Ongoing headwinds like war-triggered inflation, RBI rate tightening and weak Rupee will lead to a Rs 60,000 crore increase in “risky debt” in FY23 , a rating agency warned on Monday.
Defining “risky debt” as borrowing by companies with a net leverage or debt-to-operating profit ratio of more than five times, India Ratings said ongoing problems would push the stock of such loans to Rs 6.9 lakh crore by the end of FY23, versus the Rs 6.3 lakh crore would have been had it not been for the Russian invasion of Ukraine.
An analysis of 1,385 companies led the national rating agency to cut projections for entity revenue growth in a post-war scenario and also forecast shrinking profit margins due to rising material prices raw, an increase in interest rates of up to 1% and the rupee depreciating by one tenth.
Commodity consumers are expected to experience a margin contraction of up to 3 percentage points in FY23, given the difficulty in passing on higher prices to users without affecting volumes.
However, commodity producer margins are expected to improve by up to 4 percentage points in FY23, due to higher realizations amid higher commodity prices, although production costs energy will have a greater impact on producers, given the energy-intensive nature of their operations, he noted.
There will likely be an asymmetric impact between companies and also between companies across sectors, the agency said, adding that large entities will show resilience due to healthy balance sheets, easy access to finance and the power to pricing, while small and medium-sized entities could face headwinds. due to strong commodity prices and firming interest rates.
A continued depreciation of the rupee is likely to exacerbate challenges for both Indian importers and foreign currency borrowers in FY23, he said, noting that the modest improvement in demand may help entities in import-oriented sectors or net importers pass on the impact of weakness. rupee to their customers.