Overall, India Inc credit profile looks healthy: Ramnath Krishnan, Icra Group CEO

Corporate India's credit profile has held strong despite the geopolitical challenges and uncertainties in the last one year. However, higher inflation, oil prices and a weaker rupee could start hurting businesses and consumer confidence, said ICRA Group CEO Ramnath Krishnan in an interview to Joel Rebello. Edited excerpts:

What is driving corporate India's strong credit quality despite volatility?

Post-Covid, corporates spent considerable time on deleveraging and improving liquidity, which has strengthened credit profiles across corporate India. Most companies remain in a good place. ICRA continues to see roughly three rating upgrades for every downgrade, indicating corporate India's overall credit profile remains healthy despite stress in a few sectors, and that is unlikely to change significantly. While sectors such as chemicals, airlines, gems and jewellery, and oil & gas refining face pressure from geopolitical issues, and ICRA has a negative outlook on these sectors, the agency does not see any major systemic crisis emerging.


If this crisis continues, do you see any pressure on the credit ratio?

It is confined to a few sectors, so we don't expect material change. But could it bring the credit ratio down by a few points? Possibly. Essentially, it's going to be a function of how long the war is going to last, and nobody has an answer to that. But there will be a lot of other collateral damage we need to be mindful of. There will be pressure on inflation. Now, our forecast for headline WPI is about 9% and CPI about 5%. If crude prices continue to remain at elevated levels, at $100 a barrel or beyond that, then there will definitely be pressure on inflation.

What are the headwinds for corporate credit as we speak?

International factors, inflation, and a weak rupee for corporates who have significant foreign currency exposure. Corporates have several things affecting their margins. Freight costs have gone up or will rise if the war persists. Input costs, and cost of borrowing, has gone up. All this will result in pressure on margins. They will not be able to pass on all these costs to the end consumer. But the fact is since all of them are sitting on a lot of liquidity, the impact is likely to be more manageable.

Don’t you see the situation where companies are sitting on cash, but private investments have not really picked up?

Private sector capex has been muted for some years now and that's certainly a matter of big concern. Companies are reluctant to put money on the table until they get visibility into how the demand side of the equation is likely to pan out. Most of the investments in the last one year have been in the infrastructure space, power, ports, cement and so on. One can literally name the groups who have been putting money on the table. Outside of that, people are reluctant. At the semi-urban, urban segments of the economy, it's fair to say that there is some element of stress.

Q Where is this stress coming from?

A If you speak to people in the FMCG industry they tell you that. The headline numbers are headline numbers. If you break that down, there are pockets of stress. If crude prices remain elevated, rupee continues to remain weak, people lose jobs in the Middle East which affects flows into India and affects disposable income and impact discretionary spends. People indulge significantly in discretionary spends during buoyancy and we are hoping that it won’t be impacted. People say the unemployment is actually fairly higher, in some rural segments. We haven't had a great monsoon. That is already manifesting itself in terms of tractor sales volumes. Farmers don't have money because the monsoon is bad and some of them have borrowed to actually finance their farm equipment, tractors and so on and so forth. When you speak to institutions who have exposure to these segments, they are actually seeing stress emerging as people are calling them to reschedule, restructure their loans. This is what you call collateral damage and if it expands and goes into different geographies, it will manifest in different forms.

How do ICRA’s revenue components shape up?

We have got two broad components, ratings and the non-ratings risk & analytics (R&A) business. We do a lot of work for overseas clients through a GCC like model. We have three entities in the R&A space, ICRA Analytics, D2K Technologies, which we acquired three years ago, and Fintellix, which we completed recently. We do financial analysis, bond valuation, data analysis and risks analytics for the BFSI sector. Now, the GCC business contributes 60% to our risk analytics business. Overall, currently the risk analytics business contributes between 46%, and 54% of revenues comes from the ratings business. In terms of growth risk and analytics is our focus because it’s a specialised business and there is a lot of flexibility on what we can do. In terms of revenue, the mix may change in the medium term because the ratings business is tied to the economy.