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Global Recession's Impact On India Inc Remains Monitorable: Report

The ability of corporate India to manage these challenges remains critical, according to the rating agency Icra

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Although the stabilisation of commodities and other input prices over recent months provides some relief, the rating agency Icra believes the ongoing geopolitical, recessionary and inflationary challenges are likely to continue to pose some headwinds and raise uncertainties in the operating environment. 

Accordingly, the ability of corporate India to manage these challenges remains critical. 

Icra added that corporate India reported a moderate 5 per cent sequential growth in revenues in Q4 FY2023. Along with the softening in input costs, this supported a 58 bps expansion in earnings.

"The evolution of the global economic scenario, especially with concerns of a looming economic recession, would remain a key monitorable over the near term," it said.

The aggregate revenues of 579 listed companies evaluated by ICRA (excluding financial sector entities) grew by 11.4 per cent on a YoY basis and 5.2 per cent sequentially during Q4 FY2023. 

"Mixed trends were visible across sectors - while sectors like construction, automotive, hotels and power reported QoQ growth in revenues due to improved demand and successive price hikes, few others like IT services witnessed a sequential decline due to recessionary trends brewing in developed markets," it said.

Few others like retail, aviation and gems and jewellery witnessed a sequential decline in revenues following a seasonally-strong festive quarter.

Operating leverage benefits coupled with price hikes undertaken and easing of some input costs led to a sequential expansion in the operating profit margin (OPM) of India Inc by 58 bps to 16.1 per cent in Q4 FY2023. 

"While input costs softened in recent months, they remain higher compared to the historic trends. As a result, India Inc’s OPM is yet to reach its previous historic highs witnessed during Q1 FY2022," Icra mentioned.

Despite the increase in debt levels in FY2023 as compared to FY2022, the increase in absolute earnings of India Inc led to an improvement in TD/OPBITDA from 4.0 times in FY2022 to 3.8 times in FY2023. 

Additionally, the interest coverage ratio of Icra's sample, adjusted for sectors with relatively low debt levels (IT, FMCG and pharma), witnessed a QoQ improvement in Q4 FY2023 to 4.7 times from 4.2 times in Q3 FY2023, aided by improvement in earnings despite hardening in interest rates