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Business News/ Companies / Corporate credit profiles bottoming out, says India Ratings
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Corporate credit profiles bottoming out, says India Ratings

A report by India Ratings and Research says a number of financial indicators are suggesting a recovery

The report says that 2013-14 was the first year since 2010-11 when these companies, excluding banking and financial services, saw their average Ebitda and funds from operations grow more than debt and interest expense. Photo: iStockphotoPremium
The report says that 2013-14 was the first year since 2010-11 when these companies, excluding banking and financial services, saw their average Ebitda and funds from operations grow more than debt and interest expense. Photo: iStockphoto

Mumbai: The credit profile of BSE-500 companies is finally bottoming out, with a number of financial indicators suggesting a recovery, according to a report by India Ratings and Research, a credit rating agency.

The report, released on Tuesday, says that 2013-14 was the first year since 2010-11 when these companies, excluding banking and financial services, saw their average earnings before interest, tax, depreciation and amortization (Ebitda) and funds from operations grow more than debt and interest expense.

Also, in 2013-14, nine sectors showed a directional deterioration in operating performance as well as credit metrics compared with 12 sectors a year ago, the report adds.

Sectors like shipping, retail, chemicals, pharmaceuticals, telecom, media and entertainment have shown tentative signs of turnaround since the second half of 2012-13, according to India Ratings. This was driven by an improvement in domestic and global demand coupled with a stable domestic currency.

“While a bottoming out is generally considered a precursor of recovery, the agency remains cautious as the signs of a broad-based recovery are yet to be reflected in the financial statement of BSE-500 companies," the report said.

Companies have been trying to reduce leverage by selling assets, both core and non-core. Many have successfully managed to lower their debt, while others have set ambitious targets for the same.

In the first four months of the current fiscal year, companies have put more than 17,000 crore worth of assets on the block, Mint reported on 2 August.

Meanwhile, corporate vulnerability—expressed as the number of firms with funds from operations to interest coverage ratio below 1—is at the highest level in 2013-14 since 2008-09, the agency said.

In the year ended March, one of five companies was vulnerable to economic shock, it added.

“Thus, any recovery of the majority of corporates would be conditional to a stable interest rate, a stable domestic currency and a gradual improvement in economic conditions," the report said.

The agency also cautioned that working capital cycles of companies continue to be stretched, affecting liquidity. The infrastructure, construction and mining sectors may remain stressed in the current fiscal, it said.

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Published: 16 Sep 2014, 02:13 PM IST
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