Credit quality of Indian companies improving, says S&P

SINGAPORE - The credit quality of Indian companies is stabilising and is likely to improve over the next two years. Sectoral differences continue to be significant, but the broad trend is toward a recovery, says global ratings agency Standard & Poor’s. Its analysis considers the top 100 Indian companies based on market capitalisation.

S&P Global Ratings expects large Indian companies to boost revenue growth over the next two years.
 
"We expect the revenue of large Indian corporates to grow around 10% annually in fiscal years ending March 2018 and 2019. Rising demand and moderate inflation will support profitability too," said S&P Global Ratings credit analyst, Abhishek Dangra.
 
The report notes that growth trends are reversing in India's corporate field, with commodity-focussed sectors set to outpace export-focussed industries such as information technology and pharmaceuticals.
 Improvement in heavy industries is also likely to be more pronounced, while asset-light industries will face headwinds, S&P says.
 "In our view, stronger operating leverage from higher revenue growth, a better cost position, and benign commodity prices will support improved profitability for top Indian companies," said Dangra.
 “We expect the oil and gas sector to maintain its vastly improved EBITDA margins, while the telecommunications industry is likely to see a compression in margins due to intense competition.
 "We believe the key for deleveraging for Indian companies is keeping debt levels in check through low capital expenditure. We expect the ratio of debt to EBITDA for the top 100 companies to trend toward 2x in 2019, from a peak of 2.7x in 2016.” www.standardandpoors.com (ATI).