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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: [email protected]; 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: [email protected] Grievance Email:[email protected]: 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: [email protected] Grievance Email: [email protected]: 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: [email protected] Grievance Email: [email protected]: 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: [email protected] Grievance Email : [email protected]: 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: [email protected] Grievance Email: [email protected]: 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: [email protected] Grievance Email: [email protected]: 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:[email protected] Grievance Email: [email protected]: 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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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,
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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