India Ratings affirms negative rating on retail sector
The company does not expect any improvement in consumer sentiment over the next 6-12 months
Mumbai: India Ratings, a Fitch Group company, has kept its negative rating on the country’s retail sector for the second half of 2013 and said it does not expect any improvement in consumer sentiment over the next 6-12 months.
“On the capex front, the retailers are looking at profitable and moderate pace of additions (under 10%) in financial year 2014 as against the range of 15-30% seen in the last two-three years," said analysts Janhavi Prabhu and Priyanka Poddar of India Ratings in the report released on Friday.
“Hurdles in attracting foreign direct investment (FDI) have increased", the report said. It pointed out that recent instances of alleged questionable practices under the existing Foreign Corrupt Practices Act “may further increase the challenge of attracting FDI in sectors such as retail".
“Foreign investors may additionally face a regulatory or reputation risk in their home jurisdictions," the report said.
India Ratings expects lower operating profitability, higher funding costs and working-capital requirements to continue to exert pressure on operating cash flows.
In fiscal 2014, even though capex is expected to be lower, meaningful deleveraging is unlikely to occur, according to the report. While some companies may resort to asset sales to reduce absolute debt levels, the commensurate reduction in cash flows from these assets, may provide limited, if any, benefit to credit profile, the report said.
However, the analysts said that a sustained reduction in consumer price inflation, coupled with healthy productivity in summer-sown kharif crops, may benefit consumer spending in the last quarter (January-March, 2014) of the fiscal year.
Alternately, a sudden spurt in government spending may have a temporary beneficial impact on private consumption, ultimately benefiting the sector, said the report.
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