Benefiting from strong consumer demand and high commodity prices, Indian companies will show significant EBITDA growth over the next 12 to 18 months, according to Moody’s.
The rating agency, which has 22 Indian companies under its scanner, said growing government spending on infrastructure will support demand for steel and cement. In addition, the increase in consumption, the push towards domestic manufacturing and favorable financing conditions will support new investments.
The effects of supply chain disruptions will lessen as semiconductor supply increases over the coming months, he added.
Steady progress in vaccinations against the Coronavirus (Covid-19) will support a sustained recovery in economic activity. Economic growth will rebound strongly in India. He fixed gross domestic product growth at 9.3% for fiscal 22 and 7.9% for fiscal 23.
While general economic sentiment is optimistic, the rating agency has issued a warning. If new waves of infections were to occur, it could trigger further lockdowns and erode consumer sentiment. Such a scenario would dampen economic activity and consumer demand, potentially resulting in moderate EBITDA growth of less than 15-20% for Indian companies over the next 12-18 months.
In addition, delays in government spending, energy shortages that depress industrial production or falling commodity prices could weigh on corporate profits.
India’s currently low interest rates will reduce financing costs and support new capital investment as demand increases. However, rising inflation could cause interest rates to rise faster than expected, weighing on business investment.
Referring to their borrowings, Moody’s said the refinancing risk is manageable for most rated companies. About $ 7.3 billion of rated currency bonds mature through 2023. Of which about $ 3.1 billion are from high yield issuers
About 57% of foreign currency bond maturities through 2023 are destined for investment grade companies, including government-linked issuers that have privileged access to capital markets.
The remaining bond maturities until 2023 relate to high yield companies that are recurring issuers on the international bond markets. These companies – including JSW Steel Ltd, Bharti Airtel Ltd and Vedanta Resources Limited (B2 stable) – are expected to maintain good access to finance.
Macrotech Developers Limited, an entity of the Lodha Group, has a bond maturity of $ 225 million in March 2023. The refinancing risk will be mitigated if the company repays the bond from collections of existing sales over the next few months, has Moody said.