India Inc.’s Credit Health At Decadal Best, Say Rating Agencies

India Inc.'s credit health is at its best in a decade on improving demand, government's relief measures and deleveraging efforts by companies.

Corporate credit profile has posted its strongest performance in FY22, according to India Ratings & Research. The share of downgrades to upgrades, it said, is at a decadal low of 0.3 compared with 1.4 in FY21.

“This marks a reversal of the past three years' trend, where downgrades exceeded upgrades. During the year, Ind-Ra upgraded the ratings of 276 issuers, representing 23% of the rated portfolio. Ratings downgrades were significantly lower, seen in only 86 issuers,” it said in a report.

Positive rating actions were seen across almost all sectors in FY22, indicating a broader economic recovery, Suparna Banerji, associate director at Ind-Ra, said. “This is in contrast to FY21 where upgrades were limited to a few sectors. A high number of upgrades were seen in sectors such as chemicals due to the push for import substitution and increasing export opportunities (China+1 strategy). Pharmaceuticals benefitted from continued growth momentum, a strong performance in India business and cost optimisation. Metals and mining was supported by strong realisations and a robust demand from end-user sectors.”

For Crisil and CareEdge, too, credit ratios improved.

Crisil's credit ratio rose to 5.04 times in the second half compared with 2.96 times in the first half. In all, there were 569 upgrades and 113 downgrades in the second half.

“The performance comes on the back of a sustained improvement in demand that lifted the revenue of most sectors to their pre-pandemic levels, secular deleveraging by debt issuers, seen over the past few fiscals and through the pandemic, and proactive relief measures by the government that cushioned the pandemic blow,” it said.

According to CareEdge Ratings, it has clocked a decadal high credit ratio at 2.64 times in the second half, pointing toward a “positive” outlook. “The uptrend was contributed by upgrades in both infrastructure and manufacturing/services sectors.” The agency upgraded ratings of 468 entities and downgraded 177.

Credit ratio for the banking and financial services segment, it said, moved above one for the first time since the IL&FS-fueled liquidity crisis.

Crisil Ratings said its outlook on credit quality remains “positive” even as it expects some moderation in the credit ratio. “Persistent inflationary trends can affect both, consumption demand and profitability of firms, which can temper corporate credit quality. Any new Covid-19 variant that dilutes the benefit of vaccination also remains a risk to our credit quality outlook. Nevertheless, deleveraged balance sheets structurally position India Inc. well to navigate these uncertain times,” Somasekhar Vemuri, senior director at Crisil, said.

Note: Crisil and CareEdge calculate credit ratio as the share of upgrades to downgrades. That implies a ratio higher than one denotes positive quality.