Credit Analysis & Research Limited (CARE Ratings) has launched a new product called "SME fundamental grading", which, it said will aid investors in taking informed investment decisions based on the fundamentals of small and medium enterprises (SMEs). It will also assist SMEs to differentiate themselves from others, thereby facilitating the raising of funds.
With the introduction of SME platforms on the stock exchanges - BSE SME Exchange and NSE Emerge - SMEs are now able to raise equity capital by listing on these platforms. With this development, it was important to classify entities with better business fundamentals for taking a long-term investment view, the agency said. This product is expected to fill this gap, it said.
SME fundamental grading will be an independent and professional opinion on the fundamentals of a SME. It will be a relative assessment in relation to other Indian SMEs, involving an in-depth assessment of various quantitative and qualitative parameters of the entity.
Quantitative parameters include growth prospects of the industry, financial strength and operating performance of the entity. Qualitative parameters primarily include management capability, an evaluation of the promoters, accounting policies and corporate governance practices.
CARE will grade the SMEs' fundamentals on a five-point scale, from fundamental grade 5/5 (the highest grade, indicating 'strong fundamentals') to the lowest score, fundamental grade 1/5 (indicating 'weak fundamentals'). A score of 4/5 will indicate very good fundamentals; 3/5 will indicate good fundamentals, and 2/5 will indicate modest fundamentals.
The first two companies to be rated on the new scale are Ashapura Intimate Fashions Limited (AIFL) and Sarda Energy & Minerals Ltd (SEML).
