 "Credit quality pressures continue to mount on India Inc: CRISIL")
Signalling a looming economic slowdown, CRISIL Ratings said on Monday the credit quality of Indian Inc would not dramatically improve in the near term.
According to the rating agency, indebted firms in the investment and metal-linked sectors will continue to face considerable challenges. The situation could change only if there is substantial deleveraging of stressed balance sheets through the sale of non-core assets, or a sharp reversal in metal prices, it said in its rating round-up for the second half of 2015-16.
A broad-based improvement in credit quality will depend on pick-up in investment demand, favourable monsoon and the government’s ability to continue to push reforms.
Consumption-linked firms with low leverage will see some uptick in credit quality.
CRISIL said the credit quality pressures were mounting with debt of firms downgraded by it in 2015-16 rising to an all-time high of Rs 3.8 lakh crore.
Nearly half of this debt belonged to firms in the metal sector, which is hit by falling realisation and high debt. And, the second-biggest chunk of a quarter belonged to the infrastructure sector.
In the second half of FY16, the debt-weighted credit ratio (the quantum of debt of firms upgraded versus downgraded) stood at 0.2, the lowest in the past three years. The credit ratio - or rating upgrades to downgrades - stood at 0.76.
Somasekhar Vemuri, senior director at CRISIL, said: “Debt under stress at infrastructure and metal-linked firms is at a record level because there hasn’t been any meaningful deleveraging of balance sheets, and metal prices continue to be low.”
The sectors with strong domestic consumption linkages such as auto ancillaries, or with inelastic export demand such as pharmaceuticals, had relatively robust credit quality metrics, said CRISIL.
Almost half the upgrades were driven by business-related factors such as high operating efficiency. Downgraded firms, meanwhile, were hobbled by high indebtedness and stretched liquidity.
