IGI Logo

The rating agency ICRA in its latest report has said that the credit metrics of India Inc. are likely to show slight sequential improvement in Q3 FY2024, with interest coverage increasing to 4.5-5.0 times in Q3 FY2024 from 4.5 times in Q2 FY2024. The credit metrics would result from improved earnings of Corporate India, on the back of continuing, albeit moderating tailwinds from commodity prices and seasonally strong demand during the recently concluded festive season.

ICRA’s analysis of the Q2 FY2024 performance of 601 listed companies (excluding financial sector entities) revealed expectedly improved operating profit margins (OPM), increasing by 398 bps and 64 bps on a YoY and sequential basis, respectively. This was primarily aided by softening in commodity prices. However, while the input costs softened in recent months, they remain elevated compared to the historic levels, and accordingly, India Inc.’s OPM is yet to revive to its historic highs.

According to the report, improvement in earnings coupled with a pause in rate hikes by the MPC in the recent past (thereby restricting the upward movement in finance cost), led to YoY improvement in interest coverage ratio to 4.5 times for Q2 FY2024 from 3.9 times in Q2 FY2023 for ICRA’s sample set companies. However, it remained flattish on a sequential basis. An expected revival in earnings coupled with pause on rate hike is likely to result in an improvement in India Inc’s interest coverage to 4.5-5.0 times in Q3 FY2024, although inflationary trends remain a monitorable in the long run.