Coronavirus to impact India Inc on multiple fronts: Icra

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Published: April 8, 2020 4:00:06 AM

According to Icra, the high impact sectors in terms of risks due to Covid-19 are aviation, hotels, restaurants & tourism, auto dealerships, gems & jewellery, retail, shipping, among others.

The rating agency feels that in the current scenario, extended demand disruptions are likely to lead to elongated payment cycles.

Rating agency ICRA on Tuesday said that it was expecting the coronavirus to impact India Inc on multiple counts. The fallout of the virus could range from domestic demand slowdown, supply chain disruptions to foreign exchange rate fluctuations, among others.  Earlier, Icra had downgraded the ratings of 584 entities, against 282 upgrades in last financial year. The rating agency feels that even this financial year will be challenging for India Inc’s credit quality.

Pressure on credit quality remained elevated in FY2020 against the backdrop of a slowing economy because of sluggish consumption and investment demand. The volume of debt downgraded by Icra in FY2020 touched a high of Rs 7 lakh crore, compared to the debt volume of Rs 3 lakh crore downgraded in the preceding fiscal. The sharp increase was attributable to the downgrade in debt of several financial sector entities, including housing finance companies, non-banking finance companies and private sector banks. Also, several debt-heavy non-financial sector entities experienced a downgrade, mostly in the power sector, ferrous metals sector and the construction sector.

On Tuesday, Shamsher Dewan, vice president & sector head — Corporate Ratings, Icra, said, “Amid uncertainty as to when the situation will normalise, we expect a sharp downturn in various indicators of the manufacturing and services sectors from March 2020 onwards. This primarily includes the discretionary activities like travel, tourism and hospitality; labour intensive sectors like construction, transport and manufacturing of non-essential items; exports; and supporting sectors like electricity.”

According to Icra, the high impact sectors in terms of risks due to Covid-19 are aviation, hotels, restaurants & tourism, auto dealerships, gems & jewellery, retail, shipping, among others. The medium impact sectors will be automobiles, auto-components, building materials, construction, chemicals, residential real estate, consumer goods and few other sectors.

The rating agency feels that in the current scenario, extended demand disruptions are likely to lead to elongated payment cycles. Since an entity’s liquidity position is of paramount importance to support its credit profile, it is expected that several entities would endeavour to conserve cash, either by invoking force majeure clauses to revoke payments, or by deferring payments to the extent possible. “Consequently, many entities are expected to face working capital blockage as their receivables get stretched and inventory doesn’t run-down simultaneously,” said Icra in its rating release.

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