West Asia Conflict May Trim India Inc Profits by 200 Bps: Crisil

Prolonged West Asia conflict may trim corporate profits by 200 bps, but balance sheets to cushion blow: Crisil

New Delhi, May 25

The ratings agency said the outlook remains "stable but cautious," with only eight sectors--10 per cent of rated corporate debt--likely to see a material impact on credit profiles. The agency warned that supply-chain disruptions lasting nine months and crude averaging $110 per barrel would pressure margins more than topline growth.

"The protracted conflict in West Asia has been goading domestic companies to realign supply chains, navigate pricing issues, manage higher fuel and freight costs, and contend with a depreciating rupee," the report said.

"From a credit-quality perspective, however, our analysis shows India Inc will remain resilient on the back of strong balance sheets, steady domestic demand and government-led capital expenditure, enabling it to navigate profitability pressures stemming from the lingering geopolitical uncertainties."

Crisil's stress test covered 34 sectors accounting for 65 per cent of its rated corporate debt. It assumed nine months of supply-chain disruption versus six months in the base case, and crude at $110 per barrel versus $95.

"Based on the results, we infer that the prolonged supply-chain disruptions could shave off corporate operating profitability by 200 basis points this fiscal from the pre-conflict expectation of 12 per cent, with some sectors seeing a more pronounced impact," the report noted.

Managing Director of Crisil, Subodh Rai, said the bigger challenge will be on costs. "For companies, managing costs and profitability will be a bigger challenge than achieving topline growth. Of the 34 sectors stress-tested, 22 would see operating profitability being culled more than 10 per cent due to higher inventory costs and inability to fully pass on the burden to consumers immediately," he said.

"Further, credit profiles will be cushioned by controlled gearing levels and sustained domestic demand. Consequently, we foresee the credit quality of only eight sectors, accounting for 10 per cent of our rated corporate debt, being materially impacted."

The report flagged ceramics as the hardest hit. "The ceramic sector will be the hardest hit due to supply-side disruptions caused by gas shortages in certain areas, which could reduce revenue by a third and profitability by half," it said.

Seven others, including airlines, polyester textiles, speciality chemicals, flexible packaging, auto components, diamond polishers and basmati rice exporters, would see "moderately negative impact." For airlines, "profitability could reduce by around 50 per cent " due to "airspace closures, higher fuel cost and rupee depreciation."

Crisil said balance-sheet strength is the key buffer. "Over the past decade, corporate India's median gearing has halved to 0.5 times as of March 2026, while interest coverage has doubled to over 5 times," the report said. It is also called ECLGS 5.0, "timely in supporting MSMEs... by alleviating credit quality pressures."

Senior Director Somasekhar Vemuri cautioned on the outlook. "While our outlook for India Inc's credit quality remains stable, supported by strong corporate balance sheets and steady domestic demand, we maintain a cautious stance because of the uncertain trajectory of the West Asia conflict," he said.

"If the strife and the stabilisation period are prolonged further, supply hiccups would exacerbate inflation and amplify demand disruption. Therefore, the crucial monitorables are the magnitude of the conflict and the extent and duration of the increase in fuel prices."

— ANI