India Inc set to show further improvement in credit metrics in Q2: Report

India Inc's credit metrics are likely to show further improvement in the September quarter, a domestic rating agency said on Friday.

The recent trends in softening of commodity prices, price hikes by companies, and anticipation of a favorable demand are the factors helping the industry, Icra Ratings said.

The interest coverage is likely to improve to 4.5-5 times in the July-September period from 4.5 times in the June quarter, the agency said, adding that inflationary trends remain monitorable.

"India Inc's ability to improve earnings will depend on its ability to navigate ongoing headwinds such as tepid growth in the developed markets and impact of fluctuations in foreign exchange on import as well as export-oriented sectors," its Co-Group Head for Corporate Ratings Kinjal Shah said.

The sequential improvement in operating profit margin was the most visible in sectors such as aviation, oil and gas, retail, and auto brands, Shah said, adding that the evolving geo-political situation presents uncertainties on the profitability front.

The agency said rate hikes of 2.5 per cent undertaken by the RBI since last May have had a bearing on the interest coverage ratio for the quarter and tempered the benefits accruing through margin improvements.

The interest coverage ratio was 5.2 times in the first quarter of 2022-23, which weakened to 4.5 times in the June quarter of the current fiscal, the agency said, adding that the improvement is on the back of the extended pause in policy rates and an expected earnings revival.

An analysis of 591 listed companies, excluding financial sector entities, revealed an improvement in operating profit margins, aided by a softening in commodity prices, coupled with a favorable demand situation.

"While revenue growth is anticipated to continue into the September quarter, aided by expected stable demand and start of the seasonally-strong festive period, the ability of corporate India to sustain the same remains to be seen, given the macro-economic uncertainties, and impact of inflation on the demand momentum," Shah added.