Credit metrics of India Inc. to improve in Oct-Dec quarter: ICRA
The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expense during a given period.
In the second half of Financial Year 2023-24, the borrowing costs for states and Union territories are likely to increase on rising bond yields and widening of spreads up to 15 basis points, according to ratings agency ICRA.
Combined capital expenditure of a sample of 13 major state governments is expected to grow 29% year-on-year to Rs 6.2 trillion in FY2024 compared to Rs 4.8 trillion in FY23, it said. However, the capex may modestly miss the FY2024 budget estimate of Rs 6.7 trillion.
The rating agency said the rise in spreads for state government bonds over government of India bonds (G-sec) is likely to be pronounced in the fourth quarter of FY24. The report highlighted that with revenues likely trailing budgeted targets, the deficit of the sample set is estimated at Rs 2 1 trillion as against budgeted Rs 1.4 trillion in FY24.
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The fiscal deficit may rise to Rs 8.3 trillion against budgeted Rs 7.7 trillion.
Normal spread between 10-year state government bonds and G-secs ranged from 60 basis points in the first three quarters (Q1 to Q3) to 80–100 basis points in Q4, said Aditi Nayar, chief economist of ICRA.
“I do not think we would see that kind of rise in spreads anymore.”
The report highlighted that the debt plus guarantees level of the sample states is estimated to rise to 30% of the gross state domestic product (GSDP) in FY2024 from 28.9% of GSDP in FY2023.
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