Weak demand, high debt limit Indian firms’ credit profile: S&P

By PTI

  • 19 Jan 2016

Anaemic demand and high debt are the main constraints for credit profiles of Indian companies as overall economic conditions remain lacklustre in the country, credit rating agency S&P said today.

"Economic conditions in India remain lacklustre despite several government measures to boost investments in the economy," said Standard & Poor's credit analyst Mehul Sukkawala.

In a report, 'Revival In Domestic Demand Can Reduce Downside Risk For Indian Companies In 2016', S&P said the first 6-9 months will be crucial for rated companies. This period will provide signs on whether domestic demand is reviving, government reforms are moving ahead, and global economic conditions are stabilising.

"Companies still face anaemic demand and lower capacity utilisation, resulting in weak profitability," it said.

S&P said about half of the 22 Indian companies that S&P rates in India are large and have good business positions.

Many of these companies also have conservative-to-moderate financial policies, and some are also government owned.

Most private companies are not initiating large projects to focus on organic and inorganic deleveraging, it said, adding that many rated companies have undertaken significant debt-funded investments over the last five years.

They are at their peak debt levels, limiting the scope for positive rating actions, it said.

"If these companies can manage this (6-9 month) period without significant damage to their financial strength, we believe their credit profiles could have bottomed out," Sukkawala said.

On how Indian companies will fare in the changing global conditions in 2016, S&P said a slowdown in China is not a key factor for the credit profiles of most rated Indian companies because these companies target the domestic or developed markets.

"Any further slowdown in China could trigger significant turbulence in the global financial and commodity markets and hurt Indian companies," it said.

The expectations of a rise in US interest rates should be manageable but any related fallout from sudden and significant depreciation of the Indian rupee could pose a bigger risk to the rated portfolio, S&P said.