ICRA Reports Consistent Improvement in India Inc.'s Credit Profile for Fourth Year

New Delhi, April 1 (NationPress) The credit profile of India Inc. has shown consistent improvement for the fourth consecutive year in FY2025, driven by robust profit growth, as highlighted in an ICRA report released on Tuesday.

According to the report, ICRA’s rating upgrades consistently surpassed downgrades by a minimum of two to one during this period. In the recently concluded fiscal year, ICRA upgraded the ratings of 301 entities and downgraded 150. Although the Credit Ratio of ICRA-assigned ratings, which represents the ratio of upgraded to downgraded entities, decreased to 2.0x in FY2025 from a peak of 3.0x in FY2022, it remains strong.

K. Ravichandran, executive vice president at ICRA, noted: “India Inc. has undergone a prolonged phase of credit profile enhancement, primarily due to bolstered balance sheets. Over the past decade, the aggregate operating profits of approximately 6,000 listed and unlisted entities analyzed by us have grown at a Compound Annual Growth Rate (CAGR) of 12 percent, while their total debt has only risen by 4 percent.

This improvement significantly enhances corporate India’s capacity to endure the cyclical challenges faced recently, including commodity price inflation, increasing interest rates, and weakened demand.

In addition to this overall trend, a remarkable shift in the power, road, and real estate sectors has been the increase in the share of upgrades owing to diminished project risk, often coupled with debt refinancing at lower borrowing costs.

In FY2025, around 16 percent of rating upgrades by ICRA were linked to this factor, compared to a five-year average of 10 percent, according to the report.

Rating upgrades in the financial sector, predominantly occurring in the first half of FY2025, were due to increased scale and enhanced profitability along with controlled credit costs. There was also sustained demand in certain sectors, such as hospitality, the report indicates.

The enhancement of India Inc.’s credit profile is particularly significant, considering the tumultuous years marked by global supply chain disruptions, commodity price swings, inflation, and fluctuations in interest rates and currency values, as observed in the report.

The sectoral landscape remains mixed: The aviation and hospitality sectors, which were severely affected during the Covid-19 period, have demonstrated steady recovery and have now greatly surpassed pre-pandemic revenue and profit levels.

Since 2020, the fertilizer and oil sectors have seen substantial volatility in their profit margins due to Covid-19 and global conflicts. Nevertheless, they have retained stable ratings, bolstered by their connections to the government and the strategic importance of these sectors within the economy, the report points out.

For the ferrous metals sector, the supply shock of 2021 resulted in a sharp rise in steel prices during that time, outpacing key raw materials like iron ore and coking coal.

This profit surge enabled steelmakers to significantly reduce their leverage. The lighter balance sheets now allow steelmakers to withstand the downward pressures on profitability caused by rising imports, declining steel prices, and global trade uncertainties.

Similarly, the chemicals sector achieved record profit margins in FY2021 and FY2022.

However, a subsequent demand decline in developed markets due to inflation, coupled with a global supply glut from new capacities in China and the Middle East, has squeezed margins.

This has led to increased downgrade pressures, although not severely, as leverage levels in the sector remain manageable, the report adds.