Moody’s Sees Stable Near-Term Outlook in India’s Nonfinancial Business Sector

Ongoing growth among India’s nonfinancial corporates will bode well for their credit outlook over the next year to year and a half, says Moody’s Investors Service and its Indian affiliate, ICRA Limited. The nation’s sector has been rated Baa3 positive by Moody’s.

"Strong GDP growth, capacity additions and stabilizing commodity prices will support EBITDA growth of 6% to 12% over the next 12 to 18 months," said Laura Acres, a managing director in Moody's Corporate Finance Group.

The ratings agency also points out that the pace of borrowing in India’s corporate sector will slow over the same timeframe as the capital expenditure cycle for Indian businesses has peaked. Large cash balances and better access to the capital markets also means refinancing needs will remain manageable this year.

"As for specific sectors, our outlook for the power, hotel and sugar industries is stable, while that for the real estate and cement sectors is negative," says Subrata Ray, senior group president and head of research for ICRA.

Meanwhile, Moody’s has a stable outlook for Indian energy exploration and production companies that reflects their higher production volumes, lower subsidy burdens and recovering oil prices.
India’s telecom sector also has a stable outlook from the ratings agency because, even though there is intensifying competition that will pressure margins, the situation will be offset by growing data consumption, analysts said.

Falling automobile prices stemming from a consolidation of taxes into the less-complex goods and services tax in April and improved consumer sentiment have translated to a stable outlook in the auto sector, Moody’s said.

India’s cement industry is one sector with a negative outlook. Cement demand growth, already suffering from single-digit growth over the last several years, is set for more hard times with demonetization through the real estate sector, analysts said.

“In the short-term, ICRA says that the cement industry will likely experience stretched receivables, given their need to provide liquidity to offset the impact of demonetization,” Moody’s said. “ICRA points out that cement prices have fallen across regions following demonetization; this situation, combined with increased input prices—such as petcoke and rising freight costs—will adversely affect profitability.”

– Nicholas Stern, editorial associate

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