Moody's has stable outlook on India Inc, barring telecos; pegs 6% pre-tax profit growth next year

14 Dec 2017

Global rating agency Moody's Thursday said it has a stable outlook for non-financial corporate in the country, except for telcos, on which it has a negative outlook for 2018.
The agency also has stable outlooks for car-makers, and companies in the construction, cement, and textiles sectors, but a negative outlook on the real estate sector.
"Our 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 pre-tax profit growth of 5-6 per cent over the next 12-18 months," Laura Acres, a managing director at Moody's corporate finance group, said in a report.
She said further simplification of GST and other structural reforms or improved commodity prices can result in higher operational profit growth, and provide means for deleveraging for some corporates.
The agency has a stable outlook for exploration & production companies, reflecting expectations of stable production volume, low subsidy burdens and stable oil prices.
For refining & marketing, the stable outlook is based on the consideration that capacity additions and higher refining margins will increase earnings, even as marketing margins stay stable.
"While high dividend payments remain a concern, if GST net is widened to petroleum products, it would be a credit positive for the sector," she added.
Maintaining a stable outlook for base metals, the agency sees improved fundamentals and improving supply side in certain metals supporting stable prices over the next 12-18 months.
The agency expects base metal pricing premia to narrow, although higher production from capacity additions and cost rationalisation measures will drive earnings expansion.
Moody's also expects steel consumption to grow in the mid-single digits over the next 12-18 months, but lower than the GDP growth of 7.6 per cent, supporting a stable outlook.
Consolidation will also rise in the steel sector, it added.
The stable outlook on IT services incorporates the expectation that domestic companies will remain in the forefront in offering IT services to the Western economies, weighed against some of the global challenges, especially in terms of H1B visas and the fast-pace of technology changes that will require investments or acquisitions.
The only sector where it has a negative outlook is telcos, where intense competition and heavy debts continue to pressure cash flows, ultimately driving consolidation activity towards a three player market. (PTI)