Credit ratios remain robust in H1FY23: Rating agencies CRISIL, ICRA


Reflecting an improving corporate profile, the credit ratio, which corresponds to rating upgrades versus downgrades, remained elevated at 5.52 in the first half of FY23 from 5.04 in October-March 22, according to CRISIL.

Strengthening domestic demand, higher realizations leading to better cash flow, and still low-leverage balance sheets across all sectors drove the credit ratio higher.

The credit outlook remains positive. Supported by an economic recovery, domestic demand should be resilient. Moreover, the momentum in government infrastructure spending bodes well for businesses, the rating agencies said.

However, continuing high inflation, rising interest rates and a slowdown in major economies remain risks.

The performance of upgraded businesses has improved significantly over the past three fiscal years despite pandemic-related disruptions.

This is reflected in the expected median growth in earnings before interest, amortization, taxes, depreciation and amortization at a three-year compound annual growth rate of 25% for them. This is much better than the 12% expected for the rest of the portfolio.

ICRA said India Inc.’s credit quality continued to strengthen in the first half of FY23, continuing the momentum built since the start of FY22.

For ICRA, in the first half of FY23, as well as in FY22, the number of rating upgrades was more than three times the number of downgrades. It was 2.8 times in the first half of FY22.

CRISIL said 13 sectors, representing 18% of rated debt, were the fastest growing with strong balance sheets.

Their operating cash flow is expected to increase more than 10% in FY23 year-on-year, which is higher than other sectors.

These include the hotel industry, airport operators, manufacturers and seaports.

While the trend towards a higher credit ratio is expected to continue in the second half of FY23, global headwinds and high inflation could negatively impact exports in sectors such as textiles, pharmaceuticals and information technology.


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