The non-financial companies will show modest growth in their leverage level, supported by revenue and earnings growth, said Moody's on Tuesday.

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Leverage is an investment strategy of using borrowed money or the amount of debt a firm uses to increase the potential return of an investment.

Revenue for such companies will rise 10 percent while EBITDA will increase 8 percent in the financial year 2019 on a high base, Moody’s said in client note, adding that these companies reported a strong financial results in 2018 wherein the revenue rose 13 percent and EBITDA rose 12 percent.

"Strong demand and production efficiencies will help the companies preserve their profitability against the backdrop of rising commodity prices," said Kaustubh Chaubal, a Moody's vice president and senior credit officer. "And, aggregate leverage for rated companies will fall modestly in fiscal 2019."

Moody's report said that acquisitions and capital spending financed by debt will cause the debt levels of Moody's-rated companies to rise by 5 percent in fiscal 2019.

Leverage for telecommunications sector will rise on relentless competition, hurting the companies’ profitability, Moody’s said, adding that capital spending will jeopardise the free cash flow generation.

On the back of rising commodity prices, the metals and mining sector will benefit. The sector is taking on more debt to fund capital spending as well as acquisitions, promoting a raise in leverage, the rating agency said.

However, the end-user industries such as auto, chemicals and real estate sectors will be hurt, unless they can pass on the cash burden on to the customers.

Tightening regulations and trade tariffs globally will strain export-oriented sectors such as IT services and auto, but the weakening rupee will somewhat mute this impact. And, increasing compliance with environmental, social and governance regulation are expected to keep business costs high, Moody’s added.

First Published:Jun 19, 2018 2:11 PM IST