First quarter credit quality was the poorest in two years, says CARE Ratings

KOLKATA: Sectors like construction, iron & steel, chemicals continued to face financial stress with dip in margins and profitability leading to higher number of credit rating downgrades in the June quarter, CARE Ratings said Monday.

This made the overall credit quality of Indian companies the poorest in last two years.

There has been a moderation in the number of upgrades in the first quarter of the fiscal -- 12% of surveillance cases were upgraded compared with 16% in year ago period and 18% in first quarter 2014-15.

The rating company said that 14% of the surveillance cases were downgraded compared with 10% in Q1 2015-16.

CARE's modified credit ratio (MCR), the ratio of upgrades and reaffirmations to downgrades and reaffirmations, fell to 0.98% in the first quarter from 1.07% in the year ago period. The MCR was 0.90% three years back.

A dip in MCR denotes a fall in upgrades vis-à-vis downgrades. In other words, the fall in MCR implied credit quality deterioration of the rated entities, the rating company explained.

An MCR closer to one indicates higher stability in ratings, with larger proportion of reaffirmations.

CARE said that although the credit quality of the entities rated it has registered a slight moderation, it remained more stable compared to pre-2014 period.

In the first quarter, the rating company recorded higher number of downgrades in sectors such as construction, iron & steel, chemicals & chemical products, beverages, paper & paper products to name a few. "Decline in margins & profitability, scale of operations, liquidity position, moderation in operational and financial position are some of the other factors that have prompted downgrades," it said.

Sectors that witnessed a higher number of rating reaffirmations and upgrades include manufacturing, real estate, textiles, auto, food & food products, education, hospitality, electricity generation, sugar and rubber and plastic products