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S&P upgrades TCS, Infosys, Wipro credit rating

December 13, 2013 20:59 IST

Rating agency Standard & Poor's on Friday revised upwards the long-term corporate credit ratings of software majors TCS, Infosys and Wipro to 'A' from 'BBB+.'

However, it retained the negative outlook on their foreign currency ratings, citing the negative outlook on the sovereign.

The agency also raised the local currency ratings of the three companies to 'stable' and removed them from CreditWatch, where they were placed with positive implications on November 26, S&P said in a statement issued from Singapore.

"We upgrade the long-term corporate credit ratings of TCS, Infosys and Wipro because we believe these companies have the business and financial flexibility to withstand a significant period of sovereign stress and still have enough liquidity to honor all its obligations in a timely manner," said S&P credit analyst Abhishek Dangra.

He said S&P rates these companies above the sovereign credit rating because it expects these firms to pass the hypothetical stress scenario, including a 20 per cent fall in Ebitda margins and a 10 per cent fall in the value of their rupee deposits with banks in the country.

"In our test of hypothetical sovereign stress, these companies have sufficient financial strength to be rated up to two notches above the 'BBB+' transfer and convertibility assessment of the country," Dangra said.

These companies also pass the transfer and convertibility assessment stress tests, which assume that they can access only 25 per cent of their export revenue and have no access to cash flows and assets in the country.

The rating revision was unsolicited, he said. S&P said the "satisfactory" business risk profile of TCS reflects the company's good service-delivery capability, cost-competitive workforce and high repeat business of over 95 per cent.

"We assess the technology software and services industry as having 'intermediate risk.' We believe TCS' exposure to increasing protectionist policies in the US tempers the above strengths," Dangra said, adding that S&P's assessment of TCS' financial risk profile is "minimal" and reflects the Tata Group company's significant surplus cash, healthy cash flows and minimal debt.

He said the stable outlook for Infosys reflects S&P's expectation that the Narayana Murthy-led firm will maintain its competitive position to generate healthy cash flows and no external debt. It expects Infosys to maintain a conservative policy towards acquisitions and dividends over the next 12-18 months.

On Wipro's outlook, Dangra said the agency believes the company will maintain its competitive position and profitability with a positive net cash balance over the next 18-24 months.

The negative outlook on the long-term foreign currency ratings on these companies reflects the negative outlook on the sovereign credit rating, said Dangra.

"The stable outlook on the local currency ratings reflects S&P's expectation that these companies will maintain their good competitive position with healthy cash flows and adopt conservative financial policies toward acquisitions and dividends over the next 12-24 months.

Dangra said S&P is unlikely to upgrade TCS in the next 18-24 months. "We could consider raising the local currency rating on TCS if it significantly improves the competitive position by improving scale and business diversity by lowering dependence on the banking, financial institutions, and insurance and application, development, and maintenance segments, and growing other segments; and secondly by broadening product and service offerings," he said. 

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