India Inc's credit fundamentals at all-time high

Indian corporates' credit fundamentals are at an all-time high. This has positioned them to weather any deceleration in the growth of the economy on account high oil prices or potential slowdown in the global economy, rating agency Crisil said today releasing its ratings round up for 2004-05.

Crisil said an analysis of its rating trends suggests that the credit quality of corporates rated by it is stronger than it has been at any time in the recent past. Initiatives in cost cutting, coupled with lower finance costs, have contributed to sustainable improvements in competitiveness across sectors.

The analysis shows that the modified credit ratio (the ratio of upgrades plus reaffirmations to downgrades plus reaffirmations) hit an all-time high of 1.16, surpassing the previous high of 1.06 in 1994-95, driven by manufacturing and finance sectors. In 2004-05, Crisil's rated portfolio witnessed 26 upgrades, a downgrade and a default.

The corporate sector's initiatives in cost cutting and value engineering, coupled with lower finance costs, have contributed to sustainable improvements in competitiveness across sectors, said Roopa Kudva, Crisil's executive director and chief rating officer.

"Crisil-rated corporates have used this phase of high accruals to strengthen their balance sheets, and are therefore better placed to cope with incipient margin pressures or any future slowdown," G V Mani, director, rating criteria and product development, Crisil, said.

Strong demand, coupled with modest capacity addition in the recent past, has resulted in high operating rates across key industries. In spite of higher capital expenditure, the debt protection measures for companies in Crisil's portfolio are expected to remain strong due to stronger balance sheets and improved profitability.

The year 2004-05 had begun with five companies having positive outlooks; all of these were upgraded during the year. At present, 97 per cent of Crisil's outstanding ratings have stable outlooks indicating high stability for these ratings over the medium term.