/Outlook for India’s nonfinancial rated companies in 2021
Outlook for India's nonfinancial rated companies in 2021

Outlook for India’s nonfinancial rated companies in 2021

Hand Rickshaws are parked on a roadside during the first day of a 21-day government-imposed nationwide lockdown as a preventive measure against the COVID-19 coronavirus, in Kolkata on March 25, 2020.

Debajyoti Chakraborty | NurPhoto | Getty Images

SINGAPORE — The outlook for India’s rated nonfinancial companies is “stable” for 2021 as business conditions improve and economic growth is set for a rebound, Moody’s Investors Service said on Wednesday.

Corporate earnings would grow as demand starts to recover, following a sharp drop over the last two quarters, the ratings agency said. A structural shift in consumption patterns would support demand growth over the next 12 to 18 months, according to Moody’s.

Last week, South Asia’s largest economy sank into a technical recession as GDP for the September quarter contracted 7.5%.

India’s growth trajectory was derailed in late March, when the country went into a national lockdown through May in order to stop the coronavirus from spreading.

Economists have said high-frequency data pointed to signs of improvement in subsequent months but warned that the recovery is fragile as infections are still rising in India. While new cases are ticking up at a slower rate, the possibility of further lockdowns poses a risk to consumer demand.

Growth outlook

Sweta Patodia, a Moody’s analyst, said that a broad-based revival for demand and economic conditions in 2020 will support strong GDP growth of 10.8% in India for the fiscal year between April 1, 2021 to March 31, 2022.

“These improving business conditions will increase rated issuers’ earnings, which we expect to return to pre-pandemic levels by the end of fiscal 2022,” she said. “A combination of higher earnings and reduced capital spending will support (debt reduction) over the next 12-18 months.”

A low interest rate environment and widespread credit availability would allow companies with strong balance sheets to refinance and grow, Moody’s said. But liquidity would be tight for financially weaker firms, worsening their operating challenges.

“Specifically, around 39% of the total ($)16 billion of debt maturing through 2022 pertains to such financially weaker, speculative-grade issuers,” the ratings agency said about the debt obligations of some Indian companies.

Sector trends

Moody’s rates 21 Indian companies, including state-owned firms, across five sectors – oil and gas, telecommunications, automobile manufacturers and suppliers, steel and mining. At the moment, six have stable outlooks, 14 have negative outlooks and one company — Vedanta Resources — has its rating under review.

Oil and gas: Moody’s predicted that margins and business conditions in this sector will be more subdued than before the pandemic began. Low oil prices are expected to weigh on earnings for some and sustained weakness in refining margins will keep earnings low for refiners.

Telecommunications: The sector’s profitability has rebounded due to tariff hikes that increased average revenue per user, according to Moody’s. India’s major telcos raised prices last December and Indian media reports suggest they may do so again. 5G spectrum auction prices are likely to be expensive, which is credit negative for telcos, the ratings agency said. 5G refers to the next generation of high-speed mobile internet that is said to enable faster web connections.

Automobile manufacturers and suppliers: Auto sales are expected to modestly increase in 2021 and beyond based on pent-up demand as well as fresh demand for entry-level vehicles since consumers are likely to focus on safe distancing, Moody’s said.

Steel: Steel production is set to resume gradually following the national lockdown. Consumption is predicted to rise by a “low-single-digit percentage” in fiscal year 2022, according to Moody’s.

Mining: The ratings agency predicted a stable global industry outlook for the mining sector would reflect better business conditions and rising production levels that would improve profitability among Indian companies. Capacity ramp-ups and cost reductions are set to support earnings.