CARE Ratings Ltd

NSE:CARERATING

Earnings Call Transcript 2022-Q4

[Mradul Mishra, executive]

Ladies and gentlemen, I'm Mradul Mishra from the Corporate Communications team, and on behalf of CARE Ratings, welcome you to our Q4 FY '22 and FY '22 Earnings Conference Call. [Operator Instructions] There will be a question-and-answer session, once the CEO's address concludes.

During the Q&A session, you can click on Raise Your Hand option, which will enable you to unmute you for posing your questions. Also, please note that this conference is being recorded.

Mr. Mehul Pandya, Interim CEO, CARE Ratings Limited, will be interacting on this call. Hi, sir. Welcome.

Now, I request Mr. Mehul to take over the proceedings, please.

[Mehul Pandya, executive]

Thank you, Mradul. Good afternoon, everyone. I hope you all are doing well. It gives me pleasure as the Interim CEO to welcome you to the investors call for Q4 FY '22 and FY '21-'22 on behalf of the CareEdge family. I would also like to take this opportunity to thank my former colleague and CEO, Ajay Mahajan, for being the part of the leadership team since last 2 years.

Let's get to the numbers now. I hope you have had the chance to go through our results for the March quarter. I'm here with the senior management of CARE Ratings to explain how the company has fared in the past quarter and address questions that you may pose after my remarks. I will also briefly take you through [ our reason ] for the coming years, which will give you a perspective of our plans.

As we all are aware, the global economy is going through a turbulent phase with high commodity prices, rising inflation, aggressive monetary policy tightening and slowing economic growth. While the Indian economy is relatively better placed in the midst of this global turmoil, there are headwinds posed by the global uncertainties and volatilities.

Inflation has emerged as a big cause of concern for India. CPI inflation at 7.8% and core CPI inflation at 6.8% in April is much beyond RBI's comfort level. The high inflation has led to a slew of measures from the central government and the RBI to control inflation. However, with global commodity prices on a boil, inflation is likely to remain a cause of concern in the coming months.

Economy was gaining momentum post the COVID-19 crisis. The Russia-Ukraine war and the ensuing global turbulence has made the recovery process more complex. This is getting reflected in the latest GDP numbers released yesterday.

GDP for FY '22 has come out at 8.7%, which is a shade lower than the second advanced estimate of 8.9%. Consumption in economic remains weak, and rising inflation will further dampen consumer sentiments.

However, the positive aspect is that with the economy opening up, the employment scenario has started improving, and that should bolster sentiments. Capacity utilization levels have started improving, and that should provide a boost to capital expenditure.

The government has budgeted a strong CapEx growth of 24% in FY '23. As far as the private sector is concerned, they intend to invest issuing improvement as per data on new investment projects announced. However, the current uncertain economic environment could slow down the pickup in the investment cycle.

The fourth quarter of FY '22 was adversely impacted by the Omicron variant of COVID and the Russia-Ukraine war, resulted in the spike in commodity prices and the inflationary concerns. GDP for [ Q4 ] FY '22 has decelerated to 4.1% from 5.4% in the previous quarter.

Fundraising by businesses, which has a direct bearing on the company, presented a mixed picture. While fundraising from the corporate bond markets and commercial paper was subdued during the quarter, bank credit demand by corporates gain pace.

Corporate bond issuances during the quarter totaled INR 1.5 [ lakh ] crore, which was 6.4% higher than the issuances in the preceding quarter or 17.5% lower than a year ago. Total issuances in FY '22 at INR 5.77 lakh crore, about 23.5% lower than the last year.

Commercial paper issuances in the fourth quarter at INR 3.60 lakh crore were 44.5% lower than the third quarter and 13.8% less than a year ago. However, the issuances of these short-term securities during FY '22 was 16% higher than the last year. Credit offtake from banks improved, with the bank credit witnessing a growth of 9.6% Y-o-Y in FY '22, which was up from 4.6% in FY '21.

Retail credit has continued to be the key driver and saw a growth of 12.4% Y-o-Y in March '22. Industry segment registered a credit growth of 7.1% Y-o-Y in March '22 from a contraction of 0.4% a year ago. Credit growth to large enterprises that account for 77% of the total industrial borrowing, was at a low of 0.9% on a year-on-year basis. Medium and micro enterprises registered robust growth in the current offtake, driven by the emergency credit line guarantee scheme ECLGS.

Services sector credit growth accelerated to 8.9% in March '22, compared with 3% a year ago. And it was owing to the robust credit offtake by trade, transport operators and the NBFCs.

Going forward, India will remain one of the fastest-growing economies globally, with GDP growth projected around 7% in FY '23. However, we need to be cautious of the volatility and uncertainties posed by the global environment and its impact on the Indian economy.

True to our aim of financing our brand value, both in the domestic and the global arenas, CareEdge has strengthened its outreach activities further. Our economics, ratings and industry research published as many as 158 reports in quarter 4. With topical updates or special analysis, our reports have been well-received across publications.

Our senior management, economics, sector specialists, industry research teams, along with the business development leaders participated in 15 knowledge-sharing forums in the quarter under review.

As Benjamin Franklin once said, "All investment in knowledge pays the best interest." CareEdge is committed to becoming an enabling knowledge hub. And with technology being one of the key identified enablers of our transition endeavor, we have been upgrading, modifying and establishing new innovative solutions for our business as an ongoing process.

Our focus and emphasis on human resources have been continuous and with multi-prong. Training programs have been conducted for our staff on an ongoing basis to keep them up-to-date with the evolving and latest skill requirements. On the side of leadership, we have also hired some senior professionals to assist in the transformation of the company.

Now, I would like to quickly take you through the CareEdge's performance. Referring to the published stand-alone results for the full year FY '22, CareEdge reported revenue from operations of INR 219.3 crores for FY '22. Optically, this figure looks largely the same as compared to the last year, where CareEdge reported the revenue from operations of around INR 219.6 crores.

However, the previous year FY '21, the figures include the income of INR 9.32 crores under the [ head ] other operating income, which was part of revenue from operations last year. That income was about the reversal of the provisions made in FY '20 for [ debtors ] on a conservative basis due to the COVID situation.

So if they make the Ratings income comparison for FY '22 with respect to FY '21, the Ratings income witnessed a growth of around 4% on a year-on-year basis.

The growth in Ratings income was largely attributed to the robust income generated in the initial Ratings business during the year. We hope to sustain this momentum, going forward. Net profit has almost been at the same level of INR 84.47 crores in FY '22.

On the profitability front, CARE Ratings largely reported a stable operating profit margin of around 39% on a stand-alone basis. On a quarterly basis, income from operations optically appears to have declined from INR 69 crores in FY '21 to INR 60 crores in FY '22.

However, the decline is largely on account of the same issue as explained earlier, that is the income for quarter 4 FY '21 includes the COVID-frozen reversal income, which was not present during this year. Overall, profitability continues to remain good.

Let us move to consolidated results. On annual basis, CareEdge reported revenue from operations of INR 248 crores. Again, the previous year has a provision reversal income, thus negating the same. There is marginal growth witnessed in income.

However, the operating profit margin witnessed a decline on the back of two reasons. First is the elevation in employee cost; and second, the provisions made for Sri Lanka business.

The elevation in employee cost was on account of incremental [ resource ] and a marginal increase in mentor cost. This is largely because for the last 2 years, we have been focusing on having the right quality people at the right places to improve the quality of analysis and provide the right mentorship and training to the analyst team.

Now, let us address the Sri Lanka point. One of our subsidiaries, CARE Risk Solutions has live and ongoing projects in Sri Lanka. However, given the current situation, that Sri Lanka will not be able to remit the foreign currency funds as consideration for the Risk Solutions products, on a conservative basis, we have taken the provisions for the same.

Further, I would like to reiterate that these projects are live and ongoing for PSU banks, and we believe that as and when the situation improves, the amount could be recovered.

The total exposure of CARE Risk Solutions to Sri Lanka business was around INR 9.46 crores. Adjusting for the provisions, the residual Sri Lanka exposure is limited to INR 2.35 crores.

At this point, I would like to take a few minutes to draw your attention to the diversification efforts made by the management of CareEdge. The Board has approved equity inclusion of INR 33.5 crores in CARE Risk Solutions and INR 10 crores in CARE Advisory Research and Training Limited.

Under the Risk Solutions business, we have products that get up to the demand from the [ BFSS ] segment, addressing their ALM management and regulatory reporting needs. With this infusion, we intend to upgrade the existing products and venture into new business lines like data analytics, banking solutions, et cetera, and invest in sales franchises to foray into the global markets.

Under CARE Advisory Research and Training, CART, we have built focused advisory and industry research teams that cover over 50 industries with research reports.

On the ESG front, CART is now empanelled as an ESG rating provider for AMCs by AMFI. As a result, AMCs will be able to use the ESG scores provided by CART for ESG portfolio creation. CareEdge has analyzed more than 300 entities into the listed [ universe ], which covers 90% of the market cap of the top 1,000 listed entities, and we are rapidly scaling up this coverage every month.

CareEdge has created an analytic spread form that not only provides the ESG scores, but also enables the analyst to perform their analysis on various key indicators on both ESG and non-ESG themes and performance indicators. At this infusion, we intend to invest in products and sales franchise and be in contention for all the RFP subcontracts with a threshold network [ requirement ].

We are formally on a transformative journey at CareEdge and have come a rather long way in a very short span of time, with dedication and commitment. Our focus firmly remains on improvement in productivity, strengthening analytical rigor at ratings and diversifying revenue streams, going forward.

Socrates had said, "The secret of change is to focus all your energy not on fighting the old but on building the new." I hope, with your help and our hard work, we write new chapters of success for CareEdge.

[Mradul Mishra, executive]

Thank you. Mr. Mehul. Dear participants, we now will begin our Q&A session. [Operator Instructions] so we have a request from Deepan Sankara Narayanan from Trust India.

[Deepan Narayanan, analyst]

Am I audible?

[Mradul Mishra, executive]

Yes, yes. Please go ahead.

[Deepan Narayanan, analyst]

Yes. So firstly, I wanted to understand what was the amount of provision reversal reported during Q4 of last year?

[Mehul Pandya, executive]

Okay. Yes. Provision reversal amount was INR [ 9.31 ] crore in FY '21, which is not there in the current year.

[Deepan Narayanan, analyst]

Sir, for Q4, how much it was that?

[Mehul Pandya, executive]

Q4 was INR 6.64 crores.

[Deepan Narayanan, analyst]

INR 6.64 crores. Okay. Okay. And sir, with the credit growth of banking sector is growing at higher levels currently, are we looking at currently one of the key beneficiaries as compared to other players? And are we hopeful in gaining market share in our Ratings business?

[Mehul Pandya, executive]

See the focus of CARE has largely been on the large and the mid-corporates and lesser on the SME side. If I can refer to my comments in my remarks, I think while the bank credit growth has increased, there is no doubt about it, credit growth of the industry has increased, certainly.

But to the large corporates per se and which I mentioned, which is constituting almost like 3/4 of the total borrowings, it has been less than 1%. So we'd like to see the growth happening over there.

But on an overall basis, to the extent that the bank credit growth of the industry increases, we believe that we are on a sound footing in terms of capitalizing, in terms of the opportunities lying over there.

[Deepan Narayanan, analyst]

Okay. Okay. And also, India is on the cusp of CapEx recovery, so -- which is started to getting visible in the last couple of quarters. So are we seeing a strong growth cycle coming back over next 2 to 3 years in this Ratings business?

[Mehul Pandya, executive]

I guess the sentiments that are expressed in terms of the CapEx cycle, they were right in terms of FY '23 onwards, this cycle has to pick up. I mean this was long overdue, if I were to put it that way.

Having said that, the volatility that we are witnessing since quarter 4, in terms of the Russia-Ukraine war and the overall global economy and the geopolitics, that has just prompted the corporates to go in a bit of a pause mode and just wait and watch in terms of how the trajectory was.

But on an overall basis, I think, for the future, we are hopeful that this CapEx cycle should get revived. And to the extent that it gets revived, as one of the leading rating agencies, we hope in terms of exploiting the opportunities lying over there.

[Deepan Narayanan, analyst]

Okay. Okay. So are we confident of entering double-digit growth in FY '23 for our top line?

[Mehul Pandya, executive]

I wish it could be like that. But having said that, I think let's also understand in terms of how the overall industry has grown. The overall ratings industry -- and the figures are there for the different rating agencies. And you can easily see that over the last -- more than 3 years or so, either being the industry has stagnated or there has been single-digit growth.

So to the extent that the overall [ pile ] increases, I think that shall be business got -- at least the leading rating agencies in the country. But to put it in terms of having double-digit growth, I think the overall [ pile ] has to increase. And at least up to FY '22, we haven't actually seen the overall industry increasing at that rate.

[Deepan Narayanan, analyst]

Okay. Okay. And lastly, from my side, so on the expenses, specifically employee expenses trend, so are we through with our raise -- salary raise cycle and we are with the industry benchmark comparable? So are we -- now expect a normal run rate growth on employee expenses from here on?

[Mehul Pandya, executive]

I think, to a good extent, we have had this cycle in terms of having our benchmark service as also in terms of the hiring that we have had over the last few years at certain important positions. Going forward, we'll continue to have the right mix in terms of the lateral recruitments as well as in terms of the fresh recruits that could be coming.

And a combination of all these factors, we'll strive in terms of having the employee cost at a certain benchmark level and not increase significantly.

[Mradul Mishra, executive]

The next query is from the line of [ Anna Yagnik ].

[Unknown Analyst]

Can you hear me?

[Mradul Mishra, executive]

Yes. Your voice is a bit weak. Can you please speak loudly?

[Unknown Analyst]

Yes. Just a second. Can you hear me now?

[Mehul Pandya, executive]

We're able to hear, but your voice is very weak. Either it could be the mic or maybe I can request you in terms of speaking slightly loudly.

[Unknown Analyst]

Just a second. Yes. Can you hear me now properly?

[Mehul Pandya, executive]

Much better. Much better.

[Unknown Analyst]

Yes. I have two, three questions. My first question is regarding like we have said that we are going to get at least 100 basis points of market share into Ratings business. So how we are going on that track?

My second question is, what is the growth rate we are expecting in the future, going forward? And the third is, how we are turning our Advisory business? Is it going to remain on the same level of -- as it is right now? I think it is less than 5%.

So are we going to increase the component percentage into Advisory business? Because diversification is one of the risks to CARE. So how we are planning to increase diversification and how much contribution we are expecting from the Advisory services?

[Mehul Pandya, executive]

Okay. I think when the -- your first two questions pertaining to the market share in the Ratings business, and you mentioned in your first point that is 100 basis point kind of an expectation, I think the -- that's not what we have conveyed.

What we have conveyed is that we expect the Ratings business that to the extent that it keeps on growing in terms of the overall for the industry at -- the industry level, we'll continue to have a reasonably good share of that market being one of the leading rating agencies.

For the last few years, the overall industry had not grown or grown at -- in single digits, yes. But to the extent that this grows, I think we'll be there in terms of having the right opportunities and capitalizing on that.

Your next question was in terms of the future growth rate. Fairly difficult conjecture to make in terms of that because that has to be seen in the overall context and not just in terms of looking at the company in isolation.

So for us -- I think taking some aspects of the first question, for us, the overall thing matters in terms of how the macros are doing, how the bank credit growth is happening or the capital market issuances are growing, how the CapEx cycle kicks in and how fast it kicks in. The combination of all this, that would determine the future growth rate.

But as I mentioned in my remarks, what gives us the confidence is that we have seen a good growth in the initial Ratings business in FY '22, and we hope in terms of continuing that momentum.

Your third question was pertaining to the Advisory business and to what extent we should be seeing the traction in that in terms of having some meaningful contribution, going forward. Right concerns on that.

As a part of our diversification process, we indeed are looking forward in terms of growing both the non-rating subsidiaries. And on the advisory, consulting side, for the last year, in terms of the overall contribution to the top line, it has not been that significant.

But the fact remains that it's close to around 40% to 45% growth in terms of the top line for the advisory, consulting business subsidiary.

We have got some good prestigious assignments. And now that we are also going to launch our ESG services as a part of their subsidiary, I think we are at a firm footing in terms of getting the right kind of mix as far as the overall business [ pie ] is concerned and hope to grow this subsidiary to a reasonable level over the next 3 years or so.

In terms of an expectation of the growth rate, I think with the lower base, we should be able to do well in terms of the overall percentage growth for this.

But to expect this to come into -- make significantly good contribution in terms of the overall business at the consolidated level, I think we just have to expect more [ patience ] in terms of 2 more years, in terms of getting the traction on this. What I can say is that we are on the right path.

[Unknown Analyst]

Okay. Sir, if you can just quantify like what are the contribution you are expecting of this non-rating business to be in the overall revenue mix because right now, 98% comes from the credit trading? So are you seeing -- like any number if you can give -- like how much you are targeting for the non-rating businesses?

[Mehul Pandya, executive]

I think for FY '22, as you're rightly seeing, there is Ratings that are the predominant component in terms of our overall income profile. Both the subsidiaries, Advisory as well as the Risk Solutions business, we have almost -- in terms of some kind of a reset button as far as the overall -- the development of the overall product profile over there is concerned.

FY '22 was the first year in terms of having this kind of a change, in terms of the product mix. Advisory, consulting business has already started getting traction in that. The other subsidiary, in terms of the risk management solutions, is still under that phase.

And as we have disclosed in our press release, the equity and infusion that we are doing over there, that is aimed in terms of developing the products, which could be the value-added ones, which could be finding the right traction in the markets that we are still not there.

And building up on that, I think it will be better in terms of witnessing a good contribution coming from both these subsidiaries a year down the line.

So FY '23 might see Ratings continuing to be the major component as far as the overall income profile is concerned.

But the overall product mix at both the places, that is certainly underway. That is something which I can tell you with conviction.

[Mradul Mishra, executive]

The next query we will take from the line of Mr. Vivek Ganguly from Nine Rivers Capital.

[Vivek Ganguly, analyst]

I have two questions. One is on the earlier corporate -- on the earlier exit of Mr. Mahajan, so which was very unexpected and abrupt. And also, we see that the notification went to BSE late at night. So can you shed a little more light on what exactly -- within the confidentiality clauses that you have, what exactly transpired?

And second is, where are we on finding a replacement for the top tier position? And what are the kind of things that you're looking for in the person?

[Mehul Pandya, executive]

Right. As far as Ajay's resignation is concerned, as we have disclosed, it's for personal reasons. We hope and wish him well on that. As far as the replacement is concerned, I think the Board will be taking the decision at the right time.

There'll be certain processes that need to be done. And I think over a period of time, you should be seeing the decision of the Board for coming on in that area. So at this juncture, I don't have anything more to add on this.

[Vivek Ganguly, analyst]

Okay. That wasn't too enlightening, but -- and I respect your constraints. One small another query that we have in the provisioning that you'll have done for this year. One is the Sri Lanka provisioning that you have done, and the second is the [indiscernible]. So how much of a provisioning has been done?

[Mehul Pandya, executive]

I think the total [indiscernible] charge for FY '22 is INR 6.29 crores, which was INR 3.56 crores in FY '21. And as far as Sri Lanka is concerned, we have already disclosed, so with the provisions that we have made, the residual exposure is around INR 2.35 crores. So the total provision rate is INR 7.12 crores.

[Vivek Ganguly, analyst]

INR 7.12 crores. Okay.

[Mradul Mishra, executive]

The next query we'll take from the line of Mr. Rohit [ Potti ].

[Unknown Shareholder]

Yes, great. This is a sort of a follow-up to the previous participant's question itself. So a more general basis on attrition.

So you referred to Mr. Mahajan, in particular, but I was curious about the attrition of the organization in general because what I see is, we are seeing attrition across the board from senior to mid to lower as well.

So in addition to Mr. Mahajan, I noticed that Mr. Sudip Sural, who was brought in to head the Advisory and the Risk Solution, he's exited as well. And I did notice through LinkedIn research, et cetera, that a lot of -- a couple of VPs also have exited, who had joined newly, to other organizations.

I also understand that a lot of mid-level salespeople, et cetera, have left for fintechs start-ups space in India. So this is -- so the general sense one gets is that there is a lot of attrition from CARE.

While there is attrition in other rating agencies as well, that seems to be restricted to the lower end of the -- or the lower-level employees or at least till the mid-level employees. But in particular, we have seen attrition across the entire spectrum.

So that -- could you speak about that a little more, please? That would be great to hear.

[Mehul Pandya, executive]

Sure. I mean, valid concern. What I'd like to point out is that it is true that certain exits, they have happened. But you also need to look in terms of the overall context, in the sense that senior-level hiring has also been happening.

And as I mentioned in my remarks also, I think we have had a good hiring at the senior levels across the functions. And if you look at in totality, I think all in all, we have net gainers in terms of having the talent incoming rather than outgoing.

But in terms of the attrition at the mid- to the lower level, I think it's an industry phenomenon. FY '22 has actually seen most of the industries faced with attrition. We are certainly not an exception to that.

But at the same time, what I can tell you that in terms of the overall management of this aspect is concerned, we have done reasonably well. So during this year, we've had lateral hires. We have recommenced our hive of the [ pressures ], which we believe that over a period of time, having the right mix, can go on and address the situation.

Because at the end of the day, at a certain level, we have to be ready in terms of having a certain industry mark kind of attrition levels and in terms of be ready for that. So from an overall perspective, I think the organization is net gainer when it comes to having the incoming flow of the right talent.

[Unknown Shareholder]

So in the past, what we've done is, we have disclosed who the senior [ levels ] who have come in and were expected to transform the organization positively. I remember the presentation where references made to Mr. Sachin Gupta, Chief Rating Officer, Mr. Sudip Sural, Mr. Ajay Mahajan and couple of others also.

So could we do that in the next presentation, where we can show that who is the -- so you've mentioned that there is a net gain, but it will be great for us shareholders to know who these new people have come in are, at least the senior level positions, if not all.

I mean obviously not expecting the entire hiring that you've done. But at least the senior-level positions, it will be great to know. It will be important information, at least for me, as a shareholder in the business.

Am I right in thinking that Sachin Gupta continues to be in the organization?

[Mehul Pandya, executive]

That's right. He's there on the call.

[Unknown Shareholder]

Okay. Perfect. The last question I have is a recurring theme that I think a lot of shareholders have consistently put across with the management. So I mean, why -- it just doesn't make sense to us that you're not considering a buyback. So I think 1/3 of the market cap today is cash.

And I mean, I understand we have growth initiatives and we have done investments into the subsidiaries. But what is stopping us from, let's say, doing a INR 50 crore to INR 100 crore buyback? A dividend is not as tax-efficient as a buyback is under the current tax laws?

So what exactly is stopping the management from doing a buyback? Because instead of -- I mean it just seems to indicate that we are not as confident in our business because the best investment is in our business itself. And when it is trading so low, what is stopping us from doing a buyback and showing that confidence in the company itself? It could come at the cost of some amount of dividend.

[Mehul Pandya, executive]

Thank you for your point, Rohit, and it's a -- I would say, valuable suggestion. All I can say at this juncture is that we observe your suggestion. Certainly, this will be conveyed to the Board, and it's the Board that has to decide on this, right?

But that notwithstanding, the fact remains that our confidence in our business sustains. There's no question in terms of not having that thing, having a rating agency, which has been in operation since almost 3 decades now. I think we are confident in terms of our core business, as also in terms of growing the other pieces of the business at the Group level.

So that has prompted in terms of taking the decision for further capitalizing the subsidiaries, so that they are in a better position to go for value-added products, which can actually help in terms of growing there pie in terms of the core contribution at the Group level. So our confidence, both in our core business as well as in the business of our subsidiaries, sustains.

[Unknown Shareholder]

So I mean, just a reiteration that the -- this particular buyback questions, I've been in the AGM, let's say, 2 years back as well. So since then, we've been conveying this to the Board. And rather than the fact that the Board will take it into consideration, there has not been any update on this.

So which is why -- I mean, it will just -- so it will be -- it will help if the Board can or if the Board through the management can explain why we are not doing a buyback. So 2 years or 2.5 years is a long enough time to take this into consideration, I would think.

And it would be great to get an -- if there's an explanation, that would be perfectly understandable. But the only answer we get is that it will be considered and it will be discussed by the Board and nothing more. So that's all from my end.

[Mradul Mishra, executive]

The next query we'll take from the line of Mr. Ramakrishnan Nethi from Zen Money.

The next query we'll take from the line of Mr. [ Gopi Nadha ] Reddy.

[Unknown Analyst]

Yes, sir. Am I audible?

[Mradul Mishra, executive]

Yes, yes, please.

[Unknown Analyst]

Sir, the same question, Even I want to ask the same thing. You say -- not only you, I mean to say anybody who comes into conference calls, they say buyback is something we convey to the Board. It looks like Board is not at all answerable to minority investors.

They are neither kings nor any wall or something, like they got to answer us. And you got to convey to us also from them, saying why there is no buyback. There are two buyback types. I'm asking two questions here.

In buybacks, there are two types. One is normal buyback. There is no answer. Why there is no buyback? That is one question.

The second thing is whatever amount -- we are not talking about the normal full-fledged buyback. We are talking about the second item, which is whatever amount you are giving as dividend, the same thing if you give through tender buyback, where everybody participates, that there is a tax saving to every investor.

Here, the logic is -- it looks illogical not to give the buyback -- the dividend amount through tender buyback offer, which all the big companies like TCS, Infosys, every d*** company in this country is doing and saving tax to all investors. Why not CARE?

This is not answered. This is to be answered, right, every time conveying. But what are we for? Why are we asking this question? I don't understand.

[Mehul Pandya, executive]

No, Mr. Reddy, your point is valid. And in that case, in terms of the tax efficiency of buyback vis-a-vis dividend [ 7.8 ] also is quite valid. And certainly, this aspect will convey to the Board -- my answer does not change, but that does not take away the fact that the suggestions are not welcome or for that matter, the suggestions are not taken into consideration, right? But certainly, this will be conveyed to the Board.

[Unknown Analyst]

Then there should be an answer, no, sir, from anybody, either from the Board or through the Board. What is the answer that is coming to you or what is that we should get to know, right? We are asking from -- not even 2.5 years. 3 years, 4 years, we have been asking this question.

[Mehul Pandya, executive]

Right. And I appreciate your concern, and I appreciate your suggestion. And certainly, I mean this shall be conveyed to the Board.

[Unknown Analyst]

We should be knowing whether the Board is not answering us at all. That also is an answer.

[Mehul Pandya, executive]

Right. Well, certainly, this aspect shall be conveyed.

[Unknown Analyst]

It's just conveyed already from the past 3 years. Is it conveyed? Or is it not conveyed? Or is there any response at least [indiscernible].

[Mehul Pandya, executive]

Yes. And as you would have also seen, the investors have rightly pointed it out in the AGMs also. So this aspect has been absorbed at the Board level and there is -- certainly, will once again conveyed to the Board.

[Unknown Analyst]

My only concern is, if not in quarterly reports, quarterly conference calls, at least at the AGM level, there must be Board members also. Even there, there is no answer. That's really wonderful.

[Mehul Pandya, executive]

Yes, Mr. Reddy. So in the AGM, certainly, the Board members are there.

[Unknown Analyst]

But they're not answering. That's what I'm wondering. What is the Board's -- if a rating agency is behaving like this, what's the point in being a rating agency itself?

It's a shameful act to the CARE Ratings agency and to the Board of the company. I can -- very much -- I want it to be strongly conveyed to the Board that it's shameful to be a Board of a rating agency this way, not answering minority investors.

[Mehul Pandya, executive]

Take your point and thank you for bringing it so solidly. I appreciate your concern [indiscernible].

[Unknown Analyst]

It's shameful in this way. I just want to convey it in this way.

[Mehul Pandya, executive]

Sure.

[Mradul Mishra, executive]

The next query we'll take from the line of Mr. Mudit Minocha from M3 Investments.

[Mudit Minocha, analyst]

Am I audible now?

[Mradul Mishra, executive]

Yes.

[Mudit Minocha, analyst]

I have one question, and I'll comment thereafter. So I wanted to ask that rating pie itself, anyway, is so small. So why are we so picky of not creating a model that can tap an SME segment as well? And what are your views on gaining market share there?

And is there -- I understand the economics of SME segment would be very different from the bank loan rating or the other ratings. So is there a case to be made, where we create a model which is suitable for an SME segment? And I would want your views on the same. Have you have a thought on that?

And the other part that I also wanted to reiterate that the shareholder wealth hasn't been created for so long by CARE Ratings, which is why you could see the earlier participant's, you can say, the emotional outburst.

So I just wanted to reiterate that buying back the company lower than intrinsic value creates instant shareholder value and also showcases the trust in your own business.

So what is that which is not visible to the Board? And why is it being not considered till now? And I think enough has been said, but please do convey our remarks to them.

[Mehul Pandya, executive]

Thanks, Mudit. And your first aspect in terms of the rating of the MSMEs and the model-based approach, we do have models in terms of the various industry segments. And MSME is also -- they are a part of that. So it's not as if that we are not targeting that segment or we are completely away from that segment.

It's just that in terms of the overall focus for the organization, we are continuing to have the focus on the large corporates. We are continuing to have the focus on the mid-corporates, the non-MSMEs per se, more from the end of having the better value addition coming from their side.

But nevertheless, in terms of completely shifting to a model-based approach, I think that's also something that is kind of a work-in-progress over there. We do have models yet augmenting that thing.

And over a period of time, I think the implementation of all this aspect can help us in terms of addressing much larger volumes in that segment. But all in all, I think our focus, we are quite clear that we'll continue to remain on the large and medium corporates.

[Mudit Minocha, analyst]

Sorry. Sorry, I might have not conveyed my thought properly. What I wanted to share was, since Rating revenue, market size itself is quite limited. Giving up a part of a segment does not seem very intuitive, where the ROEs of -- all the 3 businesses are quite good as showcased by other rating agencies.

So why not create a model? I mean I was suggesting that a low-cost model for a segment, which is less remunerative, could create a decent sizable income in that side. So I just wanted to know your thoughts. Are you putting any efforts to reaching the way that business is done, so that we can also gain market share there and not only focus on...

[Mehul Pandya, executive]

The key aspect, when we are talking about the MSME piece, is also the fact that when it comes to the overall requirement of the rating in that segment, I think the change in the threshold of the various banks, that has also impacted the overall ratable universe in that segment. So that is over a period of time, and most of the rating agencies in terms of the coverage of MSMEs, it has certainly come down.

Taking into consideration the other piece of the MSME, where we are talking about the non-bank loan ratings for them. As per the regulatory requirements, this -- some of the assessments that we are doing, which was [ non-BLR ] in nature, that has been transferred to our subsidiary.

But in terms of the overall assessment, that segment, while it has large volumes and a model-based approach, as you were suggesting. So that's something which we also have been implementing at our end. And in an [ overall ] business, I think it's not out of our radar. So let me reiterate on that aspect, your suggestion is welcome.

But in terms of our focus areas, there would be the large and medium corporates. MSMEs are not out of the radar, but it's more of a question of -- in terms of the current offering that we are doing and that is in terms of the [ BLR ] and the capital market instruments.

As far as the core credit rating services are concerned. In terms of [ BLR ], what has impacted, as I mentioned, is in terms of the change in the threshold. And generally, this segment is out of the purview, most of the time, when it comes to the capital market issuances are concerned.

So it's a combination of both this -- which potentially could be giving in terms of the optics that this segment is not getting addressed as far as the rating service offerings are concerned. But that's actually not the case, except for the fact that in terms of both these core aspects, the underlying reasons are such, right?

But in terms of the overall entities that we are rating, I mean we have a sizable share in terms of the MSME segment also, even currently.

[Mradul Mishra, executive]

The next query will take from the line up Mr. Rohan Samant from Multi-Act.

[Rohan Samant, analyst]

So my first question is, there is an item regarding the impairment of asset, what is that? 21 lakhs?

[Mehul Pandya, executive]

You're referring to -- Jinesh, can you take that, our CFO?

[Jinesh Shah, executive]

Yes, sure. Am I audible?

[Mehul Pandya, executive]

Yes, yes. Go ahead.

[Jinesh Shah, executive]

Thanks for the question. So in one of the subsidiaries, CART, we previously had a training business. For that, one software was developed, which was used to provide the training. But from last year, we have discontinued that business. So that software got impaired. So around 21 lakh was the impact cost. So -- which is not used for providing the training.

[Rohan Samant, analyst]

Okay. And the provision for this Sri Lanka business would be there? It would be in the other expenses?

[Jinesh Shah, executive]

Yes. It is into one of the subsidiary in the other expenses. That's correct, under provisions in other expenses.

[Rohan Samant, analyst]

Okay. And lastly, on the cash balance, right? Like if I look at the balance sheet, there is significant amount now standing under other financial assets. So why is it not under investments, cash or bank balance?

[Jinesh Shah, executive]

That's correct. So whatever [ fee ] deposit we have placed more than a year, it should be classified under noncurrent. So it's just a classification based on the tenure for which we have placed the fixed deposits. So up to 1 year, we can show under cash and bank balances. And whatever is above 1 year, should go under noncurrent financial.

[Rohan Samant, analyst]

Okay. Okay. So those are fixed deposits, okay, fine.

[Jinesh Shah, executive]

Bifurcation, yes.

[Rohan Samant, analyst]

Okay. One more last question. On the employee cost, this quarter, we have seen a bit of a dip in the employee cost run rate. So should we assume that this is the run rate that would continue, going forward?

[Jinesh Shah, executive]

See, employee cost reduced in this quarter is mainly because of the charge one because last year, the [indiscernible] even in second half. So in the [ last ] year, we have around 67% of cost in P&L and then the cost reduced year-to-year basis because we have graded given to the employees. So yes, so you can see this, till the time further are announced or whatever. Otherwise, this would be the run rate.

[Mradul Mishra, executive]

So next query, this would be probably the last question for the day because we are running short of time. I'll take this from [ Yash Shah ].

[Unknown Analyst]

Am I audible?

[Mradul Mishra, executive]

Yes. Please go ahead.

[Unknown Analyst]

Yes. So the question basically relates to the fixed deposits that we have kept for [ maturity ] over 1 year. So that is a sizable amount. So I would just like to know whether there is any specific reason that we have moved this amount from other investments like mutual fund and other investments to big deposits, which have very low rate of [ interest ]? Any specific reason for the same?

[Jinesh Shah, executive]

Hello.

[Mehul Pandya, executive]

Yes, Jinesh. Jinesh?

[Jinesh Shah, executive]

Yes. So in the last [ certain ] FMPs were there, which got matured. And due to the current scenario, it was prudent to put the monies in the safe fixed deposits. And that's why we have kept it in fixed deposits.

[Unknown Analyst]

Okay. But as everyone is aware, fixed deposits do not fetch anything beyond 6% or 7%. So keeping surplus cash instead of returning as previous investors have also highlighted that instead of keeping such money in fixed deposits fetching such lower returns, is [ under prudential ] to return the amount to the shareholders if the company isn't able to generate sufficient returns on it?

[Jinesh Shah, executive]

Yes. So as mentioned earlier, we will have this conveyed to the Board and have appropriate decision.

[Unknown Analyst]

Yes. But we have been waiting since many, I guess, years now, it's been 3 years. So we expect -- and I guess, Mr. Mahajan also had committed last time that he'll be back with an answer in the next call. So we were expecting an answer this time also. So I hope the next time we get an answer, maybe in the AGM, which may happen before the Investor call.

[Mehul Pandya, executive]

As I mentioned earlier also, so this suggestion's from the biggest investors. And so we appreciate that. And certainly, that will be conveyed to the Board.

[Mradul Mishra, executive]

So with this, we are time up now, so I'll be ending this session. Thank you to all the attendees for participating in our earnings call. Goodbye for now. Thank you.

[Mehul Pandya, executive]

Thank you.

[Jinesh Shah, executive]

Thank you.