Ind-Ra advises caution on recovery

Our Bureau Mumbai | Updated on January 15, 2018 Published on April 12, 2017

The rating agency has a negative outlook for telecom, steel

Decelerating earnings growth of corporates with weak operating performance has led credit rating agency India Ratings to discourage investors from expecting a broad-based recovery in India Inc in FY18.

In a report released on Wednesday, the agency said the EBITDA (earnings before interest, tax, depreciation and amortisation) growth of the top 365 corporate borrowers in FY18 (excluding public sector units and banking and financial services providers) to be 9-12 per cent, driven by a slow but improving consumption and a recovery in exports.

India Ratings has a negative outlook for the telecom, steel, power and infrastructure sectors for FY18.

Deceleration likely in some

The agency expects FY17 EBITDA growth to be lower than the previously estimated 5-6 per cent owing to demonetisation in 4QFY17. However, the impact of demonetisation is likely to be transitory on the FY18 corporate performance.

The agency’s report said that EBITDA growth of capital-intensive and commodity-linked sectors, including infrastructure and power, is expected to decelerate in FY18.

The steel sector registered positive EBITDA growth for 9MFY17, driven by an increase in commodity prices and base effect; the telecom sector registered flat EBITDA growth. India Ratings expects the sector’s EBITDA growth to decelerate in FY18.

In the oil and gas sector, downstream companies could witness a moderation in EBITDA margin in FY18 on an increase in crude prices. On the other hand, upstream companies are likely to benefit from benign prices.

The auto sector’s EBITDA growth in FY18 is likely to moderate while automotive suppliers are likely to benefit from firm commodity prices and an improvement in exports. The agency has a stable outlook for the auto and automotive supplier sectors for FY18.

EBITDA growth has decelerated across the rating categories, the agency added. However, it remained positive for the majority of investment-grade issuers (rating scale of ‘IND BBB-’ and above) in 9MFY17. Nearly 70 per cent of the total number of investment-grade issuers registered positive EBITDA growth over FY14-9MFY17. On the other hand, a large number of non-investment grade issuers (rating scale of ‘IND BB+’ and below) registered negative EBITDA growth in at least three of the last six years.

Nearly 60 per cent of the total number of non-investment grade issuers recorded a negative EBITDA growth over FY14-9MFY17. Thus, any meaningful recovery would be conditional on a strong economic recovery or structural changes such as consolidation, deleveraging and non-performing asset resolution.

Published on April 12, 2017
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