023. While EBITDA and PBT reported an increase that has moderated due to impairment of assets and the resultant tax impact in Q4 FY 2023 as compared to Q4 FY 2022. Let us move to the consolidated results. On an annual basis, CARE Ratings reported revenue from operations of INR 279 crore, which is 13% growth from the last year, which was at INR 248 crore.
Net profit has been higher by 11% at INR 85.5 crores in FY 2023. Both the domestic subsidiaries, CARE Advisory Research and Training, as well as CARE Risk Solutions, have been witnessing traction. Under CARE Advisory Research and Training, which we call as CART, we have built robust advisory and research team that cover over 50 industries with research reports. On the ESG front, CART has developed a tech-enabled platform, which we call as SIRIUS, which is an on-demand comprehensive data platform that brings together company, industry and ESG insights. The company has completed the ESG assessments of over 900 listed companies in India across various sectors and subsectors. It has also been empaneled with the Association of Mutual Funds in India as an ESG rating provider for the AMCs.
In CARE Risk Solutions, we had infused capital to cater to the demand from the BFSI segment, addressing their ALM management and regulatory reporting needs. We are in the process of upgrading the existing products in this company and venturing into new business lines like data analytics, banking solutions, et cetera. Further investing in sales franchises to foray into the global market. Our Mauritian subsidiary, CARE Ratings (Africa) Private Limited, continued its impressive performance during the financial year under review. The company assigned ratings to more than 50 corporates from Mauritius. There has been an increase in awareness about the concept of credit rating among banks and corporates, and a clear understanding of the benefits of such ratings. Our subsidiary in Nepal, CARE Ratings Nepal Limited, also reported growth with 100 new rating assignments executed during FY 2023.
The transformative journey of CareEdge has seen remarkable progress in an impressively short time frame. As we move ahead, our unwavering focus remains on enhancing knowledge and productivity, thereby reinforcing the analytical rigor in our rating and diversifying our revenue streams. This strategic commitment will serve as the foundation for our continued growth and success. We understand the importance of continuous improvement and adaptability in an ever-evolving landscape. By prioritizing these key areas, we aim to stay at the forefront of our industry, thereby delivering value to our stakeholders and exceeding their expectations. I must once again thank you all for your continuous support and appreciate my colleagues and the team at CareEdge for their unwavering hard work. Together, let us forge ahead with determination and resilience as we unlock the full potential of our organization. Thank you.
Sir, should we now begin the Q&A session? Should we now open the floor for questions, sir?
Yes, please.
Thank you very much.
Yeah.
Ladies and gentlemen, we will now begin the Q&A session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star then two. Participants are requested to use handsets while asking a question. We will wait for a moment while the question queue assembles. To ask question, ladies and gentlemen, please press star one. We take our first question from the line of Rajiv Mehta from YES Securities. Please go ahead.
Yeah. Hi . Sir, congratulations on strong results, and thank you for giving me the opportunity to ask questions. Sir, firstly, could you share, the volume of debt rated, in FY 2023 and FY 2022? If you can just explain the growth of 14% that we have seen in ratings revenue, which segments of the business drove this, as in between bank loans, bonds, CP, securitization, what drove this? Which sectors drove this?
Okay. Thanks, Rajiv. My colleague, Revathi, would give you the figures on the debt rated. In terms of the segments, I would say the bank loan segment has given us greater growth during the year. As you would know that, during the period of higher inflation, generally the bank credit is a preferred route as compared to the capital market issuances. From that angle, we had seen a good growth on the bank debt side, and this is something that we have been disclosing in our earlier quarter results as well. The fact that the higher working capital requirements of the corporates and the other entities, they necessitate a funding, and considering the fact that the bank debt continues to remain the principal source of funding.
This segment had provided us a better growth for the full year. Revathi, if you can give the figures in terms of the debt rated.
Yeah. The debt rated showed an increase of about 78% as compared to FY 2022. In FY 2023, we rated about 3.8 lakh crores of debt as compared to 2.2 lakh crores of debt in FY 2022.
Okay. Thank you.
Incremental debt.
Sure. Yeah. Yeah. I mean, that is for the initial ratings, right? Okay. Yeah.
Yeah.
Yeah. Sir, looking at this 14% revenue growth in rating revenue, this year, which is a significant improvement over preceding year, would it be safe to assume that we have stabilized our market position and stabilized our market share? If that is the case, how do we plan to grow and further strengthen the market position going ahead?
I think, see, the trajectory that we are witnessing for us, and something of a trend that we have observed almost since the Q4 of FY 2022 has been on a quarter-on-quarter we have been posting good traction as far as the initial rating business is concerned. That is something we'd like to sustain for the future.
In terms of cementing this thing and going ahead as far as the future quarters are concerned, this business is principally driven by the credibility that you are posing before the users of the rating, as also the fact that how much of a knowledge domain expertise that you are able to disseminate, which can create the kind of the traction in the market for the users and the issuers who could be coming to you for the rating. From that angle, I think our entire focus, which has been on the quality-led growth, that is serving us pretty much well. We'd like to sustain with this strategy.
I'll not be in a position in terms of forecasting how much of a growth which could be there because that is an outcome of so many variables per se. At the end of the day, what sustains for us in terms of continuing to solidify our position are the key focus areas that we have identified for ourselves, related to our overall theme of quality-led growth. Once again, I'd like to emphasize that the model dissemination and the expertise that we have been developing in various sectors, that is serving us quite well, combined with the kind of an focused outreach that we have been having all through the year and which we'll keep on having for the future as well.
Okay. Just last couple of things I want to check on. One is the employee count as at the end of year. Second is, have we taken any pricing increases through the last year? Since we have strengthened our rating process, has there been any pricing increases?
Yeah. See, as far as the pricing increases are concerned, how we measure it is in terms of that, every year, we continue to map in terms of the number of mandates that we tend to get as against that, what's the kind of revenue that we are having on a per mandate basis. That is showing a consistently improving track. We like to sustain that for the future as well, right? As far as the employee count is concerned, on a standalone basis, we are slightly more than 500, and on a consolidated basis, we are slightly close to 700.
Thank you so much for answering all my questions, sir. Best of luck.
Thanks, Rajiv.
Thank you. We'll take the next question from the line of Varun Bang from Bryanston Investments. Please go ahead.
Yeah. Congratulations on steady progress during the year. Appreciate the steps that you are taking to drive the cultural transition. Just two, three questions. First one is on ESG. What are your thoughts on the guidelines that have come on ESG rating side? What opportunities do you sense for CARE since it is made part of BRSR? Is there enough scope to add value? Can you share your thoughts?
Surely. Thanks, Varun. As far as the ESG domain is concerned, currently the entire activities in this domain, they are being offered from our subsidiary CART. Over a period of time, we have developed good insight into this domain, and our offerings have been quite well received in the market. What we see from this, the guidelines the full guidelines are likely to come over the next two weeks or a quarter, right? The overall thing that we are witnessing is in terms of a regulatory requirement emanating in this regard that should augur well as far as the offerings from our side are concerned. Because we have been, I would say, quite proactive in terms of developing an expertise in this domain.
Right from the coverage of almost like 900 + entities, as far as our coverage over SIRIUS platform is concerned, going right up to serving the needs of the BRSR reporting requirements of the various entities as had been outlined by the regulator. Going much beyond that in terms of handholding them to reach a targeted level of BRSR reporting, as well as the fact that in terms of identification of any gaps in this regard, helping them and handholding them to make that BRSR report reporting quite competitive. From that angle, I think, on an overall basis, the ESG practices have been serving us quite well
I'll request Swati, who is the Chief Executive Officer of our subsidiary where these services are being offered to give further comment on this. Swati?
On the ESG front, like Mehul mentioned, the final print of the guidelines are yet to come out. The role of the regulator and the intent is very clear that, you know, the corporates and there is gonna be a whole lot of regulatory push and in the right manner and in the right direction. Because if you really look at the sense of the guidelines, it's talking about assurance services attached to the whole sort of reporting paradigm. In terms of the offerings at CART, what we do, we have a IT-enabled platform as well as a very well-defined frameworks across various industries to carry out the ratings.
We also do a whole lot of set of comprehensive consultancy assignments in which we handhold the companies in terms of developing their ESG strategies as well as, you know, moving them up on the entire ESG curve.
Okay. In non-rating business, in both corporate advisory and research and advisory, what are the USPs that you are looking at building, and how do you think it will transpire, in your opinion?
I think the USPs that we are trying to develop in both the subsidiaries is at the end of the day, it has to revolve around our core expertise and which is in the analytics domain. Be it on the corporate advisory side or through the ESG aspects or any kind of customized research in CART, our offerings are very always oriented towards giving value addition in the analytics domain. Coming to the Risk Solutions business as well, which is a part of the other subsidiaries. Over there also, the product offerings which have been there from our side, we are having a focused approach in terms of augmenting them, but continues to revolve around the analytics domain.
We believe that we have a greater understanding in that as compared to any other domain which potentially could be, I would say available as far as the activities of the subsidiaries are concerned. We like to focus in terms of the analytics domain to continue to remain as the driver for our non-rating business as well.
Okay. In last one year or so, how do you look at our progress in non-rating business? I think initially we might have to prove our capabilities and then clients will come. Is it a long drawn process? Based on your assessment, what could be the timelines for visible success in this business?
Okay. I think the non-rating businesses are always slightly challenging in terms of growing them. Considering the fact that, as I mentioned, that we have the expertise drawn on the analytics domain, the teams that we have over there, both in terms of the consulting advisory subsidiary as well as in the risk management solutions subsidiary. The teams which are there currently, they are pretty strong. It takes a slightly longer time in terms of developing these businesses and getting traction in that.
What is heartening for me is the fact that as far as CART is concerned, we have done some very good assignments during FY 2023, which gives the foundation for capitalizing on the experience drawn from those kind of assignments and to extrapolate it to similar kind of, I would say, client set, as well as the multilateral institutions in the quarters and the year to come. On the risk management solution side, I think the greatest aspect has been in terms of ensuring that the product development that we had envisaged when we were going for a complete reboot of the entire business ecosystem over there. That has sustained itself.
It is taking a time, and I'm once again mentioning that these businesses take slightly longer time to get to a stage where they are giving us a lot of traction. We are on the right track. That is something which is a comforting factor for us.
Just one last thing. In this context, can we look at any acquisition to get a ready foundation and maybe it can be built from there on? Maybe that can, you know, help us reduce this... I mean, reduce the timelines for success in this business. If you can just share your thoughts.
I'm sorry to interrupt. We lost the line of the management. I'm reconnecting the line. Kindly stay connected. Sir, you may need to repeat your question. Please stay connected while I reconnect them. Please stay connected. Thank you. Ladies and gentlemen, kindly stay connected while we reconnect the management. Thank you. Thank you for patiently holding, ladies and gentlemen. We have the management line back in the question, back in the call. Sir, you may please repeat your question again. Thank you.
You said the success timeline could, you know, timelines could be longer in non-rating piece. Can we look at any acquisition to get a ready foundation and maybe the business can be built from there on? You know, that sort of can help us reduce the success timelines in this business. If you can just share your thoughts on acquisitions.
Sure. I think from the growth perspective, all options are open before us. While until now we have been focused on an organic growth, but if any good opportunity comes our way, we have an open mind on that. We do believe that a combination of various strategies that need to be deployed in terms of ensuring that we get to that stage in terms of having the acquisition traction and the scale of these entities in as short a time as could be practically possible. I would only like to limit my submission to state that all options are open before us, and any opportunity coming our way, we should be looking at it in detail.
Okay. I'll join back with you. Thank you.
Thanks a lot.
Thank you. We'll take the next question from the line of Deep Sankara Narayanan from TrustLine PMS. Please go ahead.
Good afternoon, everyone. Thanks a lot for the opportunity. Firstly, with CapEx cycle turning positively and credit growth has been picking up for banks strongly, do we foresee double-digit growth in rating business over three to five years now?
I think it will be a too much of a forecasting prematurely in terms of giving any specific number whether it will double-digit or single-digit in this regard. What is important as far as our business is concerned, is that the credit growth in the corporate lending that should be driven by few themes. Number one is the government push on the infra CapEx. The government having been persistently expanded its infra-related CapEx, particularly in the roads and railways segment for the last three years consistently now. We believe that the multiplier effect would come into play, and that should augur well for the segments like EPC players, capital goods, and the infra-focused companies. The second is in terms of the growing focus on the green areas, including the decarbonization.
Both the government and the private entities are taking this pretty much seriously. This segment also shall be giving us lot of CapEx-related opportunities. The third is in terms of improving logistics efficiency, where once again, the investments in the dedicated freight corridors coupled with multiple multimodal logistics platform and so forth. That should also be requiring lot of CapEx and resultantly the debt requirements in this regard. Finally, the push that we are expecting, or rather the pull in this regard could be in terms of the deleveraged balance sheets of the Indian corporate. The fact that the Indian corporates have significantly deleveraged, that should augur well in terms of their ability to contract further debt to capitalize on the CapEx related opportunities in this regard.
A combination of all these factors, that should augur well as far as the overall rating industry growth is concerned, because there indeed would be debt requirements pertaining to this. As one of the main rating agencies in the country, we should be in a position to capitalize it to our benefit.
Okay. All this growth will be mainly driven by volume itself or we are foreseeing realization improvement also coming in future because of strong demand?
I think it will be a combination of both. Higher volumes also, I mean, one of the earlier remarks which I made, we are quite focused in terms of better realization as well. That is one area where we consistently focus upon on a year-on-year basis to attract our progress. I'm happy to report that it is showing a positive traction on that. A combination of both is something which gives us the confidence in terms of capitalizing on these opportunities as they come our way with an overall industry-led growth.
Okay. Lastly from my side, in terms of employee costs, have you reached the industry level benchmark and we are able to retain them successfully? If it is so, do we foresee better operating leverage from here on picking up for us so employee cost growth could be much lesser than our revenue growth?
Yeah. See, on an overall basis, we are growing gradually nearer to the industry benchmarks as far as the employee cost is concerned. From the perspective of retention of this talent, right? Our attrition rate, that has also come down significantly. Which is a factor of the consistent efforts that we have been putting in terms of ensuring that the market-related benchmark pays across the cadres, they are implemented. Complemented by the fact that lot of other employee-friendly initiatives in terms of attracting and retaining this talent, right? They all have been implemented during this year. On an overall basis, what I can say is that our employee cost as a % of the operating revenue, that shall remain range bound.
In certain quarters, if at all, if we feel that certain skill sets are indeed required to be onboarded, by all means we should be, we shall be going for that. Because at the end of the day, this is a people-led business. The onboarding of the right talent, that shall remain a focus area for us. Nevertheless, we do believe that it shall be remaining range bound, and it won't be increasing substantially from what the current levels are.
Okay. Thanks a lot and all the best.
Thank you.
Thank you. Ladies and gentlemen, in the interest of time and fairness to all participants, please restrict questions to two per participant. If you still have more questions, please join the queue afresh. Take the next question from the line of Hitesh Agarwal from Fair Value Capital. Please go ahead.
Congratulations, sir, on good set of numbers. My first question is, we have taken an impairment loss of INR 1.73 crores in standalone statement in Q4 . Could you give more details on this?
Yeah, sure. This pertains to our assessment of our investment in our subsidiary, which is the tech subsidiary, CARE Risk Solutions. In this regard, as a matter of good governance, see, you are aware that we have infused INR 33.5 crore as equity in this subsidiary during FY 2023. From a good governance perspective, we keep on evaluating the overall things in this regard. We felt that as a prudent measure, we should be taking this impairment in Q4, and that is something that we have done. At the same time, the decision in this regard, that is more from a good governance perspective.
Are we expecting any further impairment maybe in the coming quarters on this related?
We do not anticipate anything substantial in this regard because as I said that the efforts which are going in terms of turning around this company they are in the right direction. While it has taken slightly longer in this regard, but nevertheless, we are in the right direction, and that is something that we are hopeful in terms of having the improved performance in the coming quarters and the year. Right?
Okay. As I look at the tax rate for FY 2021 and FY 2022, it was around 22%-23%, whereas for FY 2023, the total tax rate is at 32%. Could you throw color why there is a bit of variation in this?
Surely, yeah. I'd like my Chief Financial Officer Jinesh to answer that. Jinesh, please.
Yeah. Hi. If you've seen there are certain impairment in FY 23, the whole year. Because of that, we don't get a tax credit of that and that is allowed. That is why the tax, effective tax rate increased to 32% what you said. In the previous years, obviously, that was allowable as a CV and all. If you compare two years' tax, that is the difference only for the impairment on the impairment side.
Okay, sir. What can we expect as a tax rate for going forward for FY 2024?
It would be nearly to current tax rate, that is 25%-27% , between 25% and 27%. There are certain adjustment on deferred tax, so that we can't predict on DTA. The tax expense consists of current tax and the deferred tax. That's why I'm giving you a range bound.
Okay, sir. My last question is, could you share, throw details on the attrition level which was there for Q4 and for the whole year of FY 20 23?
Okay. overall, I think, the attrition level, from the previous year, they have come down significantly and for FY 2023 it was around 28%.
Okay. In Q4?
We don't have a quarterly because at times like that there would be onboarding also which keeps on happening across the quarters, right? Quarter to quarter attrition rate is not something that we check. It's more on a yearly basis which is more reflective of the overall trend in this regard.
Okay, sir. Thank you. That's all from my side.
Thank you. We take the next question from the line of Keshav Garg from Counter Cyclical PMS. Please go ahead.
Sir, thank you very much for this opportunity. Sir, it is very encouraging to know that the rating business is gaining traction. Sir, our other subsidiaries, non-rating business, so the losses are increasing drastically. They have tripled year-on-year, whereas the revenue has fallen. Had the revenue also grown, then it would be encouraging that at least the business is picking up. If the revenue is declining and losses are increasing, sir, where is the light at the end of the tunnel for the non-rating business? When in your judgment do you think that this segment can break-even?
I think when we are talking of the non-rating businesses, I would say the major loss which has been there is on the risk management solutions subsidiary. As far as the consulting subsidiary is concerned, CART which is concerned, it has largely been closer to break-even during FY 2023. There was only a marginal loss which was there, and it was largely a cash flow positive outcome for us. Both these businesses, they require a significant I would say deployment of the resources to get a traction in the market. The infrastructure in terms of the human resources that needs to be created first, especially on the risk management solution side, considering the fact that a lot of product development efforts have been going on over there.
From that angle, this commitment to the resources, having the right team working on those product developments, that entails investment from our side in this regard. The fact that this product going to the go-to-market stage and start generating the revenue, it has got delayed a bit in this regard, and that is why the resultant losses which have been there, right? Nevertheless, we do believe that the products which are getting developed and the prioritization of these products from the management side, that is with a very clear cut focused strategy. We should be seeing an improvement in this regard as we move forward.
Nevertheless, I will also like my colleague and Chief Executive Officer of CARE Risk Solutions, Kiran to give his perspective as how he is witnessing this trend and how he would like to take this forward on this. Kiran?
Sure. As we say, this particular year has been year of constructing all our products and solutions to the new norms of Basel. That time which is gonna be taken to get these solutions to the market was where we envisaged this investment which was done. Now our first few products are into the GTM stage, and we see a very strong traction over there. As we all speak this current particular tenure where we were developing the applications, we all know the software industry went into a very large turmoil for resources and, you know, availability of resources globally. It's a well-known fact.
There's couple of things, which we have been able to arrest over the last quarter plus, and all our products are following the timelines on development and are adhering to the release dates, shows us positive signs on the sign of how revenue will be generated from the products. Thank you.
Sure, sir. Sir, also, sir, lastly, wanted to touch upon the share buyback issue which has been raised multiple times in the past. Company also attempted to do the same, but the pricing was incorrect, so the buyback was unsuccessful. Sir, as soon as the one year timeline gets over, sir, kindly consider another share buyback. Sir, because you see our earning per share way back in 2012 was INR 38, which has now declined to INR 28, and this is not adjusting for inflation. Moreover, the ESOPs are further diluting the share capital and reducing the EPS. Also share buyback is more tax efficient, and it will help us increase our EPS growth also. I hope you will appreciate the same and do a share buyback. Thank you.
I take your point, and certainly I'll take it up to the board for an appropriate decision in this regard. Thank you.
Thank you. We take the next question from the line of Vikram Kotak from Ace Lansdowne Investment Services. Please go ahead.
Yeah, yeah. A question one for Mehul and one for Jinesh. If I missed earlier, so someone if you answered earlier, you can, you know, pass. One is on the tax side. I missed earlier answer. What's the likely tax rate going forward next two years after this one spike in the last quarter as well as this year?
Yeah. It can be in the range of, 24%-28% or 25%-28%.
Okay. You'll be back to the normal next year?
Yeah, yeah. Definitely, yeah.
Okay. Second for Mehul bhai for you is this, slide number seven on the presentation which you talk about the rating stability in sync with the industry average. Can you little elaborate on this one because it's a very interesting slide? I just want to understand this slide. Yeah.
I think we always keep on tracking as far as the rating performance is concerned that the ratings overall they should be number one, be displaying an ordinality in the sense that the higher rating categories, they should be displaying a greater stability.
Right.
On an overall basis, the investment grade ratings, we also should be continuing to display a greater stability.
Right.
The fact that this rating performance has to be tracked consistently gels well with our overall philosophy of a quality-led growth. Because, you know, at the end of the day that's something as a rating agency which has just completed 30 years.
Right.
We are looking forward to a substantial time in the future also, right? We have to develop that kind of robust systems and processes to sustain the rating performance.
Correct.
I'll also request my colleague, Sachin, who is our Chief Rating Officer, to give his perspective on this also. Sachin, over to you.
Yeah. Thanks, Mehul. You know, if you look at the slide on rating stability, I think there are two key takeaways from there. One is if you see year-on-year, you know, the darker blue bar is talking about-
Yeah.
The period of 2018 to 2022, the next one is talking about the current.
Yeah.
more recent five years, that is 2019- 2023.
Right.
As you can see, there is improvement in the stability rates in the earlier five-year period to the current five-year period.
Sure.
That is one. Our rating stability is improving over the period. That is point number one. Second is we have also compared it to the average of the industry. There if you notice the gap, you know, while it was always slightly higher than average even earlier.
Yeah.
Now the gap is even increasing. You know, we are better off than the industry average.
Right.
In terms of rating stability. That is the second point. The other point which I just wish to add on the same thing is that, you know, our another matrix that we look at is investment grade defaults, apart from the stability. Wherein we very simply say that, you know, at the beginning of the year in my total portfolio of entities which were in investment grade, by the end of the year how many such entities have gone into default?
Yeah.
Obviously the lower the number is, the better it is. You'll be happy to, you know, note that in the current year we had only one such instance, you know, wherein the investment grade entity went into default. The similar numbers in the prior periods were, you know, in double digits and even last year it was a number of about five.
Right.
We have been very sharply improving our performance in this respect. For the current year, our performance is actually either better or same as the other top rating agencies in the country. In that respect, our performance of ratings is quite strong, and that is largely because of the, you know, multiple actions that we've taken over the last few years, including, you know, things like, we have now specialized sector, specialized rating teams. We have dedicated teams who look after, you know, highly rated entities and especially the entities which have high amount of debt. We also
Right.
You know, have oversight from, you know, external committees like ERSC, which is our Rating Supervisory Committee. In general, there has been a strong focus within the organization to make sure that our rating actions are very timely, more objective.
Yeah.
And that is also, you know, getting reflected in our, you know, the various, mutual funds.
Right.
Other investors who use our ratings, you know, having more confidence in our ratings. Thank you.
Yeah. Sachin, what we were trying to say that. I'm very happy to see the BBB, and BB are showing a good improvement. That shows that your rating process actually kind of showing a much improvement than earlier years. Yeah. That's what I have to read in the slide, right?
You know, if you notice, it is also in the higher rating category.
Yeah .
The point like, say for AA the number has-
Yeah.
... moved up from 92.43 - 93.61.
Yeah.
The point is, you know, you also have to note this is a five-year data. you know, say weak performance in the year 2000, say 2019 and 2020.
Uh-huh.
You know, therefore the curve is not that sharp, right? If I were to play it only for the current year, it'll be a much sharper improvement.
Uh-huh.
Because it is a five-year average, the delta is not looking as sharp. Nonetheless there is clearly a discernible improvement across all rating categories.
All right. Thank you, Sachin. Thank you so much. Thank you, everyone.
Thanks.
Thank you. Ladies and gentlemen, please restrict questions to two per participant. We take our next question from the line of Sanjay Kumar from iThought Financial Consulting. Please go ahead.
Hi. Thanks for the opportunity. Just to follow up on the rating stability. I mean, shouldn't be using the average of the industry, right? I mean, company like us should be benchmarking ourselves against the leaders, CRISIL and ICRA. One observation was our triple A and double A stability seems to be behind them, whereas our A and BBB is even better than someone like ICRA. Why is this divergence, if there is any? If you could talk about this.
Sachin, you would like to answer?
Can I take this?
Yeah.
Yeah, you take it. Yeah. No, I—t he data that we have given here is only for the industry average. I take your point that we should compare ourselves to the industry, you know, people who are in the same industry position as ours. Maybe next time we will kind of do it like that. Point taken. If you look at the improvement, you know, if I were to compare across the industry, in the chart it is clear that we are better off than industry across all rating categories. I didn't get your second part of the question that you're saying.
Right. No. Like for example, our BB B stability rate is around 91. We've improved to 91. If I look at, say, someone like ICRA, they're still at 87. We are better than them in BB B, whereas we are lagging behind in triple A and double A.
Correct. You know, your point is valid. You know, CARE, if you see historically our rating stability in A, BB B and B B category has been fairly strong. We had some bit of mishaps in double A and triple A categories during the 2017, 2018 and 2019 periods. That is where.
Yes.
The data is kind of showing us in a relatively weak position. If you look at the data for the more recent periods, and that's what I shared on the earlier question. If you look at the last two years, our performance is kind of at par or even better than some of the names that you mentioned on the rating stability and on default statistics.
Okay. Perfect. Okay. All right. In all that question, you gave the volume. Can you also give the client base for the initial ratings in FY 2022 and FY 2023? How much has that piece grown?
That will not be able to disclose, as a part of the public disclosures. What we can state very clearly has been that our overall growth in terms of the incremental business, which we measure in terms of the addition of the new clients, that has been very robust, right. That is a momentum which is sustaining all through the last five quarters that I talked about, starting from Q4 FY 2022 and till Q4 FY 2023 . It is a very clear growth over there, which has been helping us in terms of posting good results, and we'd like to sustain that.
Okay. Is a bit of pricing involved or do you think it's down to credibility, expertise?
I think the pricing is always, has always been in terms of a market-led phenomenon. The industries like this or for that matter, anything in the industry, where the competition is always intense, right? The pricing is generally driven by the market dynamics. At the end of the day, in this kind of a business, what matters is the kind of number one, your knowledge expertise in the various sectors which are going in for the re-ratings, contracting new debt, as also the fact that how much of an outreach that you are having in terms of explaining your positions, your knowledge to them, which can create the requisite pull for this. It's a combination of both these aspects which has been serving us very well in this regard.
Okay. Okay. Second question on the non-ratings business. I mean, looking at the P&L will not be able to conclude anything. If you could give us any internal metrics that you monitor for your non-ratings subsidiaries. You know, how many AMCs have you signed up for ESG, how many banks for ALM management or regulatory reporting and so on. Can you give us what kind of internal metrics that you guys are tracking so we can get a better picture outside of the P&L?
I think as far as the consulting advisory business is concerned, we track it in terms of the number of clients that we onboarded across the offerings, be it in terms of the customized research or the corporate advisory and the ESG offerings. As far as the risk management solutions company is concerned, we track it in terms of once again, the clientele across their business lines, be it in terms of their existing product suite on the ALM or the op risk, credit risk, those kind of solutions. Going into the new domains in terms of the data analytics, as Kiran mentioned in his submission that some of the products which we've been developing, they are almost at the stage of the go-to market.
Something has already been done so far, and some more would be getting to the GTM stage over the next few quarters. This is the kind of a metrics that with which we keep on tracking both these businesses. On both these aspects, the subsidiaries have done well. In terms of the key aspects or the figures pertaining to this, may I request Swati to give her perspective in terms of the consulting advisory and Kiran on the risk management solutions. Swati, first you.
Yeah. In terms of the clients added, we boarded something like about in total, maybe about 100 new clients, we onboarded. They could be across various industry spectrums or across various product offerings, whether it is ESG or whether it is industry research or whether it is the consulting business. Particularly in the ESG space, we are currently working roughly, I mean, instead of giving the exact number, I'll probably say that we're roughly in the high end of, of the 20s that we are working on the number of assignments that we are working currently. Yeah. Kiran, do you want to?
Yeah. From the CRS skill perspective, we've been able to add not only customers in India, but having marquee customers in Canada and also customers in UAE. As we speak, we also been able to add some marquee customers on the lines from the financial organizations. Going further, we look towards our products once they are ready, a very explorative market in the Basel IV line. We see a lot of growth on that line as well.
Okay. Thank you. That's it from my side.
Thank you. We take the next question from the line of Devansh Nigotia from SIMPL. Please go ahead.
Yeah. Thanks for the opportunity. Sir, regarding ESG, you mentioned that in ESG disclosure, we rated around ESG disclosures, we've covered around 900 companies. In our other segment, can you help us understand how much we have booked for ESG disclosures, ESG ratings and ESG for AMCs?
Yeah. Swati, you take it.
The exact breakup in terms of, you know, I would just say that at this point of time, the ESG offerings, if you really look at it, we are about a year old in this. We have revenue booking from all the three segments, whether it is ESG ratings, I mean ESG gradings, or whether it is ESG assessments or whether it is ESG comprehensive services. It's all across the spectrum, a lot of work is undergoing, so may not be very fair for me to comment further on this, but it's spread all across the various product offerings that we have under the ESG space.
Based on the experience over the last one year, can you help us understand, the unit economics based on which all 3, the revenues that you generate in all these 3 sub-segments?
Even a directional, you can give, even that would be really helpful.
Yeah. Okay. From a directional perspective, see, if you also look at it, there are new regulations that are coming out, and we really have to go through the SEBI paper to understand. The SEBI paper and the charges, some kind of, you know, accreditation with SEBI in terms of the ESG rating provider. In terms of, you know, it will not be fair to give a guidance as such, but as far as our product portfolio is concerned, we'll be concentrating on the consulting business as well as on the ESG grading side.
Okay. As of now, how many entities are eligible to, do all three, and who are accredited with SEBI?
Accredited with SEBI is a phenomenon which has just come in. You know, AMFI registered are there. There's something called AMFI registered who are the ESG rating providers. To best of my knowledge, I think there are four guys who are AMFI or four or five guys who are AMFI and panel. Consulting services, if you really look at the market, you know, it's essentially the big four and some of the other larger players like us and some of the larger other competitors of ours. They are providing all the consulting services.
Consultancy would include ESG disclosures and ESG ratings. Is that the right understanding?
No. Consulting essentially also means helping a company develop its ESG strategy. That is a whole comprehensive set of services. It helps the company make its ESG plan, ESG disclosures, ESG strategy, et cetera.
In last 1 year we have done ESG business, but our revenues in other segments have actually declined. I'm just trying to understand, is it insignificant in last one year or, you know, can you just help us understand the how within other the revenue mix has moved within different subsegments?
I don't think that's the right conclusion. I think if you look at CART's revenue, we've only grown over last year. I don't think that's a fair conclusion to say that our other products or products have gone down. We've grown all across all the segments.
Okay. Thank you, ma'am.
Thank you.
Thank you. We take the next question from the line of Himanshu Upadhyay from 03 PMS. Please go ahead.
Yeah. Hi. Congratulations on good set of numbers. See, I was, we had seen our one presentation on an analytical driven risk solution, okay? Where, we are targeting various type of services like pattern recognition and targeted advertisement and sentimental analysis. Are these products more automated? Because of automation, will there be a nonlinearity in the business profile of these type of products and hence once the product gets wider acceptance, the margins can be much better? Or how—w hat is the nature of these services what you are trying to develop? Or it could be something like credit rating only where, man-hours or you'll be pricing it. Some thoughts on that.
Kiran, are you will take it?
Yeah, sure. Mostly our analytical products are, or the analytical offerings are more towards our credit risk and market risk offerings, which we are producing under our solution line. There are certain elements like network analysis, which is new, or graph databases which are new, which we added to our portfolio. Sentiment analysis or a particular type of analysis is a subset of the overall analytics portfolio that we give. Coming back to the story, what we are doing is more on the lines of fraud analytics, early warning system, network analysis, industry-based analytics and stress related to portfolios. These are the offerings that we have.
They definitely add a lot of value, to the organizations who are into lending or probably would take market situation based on our analysis. They are as an offering, as a product and not as a service because these are a very personalized analytics that we are into.
Does it answer? It is something like a core. Just an example I am taking. Something like a core banking software type of a product where, it's just an example where a customer pays based on license fee and then a renewal fee type of business model it will be. would be...
There are two offerings. One is risk as a service where we are into a smaller model, which is for NBFCs who cannot afford the complete software and hardware. There we are offering along with a couple of clouds like Oracle and Azure or the cloud which we are tied up with. We are already offering this. We are already in a prototype to offer to 180 co-op banks, but that's still in POC state. One model is definitely risk as a service, which is subscription based. Banks still in India prefer that they be one-time model. We have both the models.
Okay. Okay. Can we take these, business to beyond lending institutions? Because some of these things may be useful for other institutions also or organizations, or we'll focus only on that side of the business?
No. We have built a Chief Financial Officer offering, which has IFRS 9 as a mandate and accounting standards, Indian accounting standards. These are two new small packages, but they're not very big, that can be offered to non-financial organizations also. We, however, are keeping this very small right now, and we would like to grow in a very structured manner in the non-BFSI sector. Yes, it can be offered.
Lastly, the cost increase and the subsidiaries means that is majorly to the employee cost, which was increased from INR 20 crore-INR 30 crore, okay. The majority of cost of employee which has grown is to develop these products. How good is the sales team? Have you also invested into the sales part of the team? Are both the activities, the production and the sales are completely ready, or you think, we will be needing to further invest to drive these businesses, especially on the sales side now?
I'll give you a perspective on this. CBE investment as far as the people in the subsidiary concerned has been on all discounts. It is on the product side, it is on the practice and the delivery side as well as on the sales side. As Kiran mentioned, a lot of effort has been going on in terms of developing new products as well as augmentation of the existing products to make them more value accretive for us going forward, right? For that, developing the requisite skill set, having the right people on board to do these things and coming out with the developed products in a time-bound manner, that had been the focus. That has resulted into a higher cost, which has resulted into the losses also at this stage.
Going forward, also our focus sustains in terms of ensuring that these products where we have invested, in terms of the right people, they get to the, GTM stage, at the earliest, combined with the focus in terms of the augmentation of the sales team, so that the requisite, business, traction, comes our way, in a much faster manner. Certainly, like the focus on in terms of building up the sales team continues to remain, and, it cannot always be in terms of only the product development. Sales team, and the product development team working in tandem to ensure that, we generate the traction, at the earliest, shall remain our focus.
Outside India also, we are trying to sell these products. What would be the sales channel? Means would we be doing on our own or you would like to piggybank on some consultants or what is the move to develop the business outside India? What you said about in your opening comments.
Yeah. Our focus would remain in terms of tapping these opportunities as they arise and generating new opportunities in this regard. What matters to us is that when we are tapping the geographies outside India, we should be looking at the opportunities in totality. Wherever we are in a position in terms of getting the business on our own, certainly we'll be going for that, considering the fact that it's always be giving us a better margin on this. We are also equally open in terms of going for the partnership model in this regard, that wherever we can partner with anybody else, that also remains as a part of the overall strategic framework.
It's a combination of both these things, which should be ensuring that we have the overall right product and the market fit, to give us the requisite traction, at the earliest in terms of the tapping the geographies. It can't be only one strategy in this. It has to be a combination of both.
Okay. Thank you. Very informative and very helpful. One small suggestion, okay. The company is going through a very interesting phase where we are entering newer businesses also. If we go and do a call at least once in six months, mid-year and year-end, it would be helpful rather than just at year-end. A small suggestion if possible.
Point taken. Thank you for your suggestion. Yeah.
Yes, thank you so much, sir.
Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I'd now like to hand the conference back over to Mr. Mehul Pandya for closing comments. Over to you, sir.
Yeah, sure. As I mentioned in my opening remarks, we are fully geared up in terms of unlocking the full potential at the group level. We are quite positive when it comes to the opportunities that are before us and as also in terms of the determination that as the entire senior leadership team across the group that we are having on the group trajectory, which is the runway that was set in FY 2023 and shall continue determinedly on that path in the future quarters in the year as well. I would like to once again thank everyone for their continued support and we count on it for the days ahead. We wish you all a very fruitful FY 2024. Thank you so much.
Thank you. Ladies and gentlemen, on behalf of CARE Ratings Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.