 "IT companies, IT firms")
Indian companies' pace of deleveraging will slow down on rising capital expenditure, but many of them will continue reducing debt, global ratings agency S&P has said.
Financial discipline and strong operating cash flows led to significant deleveraging by Indian companies in the past three years, said S&P in a statement. The median debt to Ebitda (earnings before interest, taxes, depreciation, and demortization) ratio for the portfolio of rated companies will fall to about 2.4x by March 2024 from about 2.7x the year before. This was a significant decline from 4.3x as of March 2020.
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The assessment about debt to Ebitda ratio excludes debt-free IT companies and infrastructure/utility firms that typically have higher leverage.
The leverage for infrastructure/utility entities is likely to decline to about 5.2x by March 2024 from an estimated 6.3x as of March 2023, said S&P in a report 'Corporate India Is On A Stronger Credit Footing'. The agency rates 23 companies that include private business houses like Tata and Adani groups and government enterprises like ONGC and NTPC.
Cheng Jia Ong, credit analyst, S&P Global Ratings, "the improving leverage for infrastructure/utility companies is largely driven by a higher earnings base, rather than debt reduction". These companies are unlikely to deleverage below 5.0x given capex funding at 70:30 debt-to-equity mix.
The aggregate Ebitda in the fiscal ending March 31, 2024 will be about 50 per cent higher than five years back for rated corporate and infrastructure entities in India. Yet aggregate debt is hardly changed, reflecting the improvement in credit quality.
S&P said the Indian companies it rated are in good credit shape due to strong underlying growth and accommodative balance sheets.
"Solid earnings momentum over the next two years, by our forecasts, will make for one of the healthiest four-year stretches seen," said Neel Gopalakrishnan, analyst with S&P Global Ratings.
A supportive factor is the outlook for India's economic growth, which is the highest in the APAC region, at 6.0 per cent for 2023 and 6.9 per cent in 2024. Moreover, strong onshore liquidity mitigates the impact of tougher external-funding conditions. A growing economy can paper over some cracks, such as the impact of China's reopening, which could create price competition for steel and chemicals producers, said the report.
While credit and financial profile of India Inc’s would remain healthy, the space of rating upgrade is limited. S&P said the improvement in credit quality is reflected in our base case assumptions.
At least 85 per cent of ratings for India-based corporate and infrastructure entities have a stable outlook. That said, financial profiles are strengthening within current rating categories, it added.
