The aggregate earnings before interest, taxes, depreciation and amortisation (EBITDA) for 22 rated Indian non-financial companies will fall by 24 per cent in the current financial year, global rating agency Moody's said on Friday.
Their credit metrics will weaken as coronavirus-led economic contraction reduces corporate earnings and debt/EBITDA leverage will increase by half a turn to around 4x.
Credit quality is weakening across most sectors as a slowing economy dampens consumer confidence and business activity. Moody's Investors Service said India's real GDP will contract by 11.5 per cent in fiscal 2021.
"Still, we expect fiscal 2022 earnings to recover as economic growth returns. Gradually improving business conditions and activity will support a recovery in credit metrics by March 2022." Credit trends are negative for sectors vulnerable to declining consumption and resource price volatility. The economic slowdown will exacerbate challenging conditions for automakers and auto-part suppliers this fiscal year.
Passenger and commercial-vehicle unit sales will fall at least 20 per cent in fiscal 2021 from a year earlier. Low oil and gas prices, weak refining margins and lower demand for transportation fuel will hurt oil and gas companies.
Volatile commodity prices and high debt levels will continue to weigh on miners and steel-makers. Credit trends for IT services and telecommunications companies remain neutral.
Refinancing risk for most companies is manageable. Rated Indian companies have 21 billion dollars of bonds and 32 billion dollars of term loans maturing through fiscal year 2023 with around 17 billion dollars of those maturities due in fiscal 2021.
Moody's said eight companies have weak liquidity. "Still, we expect refinancing risk for most companies to remain manageable given their good relationships with banks and track record of access to capital markets." Rupee depreciation can weaken debt serviceability for borrowers with foreign currency debt but foreign currency earnings provide a natural hedge.