Fitch: Agency Less Optimistic than Market on Top Indian Companies

Fitch Ratings and India Ratings & Research (collectively "Fitch") are less optimistic in their projections for the 27 Indian corporates they publicly rate compared with Bloomberg consensus estimates (BEst), the agency says in its credit change zone report for the country's listed corporates.

BEst expect 87 of India's top-100 listed non-financial corporates by market capitalisation to be in the credit-positive change zones of cash flow growth exceeding net debt growth over the financial years ending-March 2016 (FY16) to FY18, while 13 are expected to be in the credit-negative change zones of net debt growth exceeding cash flow growth. This represents a more optimistic position compared to FY14-FY16, where 64 corporates were in credit-positive change zones.

Fitch projects 17 of the 27 Fitch-rated corporates in the top-100 portfolio to be in credit-positive change zones, where leverage is forecast to fall, and 10 companies in the credit-negative change zones, where leverage is forecast to rise. For this same set of corporates, BEst forecast a higher 20 in credit-positive change zones and only seven in credit-negative change zones.

Four of the 27 Fitch-rated companies are positioned in opposite credit change zones when comparing Fitch and BEst estimates. Fitch forecasts Wockhardt (AA-(ind)/Negative), NHPC (BBB-/Stable), and Reliance Industries Ltd (BBB-/Stable) to be in credit-negative change zones, whereas BEst forecasts these companies in credit-positive change zones. Conversely, Fitch forecasts Bharti Airtel Limited (BBB-/Stable) in the credit-positive change zone, whereas BEst forecasts this company in the credit-negative change zone.

We believe market expectations of improving corporate credit profiles is driven more by projected higher EBITDA generation than lower debt and capex. BEst forecasts aggregate net debt/EBITDA leverage for the top-100 portfolio to fall to 1.3x by FY18, from 1.7x in FY16. Leverage is forecast to fall most for corporates in the construction and engineering sector, followed by metals and mining, then the retail, leisure and consumer products sector.

The report includes Venn diagrams illustrating overlapping areas of our top-10 lists based on BEst projections. Vedanta (AA(ind)/Negative) stands out as being in the "Blue Joy Zone" of BEst-projected higher EBITDA and debt paydown over FY17f and FY18f. Conversely, Idea Cellular Ltd is in the Top-10 "Red Pain Zone" of BEst-projected EBITDA decline and rising net debt over the projected period. The report also contains scatter charts illustrating the credit zone of each company in both projected and historical periods as well as explanatory notes and rating sensitivities for the 27 Fitch-rated listed Indian corporates.

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