Credit quality pressures have intensified for India Inc with the value of debt downgraded more than trebling to Rs 1.38 lakh crore in the first half of fiscal 2020 from Rs 39,000 crore in the first half of fiscal 2019, rating firm Crisil said.
“That’s the highest for any half since fiscal 2016,” Crisil said in a report. In the first half of fiscal 2020, credit quality pressures intensified driven by an interplay of factors including global and domestic economic slowdown, sharp fall in consumption demand, and slower government spending. Constrained access to funding also affected the credit profiles of entities across sectors, especially non-banks and real estate.
Somasekhar Vemuri, senior director, Crisil Ratings, said, “Across rating categories, entities with higher leverage saw more downgrades as pressure from the demand slump intensified. Declining profitability and stretch in working capital cycles also were reasons for the downgrades. On the other hand, those with lower leverage withstood the demand-side challenges better.”
Crisil’s debt-weighted credit ratio (value of debt upgraded to downgraded) plunged to 0.25 time in the first half of fiscal 2020, compared with 1.65 times for fiscal 2019. Over the past five fiscals, the median gearing for Crisil-rated companies has improved from 1.3 times to 0.9 time, which reflects both, deleveraging that’s been underway and resilience to demand pressure, it said.
That also explains why, upgrades continue to outnumber downgrades despite a sharp decline in Crisil’s credit ratio (upgrades to downgrades) for the first half of fiscal 2020 to 1.21 times3 – the lowest in the past six half-yearly assessments, and down from 1.73 times for fiscal 2019. The fall in credit ratios was across investment, export, and domestic consumption-linked sectors. Among investment-linked sectors, construction and allied accounted for over 30 per cent of downgrades because of delays in project execution and stretched liquidity, Crisil said.
Export-linked sectors reported a mixed performance, with pharmaceuticals (especially bulk drugs) continuing to benefit from supply constraints in China. Gems & jewellery and readymade garment exporters saw more downgrades because of constrained access to funding, lower export competitiveness, and weak demand, it said.