Stable outlook on Indian corporates over next 12-18 months reflects India sustained economic growth: Moody’s

Moody’s on Wednesday said the stable outlook on Indian corporates over the next 12-18 months reflects the country’s sustained economic growth.

“Strong GDP growth, capacity additions and stabilising commodity prices will support EBITDA growth of 6-12 per cent over the next 12-18 months,” Moody’s Corporate Finance Group Managing Director Laura Acres said.

Moody’s Investors Service and its affiliate ICRA said the stable outlook for non-financial corporates in India over the next 12-18 months reflects in large part the country’s sustained economic growth.

It said the capex cycle for corporates has peaked as projects near completion and declining investments will slow the pace of borrowing over the next 12-18 months.

Moreover, refinancing needs are manageable for most corporates in 2017, given their better access to the capital market and large cash balances.

“As for specific sectors, our outlook for power, hotel and sugar industries is stable while that for the real estate and cement sectors is negative,” said Subrata Ray, Senior Group President and Head of Research for ICRA.

Moody’s has a ‘Baa3’ rating on India with a positive outlook. Baa generally indicates moderate risk.

ICRA said distribution utility companies will benefit from lower cost of power purchases due to improved domestic coal availability, subdued tariff level of short-term traded power and flexibility provided by the government to generating companies for optimal utilisation of coal.

ICRA also pointed out that an improvement in domestic coal availability has substantially mitigated supply risk and that of under-recovery in fuel costs due to reliance on costlier coal imports.

Moody’s stable outlook for exploration and production companies reflects higher production volumes, low subsidy burden and recovery in oil prices, which will offset lower natural gas prices and higher royalty payments.

In the refining and marketing segment, Moody’s said its stable outlook is based on the fact that capacity addition will partly offset weaker refining margins while marketing margin will remain stable.

Moody’s also maintains a stable outlook on the Indian telecommunication sector. While companies face intensifying competition which will pressure margins such a situation should be offset by growth in data consumption, it added.

As for the auto sector, Moody’s said its outlook is stable because companies in this industry should benefit from improving customer sentiment following an above-average monsoon season as well as a likely fall in vehicle prices after implementation of the goods and services tax that will replace a web of taxes.

Moody’s expects demonetisation to affect sales volumes of the real estate sector. The volumes will start to pick up as interest rates fall, it added.