India Inc’s rating upgrades overtake downgrades for the first time in 4 yrs: ICRA

The credit rating agency ICRA on Monday said that it expects the operating environment for the Indian corporate sector to be less challenging in the ongoing fiscal 2014-15, on account of improving signs of stability in the macro-economic indicators and the likelihood of some improvement on the growth front.

Several policy initiatives taken by the government, including efforts to revive stalled projects, tariff revision by state utilities and  rescheduling of premium payout for road projects, coupled with an improvement in current account deficit and CPI inflation, alleviated some sector-specific concerns and were the key factors in improving the operating environment for the corporate sector in the recent past.

Besides, stock market also touched new highs, on the back of the reforms-oriented Narendra Modi-led government and expectations of improvement in earnings growth and credit profile of the corporate sector.

The credit rating agency said that credit ratio (defined as the ratio of number of credit rating upgrades to downgrades) of ICRA-assigned ratings, which touched a low of 0.3x in 2012-13 crossed 1x in the first quarter ended June 30, 2014, for the first time since fiscal 2010-11. This means more firms saw rating upgrades than downgrades by ICRA in the quarter.

Many sectors, excluding real estate, construction, engineering and hotels, witnessed more upgrades than downgrades in Q1 FY15.

“While a significant turnaround is unlikely, some of the sectors which reported low credit ratio during the last few years –infrastructure, cement, capital goods, hotels, auto ancillaries – are likely to witness moderation both in the number and severity of rating downgrades,” ICRA said.

The report, which reviewed and analysed the performance of 423 public-listed companies during FY14 and Q1 of FY15, said that revenue growth, EBITDA margins and interest coverage of consumption-oriented sectors such as FMCG, consumer durables and automobiles witnessed an improvement in the first quarter on a year-on-year basis, while that of investment-driven sectors such as construction, capital goods and hotels worsened.

Moreover, that fact that some of the highly leveraged entities are monetising their assets and are more cautious while bidding for new projects marks a positive development from a credit perspective, the report said.

(Edited by Joby Puthuparampil Johnson)

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