Operating environment for corporate sector to be less challenging: ICRA

With a recent stability on the macroeconomic front, the operating environment for the corporate sector is likely to be less challenging in the current fiscal, says a report.

“The operating environment for the domestic corporate sector is likely to be less challenging during FY15 than it had been in the previous year, considering the emerging signs of stability in the macro-economic indicators and the likelihood of some improvement on the growth front,” rating agency ICRA said in a report.

The current account deficit improved to 1.7 per cent of GDP in first quarter FY15 from 4.9 per cent in FY2014.

Retail inflation or CPI too has come down from the peak of 11.2 per cent in November 2013 to 6.46 per cent in September, although it still remains outside the comfort zone of the Reserve Bank to mull bringing down interest rates.

“Moreover, several policy initiatives including efforts to revive stalled projects, tariff revision by state utilities, re-scheduling of premium payout for road projects alleviate some sector-specific concerns,” the report said.

In the previous fiscal, due to slowing economic growth and rising costs, the latter on account of higher power and fuel expenses, the operating profit margins (EBITDA margins) across many sectors continued to deteriorate.

The rating agency said out of 20 sectors within its sample, only three sectors witnessed improvement in EBITDA margins during FY 2014, while eight sectors reported relatively stable margins and balance nine sectors experienced contraction in margins.

The tepid macro-economic situations, corporate earnings slowdown, credit defaults, rating downgrades, increase in NPAs of banks, rise in the proportion of restructured assets and incidences of corporate debt restructuring (CDR) were clearly on display over the last couple of years as initial stress propagated more stress, the report said.

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