Corporate India is in a good credit shape with around 85 per cent of the rated firms having ‘stable outlook’ helped by strong underlying growth in the economy and accommodative balance sheets, global ratings agency Standard & Poor’s (S&P) said.
According to S&P Global Ratings, aggregate EBITDA (earnings before interest, taxes, depreciation and amortisation) of rated Indian companies in fiscal 2024 is estimated to be about 50 per cent higher than five years back. However, aggregate debt is likely to be nearly changed.
A supportive factor is India's economic growth, which is the highest in the region, at 6 per cent for 2023 and 6.9 per cent in 2024, by our forecasts, the rating agency said in a note.
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“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. Despite tough offshore funding conditions, companies have easily tapped onshore financing,” it said.
Earnings outlook is positive across most sectors. Rising domestic demand and sector-specific recovery are more than offsetting negatives, including tough global economic conditions and higher policy and borrowing rates.
Indian corporate ratings are predominantly in ‘BB’ and ‘BBB’ categories. S&P rates 35 companies in India. Companies which have been rated ‘BBB’ include Reliance Industries, ONGC, NHPC, NTPC, Tata Steel, Bharti Airtel, Adani Electricity Mumbai Ltd, Adani Ports and Special Economic Zone Ltd and Genpact Ltd.
Barring Adani Electricity Mumbai Ltd and Adani Ports and Special Economic Zone Ltd the outlook of all other companies are either stable or positive.
The best rated Indian company by S&P is Infosys with ‘A’ rating, which indicates that the company has a strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances. HCL Technologies and Wipro are rated ‘A-’.
“Operating, financing and liquidity conditions are emblematic of the India Inc. story at the moment. The country's corporates are more resilient to external turbulence compared with past periods of elevated commodity prices, weak global growth, and a strong dollar. We expect this trend to stay on track for the foreseeable future,” S&P Global Ratings said in its note released on Tuesday.
EBITDA growth of the 35 rates companies are estimated to be around 10 per cent in the current financial year, outpacing GDP growth.
Capital expenditure (capex) of the rated firms are likely to go up by 12 per cent in 2023-24 when compared with the previous year. Increased capex is supported by stronger operating cash flows.
Despite the projected increase, fiscal 2024 capex as a percentage of EBITDA will be lower than that in fiscal 2019. “The current capital-spending cycle is not denting balance sheets unlike 2017-2020. This is due to stronger operating cash flows and, in some cases, deleveraging initiatives undertaken in the past two years,” S&P said.