Mumbai: Care Ratings has seen a massive deterioration in the credit quality of the entities it tracks during the first quarter of the current fiscal year. It is seen as illustrative of the deepening slowdown.
The modified credit ratio, or the number of upgrades to downgrades, has slipped to a six-year low of 0.8 during the June quarter, the agency said.
The number of upgrades to downgrades ratio had been hovering around the ideal level of 1 for over a year and stood at 1.02 in the March quarter. The agency, however, did not mention the number of companies it rates or the number of rating actions.
Amidst the concerns on the rating agencies’ and their inability to detect developing stress in the system, the report said 67 per cent of the ratings reviewed were reaffirmed which was much lower than the 75 per cent level running for the past four years. The highest amount of pain seems to be in small enterprises or those with under Rs 100 crore in annual revenue as well as for others rated ‘below investment grade’, it said.
Downgrades have been largely on account of liquidity pressure leading to, at times, delays in debt servicing, high debt levels, weakening profit margins, curtailed operations, deterioration in capital structure and the debt coverage indicators, it said.
The reaffirmations and upgrades have been influenced by the entities with favourable financial position/ profitability, better operations, comfortable debt servicing parameters, liquidity position and the improved capital structure, the agency said.
On a sectoral basis, information technology, cement, power generation, transmission and distribution and healthcare companies fared the best, while hospitality, auto, beverages and NBFCs printed in the range of 0.90-1 ratio.