credit ratio: Infra, construction, real estate join financials in better credit ratios

Infrastructure, real estate, construction and textiles joined sectors like financials in reporting improved credit ratios thanks to stronger domestic demand, better cash flow and a continued focus on reducing debt, even if capital spending remains low.

Rating agencies Crisil and ICRA both announced better credit ratios than last year. While Crisil said its credit ratio improved 5.52x in the first half of fiscal 2023 from 5.04x in the prior fiscal year, ICRA reported a credit ratio of 3.3 times compared to 2.8 times last year. The credit ratio is the ratio between rating upgrades and downgrades and gives an idea of ​​the credit profile of companies. Rating agencies analyze credit ratios twice a year.

Crisil said nearly 80% of his grades in the first half of the fiscal year were unchanged, but the rate of upgrades improved to 16.70% from around 14% in the second half of the year. last financial year and against about 3% two years ago. The downgrade rate, on the other hand, remained stable at 3.02%.

“About 35% of all upgrades came from the infrastructure sector (including major real estate players)…through improved operating cash flow, completion of critical milestones and equity injection.In recent years, the growing share of central counterparties in infrastructure projects has led to more predictable payment cycles, providing additional comfort to credit quality. said Gurpreet Chhatwal, MD, Crisil Ratings.

In total, Crisil recorded 569 upgrades and 103 downgrades during the period.

CIFAR upgraded 18% of its portfolio entities in the first half of the fiscal year, which is significantly higher than the 10-year average of 11%. The 5% downgrades remained on leash below the 5-year average of 12% below the 10-year average of 9%.

The real estate, textile, finance, engineering, construction and road sectors made up nearly half of the total upgrades made by CIFAR in the first half of fiscal 2023 , while constituting one-third of CIFAR’s rated portfolio.

“The post-pandemic business rebound, constrained capital spending and therefore restricted new term borrowing, and the organic reduction of existing debt from the balance sheet have kept downside credit risks low,” said CIFAR.

ICRA recorded 250 upgrades and 76 downgrades. There were only five defaults in CIFAR’s portfolio during the six-month period, compared to 42 in fiscal 2022 and 44 in fiscal 2021, with four of the five defaults being in the category non-investment grade.

Crisil expects the deleveraging trend to continue with median leverage set to hit a ten-year low of less than 0.5x this fiscal year. Although some sectors face challenges such as rising input costs and rising interest rates, strong balance sheets should keep India Inc in good stead even as global uncertainties persist, Crisil said.

“Significant interest rate tightening, however, is a risk factor that would impact discretionary spending, make debt less affordable and limit investment spending. world and global fund flows (interrelated, not separate factors) would test India’s macroeconomic fundamentals, albeit not as much relative to other economies.These factors, directly or indirectly, would have impact on credit quality trend lines going forward,” said K Ravichandran, ICRA Rating Manager.

ICRA has a negative outlook on Airlines, Media & Entertainment (Exhibitors & Print) and Energy (Thermal & Distribution) and a positive outlook on Oil & Gas (Upstream) and Roads (Tolling) .

Sallie R. Loera