ICRA says stress to persist in FY '15

The number of companies that got rating downgrades declined in the last financial year, but a weak economy and a demand crunch continue to exert pressure on their credit quality, says a study.

Although the number of downgrades exceeded upgrades for the third consecutive year, with 602 downgrades and 559 upgrades in 2013-14, overall, 3.3 per cent companies moved to the default category as against 4.5 per cent in 2012-13, according to a ICRA study.

"While both the number and severity of rating downgrades moderated during the last fiscal, pressures on credit quality persisted against the backdrop of sluggish economic activity and the strains on cash flows and profitability due to weak demand growth," ICRA said.

The study is based on actions of over 7,000 ICRA-rated companies in fiscal 2014, it said.

Downgrades as a percentage declined to 9.6 per cent in fiscal 2014, after having peaked at 20.3 per cent in fiscal 2012, the study said.

Companies downgraded from investment grade to non-investment grade fell from 3.3 per cent in fiscal 2013 to 1.3 per cent in fiscal 2014.

Among investment grade entities, 0.9 per cent moved to the default category as against 1.4 per cent in FY13.

Upgrades as a percentage of opening issuers increased from 4.7 per cent in 2012-13 to 9 per cent in 2013-14, ICRA said.

The report said the decline in inverse credit ratio, which is the ratio of downgrades to upgrades, declined to 1.1 per cent in the reporting year from exceptionally high levels of 3.4 per cent in the previous fiscal and 2.6 per cent in 2011-12.

Sectors that reported inverse credit ratios inferior to the median in 2013-14 include hotels, power, sugar, metals and mining, engineering, transportation, real estate and construction.

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