 "India Inc's leverage to improve in FY26-27 despite high capex: Fitch")
Benefitting from improving earnings before interest, taxes, depreciation, and amortization (Ebitda), Indian-rated corporates are likely to see their net leverage ratio decline to 2.7x in the next financial year 2025-26 (FY26) from 3.1x in the year ending March 2025 (FY25).
The net leverage may fall further below 2.5x level in FY27, according to rating agency Fitch Ratings.
However, the rating agency flagged caution, saying the downside risks could materialise if energy prices rise significantly, given ongoing geopolitical risks. Risks could also materialise if there is a sustained downward pressure on the Indian rupee or adverse trade protectionist measures dampen exports.
Fitch in its report “India Corporates Credit Trends: January 2025” said improving leverage will help most corporates maintain adequate rating headroom. The rating headroom remains adequate except for eight companies. These include two entities from the Adani Group — Adani Energy Solutions Ltd and Adani Electricity Mumbai Ltd — with ratings on Watch Negative and three with a Negative Outlook – UPL Corporation, Tata Steel and Greenko Energy Holdings. Fitch has 38 Indian entities in its rating universe.
The credit metrics were expected to improve for Fitch-rated Indian corporates in FY26, despite high capex intensity. The Ebitda margins may improve to around 16 per cent after projection of a 70 basis points (BPs) decline to 14.4 per cent in FY25, driven mainly by weakness in the oil and gas sector. The Ebitda margins may move above 16 per cent level in FY27.
The capex intensity is expected to remain elevated across most sectors, as corporates spend to expand capacity to maintain or improve market share while aiming to tap India’s long-term demand growth potential.
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Capex at transmission utilities’ will rise in FY25 due to an expanded project pipeline following increased tariff-based competitive bidding. Generation utilities’ capex will be elevated as companies accelerate renewable capacity additions, along with brownfield thermal coal capacity.
Fitch said India’s steady Gross Domestic Product (GDP) growth outlook, the banking sector’s improved financial health and likely interest-rate cuts in 2025 would support overall credit access for corporates in FY26.
The Indian economy is expected to grow at 6.5 per cent in FY26 with robust infrastructure spending to underpin healthy demand for cement, electricity, petroleum products, steel, and engineering and construction (E&C) companies.
Banks’ improved balance sheets should be supportive of lending capacity, provided it is accompanied by stable asset quality and sound deposit growth, it added.