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Non-financial corporate leverage levels to improve in FY19: Moody’s

Non-financial corporates in the country may show modest improvement in their leverage levels in the current financial year, supported by higher revenue and earnings growth, says a report.

Global rating agency, Moody’s, in a report on Tuesday said the revenue and EBITDA of non-financial corporates that it rates in the country should grow 10 per cent and 8 per cent, respectively, for fiscal 2019.

Strong demand and production efficiencies will help the companies preserve their profitability against the backdrop of rising commodity prices. And, aggregate leverage for rated companies will fall modestly in FY19,” Moody’s vice president and senior credit officer, Kaustubh Chaubal, said in the report.

These companies reported strong financial results for FY18, with revenue and EBITDA increasing 13 per cent and 12 per cent, respectively. The acquisitions and capital spending financed by debt will cause the debt levels of its rated companies to rise by 5 per cent in FY19.

The report, however, said leverage for the telecommunications sector will remain elevated on relentless competition, which will in turn hurt profitability.

Metals and mining companies are taking on more debt to fund capital spending and acquisitions, prompting a spike in leverage, it said. The report said high commodity prices will benefit the metals and mining, and oil and gas sectors, but are negative for end-user industries such as the auto, chemicals and real-estate sectors unless they can pass the higher costs to their customers.

Tightening regulations and trade tariffs globally will strain export-oriented sectors such as IT services and auto, but the weakening rupee will somewhat mute this impact, it added.

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