India Inc's credit metrics forecast to improve to 4.5-5x in Q2 FY24

The operating profit margin (OPM) of India Inc is showing signs of recovery, increasing by 61 basis points year-on-year and 105 basis points on a sequential basis for Q1 FY24. ICRA's analysis of 591 listed companies, excluding financial sector entities, highlighted this improvement. However, despite the upswing, OPM levels have yet to return to historic highs due to continued high input costs, as per ICRA’s assessment.

The year-on-year revenue growth of India Inc stood at a moderate 3.8 per cent during the quarter. However, revenues did see a 4.5 per cent sequential contraction due to lower realisation levels in some sectors.

Despite improvements in OPM, the interest coverage ratio took a hit following multiple rate hikes by the Monetary Policy Committee (MPC) in recent times. This led to higher finance costs and weakened the interest coverage ratio to 4.5 times in Q1 FY24 from 5.2 times in Q1 FY23. With an anticipated extended pause from the MPC and an expected revival in earnings, the interest coverage ratio is likely to improve to between 4.5-5 times in Q2 FY24.

“While revenue growth is anticipated to continue into Q2 FY24, aided by expected stable demand and the start of the seasonally strong festive period, the ability of Corporate India to sustain the same remains to be seen, given the macro-economic uncertainties, and impact of inflation on the demand momentum. Along with this, the concerns of a global slowdown may also adversely impact export-oriented sectors. Furthermore, as the base effect catches up, the revenue growth momentum is likely to slow down, with YoY revenue growth estimated at 4-6 per cent and 2-4 per cent, respectively, for Q2 FY24 and H1 FY24,” said Kinjal Shah, vice president and co-group head of corporate ratings, ICRA Limited.

Fibre2Fashion News Desk (DP)