Corporate credit profile was robust in FY24, says India Ratings and Research

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New Delhi: Corporate India’s credit profile reported robust performance during FY24, with 312 issuers seeing credit upgrades and 114 facing downgrades during the fiscal year, rating agency India Ratings and Research said on Monday.

The rating agency’s corporate downgrade-to-upgrade (D/U) ratio remained low at 0.37 for FY24, but saw some moderation from 0.26 in FY23. Defaults stood at 0.9% of the co-operative reviewed ratings in FY24, up from 0.8% in the previous fiscal year, it added.

“Corporate India’s performance in FY24 remained on track, with upgrades continuing to outpace downgrades significantly. The continued improvement in credit profiles could be attributed to similar reasons as in FY23 – deleveraged balance sheets; sound domestic consumption demand, especially in the premium segment; and the government’s continued focus on capex,” said Arvind Rao, senior director, and head of the credit policy group at India Ratings and Research.

He added, “All of this is summed up in India’s growth story and reflected in healthy GDP growth, estimated at 7.3% for FY24 following an equally strong 7.2% in FY23. Soft commodity prices during FY24 supported the rated entities’ cash flows, despite the initial concerns on elevated cost of debt and high inflation. Geopolitical issues, from ongoing wars to weak global economic conditions, have had limited impact on credit profiles so far.”

The rating agency said among infrastructure sectors that saw positive rating actions, the majority were from renewable power and road operators, supported by either their capacities coming online or strengthened operating performance during FY24. Companies in capital goods and auto components saw positive rating actions owing to favourable demand with strong order flow, and the China+1 strategy, it added.

While the consumer services, residential real estate and financial sectors performed well in FY24, textiles was the only sector that had twice the number of rating downgrades as upgrades. “The sector was impacted by lower demand from key overseas markets as well as the inability to pass on volatile raw material prices,” the rating agency said.

“The other consumption sector which witnessed higher negative rating actions was fast-moving consumer goods (FMCG), led by a margin squeeze on account of volatility in raw material prices as well as an elongated working capital cycle leading to deterioration in financial metrics,” it said. The construction sector, which saw downgrades in road EPC (engineering, procurement and construction) entities, saw delayed order executions and increasing margin pressure amid rising competition, it added.

According to the agency, improvements in the revenue profile and operating performance were the primary reasons for positive rating actions. “Some of the drivers for the strong revenue growth are a spurt in demand for existing products, higher execution of projects/order book amid demand recovery or higher realisations or higher contribution from the launch of new products/additional facilities,” it said. “Liquidity mismatches and pressure on profitability were the major reasons for negative rating actions,” it added.

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Published: 01 Apr 2024, 06:15 PM IST

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