Executive summary
The Crisil Ratings credit ratio, or the proportion of rating upgrades to downgrades, increased to 2.75 times in the first half of this fiscal from 1.79 times in the second half of last fiscal. This highlights the sustained strengthening of India Inc’s credit quality.
Overall, there were 506 upgrades and 184 downgrades. The annualised upgrade rate of 14.5% outpaced the average of ~11% for the past decade, while the downgrade rate of 5.3% was lower than the 10-year average of 6.5%. Notably, the rating reaffirmation rate continued to be stable at ~80%.
Rating upgrades continued to surpass downgrades, reflecting resilient domestic growth, supported by the government’s continued policy support towards infrastructure build, revival of rural consumption demand and leaner corporate balance sheets. As many as 38% of the upgrades were from the infrastructure and linked sectors. The primary drivers include acquisitions by strong sponsors and lower than expected debt, particularly in the renewables sector, reduction in project risks as road projects achieve critical milestones, progressive order execution in construction and a healthy order book in the capital goods sector.
On the other hand, the rating downgrades were spread across sectors. The downgrades seen in agricultural products and textiles sectors were due to volatile realisations and moderation in global demand, respectively. Furthermore, entity-specific liquidity issues, particularly in companies rated in the sub-investment grade category, also contributed to the downgrades.
Gearing will remain healthy (below 0.5 time) despite private sector capital expenditure (capex) showing signs of revival from the sharp decline seen during the pandemic. The capex is to accommodate the improving capacity utilisation.
However, capex intensity — measured as capex over Ebitda1 — remains moderate, averaging 50% over fiscals 2024 and 2025 as against the decadal high of 72% during fiscal 2016. This, together with lean corporate balance sheets, implies that India Inc has significant financial headroom to support broad-based capex as utilisation levels rise. A Crisil Ratings analysis of about 900 companies indicates as much.
The proprietary Crisil Ratings credit quality framework for the corporate and infrastructure sectors — known as the Corporate and Infrastructure (COIN2) framework — provides the credit quality outlook for 38 sectors, accounting for more than 75% of the rated debt this fiscal.
1Ebitda: Earnings before interest, taxes, depreciation, and amortization
2A credit quality outlook framework for the corporate and infrastructure sectors. The framework factors in growth in cash flows and balance sheet strength for corporate, and revenue growth and movement in debt protection cover for infrastructure.
