CARE Ratings Ltd

NSE:CARERATING

Earnings Call Transcript 2021-Q4

[Mradul Mishra]

Good afternoon, ladies and gentlemen. I'm Mradul Mishra from the Corporate Communication team. And on behalf of CARE Ratings, welcome you to our Quarter 4 FY '21 and FY '21 Earnings Conference Call. [Operator Instructions] Also, please note that this conference is being recorded. Mr. Ajay Mahajan, Managing Director and CEO at CARE Ratings will be interacting on this call. Now may I request Mr. Ajay to take over the proceedings, please.

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

Thank you, Mradul. Good afternoon, friends, and welcome to the Investors call at CARE Ratings. I trust you've had the chance to go through our results, which were announced on Saturday, late in the evening, and analyze the same. I'm here with the senior management of CARE Group to explain to you how the company has fared through the year and address questions that you may pose after my preliminary remarks. I will also take you briefly through our vision for the coming years, which will give you a perspective of our plans that we have in place. Now as you all know, FY '20 was a challenging year for the entire industry and also us, as this was the first time the economy registered a negative growth of 7.3%. This, coupled with a further fall in the investment rate, further impacted the borrowing appetite of corporates. And as you know, our new business is driven by growth in the debt markets as well as the bank loan segment. Corporate debt issuances were highest this year actually at INR 7.64 lakh crores. A large part of this increase was due to the liquidity operations of RBI through the TLTROs, in particular, which led to the infusion of funds into the system that had investment in bonds as one option. However, the issuances were tilted towards the financial sector, in particular, as manufacturing was working with surplus capacity and private sector involvement to the infrastructure was also limited. The NPA issue, we believe, is still a challenge to contend with when it comes to investments. Further, some of the large borrowers were PSUs, and these 2 factors do not necessarily add to the revenues of the company, even though the quantum of debt traded was higher. On the side of the bank credit, growth-to-manufacturing was lower at 0.4% versus 0.7% last year, and that to services was 1.4% as opposed to 7.4% the previous year. This further pressurizes our initial ratings in growth. CP issuances were lower this year at INR 17.4 lakh crores versus INR 21.97 lakh crores last year. This clearly tells you that the economic environment was quite dull and had affected overall demand for credit. There was a new piece of business, however, which came in the form of onetime restructuring scheme, which was -- which we were able to add to our portfolio. While the contribution to total income was limited, we believe all this is beneficial as it establishes our strong presence in the new area. Further, there was success in the securitization space with addition of several clients which should stand us in good stead in the future. Hence, there were more challenges in the market; however, we did work hard to take advantage of the small opportunities that came along the way. It is against this background that our results should be viewed. Under the force of circumstance, we have now almost perfected the art of working at home or working from home. And even through this lockdown, this has been the case, and it's gone quite seamlessly. This year too, we had to close our offices in mid-March, but we did complete our mandated assignments, both new and surveillance on time. Given the uncertainties in the future of the pandemic, we are confident of working in a way that business does not get affected. Let me first give you an overall view of our financial performance for the year, which I'm sure most of you have already read and analyzed, so I'll not belabor in too much detail. Let us talk about the entire CARE Group performance first. The total income for the year came in at INR 279.74 crores compared to INR 275.11 crores last year, an increase of about 2% at the top line level. PAT increased from INR 83.48 crores to INR 90.97 crores, which is an increase of about 9%. We are happy to state that all 4 subsidiaries have made a positive PAT in the fourth quarter, and 3 of them are PAT positive for the full year, which is encouraging. Revenue diversification, as you know, is our key objective, and we will be focusing on seeking new growth opportunities for our Risk Solutions and Advisory business.On a stand-alone basis, talking only of CARE Ratings, total income increased from INR 250.44 crores to INR 251.78 crores for the full year, while our expenses decreased by INR 11.14 crores from INR 150.19 crores to INR 139.05 crores. Employee cost rose by INR 6.54 crores, while other expenses actually came down sharply by INR 17.7 crores. Our PBT increased from INR 100.25 crores to INR 112.73 crores, with margins improving from 40% to 45%. That was up at INR 85.83 crores, and PAT margin improved from 32% to 34%. I'm glad to inform you that the Board of Directors have announced a total dividend of INR 17 per share, of which INR 11 has already been paid. This is in line with our strategy to keep payouts robust and healthy, while retaining some resources to make investments in new businesses as those will be the key to CARE Group story going forward. Just to place the financial results for the quarter before you. For quarter 4, our total income was INR 74.82 crores, while our PBT and PAT were INR 29.56 crores and INR 22.09 crores, respectively. During the year, we did strengthen our outreach efforts through a series of webinars on various sectors and the economy. As it was an online mode, we were able to reach a larger audience and keep the audience engaged. The webinars had external experts participate as well, which helped to blend the house view with industry perspective, which make the experience richer for listeners. Our research reports are circulated widely and have been well received, as we believe the company should be valued for the knowledge that we have built over the years. We have also collaborated with various chambers of industry, either as knowledge partners or speakers to deepen the CARE brand in the industry. While we did take several initiatives this year, we were implementing our new transformation agenda as has been spoken about before with all of you. I'd like to mention that we signed a contract with [indiscernible] a cloud-based data platform provider based in U.S.A. last year. This is in keeping with the deployment of our -- of more sophisticated data science capabilities across the CARE Group to build a data analytics organization. While technology will be the heart -- at the heart of our innovative solutions, they have established technology centers of excellence to provide scale and efficiency in modifying existing applications and developing new applications for our business. We've also put emphasis on human resources, which has been multi prompt. Given that COVID, particularly the second wave was strong and continued to be lethal with many employees and their families affected, we're still focused on doing our best for employees at a time that they were jostling between personal and family health issues and work pressures. Several measures were taken to increase support for them through this difficult time. On the work front, we stayed focused on the larger objective of improving productivity of the fund. That required realigning organization structure, improving analytical rigor and investments in better systems and processes. Lastly, we have introduced a new talent management scheme where high performers are rewarded with an accelerated growth part. Simultaneously, the organization has evolved over the years. We have hired some very senior professionals to assist in the transformation of the company. We have new professions as Chief Ratings Officer; Chief Information and Technology Officer; Chief Finance Officer; Head of Legal, Company secretarial and Compliance; CEO of one of our very strategic subsidiaries called CART; and also a Chief Culture Officer. We are firmly on a transformative journey at CARE Ratings, and we are pleased about the overall performance in such challenging times. Our focus firmly remains on improvement in productivity, strengthening analytical rigor in ratings, as also diversified revenue streams going forward. Now as we move ahead, we have identified 4 edifices, which will serve as our props: First is the group concept, where while Ratings remains our mainstay, we work on CART and CRSPL, the business advisory and research and risk solutions companies to push the envelope. Second is the technology factor, where we are going to use artificial intelligence, machine learning and other sophisticated data analytics tools to enhance efficiency at every level, cut our costs and enhance value addition. Third, we continue to harness human resources as we grow and we recognize that any initiative in this knowledge management industry has to be multiplied as the complexities in businesses increase and the skill requirements have to match these compulsions. Therefore, training is a big part of our agenda as well. And lastly, we are in the process of rebranding CARE Group, which will go far in strengthening the image of the company. In conclusion, I must admit that we were convinced that FY '22 would be significantly better than the last year, and our house view was that GDP growth would be in the region of 11.2% this year. However, the second wave and the lockdown has dented optimism. And while conditions are still evolving, we estimate now that the growth may possibly be a little muted at levels of 8.8% to 9%, with a slight downward bias. This will get reflected in the investment climate and the debt and credit markets as well. On the positive side, we believe we are better positioned as an institution due to the learnings from last year as well as the new approach, which is already in progress, that will hopefully deliver better shareholder value in the coming years. With that, I close my preliminary comments, and I will request my colleague to get into the Q&A session, please. Thank you.

[Mradul Mishra]

[Operator Instructions] Okay. We have a query from Mr. Chetan from PRAGYA Equities.

[Chetan Cholera]

Congratulations for the good set of numbers. And just, I think, two things. Like I have read somewhere that your target is to reach 40% to 50% of your revenue from the -- other than the Ratings business. So how you will achieve that? And what will be the roadmap?

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

Yes. It's a good question. See, I do -- the 40% to 50% is not to be taken sacrosanctly. I think where I have, at least, formally in the -- communicated is that over at least 2 to 3 years' time, 1/3 of our business should come from alternative businesses -- or alternate businesses that we do and 2/3 could still come from our predominant business, which is the Ratings business. So let's comment on 1/3. So I'm reducing the 50% down to maybe 33% over 2 to 3 years. Now commenting on that, the 3 -- we have 4 subsidiaries, of which 2 of them are in the Ratings business, one in Mauritius and one in Nepal. So assuming that, that is Ratings business only, I will comment and generally answer in more elaborate manner on the -- with the 2 subsidiaries that we have in India, focused on risk solutions and on advisory practice. The CART business, let me comment on that, has a new CEO, called Sudip Sural, who joined us on 4th of January this year. And under his leadership, we are building 3 distinct pieces of business. And without getting into too much detail because some of those businesses are work in pipeline, I would say that there are some distinct business opportunities that have been identified in the areas of advisory, whether it is corporate advisory or advisory in the areas of where investors need help with regard to their investments in India and so on and so forth. There are a lot of projects that are underway, which CART is focused on. Also has built a reasonably smart team of people underneath to put effect to these projects over time. Now as you know, advisory businesses are hard to build. And it also takes time to commensurately start bringing in the revenues. So we are prepared that even if there is a larger investment over returns in the very short period, we're prepared to build these businesses for the future, as we believe we are fundamentally in a knowledge business. And because we understand analytics essentially through ratings today, but as an overall skill set, the skill set of understanding and analyzing whether financial or nonfinancial information is there in the company and we can sort of piggyback that skill set to build new businesses. So that's the broad rationale for the growth opportunities we see on the overall financial advisory side. In addition to that, we have a Risk Solutions business under CRSPL. This business used to be a INR 4 crores, INR 5 crores business a few years ago, was catapulted into the space of INR 15 crores to INR 20 crores over the last 2 or 3 years of sustained effort, and we believe that this business has a significant opportunity to be scaled up. And there is a lot of effort on strategy that is going into CRSPL. This is the name of the -- the legal name of the entity that does Risk Solutions business. Here, we offered products to BFSI and -- mainly to BFSI, and within BFSI banks and BFCs on the risk management side. We also have a product focused on the CFO, and whether it's [ Ind As ] or it is FTP or its ALM management, a lot of that advisory with proper technological modules is being done out of this company. We believe that with some investments, we need to upgrade product here and also diversify into newer products. So that's the broad roadmap to be able to get over a 3-year period, over 1/3 of our turnover from these two businesses. I hope I've been able to explain.

[Chetan Cholera]

Yes. Much helpful. Second question is, like any companies having the worst liability, one of the worst liability is equity. And somehow, I don't know we are distributing so much of money with the dividend and this is -- for the recipient, that is the worst form of income recipient is getting. So why don't you settle in the both issue with the same money? I think it is better to do a buyback than giving a dividend. Anyway, the recipient is unnecessarily paying 40% tax on that. So I think Board will look at it. I think you can cancel the dividend announced also and you should have used that money for buyback.

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

So on that, Chetan, I would just say that the -- this proposal or this suggestion has come from a multitude of investors. Earlier, I thought the pressure on the company was to be able to do a buyback on the cash on hand. But the cash on hand that we have is required for pursuing growth opportunities in the future. However, I fully take your point that as a substitution to a dividend, could there be a buyback opportunity of an equivalent amount in order to make the cash in the hands of the investor more tax-friendly. And I think like I have probably mentioned elsewhere, we will take up the proposal. It's a good proposal. We will take it up with our Board. I cannot obviously underwrite the decision, but I will take it up to the Board ASAP.

[Mradul Mishra]

We'll take the next query from the line of Mr. Prayesh Jain from YSL.

[Prayesh Jain, Executive Vice]

Sir, just a couple of questions. Firstly, now when the -- when you're talking about the mix change, wherein you would be moving to almost 1/3 of business coming in from non-Ratings business, how would your EBITDA margins shape up in that manner for that business and the overall company?

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

It's a good question. I don't have an EBITDA comparison. But what I was saying, Paresh was, if I got your name right, Paresh, right?

[Prayesh Jain, Executive Vice]

Prayesh. It's Prayesh. Yes.

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

Okay. I'll just call you Mr. Jain. That's better for me. So Mr. Jain, the point I was making was that we believe that there is an opportunity to not just -- I'm not saying that we will not focus on the Ratings business, I want that clarity to be there that Ratings is the mainstay of our existence. And we will remain sharply focused on both improving the quality of our ratings through analytical rigor that we are pursuing, improved workflow systems that we have implemented and are in the process of implementing. And so that remains the mainstay of our activity. What I've actually meant to say was that the other 2 businesses that have actually been -- probably been running so far as more like also ran businesses, we want to put a little more focus into those businesses and make them more remunerative for the shareholder. In terms of EBITDA, if I correctly remember, I think the maps may not exactly equal the Ratings business because Ratings is a mature business, and these 2 businesses will be a build-out businesses for the next 2, 3 years, but I would assume that in 3 to 4 years' time, even 5 years, I mean, we should be planning 5 years if we are building new businesses. I would presume that the Risk Solutions business, EBITDA would be fairly healthy at 30% to 40%. And Advisory business, we will have to see because those businesses are -- there's non predicting an EBITDA to that business. I think initially, it will be the acceptance, building the brand, building our knowledge management capabilities, and having both investors and issuers appreciate what we are trying to bring to the table and how we can help them meet their needs. That, to me, I think, is a little more important in the first couple of years. We will make sure that we are not diluting away from CARE Ratings' earnings or CARE Ratings' businesses as we build these 2 businesses. That's all I can say to you just now.

[Prayesh Jain, Executive Vice]

Okay. That's helpful, sir. Sir, secondly, purely, on the Ratings business, I had a couple of questions. Firstly, you alluded to the fact that you all are working on improving the quality of rating. So could you outline certain measures that you have been taking for doing the same? And secondly, how do you see the profitability of the core Ratings business shaping up from here in terms of EBITDA?

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

Right. So I think let me just quickly comment on the quality of ratings. There is a lot of work that has already been done, even, frankly, from the -- even before I joined this company on 15th of April 2020. So there's a lot of work that's being done. We have our job as the CEO, has been to continue that good work. And also not just continue with momentum, but also add more to improvements in the overall quality of our product. Quality is key to us. Because if we don't have quality, we can survive a year, 2 years, 3 years on momentum, but that is not a long-term strategy. So our focus is quality, quality and quality. What that means is, first and foremost, the Rating teams have to be absolutely independent. There has to be simply zero pressure from anybody, the decisions will come from the Rating teams. The analysts, therefore feels, in that environment, far more empowered because there is no pressure on him. And that empowered analyst goes to his empowered group head, discusses it, then he goes to his empowered Ratings head and then finally hits the Rating Committee, which is the most empowered group of people and most knowledgeable group of people at CARE who would then make a call all on the ratings. So first and foremost, it's just the integrity of the process and the undying, unstinting focus on quality, right? That comes from ethos. That comes as culture change in the Institute. I'm not saying we weren't focused like that before. I'm not alluding anything to the past. It's just the way I operate and the senior leadership in the company operates, right? This is the focus, unblind focus on quality, and we will not compromise that under any circumstance. That's one. Two is then the process. How do we go about creating the right structure and the right processes for people. So without belaboring too much detail here, I think all of this has been actively participated into by even Board of Directors through the risk subcommittee of the Board, very active, very actively in dialogue with senior people, whether they are criteria and control people, quality control people or they're Ratings people. The CRO is the key coordinator on all of this, and we are improving what we call analytical rigor around have we factored in everything good and everything not so good about the company in arriving at a fair rating. We don't need to be overly conservative. We don't need to be overly aggressive. We need to give the client what the client deserves. And the client over a period of time will see that, that we are very, very focused on being fair with the client. So that, I think, is the rigor that I talked about. And then the final point around the profitability that you said, I think, I would say that our focus will be -- honestly, the margins is an outcome. Our focus is to be razor-sharp on expenses. Let every dollar we spend count for itself. Let every rupee we spend count for itself. And whatever is an investment in the business will not be compromised on for whatever is [ frill ] in the business that can be taken out and substitute it with more investment dollars, investment rupees into the business. So our focus really is do our best on the revenue, do our best on the expenses and operating margins is, therefore, a deductible from that activity and not necessarily a target for me.

[Prayesh Jain, Executive Vice]

Can I just ask one more question?

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

Please. Please.

[Prayesh Jain, Executive Vice]

Yes. Sir, you alluded to a lot of investments that you would be making, and that's the reason you're keeping a lot of cash on your balance sheet as well. So what are these investments that you are lining up in the years to come? Could you give some granularity as to how much will be technology? Or what other investments are you looking to make? And any inorganic activities that are round the corner?

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

Well, both the answers you have given actually in a way -- the core investment in the business will be in technology apart from people. People is the biggest, biggest asset in knowledge industry, and we will still exceedingly focused on people, whether it is training our existing people or wherever there are gaps, getting more people, although I would assume that a large part of the gaps of the leadership -- at the leadership level with a few exits earlier this year have been now filled. And therefore, we are feeling more secure with the entire team intact and in place for importing their strength to this company over the next year. So apart from people, technology is going to be a key spend area, but we will be very careful and mindful of not going overboard there. I can just tell you that we have already put out in the public space that we have some efforts that we are making on both the workflow systems and also on the sort of -- workflow systems are more a process thing. It eases the life of the analyst. And we are also focusing a lot on adding business edge to ourselves through improved data focus. So we want to be a data managed -- data-focused data management company and try to create businesses out of that. Do remember, Mr. Jain here, that this is somewhat entrepreneurial. This is not something that I can put out there to say I'll make X rupees with Y expenditure and with Z PBT and with ABC PAT. I can't put that out. I can only say to you that this management will be absolutely resolute in this focus that we will be very prudent and that we will treat all the money the company carries in the interest of the shareholder very prudently. But we must pursue growth because we have been a single-product company for far too long, and we have to be ready to face the future. The future belongs to data analytics. Future belongs to crisp solutions, helping CFOs, promoters, CEOs in making decisions, and CARE has to swiftly get into that mode. Now as regards to your second question on inorganic, very hard to say this on this call. All I can say to you is the strategy has been taken to the Board, and we are in very early stages of discussing it. In the public domain, I can't say anything more, but I can tell you that we are focused on this, that we don't have anything specific in mind at this moment of time. But in the last 1 year, we had so much ground to cover, through COVID and other issues. We had our company to stabilize. We had to understand our businesses well. We had to restructure. We had to hire leadership. We had to focus on strategy and take it to the Board. So we've done a lot of that. Now starts the time to execute. I'll not be able to guide you when the execution will bring fruition to the table, but we are focused on it. That's all I can guide you with, right now.

[Mradul Mishra]

The next query we'll take from the line of Mr. Sunil Jain from Nirmal Bang.

[Sunil Jain, Head of Research]

Sir, my question relate to more of a -- like, you were losing market share earlier. And this year, it seems like you are coming back. So how is the path going forward in the Rating business? How you are seeing your market share going forward?

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

It's a very good question. And Sunil, if I may, just call you by your first name. We, in the previous calls, also said very humbly. And as a professional, we can only say things very humbly to our shareholders, esteem shareholders. We said that we had seen a decline, almost a secular decline in our business over the last 3 years. All we said was that let's take charge. Let's understand what we have -- what we do as a company because I'll be very candid with you, I didn't come from Ratings. I came from banking. And banking was a big user of Ratings, but I did not know the industry very well. So we said in the first year that we will do our best first to understand and draft the business. And second, we will try our level best through hard work. And this is not my hard work, this is the company's hard work. This is a hard work of business development folks. This is the hard work of analysts, hard work of Ratings' senior people, hard work of operational staff, all of them have come together. And my objective as the CEO is to make sure that we harness the energy of everyone in the company and to make sure that we are prepared to fight back in the market from where we were, right? We were in the dumps. So from there, we have now started to pave the road for our clawback. And I will not be making any tall statements. We will keep doing our hard work, but you can surely, surely question us if we do not improve our market share.

[Sunil Jain, Head of Research]

That was good improvement. Nice to hear from you. Sir, another data question. Like we are seeing the employee cost increasing because of lot of new generation people are coming in. So whatever the employee cost, which has come up now [indiscernible] per quarter. Is this going to be continuing in the coming quarters? Or is there anything extra which has come in this quarter or something?

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

Yes. So on this, I would say the following. One of the -- Okay. So your question is important. And I can just say the following things to you. You see, when I joined the company last year, repeatedly, I was told in most meetings, and I've also seen data now that our analysts and junior ranks are not paid as well as some of the competitors do. And I'm happy to candidly talk about this. So we have a job to do. In order to -- we can't just have a focus on quality product. We must have a focus on attracting the best to work for us. So -- and that, as they say, Rome wasn't built in a day. The same way, this objective cannot be met in one single year as shareholders will lose confidence in the management team. So what we have to do is, by and by, but with razor-sharp focus, keep improving our salary levels to competitive nature of the industry, to competitive benchmark of the industry, and we are focused on that. Obviously, in the first year, you are seeing a little uptick in the numbers. But do remember, a large part of that uptick could also be because of the CEO himself because last year, there was no CEO or was there for just 2 or 3 months' time. So there is a cost of senior leadership that definitely is getting added. There are also salary hikes across the Board that we had to consider, considering we -- there are lots of people in the company that were not corrected and also not paid even normal hikes in the last 2 years, right? So we had to -- we did a very extensive exercise on performance appraisals and we did that this year. The third point I want to make is when you see a growth of about INR 6-odd crores in the manpower cost, it does not take into account the savings on off-roles. We have reduced our off-roles cost by INR 3 crores this year. So if you adjust that INR 3 crores off-roles cost, which reports to the other expenses line, the actual cost increase in manpower expenses is only INR 3.5 crores, right? So first, I want to clarify the number itself. The second is that with some hikes coming this year that manpower cost number will obviously increase. And therefore, there is a certain assumption that we will be able to offset that with more increased activity from the business side rather than suppress expenses artificially and give the quality of our product, we much rather take the challenge on the revenue side and try to offset that and do a bit more on the revenue side. So that's a comprehensive answer to your question, that does tell you that manpower expenses will go up some more this year. At the same time, I must tell you, while the unit cost of manpower will go up, I'm not sure of the total cost of manpower going up because we are also exceedingly focused on productivity and efficiency of our teams. And therefore, we believe that a large part of increases for people will come from the overall pool as the number of people that we employ in the business will become leaner and leaner towards a more efficient and productive organization. I hope that helps.

[Mradul Mishra]

We'll take the next query from the line of Ms. Shradha Sheth from Edelweiss.

[Shradha Sheth, Research Analyst]

Congratulations on a very good set of numbers. Sir, I wanted some color for the bond market. As we know, last year was supported by the 10%, 12% growth that we had, but the industry was supported mainly by sort of the liquidity measures like the LTRO and the TLTROs. So going forward -- and also, you said there is some supply available within the manufacturing sector, so going forward, how are we seeing the -- if you could give some overview on the bond issuances?

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

Thank you. Shradha, this is a tricky question. I'll tell you why it's tricky because overall, we are seeing about 9% economic growth for full year FY '22. And these numbers are -- come from our Chief Economists, Madan Sabnavis' team. And I support these numbers. I think the credit growth is the key here, Shradha. TLTROs and LTROs honestly favor, absolutely, the top few large corporates in this country, the large banks, large NBFCs, large PSUs. But as I probably mentioned in some other call today that all of those large corporate growth in bond markets, that volume does not translate into necessarily rating earnings for the industry because many of these large accounts are fee cap accounts. And PSUs, as you know very well, are not necessarily -- they don't pay at the same level as the private sector does. So it does not necessarily increase our rating revenues. We have, therefore, willingly to look at other areas and avenues of growing our businesses in the future, which includes securitization, which includes evolution ratings, which includes anything else that we potentially can do in the space of new products like REITs and all of that, right? As those promoters and large companies sort of release capital through these very interesting innovative structures, and I think they're are win-win for both the exiting sort of companies as well as for the incoming sort of buyers. So these products will definitely catch more fancy, and we expect more volumes there. If you ask me the -- to give you a view of the corporate debt market next year, I think we are honestly going through currently a goldilocks period. We have a very stable rupee. We have a very stable bond market. We also have the Central Bank having done a very good job through these last couple of years. But I think internationally, we are getting into a slightly difficult spot with inflation raising its head or likely to raise its head towards the second half of this year for sure. And we are also seeing a massive demand for commodities went up over the last 2 or 3 years through COVID cycles. So I'm not as sanguine on inflation going forward. And therefore, if inflation were to come in, in a more aggressive manner, you must have seen the WPI numbers today, those numbers are not long-term sustainable. They may be able to manage for a couple of months, but not long term sustainable. So therefore, I would think that fixed income business in the next few months would -- maybe okay. But beyond that, it would get a little bit of a sort of difficult time placing very long tenure bonds at attractive yields, considering that in the last 1 or 2 years, we have had a very stable interest rate environment. Having said this, if the credit demand picks up because some sectors will go short on capacity due to the commodity super cycle, hopefully taking routes. I'm not saying it will all play out in 6 months, but it's taking rooms. And with that, my view is that the demand for funds would be good and banks, I think, are in a good position to continue to do what they do best, long tenor loans at floating rates and not necessarily only the capital markets would be a provider of capital to the corporate sector. Last couple of years, corporate yields were lower than bank yields and, therefore, the market grew there. I think going forward, the market may shift a bit more on the term side to the banking system.

[Shradha Sheth, Research Analyst]

Sir, you believe the wholesale credit should also come back with this shift of...

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

Yes, I hopeful of a stronger rebound in wholesale credit over retail credit this year.

[Mradul Mishra]

The next query we'll take from the line of Mr. Rohan Advant from Multi-Act.

[Rohan Pramod Advant, Portfolio Manager]

Sir, most of my questions have been answered. So one question I had was, on the issuer not cooperating ratings, if you look at the outstanding days of ratings, I think a large part of it is, issuer not cooperating in volume terms. Of course, the value would be much lower. And I believe that we have to do surveillance here, deploy our resources, but we really do not get any revenue from it. So I just wanted to know what is the impact of this on the industry on ourselves? And what are you doing as an industry to really solve this issue? Because it's not really fair on you. And I also saw that you've invested some small amount to create a body to represent rating agencies. So what issues do you think you want to sort of raise there? So that's the question I had.

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

Rohan, thank you. It's a very good question. This is a troublesome topic for a lot of our CRAs. Because if a customer just does not give us information, how do we process that customer's rating. So you pick this up as a real thorny item that we deal with. But I guess, we have to be a little patient and work with the regulators. The regulators must have had a reason to tell us to which -- regardless of if you're not cooperating earlier. There have been some more relaxations over the years that have come from the regulator. And we believe that there are 2 ways to deal with this: One is intraneous or internal and the other is extraneous. The extraneous is to constantly work with the regulators to tell them that this is not adding value and study the data like my -- one of the senior people on the Board on IRA, Shanker, and I spoke last week, as we built IRA as an agency, and we expect others to join very soon. They were talking about this. And when you actually do data analytics, which he has done, frankly, more than us yet, there is -- a lot of these clients are not necessarily active with other rating agencies and with [ IMC ] with their own agency. In other words, it's not that they are active elsewhere. And we have to, therefore, continue to keep the ratings on. We need to do this data analytics a bit more and as you rightly picked up, IRA will do a lot of work together on building a communication channel with the regulators to present credibly institutionally as an industry and items that bother the industry to the regulator and seek their opinions on this. I can just tell you this is WIP, but this is very important. From an internal perspective, we are trying to see how best we can address this. There are some steps put internally to bring unit economics to the table on matters relating to IMC and control costs here in a more sensible manner. I can share details with you only later about this. It's WIP on both hands.

[Mradul Mishra]

The next query, we'll take from the line of Mr. Anuj Sharma from M3 Investments.

[Anuj Sharma, Fund Manager]

Congratulations for the good set of numbers. I believe a lot of changes, as you also alluded to, have taken place in the rating industry partly by self and partly due to regulatory interventions. Now the quality of rating has improved, but when do you see the pricing also reflecting the improved rating quality? So just some thoughts into the pricing environment? And when do you see this evolving?

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

Anuj, this is a question that I'm trying to find an answer to myself on well. But at the risk of being very -- I don't know, I don't have a good answer, to be honest with you. Look, in banking, we used to say that all banks are sort of falling head over heels to get good assets and, therefore, yields are crashing and all of that. So when I joined the rating industry last year, I was completely astonished to see the levels of pricing vis-à-vis international businesses because I have a little glimpse of that from outside India in -- through my foreign bank stints, and the pricing there is significantly higher than India. And it astonishes me that after so many years of being in the business and such large move in the GDP to $3 trillion and now people talking about $5 trillion in the next few years, our rating industry, our pool of revenue is very, very small, less than $200 million to the best of my knowledge. And that is not a good thing. But at the same time, pricing is not something that given the difficulties that came through in the course of the last 3, 4 years, I don't think we got too much sympathy from anyone on pricing as an industry. And I think because there are 7 CRAs in the country, there has been aggressive competition between them. So I can only give you some inputs for why pricing is where it is. How it can go up? Obviously, it can't go up through any oligopoly. But it can go up if people start to value their work and price it appropriately, regardless of what competition is doing. And that is easier said than done. Because at the end of the day, you will lose market share if you focus just on that. I personally believe it's a bit of many things. If the product quality improves, if our people, when they interact with the customer leave an impression with the customer that we understand the sector that the company is in very well, understand the dynamics of the industry well. And overall, come across as strong knowledge managers, I think, corporate India will stay better. I don't think the corporate India will say, "Look, another guy is at INR 5 lakhs cheaper, so I'll go there." So we have to improve conviction in our own product and our own delivery. And I think once we do that as an industry, I can only comment of CARE Ratings. I would believe that we will be able to gently, over time, improve our pricing better. And I mean what I say, there is no other solution.

[Anuj Sharma, Fund Manager]

Sure. Appreciate it, and hope for the best. And my second question, you partly addressed earlier. But on -- congratulations for taking this initiative on association of India ratings. But what is the scope of this platform? And which areas also do you want to cover in this platform?

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

Thank you, Anuj. It's an initiative taken jointly with Acuite and with other rating agencies. They are slowly coming on board. They're all waiting for their Board approvals. So I hope that, if not all, most of them would be on board soon. So it is an industry-wide initiative. I cannot take sole credit for this at all. And -- but I could say that institutions have been involved in this more than people. And I in terms of the score, I think there is a lot of scope. There is a scope to discuss issues like [ IMC ] and any other issues that come to the table from time to time. When we're hit by issues like COVID, there are a lot of dispensations we need from the regulator in terms of either extending some deadlines or hearing us out as to what the problems that we are facing. In the second phase this time, rating agencies had a lot of their own analysts that fell prey to COVID. And therefore, we couldn't complete a few things on time. I'm not talking of CARE, I'm talking about the industry, in general. So there are issues that come from time to time, which require regulatory interface. One is that improve interactions, improve credibility of the industry, focus on policies, processes and focus on sort of constant interactions to build the most transparent ways of operating in the business. That's probably the second. And building market standards, market benchmarks, if there are certain studies that we are measured on, if there is an input from many rating agencies that those studies need to be sharpened further or need a variant to be discussed with the RBI, with the SEBI, those type of things will also be included in these initiatives. And ultimately, we all stand together as an industry. We must have sort of a little better brotherhood in the industry. But I think we are -- this is just a starting step. The industry will do well to come behind this initiative and actually join this initiative. Because this will help us represent ourselves as a body as opposed to individual organizations, which has been the strategy so far by all.

[Mradul Mishra]

The next query we'll take from the line of Mr. Arpit Agrawal, Electrum Capital.

[Arpit Agrawal]

Most of the questions are answered. Just one question. So on the rating business, I would like to understand from you what is your pitch because there are most -- most of the other rating agencies have the international backing. So is there any niche where we operate? And in terms of competitive intensity, what is our picture? Do we pay on pricing or is there any certain activities, which we do better than others? So what is our right to win in the competitive landscape is what, in this year, I want to understand?

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

It's a good question. I don't want to give you a very elaborate answer. But let me just tell you that CARE has been in the business for 27, 28 years. And it has its rightful place in the industry being the second largest in market share in at least the -- some products like bank loans. And in the bond market, maybe we are neck-to-neck with ICRA. So we have over 3 -- almost 3 decades of experience in the industry and have been able to hold our market share. Yes, the events of the last 2, 3 years did lead to a drop in our market share, but we are working very steadily on improving ourselves as a company. We -- it's very hard to say why should someone go to CARE versus the MNCs. We are not seeing this at that. The MNCs are -- that's their structure in India, that they are held majority by offshore. I see it this way, that all of us are doing domestic India business largely. Some of that -- the international guys are also doing foreign currency denominated business. But our scope is the rupee business. And all I know is rather than be cutthroat competitive with agency A, B or C, I just want to operate in the absolute and want to focus on my product, my quality, the way my people communicate, my client centricity, my efficiency of balance sheet and profitability account and my technology, because I want to be focused on improvement on productivity in a big way. Technology will bring us that productivity improvement. So I believe that there is so much to do in the absolute that we don't have to necessarily always be overly competitive. For instance, I'll give you an example. I'm a banker. And in the past banking assignments, whether in Bank of America or in YES or in IDFC or in UBS, we never really fought hard against any other bank. We just did our thing, and there is enough for all. I truly believe there is enough for all here as well. As long as my product speaks for itself, my knowledge management is perfect, I know everything about the industry before calling a client, and I'm able to impress the client with the work we do as opposed to going halfheartedly, half-baked and not be a master at the job I do. So if I'm a master at my job, I will get business, and I don't need to compare myself with anyone. And I truly mean that.

[Arpit Agrawal]

Thank you for a very elaborate answer. I just wanted to understand one thing. Do we have -- I don't understand the space very well and we've started tracking lately. But do we have any edge in a particular industry or maybe sizes of business? So is it like certain industry or certain areas where we are like leaders? Or is it like we compete with everyone in every space?

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

It's a good question. I think we are quite strong in BFSI, the banking financial services, NBS is included, housing finance included and all of that. I think we are reasonably strong. In fact, I don't want to, on an investor call, say something which gets later debated by anybody else. So I won't say we are the largest, but I think we are very, very large in our infrastructure book. We are focused on roads in a very meaningful way. We are focused on ports. We are focused on airports, seaports. We are focused on renewable energy in a very big way. A lot of clients in that space. So I think we are a force to reckon with in infrastructure, a force to reckon with in BFSI. These 2 alone are the largest seekers of long-term capital in the debt markets. I would assume as much as 50%, 60% of the overall business in this country would come from these two sectors. So we are dominant in this space, I would say, and we will continue to work hard on maintaining our dominance in these 2 areas, apart from finding opportunities elsewhere. Like I said, stressed asset, resolution plan ratings that are coming as a result of OTR or anything on the stress side or securitization [indiscernible] that we have done a few transactions, but we are not the best there. We are working hard to become the best in some of these new areas as well, and compete hard in new product areas.

[Arpit Agrawal]

And then the last one, if I may. On the growth outlook you have mentioned earlier in the call that you plan to have 1/3 of your business from businesses rather than ratings. So that obviously will be a growth driver. And normally when we see the focus which government has and globally all the governments have, the recovery post-pandemic would definitely be investment-driven. So can we assume that if you see both the growth drivers next 3 to 5 years, the growth for rating industry because, obviously, the investment-driven growth will largely -- will have a mix of debt and equity, the growth [indiscernible] would be -- would be strong. So I don't know, I just want to get a sense that you think that maybe for second half or maybe from next year onward, you will resume the growth part?

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

Yes. So Arpit, I agree with what you're saying. It's just that for the last 3 or 4 years, we've been waiting for investment demand to pick up. And every year, it creates a new low including FY '21. Now we are hoping that things change. And we are seeing that those countries that are now nicely vaccinated at 50%, 60% of their population are -- you're seeing a massive demand for commodities, for infrastructure assets, for growth in steel, in cement. So in cyclical industries, you are seeing a growth pickup substantially coming in. We believe that a lot of our industries have not seen capacity addition meaningfully in the last few years, barring some of the very large companies that have continuously, as a program, continue to augment capacity. So I think there is a reasonable likelihood of investment demand coming back sharply in India as well. Government has been the biggest spender in infrastructure so far, but it is more wish list at this moment of time than any discernible trend. Having said this, from a macroeconomic top-down analysis, we believe that there is an opportunity or there is not an opportunity alone. But there is, honestly, in some sectors, there is going to be likelihood of supply shortages. And there are very early signs of that. We believe that there could be a reasonable CapEx program that industry will start announcing in times to come. When will that be? 3 months, 6 months, 1 year? We can't say that. But we have to remain optimistic because for years, we have had a pent-up on supply side.

[Mradul Mishra]

We will take one more question, that will be the last question for the day. This would be from the line of [ Mr. Praful Kumar from Danmon Asia. ][Technical Difficulty]I think, sir, that was the last question picking up for the day, sir. We can close this now. Over to you, sir, for the opening remarks, sir, -- for the closing remarks, sorry.

[Ajay Mohanlal Mahajan, MD, CEO & Executive Director]

Well, thank you all for joining us today, and we want to just assure you that we will be very professionally bound and very focused on doing the right thing by the company that you all are holding as an investment or may not be holding as an investment. But this management is totally committed to delivering the goods and being as professional in decision-making as anyone can be. So rest assured, we will keep focusing on growing our Ratings business, as also focused on revenue diversification that has been shared before. Thank you very much for joining us this afternoon. Thank you.

[Mradul Mishra]

Thank you, sir, and thank you all participants for registering and being a part of this conference. Thank you very much.