2 Undervalued Credit Rating Agency Stocks Trading Below Fair Value

Credit rating agency sector PE near 33.7. ICRA trades at 24.1x. CARE Ratings at 27.8x. Both are debt free with high ROE.

India’s credit rating industry has benefited from steady growth in corporate bond issuance and bank credit over the past few years, a business model that requires little capital and generates strong free cash flow. Not every stock in the space carries the same rich multiple. A screen of listed credit rating agency stocks against the sector’s average price to earnings ratio surfaces two names still priced below that benchmark.

ICRA and CARE Ratings both currently trade below the broader credit rating industry PE, despite maintaining high return on equity and debt free balance sheets. This piece breaks down why each stock screens as undervalued, what the underlying financials show, and the risks that come with owning credit rating businesses.

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Why These Credit Rating Agency Stocks Screen as Undervalued

The credit rating industry currently carries an average price to earnings ratio of close to 33.7 times trailing earnings among the three major listed players in this space. A stock trading meaningfully below that average, while still posting high return on equity and carrying no debt, is a reasonable starting point for a relative valuation screen.

Both companies below clear that bar, a combination not always available among credit rating agency stocks given how asset light and cash generative this business model tends to be across the sector.

The table below lists these two companies alongside their current price, valuation multiple and return ratios.

Company	NSE Ticker	CMP (Rs)	PE Ratio	Sector PE	ROE	Market Cap (Rs Cr)
ICRA	ICRA	4,864.30	24.13	33.74	15.37%	4,735
CARE Ratings	CARERATING	1,669.10	27.76	33.74	18.36%	5,003

ICRA: Widest Discount to the Sector

ICRA provides credit ratings, research and risk assessment services across corporate, financial sector and structured finance clients. The stock trades at a price to earnings ratio of 24.13, the wider discount to the sector average of 33.74 between these two credit rating agency stocks, at a current price of around Rs 4,864.

Return on equity of 15.37 percent is supported by a debt to equity ratio of just 0.02. On an EPS of Rs 203.32 and book value of Rs 1,223.41, the price to book multiple works out to 4.01, alongside a dividend yield of 2.14 percent, the higher of the two credit rating agency stocks in this list.

CARE Ratings: Higher ROE, Smaller Discount

CARE Ratings offers credit rating services across debt instruments, bank loans and structured finance products for corporate and financial sector clients. Its price to earnings ratio of 27.76 sits closer to the sector average of 33.74 than ICRA, at a current share price of around Rs 1,669.

Return on equity of 18.36 percent is the highest of the two names, and the debt to equity ratio of 0.03 keeps the balance sheet essentially debt free. On an EPS of Rs 59.88 and book value of Rs 309.82, the price to book multiple works out to 5.37.

Valuation Snapshot: PE, PB and Dividend Yield

Beyond the headline price to earnings ratio, book value multiples and dividend yield add useful context for these two companies. CARE Ratings commands a richer price to book multiple on the strength of its higher return on equity, while ICRA offers a wider earnings based discount and a higher dividend yield.

Company	Price to Book	Book Value (Rs)	Dividend Yield	Debt to Equity
ICRA	4.01	1,223.41	2.14%	0.02
CARE Ratings	5.37	309.82	1.32%	0.03

Both companies carry negligible debt, a common trait for asset light rating businesses with limited capital expenditure needs. ICRA pays a meaningfully higher dividend yield, while CARE Ratings compounds capital internally at a somewhat higher return on equity.

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Risks to Consider Before Buying These Credit Rating Agency Stocks

A discount to the sector average price to earnings ratio does not remove company specific risk for credit rating agency stocks tied closely to bond market activity and regulatory oversight.

Bond Issuance Cyclicality

Rating fee income depends heavily on the volume of corporate bond issuance and bank loan ratings. A slowdown in credit growth or capital market activity can directly reduce revenue.

Regulatory Scrutiny

Credit rating agencies operate under close regulatory oversight from SEBI and other authorities, and any rating accuracy controversies or regulatory action can affect reputation and client relationships.

Pricing Competition

With only a small number of major rating agencies operating in India, competitive pricing pressure on rating fees can weigh on margins during periods of slower issuance activity.

Concentration in Corporate Credit Cycles

Both companies are exposed to the broader health of corporate balance sheets, and a rise in defaults or credit stress across rated entities can indirectly affect business volumes and reputation.

How to Track These Credit Rating Agency Stocks

Investors evaluating these two names should track quarterly bond issuance volumes, bank credit growth data, and how the sector average PE moves relative to each company’s own multiple over time, rather than relying on the valuation gap in isolation. Comparing these numbers regularly is the most reliable way to judge whether the discount to fair value remains intact or has already closed.

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Conclusion

ICRA and CARE Ratings are the two credit rating agency stocks currently trading below the sector’s average price to earnings ratio of close to 33.7 times, while both maintain high return on equity and debt free balance sheets. That combination makes them worth a closer look for investors who already want exposure to India’s capital market and credit growth theme, though bond issuance cyclicality and regulatory scrutiny mean position sizing and diversification still matter when adding these names to a portfolio.

FAQs on Undervalued Credit Rating Agency Stocks

Which credit rating agency stocks are trading below the sector average PE?

Ans. ICRA and CARE Ratings are currently trading below the credit rating sector’s average price to earnings ratio of close to 33.7 times, based on live NSE and BSE pricing.

Is ICRA undervalued compared to its sector?

Ans. ICRA trades at a price to earnings ratio of 24.13, the wider discount to the sector average of 33.74 among these two names, while delivering a return on equity of 15.37 percent.

Why does CARE Ratings have a higher return on equity than ICRA?

Ans. CARE Ratings’ return on equity of 18.36 percent, higher than ICRA’s 15.37 percent, reflects its efficient capital structure, even though its price to earnings ratio of 27.76 represents a smaller discount to the sector average of 33.74.

What is the market capitalisation of CARE Ratings?

Ans. CARE Ratings has a market capitalisation of around Rs 5,003 crore, with a price to earnings ratio of 27.76 against the sector average of 33.74.

Are these credit rating agency stocks debt free?

Ans. Both ICRA and CARE Ratings are essentially debt free, with debt to equity ratios of 0.02 and 0.03 respectively.

What are the main risks in undervalued credit rating agency stocks?

Ans. The main risks include cyclicality tied to bond issuance and bank credit growth, regulatory scrutiny from SEBI, pricing competition among a small number of rating agencies, and exposure to broader corporate credit stress.

Is a low PE enough reason to buy a credit rating agency stock?

Ans. A price to earnings ratio below the sector average is a useful starting screen for credit rating agency stocks but not a standalone buy signal. Investors should also review issuance volume trends, client diversification and regulatory standing before investing.