Infra firms to see robust growth in FY11: Crisil

Signalling that the worst is over for the economy, Crisil Ratings today said companies in sectors like infrastructure, power and finance are expected to record robust growth in the current fiscal.

Infrastructure-related industries like power equipment, steel, cement, construction, healthcare, education and financial services will see high demand growth in the medium-term, Crisil said in its Ratings Round-up report released here today.

On the other hand, export-dependent industries like gems and jewellery, textiles and IT, will register only moderate growth as they are linked to the revival of the global economy.

The report further said during the current fiscal more companies are expected to witness upgrades than downgrades."We believe that the worst is over for the domestic economy, and present trends indicate that upgrades will outnumber downgrades in 2010-11," said Crisil Ratings Chief Executive Officer and Managing Director Roopa Kudva.

She said, however, "the degree to which the credit cycle turns will depend on the sustainability of demand growth, and the impact of fresh capital expenditure on the balance sheets of these players."

Referring to the performance of companies in the last fiscal, Crisil said it has already upgraded more domestic companies than it downgraded during the second half of the past fiscal, reversing a three-year trend. Besides, it added that the number of defaults by companies also declined during the second half of the past fiscal to 20 from 29.

The ratings agency, however, cautioned that there is still some fragility in credit quality. "The undertone of fragility in credit quality remains, and is reflected in the fact that 426 companies (representing 13.1 per cent of Crisil's long-term ratings) still carry a 'negative' outlook, against 105 companies (3.2 per cent) with a 'positive' outlook," the report said.

The report said real estate and related companies account for 18 per cent of the 'negative' outlook companies, and those in the textiles arena accounted for 12 per cent. "Both these industries are still highly leveraged and will require strong demand revival or large equity infusions for their credit profiles to stabilise. Textile players will also need to contend with exchange rate volatility," it added.

On the other hand, construction players account for 20 per cent of the 'positive" outlook and are witnessing robust demand because of government's increased spending in the infrastructure sector.

Crisil, which has about 3,700 Indian entities on its long-term monitoring list, said during the October-March period of the past fiscal, there were 108 rating upgrades as against 95 downgrades.

For the entire fiscal, Crisil said there were 210 downgrades as against 123 upgrades, compared to 84 and 2 respectively during 2008-09.

Each Crisil rating--AAA being the highest--has three further classifications (positive, stable, negative) and indicates a company's creditworthiness on a wide range of parameters.

The Crisil report said its modified credit ratio (MCR)-- the ratio of upgrades and reaffirmations over downgrades and reaffirmations--improved for the first time in four years in FY10. MCR for 2009-10 increased to 0.93 times, from 0.86 times for 2008-09.

"The ratio has risen for the first time in five years-- from 2004-05 to 2009-10. It is still below one, indicating more downgrades than upgrades," said Crisil Director Ajay Dwivedi in a conference call.

He said although present trends indicate that upgrades are likely to outnumber downgrades in 2010, "a global credit event on sovereign debt, a build-up of inflationary expectations and exchange rate volatility may disrupt trends over the near- to medium-term".

He cited recent debt crisis in Dubai and some EU nations like Greece to say that global events could still pose economic challenges and impact companies globally.