India Inc debt inches up 3.7% in FY20, deleveraging limited to a few firms

There was also an uptick in companies' gross debt-equity ratio on higher borrowings while profits declined for several companies last fiscal

India Inc’s dependence on debt to meet funding requirements continued in the financial year 2019-20, with the BSE500 companies excluding banking and financial services firms reporting a 3.7 per cent year-on-year (YoY) increase in their borrowings. 

The combined borrowings of the remaining 307 BSE500 companies stood at Rs 23.35 trillion at the end of March this year, compared with Rs 22.7 trillion in September 2019 and Rs 22.5 trillion in March 2019.

On Wednesday, veteran banker K V Kamath said top Indian companies had never been as deleveraged as they were today. The data, however, shows that this deleveraging is limited to a section of corporate India while a large number of companies continue to be weighed under debt.

Also, Reliance Industries, which is in the midst of India Inc’s largest deleveraging exercise as it raises funds by selling stakes in Jio Platforms and in the telecom and fibre asset infrastructure investment trusts, will repay banks in the current financial year.

Adjusted for cash and bank balances, net debt increased to Rs 19.1 trillion at the end of March 2020 from Rs 18.73 trillion a year ago and Rs 18.65 trillion at the end of September 2019.

There was also an uptick in the companies’ gross debt-equity ratio on higher borrowings while profits declined for several companies in the last financial year.

Combined net profit was down 41.6 per cent YoY to Rs 1.09 trillion while net sales were down 8.4 per cent to Rs 29 trillion in FY20.

The analysis is based on the unaudited half-yearly balance sheets and profit and loss accounts of the BSE500 index companies for the last 13 quarters beginning March 2014. The sample excludes banks, non-bank lenders, insurance companies, and stock brokers.

“I don’t see corporate deleveraging at macro level. Bank credit and external commercial borrowings by companies continue to grow,” said G Chokkalingam, founder & MD, Equinomics Research & Advisory Services. However, he said there were specific companies or sectors that deleveraged their balance sheets in recent years.

Others, however, say the overall trend in corporate India has been towards deleveraging, but the process slowed due to a decline in profitability in the last few quarters. “There has been very little incremental borrowing by industrial firms in the last four-five years, even as they continue to make profits. This has led to a steady increase in their net worth, leading to a decline in the leverage ratio,” said Dhananjay Sinha, head of research and strategy, Systematix Institutional Equities.

Corporate India’s combined cash and bank balance was up 12.1 per cent YoY to Rs 4.25 trillion at the end of March this year from Rs 4.02 trillion a year ago. Analysts attribute this to a spate of equity raising by companies such as Bharti Airtel, Vodafone Idea, and Tata Motors.

The net debt to equity ratio improved marginally to 0.59x at the end of March this year from 0.6 a year ago. However, the ratio worsened on a sequential basis due to poor profitability in the second half of FY20 that hurt many companies’ net worth.

A bigger worry for India Inc is the growing debt-servicing burden as interest costs continue to rise faster than profitability and revenues.