India Ratings and Research (Ind-Ra) has published the March 2021 edition of research and ratings compendium. Following are some of the key topics included in this edition:
1. A summary of the rating actions taken during FY21
2. The outlooks of the sectors covered by Ind-Ra
3. The growth of auto sector, led by economic recovery
4. The impact of customs duty on discoms
5. The shifted focus of microfinance
institutions and unsecured loans to containing losses
Rating action highlights: During
FY21, the agency downgraded 199 issuers and upgraded 147 issuers - the second
consecutive year when downgrades exceeded upgrades. However, despite the
pandemic, the corporate downgrade to upgrade ratio (D-U ratio) was lower at 1.4
than 1.9 in FY20.
The rating actions through FY21 have largely followed Ind-Ra’s expectations, as per recovery framework.
The Discretionary bucket has been worst impacted and the sectors such as airlines, airports, real estate (residential), hotels and construction could be the most impacted from a delayed demand recovery till mid-FY22, though some of them have the liquidity and support from stronger parents to manage in the interim. Leveraged sectors which were reliant on refinancing prior to the COVID-19 outbreak could find it increasingly difficult post COVID-19. This bucket witnessed the highest rating downgrades - D-U ratio for this bucket was 4.9. About 44% of the ratings were either downgraded or were on a negative directional indicator. The Industrial bucket, containing power, iron and steel, logistics, cement, construction, auto and auto ancillaries, is more vulnerable amid production cuts and may not have recovered until late FY21, given weak consumer sentiments and imminent supply chain disruptions. Balance sheets in most cases will remain leveraged. The sector witnessed a D-U ratio of 2.0.
The performance of the
non-discretionary sectors would improve modestly in a phased-out manner in FY22;
however, the gains will be capped by lower nominal GDP growth in relation to
historical standards. Among these, broader economic essentials and agro
commodities could revert to normalcy at a faster pace. These sectors include
chemical, oil and gas, IT, sugar and agro commodities. Non-discretionary,
following essentials, saw fewer downgrades and higher upgrades than
Discretionary and Industrial buckets. The Essential bucket includes sectors
such as pharma, healthcare, and telecom in this category, had limited supply
disruptions and adequate credit buffers, though balance sheets in certain cases
are leveraged. The downgrade seen in the Essentials bucket were primarily from
pre-pandemic credit stress. About 55% of the ratings were downgraded to default,
largely because of delays prior to the pandemic. Upgrades in this bucket were
the highest, as companies were able to expand their revenue and profitability. In
fact, they could improve and sustain their financial metrics over the medium
The agency has been continuously monitoring the on-ground situation among its rated universe and the sectors at large, and transparently communicating to the market its views, forecasts and its assumptions and the rating sensitivities through sector-specific webinars and research reports.
The compendium is freely available for download from our website www.indiaratings.co.in.
Additional information is available at www.indiaratings.co.in.
The ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.