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Credit Analysis & Research Ltd.

BSE: 534804 Sector: Others
NSE: CARERATING ISIN Code: INE752H01013
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OPEN 1410.00
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VOLUME 168
52-Week high 1572.50
52-Week low 885.00
P/E 31.83
Mkt Cap.(Rs cr) 4145.15
Buy Price 1399.25
Buy Qty 1.00
Sell Price 1406.75
Sell Qty 40.00
OPEN 1410.00
CLOSE 1399.00
VOLUME 168
52-Week high 1572.50
52-Week low 885.00
P/E 31.83
Mkt Cap.(Rs cr) 4145.15
Buy Price 1399.25
Buy Qty 1.00
Sell Price 1406.75
Sell Qty 40.00

Credit Analysis & Research Ltd. (CARERATING) - Director Report

Company director report

Your Directors are pleased to present the Twenty Third Annual Report of your Companyalong with the audited Financial Statements for the year ended March 31 2016.

Financial Performance

Company's Financial Performance for the year ended March 31 2016 is summarized below:

(Rs. Lakhs)

Particulars

For the year ended March 312016

For the year ended March 312015

Income from Operations 26484 25721
Other Income 861 4356
Total Income 27345 30077
Total Expenditure 9663 10139
Profit Before Tax (PBT) 17682 19938
Provision for Tax 5913 5905
Profit After Tax (PAT) 11769 14033
Balance brought forward from previous year 14814 29161
Appropriations
Interim Dividend 5244 20589
Tax on Interim Dividend 1068 3499
Final Dividend 2940 2320
Tax on final dividend 599 472
Total (Dividend outflow) 9851 26880
Transferred to General Reserve 1500 1500
Balance carried forward to next year 15232 14814

Income from Operations increased by about 3.0% during the year on account of subduedmarket conditions and low credit off take in corporate loans. Other income declined fromRs. 43.6 crore to Rs. 8.6 crore mainly due to a large part of our investments beinginvested in long term instruments income from which can be recognized only on maturity /realization basis. Income from such instruments will be partly realized in FY17 & FY18on their maturity. Income from operations increased due to increase in volume of debtrated in the long term debt instruments which was partly offset by reduction in bank loanrating volume. This was supported by surveillance income.

Total expenditure decreased by 4.7% mainly due to lower expenditure on staff. Thereduction in the NSIC subsidy resulted in restructuring and rationalizing the SME teamleading to overall reduction in both employee costs as well as other expenses. Lower otherincome impacted growth in profit before tax and net profit which declined by 11.3% and16.1% respectively.

Dividend

Your Company paid a total interim dividend of Rs. 18/- per share amounting to a payoutof Rs.52.44 crores. The Board has recommended final dividend of Rs. 10/- per shareamounting to a payout of Rs. 29.40 crores for FY 2015-16 to be approved at the ensuingAnnual General Meeting. The dividend would be paid in compliance with the applicable rulesand regulations.

Transfer to reserves

Your Director recommends to transfer Rs.15.00 crores (Rupees Fifteen Crores Only) tothe General Reserve of the Company. Share Capital

The Authorised Share Capital of your Company is 30000000 Equity Shares of face valueRs.10/- each amounting to Rs.300000000/- and the Paid-up Share Capital is 29401096Equity Shares amounting to Rs. 294010960/- (Twenty Nine Crores Forty Lakhs Ten ThousandNine Hundred Sixty Only). During the financial year ended March 31 2016 the Company hasissued and allotted 401974 equity shares of Rs. 10/- each at a premium of Rs. 607/- pershare to its eligible employees under the CARE Employees Stock Option Scheme 2013 (ESOS2013).

Economic Backdrop

It was expected that the Indian economy would progress at a faster rate in FY16 whichin turn would necessitate higher levels of funding that would provide a boost to the debtand credit markets. However the overall performance of the economy was mixed. While theoverall GDP growth number was higher at 7.6% as against 7.2% in FY15 the underlyingsectors did not provide the requisite impetus to the economy.

To begin with the farm sector did not do well due to a sub-normal monsoon whichaffected income and hence spending. This has an impact on industrial growth which wassubdued at 2.4% compared with 2.8% in FY15. In particular capital goods output continuedto decline by 2.9% (+6.3% last year) which in turn had an impact on overall investment.The gross fixed capital formation rate at current prices came down from 30.8% in FY15 to29.3% in FY16. To add to this rather low investment scenario the average capacityutilization rate as per RBI data ranged between 71-73% in the four quarters for whichinformation is published.

Overall corporate performance continued to be weak across the four quarters of FY16.CARE's studies indicate that net sales of a sample of 3035 companies had witnessedcontinuous decline in this period. De-growth in sales was 3.8% in Q1 4.7% in Q2 5.1% inQ3 and 1.3% in Q4. There is some hope that Q4-FY16 could be a sign of the beginning of aturnaround though it would be hard to conjecture presently. Growth in net profits whichwas impacted by the downward movement in commodity prices continued to decelerate from0.1% in Q1 to -28.1% in Q4.

This background was not conducive for the funding sector which continued to witnesslimited momentum. Overall bank credit grew by 11.3% in FY16 which was higher than 9% inFY15. However most of this growth came from the retail segment which witnessed anincrease of 19.4% and agriculture where credit grew by 15.3%. The two segments which comewithin the purview of credit rating i.e. manufacturing and services witnessed lowgrowth. In case of manufacturing the increase was just 2.7% as against 5.6% last yearwhile for services it was 9.1% as against 5.7% last year. Credit to services was led bythe NBFC segment. In incremental terms the change in bank credit to manufacturing andservices was Rs. 2.01 lakh crores as against Rs. 2.16 lakh crore in FY15. The growth inthe rating business in the bank loan segment can be juxtaposed with the growth at theeconomy level in bank credit to gauge the challenges that were encountered.

The banking system was also pressurized by the build-up of NPAs. With the RBI steppingup efforts for cleaning up of loan books of banks gross NPAs had increased sharply as perRBI's financial stability report from 5.1% in FY15 to 7.6% in FY16. Stressed assets haveremained relatively stable at 11.5% compared with 11.3% last year.

The corporate debt market did witness higher issuances in FY16. Total issuancesincreased from Rs. 4.1 lakh crores in FY15 to Rs. 4.92 lakh crore in FY16. This comprisedmainly private placements which accounted for 93% of the total. In FY15 the share was98%. Within the debt issuances around 75-80% was contributed by the financial sectorwhich has been the trend in the last few years. Here it is necessary to distinguishbetween funds raised by the financial sector which comprises banks and NBFCs andnonfinancial which includes infrastructure and manufacturing. Funds which are raised bythe financial sector are used for on-lending purposes while those by the non-financialsector are normally associated with direct investment in the respective industry.

Inflation had presented an ambivalent picture. The WPI rate had been in the negativezone for the entire year which was a reflection of low and falling commodity prices. WPIended at -0.8% in March and on an average basis was -2.5% for the year. CPI inflationhowever continued to be in the 5% range mainly (exceeding this mark in 7 of the 12 months)due to higher food prices and averaged 4.83% for the year. This number was to be thetarget for RBI when conducting monetary policy.

The RBI had pursued a cautious monetary policy during the year. Interest rates asindicated by the repo rate were lowered by the RBI by 50 bps during the year and suchchanges were made conditional on CPI inflation which continued to move around 5%. The RBIalso did stress on the need to have a more efficient transmission mechanism and introducedthe concept of MCLR (marginal cost lending rate) which was however implemented in FY17.The base rates of banks had moved from 10-10.25% as of April 2015 to 9.3-9.7% in March2016 while deposit rates for one year had come down from 8-8.75% to 7-7.9% during thissame time period.

The government on its part had adhered to the fiscal deficit targets that were set at3.9% of GDP. This was made possible by benign global commodity prices and more thanelastic growth in tax revenue as the rates were adjusted to ensure that lower oil pricesin particular did not lead to a fall in revenue for the government. The outcome of thisdevelopment is that the RBI was able to address the issue of inflation and did not have tofocus too much on liquidity due to government preemption of resources.

The market interest rates had been more responsive to the RBI's policy changes asevidenced by the 10-years GSec rate which came down from 7.90% to 7.48% during the year.This impact was also felt in the CP market which witnessed higher issuances during theyear of Rs. 5.85 lakh crores as against Rs. 3.87 lakh crores in FY15. There was a tendencyfor some bit of substitution between bank credit and CP on account of more favorablerates.

The rupee had remained largely stable and ended the year at an average of Rs. 67.02/$in March 2016 as against Rs. 62.75/$ in April 2015. The RBI had pursued a proactive policyin reducing volatility in the market through intervention in both the spot and futuresmarket to stabilize the rupee. The overall external position was positive with forexreserves increasing by US$ 14.1bn during the year. A lower current account deficitsupported by higher FDI inflows (US$ 41 bn including reinvestment) did counter the netoutflow of FPI (-US$ 4.5 bn) from the system.

The performance of your Company may be evaluated against this background.

Business Operations

While your Company's medium -term strategy is to grow the business book by widening thecoverage of debt rated in the market as well as increase the client base the focus hadchanged to build the client book under conditions of limited buoyancy in the markets.

Your Company has in all completed 46881 rating assignments since inception to March31 2016. The cumulative amount of debt rated has increased to Rs. 78.81 lakh crore as ofMarch 31 2016 which is around 58% of GDP at current market prices. As of March 31 2016we had business relationships with 12373 clients (9828 as on March 31 2015). During theyear your Company added 3105 new clients.

Instruments

Number of assignments completed

Volume of debt rated (Rs crore)

2015-16

2014-15

2015-16

2014-15

Short & Medium Term 92 123 116706 72434
Long term 325 317 423391 379768
Bank facility rating 6038 5054 545246 645032
Others 1072 2479 - -
Total 7527 7973 1085343 1097234

The table provides information on the various aspects of the business profile andgrowth during the year.

1. The total number of instruments rated declined by 5.6% in FY16. This was mainly dueto the sharp fall in the number of assignments in the miscellaneous category whichincludes SME ratings among others. The number of assignments had increased for long termand bank facility ratings by 2.5% and 19.5% respectively.

2. Bank facilities accounted for 80.2% of total assignments in FY16 up from 63.4% inFY15. The miscellaneous assignments witnessed sharp fall from 31.1% in FY15 to 14.2% inFY16.

3. The total volume of debt rated however decreased from Rs. 10.97 lakh crore to Rs.10.85 lakh crore. This was notwithstanding the increase in volumes rated in the short andmedium term and long term categories. The decline was witnessed in case of bank facilityratings where there was a decline from Rs. 6.45 lakh crore to Rs. 5.45 lakh crore. Thiswas due to the smaller ticket size of the assignments rated by your company. The averagevalue came down from Rs. 127.6 crore to Rs. 90.3 crore in FY16. However we do see this asbeing a part of constructing a strong foundation for future growth when the economyrecovers and the debt and credit markets become more buoyant.

4. In terms of volume of debt rated the long term assignments witnessed an increase inshare from 34.6% to 39.0% while that of bank facilities came down from 58.8% to 50.2%.

Business during the year

Large and Medium Enterprises (LME)

Data presented by Prime Database for FY16 shows that CARE Ratings was the leader interms of the number of private placement issues that were rated by the credit ratingagencies. Based on the release out of the 2760 issues that were privately placed CAREhas rated 891 of them which is a share of 32.3%. The second highest number of ratings by aCRA was 801.

The focus this year had to be more on client acquisition than business volumes mainlydue to the fact that there was limited buoyancy in the credit and debt markets. While thevolume of debt rated in the bank loan rating segment did come down it was compensated forby higher number of ratings assignments.

We continue to have a focused team on the LME segment which works on both augmentingthe client portfolio and maintaining relationships with the existing companies. These twoprongs are required to keep the business improving in future.

Your Company continues to be the dominant credit rating agency in this space. Based onthe press releases on various agency web sites we have calculated the shares of theagency in the pool of rated ET Top 500 BS Top 1000 and FE Top 500 companies. For thisyear too CARE Ratings continues to maintain leadership with shares of 52% 44% and 50%respectively.

New Initiatives

Your company has started a new subscription based service called CARE Rating Tracker(CART). It has data on the Rating History of over 40000 entities covering all six CreditRating Agencies. Over 40000 companies classified under 120+ industries are included inthis service. Further the detailed rating rationale of over 10000 CARE rated entities isalso available. There is also a facility provided for creating one's own portfolio ofcompanies with timely email alert on rating actions.

Your company has launched the rating of Real Estate Investment Trusts (REITs). A REITis a corporation or a trust which utilizes the pooled capital of many investors topurchase and in most cases operate income-producing real estate such as officesapartments shopping complexes hotels and warehouses. CARE's Rating of REIT fund is anopinion on the REIT's investment quality based on the fundamental assessment of the REIT.CARE-REIT rating is assigned on a five-point scale from 1 to 5 with 'CARE: REIT-1'indicating highest investment quality and 'CARE:REIT-5' indicating poor investmentquality.

Small and Medium Enterprises (SME)

The SME rating was one of the fastest growing elements in the credit rating space forwhich your company had been building the infrastructure as revealed in our Annual Reportfor FY 2014-15. This rating was provided to SMEs as defined by the Government of Indiaunder a subsidy scheme provided through NSIC (National Small Industries Corporation). ForFY 2015-16 the Union Budget had scaled down this allocation from the previous year's(2014-15) Rs. 88 crore to Rs. 26 crore (Budget Estimate) a reduction of Rs.62 crore or70%. However as per the Revised Estimate for 2015-16 the allocation has been seen to behigher at Rs.45 crore a reduction of Rs.43 crore or 49% from that in 2014-15. This rollback in subsidy did upset our plans as we had expanded our staff in close to 70 locationsto tap this market. The lowering of the subsidy did cause change in our plans where we hadto scale down the personnel and also change focus to the bank loan rating segment forthese units. This explains why the number of assignments under the 'others' category hadcome down significantly.

We are happy to report that for FY 2016-17 the government has scaled back this subsidyto Rs. 200 crore which will open up this segment. However caution needs to be exercisedwhen interpreting this number as this subsidy may not be linear in future and susceptibleto changes.

Future prospects and Outlook of the Company

The prospects of your company are based on two platforms. The first is the incrementalnew business emanating from both the credit and debt segments which will be directlydependent on how the economy behaves. While there is expectation that the growth prospectswill be better in FY17 CARE's projection of GDP growth is only marginally higher thanthat last year at 7.8%. This should correspond to slightly higher levels of privateinvestment supported by the budgeted expenditure by the central and state governments oncapital projects. However growth would be taking place in a calibrated manner.

The second platform relates to doing more business with existing clients and gettingmore companies on our portfolio which are in the rating circuit. While the former willalso be contingent on external conditions the latter is an ongoing process and as can beseen by our performance last year we were able to add around 3000 new clients. This weunderstand is a continuous process where the level of competition is also high.

The RBI is expected to be cautious with interest rates and while 25 bps cut is expectedon the policy front we believe that this would be invoked only after a clearer pictureemerges on the monsoon impact on the kharif crop. The environment is likely to be stablewith the government adhering to the budget target and forex volatility on account ofredemption of FCNR deposits would be addressed appropriately by the RBI.

Knowledge dissemination

CARE has been a thought leader in various areas and believes in presenting our views onvarious issues almost immediately so as to ensure that clients regulators governmentdepartments and the media are aware of them. This helps us share our views and engage in ameaningful debate with other analysts on these issues.

A major innovation this year has been the release of a CARE Debt Quality Index whichtracks the changes in overall quality of debt in the economy based on a representativesample of companies. This is done on a monthly basis and sends valuable signals on thestate of debt in the country. It has been an effort put in by the analytical and Economicsteams and is probably the first of its kind in the country. This index complements theregular Modified Credit Ratio which we publish every quarter which looks at the number ofupgrades and downgrades.

Economics

The Economics team has been a frontrunner in the knowledge dissemination exercise andbrings out views on economic indicators in a contemporaneous manner after thedata/policies are out. Besides the regular reactions to data relating to GDP Industrialgrowth monsoons fiscal scene monetary policy etc. special studies are carried out onsubjects pertaining to the debt market state finances employment. The quarterly analysisof corporate results is now a flagship exercise which analyzes in detail the trends inperformance at the aggregate level as well as industry and size levels.

Sectoral Views

Market tracking is important for a rating agency as all ratings have to be juxtaposedagainst the trends in the industry. It is for this reason that we have identified sectorspecialist who bring out regular reports on their industries which ultimately get blendedwith the analysis that goes into the rating report. While a fair part is for captiveconsumption we do put out some of the critical reports where we report our own views andunderstanding of developments taking place in terms of their impact on the rest of theeconomy.

Branding and Media

Our main objective is to present the Brand CARE Ratings in different forums. To thisend we have followed a four pronged approach.

First all reports and analysis are shared with the media and the corporatecommunications department is actively involved with this activity. A strong relationshiphas been built with the media which helps in engaging them with the authors of ourreports. This helps in propagating the CARE view as well having multiple faces of the CAREbrand.

Second we have always been very proactive with the media especially channels toexpress our views. Our top management and sector specialists regularly feature on thesechannels.

Third we do participate in various seminars and conferences as our experts are calledupon to be speakers to share their views which enhance the brand of CARE Ratings.

Last we have held interactive session with clients under a series called'Conversations over Dinner' across different centres where various respected persons inindustry spoke on a subject followed by a Q & A session. The Chief guests were Dr.Rangarajan Former Chairman EAC to PM Former Governor of RBI Chairman Madras School ofEconomics Mr Arun Tiwari Chairman & MD Union Bank in Mumbai Mr Arun Kaul Chairman& MD UCO Bank in Kolkata Mr. S.K Kalra Executive Director MD & CEO AndhraBank in Hyderabad Mr Sharad Sharma MD State Bank of Mysore in Bengaluru Mr D.JPandian IAS (Retd) Ex - Chief Secretary Government of Gujarat in Ahemdabad MrDhirendra Kumar Founder & Chief Executive Value Research Mr Prithivi HaldeaFounder Chairman Prime Database in Mumbai.

CARE hosted Budget Conversations - FY17 at Mumbai which had a discussion led by Mr.Ashvin Parekh (Managing Partner Ashvin Parekh Advisory Services LLP) Mr. Milind Sarwate(Founder & CEO Increate Value Advisors LLP) and Mr. Nilesh Shah (Managing DirectorKotak Asset Management Co. Ltd.) and the event in Delhi included Mr Sanjeev Kaushik (DMDIIFCL) and Ms Mythili Bhusnurmath (Consulting Editor Economic Times).

Top Management representation / Recognition and Awards

The top management has represented CARE at various forums.

Mr. D. R. Dogra Former MD & CEO accepted the award given to your company for beingthe 'Fastest Growing Indian Company Excellence Award' at International AchieversConference in September 2015 in Bangkok Thailand. He also took part in the inauguralsession of National Institute of Securities Market's (NISM) 4th International Conferenceon Securitization "Indian Securitization Summit 2015" at Mumbai on July 14 2015where CARE Ratings was an event partner.

Mr. D. R. Dogra Former MD & CEO gave the inaugural address and released theKnowledge Paper at Assocham's Conference on "Telangana One - The Road Ahead" inJune 2015 at Hotel Hyatt Hyderabad.

Mr. Rajesh Mokashi MD & CEO made a presentation in ET Edge's (Economic Times)Asset Reconstruction & NPA Management Summit in Mumbai in October 2015. He was alsothe moderator in the panel discussion session on 'Review the market conditions potentialgrowth operational and regulatory issues' in NISM's 4th International Conference onSecuritization "Indian Securitization Summit 2015. He was appointed as member ofpanel by DICGC (Deposit Insurance and Credit Guarantee Corporation) on a committee fordetermining differential premium for Banks in India. He played a crucial role in thedeliberations which required developing rating models for all categories of Banks.

CARE Ratings was awarded the title of 4Ps most recognizable brands of Indian Origin atFranchise India's Omaxe Power brands glam 2016.

IT initiatives

Delivering applications securely to customers remain our utmost priority and to achievethe same we have enabled and implemented the industry best security practices.

Digital is today's cue for achieving customer satisfaction. To keep pace with and tryto be ahead of times CARE IT has launched a web based secure CART - a Rating Trackerapplication for Industry. With a new revamped state of the art data centre we are ready tosupport business and new growth efficiently and securely. We have enabled all ourapplications on cross platforms to support seamless operations. Apart from deliveringunified IT platforms we are also on the path of Green IT with reduction in carbon footprint and paper usage. Enablement is done by implementing mobility applications andmaintaining an integrated document management suite.

ISO Certification

CARE has been ISO 9001:2008 certified for its credit rating of debtinstruments/facilities various grading services and its data processing services at CAREKnowledge Centre for 5 years now. The certification was renewed in 2015 by Systems andServices Certification (SSC) agency - SGS India Private Limited and is valid till 2017.It covers all offices of CARE in India and reflects high quality standards set by CARE indelivery of its services to various stakeholders.

CARE in global space

We have signed a Memorandum of Understanding (MoU) with JCR (Japan Credit RatingAgency) to collaborate with each other as strategic business partners. Given the stronglinks between India and Japan the collaboration with JCR will help businesses in both thecountries in their fund raising endeavors. Japanese companies raising funds in India wouldbe directed to CARE while our clients looking to tap Japanese markets would be encouragedto take a rating from JCR which has international accreditation.

CARE Ratings (Africa) Private Limited (CRAF) is now operational and has also completedits first rating assignment. This venture would be looking to leverage opportunities inthe African continent. CRAF has also got the recognition from Bank of Mauritius (BoM) asan External Credit Assessment Institution (ECAI) for all market segments from May 9 2016onwards.

Human Resources

The quality of ratings assigned by a credit rating agency is contingent on the level ofanalytical expertise available in the company. In view of this we regard human resourcesas a vital factor in our business. We do believe in selecting the best and providing theman environment to encourage free articulation of views to enhance the quality of ratings.Besides having induction programmes which are conducted by our own senior personnel we doconduct in-house training programmes and sponsor employees for external trainingprogrammes to hone the skills of the employees.

As of March 31 2016 we had 552 employees compared with 655 as on March 31 2015.Around 90% of the staff is professionally qualified in the areas of management CAs CSlegal economics engineering etc. holding professional qualifications or are postgraduates. The lower headcount as of March 31 2016 was a result of rationalization inresponse to the dilution of the SME business which had necessitated substantialrecruitment in the previous years.

Depository System

Your Company's equity shares are available for dematerialisation through NationalSecurities Depository Limited and Central Depository Services (India) Limited. As on March31 2016 almost 100% of the equity shares of your Company were held in dematerialisedform.

Extract of Annual Return

The Extract of Annual Return as provided under Section 92(3) of the Companies Act 2013and as prescribed in Form No. MGT-9 of the Companies (Management and Administration)Rules 2014 is appended as Annexure I.

Number of Meetings of the Board & its Committees

a) Board of Directors

The Board of Directors met 6 (six) times during the financial year 2015-16 on May 122015 July 17 2015 August 17 2015 August 26 2015 November 02 2015 and January 292016.

b) Audit Committee

The Audit Committee met 4 (four) times during the year 2015-2016 on May 12 2015 July17 2015 November 02 2015 and January 29 2016.

c) Nomination and Remuneration Committee

The Nomination and Remuneration Committee met 4 (four) times during the year 2015-2016on May 12 2015 July 17 2015 August 17 2015 and January 29 2016.

d) Stakeholders Relationship Committee

There were no Stakeholders Relationship Committee Meetings during the year.

e) Corporate Social Responsibility (CSR) Committee

The Corporate Social Responsibility (CSR) Committee met once during the year 2015-2016on March 28 2016.

Directors Responsibility Statement

Pursuant to Section 134(5) of the Companies Act 2013 the Board of Directors to thebest of their knowledge and ability confirm that:

i. In the preparation of the annual accounts for financial year ended March 31 2016the applicable accounting standards have been followed along with proper explanationrelating to material departures.

ii. They have selected such accounting policies and applied them consistently and madejudgments and estimates that are reasonable and prudent so as to give a true and fair viewof the state of affairs of the Company at the end of financial year and of the profit forthat period.

iii. They have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of this Act for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities.

iv. They have prepared the annual accounts for financial year ended March 31 2016 on a'going concern' basis.

v. They have laid down internal financial controls to be followed by the Company andthat such internal financial controls are adequate and have been operating effectively.

vi. They have devised proper systems to ensure compliance with provisions of allapplicable laws and that such systems were adequate and operating effectively.

Declaration by Independent Directors

The Independent Directors of the Company have submitted the declaration of Independenceas required under Section 149(7) of the Companies Act 2013 confirming that they meet thecriteria of independence under Section 149(6) of the Companies Act 2013 and Regulation 16(1) (b) of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015.

Policy on Directors' appointment and remuneration

The Policy of the Company on Directors' appointment and remuneration including criteriafor determining qualifications positive attributes independence of a Director and othermatters provided under sub-section (3) of section 178 is appended as Annexure II to thisReport and also available on the website of the Company viz.; www.careratings.com Particulars of LoansGuarantees or Investments under section 186

Your Company has not given any Loans and Guarantees covered under the provisions ofSection 186 of the Companies Act 2013. However the investments made by the Company havebeen provided in the notes to the standalone financial statements.

Particulars of Contracts or Arrangements with Related Parties

All transactions entered into during the financial year 2015-16 with Related Parties asdefined under the Companies Act 2013 and Regulation 23 of SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 were in the ordinary course of business and onan arm's length basis. During the year the Company had not entered into any transactionreferred to in Section 188 of the Companies Act 2013 with related parties which could beconsidered material. Accordingly the disclosure of Related Party Transactions as requiredunder Section 134(3) of the Companies Act 2013 in Form AOC-2 is not applicable.

Attention of the members is drawn to the disclosures of transactions with relatedparties set out in Notes to Accounts - Note No 23 forming part of the Standalone FinancialStatements.

As required under Regulation 23 (1) of the SEBI (Listing Obligations and DisclosureRequirements) Regulations 2015 and Clause 49(VIII) of the erstwhile Listing Agreementthe Company has formulated a Policy on Materiality of and dealing with Related PartyTransactions which is available on the website of the Company at www.careratings.com.

Material Changes and Commitments affecting the Financial Position of the Company

There have been no material changes and commitments affecting the financial position ofthe Company which have occurred between March 31 2016 and the date of this report otherthan those disclosed in this report.

Particulars regarding conversation of energy technology absorption and foreignexchange earnings and outgo Conservation of Energy and Technology Absorption

Your Company has taken necessary steps and initiative in respect of conservation ofenergy to possible extent to conserve the resources as required under Section 134(3)(m) ofthe Companies Act 2013 and rules framed thereunder.

As your Company is not engaged in any manufacturing activity the particulars oftechnology absorption as required under Section 134(3)(m) of the Companies Act 2013 readwith the Companies (Accounts) Rules 2014 are not applicable.

Foreign Exchange Earnings and Outgo

During the year under review the Company has earned a foreign exchange of Rs.43168775/- and has spent a foreign exchange of Rs. 2768169/-.

Business Risk Management

Your Company has formulated a risk management policy to ensure that every effort ismade to manage risk appropriately so as to maximize potential business opportunities andminimize the adverse effects of risk. The Board at its meeting held on May 26 2016dissolved the Risk Management Committee and incorporated the functions of Risk ManagementCommittee in the terms of reference of the Audit Committee.

Corporate Social Responsibility

The Board has constituted a Corporate Social Responsibility (CSR) Committee inaccordance with Section 135 of the Companies Act 2013. The CSR Policy has been devised onthe basis of the recommendations made by the CSR Committee. The CSR Policy of the Companyand details about the development of CSR Policy as required under the Companies (CorporateSocial Responsibility Policy) Rules 2014 are given in CSR Report appended as Annexure IIIto this Report along with reasons for not spending any amount under CSR in the financialyear 2015-16.

Vigil Mechanism - Whistle Blower

The Company has established a vigil mechanism for directors and employees to reporttheir genuine concerns details of which have been given in the Corporate GovernanceReport annexed to this Report and also posted on the website of the Company at www.careratings.com. During the year your Companyconfirms that no employee of the Company was denied access to the Audit Committee.

Annual Evaluation of Performance of the Board

The Board of Directors has carried out an annual evaluation of its own performance owncommittees and individual Directors pursuant to the provisions of the Act and theCorporate Governance Requirements as prescribed by SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 on the basis of criteria such as skillsknowledge discharge of duties level of participation at the meetings etc. on the issuesto be discussed.

In a separate meeting of Independent Directors performance of Non IndependentDirectors performance of the Board as a whole and performance of the Chairman wasevaluated taking in to account the views of executive directors and non-executivedirectors. Performance evaluation of independent Directors was done by the entire Boardexcluding the independent Directors being evaluated.

Subsidiary & Associate Companies

During the financial year under review your Company has two subsidiaries as follows:

1. CARE Kalypto Risk Technologies and Advisory Services Private Limited :- RiskSolutions Division:

i) New Orders

During FY 16 the Company was able to procure highest ever order in its history.Through the competitive bidding process it acquired order from the largest commercialbank in Sri Lanka viz. Bank of Ceylon (BOC) for Enterprise Risk Management Solutions. Thecompany was also able to penetrate domestic market in a big way through orders from FISfor implementation of Risk Management Solutions and ALM/FTP at the newly formed BandhanBank. With the inclusion of BOC in its client list CARE Kalypto has become the leader inSri Lankan market in Risk Management space

ii) Implementation

From the implementation perspective FY16 was the most challenging year for thecompany. Two large implementations viz. BOC and Bandhan were being carried out in parallelalong with other implementations of LOS and IFRS at Seylan Bank (Sri Lanka) andOperational Risk at CRDB Bank (Tanzania). All the implementations achieved substantialcompletion during the year resulting in highest ever revenue for the company. The companywas able to rev up its implementation capabilities with strengthening of its team. Alongwith implementations the company completed delivery of number of Change Requests (CRs)and continued to provide support under AMC to its existing clients.

iii) New Product Development

Having developed IFRS 7 compliant solutions the Company embarked on upgrading thesystem to make it IFRS 9 compliant. With the objective of diversifying its product rangethe company also initiated the process of development of Early Warning Signals (EWS)system for banks. Being a regulatory requirement in India EWS is expected to generatesubstantial demand in future.

Advisory Division:

During 2015-16 CARE Advisory a part of CARE Kalypto Risk Technologies and AdvisoryServices Pvt. Ltd. undertook ten assignments. This included formulation of Guidelines forvaluation of securities for an NBFC appraisal of a railway project feasibility study fora medical college in an African Country formulation of business plans for a Central PSUand an NBFC funding options for a 1600 MW power project independent review andvalidation of ICAAP for a PSU Bank and risk analysis for change of off-take terms for apower project. Clients included Banks NBFCs and Central public sector undertakings.During the year the mandate for developing a Credit Rating Model for MSMEs with embeddedGreen parameters a project sponsored by World Bank was under execution.

2. CARE Ratings (Africa) Pvt. Ltd (CRAF):-

CARE Ratings (Africa) Private Limited (CRAF) is incorporated in Mauritius and is thefirst credit rating agency to be licensed by the Financial Services Commission ofMauritius w.e.f. May 7 2015. It is also recognized by Bank of Mauritius as ExternalCredit Assessment Institution (ECAI) w.e.f. May 9 2016. CRAF will provide credit ratingsand related services initially in Mauritius and can expand in some other African countriesas well.

As on July 1 2016 CRAF's shareholders are Credit Analysis & Research LimitedIndia (CARE Ratings) MCB Equity Fund (MEF) and SBM (NFC) Holdings Limited (SNHL). AfricanDevelopment Bank (AfDB) shall also join as its shareholder shortly having already signedthe Shareholders Agreement. The experienced mix of shareholders will enable the entity tohave stronger brand recognition in the African continent. However management control willbe with CARE Ratings having majority shareholding.

CRAF's endeavour is to offer investors and risk managers with independent timely andinsightful credit opinions based on detailed in-depth research which includes detailedanalysis of risks that affect credit quality of an issuer/entity.

CARE owing to its experience of handling credit ratings of both Large Corporates andSmall & Medium Enterprises (SMEs) in emerging market like India aims to customize therating methodologies to suite the requirement of African countries.

The Company shall provide the copy of the annual accounts of its subsidiary companiesto the members of the Company and also to the members of the subsidiary companies on theirrequest. The annual accounts of the subsidiary companies will also be kept open forinspection by any members at the Registered Office of the Company and also at theRegistered Office of the subsidiary companies during business hours.

3. ARC Ratings Holdings Pte Ltd:

As a consequence of the preferential allotment made by ARC Holdings Pte Ltd there wasa dilution from 20% to 10 % of the shareholding of your Company and hence your Companyceases to be an Associate Company from July 20 2015 onwards.

Material Non-Listed Indian Subsidiary

There is no material non-listed Indian subsidiary of your Company as on March 31 2016.

Performance and Financial Position of Subsidiary Associate and Joint Venture Company

As required under Section 129 of the Companies Act 2013 and Regulation 33 of the SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015 the ConsolidatedFinancial Statements have been prepared by the Company in accordance with the applicableAccounting Standards and form part of the Annual Report. A statement containing thesalient features of the Financial Statements of the subsidiaries joint ventures andassociate companies in Form AOC-1 as required under Rule 5 of the Companies (Accounts)Rules 2014 form part of the notes to the financial statements.

Details relating to Deposits covered under Chapter V of the Companies Act 2013

Your company has not accepted any deposits within the purview of Chapter V of theCompanies Act 2013 during the year under review.

Significant and Material Orders passed by the Regulators or Courts or Tribunals

There are no significant material orders passed by the Regulators/Courts which wouldimpact the going concern status of your Company and its future operations.

Instances of fraud if any reported by the Auditors

There have been no instances of fraud reported by the Auditors under Section 143(12) ofthe Companies Act 2013.

Internal Financial Control System

The Company has an Internal Financial Control System commensurate with the size scaleand complexity of its operations. Your Company has in place a mechanism to identifyassess monitor and mitigate various risks to key business objectives. Major risksidentified by the businesses and functions are systematically addressed through mitigatingaction on continuing basis. These are routinely tested and certified by Statutory as wellas Internal Auditors. Significant Audit observations and follow up actions thereon arereported to the Audit Committee.

Directors and Key Managerial Personnel

In accordance with the Articles of Association of the Company and provisions of theSection 152(6) (e) of the Companies Act 2013 Mr. S. B. Mainak (DIN: 02531129) will retireby rotation at the ensuing Annual General Meeting of the Company and being eligibleoffers himself for re-appointment.

The tenure of Mr. A. K. Bansal (DIN: 06752578) and Dr. Ashima Goyal (DIN: 00233635)Independent Directors will end on September 28 2016. Your Company has received a noticein writing proposing the reappointment of Mr. A. K. Bansal and Dr. Ashima Goyal asIndependent Directors of your Company in compliance with the provisions of section 160 ofthe Companies Act 2013.

Mr. Navin Kumar Jain Company Secretary and Compliance Officer of the Company hasresigned with effect from May 31 2016. Further your Company has appointed Mr. MahendraNaik Assistant Company Secretary as the Company Secretary and Compliance Officer witheffect from June 1 2016.

Mr. D R Dogra Managing Director & CEO of the Company ceased to be Director of theCompany on the expiry of his term with effect from August 21 2016. After completion ofhis tenure as a Managing Director & CEO Mr. D R Dogra has resigned from the Boardfrom August 21 2016. The Board acknowledged Mr. Dogra's contribution to the Company andwished him good luck.

Auditors' Appointment

M/s. Khimji Kunverji & Co. Chartered Accountants (Firm Registration No. 105146W)were appointed as the Statutory Auditors of the Company at the 21st Annual General Meetingto hold office from the conclusion of 21st Annual General Meeting till the conclusion ofthe 23rd Annual General Meeting to be held in 2016 subject to ratification of theirappointment at every Annual General Meeting. The members at the 22nd Annual GeneralMeeting of the Company held on September 29 2015 ratified the appointment of M/s KhimjiKunverji & Co. Chartered Accountants as the Statutory Auditors of the Company forfinancial year 2015- 2016.

The Board of Directors of the Company at its meeting held on August 05 2016recommended to members of the Company reappointment of M/s Khimji Kunverji & Co.Chartered Accountants as the Statutory Auditors of the Company for financial year 2016-2017 to financial year 2020-2021 i.e. for a period of five years.

Your Company has received a letter from M/s Khimji Kunverji & Co. CharteredAccountants to the effect that their appointment / re-appointment if made would be underthe second and third proviso to Section 139 (1) of the Act and that they are notdisqualified within the meaning of Section 141 of the Act read with Rule 4(1) of theCompanies (Audit and Auditors) Rules 2014.

There are no qualifications reservations or adverse remarks or disclaimers made byM/s. Khimji Kunverji & Co. Chartered Accountants Statutory Auditors in theirreport.

Stakeholders Report

During the financial year 2015-16 your Company has received complaints with regard tonon-receipt of refund order non-receipt of annual report non-receipt of dividend andnon-receipt of securities. The details of complaints is appended to this Report asAnnexure IV.

Secretarial Audit Report

The Board of Directors of your Company have appointed M/s A. K. Jain & Co. CompanySecretaries Mumbai to conduct the Secretarial Audit and his Report on Company'sSecretarial Audit Report is appended to this Report as Annexure V.

There are no qualifications reservations or adverse remarks or disclaimers made by M/sA K Jain & Co. Company Secretaries Mumbai in their secretarial audit report.

Employees Stock Option Schemes

As required in terms of the Securities and Exchange Board of India (Share BasedEmployee Benefits) Regulations 2014 the disclosure relating to Credit Analysis andResearch Limited ("ESOS - 2013") is appended as Annexure VI respectively tothis report.

Management Discussion and Analysis Report

The Management's Discussion and Analysis Report for the year under review asstipulated under Regulation 34(2)(e) of the SEBI (Listing Obligations and DisclosureRequirements) Regulations2015 with the Stock Exchanges is annexed as Annexure VII tothis report.

Corporate Governance

The Company is committed to maintaining the highest standards of Corporate Governanceand adhering to the Corporate Governance requirements as set out by Securities andExchange Board of India. The Report on Corporate Governance as stipulated under Schedule Vof the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 forms partof the Annual Report. The Certificate from the Auditors of the Company confirmingcompliance with the conditions of Corporate Governance as stipulated under Schedule V (E)of the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 forms partof the Corporate Governance Report.

Audit Committee of the Company

Your Company's Audit Committee comprises the following directors as its members:

1. Dr. Ashima Goyal Chairperson (Independent Director)
2. Mr. S. B. Mainak Member (Non-Executive Director)
3. Mr. Anil Kumar Bansal Member (Independent Director)

The composition of the Audit Committee is in compliance with the requirements ofSection 177 of the Companies Act 2013 and Regulation 18 of the SEBI (Listing Obligationsand Disclosure Requirements) Regulations 2015

Disclosures under Sexual Harassment of women at workplace (Prevention Prohibition& Redressal) Act 2013

Your Company has always believed in providing a safe and harassment free workplace forevery individual working in the Company's premises through various interventions andpractices. The Company always endeavours to create and provide an environment that is freefrom discrimination and harassment including sexual harassment.

Your Company has a policy on Prevention of Sexual Harassment at Workplace. The policyaims at prevention of harassment of employees and lays down the guidelines foridentification reporting and prevention of undesired behaviour. An Internal ComplaintsCommittee (ICC) was set up from the senior management with women employees constitutingmajority in order to investigate any complaints / issues related to sexual harassment. TheICC is responsible for redressal of complaints related to sexual harassment and followsthe guidelines provided in the Policy.

During the year ended March 31 2016 the ICC did not receive any complaint pertainingto sexual harassment.

Particulars of Employees

Disclosures with respect to the remuneration of Directors and employees as requiredunder Section 197 of the Companies Act 2013 and Rule 5(1) of the Companies (Appointmentand Remuneration of Managerial Personnel) Rules 2014 has been appended as Annexure VIIIto this Report. The information required pursuant to Section 197 of the Companies Act2013 read with Rule 5(2) & (3) of the Companies (Appointment and Remuneration ofManagerial Personnel) Amended Rules 2016 in respect of employees of your Company isavailable for inspection by the members at the Registered Office of the Company duringbusiness hours on working days up to the date of the ensuing Annual General Meeting. Ifany member is interested in obtaining a copy thereof such member may write to the CompanySecretary whereupon a copy would be sent.

Acknowledgements

The Board places on record its appreciation of the contribution of its employees to thecompany's operations and the trust reposed in it by market intermediaries issuers andinvestors. The Board also appreciates the support provided by the Reserve Bank of IndiaSecurities Exchange Board of India and the Company's Bankers IDBI Bank HDFC Bank andState Bank of India.

On behalf of the Board of Directors

S. B. Mainak Chairman

(DIN:02531129)

Place: Mumbai

Date: August 23 2016

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