Indian corporates' revenue growth is projected to slow in the next two years amid a decelerating economic momentum and tighter credit environment, S&P Global Ratings said in a report published Aug. 26.
Revenues are estimated to rise by 7% to 8% over the next 12 to 24 months, up to 400 basis points lower than the revenue increase in the last two years. The rating agency said the revenue slowdown will likely dampen earnings growth by similar levels.
Despite the projected slowdown, Indian companies are expected to beat regional peers' earnings growth as they are less dependent on exports and as growth matches per capita consumption, according to the report.
Indian corporates deleveraged over the last three years as earnings grew faster than debt during the period, though spending on capital expenditure and dividends more than offset the growth, the rating agency said. As a result, about 40% of the agency's sample of 1,330 listed Indian companies reported marginal or negative free cash flows, making it a bigger problem than high debt levels.
"We believe funding conditions and liquidity are tightening for companies heading from a negative free cash flow territory to a highly leveraged one," S&P Global Ratings said. "This could result in further stress for the Indian corporate sector in this weak macroeconomic environment."
As of Aug. 26, US$1 was equivalent to 71.81 Indian rupees.
