Moody’s assigns stable outlook for India Inc except Telecom

15 Dec 2017 Evaluate

With India Inc growing at a rapid pace, global credit rating agency Moody’s Investors Services has assigned a largely stable outlook for non-financial corporates in the country. However, it has assigned a negative outlook for telecom sector, and said that intense competition and heavy debt loads continue to pressure cash flows over the next 12-18 months. Besides, it has stable outlooks for car-makers, and companies in the construction, cement, and textiles sectors, but a negative outlook on the real estate sector.

The US-based agency has stated that its stable outlook is underpinned by the expectation that Gross domestic product (GDP) growth of around 7.6 percent will result in higher sales volumes, which along with new production capacity and stabilising commodity prices, will support pre-tax profit growth of 5-6 percent over the next 12-18 months. It also believed that further simplification of Goods and Services Tax (GST) and other structural reforms or improved commodity prices can result in higher operational profit growth, and provide means for deleveraging for some corporates. Besides, the agency has a stable outlook for exploration and production companies, reflecting expectations of stable production volume, low subsidy burdens and stable oil prices. For refining and marketing, the credit rating agency's stable outlook is based on the consideration that capacity additions and higher refining margins will increase earnings, even as marketing margins stay stable. It pointed out that while high dividend payments remain a concern, if GST net is widened to petroleum products, it would be a credit positive for the sector.

Maintaining a stable outlook for base metals, Moody’s sees improved fundamentals and improving supply side in certain metals supporting stable prices over the next 12-18 months. It also expects base metal pricing premiums to narrow, although higher production from capacity additions and cost rationalization measures will drive earnings expansion. Adding further, it said that the stable outlook on IT services incorporates the expectation that domestic companies will remain in the forefront in offering IT services to the Western economies, weighed against some of the global challenges, especially in terms of H1B visas and the fast-pace of technology changes that will require investments or acquisitions.

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