ICRA, a leading credit rating agency, is forecasting a slight sequential improvement in the credit metrics of India Inc. for the October-December quarter of 2023-2024. According to ICRA, the interest coverage ratio is expected to increase to 4.5-5.0 times in Q3 FY2024 from 4.5 times in Q2 FY2024. The interest coverage ratio is a measure of a company’s ability to meet its interest payments on debt.
This improvement is anticipated to result from the improved earnings of Corporate India, driven by continuing tailwinds from commodity prices and seasonally strong demand during the recent festive season.
ICRA’s analysis of the Q2 FY2024 performance of 601 listed companies revealed that operating profit margins improved year-on-year and sequentially, primarily due to a softening in commodity prices. However, input costs remain elevated compared to historic levels.
The pause in rate hikes by the RBI and improved earnings led to a year-on-year improvement in the interest coverage ratio for ICRA’s sample set companies. Although the interest coverage ratio remained flat on a sequential basis.
Looking ahead to Q3 FY2024, India Inc’s performance is expected to be supported by the seasonally strong festive period, although uncertainties in the global economic environment, ongoing geopolitical developments, and the impact of ongoing food inflation on rural sentiment are potential headwinds.
Kinjal Shah, Vice President & Co-Group Head of Corporate Ratings at ICRA, emphasized the importance of India Inc.’s ability to navigate these challenges, especially as the base effect catches up and revenue growth momentum is likely to slow down in Q3 FY2024.
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