C M Y K

C M Y K

RED HERRING PROSPECTUSDated November 24, 2012

Please read section 60B of the Companies Act, 1956100% Book Building Offer

CREDIT ANALYSIS AND RESEARCH LIMITED(Our Company was incorporated as Credit Analysis and Research Limited on April 21, 1993 at Mumbai, Maharashtra as a public limited company under the Companies Act, 1956, as amended (the“Companies Act”). For details of change in the registered office of our Company, see “History and Certain Corporate Matters - Changes in Registered Office” on page 118 of this Red Herring Prospectus.)

Registered Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai 400 022Contact Person: Navin K. Jain, Company Secretary and Compliance Officer

Tel: (91 22) 6754 3456; Fax: (91 22) 6754 3457; Email: investor.relations@careratings.com; Website: http://www.careratings.com

BID/OFFER PROGRAMME(2)

BID/OFFER CLOSES ON: DECEMBER 11, 2012BID/OFFER OPENS ON: DECEMBER 7, 2012(2)

BOOK RUNNING LEAD MANAGERS REGISTRAR TO THEOFFER

Karvy Computershare Private LimitedPlot nos.17-24, Vittal Rao NagarMadhapur, Hyderabad 500 081Toll Free No.: 1-800-3454001Tel: (91 40) 4465 5000Fax: (91 40) 2343 1551Email: care.ipo@karvy.comInvestor Grievance Email:care.ipo@karvy.comWebsite: http:\\karisma.karvy.comContact Person: M Murali KrishnaSEBI Registration No.: INR000000221

Kotak Mahindra Capital Company Limited1st Floor, Bakhtawar, 229 Nariman PointMumbai 400 021Tel: (91 22) 6634 1100Fax: (91 22) 2283 7517Email: care.ipo@kotak.comInvestor Grievance Email: kmccredressal@kotak.comWebsite: www.investmentbank.kotak.comContact Person: Ganesh RaneSEBI Registration Number: INM000008704

DSP Merrill Lynch Limited8th Floor, Mafatlal CentreNariman Point, Mumbai 400 021Tel : (91 22) 6632 8000Fax : (91 22) 2204 8518Email: dg.careipo@baml.comInvestor Grievance Email: dg.india_merchantbanking@baml.comWebsite: www.dspml.comContact Person: Vikram KhaitanSEBI Registration No.: INM000011625

Edelweiss Financial Services Limited14th Floor, Edelweiss HouseOff. CST Road, Kalina, Mumbai 400 098Tel: (91 22) 4086 3535Fax: (91 22) 4086 3610Email: care.ipo@edelweissfin.comInvestor Grievance Email : customerservice.mb@edelweissfin.comWebsite: www.edelweissfin.comContact Person: Chitrang Gandhi/ Dipti SamantSEBI Registration No: INM0000010650

ICICI Securities LimitedICICI Centre, H.T. Parekh MargChurchgate, Mumbai 400 020Tel: (91 22) 2288 2460Fax: (91 22) 2282 6580Email: care.ipo@icicisecurities.comInvestor Grievance Email: customercare@icicisecurities.comWebsite: www.icicisecurities.comContact Person: Payal Kulkarni/Bhavin VakilSEBI Registration No: INM000011179

IDBI Capital Market Services Limited(1)3rd Floor, Mafatlal Centre, Nariman PointMumbai 400 021Tel: (91 22) 4322 1212Fax: (91 22) 2285 0785Email: care.ipo@idbicapital.comInvestor Grievance Email: redressal@idbicapital.comWebsite: www.idbicapital.comContact Person: Swapnil Thakur/Subodh MallyaSEBI Registration No.: INM000010866

SBI Capital Markets Limited(1)202, Maker Tower 'E', Cuffe ParadeMumbai 400 005Tel: (91 22) 2217 8300Fax: (91 22) 2218 8332Email:care.ipo@sbicaps.comInvestor Grievance Email: investor.relations@sbicaps.comWebsite: www.sbicaps.comContact Person: Murtuza Patrawala/Shikha AgarwalSEBI Registration Number: INM000003531

(1)SBI Capital Markets Limited is an associate of State Bank of India, which is a Selling Shareholder, and IDBI Capital Market Services Limited is an associate of IDBI Bank Limited, which is also a Selling Shareholder. SBI Capital Markets Limited and IDBI Capital Market ServicesLimited have signed the due diligence certificate dated September 30, 2011 and accordingly have been disclosed as Book Running Lead Managers. In compliance with proviso to Regulation 21A of the Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992, asamended (the “SEBI Merchant Bankers Regulations”) and proviso to Regulation 5(3) of the SEBI Regulations, SBI Capital Markets Limited and IDBI Capital Market Services Limited are the marketing lead managers and would be involved only in the marketing of the Offer.(2)Our Company and the Selling Shareholders may, in consultation with the BRLMs, consider participation by Anchor Investors. The Anchor Investor Bid/Offer Period shall be one Working Day prior to the Bid/Offer Opening Date, in accordance with the SEBI Regulations.

Our Company is a professionally managed company and does not have an identifiable promoter in terms of the Securities and Exchange Board of India (Issue of Capital and DisclosureRequirements) Regulations, 2009, as amended (the “SEBI Regulations”)

PUBLIC OFFER OF 7,199,700 EQUITY SHARES OF A FACE VALUE OF RS. 10 EACH (THE “EQUITY SHARES”) OF CREDIT ANALYSIS AND RESEARCH LIMITED (THE “COMPANY”)THROUGH AN OFFER FOR SALE BY THE SELLING SHAREHOLDERS FOR CASH AT A PRICE OF RS. [�] PER EQUITY SHARE (INCLUDING A SHARE PREMIUM OF RS. [�]PER EQUITY SHARE) AGGREGATING UP TO RS. [�] MILLION (THE “OFFER”). THE “OFFER” WILL CONSTITUTE 25.22% OF THE POST-OFFER PAID-UP EQUITY SHARECAPITAL OF OUR COMPANY.THE FACE VALUE OF EQUITY SHARES IS RS. 10 EACH. THE PRICE BAND AND THE MINIMUM BID LOT WILL BE DECIDED BY OUR COMPANY AND THE SELLINGSHAREHOLDERS IN CONSULTATION WITH THE BOOK RUNNING LEAD MANAGERS AND WILL BE ADVERTISED AND MADE AVAILABLE ON THE WEBSITES OF THE STOCKEXCHANGES AT LEAST FIVE WORKING DAYS PRIOR TO THE BID/OFFER OPENING DATE.In case of any revisions in the Price Band, the Bid/Offer Period will be extended by at least three additional Working Days after such revision of the Price Band, subject to the Bid/Offer Period notexceeding 10 Working Days. Any revision in the Price Band and the revised Bid/Offer Period, if applicable, will be widely disseminated by notification to BSE Limited (the “BSE”) and The NationalStock Exchange of India Limited (the “NSE”), by issuing a press release, and also by indicating the change on the website of the BRLMs and at the terminals of the other members of the Syndicate.

In terms of Rule 19(2)(b)(i) of the Securities Contracts (Regulation) Rules, 1957, as amended (the “SCRR”), this is an Offer for more than 25% of the post-Offer paid-up Equity Share capital of ourCompany. This Offer is through the Book Building Process wherein not more than 50% of the Offer shall be allocated on a proportionate basis to QIBs, provided that our Company and the SellingShareholders may allocate up to 30% of the QIB Portion to Anchor Investors on a discretionary basis. 5% of the QIB Portion (excluding Anchor Investor Portion) shall be available for allocation ona proportionate basis to Mutual Funds only, and the remainder of the QIB Portion shall be available for allocation on a proportionate basis to all QIB Bidders, including Mutual Funds, subject to validBids being received at or above the Offer Price. Further, not less than 15% of the Offer shall be available for allocation on a proportionate basis to Non-Institutional Bidders and not less than 35% ofthe Offer shall be available for allocation to Retail Individual Bidders in accordance with the SEBI Regulations, subject to valid Bids being received at or above the Offer Price. QIBs (other than AnchorInvestors) and Non-Institutional Bidders shall participate in the Offer through the Application Supported by Blocked Amount (“ASBA”) process providing details of the bank account which will be blockedby the Self Certified Syndicate Banks (“SCSBs”) to the extent of the Bid Amount for the same. Retail Individual Bidders may also participate in the Offer through the ASBA process. For details, seethe section “Offer Procedure” on page 256 of this Red Herring Prospectus.

RISK IN RELATION TO THE FIRST OFFER

This being the first public offer of Equity Shares of our Company, there has been no formal market for the Equity Shares of our Company. The face value of the Equity Shares is Rs. 10 each and theOffer Price is [�] times of the face value.The Offer Price (determined and justified by our Company, the Selling Shareholders and the BRLMs as stated under the section “Basis for Offer Price”on page 72 of this Red Herring Prospectus) should not be taken to be indicative of the market price of the Equity Shares after the Equity Shares are listed. No assurance can be given regarding an activeor sustained trading in the Equity Shares or regarding the price at which the Equity Shares will be traded after listing.

IPO GRADING

Our Company has been exempted by the Securities and Exchange Board of India (“SEBI”) (pursuant to Regulation 109(b) of the SEBI Regulations) from obtaining IPO grading for the Offer.

GENERAL RISKS

Investments in equity and equity-related securities involve a degree of risk and investors should not invest any funds in this Offer unless they can afford to take the risk of losing their entire investment.Investors are advised to read the risk factors carefully before taking an investment decision in this Offer. For taking an investment decision, investors must rely on their own examination of our Companyand the Offer, including the risks involved. The Equity Shares offered in the Offer have not been recommended or approved by SEBI, nor does SEBI guarantee the accuracy or adequacy of the contentsof this Red Herring Prospectus. Specific attention of the investors is invited to the section “Risk Factors” on page 15 of this Red Herring Prospectus.

COMPANY’S AND SELLING SHAREHOLDERS’ ABSOLUTE RESPONSIBILITY

Our Company, having made all reasonable inquiries, accepts responsibility for and confirms that this Red Herring Prospectus contains all information with regard to our Company and the Offer, whichis material in the context of the Offer, that the information contained in this Red Herring Prospectus is true and correct in all material aspects and is not misleading in any material respect, that theopinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which make this Red Herring Prospectus as a whole or any of such information or the expressionof any such opinions or intentions misleading in any material respect. The Selling Shareholders accept responsibility that this Red Herring Prospectus contains all information about them as SellingShareholders in the context of the Offer and each Selling Shareholder assumes responsibility for statements in relation to such Selling Shareholder included in this Red Herring Prospectus.

LISTING

The Equity Shares offered through this Red Herring Prospectus are proposed to be listed on the BSE and the NSE. Our Company has received an ‘in-principle’ approval from each of the BSE and theNSE for the listing of the Equity Shares pursuant to the letters dated October 21, 2011 and November 11, 2011, respectively. For the purposes of the Offer, the Designated Stock Exchange shall be theBSE.

TABLE OF CONTENTS

SECTION I: GENERAL ............................................................................................................................................. 1

DEFINITIONS AND ABBREVIATIONS ............................................................................................................... 1 PRESENTATION OF FINANCIAL, INDUSTRY AND MARKET DATA .......................................................... 10 FORWARD-LOOKING STATEMENTS .............................................................................................................. 14

SECTION II: RISK FACTORS ............................................................................................................................... 15

SECTION III: INTRODUCTION ........................................................................................................................... 29

SUMMARY OF INDUSTRY ................................................................................................................................. 29 SUMMARY OF BUSINESS .................................................................................................................................. 32 SUMMARY FINANCIAL INFORMATION ......................................................................................................... 40 THE OFFER ........................................................................................................................................................... 48 GENERAL INFORMATION ................................................................................................................................. 49 CAPITAL STRUCTURE ....................................................................................................................................... 60 OBJECTS OF THE OFFER .................................................................................................................................... 71 BASIS FOR OFFER PRICE ................................................................................................................................... 72 STATEMENT OF TAX BENEFITS ...................................................................................................................... 75

SECTION IV: ABOUT OUR COMPANY .............................................................................................................. 84

INDUSTRY OVERVIEW ...................................................................................................................................... 84 OUR BUSINESS .................................................................................................................................................... 97 REGULATIONS AND POLICIES ....................................................................................................................... 114 HISTORY AND CERTAIN CORPORATE MATTERS ...................................................................................... 118 OUR SUBSIDIARY ............................................................................................................................................. 121 OUR MANAGEMENT ........................................................................................................................................ 122 PRINCIPAL SHAREHOLDERS .......................................................................................................................... 138 RELATED PARTY TRANSACTIONS ............................................................................................................... 139 DIVIDEND POLICY ............................................................................................................................................ 140

SECTION V: FINANCIAL INFORMATION ...................................................................................................... 141

FINANCIAL STATEMENTS .............................................................................................................................. 141 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS ..................................................................................................................................................... 204

SECTION VI: LEGAL AND OTHER INFORMATION .................................................................................... 223

OUTSTANDING LITIGATION AND MATERIAL DEVELOPMENTS ........................................................... 223 GOVERNMENT AND OTHER APPROVALS ................................................................................................... 228 OTHER REGULATORY AND STATUTORY DISCLOSURES ........................................................................ 231

SECTION VII: OFFER INFORMATION ............................................................................................................ 248

TERMS OF THE OFFER ..................................................................................................................................... 248 OFFER STRUCTURE .......................................................................................................................................... 251 OFFER PROCEDURE ......................................................................................................................................... 256 RESTRICTIONS ON FOREIGN OWNERSHIP OF INDIAN SECURITIES ...................................................... 293

SECTION VIII: MAIN PROVISIONS OF ARTICLES OF ASSOCIATION................................................... 294

SECTION IX: OTHER INFORMATION ............................................................................................................ 320

MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION .............................................................. 320 DECLARATION .................................................................................................................................................. 323

1

SECTION I: GENERAL

DEFINITIONS AND ABBREVIATIONS

This Red Herring Prospectus uses certain definitions and abbreviations which, unless the context otherwise

indicates or implies, shall have the meaning as provided below. References to any legislation, act, regulation,

guideline or policy shall be to such legislation, act, regulation, guideline or policy as amended from time to time.

General Terms

Term Description

“our Company”, “CARE”,

“we”, “us” or “our”

Credit Analysis and Research Limited, a company incorporated under the

Companies Act and having its Registered Office at 4th Floor, Godrej Coliseum,

Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai 400

022

Company Related Terms

Term Description

2012 Scheme Stock Option Scheme of Credit Analysis and Research Limited, 2012

Articles/Articles of Association Articles of Association of our Company, as amended

Auditor The statutory auditor of our Company, M/s Khimji Kunverji & Co., Chartered

Accountants

Board/Board of Directors The board of directors of our Company or a duly constituted committee thereof

Director(s) The director(s) of our Company

Equity Shares Equity shares of our Company of face value of Rs. 10 each fully paid-up Federal Bank The Federal Bank Limited

IDBI Bank IDBI Bank Limited (erstwhile Industrial Development Bank of India)

IL&FS IL&FS Financial Services Limited

IL&FS Trust IL&FS Trust Company Limited

ING Vysya ING Vysya Bank Limited

Kalypto CARE Kalypto Risk Technologies and Advisory Services Private Limited

Memorandum/Memorandum of

Association

Memorandum of Association of our Company, as amended

Milestone Fund Milestone Private Equity Fund

Milestone Trusteeship Milestone Trusteeship Services Private Limited

Registered Office The registered office of our Company, which is located at 4th Floor, Godrej

Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East),

Mumbai 400 022

SBI State Bank of India

Scheme The CARE Employees Stock Option Scheme, 2006

Selling Shareholders IDBI Bank, Canara Bank, SBI, IL&FS, Federal Bank, IL&FS Trust (for Equity

Shares held on behalf of Milestone Fund), Milestone Trusteeship (for Equity

Shares held on behalf of Milestone Army Trust), ING Vysya and Tata Investment

Subsidiary The subsidiary of our Company, being Kalypto

Tata Investment Tata Investment Corporation Limited

Offer Related Terms

Term Description

Allotment/Allot/Allotted The transfer of Equity Shares pursuant to the Offer to successful Bidders

Allotment Advice Note or advice or intimation of Allotment sent to the Bidders who are to be

Allotted Equity Shares after the Basis of Allotment has been approved by the

2

Term Description

Designated Stock Exchange

Allottee A successful Bidder to whom the Equity Shares are Allotted

Anchor Investor A Qualified Institutional Buyer, applying under the Anchor Investor Portion,

with a minimum Bid of Rs. 100 million

Anchor Investor Bid/Offer

Period

The day, one Working Day prior to the Bid/Offer Opening Date, on which Bids

by Anchor Investors shall be submitted and allocation to Anchor Investors shall

be completed

Anchor Investor Offer Price The final price at which Equity Shares will be transferred and Allotted to Anchor

Investors in terms of this Red Herring Prospectus and the Prospectus, which price

will be equal to or higher than the Offer Price, but not higher than the Cap Price.

The Anchor Investor Offer Price will be decided by our Company and the Selling

Shareholders in consultation with the BRLMs

Anchor Investor Portion Up to 30% of the QIB Portion which may be allocated by our Company and the

Selling Shareholders, in consultation with the BRLMs, to Anchor Investors on a

discretionary basis. One-third of the Anchor Investor Portion shall be reserved

for domestic Mutual Funds, subject to valid Bids being received from domestic

Mutual Funds at or above the price at which allocation is being done to Anchor

Investors

Application Supported by

Blocked Amount/ASBA

An application, whether physical or electronic, used by Bidders, other than

Anchor Investors, to make a Bid authorising a SCSB to block the Bid Amount in

the ASBA Account maintained with the SCSB. ASBA is mandatory for QIBs

(except Anchor Investors) and Non-Institutional Bidders participating in the

Offer

ASBA Account An account maintained with the SCSB and specified in the Bid cum Application

Form submitted by ASBA Bidder for blocking the amount mentioned in the Bid

cum Application Form

ASBA Bidder Prospective investors (except Anchor Investors) in this Offer who intend to Bid

through the ASBA process

Banker(s) to the Offer/Escrow

Collection Bank(s)

The banks which are clearing members and registered with SEBI as bankers to an

issue and with whom the Escrow Account and the Public Offer Account will be

opened, in this case being IDBI Bank, Canara Bank, SBI, Federal Bank, ING

Vysya, Kotak Mahindra Bank Limited, Axis Bank Limited, HDFC Bank Limited

and ICICI Bank Limited

Basis of Allotment The basis on which Equity Shares will be Allotted to successful Bidders under

the Offer and which is described in the section “Offer Procedure – Basis of

Allotment” on page 285 of this Red Herring Prospectus

Bid An indication to make an offer during the Bid/Offer Period by a Bidder pursuant

to submission of the Bid cum Application Form, or during the Anchor Investor

Bid/Offer Period by the Anchor Investors, to purchase the Equity Shares at a

price within the Price Band, including all revisions and modifications thereto in

terms of this Red Herring Prospectus

Bid Amount The highest value of the optional Bids indicated in the Bid cum Application Form

Bid cum Application Form The form used by a Bidder (including an ASBA Bidder) to make a Bid and which

will be considered as the application for Allotment for the purposes of this Red

Herring Prospectus and the Prospectus

Bid/Offer Closing Date Except in relation to any Bids received from Anchor Investors, the date after

which the Syndicate and the Designated Branches of the SCSBs will not accept

any Bids for the Offer, which shall be notified in all editions of English national

daily Financial Express, all editions of Hindi national daily Jansatta and Mumbai

edition of Navshakti (a Marathi newspaper), each with wide circulation

Bid/Offer Opening Date Except in relation to any Bids received from Anchor Investors, the date on which

the Syndicate and the Designated Branches of the SCSBs shall start accepting

Bids for the Offer, which shall be notified in all editions of English national daily

Financial Express, all editions of Hindi national daily Jansatta and Mumbai

3

Term Description

edition of Navshakti (a Marathi newspaper), each with wide circulation

Bid/Offer Period Except in relation to Anchor Investors, the period between the Bid/Offer Opening

Date and the Bid/Offer Closing Date, inclusive of both days, during which

prospective Bidders can submit their Bids, including any revisions thereof

Bid Lot [●]

Bidder Any prospective investor who makes a Bid pursuant to the terms of this Red

Herring Prospectus and the Bid cum Application Form

Book Building Process/Method The book building process, as provided in Schedule XI of the SEBI Regulations,

in terms of which this Offer is being made

BRLMs/Book Running Lead

Managers

The book running lead managers to the Offer, in this case being Kotak Mahindra

Capital Company Limited, DSP Merrill Lynch Limited, Edelweiss Financial

Services Limited, ICICI Securities Limited, IDBI Capital Market Services

Limited and SBI Capital Markets Limited

IDBI Capital Market Services Limited and SBI Capital Markets Limited are the

marketing lead managers and would be involved only in the marketing of the

Offer

CAN/Confirmation of

Allocation Note

Notice or intimation of allocation of Equity Shares sent to Anchor Investors, who

have been allocated Equity Shares, after the Anchor Investor Bid/Offer Period

and after discovery of the Anchor Investor Offer Price

Cap Price The higher end of the Price Band, in this case being [●], above which the Offer

Price will not be finalised and above which no Bids will be accepted

Controlling Branches Such branches of SCSBs which coordinate Bids under this Offer with the

BRLMs, the Registrar and the Stock Exchanges and a list of which is available at

http://www.sebi.gov.in/sebiweb/home/list/5/33/0/0/Recognised-Intermediaries

Cut-off Price The Offer Price, finalised by our Company and the Selling Shareholders in

consultation with the BRLMs. Only Retail Individual Bidders are entitled to Bid

at the Cut-off Price, for a Bid Amount not exceeding Rs. 200,000. QIBs and Non-Institutional Bidders are not entitled to Bid at the Cut-off Price

Designated Branches Such branches of the SCSBs which shall collect the Bid cum Application Forms

used by the ASBA Bidders and a list of which is available at

http://www.sebi.gov.in/sebiweb/home/list/5/33/0/0/Recognised-Intermediaries

Designated Date The date on which funds are transferred from the Escrow Account or the amount

blocked by the SCSBs is transferred from the ASBA Account, as the case may

be, to the Public Offer Account or the Refund Account, as appropriate

Designated Stock Exchange BSE

Draft Red Herring Prospectus

or DRHP

The Draft Red Herring Prospectus dated September 30, 2011 issued in

accordance with Section 60B of the Companies Act and the SEBI Regulations,

which did not contain complete particulars of the price at which the Equity

Shares will be offered and the size of the Offer

DSP Merrill Lynch DSP Merrill Lynch Limited

Edelweiss Edelweiss Financial Services Limited

Eligible NRI(s) NRI(s) from jurisdictions outside India where it is not unlawful to make an offer

or invitation under the Offer and in relation to whom this Red Herring Prospectus

constitutes an invitation to subscribe to or purchase the Equity Shares and who

apply in the Offer on a non-repatriation basis in accordance with Schedule 4 of

the FEMA Regulations

Eligible QFIs QFIs from such jurisdictions outside India where it is not unlawful to make an

offer or invitation under the Offer and in relation to whom this Red Herring

Prospectus constitutes an invitation to purchase the Equity Shares offered thereby

and who have opened demat accounts with SEBI registered qualified depository

participants

Engagement Letter The engagement letter dated September 30, 2011 between our Company, the

Selling Shareholders and the BRLMs

Escrow Account Account opened with the Escrow Collection Bank(s) and in whose favour the

4

Term Description

Bidders (excluding the ASBA Bidders) will issue cheques or drafts in respect of

the Bid Amount when submitting a Bid

Escrow Agreement Agreement to be entered into between our Company, the Selling Shareholders,

the Registrar to the Offer, the BRLMs, the Syndicate Members, the Escrow

Collection Bank(s) and the Refund Bank(s) for collection of the Bid Amounts

and where applicable, refunds of the amounts collected from the Bidders

(excluding the ASBA Bidders) on the terms and conditions thereof

FII(s) Foreign institutional investors as defined in, and registered with SEBI under, the

Securities and Exchange Board of India (Foreign Institutional Investors)

Regulations, 1995, as amended and participating in the Offer under Schedule 2 of

the FEMA Regulations

First Bidder The Bidder whose name appears first in the Bid cum Application Form or the

Revision Form

Floor Price The lower end of the Price Band, in this case being [●], subject to any revision

thereto, at or above which the Offer Price will be finalised and below which no

Bids will be accepted

ICICI Securities ICICI Securities Limited

IDBI Capital IDBI Capital Market Services Limited

Kotak Kotak Mahindra Capital Company Limited

Mutual Fund Portion 5% of the QIB Portion (excluding the Anchor Investor Portion), or 125,995

Equity Shares, which shall be available for allocation to Mutual Funds only

Mutual Funds A mutual fund registered with SEBI under the Securities and Exchange Board of

India (Mutual Funds) Regulations, 1996, as amended

Non-Institutional Bidders All Bidders that are not QIBs or Retail Individual Bidders and who have Bid for

Equity Shares for an amount more than Rs. 200,000 (but not including NRIs

other than Eligible NRIs and QFIs other than Eligible QFIs)

Non-Institutional Portion The portion of the Offer being not less than 15% of the Offer consisting of

1,079,955 Equity Shares, which shall be available for allocation on a

proportionate basis to Non-Institutional Bidders, subject to valid Bids being

received at or above the Offer Price

Offer/Offer for Sale The public offer of 7,199,700 Equity Shares through an offer for sale by the

Selling Shareholders for cash at a price of Rs. [●] each aggregating to Rs. [●]

million.

Offer Agreement The agreement dated September 30, 2011 between our Company, the Selling

Shareholders and the BRLMs, pursuant to which certain arrangements are agreed

to in relation to the Offer

Offer Price The final price at which Equity Shares will be Allotted in terms of this Red

Herring Prospectus. The Offer Price will be decided by our Company and the

Selling Shareholders in consultation with the BRLMs on the Pricing Date.

Provided that for the purposes of the Anchor Investors, this price shall be the

Anchor Investor Offer Price

Offer Proceeds The proceeds of the Offer

Price Band Price Band of a minimum price of Rs. [●] per Equity Share (Floor Price) and the

maximum price of Rs. [●] per Equity Share (Cap Price), including any revisions

thereof. The Price Band for the Offer will be decided by our Company and the

Selling Shareholders in consultation with the BRLMs and advertised in all

editions of English national daily Financial Express, all editions of Hindi national

daily Jansatta and Mumbai edition of Navshakti (a Marathi newspaper), each

with wide circulation, and made available on the websites of the Stock

Exchanges, at least five Working Days prior to the Bid/Offer Opening Date, with

the relevant financial ratios calculated at the Floor Price and at the Cap Price

Pricing Date The date on which our Company and the Selling Shareholders in consultation

with the BRLMs finalise the Offer Price

Prospectus The Prospectus to be filed with the RoC in accordance with section 60 of the

5

Term Description

Companies Act, containing, inter alia, the Offer Price that is determined at the

end of the Book Building Process, the size of the Offer and certain other

information

Public Offer Account Account opened with the Bankers to the Offer to receive monies from the Escrow

Account and from the bank accounts of ASBA Bidders maintained with the

SCSBs on the Designated Date

QIB Portion The portion of the Offer (including the Anchor Investor Portion) amounting to

not more than 50% of the Offer being 3,599,850 Equity Shares, which shall be

available for allocation to QIBs, including Anchor Investors

Qualified Institutional Buyers

or QIBs

Public financial institutions as specified in Section 4A of the Companies Act,

scheduled commercial banks, Mutual Funds, FIIs and sub-accounts registered

with SEBI (other than a sub-account which is a foreign corporate or foreign

individual), AIFs, VCFs, state industrial development corporations, insurance

companies registered with IRDA, provident funds with minimum corpus of Rs.

250 million, pension funds with minimum corpus of Rs. 250 million, the National

Investment Fund set up by the Government of India, insurance funds set up and

managed by army, navy or air force of the Union of India and insurance funds set

up and managed by the Department of Posts, India eligible for Bidding, and does

not include FVCIs and multilateral and bilateral institutions Qualified Purchasers or QPs Qualified Purchasers as defined in Section 2(a)(51) and related rules of the U.S.

Investment Company Act

Red Herring Prospectus or RHP This red herring prospectus dated November 24, 2012 issued in accordance with

Section 60B of the Companies Act and the SEBI Regulations, which does not

have complete particulars of the price at which the Equity Shares will be offered

and the size of the Offer. This Red Herring Prospectus, which is being registered

with the RoC at least three working days before the Bid/Offer Opening Date, will

become a Prospectus upon filing with the RoC after the Pricing Date

Refund Account(s) The account opened with the Refund Bank(s), from which refunds, if any, of the

whole or part of the Bid Amount (excluding refunds to ASBA Bidders) shall be

made

Refund Bank(s) IDBI Bank and HDFC Bank Limited

Refunds through electronic

transfer of funds

Refunds through NECS, direct credit, RTGS or NEFT, as applicable

Registrar to the Offer/Registrar Registrar to the Offer, in this case being Karvy Computershare Private Limited

Retail Individual Bidder(s) Individual Bidders who have Bid for Equity Shares for an amount not more than

Rs. 200,000 in any of the bidding options in the Offer (including HUFs applying

through their Karta and Eligible NRIs)

Retail Portion The portion of the Offer being not less than 35% of the Offer consisting of

2,519,895 Equity Shares, which shall be available for allocation to Retail

Individual Bidder(s) in accordance with the SEBI Regulations

Revision Form The form used by the Bidders (including ASBA Bidders) to modify the quantity

of Equity Shares or the Bid Amount in their Bid cum Application Forms or any

previous Revision Form(s)

QIB Bidders (including Anchor Investors) and Non-Institutional Bidders are not

permitted to lower the size of their Bid(s) (in terms of quantity of Equity Shares

or the Bid Amount) at any stage

SBI Capital Markets SBI Capital Markets Limited

Securities Act U.S. Securities Act of 1933, as amended

Self Certified Syndicate

Bank(s) or SCSB(s)

A banker to the Offer registered with SEBI, which offers the facility of ASBA

and a list of which is available at

http://www.sebi.gov.in/sebiweb/home/list/5/33/0/0/Recognised-Intermediaries

Specified Cities Cities as specified in the SEBI circular no. CIR/CFD/DIL/1/2011 dated April 29,

2011, namely, Ahmedabad, Bangalore, Baroda, Chennai, Delhi, Hyderabad,

Jaipur, Kolkata, Mumbai, Pune, Rajkot and Surat

6

Term Description

Syndicate Agreement The Agreement to be entered into amongst the Syndicate, our Company and the

Selling Shareholders in relation to the collection of Bids in this Offer

Syndicate Members Kotak Securities Limited, Edelweiss Securities Limited and SBICAP Securities

Limited

Syndicate/members of the

Syndicate

The BRLMs and the Syndicate Members

TRS/Transaction Registration

Slip

The slip or document issued by the Syndicate, or the SCSB (only on demand), as

the case may be, to the Bidder as proof of registration of the Bid

U.S. Investment Company Act U.S. Investment Company Act of 1940, as amended

U.S. Person As defined in Regulation S under the Securities Act

U.S. QIBs Qualified Institutional Buyers, as defined in Rule 144A under the Securities Act

Underwriters The BRLMs and the Syndicate Members

Underwriting Agreement The agreement amongst the Underwriters, our Company and the Selling

Shareholders to be entered into on or after the Pricing Date

Working Day Any day, other than Saturdays and Sundays, on which commercial banks in

Mumbai are open for business, provided however, for the purpose of the time

period between the Bid/Offer Closing Date and listing of the Equity Shares on

the Stock Exchanges, “Working Days” shall mean all days excluding Sundays

and bank holidays in Mumbai in accordance with the SEBI circular no.

CIR/CFD/DIL/3/2010 dated April 22, 2010

Technical/Industry Related Terms

Term Description

ACRAA Association of Credit Rating Agencies in Asia

CPS Capital protection oriented schemes

CQR Credit quality rating

CRISIL Credit Rating and Information Services of India Limited

ESCO Energy service company

ICRA ICRA Limited

IRB Approach Internal rating based approach for credit risk

MSE Micro and small enterprises

MSME Micro, small and medium enterprises

RESCO Renewable energy service company

SMEs Small and medium enterprises

SSI Small scale industries

Conventional Terms/General Terms/Abbreviations

Term Description

AIFs Alternative investment funds, as defined in, and registered with SEBI under, the

SEBI AIF Regulations

AS/Accounting Standards Accounting standards issued by ICAI

BSE BSE Limited

CAGR Compounded annual growth rate

CCI Competition Commission of India

CDS Credit default swap

CFA Chartered financial analyst

CDSL Central Depository Services (India) Limited

Consolidated FDI Policy Consolidated FDI Policy (Circular 1 of 2012) dated April 10, 2012 issued by the

Government of India, Ministry of Commerce and Industry, effective from April

10, 2012, as amended

7

Term Description

CRA Regulations Securities and Exchange Board of India (Credit Rating Agencies) Regulations,

1999, as amended

Companies Act Companies Act, 1956, as amended

Competition Act Competition Act, 2002, as amended

Depositories NSDL and CDSL

Depositories Act Depositories Act, 1996, as amended

DIN Director identification number

DP ID Depository Participant’s identification

DP/Depository Participant A depository participant, as defined under the Depositories Act

EBITDA Earnings before interest, tax, depreciation and amortization

EPS Earnings per share

FCNR Account Foreign currency non resident account

FDI Foreign direct investment

FEMA Foreign Exchange Management Act, 1999 read with rules and regulations

thereunder and amendments thereto

FEMA Regulations Foreign Exchange Management (Transfer or Issue of Security by a Person

Resident Outside India) Regulations, 2000, as amended

Financial year The period of 12 months ending March 31 of that particular year

FIPB Foreign Investment Promotion Board of the Government of India

FVCIs Foreign venture capital investors as defined in, and registered with SEBI under,

the Securities and Exchange Board of India (Foreign Venture Capital Investors)

Regulations, 2000, as amended

GIR General index register

Government Government of India

HUF Hindu Undivided Family

ICAI The Institute of Chartered Accountants of India

IFRS International Financial Reporting Standards

Income Tax Act Income Tax Act, 1961, as amended

IND-AS Indian accounting standard converged with IFRS

Indian GAAP Generally Accepted Accounting Principles in India

IOSCO International Organization of Securities Commissions

IPO Initial public offering

IRDA Insurance Regulatory and Development Authority

LIC Life Insurance Corporation of India

LLP Act Limited Liability Partnership Act, 2008, as amended

MICR Magnetic Ink Character Recognition

National Investment Fund National Investment Fund set up by resolution no. F. No. 2/3/2005-DDII dated

November 23, 2005 of the Government of India published in the Gazette of India

NECS National electronic clearing service

NEFT National electronic fund transfer

Non-Resident A person resident outside India, as defined under FEMA and includes NRIs, FIIs

registered with SEBI, QFIs and FVCIs registered with SEBI

NRE Account Non resident external account

NRI Non-resident Indian, being a person resident outside India, as defined under

FEMA and the FEMA Regulations

NRO Account Non resident ordinary account

NSDL National Securities Depository Limited

NSE The National Stock Exchange of India Limited

NSIC National Small Industries Corporation Limited

OCB/Overseas Corporate Body A company, partnership, society or other corporate body owned directly or

indirectly to the extent of at least 60% by NRIs including overseas trusts, in

which not less than 60% of beneficial interest is irrevocably held by NRIs

directly or indirectly and which was in existence on October 3, 2003 and

8

Term Description

immediately before such date had taken benefits under the general permission

granted to OCBs under FEMA. OCBs are not allowed to invest in this Offer

p.a. Per annum

P/E Ratio Price/Earnings Ratio

PAN Permanent account number

Qualified Foreign Investors or

QFIs

Non-resident investors, other than SEBI registered FIIs or sub-accounts or SEBI

registered FVCIs, who meet ‘know your client’ requirements prescribed by SEBI

and are resident in a country which is (i) a member of Financial Action Task

Force or a member of a group which is a member of Financial Action Task

Force; and (ii) a signatory to the International Organisation of Securities

Commission’s Multilateral Memorandum of Understanding or a signatory of a

bilateral memorandum of understanding with SEBI.

Provided that such non-resident investor shall not be resident in a country which

is listed in the public statements issued by Financial Action Task Force from time

to time on: (i) jurisdictions having a strategic anti-money laundering/combating

the financing of terrorism deficiencies to which counter measures apply; and (ii)

jurisdictions that have not made sufficient progress in addressing the deficiencies

or have not committed to an action plan developed with the Financial Action

Task Force to address the deficiencies

RBI The Reserve Bank of India

RoC The Registrar of Companies, Maharashtra located at Everest, 5th

Floor, 100,

Marine Drive, Mumbai 400 002

RoNW Return on net worth

Rs./Rupees Indian Rupees

RTGS Real time gross settlement

SCRR Securities Contracts (Regulation) Rules, 1957, as amended

SEBI The Securities and Exchange Board of India constituted under the SEBI Act

SEBI Act Securities and Exchange Board of India Act, 1992, as amended

SEBI AIF Regulations Securities and Exchange Board of India (Alternative Investment Funds)

Regulations, 2012

SEBI Intermediaries

Regulations

Securities and Exchange Board of India (Intermediaries) Regulations, 2008, as

amended

SEBI Merchant Bankers

Regulations

Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992,

as amended

SEBI Regulations Securities and Exchange Board of India (Issue of Capital and Disclosure

Requirements) Regulations, 2009, as amended

SEBI Takeover Regulations Securities and Exchange Board of India (Substantial Acquisition of Shares and

Takeovers) Regulations, 2011

Securities Act U.S. Securities Act, 1933, as amended

SIDC State Industrial Development Corporations

State Government The government of a state in India

Stock Exchanges The BSE and the NSE

STT Securities transaction tax

ULIP Unit linked insurance plan

U.S. /United States/USA United States of America

U.S. GAAP Generally Accepted Accounting Principles in the United States of America

USD United States Dollars

VAT Value added tax

VCFs Venture capital funds as defined in, and registered with SEBI under, the erstwhile

Securities and Exchange Board of India (Venture Capital Funds) Regulations,

1996, as amended, which have been repealed by the SEBI AIF Regulations.

In terms of the SEBI AIF Regulations, a VCF shall continue to be regulated by

9

Term Description

the Securities and Exchange Board of India (Venture Capital Funds) Regulations,

1996 till the existing fund or scheme managed by the fund is wound up, and such

VCF shall not launch any new scheme or increase the targeted corpus of a

scheme. Such VCF may seek re-registration under the SEBI AIF Regulations.

10

PRESENTATION OF FINANCIAL, INDUSTRY AND MARKET DATA

All references to “India” contained in this Red Herring Prospectus are to the Republic of India and all references to

the “U.S.” are to the United States of America.

Financial Data

Unless stated otherwise, the financial data of our Company included in this Red Herring Prospectus is derived from

the audited financial statements, prepared in accordance with Indian GAAP and the Companies Act and restated in

accordance with the SEBI Regulations. In this Red Herring Prospectus, any discrepancies in any table between the

total and the sums of the amounts listed are due to rounding off. All decimals have been rounded off to two decimal

points.

Our Company’s financial year commences on April 1 and ends on March 31 of the next year, so all references to

particular financial year, unless stated otherwise, are to the 12 months period ended on March 31 of that year.

There are significant differences between Indian GAAP, U.S. GAAP and IFRS. The reconciliation of the financial

statements to IFRS or U.S. GAAP financial statements has not been provided. Our Company has not attempted to

explain those differences or quantify their impact on the financial data included in this Red Herring Prospectus, and

it is urged that you consult your own advisors regarding such differences and their impact on our Company’s

financial data. Accordingly, the degree to which the financial statements included in this Red Herring Prospectus

will provide meaningful information is entirely dependent on the reader’s level of familiarity with Indian accounting

practices. Any reliance by persons not familiar with Indian accounting practices on the financial disclosures

presented in this Red Herring Prospectus should accordingly be limited.

Unless otherwise indicated, any percentage amounts, as set forth in the sections “Risk Factors”, “Our Business”,

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 15, 97 and 204

of this Red Herring Prospectus, respectively, and elsewhere in this Red Herring Prospectus have been calculated on

the basis of our audited financial statements (consolidated and unconsolidated) prepared in accordance with Indian

GAAP and the Companies Act and restated in accordance with the SEBI Regulations.

Currency, Units of Presentation and Exchange Rates

All references to “Rs.” or “Rupees” are to Indian Rupees, the official currency of the Republic of India. All

references to “USD” are to United States Dollars, the official currency of United States. All references to “Rufiyaa”

are to the official currency of Republic of Maldives.

Our Company has presented certain numerical information in this Red Herring Prospectus in “million” units. One

million represents 1,000,000 and one billion represents 1,000,000,000.

This Red Herring Prospectus contains conversion of certain currency amounts into Indian Rupees that have been

presented solely to comply with the requirements of the SEBI Regulations. These conversions should not be

construed as a representation that those currency amounts could have been, or can be converted into Indian Rupees,

at any particular rate.

Industry and Market Data

Unless stated otherwise, industry and market data used in this Red Herring Prospectus have been obtained or derived

from publicly available information as well as industry publications and sources. Industry publications generally

state that the information contained in those publications has been obtained from sources believed to be reliable but

that their accuracy and completeness are not guaranteed and their reliability cannot be assured. Accordingly, no

investment decision should be made on the basis of such information. Although our Company believes that industry

data used in this Red Herring Prospectus is reliable, it has not been independently verified.

The extent to which the market and industry data used in this Red Herring Prospectus is meaningful depends on the

reader’s familiarity with and understanding of the methodologies used in compiling such data. There are no standard

data gathering methodologies in the industry in which we conduct our business, and methodologies and assumptions

may vary widely among different industry sources.

11

Definitions

For definitions, see the section “Definitions and Abbreviations” on page 1 of this Red Herring Prospectus. In the

section “Main Provisions of Articles of Association” on page 294 of this Red Herring Prospectus, defined terms

have the meaning given to such terms in the Articles of Association.

12

NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED STATES

The Equity Shares have not been reviewed or recommended by any U.S. federal or state securities commission or

regulatory authority. The foregoing authorities have not confirmed the accuracy or determined the adequacy of this

Red Herring Prospectus or approved or disapproved the Equity Shares. Any representation to the contrary is a

criminal offence in the United States. In making an investment decision, investors must rely on their own

examination of our Company and the terms of the Offer, including the merits and risks involved.

Our Company has not been and will not be registered under the U.S. Investment Company Act of 1940, as amended,

and related rules and regulations thereunder (the “U.S. Investment Company Act”) and investors will not be

entitled to the benefits of the U.S. Investment Company Act. The Equity Shares have not been and will not be

registered under the Securities Act or any other applicable law of the United States and, unless so registered, may

not be offered or sold within the United States or to, or for the account or benefit of, U.S. Persons except pursuant to

an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and

applicable state securities laws. Accordingly, the Equity Shares are being offered and sold only (i) outside the

United States, to non-U.S. Persons in offshore transactions in reliance on Regulation S; and (ii) to investors within

the United States and U.S. Persons that are both (A) “qualified institutional buyers” as defined in Rule 144A and (B)

“qualified purchasers” as defined in Section 2(a)(51) and related rules of the U.S. Investment Company Act in

reliance on Section 3(c)(7) of the U.S. Investment Company Act. Prospective purchasers in the United States are

hereby notified that our Company is relying on the exemption from provisions of Section 5 of the Securities Act

provided by Rule 144A and exemptions from the U.S. Investment Company Act.

Each purchaser of Equity Shares that is located within the United States or who is a U.S. Person, or who has

acquired the Equity Shares for the account or benefit of a U.S. Person will be required to represent and agree, among

other things, that such purchaser (i) is a U.S. QIB and a Qualified Purchaser; and (ii) will only reoffer, resell, pledge

or otherwise transfer the Equity Shares in an “offshore transaction” in accordance with Rule 903 or Rule 904 of

Regulation S and under circumstances that will not require our Company to register under the Investment Company

Act, in each case in accordance with all applicable securities laws.

Each other purchaser of the Equity Shares will be required to represent and agree, among other things, that (i) such

purchaser is a non-U.S. person acquiring the Equity Shares in an “offshore transaction” in accordance with

Regulation S; and (ii) any reoffer, resale, pledge or transfer of the Equity Shares by such purchaser will not be made

to a person in the United States or to a person known by such purchaser to be a U.S. Person, in each case in

accordance with all applicable securities laws.

Investors may be required to bear the financial risk of an investment in the Equity Shares for an indefinite period.

The Equity Shares are not transferable except in compliance with the restrictions described in the section “Other

Regulatory and Statutory Disclosures” on page 231 of this Red Herring Prospectus.

NOTICE TO NEW HAMPSHIRE RESIDENTS

NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE

HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES (“RSA”)

WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY

REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A

FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED

UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR

THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A

TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE

MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,

SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY

PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH

THE PROVISIONS OF THIS PARAGRAPH.

13

NOTICE TO PROSPECTIVE INVESTORS IN THE EUROPEAN ECONOMIC AREA

This Red Herring Prospectus has been prepared on the basis that all offers of Equity Shares will be made pursuant to

an exemption under the Prospectus Directive, as implemented in Member States of the European Economic Area

(“EEA”), from the requirement to produce a prospectus for offers of Equity Shares. The expression “Prospectus

Directive” means Directive 2003/71/EC of the European Parliament and Council EC (and amendments thereto,

including the 2010 PD Amending Directive, to the extent implemented by each Member State of the European

Economic Area (each, a “Relevant Member State”)) and includes any relevant implementing measure in each

Relevant Member State. Accordingly, any person making or intending to make an offer within the EEA of Equity

Shares which are the subject of the placement contemplated in this Red Herring Prospectus should only do so in

circumstances in which no obligation arises for our Company or any of the Underwriters to produce a prospectus for

such offer. None of our Company, the Selling Shareholders or the Underwriters have authorised, nor do they

authorize, the making of any offer of Equity Shares through any financial intermediary, other than the offers made

by the Underwriters which constitute the final placement of Equity Shares contemplated in this Red Herring

Prospectus.

14

FORWARD-LOOKING STATEMENTS

This Red Herring Prospectus contains certain “forward-looking statements”. These forward-looking statements

generally can be identified by words or phrases such as “aim”, “anticipate”, “believe”, “expect”, “estimate”,

“intend”, “objective”, “plan”, “project”, “will”, “will continue”, “will pursue” or other words or phrases of similar

import. Similarly, statements that describe our Company’s strategies, objectives, plans or goals are also forward-

looking statements. All forward-looking statements are subject to risks, uncertainties and assumptions about our

Company that could cause actual results to differ materially from those contemplated by the relevant forward-

looking statement.

Actual results may differ materially from those suggested by the forward-looking statements due to risks or

uncertainties. Important factors that could cause actual results to differ materially from our Company’s expectations

include, but are not limited to, the following:

any changes in the volume of debt instruments issued and bank loans and facilities provided in the Indian debt market;

any changes in interest rates in the Indian debt markets;

general economic conditions in India and overseas, and unanticipated volatility in interest rates;

performance of financial markets in India and globally;

our inability to successfully diversify our business;

our inability to recover the annual surveillance fees for our rating business;

competition in our industry;

changes in domestic laws, regulations and taxes; and

our inability to retain our management team, rating committee members and skilled personnel.

For further discussion of factors that could cause the actual results to differ from the expectations, see the sections

“Risk Factors”, “Our Business” and “Management’s Discussion and Analysis of Financial Condition and Results of

Operations” on pages 15, 97 and 204 of this Red Herring Prospectus, respectively. By their nature, certain market

risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a

result, actual gains or losses could materially differ from those that have been estimated.

Forward-looking statements reflect the current views as of the date of this Red Herring Prospectus and are not a

guarantee of future performance. These statements are based on the management’s beliefs and assumptions, which

in turn are based on currently available information. Although our Company believes the assumptions upon which

these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate,

and the forward-looking statements based on these assumptions could be incorrect. None of our Company, the

Directors, the Selling Shareholders, the BRLMs, the Syndicate Members, or any of their respective affiliates have

any obligation to update or otherwise revise any statements reflecting circumstances arising after the date hereof or

to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition. Our

Company and the Selling Shareholders will ensure that investors in India are informed of material developments

until the time of the grant of listing and trading permission by the Stock Exchanges.

15

SECTION II: RISK FACTORS

An investment in the Equity Shares involves a high degree of risk. The risks and uncertainties described below

together with the other information contained in this Red Herring Prospectus should be carefully considered before

making an investment decision in our Equity Shares. The risks described below are not the only ones relevant to the

country, the industry in which our Company operates, our Company or our Equity Shares. Additional risks, not

presently known to our Company or that we currently deem immaterial, may also impair our business and

operations. To obtain a complete understanding of our Company, prospective investors should read this section in

conjunction with the sections “Our Business” and “Management’s Discussion and Analysis of Financial Condition

and Results of Operations” on pages 97 and 204 of this Red Herring Prospectus, respectively, as well as the other

financial and statistical information contained in this Red Herring Prospectus. If any of the risks described below,

or other risks that are not currently known or are now deemed immaterial, actually occur, our business, prospects,

financial condition and results of operations could be seriously harmed, the trading price of our Equity Shares

could decline, and prospective investors may lose all or part of their investment. Prospective investors should

consult their tax, financial and legal advisors about the particular consequences of an investment in this Offer.

This Red Herring Prospectus also contains forward-looking statements that involve risk and uncertainties. Our

Company’s actual results could differ materially from those anticipated in these forward-looking statements as a

result of certain factors, including the considerations described below and elsewhere in this Red Herring

Prospectus. See the section “Forward-Looking Statements” on page 14 of this Red Herring Prospectus.

Unless specified or quantified in the relevant risk factors below, we are not in a position to quantify the financial or

other implication of any of the risks described in this section. Unless otherwise stated, the financial information

used in this section is derived from the restated audited financial statements of our Company.

Internal Risk Factors and Risks Relating to our Business

1. Our business and revenues are impacted by changes in the volume of debt instruments issued and bank loans and facilities provided in the Indian debt market. Any reduction in such volumes may adversely

affect our business, results of operations and financial performance.

We are primarily engaged in the business of providing credit rating services. During the financial years

ended March 31, 2010, 2011 and 2012, 89.3%, 96.0% and 86.4%, respectively, of our unconsolidated total

income was on account of our rating services; and during the financial year ended March 31, 2012 and the

six months ended September 30, 2012, 85.8% and 86.4%, respectively, of our consolidated total income

was on account of our rating services. The balance of our consolidated total income was primarily from

investment income during such periods. Demand for our debt rating services is primarily linked to the

issuance of debt instruments and the provision of bank loans and facilities in the Indian debt market.

Unfavorable financial or economic conditions in India, which either reduce investor demand for debt

instruments or bank loans or facilities or reduce the issuers’ willingness and ability to issue debt

instruments or avail themselves of bank loans or facilities, could reduce the issuance of debt instruments or

the demand for bank loans and facilities in India for which we provide rating services. During the financial

year 2012, we experienced a decrease in the average size of debt facilities rated by us.

Further, investor preference in the domestic bond market is restricted to higher category ratings. This may

continue to constrain the volume of issuance of bonds in the Indian market. Currently, accessing the

overseas debt market by Indian borrowers and issuers is regulated, which includes end-use restrictions of

such borrowings. Any change in such regulatory regime, which liberalizes accessing overseas markets for

raising debt funds, may adversely impact issuance of debt instruments in the domestic market. In the event

there is a reduction in the level of debt instruments issued in India, the results of our operations and our

financial condition, business prospects and revenues may be adversely affected.

2. Our business and revenues may be adversely impacted by changes in interest rates in the Indian debt markets.

Our Company’s revenues and financial condition are primarily linked to the demand for rating services in

the Indian debt market. Any increase in interest rates and credit spreads may negatively impact the issuance

16

of debt instruments or demand for bank loans or facilities for which we provide rating services. Interest

rates are highly sensitive to many factors beyond our control, including the monetary policies of the RBI,

inflation, deregulation of the financial sector in India, domestic and international economic and political

conditions and other factors. Due to these factors, interest rates in India have historically experienced a

relatively high degree of volatility. Since March 2010, the RBI has attempted to manage inflation by

continuously raising key interest rates. The RBI increased the repo rate 13 times from March 2010 to

October 25, 2011 from 4.75% to 8.50%. The total volume of debt we rated (excluding bank facilities and

others) decreased by 13.6% to Rs. 2,480,400 million in the financial year ended March 31, 2012 from Rs.

2,870,160 million in the financial year 2011. A sustained continuation of higher interest rates could impact

growth rates, investment demand and capital expenditure, which may impact the issuance of debt

instruments or the demand for bank loans or facilities, and, as a result, impact the demand for our rating

services. As a result, our results of operations, financial condition, business prospects and revenues may be

adversely affected.

3. If the current global economic downturn reduces the volume of debt instruments issued or bank loans and facilities provided in the Indian debt market, our business and results of operations could be

adversely affected.

The current downturn in global economies has led to a decrease in investor confidence, decreased market

valuations and liquidity, increased market volatility and a widespread reduction of business activity

generally. Credit market disruptions, together with an economic slowdown, have negatively impacted the

volume of debt instruments issued in global debt markets and the demand for bank loan or facility

financing. In addition, market volatility has increased in the past year as a result of the European sovereign

debt crisis, and the resulting economic turmoil may worsen industry conditions or have other unforeseen

consequences, leading to uncertainty about future industry conditions. There can be no assurance that

government responses to the disruptions in the financial markets will restore consumer confidence, stabilize

the markets or increase liquidity and the availability of credit.

Further, the rapid deterioration of the mortgage markets in the United States and Europe starting in 2008

was followed by global economic turmoil, which also affected the Indian economy as a whole. These and

other related events, such as the collapse of a number of financial institutions, have had and continue to

have a significant adverse impact on the availability of credit and confidence in the financial markets

globally, as well as in India. There can be no assurance that current market conditions will not deteriorate

again to such an extent, which may have an adverse impact on our business, results of operations and

financial results.

The timing, nature, extent and sustainability of any recovery in the global credit and other financial markets

remain uncertain and there can be no assurance that overall market conditions will improve in the future. A

sustained period of market decline or weakness, especially if it relates to the domestic debt market, could

have an adverse effect on our business and financial results. Other factors that could further reduce investor

demand for debt instruments or factors that could reduce issuers’ willingness or ability to issue such

securities include increases in interest rates or credit spreads, continued volatility in the financial markets or

the interest rate environment, significant regulatory, political or economic events, foreign exchange

fluctuations, the use of alternative sources of credit, including financial institutions and government

sources, defaults of significant issuers and other unfavorable market and economic conditions, both

domestically and globally. These factors could further reduce borrowers’ demand for bank loans or

facilities, as well. Continuation or worsening of the global downturn or general economic conditions may

have an adverse effect on our business, liquidity and results of operations.

4. Our business is concentrated in the rating of debt instruments and bank loans and facilities; if we are not able to diversify our business, our financial condition and results of operations may be adversely

affected.

We are primarily engaged in the business of providing rating services for debt instruments and bank loans

and facilities in the Indian debt market. During the financial years ended March 31, 2010, 2011 and 2012,

89.3%, 96.0% and 86.4%, respectively, of our unconsolidated total income was on account of our rating

services; and during the financial year ended March 31, 2012 and the six months ended September 30,

17

2012, 85.8% and 86.4%, respectively, of our consolidated total income was on account of our rating

services. The balance of our consolidated total income was primarily from investment income during such

periods. We intend to diversify our ratings business by expanding our income generating pool of products,

developing our business in markets outside of India and growing our research business. For example, we

have launched new products, such as the SME rating, the MSE rating, Edu-grade, Equi-grade, Real Estate

Star Ratings and valuation of market linked debentures, in order to expand our pool of products; we have

expanded our ratings business into the Republic of Maldives and we intend to expand our ratings business

in other countries, including Nepal and Mauritius, and we provide technical assistance to Summa Ratings

S.A., Ecuador with respect to providing credit ratings, among other services. In order to grow our research

business, we are actively targeting financial intermediaries, corporate, analysts and policy makers to market

our research products and increase awareness of our research reports and capabilities, among other efforts.

In addition, we have acquired a 75.1% equity interest in Kalypto, a firm providing risk management

software solutions, and we are exploring opportunities on an exclusive basis with Riskmap Consulting

Limited, a Nigerian risk management consulting company to provide risk management solutions and

training in risk management practices to banks and financial institutions in Nigeria. We have also entered

into a non-binding memorandum of understanding with four credit rating agencies, each located in Brazil,

Portugal, Malaysia and South Africa, to establish an international credit rating agency, which would

provide international scale ratings to assist local issuers in mobilizing resources from international financial

markets. Pursuant to our agreements with foreign credit rating agencies, in relation to our ongoing

diversification initiatives, we may be precluded from entering into joint ventures or other tie-ups in

countries where such foreign rating agencies operate.

Our diversification efforts involve several risks and may lead to losses or lower returns from such activities.

For instance, expansion of our network for SME and MSE ratings (which are for ratings to small and

medium enterprises and small-scale industries, respectively) involves lower margins as compared to

providing rating services to debt instruments and for bank loans and facilities. This is primarily on account

of comparatively lower ticket size and consequently lower revenue per customer. This, coupled with costs

associated with setting up this new business has led to a reduction in our operating margins for the financial

years 2011 and 2012 (which, for the financial year 2012 was partially offset by an increase in investment

income), and consequently affected our results of operations. Our unconsolidated profit after tax margin

was 56.4%, 51.1% and 53.3% for the financial years 2010, 2011 and 2012, respectively; and our

consolidated profit after tax margin was 52.9% for the financial year 2012. If we are unable to successfully

diversify our business, we will continue to depend primarily on the business of providing rating services for

debt instruments and bank loans and facilities to generate a substantial part of our income, and any adverse

movement in our rating services business may adversely impact our business prospects, financial condition

and results of operations.

5. If the banks whose clients avail credit rating services under the Basel II framework migrate to the internal rating based approach for credit risk (the “IRB Approach”), it could have an adverse effect on

our rating business, which may in turn have an adverse effect on our business, financial condition,

results of operations and revenues.

RBI has pursuant to a circular dated July 7, 2009 advised banks that they may apply for migration to an

“internal rating based” approach for measuring credit risk from April 1, 2012 onwards. The IRB Approach

will allow the banks, subject to the approval of RBI and fulfilling certain requirements, as may be

applicable, to use their own internal estimates for some or all of the credit risk components in determining

the capital requirement for a given credit exposure. RBI has pursuant to a circular dated December 22, 2011

(the “Circular”) issued guidelines for computing the credit risk capital charge under the IRB Approach. As

per the timeframe specified for implementation of the IRB Approach as set forth in the Circular, RBI may,

subject to an 18 months detailed analysis of the applicant bank, commence grant of approvals by March 31,

2014. For further details, see “Regulations and Policies - Internal rating based approach for banks” on page

115 of this Red Herring Prospectus. Our income from bank facilities (Basel II) instruments comprises of

initial rating income, as well as annual surveillance income. Initial rating income received from such

instruments for the financial years 2010, 2011 and 2012 was Rs. 410.54 million, Rs. 467.04 million and Rs.

445.73 million, respectively, which constituted 30.2%, 28.3% and 23.7%, respectively, of our

unconsolidated total rating income for such periods, and initial rating income received from such

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instruments for the six months ended September 30, 2012 was Rs. 184.77 million, which constituted 20.6%

of our consolidated total rating income for such period. In the event that banks whose clients avail credit

services from us apply for, and receive, approval from RBI to adopt the IRB Approach, it could have an

adverse effect on our rating business, which may in turn have an adverse effect on our business, financial

condition, results of operations and revenues.

6. We may not be able to recover the annual surveillance fees for our rating business.

As the rating of debt instruments and bank loans and facilities which are accepted and used by our clients

must remain under surveillance until the entire debt is repaid, we continue to charge an annual surveillance

fee over the lifetime of the debt instrument or bank loan or facility, which provides us with annuitized

revenue. From the financial year 2012 onward, we recognize as income a portion of the surveillance fee

commensurate with the efforts involved on the date of the surveillance activity, while the balance of the

surveillance fee is recorded equally over the 12 months surveillance period commencing one year after the

date the rating is assigned. There have been instances in the past when clients have not paid all or part of

the annual surveillance fees. In accordance with the accounting policies adopted by the Company,

surveillance fees not received at the end of the second financial year after the financial year in which the

fees were booked are considered as bad debt. Bad debts written off for the financial years 2010, 2011 and

2012 and provisions for bad debts made for the six months ended September 30, 2012 in respect of

surveillance fees were Rs. 0.11 million, Rs. 0.36 million, Rs. 1.00 million and Rs. 1.00 million,

respectively. We cannot assure you that we will be able to recover part or all of the surveillance fees in the

future and failure to recover such fees may adversely affect our revenues, results of operations and financial

condition.

7. Competition may affect market share or profitability which could have an adverse effect on our business, financial condition and revenues.

The credit rating and financial services markets are constantly evolving and the market for such services is

becoming increasingly competitive. We compete with our competitors on the basis of investor and market

acceptance, sector-specific knowledge, methodologies, quality of products and client service. Our

competitors and other financial services companies may introduce new products and services and

sophisticated technological advancements to anticipate client requirements and provide innovative

solutions to clients. Our competitors may also adapt to the introduction of new financial instruments faster

than we are able to, which may result in a loss of ratings business or clients for us. Some of our competitors

are subsidiaries of, or otherwise related to, international rating agencies, which may provide them with a

competitive advantage in terms of reputation, expertise and access to technology. Additionally, we have

faced, and may in the future face, increased pricing pressure from our competitors. If our pricing and

services are not sufficiently competitive with our current and future competitors, we may lose market share.

We may also compete with new rating agencies that enter the market in the future, as well as rating

agencies in new markets that we enter.

As a part of our efforts to compete effectively, we have adopted a fixed fee cap model for certain clients for

a particular duration of time. Once the fee cap is exhausted, we are, as part of our terms of engagement with

such clients, restricted from charging them any additional fees for additional debt issuances or bank loans

or facilities availed for the duration of the period agreed. If we are unable to negotiate fee caps with these

clients at appropriate levels and if we exhaust the fee cap, we will be required to continue to perform our

services in accordance with the terms agreed with such clients for no additional fees. If this occurs with a

large number of clients, our business, results of operations and profitability could be adversely affected.

8. Any damage to the trust and confidence that our Company’s clients have in us, which is largely dependent on our brand recognition and reputation, may adversely affect our business, financial

performance and results of operations.

Our Company’s business is largely dependent on our brand recognition and reputation. To the extent that

the rating agency business as a whole has suffered a loss in credibility in the course of the credit crisis in

recent times, or may lose credibility in the future, our business could be adversely affected. Factors that

may have already affected credibility of the ratings industry globally include the appearance of a conflict of

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interest, the timing and nature of changes in ratings, adverse publicity as to the rating process and

compliance failures. In this regard, prominent investment grade defaults or failure to accurately assess the

credit worthiness of instruments rated by us could result in the erosion of investor confidence in our

services and could negatively affect our brand and reputation, which would adversely affect our business,

operations and financial condition.

In addition, rating agencies in other countries, particularly the United States, are currently facing a greater

amount of litigation than has historically been the case from parties claiming damages relating to ratings

actions, as well as other related business practices. Due to the difficult economic times and turbulent

markets over the last several years, the market value of credit-dependent instruments has declined and

defaults have increased, significantly increasing the number of legal proceedings and investigations

involving international rating agencies.

A proceeding alleging negligence on the part of our Company, in relation to a certain rating issued by us, is

currently pending. For details of such pending proceeding, see “Outstanding Litigation and Material

Developments” on page 223 of this Red Herring Prospectus. We cannot assure you that no such

proceedings shall be filed against us in the future. Any adverse outcome of such proceedings may have an

adverse effect on our reputation or may require us to pay damages or penalties. Further, if any proceedings

are initiated against our Company in relation to investor grievance, our reputation may be damaged and we

may not have sufficient insurance to cover costs arising out of such litigation or proceedings. Any damage

to our reputation may adversely affect our business, future financial performance and results of operations.

9. Significant security breaches, breakdowns in our computer systems and network infrastructure, or fraud could adversely impact our business.

Physical or electronic break-ins, security breaches, other disruptive problems caused by our increased use

of the internet and computer systems could affect the security of confidential information stored in and

transmitted through our systems and network infrastructure. We seek to protect our computer systems and

network infrastructure from physical break-ins, as well as security breaches and other disruptive problems.

Computer break-ins and power disruptions could affect the security of confidential information stored in

and transmitted through these computer systems and networks. These concerns will intensify with the

increased use of technology and internet-based resources. To address these issues and to minimize the risk

of security breaches we employ security systems, including firewalls and intrusion detection systems,

conduct periodic penetration testing for identification and assessment of potential vulnerabilities and use

encryption technology for transmitting and storing critical data. However, these systems may not guarantee

prevention of break-ins, damage and failure in our computer systems and network infrastructure. A

significant failure in security or back-up measures could have an adverse effect on our business, future

financial performance and results of operations.

Although we have taken measures to safeguard against system-related and other fraud, and we have not

experienced fraudulent acts against us in the past, there can be no assurance that we would be able to

prevent fraud or other breaches of confidentiality with respect to our clients. Our growth and expansion to

new product lines may create additional challenges with respect to managing the risk of fraud due to the

increased complexities in our business and geographical dispersion. Our reputation could be adversely

affected by fraud or breach in confidentiality that we owe towards our clients committed by employees,

clients or third parties.

10. We are dependent on the expertise of our management team, rating committee members and skilled personnel, and our business, results of operations and financial condition may be adversely impacted by

the departure of any members of our management team, rating committees or any skilled personnel.

Further, we do not have any keyman insurance policy.

Our performance and success depends largely on our ability to retain the continued service of our

management team, rating committee members and skilled personnel who can perform functions such as

sophisticated credit and financial analysis. We also face a continuing challenge to recruit a sufficient

number of suitably skilled personnel, particularly as we continue to grow. There is significant competition

for management and other skilled personnel in the financial services industry in which we operate, and it

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may be difficult to attract and retain the personnel we require in the future. Further, we do not have a

keyman insurance policy to cover for the loss of skilled personnel.

We have experienced high employee attrition rates in the past. Our attrition levels may add to increasing

personnel expenditures. Further, our competitors and other financial ser