M&As may put stress on corporates' profile: S&P

Global rating agency Standard and Poor's said on Friday large scale acquisitions may put pressure on the financial profile of Indian corporates notwithstanding the positive impact of such transactions on businesses.

"While the large-scale acquisitions may have a positive impact on the business risk profile of the entities, the transaction tends to weigh on the financial profile of the combined entity," Raman Uberoi, director, Corporate and Infrastructure Ratings, Crisil said.

"Besides, though strong business risk profiles have underpinned overall credit risk profiles in the past, valuations lifted by the peaking economic cycle is a concern now," Uberoi added.

According to the agency, the overall Indian corporate sector continues to demonstrate an adequate financial risk profile and has displayed a trend of consistent double-digit

revenue growth over the past four years.

The upward trend is evident across the board in industrial sectors, while the revenue growth in the software and IT services sector was mainly supported by the continued trend in offshore IT services, especially from the US and Europe, the S&P-Crisil report on 'Indian Top 100 Corporates' said.

Besides, the revenue growth in the automotive sector was underpinned by favourable demographic and economic factors, such as rising income levels and a growing middle class.

The operating margins and cash flows have remained largely stable for Indian corporates, although some initial indications of pressure were exhibited in 2006, the report said.