Moody's says Indian corporates to see improved credit profiles in 2018

Moody's Investors Service on Wednesday said that Indian corporates will see improved credit profiles in 2018 on solid economic and EBITDA growth, while their cross-border bond maturities for the next three years are manageable. 

"Disruptions from GST implementation will diminish and economic activity will recover, and we expect that domestic GDP growth of around 7.6% will result in higher sales volumes, which along with new production capacity and benign commodity prices will support EBITDA growth of 5%-6% over the next 12 to 18 months," says Kaustubh Chaubal, a Moody's vice president and senior analyst. 

"Moreover, refinancing needs in 2018 will be manageable for most companies, given their improving access to the capital markets and their large cash balances, and as indicated their cross-border bond maturities will also be manageable for the next three years," says Saranga Ranasinghe, a Moody's assistant vice president and analyst. 

These conclusions form part of the agency's just-released presentation, "Non-financial corporates -- India, 2018 Outlook". 

The report said that downside risks include GDP growth falling below 6% and/or a weakening of commodity prices, resulting in lower EBITDA growth; a slowdown in the pace of reform and political uncertainty; and higher interest rates brought on by rising inflation and/or exchange-rate volatility, resulting in a tight funding environment. 

While talking about upside risks, the agency said that it include a further simplification of GST and other structural reforms, or an improvement in commodity prices, resulting in higher EBITDA growth; or an improvement in asset valuations, providing a means of deleveraging for some corporates. 

For the key sectors, the outlook for energy exploration and production is stable, as stable production volumes, a low subsidy burden and relatively stable oil and gas prices sustain earnings at current levels. The outlook is also stable for refining and marketing as capacity additions and higher margins increase earnings. 

Other sectors with stable outlooks include real estate, with sales volumes picking up; ferrous metals and mining, with growing domestic demand and higher production; non-ferrous metals and mining, with improved fundamentals and supply deficits; auto and auto suppliers, with higher sales volumes and new product launches; and IT services, with Indian companies remaining in the forefront in this area. 

The agency report, however, singled out telecom sector for having a negative outlook as intensifying competition will continue to pressure revenues and margins over the next 12 months, while industry consolidation will result in the emergence of three big players.