Investment Information and credit rating agency of India

By

A.SAIKUMAR(2B4-01)

K.SIVAREDDY(2B4-11)

M.HARISH(2B4-15)

AMARNATH(2B4-21)

RAKESH(2B4-25)

S.AKHILESH(2B4-28)

INTRODUCTION• It was established in 1991, and was originally named Investment

Information and Credit Rating Agency of India Limited• Headquarters: Gurgaon, India• It is second largest Indian rating company in term of customer base. It was a

joint-venture between Moody's and various Indian commercial banks and financial services companies

• The company changed its name to ICRA Limited, and went public on 13 April 1997, with a listing on the Bombay Stock Exchange and the National Stock Exchange

• Credit ratings apart, ICRA also assigns Corporate Governance Ratings, besides Performance Ratings, Grading's and Rankings to mutual funds, construction companies and hospitals

• Stock price: ICRA (NSE) Rs. 2,613.00 +24.35 (+0.94%)• Revenue – 2.28 billions

Mr. Pranab Kumar Choudhury is the Chairman of ICRA Limited & Chief Executive Officer of the Group ICRA

Mr. Naresh Takkar is the Managing Director & CEO of ICRA.

Objectives of ICRA• Provide information and guidance to institutional and individual

investors/creditors.

• Enhance the ability of borrowers/issuers to access the money market and the capital market for tapping a larger volume of resources from a wider range of the investing public.

• Assist the regulators in promoting transparency in the financial markets.

• Provide intermediaries with a tool to improve efficiency in the funds raising process.

ICRA Rating ScalesLong-Term rating Scale: All Bonds, NCDs, and other debt instruments (excluding Public Deposits) with original maturity exceeding one year.

• LAAA The highest-credit-quality rating assigned by ICRA. The rated instrument carries the lowest credit risk

• LAA The high-credit-quality rating assigned by ICRA. The rated instrument carries low credit risk.

• LA The adequate-credit-quality rating assigned by ICRA. The rated instrument carries average credit risk.

• LBBB The moderate-credit-quality rating assigned by ICRA. The rated instrument carries higher than average credit risk.

• LBB The inadequate-credit-quality rating assigned by ICRA. The rated instrument carries high credit risk.

• LB The risk-prone-credit-quality rating assigned by ICRA. . The rated instrument carries very high credit risk.

• LC The poor-credit-quality rating assigned by ICRA. The rated instrument has limited prospects of recovery.

• LD The lowest-credit-quality rating assigned by ICRA. The rated instrument has very low prospects of recovery.

Short-Term Rating Scale: All instruments with original maturity within one year. • A1 The highest-credit-quality rating assigned by ICRA to short-term debt

instruments. Instruments rated in this category carry the lowest credit risk in the short term. Within this category, certain instruments are assigned the rating of A1+ to reflect their relatively stronger credit quality.

• A2 The above-average-credit-quality rating assigned by ICRA to short-term debt instruments. However, instruments rated in this category carry higher credit risk than instruments rated A1.

• A3 The moderate-credit-quality rating assigned by ICRA to short-term debt instruments. However, instruments rated in this category carry higher credit risk than instruments rated A2 and A1.

• A4 The risk-prone-credit-quality rating assigned by ICRA to short-term debt instruments. Instruments rated in this category carry high credit risk.

• A5 The lowest-credit-quality rating assigned by ICRA to short-term debt instruments. Instruments rated in this category have very low prospect of recovery.

Grading Scales of ICRAICRA’s IPO Grading methodology examines the following key variables:

• Business and Competitive Position

• New Projects—Risks and Prospects

• Financial Position and Prospects

• Management Quality

• Corporate Governance practices

• Compliance and Litigation History

Grading Scale for IPO’S are

IPO Grade 5 Strong fundamentalsIPO Grade 4 Above-average fundamentalsIPO Grade 3 Average fundamentalsIPO Grade 2 Below-average fundamentalsIPO Grade 1 Poor fundamentals

Grading for Micro Finance CompaniesKey parameters taken in to consideration are:

• Business Orientation & Outreach

• Management

• Investment Operational Efficiency and Risk Management

• Portfolio Quality

• Financial Performance

Grading Scale for Microfinance Institutions

• M1 Indicates that in ICRA’s current opinion, the Graded MFI’s ability to manage its microfinance activities in a sustainable manner is the highest.

M2 Indicates that in ICRA’s current opinion, the Graded MFI’s ability to manage its microfinance activities in a sustainable manner is high.

M3 Indicates that in ICRA’s current opinion, the Graded MFI’s ability to manage its microfinance activities in a sustainable manner is moderate.

M4 Indicates that in ICRA’s current opinion, the Graded MFI’s ability to manage its microfinance activities in a sustainable manner is below average.

M5 Indicates that in ICRA’s current opinion, the Graded MFI’s ability to manage its microfinance activities in a sustainable manner is weak.

Categories of ICRA• Corporate Debt rating

• Financial Sector Rating

• Insurance Sector Rating

• Infrastructure Sector Rating

• Public Finance Rating

• Mutual Funds Rating

• Bank Loans/Line of Credit

ICRA Rating Methodology: Indian Cement Companies

• The Indian cement industry is the second largest in the world.

• Total installed capacity of around 300 million tonnes per annum (MTPA) (March 31, 2012)

• Cement production of 225 million metric tonnes (MMT) in FY12.

• The cement industry occupies an important place in the national economy because of its strong linkages to other sectors such as construction, transportation, power, construction, and coal, besides the financial markets.

ICRA’s rating methodology evaluates:

• Geographical diversity and regional supply-demand scenario

• Locational economics-Availability of raw materials

Market related factors

• Cost efficiencies

• Product diversity and Blending

• Brand developmentOperational strengths

• Management’s track record on project implementation

• Management’s ability to implement cost-reduction programmes

Management quality

• Profitability

• Debt servicing track record

• Consolidated Financial Analysis

• Adequacy of Future Cash Flows

Financial strength and future cash flows

•Reimbursement of VAT, transport subsidy, exemption from income tax, excise duty etc

•Relative advantage or disadvantage arising out of these benefitsGovernment policies

Rating methodology for Tea Industry

• ICRA‘s rating framework for players in the bulk tea industry involves an assessment of the risks.

• The industry analysis includes study of the cyclicality and price volatility of tea.

• demand-supply position at both the domestic as well as international markets and

• regulatory issues, while some of the key issuer-specific factors that are evaluated while assessing its credit quality are as follows:

Factors taken into consideration:

• Geographical diversity

• Scale of operations, operating efficiency and cost competitiveness

• Product quality & revenue mix

• Financial health

• Profitability

• Leverage and cash flows

• Foreign currency related risks

• Tenure mismatches, and risks related to interest rates and refinancing

• Debt servicing track record

• Contingent liabilities/off-balance sheet exposures

• Consolidated financial analysis

• Adequacy of future cash flows

• Company strategy, management quality and corporate governance

Rating methodology for Mobile service providers• Regulatory Risks

• Market Potential of the Circle(s) of the Issuer

• Existing Subscriber Base and Composition

• Intensity of Competition

• Network Coverage and Quality

• Brand Image

• Customer Care and Retention

• Sales and Distribution

• Operating Costs

• Economies of Scale

• Management Quality and Strategy

• Foreign Promoters

• Approach to Technology

• Sponsors’ Strength and Financial Flexibility

• New Project Risks

• Financial Evaluation