Corporates may see 6% pre-tax profit growth next year: Moody's

Expecting growth to revive next year, Moody's,which over the weekend revised upwards sovereign ratings to Baa2 after almost 14 years, has said a 7.6 per cent GDP expansion can result in corporates reporting a pre-tax profit growth of 5-6 per cent over the next 12-18 months.

According to the rating agency, growth will "rebound strongly in 2018 because the supply chain disruptions of 2017 will end soon".

"An economic growth of around 7.6 per cent will result in higher sales volumes, which along with new production capacity and benign commodity prices will support an Ebitda (earnings before interest, taxes, depreciation and amortisation) growth of 5-6 per cent over next 12 to 18 months," Moody's said.

While noting that credit profile of corporate will continue to improve on healthy earnings growth, underpinned by solid economic growth and increased production capacity, Moody's said consolidation in oil & gas, telecom and steel sectors would affect credit quality in these sectors.

The agency, however, observed that refinancing needs in 2018 would be manageable for most companies given their improving access to capital markets and large cash balances.

The agency also noted that intense competition, such as among telcos and auto, will result in lower earnings or rising capital spending.

"Healthy economic growth in the Asian and global economies will support steady earnings growth for Asian corporates, which in turn will improve their financial leverage," Moody's associate managing director Chris Park said in the report.

"Furthermore, the gradual normalisation of monetary policy will support the near-term liquidity needs of corporates in the region," Park added.

The findings are part of Moody's investor service outlook for 2018.