Indian companies to see better credit profiles in 2018, says Moody's

Agency sees disruptions from GST implementation diminishing, economic activity recovering and sales voles increasing on better GDP numbers

Global rating agency Moody's on Wednesday said Indian companies would see improved credit profiles in 2018 on solid economic and Ebitda (earnings before interest, tax, depreciation and amortisation) growth.

The obligations for paying back money for foreign bonds maturing over three years was manageable, it said. "Disruptions from GST (goods & services tax) implementation will diminish and economic activity will recover. We expect that domestic economy will grow at around 7.6 per cent. This will result in higher sales volumes.”

“The new production capacity and benign commodity prices will support Ebitda growth of 5-6 per cent over the next 12 to 18 months,” said Moody's Vice-President and Senior Analyst Kaustubh Chaubal in a statement.

Saranga Ranasinghe, assistant vice-president and analyst, Moody's, said refinancing needs in 2018 would be manageable for most companies, given their improving access to capital markets and their large cash balances.

However, this outlook is not without some risks. The downside risks include Gross Domestic Product (GDP) growth falling below six per cent. Also, commodity prices could weaken, resulting in lower Ebitda growth.

A slowdown in the pace of reforms and political uncertainty could be another dampener. Higher interest rates brought on by rising inflation and exchange-rate volatility could also result in a tight funding environment, it added.

Upside risks, according to the agency, include a further simplification of GST and other structural reforms, or an improvement in commodity prices, resulting in higher Ebitda growth.

Besides, an improvement in asset valuations might provide means to deleverage for some corporate entities.