IANS | 28 Nov, 2023
ICRA expects the credit metrics of India Inc. to show slight
sequential improvement in October-December quarter 2023-2024, with the
interest coverage ratio increasing to 4.5-5.0 times in Q3 FY2024 from
4.5 times in Q2 FY2024.
The interest coverage ratio is calculated
by dividing a company's earnings before interest and taxes (EBIT) by its
interest expense during a given period.
The credit metrics would
result from improved earnings of Corporate India, on the back of
continuing, albeit moderating tailwinds from commodity prices and
seasonally strong demand during the recently concluded festive season,
the credit rating agency said.
ICRA’s analysis of the Q2 FY2024
performance of 601 listed companies (excluding financial sector
entities) revealed expectedly improved operating profit margins,
increasing by 398 bps and 64 bps on a year-on-year and sequential basis,
respectively. This was primarily aided by softening in commodity
prices. However, while the input costs softened in recent months, they
remain elevated compared to the historic levels.
Improvement in
earnings coupled with a pause in rate hikes by the RBI in the recent
past (thereby restricting the upward movement in finance cost), led to
YoY improvement in interest coverage ratio to 4.5 times for Q2 FY2024
from 3.9 times in Q2 FY2023 for ICRA’s sample set companies.
However,
it remained flattish on a sequential basis. An expected revival in
earnings coupled with pause on rate hike is likely to result in an
improvement in India Inc’s interest coverage to 4.5-5.0 times in Q3
FY2024, although inflationary trends remain a monitorable in the long
run.
“While India Inc’s performance in Q3 FY2024 is expected to be
supported by the seasonally strong festive period, the uncertainties in
the global economic environment, ongoing geo-political developments,
and the impact of ongoing food inflation on rural sentiment and related
sectors are potential headwinds,” said Kinjal Shah, Vice President &
Co-Group Head – Corporate Ratings, ICRA Limited.
"Accordingly,
the ability of India Inc. to navigate these challenges remains critical.
Furthermore, as the base effect catches up, the revenue growth momentum
is likely to slow down, with YoY revenue growth estimated at 2-4 per
cent for Q3 FY2024 as well as H2 FY2024."
