InvestorQ : Why has Moody’s sharply downgrade EBITDA growth estimates for the FY21?
vaishnavi mhatre made post

Why has Moody’s sharply downgrade EBITDA growth estimates for the FY21?

vidhya Laxmi answered.
8 months ago

Moody’s has expressed its opinion in a report stating that the aggregate EBITDA of Indian companies for the fiscal year 2020-21 could actually fall by a whopping 24% on account of Coronavirus disruptions and the lockdown resulting from the pandemic.

In addition, Moody’s also expects that the credit quality overall could also weaken across Indian non-financial companies due to the outbreak as consumer confidence and business activity levels could get substantially dampened.

Apart from the sharp 24% fall in EBITDA in the coming fiscal, there could also be a worsening of financial risk. The debt/EBITDA leverage ratio is likely to deteriorate to 4X in fiscal 2021, implying a substantial increase in the financial and solvency risk of the companies.

However, Moody’s is confident that the recovery in the economic activity could gather pace in the third quarter of fiscal 2021 as pent-up demand could gradually get released. Moody’s has already estimated that GDP for FY21 could contract by as much as 9-10%.

According to Moody’s, the impact could be most pronounced in vulnerable sectors like automotive, oil & gas, mining and steel sectors. India is expected to be the one economy that will contract the sharpest among most of the large sized economies with GDP above Rs.1 trillion.

Moody’s has identified some crucial sectoral pain points. For example, the sales of passenger and commercial vehicles are expected to fall 20% in the fiscal year 2021. The oil and gas sector is likely to be negatively impacted by weak crude prices and weak GRMs.

Moody’s is also cautious on commodity prices and hence miners and even steel manufacturers could be negatively impacted by the high debt levels and the low global prices. However, Moody’s remains positive on sectors like IT services and telecom.