Singapore, January 04, 2017 -- Moody's Investors Service and its Indian affiliate, ICRA Limited,
say that their stable outlook for non-financial corporates in India
(rated Baa3 positive by Moody's) over the next 12-18 months
reflects in large part the country's sustained economic growth.
"Strong GDP growth, capacity additions and stabilizing commodity
prices will support EBITDA growth of 6%-12% over
the next 12-18 months," says Laura Acres, a Managing
Director in Moody's Corporate Finance Group.
Moody's also points out that the capex cycle for Indian corporates
has peaked, as projects near completion, and declining investments
will slow the pace of borrowing over the next 12-18 months.
Moreover, refinancing needs are manageable for most corporates in
2017, given their better access to the capital markets and large
cash balances.
"As for specific sectors, our outlook for the power,
hotel and sugar industries is stable, while that for the real estate
and cement sectors is negative," says Subrata Ray, Senior
Group President and Head of Research for ICRA.
ICRA says that distribution utilities will benefit from the lower cost
of power purchases, due to improved domestic coal availability,
the subdued tariff level of short-term traded power, and
flexibility provided by the government to generating companies for the
optimal utilization of coal.
ICRA also points out that an improvement in domestic coal availability
has substantially mitigated coal supply risk and the risk of under-recovery
in fuel costs — due to a reliance on costlier coal imports —
for thermal independent power producers.
Moody's stable outlook for exploration & production companies reflects
higher production volumes, low subsidy burdens and a recovery in
oil prices, which will offset lower natural gas prices and higher
royalty payments.
In the refining & marketing segment, Moody's says that
its stable outlook is based on the fact that capacity additions will partly
offset weaker refining margins, while marketing margins will remain
stable.
Moody's also maintains a stable outlook on the Indian telecommunications
sector. Moody's says that while companies in this sector
face intensifying competition — which will pressure margins —
such a situation should be offset by growth in data consumption.
As for the auto sector, Moody's says that its outlook for
the industry is stable, because companies in this industry should
benefit from improving customer sentiment, following an above-average
monsoon season, as well as likely falling vehicle prices,
after the implementation of the goods and services tax in April 2017 that
will replace a web of taxes. In the near term, however,
sales volumes could be negatively affected by demonetization.
ICRA explains that its outlook on the cement sector is negative,
because cement demand growth — which has stagnated around the mid-single
digit over the last few years — will likely be further negatively
affected by demonetization through the real estate sector, which
is a major consuming segment.
In the short-term, ICRA says that the cement industry will
likely experience stretched receivables, given their need to provide
liquidity to offset the impact of demonetization. ICRA points out
that cement prices have fallen across regions following demonetization;
this situation, combined with increased input prices — such
as petcoke and rising freight costs — will adversely affect profitability.
ICRA's outlook on the sugar sector is stable. ICRA expects
domestic sugar production to fall 8% during October 2016 -
September 2017 on lower cane availability, owing to poor monsoons
in CY 2015. While monsoons have been relatively better in CY 2016,
its impact on sugarcane production will be felt only between October 2017-
September 2018. Accordingly, ICRA expects sugar prices to
remain firm in the near-term, on lower production,
low sugar stocking levels and a global supply deficit.
ICRA points out that while sugar prices have remained strong, cane
prices have only increased modestly. This situation, along
with strong by-product prices for molasses, alcohol,
and bagasse should support profit margins for sugar companies.
However, company balance sheets will remain under strain,
due to past losses.
With the real estate sector, Moody's expects the country's
demonetization to negatively affect sales volumes. Nevertheless,
volumes will start to pick up, as interest rates fall.
On the hotel industry, ICRA says that large supply additions —
which had plagued the industry in the past several years — will
likely moderate to a compound annual growth rate of about 8% over
the next four years.
Based on the improved supply absorption — supported by double-digit
growth in demand — ICRA expects a gradual improvement in revenue
per available room. Better profit margins will also improve debt
coverage indicators.
This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.
Vikas Halan
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Laura Acres
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
