India Inc’s credit metrics are likely to show further improvement in the September quarter, a domestic rating agency said on Friday. The recent trends in softening of commodity prices, price hikes by companies, and anticipation of a favourable demand are the factors helping the industry, Icra Ratings said.
The interest coverage is likely to improve to 4.5-5 times in the July-September period from 4.5 times in the June quarter, the agency said, adding that inflationary trends remain a monitorable.
Its Co-Group Head for Corporate Ratings, Kinjal Shah said that India Inc will depend on its ability to navigate headwinds that are ongoing such as tepid growth in developed nations and forex fluctuations on import for its earnings.
Sequential improvement in operating profit margin was the most visible in sectors such as aviation, oil and gas, retail and auto brands, Shah said, adding that the evolving geo-political situation presents uncertainties on the profitability front.
The agency said rate hikes of 2.5 per cent undertaken by the RBI since last May have had a bearing on the interest coverage ratio for the quarter and tempered the benefits accruing through margin improvements.
The interest coverage ratio was 5.2 times in the first quarter of 2022-23, which weakened to 4.5 times in the June quarter of the current fiscal, the agency said, adding that the improvement is on the back of the extended pause in policy rates and an expected earnings revival.
An analysis of 591 listed companies, excluding financial sector entities, revealed an improvement in operating profit margins, aided by softening in commodity prices, coupled with a favourable demand situation.
Shah further added that growth is anticipated to continue in the following quarter on the back of stable demand and strong seasonal festive period and India’s ability to sustain said results is yet to be seen due to macroeconomic uncertainties and impacts from demand momentum.
