India Inc’s Credit Quality Has Improved Sharply In The Second Half Of FY22: Rating Agencies


Corporate credit quality in India improved sharply in the second half of FY22, but high input prices and the rollback of pandemic-related aid measures may weigh in the new year, rating agencies said on Friday.

Crisil Ratings, which rates a large number of companies in the financial sector, reported an improvement in the credit rating ratio – the number of upgrades to downgrades – to 5.04 times in the second half of this fiscal year from 2.96% in the first half of the year annual tax.

She attributed the improvement to a sustained recovery in demand that lifted most sectors’ revenues to pre-pandemic levels, and to proactive government relief efforts cushioning the pandemic’s blow.

The agency gave a “positive” outlook on future credit quality and expects upgrades to continue to outpace downgrades in FY23.

However, with pressure on purchase prices, a surge in commodity prices following Russia’s invasion of Ukraine and the possibility of the withdrawal of pandemic-related aid measures, the credit ratio may also be eased, it said.

“Demand recovery, agility in managing supply chains and tight cost controls have supported average operating profit growth at the upgraded companies by 41% over the past two fiscal years — more than double the rate for the portfolio,” said its President and Chief Ratings Officer Subodh Rai .

Meanwhile, Icra said credit quality recovered in FY22 after the economic slowdown in FY20 and the pandemic-scarred FY21.

The downgrade of 184 companies brought the downgrade rate to just 6% versus a 10-year average of 9%, while the upgrade rate in FY22 was 19% due to the ratings upgrade of 561 companies, it said.

The tourism, hotel and restaurant sector had the lowest credit ratio at 0.4, while the ferrous metals sector was the best at 16, Icra said.

India Ratings called FY22 a surprise “remarkable year of recovery”, with the downgrade-to-upgrade ratio at a decade low of 0.3, reversing a three-year trend in which downgrades outpaced upgrades.

The agency said it upgraded the ratings of 276 companies in FY22, accounting for 23% of its rated portfolio, while only 86 companies had their ratings downgraded.

It expects the pace of rating upgrades to slow in FY23. Corporate India is also likely to see margins fall as the Russian war rages on, but the outlook has been changed to ‘stable’ by the agency on the ability of companies to weather stress across industries.

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