 "Balance sheets of Indian companies worsened in FY13")
It's bitter-sweet time for banks in India. The credit metrics of India Inc worsened in FY13 but the pace of deterioration seems to have slowed down. At the end of March this year, India's top 400 companies owed Rs 12,37,000 crore to banks and other lenders, up by nearly four times from the level in March 2008.
A majority of the companies came out with their audited balance sheets for FY 13 only recently.
Nearly 75 per cent of total borrowings by India Inc was accounted for by just 28 companies across five sectors -power (27.7 per cent), construction & infrastructure, (20.3 per cent), telecom (12.4 per cent), metals & mining (10.6 per cent) and textile (3.7 per cent).
There's more. Just five borrowers accounted for a quarter of total borrowings. Bharti Airtel topped the chart with total borrowings of Rs 71,231 crore at the end of March this year followed by Power Grid Corporation, Jaypee Associates, L&T and Tata Steel. Except Jaypee, which is under pressure from banks to sell assets and repay some of its debt, many big borrowers don't look over-stretched thanks to a mix of high internal accruals and high market capitalisation relative to their liability. (Click here for charts)
The analysis is based on sample of 394 non-oil & non-financial companies from the BSE 500 index whose comparable finances is available from FY08. These companies accounted for nearly 90 per cent of all listed non-finance and non-oil companies in India.
The good news is that the financial ratios in some of the most indebted sectors such as telecom, construction & infrastructure, and real estate have begun to stabilise. Telecom operators, for instance, increased their borrowings by just seven per cent last year while in infrastructure sectors, borrowings growth fell to 18 per cent from 65 per cent in FY12. These two sectors together accounted for nearly 40 per of borrowings by the companies in our sample. (INVESTMENT VS BORROWINGS)
"Some individual companies are expected to report an improvement in their finances this year and the pace of credit downgrades has also slowed down. But I will keep my fingers crossed and wait for the improvement in India Inc's internal accruals (cash flows) before raising a green flag," says Deep Narayan Mukherjee, director ratings at India Ratings, the domestic rating arm of Fitch Ratings. He expects more bad news if the economic growth continues to worsen.
In the last five years, India Inc's borrowings, adjusted for cash and equivalents on their books, has grown at a compounded annual rate (CAGR) of 32.7 per cent, much faster then the underlying growth in their revenues and profits, straining balance sheets.
Net sales during the period grew at a CAGR of 16 per while operating profits expanded at an annualised rate of 11.1 per cent per annum. Net profit growth was paltry 3.3 per cent during the period, weighed down by interest and depreciation that grew at the rate of 25.6 per cent and 20.6 per cent during the period.
The result was a sharp rise in leverage ratios and lower debt servicing capability. The debt to equity ratio for our sample of companies increased to 0.75 in FY13 from 0.37 in FY08 while the gearing ratio - borrowings divided by operating profit -jumped to 2.3 in FY13 from less than 1 in FY08. There has been a general deterioration in India Inc's debt servicing capability in the last five years with interest payments rising faster than operating profits. The ratios are far worse in debt-heavy sectors such as power, infrastructure, metals and telecom among others. Experts don't foresee any significant change in these ratios in the current fiscal either.
"The first quarter results for FY14 and the recent projection don't hint at any improvement in corporate earnings during FY14. There could be some winners from the recent macro-economic developments such as currency depreciation, but a majority of companies will struggle to grow," says Dhananjay Sinha, co-head institutional equity as Emkay Global Financial Services.
The good news is the resilience of some of the top companies in sectors such as IT, FMCG, cement, pharma and automobiles. The continued financial prosperity of companies such as TCS, ITC, Sun Pharma, Tata Motors, UltraTech Cement, MRF, HCL Tech, Dr Reddy Labs, Bajaj Auto, Hindustan Unilever among others has lifted the financial ratios for the entire sample besides providing cushion to investors.
In all, the prosperous members of India Inc are sitting on cash and equivalent of over Rs 5.1 lakh crore at the end of March this year, up 63 per cent in the last five years. Nearly a third of companies (126 companies) in our sample are debt-free. Coal India remains the biggest cash hoarder, sitting on cash and equivalent of Rs 61,700 crore, followed by Infosys (Rs 23,571 crore), NMDC (Rs 21,025 crore) and Hindustan Zinc (Rs 19,217crore).
The continued financial difficulty of their weaker peers provide stronger companies with the opportunity to kickstart a process of consolidation that aids the process of recovery. "I expect a greater push toward asset sell-off and divestments by financially stretched companies. This will help banks recover some of their dues besides freeing-up resources and helping financially stronger companies grow faster," says Sinha.
A majority of the companies came out with their audited balance sheets for FY 13 only recently.
Nearly 75 per cent of total borrowings by India Inc was accounted for by just 28 companies across five sectors -power (27.7 per cent), construction & infrastructure, (20.3 per cent), telecom (12.4 per cent), metals & mining (10.6 per cent) and textile (3.7 per cent).
There's more. Just five borrowers accounted for a quarter of total borrowings. Bharti Airtel topped the chart with total borrowings of Rs 71,231 crore at the end of March this year followed by Power Grid Corporation, Jaypee Associates, L&T and Tata Steel. Except Jaypee, which is under pressure from banks to sell assets and repay some of its debt, many big borrowers don't look over-stretched thanks to a mix of high internal accruals and high market capitalisation relative to their liability. (Click here for charts)
The analysis is based on sample of 394 non-oil & non-financial companies from the BSE 500 index whose comparable finances is available from FY08. These companies accounted for nearly 90 per cent of all listed non-finance and non-oil companies in India.
The good news is that the financial ratios in some of the most indebted sectors such as telecom, construction & infrastructure, and real estate have begun to stabilise. Telecom operators, for instance, increased their borrowings by just seven per cent last year while in infrastructure sectors, borrowings growth fell to 18 per cent from 65 per cent in FY12. These two sectors together accounted for nearly 40 per of borrowings by the companies in our sample. (INVESTMENT VS BORROWINGS)
"Some individual companies are expected to report an improvement in their finances this year and the pace of credit downgrades has also slowed down. But I will keep my fingers crossed and wait for the improvement in India Inc's internal accruals (cash flows) before raising a green flag," says Deep Narayan Mukherjee, director ratings at India Ratings, the domestic rating arm of Fitch Ratings. He expects more bad news if the economic growth continues to worsen.
In the last five years, India Inc's borrowings, adjusted for cash and equivalents on their books, has grown at a compounded annual rate (CAGR) of 32.7 per cent, much faster then the underlying growth in their revenues and profits, straining balance sheets.
Net sales during the period grew at a CAGR of 16 per while operating profits expanded at an annualised rate of 11.1 per cent per annum. Net profit growth was paltry 3.3 per cent during the period, weighed down by interest and depreciation that grew at the rate of 25.6 per cent and 20.6 per cent during the period.
The result was a sharp rise in leverage ratios and lower debt servicing capability. The debt to equity ratio for our sample of companies increased to 0.75 in FY13 from 0.37 in FY08 while the gearing ratio - borrowings divided by operating profit -jumped to 2.3 in FY13 from less than 1 in FY08. There has been a general deterioration in India Inc's debt servicing capability in the last five years with interest payments rising faster than operating profits. The ratios are far worse in debt-heavy sectors such as power, infrastructure, metals and telecom among others. Experts don't foresee any significant change in these ratios in the current fiscal either.
"The first quarter results for FY14 and the recent projection don't hint at any improvement in corporate earnings during FY14. There could be some winners from the recent macro-economic developments such as currency depreciation, but a majority of companies will struggle to grow," says Dhananjay Sinha, co-head institutional equity as Emkay Global Financial Services.
The good news is the resilience of some of the top companies in sectors such as IT, FMCG, cement, pharma and automobiles. The continued financial prosperity of companies such as TCS, ITC, Sun Pharma, Tata Motors, UltraTech Cement, MRF, HCL Tech, Dr Reddy Labs, Bajaj Auto, Hindustan Unilever among others has lifted the financial ratios for the entire sample besides providing cushion to investors.
In all, the prosperous members of India Inc are sitting on cash and equivalent of over Rs 5.1 lakh crore at the end of March this year, up 63 per cent in the last five years. Nearly a third of companies (126 companies) in our sample are debt-free. Coal India remains the biggest cash hoarder, sitting on cash and equivalent of Rs 61,700 crore, followed by Infosys (Rs 23,571 crore), NMDC (Rs 21,025 crore) and Hindustan Zinc (Rs 19,217crore).
The continued financial difficulty of their weaker peers provide stronger companies with the opportunity to kickstart a process of consolidation that aids the process of recovery. "I expect a greater push toward asset sell-off and divestments by financially stretched companies. This will help banks recover some of their dues besides freeing-up resources and helping financially stronger companies grow faster," says Sinha.