Demand improvement, deleveragingby firms, govt’s relief measures help
The credit quality of India Inc improved sharply in the second half of FY22 on better demand, deleveraging by firms, and government relief measures, according to multiple rating agencies.
Crisil Ratings’ credit ratio (upgrades to downgrades) increased to 5.04 times in the second half of 2021-22 from 2.96 in the first half. This underscored the continuing improvement in the performance of India Inc, the agency said on Friday.
There were 569 upgrades and 113 downgrades in the second half of the fiscal. The upgrade rate increased to 15.4 per cent in the second half from 12.5 per cent in the first, while the downgrade rate declined to 3.1 per cent from 4.2 per cent in the same period.
“The performance comes on the back of a sustained improvement in demand (that lifted revenues of most sectors to their pre-pandemic levels), secular deleveraging by debt issuers (seen over the past few fiscal years and through the pandemic years), and proactive relief measures by the government (that cushioned the pandemic blow),” Crisil said.
The agency’s outlook on credit quality remains ‘positive’, with upgrades expected to outnumber downgrades in FY23, too.
Downside risk ebbing: ICRA
Ratings agency ICRA, too, said India Inc’s credit quality had rebounded smartly in 2021-22. “As businesses and policymakers adapted to the challenges, and as the economic repair-work progressed, the incremental downside credit risks ebbed in the last fiscal,” it said.
At 184 entities, ICRA’s downgrade rate was a mere 6 per cent, substantially lower than the high of 13 per cent seen in 2019-20 and the past 10-year average of 9 per cent.
In contrast, the upgrade rate of 19 per cent (561 entities), stood at a multi-year high compared to the past 10-year average of 11 per cent, ICRA said. Sectors such as ferrous metals, chemicals, power, pharmaceuticals and real estate, textiles had a high upgrade rate.
According to corporate watchers, even by other barometers, firms are on the mend. “India Inc is coming out of the pandemic. Corporate sector’s credit profile has improved, as seen from the interest cover for most sectors. Profitability has improved due to lower costs and a favourable interest rate regime,” said Madan Sabnavis, Chief Economist, Bank of Baroda.
Trend reversal: Ind-Ra
According to India Ratings and Research, the corporate credit profile was at its strongest in 2021-22. The agency’s corporate downgrade-to-upgrade ratio hit a decadal low of 0.3 compared to 1.4 in 2020-21.
“This marks a reversal of the trend of the past three years, when downgrades had exceeded upgrades,” it said.
CareEdge Ratings clocked a decadal high credit ratio of 2.64 times in the second half of 2021-22, which it said points to a positive credit outlook. In the second half, the agency upgraded ratings of 468 entities and downgraded 177.
Ukraine conflict effect
Crisil, however, cautioned that the ongoing Russia-Ukraine conflict and the consequent surge in commodity prices can turn some sectors vulnerable to supply-side challenges.
“Oil and gas marketing companies may see their operating profit decline due to delays in retail fuel price increases, but their credit profiles will continue to benefit from government support,” it said.