CARE Ratings on Friday indicated that the credit quality of entities rated by the company, though essentially stable, has seen a slight moderation in the first quarter of FY18.
CARE Ratings on Friday indicated that the credit quality of entities rated by the company, though essentially stable, has seen a slight moderation in the first quarter of FY18. The agency argues that large proportion of reaffirmations of credit ratings during the period is indicative of the high degree of stability in the credit quality prevailing in the system. The movement in the Modified Credit Ratio (MCR), a ratio which measures upgrades and reaffirmations to downgrades and reaffirmations in the first quarter of the financial year over the last six years shows that following an improvement in the ratio during FY15 and FY16, there was decline in the same in FY17 and FY18.
Despite the decline, the ratio continues to be stable and higher than that in Q1FY13 and Q1FY14, reflective of the improvement in credit quality of the rated entities in the last four years. The stability in the credit quality in Q1FY18 is also demonstrated by the higher proportion of reaffirmations during the period. Rating reaffirmations accounted for 78% of rating actions. Against this, downgrades accounted for 12% of rating actions and upgrades for 10% of the same in Q1FY18.
The agency said upgrades as a percentage of total rating actions have reduced over the past four years, from 18% in Q1FY15 to 10% in Q1FY18. Downgrades have been in the range of 12%-14% of total rating actions. Among the sectors, the electricity generation industry has recorded higher number of upgrades in Q1FY18, especially in the renewable energy sector owing to the boost provided to the sector by the government, attracting strong promoter groups and companies establishing strong debt protection mechanisms and liquidity cushions.
There were higher downgrades in food & food products in Q1FY18 on account of deterioration in profitability and debt coverage indicators, stretched liquidity position and delays in debt servicing. The iron and steel segment continues to see higher quantum of downgrades than upgrades, mainly driven by the continued subdued industry scenario. The real estate sector also saw an increase in downgrades mainly due to delays in projects, low sales momentum, cancellation of bookings and delays in debt servicing.