Three out of four entities that availed of moratorium are rated in the sub-investment grade, according to credit rating agency Crisil. Most of them were grappling with a slowing economy before the pandemic began, it added

The severely curtailed business activity that followed in the first quarter of this fiscal had cramped cash flows, so the moratorium came as a big relief, the agency said.

Only one out of four companies that availed of the moratorium is rated in the investment grade (rated Crisil BBB- or higher). The agency observed that they took recourse to the moratorium to build a liquidity cushion for exigencies in the near term.

Crisil noted that the moratorium on loan repayments provided by banks at the behest of the Reserve Bank of India (RBI) has provided much-needed liquidity support to mid-sized sub-investment grade (rated Crisil BB+ or lower) companies.

“It has also prevented a sharp weakening of their credit profiles. While the moratorium ended today, the debt restructuring announced by the RBI recently can play a crucial role in supporting the credit profiles of mid-sized companies,” it added.

These observations are based on Crisil’s analysis of over 2,300 non-financial companies (from its rated portfolio) that availed of the moratorium to tide over the Covid-19 pandemic-induced cash-flow challenges, after categorising them by rating, sector and size. It revealed divergent trends.

Subodh Rai, Senior Director, Crisil Ratings, said, “Companies in sectors impacted the most by the pandemic have been the keenest to avail of the moratorium. While every sector has been affected by the dislocations stemming from the pandemic, majority of those with lower resilience have availed of the moratorium. Few among the more-resilient ones have done so.”

Crisil assessed that every fifth company in highly-impacted sectors such as gems and jewellery, hotel, auto components, automobile dealers, power (power utilities, independent power producers and energy traders), packaging, and capital goods and components availed of the moratorium.

On the other hand, only one in 10 did from less-impacted sectors such as pharmaceuticals, chemicals, FMCG, secondary steel and agriculture.

“Size has also been a differentiator with few relatively bigger businesses going for it. In the mid-sized corporate segment (₹300-1,500-crore turnover), the number of companies availing the moratorium was more than thrice those in the ₹1,500-crore and above turnover range,” the agency said.

Moratorium ends

While the moratorium ends today, Crisil is of the view that demand outlook in most sectors remains muted. In particular, companies falling in the low resilience sector will continue to remain under stress over the next two to three quarters.

Rahul Guha, Director, Crisil Ratings, said the moratorium has been crucial in averting sharp downward rating actions in the face of shrinking turnover and declining profitability. It helped companies manage the sudden stretch in working capital cycles and cash flows amid the bleak business environment, he added.

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