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Indian corporates to log strong profit growth in 2017: Moody’s

22 Nov 2016 Evaluate

Global rating agency, Moody's Investors Service in its latest report, on non-financial corporate, has stated that Indian corporate sector is expected to log healthy profit growth in 2017 on the back of sustained economic growth, capacity additions and higher commodity prices. However, it also cautioned that downside risks to this projection stem from GDP growth falling below 6% and/or weakening of commodity prices resulting in lower EBITDA growth. The report said that this projection for corporates is based on expectation of India clocking a GDP growth of 7.5%. Also, the commissioning of new production capacities and stabilising commodity prices will support EBITDA growth of 6-12% over the next 12 to 18 months.

Moody’s said that refinancing needs in 2017 will be manageable for most corporates, given their better access to capital markets and large cash balances. According to Moody's, the upside for Indian corporate sector was the implementation of the Goods and Services Tax (GST), structural reforms and improvement in commodity prices. An improvement in valuation of assets would provide de-leveraging opportunity to corporates. On other hand, it said that downside risk, with regard to telecom companies stems from intensifying competition as it could lead to lower earnings growth or increase in capex for some sectors. Besides, large debt-funded acquisitions or capacity additions that will result in weaker credit metrics could lead to downside. Also, higher interest rates brought on by rising inflation and/or exchange-rate volatility, resulting in a tight funding environment could act as downside risk.

Recently, Moody’s had affirmed India’s sovereign rating at ‘Baa3’ with a positive outlook, saying it expected policymakers to continue reforms to achieve balanced growth and reduce the government’s debt load. It had said that the positive outlook denotes Moody’s expectation that, over time, India’s credit metrics will likely shift to levels consistent with a ‘Baa2’ rating.


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