Credit profile of companies worsens in H1: Crisil

Mumbai: Credit profile of Indian companies worsened to the lowest since 2016 in the first half of the fiscal 2020 as corporate India faced demand challenges across investment, consumption and export linked sectors, rating agency Crisil said. The rating agency maintained a cautious outlook for the second half of the year due anaemic domestic consumption, slowing global growth, slackening of government spending and investor risk aversion.

Crisil’s credit ratio or the ratio of upgrades to downgrades fell to 1.21 times in the first half of fiscal 2020, the lowest in three years and down from 1.73 times for fiscal 2019. The rating agency rates a total of 11,000 Indian companies. The value of debt downgraded more than trebled to Rs 1.38 lakh crore in the first half of fiscal 2020 from Rs 39,000 crore in the first half of fiscal 2019. That’s the highest for any half since fiscal 2016. A total of 438 companies were downgraded while 528 companies were upgraded during the first half.

The debt weighted credit ratio or the ratio which takes into account the debt of companies with rating downgrade to debt of companies with upgrades plunged to 0.25 time in the first half of fiscal 2020, compared with 1.65 times for fiscal 2019.

Crisil analysts also expressed a cautious outlook. “We expect GDP growth to clock 6.3 per cent in this fiscal largely because of a good monsoon which will boost rural consumption and improve growth in the second half of the year. However, companies will have to reduce their prices and pass on the benefit of tax cuts to consumers for it to have any impact in the next six months,” said Somasekhar Vemuri, senior director, Crisil Ratings.

Constrained access to funding also affected the credit profiles of entities across sectors, especially non-banks and real estate. Companies with higher leverage saw more downgrades due to declining profitability and stretch in working capital cycles. Companies with lower leverage withstood the demand-side challenges better.

However, corporate gearing has come down as companies have deleveraged their balance sheets. Also, bank NPAs have consistently been on a slide and is likely to fall to 8 per cent at the end of the fiscal from 9.3 per cent in March 2019 and 11.5 per cent in March 2018 because of lower fresh slippages quickening pace of resolutions due to the bankruptcy code.