Key Points
Corporate debt growth remains minimal at 4% while operating profits surge
Steel and hospitality sectors demonstrate remarkable recovery
Credit ratings show positive upgrade trends across 301 entities
According to ICRA, FY2025 marked the fourth consecutive year of credit profile improvements, with the credit ratings of 301 entities being upgraded compared to 150 downgrades, maintaining a healthy credit ratio of 2.0x.
This trend highlights the growing financial strength of Indian corporates, which have benefitted from an extended period of deleveraging and consistent profit growth.
Commenting on the overall developments, K. Ravichandran, Executive Vice President & Chief Rating Officer, ICRA, said, "India Inc. has experienced an extended period of credit profile improvement, much of it due to strengthening balance sheets. Over the past decade, the aggregate operating profits of around 6,000 listed and unlisted entities analysed by us have grown at a CAGR of 12 per cent, while their total debt has increased by only 4 per cent."
Despite global challenges, including commodity price fluctuations, inflation, and interest rate volatility, India's corporate sector has been able to navigate these pressures with greater financial stability, the credit rating agency added.
"From a credit perspective, this enhanced the ability of corporate India to bear the cyclical challenges of recent periods posed by commodity price inflation, rising interest rates, and subdued demand. Apart from this general trend, a notable trend in the power, road, and realty sectors has been the increase in the proportion of upgrades due to reduced project risk, sometimes alongside debt refinancing at lower borrowing costs," Ravichandran added.
Key sectors such as hospitality, aviation, and steel have demonstrated notable recoveries, with steelmakers benefiting from lighter balance sheets following a surge in profits during the supply shock of 2021.
The aviation and hospitality sectors, which were among the hardest-hit during the Covid-19 period, have posted a steady recovery and have now considerably surpassed pre-pandemic levels in terms of revenues and profits.
Since 2020, the fertiliser and oil sectors have experienced significant volatility in their profit margins. Despite this, they have maintained stable ratings, supported by their linkages with the Government and the strategic importance of these sectors to the economy.
As per the report, the ferrous metals sector, the supply shock of 2021 had meant a sharp ascent in steel prices during that period, outpacing that of the key raw materials like iron ore and coking coal. This surge in profits then had allowed steelmakers to significantly deleverage their balance sheets.
ICRA said that the lighter balance sheets have now enabled steelmakers to weather the downward pressures on profitability, ensuing from rising imports, softening steel prices, and global trade uncertainties.
