Crisil, Icra upgraded more companies under their watch as credit quality improves on rising consumer demand, benign commodity prices and increased government spending
Ratings agencies Crisil and Icra are witnessing improvement in credit quality of Indian companies on increased consumer demand, benign commodity prices and increased government spending.
Both rating agencies saw higher number of companies getting their ratings upgraded during 2014-15. Though the number of companies upgraded outnumbered the downgrades, the total amount of debt upgraded was less than amount of debt downgraded for Crisil.
It said in a teleconference on Monday that under its rating watch 816 accounts with a total debt of Rs 1.4 lakh crore were upgraded, while 466 accounts with a total debt of Rs 2.26 lakh crore were downgraded.
Crisil said in a release, "Upgrades are expected to continue to outnumber downgrades in the near term on the back of pickup in consumption demand. However, the improvement will not be broad-based unless investment demand picks up significantly as infrastructure-related sectors, such as construction, steel and real estate, remain beset by low capacity utilisation, sluggish demand, stretched liquidity and high leverage. It said that the steps taken by the government to revive investment demand will boost the prospects of investment-linked sectors over the medium term.
The healthy performance of mid-sized firms in comparison to small firms, Crisil said, was due to efficient working capital management that stems from greater bargaining power. On the other hand, highly leveraged large firms were paralysed by the large quantum of debt on their balance sheets. Most of these firms have linkages to the infrastructure sector, which continues to be beset by subdued investment demand.
A large proportion of this debt has been contracted for projects that haven't been completed yet or are facing demand slack after completion. Any significant improvement in the asset quality of banks in the near term will be derailed unless these vulnerable firms are able to successfully de-leverage their balance-sheets.
Icra also had a larger number of upgrades at 913 while downgrades were at 472. In a separate release, Icra said, "Company-specific factors drove a significant majority of the upgrades in 2014-15, the anticipated stability in the macro environment and an improved business outlook limited instances of downgrades. For Icra, the stress was due to a weak demand environment and stretched working capital cycle, delays in project implementation (leading to cost overruns), and lack of financial discipline (resulting in delays in debt servicing)."
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