India Inc’s credit quality improved sharply in the second half of FY12: Rating agencies
Corporate India’s credit quality showed a sharp improvement in the second half of FY12. Still, higher input prices and withdrawal of pandemic-related relief measures could create pressure in the new year, rating agencies said on Friday.
CRISIL Ratings, which rates a large number of financial sector entities, reported an improvement in the credit ratio – the number of upgrades to downgrades – in the second half of this financial year, from 2.96 per cent to 5.04 times earlier. half of the fiscal.
It attributed the recovery to a sustained recovery in demand, which raised revenues for most sectors to pre-pandemic levels, and proactive relief measures by the government that eased the shock of the pandemic.
The agency further gave a “positive” outlook on credit quality and expects the number of upgrades to decline in FY13.
However, pressure on input prices, courtesy of a push in commodity prices following the Russian invasion of Ukraine, and the prospect of a withdrawal of pandemic-related relief measures, could also lower the credit ratio.
“Demand recovery, agility in managing supply chains, and a tighter lease on costs have increased the average operating profit of upgraded companies by 41 per cent over the past two fiscal years – more than double the rate for the portfolio,” Its chairman and chief rating officer Subodh Rai said.
Meanwhile, ICRA said credit quality improved in FY12 after the economic slowdown in FY12 and the pandemic in FY2011.
It said the downgrades of 184 entities brought down the downgrade rate to just 6 per cent, as against the ten-year average of 9 per cent, while the upgrade rate of 561 entities was 19 per cent in FY22 on the back of the rating upgrade.
ICRA said the tourism, hotel and restaurant sector had the lowest credit ratio at 0.4, while the ferrous metals sector was the best at 16.
India Ratings termed FY22 as a surprising “remarkable recovery” year. Its downgrade to upgrade ratio was at a low of 0.3s, a reversal of a three-year trend where downgrades outnumber upgrades.
The agency said it upgraded the ratings of 276 companies in FY22, representing 23 per cent of its rated portfolio, while only 86 companies had to be downgraded.
It expects the pace of rating upgrade to moderate in FY13. Corporate India is also likely to experience a contraction in margins as the Russian war continues. Nevertheless, the agency’s outlook has been held as “stable” across all sectors due to the companies’ ability to weather stress.
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