India’s corporate credit environment is improving significantly, according to a recent S&P Global report. The analysis highlights stronger credit quality driven by enhanced financial discipline, broad-based earnings growth, and robust liquidity profiles across various sectors.
The report notes that one in three ratings in India now carries a positive outlook, reflecting a major shift after three years of net positive rating actions. This indicates a more stable and resilient corporate landscape in the country.
Corporate leverage in India is expected to decline slightly, even as capital expenditure (capex) increases by 30% compared to pre-pandemic levels. This balance is attributed to better financial management among companies, which have managed to fund rising capex while maintaining financial prudence.
S&P Global forecasts a 10% growth in aggregate EBITDA for 2024, driven by strong performances in telecommunications, airports, commodities, and chemicals. These sectors highlight corporate India’s ability to generate solid cash flows despite global economic challenges.
Strong onshore liquidity and the absence of large debt maturities have bolstered the liquidity profiles of Indian companies, making them more resilient to foreign exchange and interest rate volatility.
The report also points out that both infrastructure and non-infrastructure sectors are reducing leverage, with significant debt reductions seen in non-infrastructure areas. However, infrastructure entities are slower in cutting debt due to high capex, especially in energy transition projects.
Operating cash flows are outpacing capex across sectors, supporting further deleveraging. The transportation infrastructure sector, for instance, is benefiting from increased traffic and tariff hikes, improving port revenues and margins. Airports are also seeing higher traffic and better cash flows, enhancing overall credit quality.
In the utilities sector, rising demand and new capacity are driving earnings growth, although capex remains high, particularly for energy transition initiatives. The steel sector is expected to see improved cash flows due to lower input prices and new capacity additions.
Meanwhile, the telecom sector is on a path to significant deleveraging following the 5G auctions in 2023, with capex expected to moderate. The auto sector is stabilizing after supply chain disruptions, with low debt levels and steady growth supporting a positive outlook.
In chemicals, falling input costs and stabilized product prices are driving an earnings recovery following a downturn in 2023, indicating a broader trend of recovery across India’s industrial sectors.
S&P Global concludes that with the highest proportion of positive credit outlooks in the region, India’s corporate sector is well-positioned for continued improvement in credit quality.
