India cos to see earnings shrink 24pc in FY21: Moody’s

14 September, 2020 12:00 AM printer

NEW DELHI:  Hit hard by the Covid-19 pandemic and a prolonged slowdown, earnings of Indian  companies are expected to decline by a quarter in fiscal 2021, Moody’s Investors Service said in a report on Friday.

The global ratings agency estimates the aggregate earnings before interest, taxes, depreciation, and amortization (EBITDA) for its 22 rated companies to fall by 24 per cent and debt/EBITDA leverage to rise to around 4x in FY21, report agencies.

It added that credit quality will also weaken across rated Indian non-financial corporates due to the outbreak even as a slowing economy dampens consumer confidence and business activity.

“The economic slowdown is exacerbating existing challenges particularly in sectors vulnerable to declining consumption and resource price volatility, such as in the automotive, oil & gas, mining and steel sectors,” Kaustubh Chaubal, Moody’s vice-president and senior credit officer, said.  Going ahead, Moody’s believes recovery will gather pace in the third quarter of the FY21 as easing of lockdown releases pent-up demand and helps normalise activities.

“Even with the expectation of recovery gathering pace from the third quarter, aggregate revenue in FY22 will still continue to be 7 per cent short of the level in FY20, before the pandemic,” it added. India’s GDP contracted 23.9 per cent for the three months to June 2020, the sharpest decline among major economies.

The decline in corporate earning during the first three months of FY21 was much steeper than the GDP contraction. According to Credit Suisse, BSE 100 companies saw their sales plummeting by an average 30 per cent in Q1, while their operating profit fell by 35 per cent. Even as this trend improves, sectors like retail and travel would see a delayed recovery.

According to Moody’s the recovery will gather pace in the third quarter of FY21, as easing of lockdown give rise to pent-up demand, normalising economic activities further.