HYDERABAD: A host of factors have worsened India Inc’s debt downgrades at three-year-high.
The value of debt downgraded more than trebled to Rs 1.38 lakh crore in the first six months of FY20 from Rs 39,000 crore in the corresponding period a year ago, according to Crisil Ratings.
This is the highest since 2016, the rating firm said in its April-September 2019 review.
Crisil’s debt-weighted credit ratio or the value of debt upgraded to downgraded, plunged to 0.25 times in the first half of FY20 compared to 1.65 times the previous year.
Both global and domestic economic slowdowns, slump in consumption demand, weak government spending intensified credit quality pressures for corporates in the first half of FY20.
Besides, limited access to funding affected the credit profiles of companies across sectors, particularly non-banking and real estate.
However, companies with lower leverage withstood the demand-side challenges better. Over the past five fiscals, the median gearing for Crisil-rated companies improved from 1.3 times to 0.9 times, reflecting the fact that deleveraging has been underway and so is resilience to demand pressure.
“Entities with higher leverage saw more downgrades as pressure from the demand slump intensified. Declining profitability and stretch in working capital cycles also were reasons for the downgrades,” said Somasekhar Vemuri, senior director, Crisil.
Interestingly, the fall in credit ratios was across investment, export and consumption-linked sectors including construction and allied industries that accounted for over 30 per cent of downgrades due to delay in project execution and stretched liquidity.
Similarly, export-linked sectors turned in mixed performance with pharmaceuticals benefiting from supply constraints in China.