India Inc to show significant EBITDA growth in next 12-18 months: Moody's

Benefiting from strong consumer demand and high commodity prices, Indian companies will show significant growth in EBITDA over next 12-18 months, according to Moody’s.

The rating agency, which has 22 Indian corporates under its scanner, said growing government spending on infrastructure will support the demand for steel and cement. Also, rising consumption, push for domestic manufacturing and benign funding conditions will support new investments.

The effects of supply chain disruptions will ease as semiconductor supplies ramp over the next few months, it added.

The steady progress in vaccinations against Coronavirus (Covid-19) will support a sustained recovery in economic activity. The economic growth will rebound strongly in India. It has pegged growth in gross domestic product at 9.3 per cent for FY22 and 7.9 per cent for FY23.

While overall economic sentiment is upbeat, the rating agency did sound a word of caution. If new waves of infections were to occur, it could trigger fresh lockdowns and erode consumer sentiment. Such a scenario would dampen economic activity and consumer demand, potentially leading to subdued EBITDA growth of less than 15-20 per cent for Indian companies over the next 12-18 months.

In addition, delays in government spending, energy shortages that lower industrial production or softening commodity prices could curtail companies' earnings.

India's currently low interest rates will reduce funding costs and support new capital investment as demand grows. However, rising inflation may result in a faster-than-expected increase in interest rates, which would weigh on business investment.

Referring to their borrowings, Moody’s said refinancing risk is manageable for most rated companies. Around $7.3 billion of rated foreign currency bonds are maturing through 2023. Out of which around $3.1 billion of the maturities pertain to high-yield issuers

Around 57% of foreign-currency bond maturities through 2023 are for investment-grade companies, including government-related issuers which have strong access to capital markets.

The remaining bond maturities through 2023 pertain to high-yield companies that are repeat issuers in international bond markets. These companies – including JSW Steel Ltd, Bharti Airtel Ltd and Vedanta Resources Limited (B2 stable) – are likely to maintain good funding access.

Macrotech Developers Limited, a Lodha group entity, has a $225 million bond maturity in March 2023. The refinancing risk will be alleviated if the company repays the bond out of collections from existing sales over the next few months, Moody said.