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July 2024 |
From Chief Ratings Officer’s Desk
Welcome to our latest edition of the company newsletter, where we delve into the key economic and industrial developments shaping the business environment as we progress through FY2025.
The outcome of the Monetary Policy Committee’s (MPC) second bi-monthly policy review meeting was anticipated, with the majority voting to maintain status quo. However, the voting pattern shifted to 4:2 from the previous 5:1, as Dr. Ashima Goyal advocated for a 25-bps rate cut and a neutral policy stance. This shift aligns with her recent comments in the previous MPC meetings. After the stronger-than-expected growth in FY2024, the MPC has slightly adjusted its GDP growth projections for FY2025, raising its quarterly growth estimates by 20-30 bps. The annual growth estimate now stands at 7.2%, marginally higher than the previous 7.0% forecast.
ICRA projects that the sequential revenue growth for India Inc. will slow down in Q1 FY2025. While rural demand is showing signs of revival, factors such as reduced Government spending during the Parliamentary elections and the onset of the monsoon may dampen growth in the first half of FY2025. Despite this, the operating profit margins are expected to remain steady between 15% and 18% due to stable raw material costs. Consequently, the credit metrics of India Inc. are estimated to remain largely stable, with the interest coverage ratio in the range of 4.7-5.0 times, compared to 4.9 times in Q4 FY2024. The global economic scenario and the impact of the monsoon on India will be the key factors to monitor in the near term.
In the domestic jewellery sector, ICRA anticipates the consumption growth to moderate to 6-8% in FY2025, following a sharp rise in gold prices. This is a decline from the ~18% growth seen in FY2024. After the muted volume growth of ~2% in F2023 and ~4% in FY2024, a contraction is expected in FY2025. Consumers are likely to be cautious about the price movements and adjust to the new prices over the next few quarters. With elevated gold prices, the share of recycled gold in the overall supply is expected to rise by 400-600 bps in FY2025.
Moving on to the power sector, ICRA’s outlook for the thermal power segment remains Stable even as the outlook for the power distribution segment stays Negative. While improved PLF and healthy demand growth supports the thermal power segment, limited tariff hikes and sustained losses continue to impact the power distribution segment. ICRA projects a marginal increase in the all-India plant load factor (PLF) to 70% in FY2025 from 69% in FY2024, driven by growing electricity demand and limited thermal capacity addition. The full-year demand growth for FY2025 is projected at 6.0%, slightly lower than the GDP growth expectations but higher than the historical average over the past decade. The consistent growth in electricity demand has prompted the Government to encourage new thermal power projects, including private sector participation.
These developments highlight the dynamic nature of the economic landscape and the critical need for businesses to stay informed and adaptive. Our newsletter aims to provide you with the insights and analyses necessary to navigate these changes effectively. We hope you find this edition both informative and engaging.
Best Regards
K. Ravichandran
Chief Ratings Officer, ICRA Ltd. |
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Abhishek Lahoti
Assistant Vice President & Sector Head - Corporate Ratings at ICRA |
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Cement Volumes Projected to Grow by 7-8% YoY in FY2025
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Neetika Shridhar
Assistant Vice President at ICRA |
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Podcast on Highlights of Q2 FY2025 Auction Calendar of State Government Securities
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| ICRA Research Updates |
| June 2024 |
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 Please click here to check out the video on the ICRA's Research Offerings.
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| ICRA in News |
| June 2024 |
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Aditi Nayar
Economy
Chief Economist, Head-Research & Outreach, ICRA
Status quo continues
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The outcome of the Monetary Policy Committee’s (MPC) second bi-monthly policy
review meeting was along expected lines, with the majority of the members voting for a status quo. However, the voting pattern on both the policy rates and the stance changed to 4:2 from 5:1 in the previous meeting, with Dr. Ashima Goyal incrementally changing her position in favour of a 25 bps rate cut and a change in the policy stance to neutral. This too was not entirely surprising, given her comments in the minutes of the last two MPC meetings.
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Kinjal Shah
Corporate Sector
Senior Vice President & Co-Group Head – Corporate Ratings, ICRA
India Inc. braces for revenue uncertainties in Q1 FY2025 |
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ICRA expects the sequential revenue growth for India Inc. to taper in Q1 FY2025. While signs of a revival in rural demand have emerged, headwinds such as a slowdown in the Government of India’s (GoI) spending before the Parliamentary elections and the onset of the monsoon are likely to weigh on growth in H1 FY2025. However, the operating profit margin will remain steady in the range of 15-18%, despite the expected tapering in revenue growth, as raw material costs are likely to stay steady. As a result, the credit metrics of India Inc. in Q1 FY2025 are estimated to remain largely stable with the interest coverage ratio in the range of 4.7-5.0 times against 4.9 times in Q4 FY2024. Evolution of the global economic scenario and the onset and intensity of the monsoons in India would remain a key monitorable over the near term. |
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Vikram V
Thermal & Power Sector
Vice-President & Group Head, Corporate Sector Ratings, ICRA
Thermal PLF expected to remain healthy at 70% in FY2025 with demand growth of 6.0% |
ICRA projects the all-India thermal plant load factor (PLF) level to rise marginally to 70% in FY2025 from 69% in FY2024, led by the growth in electricity demand and limited thermal capacity addition. ICRA’s outlook for the thermal power segment is Stable, following the improvement in thermal PLF and healthy demand growth, thereby improving visibility on the signing of new power purchase agreements (PPAs). Also, the implementation of the Late Payment Surcharge (LPS) scheme has helped improve the payments from the state distribution utilities (discoms) to the power generation companies since August 2022. However, ICRA’s outlook for the power distribution segment remains Negative amid the limited tariff hikes and continued loss-making operations. |
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Sujoy Saha
Gold & Jewellery Sector
Vice President and Sector Head, ICRA
Elevated gold prices to restrain jewellery consumption growth to 6-8% in FY2025
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ICRA expects the domestic jewellery consumption growth (in value terms) to moderate to 6-8% in FY2025, from the sharp ~18% expansion in FY2024, amid the sharp rise in gold prices in recent months and the consequent impact on consumer sentiments as they look to postpone non-essential purchases. After a muted volume growth of ~2% in FY2023 and ~4% in FY2024, ICRA expects the volumes to contract in FY2025. Consumers are expected to remain watchful of the price movements and adjust to the new price levels over two or three quarters. Given the elevated gold prices, ICRA expects the share of recycled gold in the overall supply to continue to increase and rise by 400-600 bps in FY2025. |
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