Thanks to India's economic growth, the country's corporates are "well-placed" due to strong underlying growth and accommodative balance sheets, S&P Global Ratings has said in its latest report.
The Indian-rated corporates' aggregate EBITDA in fiscal 2024 will be about 50% higher than five years back, though the aggregate debt is hardly changed, the credit ratings agency said.
S&P has pegged India's economic growth at 6.9% for 2024, which is the highest in the region. "Some 85% of our ratings on India-based corporate and infrastructure entities have a stable outlook," said S&P.
For the 35 corporate and infrastructure entities S&P rates in India, which include some confidential ratings, it has forecast average EBITDA growth of about 10% in fiscal 2024, outpacing the economy's GDP growth.
S&P says earnings growth is coming mainly from "higher margins" in some sectors, driven by lower input prices, increased volumes in sectors like auto, higher data usage in telecom, and higher non-aeronautical revenues.
For information technology earnings, S&P expects below-average earnings growth, and says downstream energy will be among the few sectors with weaker earnings, given a declining pricing environment.
On the balance-sheet management, S&P says it remains “strong” but expects debt reduction to remain a focus for many rated companies, though the pace of deleveraging will slow.
By S&P estimates, the median debt to EBITDA for its rated portfolio, excluding debt-free IT companies and infrastructure or utility companies that typically have higher leverage, will fall to about 2.4x by March 2024 from about 2.7x the year before. This is a significant decline from 4.3x as of March 2020.
Additionally, capital expenditure for the rated corporate portfolio will increase on average by 12% in fiscal 2024, says the report, adding that increased capex is supported by stronger operating cash flows.
India's resilience to external volatility is growing, says the report, adding that strong operating cash flow and onshore liquidity mitigate challenging offshore market conditions. "Less than 10% of our rated corporates are assessed to have weak or less than adequate liquidity. This includes Vedanta Resources Ltd. The company's liquidity position is strained by the US$3.2 billion of bond maturities over the next 18 months."
Also, rated Indian corporates, apart from utility and infrastructure entities, have had limited funding needs given that about half of them are free cash flow positive, says the US-based credit ratings agency.
S&P in its report last month had said India will record the fastest real GDP (gross domestic product) growth of 6% in 2023 (FY2023/24) among Asia Pacific nations, with countries like the Philippines and Vietnam following suit at 5.9% and 5.5, respectively, according to the latest S&P report, 'Economic Research: Economic Outlook Asia-Pacific Q3 2023'. Under the assumption of normal monsoons, S&P expects headline consumer inflation to soften to 5% in fiscal 2023-24 from 6.7% in 2022-23.
