Global rating agency, Moody’s Investors Service in its latest report has said that leverage levels for non-financial Indian companies will improve modestly in the financial year 2019, aided by higher revenue and earnings growth. It noted that revenue for such companies will rise 10 percent, while EBITDA will increase 8 percent in FY19. It added that these companies reported strong financial results for FY18, with revenue and EBITDA increasing 13 percent and 12 percent, respectively.
According to the report, strong demand and production efficiencies will help the companies preserve their profitability against the backdrop of increasing commodity prices and aggregate leverage for rated companies will fall modestly in FY19. It also said that the acquisitions and capital spending financed by debt will cause the debt levels of its rated companies to rise by 5 percent in fiscal 2019. However, it stated that leverage for the telecommunications sector will remain elevated on relentless competition, which will in turn hurt the companies’ profitability.
The rating agency further said that metals and mining companies are taking on more debt to fund capital spending and acquisitions, prompting a spike in leverage. It said that high commodity prices will benefit the metals and mining, and oil and gas sectors, but are negative for end-user industries such as the auto, chemicals and real-estate sectors unless they can pass on the cash burden on to the customers. Adding further, it said that tightening regulations and trade tariffs globally will strain export-oriented sectors such as IT services and auto, but the weakening rupee will somewhat mute this impact.