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Tuesday, August 11, 2020

Amid deteriorating finances, India Inc’s credit profile continues to worsen

Businesses, whether in manufacturing or the non-banking financial companies (NBFCs) space, are stressed.

By: Express News Service | Mumbai | Published: July 13, 2020 3:00:42 am
About 35 per cent of credit ratings on Indian companies have either a negative outlook or are on credit watch with negative implications, S&P Global Ratings had observed in a note on June 24. (File)

At around 21 downgrades a day between January and now, the finances of corporate India continue to deteriorate. Close to 3,936 firms have been downgraded during this time while 593 have been upgraded. From 464 in January to 582 in June, downgrades have been rising steadily;the first nine days of July have seen 161 downgrades. Businesses, whether in manufacturing or the non-banking financial companies (NBFCs) space, are stressed.

About 35 per cent of credit ratings on Indian companies have either a negative outlook or are on credit watch with negative implications, S&P Global Ratings had observed in a note on June 24. “That increases to one-in-two ratings if we exclude debt-free companies in the IT sector,” analysts at the agency wrote, adding further downgrades were possible in spite of several negative rating actions over the past three months.

Last week, Moody’s Investors Service changed the outlook for JSW Steel to negative while S&P downgraded Delhi International Airport (DIAL) to ‘B+’ as it anticipates a slow recovery in traffic in the wake of the travel restrictions.

DIAL’s ratio of operating cash flow to debt, the agency observed, was expected to stay below its downgrade trigger of 5 per cent over the next 12 months even if the airport operator receives its commercial property development (CPD) deposit and an upcoming tariff revision is favourable.

“The rating confirmation recognises that while JSW’s credit profile will deteriorate reflecting the challenges brought by the pandemic, we believe that the company’s financial metrics will likely recover to levels commensurate with the current ratings by the fiscal year ending March 2023 (fiscal 2023),” Moody’s wrote.

Even before COVID made things worse, the economy was slowing with GDP growth in FY20 clocking in at an anaemic 4.2 per cent. For a sample of 1,691 firms (excluding banks and financials), net profits dove 38 per cent in the year; excluding TCS and RIL, the fall was a steeper 45 per cent.

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