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Moody’s, ICRA: Outlook for corporate sectors largely stable

Moody's has a stable outlook for non-financial corporates in India (rated Baa2 stable by Moody's), except for telecom, which has a negative outlook. Moody's Indian affiliate ICRA has stable outlook on the passenger vehicle, construction, cement, and textiles sectors, but a negative outlook on real estate. The stable outlook is underpinned by the expectation that GDP growth of around 7.6 per cent will result in higher sales volumes, which along with new production capacity and stabilising commodity prices, will support EBITDA growth of 5 to 6 per cent over the next 12-18 months. Further, simplification of GST and other structural reforms, or improved commodity prices could result in higher EBITDA growth and provide means for deleveraging for some corporates.

Operating profitability is also expected to improve with the benefits of increased scale of execution, although this would also be sensitive to any steep rise in raw material and labour prices. Borrowing levels are expected to increase marginally to support working capital requirements with the greater scale of operations.

ICRA expects the credit profiles of domestic textile companies to remain stable. During the last 3-4 quarters, the industry witnessed multiple headwinds owing to demonetisation, the transition to GST, adverse currency movements, reductions in export incentives, sustained declines in yarn demand from China and rise in cotton prices which exerted pressure growth and profitability.

The sector's credit profile however demonstrated resilience, supported by declining aggregate debt, as the industry decreased debt-funded expansions. Favourable developments in the current year, especially an easing in cotton prices and an accommodative stance on GST/export incentives, are expected to subside growth and profitability pressures for the sector further, cushioning the impact on credit profiles.