Indian companies to see improved credit profile in 2018: Moody’s

23 Nov 2017 Evaluate

Days after upgrading India’s sovereign rating to Baa2 from Baa3 with a stable outlook, global credit rating agency Moody's Investors Services in its latest report has stated that Indian companies will see an improvement in its credit profile in the year 2018, on the back of better sales as it expects Goods and Services Tax (GST)-related activity disruption to diminish, leading to an all over recovery in economic activities. Besides, it noted that refinancing needs in 2018 would be manageable for most companies, given their improving access to capital markets and their large cash balances. It also said that corporates’ cross-border bond maturities will also be manageable for the next three years.

The rating agency in its report titled ‘Non-financial corporates—India, 2018 Outlook’ expects that the country’s Gross domestic product (GDP) growth of around 7.6 percent will result in higher sales volumes, which, along with new production capacities and benign commodity prices, will support an EBITDA (earnings before interest, taxes, depreciation and amortisation) growth of 5-6 percent over next 12 to 18 months. Adding further, it said that a further simplification of GST and other structural reforms, or an improvement in commodity prices, resulting in higher operating profit could further improve companies’ credit profiles. Apart from this, it noted that an improvement in asset valuations, providing a means of deleveraging for some corporates will also result in improvement in their credit profiles.

However, the report warned that downside risks could include GDP growth falling below 6 percent and weakening of commodity prices, resulting in lower pre-tax growth. It also warned that slowdown in pace of reforms, political uncertainty, higher interest rates brought on by rising inflation and exchange-rate volatility, resulting in a tight funding environment may also impact firms’ credit profiles. The agency has stable outlook for oil companies, real estate, auto and auto suppliers and IT services. But, it is negative on the telecom sector as it expects the increasing competition to continue to pressure revenue and margins over the next 12 months, while industry consolidation will result in the emergence of three big players.

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