Note-ban impact: Ind-Ra says large cos credit neutral

Even with cash shortage hurting businesses in some sectors, the impact of demonetisation on the credit profile of large corporates is "neutral", with no major rating changes expected due to the note-ban move, India Ratings and Research (Ind-Ra) said in a report today.
As per the rating agency, large corporates (revenues above Rs 250 crore) have sufficient liquidity buffers to meet debt servicing obligations.
"The impact of demonetisation on the credit profile of large corporates is neutral, with no major rating changes envisaged due to its after-effects," Ind-Ra said.
The report noted that the immediate impact of note-ban on revenues of large firms in third quarter of 2016-17 ranges from nil for the export-oriented sectors like IT/ITeS, to a significant impact on auto, real estate, gems and jewellery, with a gradual recovery expected as cash availability improves in the fourth quarter (January-March).

"Despite the cash shortage hurting some sectors significantly in the third quarter, the impact on their credit profile is cushioned by the availability of sufficient liquidity (in the form of cash and equivalents or unutilised working capital limits) to meet the debt servicing obligations," the rating outfit stated.
"We believe large corporates also have sufficient rating headroom to absorb the transitory impact on revenue, profitability and working capital."

According to Ind-Ra, the impact of demonetisation has been varied, depending on the extent and nature of cash usage within an industry.
The revenue of sectors such as IT/ITeS which are predominantly digital due to their focus on exports or business to business sales is not impacted by the tight liquidity conditions.

"However, sectors which are predominantly digital may also face temporary disruption due to of their employee payments, for instance, construction or supply chain payments historically which were done in cash," it added.
Further, sectors which rely on consumer spending saw a fall in sales during the cash shortage period, with eventual recovery once normalisation of cash availability is achieved.
A couple of sectors where the nature of cash usage is often considered dubious like real estate, gems and jewellery faced a significant fall in sales during demonetisation.
However, organised players and large corporates in such sectors will benefit in the long-run, the report added.

"The sectors which are ancillary to the impacted sectors like auto components, cement, steel or other metals will also see the ripple effects of demonetisation.