Ukraine-Russia war fallout: Creditworthiness of Indian companies come under scanner

The creditworthiness of Indian companies is under scanner, as local ratings firms are assessing the fallout of the Ukraine-Russia conflict and the resultant global economic sanctions on Moscow.

If the geopolitical tension escalates and sustains further, companies could well face rating or outlook revisions, said three ratings companies ET spoke with.

ICRA, CARE and India Ratings are now busy analysing sector-wise cause and effect. Defence, tea exports, steel, coal, pharmaceuticals, fertiliser, oil and gas are some of those local sectors that will likely face ramifications. Individual rating revisions may be the next step amid evolving scenarios.

The Ukraine war followed by economic sanctions on Russia will have repercussions on Indian companies,” said K Ravichandran, chief ratings officer at ICRA.

We are looking into it going sector wise. Initial analysis suggests companies in sectors like oil & gas, fertilisers, tea exports, pharmaceuticals and defence would bear the brunt the most,” he said. “We would revisit individual rating grades based on our assessment amid evolving geo-political tension.”

However, it is not necessary that every such sector would be impacted negatively.

For example, the indigenous steel sector could well become a beneficiary. The sanctions on Moscow could affect market access for Russian steelmakers, which are heavily reliant on exports, in turn helping Indian steel producers increase footprints in geographies like Europe and the Middle East, according to ICRA.

Russia being a major exporter of oil gas and aluminium, commodity prices are likely to be on a roil impacting local auto and auto ancillaries.

“We are assessing three aspects including direct exposure to Russia and Ukraine as well as indirect impact of rising oil price on specific companies,” said Sachin Gupta, chief rating officer at CARE Ratings. “Based on our assessment, we will likely take a call on individual companies, who may face a revision of outlook or any other rating action.”

“This geo-political tension, though simmering for some time, may have unexpected escalations which we are monitoring closely.” he said.

In fiscal 2021, India’s importers from Russia and Ukraine were estimated at $5.48 billion and $2.14 billion, respectively. Exports were $2.65 billion to Russia and $0.45 billion to Ukraine, show data compiled by Bank of Baroda.

Ratings companies are also applying stress tests going through different credit matrices to derive a conclusion.

We are attempting a multiple-order stress test assessment based on possible impact," said Abhishek Bhattacharya, senior director at India Ratings.

"The first level assessment looks at direct exposure to either supply or demand linkages from Russia and Ukraine, and the likely implications,” he said. “We are also identifying vulnerable credits, which are dependent on refinancing and immediate capital raise."

Gas price increase will likely hurt the fertiliser sector. With European gas prices witnessing upward pressure, international ammonia and urea prices would sustain at elevated levels. This would put pressure on India’s subsidy budget and profitability of the sector.

The subsidy outgo is estimated to rise to around Rs 1.5 lakh crore for FY23, well above the budgetary allocation of Rs 1.05 lakh crore for the fiscal year. In the absence of additional allocations, according to ICRA, industry would witness moderation in the working capital cycle.

Coal India could play a crucial role in ramping up domestic coal supplies amid a steady rise in seaborne coal prices. This acts as a cushion against expensive imported coal.