Three in four ratings stable or improved after deals, underscoring credit resilience: Crisil

Mergers and acquisitions (M&As) are evolving from an episodic growth lever into a core strategic tool for India Inc, helping companies accelerate scale, expand market access, build capabilities and strengthen competitive positioning, according to a report by Crisil. 

The shift is reflected in rising deal volumes, as companies increasingly turn to acquisitions to enter new markets and acquire capabilities that could take years to develop organically. The current M&A cycle is also being supported by a stronger credit backdrop. Moderating organic capital expenditure, lower leverage and prudent funding have improved balance-sheet flexibility, enabling companies to absorb acquisition-related risks while maintaining financial resilience. 

India Inc has strengthened its balance sheets

India Inc has strengthened its balance sheets over the past decade despite a volatile operating environment marked by frequent disruptions and shorter recovery cycles. Companies have largely sustained revenue growth and profitability while reducing leverage. Median net debt-to-Ebitda for corporates rated by Crisil is estimated at around 1.3 times last fiscal, compared with about 2.4 times in fiscal 2017. 

At the same time, companies are pursuing organic growth more selectively amid geopolitical uncertainty and changing demand conditions. This points to greater discipline in capital allocation rather than a reduced appetite for expansion. Healthy capacity utilisation and lower leverage have also preserved headroom for future investments. 

“Indian corporates are increasingly using M&As to accelerate growth, expand market access and acquire capabilities that would take years to build organically,” said Subodh Rai, Managing Director, Crisil Ratings. Annual deal volumes have more than doubled since fiscal 2017, he added. 

The momentum is broad-based, although strategic priorities vary across sectors. Pharma and healthcare, enterprise technology, artificial intelligence, and consumer businesses are using acquisitions to bridge gaps in technology, talent and intellectual property. Cement and metals companies, meanwhile, are pursuing consolidation-led acquisitions that can shorten capacity-building timelines from four-six years to one-three years. 

Execution remains key differentiator

However, execution remains the key differentiator between value creation and credit strain. Crisil’s review of 100 large debt-funded deals found that two in three broadly met expectations. Successful acquisitions delivered 20-80% scale expansion within one-two years, widened geographic reach and improved margins from the second year as synergies began to materialise. 

Among the remaining deals that fell short of intended business outcomes, integration challenges accounted for about half the cases. Regulatory delays and cross-border execution issues each contributed to roughly one-fifth of the weaker outcomes. 

The findings underline that a sound strategic rationale alone does not guarantee M&A success. Disciplined integration, timely synergy capture, and prudent leverage management remain critical to protecting credit quality. 

“Acquisitions have largely translated into stable or positive credit outcomes,” said Manish Gupta, Deputy Chief Ratings Officer, Crisil Ratings. Around three-fourths of ratings were reaffirmed or upgraded following acquisitions, while about 60% of acquirers deleveraged on or ahead of plan within two years. Scale, diversification and synergies helped offset the temporary rise in acquisition-related leverage. 

Where outcomes were weaker, elevated leverage, slower ramp-up, industry downcycles and regulatory delays were among the key factors. 

Going ahead, India Inc’s success will depend on balancing inorganic expansion with organic capability building. While M&As can accelerate growth, sustained value creation will ultimately require disciplined capital allocation, effective execution and continued investment in innovation, technology and core competitive capabilities.