11/25/2019 Balance sheet of India Inc weakens; net debt-equity ratio inches up in FY19 | Business Standard News
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Balance sheet of India Inc weakens;
net debt-equity ratio inches up in
FY19
The private sector debt-equity ratio inched up marginally to 0.88x at the end of FY19, against 0.86x a year ago
Krishna Kant | Mumbai
Last Updated at July 15, 2019 01:10 IST
44
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11/25/2019 Balance sheet of India Inc weakens; net debt-equity ratio inches up in FY19 | Business Standard News
Illustration by Ajay Mohanty
The recent deterioration in corporate earnings has begun to a ect
ALSO READ
India Inc’s balance sheet and leverage ratios. India’s top companies
Neelachal Ispat Nigam to
supply steel billets to Power and business groups reported an increase in their debt-equity ratio
Grid Corporation during 2018-19 (FY19), putting a stop to the process of balance
sheet deleveraging seen in the previous three years. The private
Hard times for non-oil
CPSEs, likely to report losses sector debt-equity ratio (net of cash and bank balances on
for second yr running companies’ books) inched up marginally to 0.88x at the end of
FY19, against 0.86x a year ago.
Public sector steel producer
NINL to supply steel billets
Companies’ combined borrowings were up 13.2 per cent year-on-
to PGCIL
year (YoY) in FY19, growing at the fastest pace in at least the last
It's raining forex in Indian
ve years. In comparison, their net worth or shareholders’ equity
economy with equity, bond
was up 11.3 per cent, down from 14 per cent growth a year ago
deals in pipeline
(see chart).
A second balance sheet
deleveraging
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11/25/2019 Balance sheet of India Inc weakens; net debt-equity ratio inches up in FY19 | Business Standard News
It was even worse for the 40 listed non- nancial public sector
undertakings (PSUs) in our sample, such as Oil and Natural Gas
Corporation, NTPC, Power Grid Corporation of India, Bharat Heavy Electricals, and Steel Authority of
India. Their average debt-equity ratio was up 10 basis points (bps) YoY to a record high of 0.68 in FY19.
This is the third consecutive year of a worsening in the balance sheet ratio of PSUs.
Combined borrowings of government-owned companies were up 13.5 per cent in 2017-18, against 1.9
per cent YoY growth in their net worth last nancial year and 12.8 per cent YoY decline in their cash and
bank balances last nancial year.
Analysts attribute this to a combination of growth slowdown and poor pro tability.
ALSO READ: India Inc's FDI down over two times to $820 million in June, shows RBI data
“There has been a sharp slowdown in demand growth across sectors, hitting corporate top line and
pro tability. The slowdown has been most pronounced in capital-intensive sectors, such as metals,
energy, infrastructure, and telecom, dealing a double blow to corporate balance sheets,” says G
Chokkalingam, managing director, Equinomics Research & Advisory.
The combined net pro t of companies in the private sector was down 8.1 per cent YoY last nancial
year, a second consecutive year of earnings contraction, while earnings were up 2.1 per cent in the
public sector.
According to analysts, public sector companies largely took a hit from a rise in dividend payout and
spending on share buybacks. PSUs’ cash reserves were down 12.8 per cent YoY in FY19.
Analysts say the higher indebtedness will make it tough for corporates to go for a fresh round of capital
expenditure (capex) and end the investment drought in the economy. “Given the high debt on their
books, companies have little ability to raise fresh debt to make incremental capex. Growth capital can
only come from incremental increase in pro ts and cash ows,” says Dhananjay Sinha, head of strategy
and chief economist, IDFC Securities.
Besides, the demand situation in the economy is currently not very encouraging for companies to go for
large capacity expansion, adds Sinha.
The analysis is based on a common sample of 782 non- nancial
companies that are either part of BSE500, BSE MidCap, and BSE
SmallCap sectors. The sample excludes information technology
exporters, fast-moving consumer goods companies, and Indian
subsidiaries of multinationals.
Firms from these sectors such as Tata Consultancy Services,
Infosys, Hindustan Unilever, ITC, Asian Paints, Siemens India,
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11/25/2019 Balance sheet of India Inc weakens; net debt-equity ratio inches up in FY19 | Business Standard News
Bosch, and Maruti Suzuki have been dropped from the sample
as they have historically been debt-free and generate a lot of
free cash ow. Their inclusion distorts the overall picture for
India Inc.
At the end of FY19, these debt-free segments of India Inc
accounted for just 1.5 per cent of all corporate debt (at gross
level) but 35.6 per cent of pro ts and nearly 38 per cent of the
combined market capitalisation of all non- nancial companies.
The analysis is largely based on unaudited nancials, as most
companies are yet to publish their annual reports for FY19. The
nal debt and leverage ratio could be higher, as borrowings are
understated in the unaudited balance sheet.
Numbers also suggest deterioration in companies’ debt servicing capacity. The interest coverage ratio
(ICR) in the private sector declined to 2.1 in FY19, from 2.3 a year ago, while it was down 30 bps to 6.1 in
the public sector.
ICR is the ratio of pro t before interest and taxes to interest liability. The ratio measures a companies’
ability to service their debt obligation. A greater ratio means a lesser probability of a debt default, while
a ratio below 1.5 is considered a danger zone.
The data also suggests that most of the incremental borrowings have been used to fund working capital
or maintain dividend payout despite poor pro tability rather than nance asset creation or capex.
Companies’ xed assets were up just 3.4 per cent YoY last nancial year, down from 3.9 per cent growth
a year ago.
It’s the same in the public sector. PSUs’ combined borrowings are up 54 per cent cumulatively in the last
three years, against 29.4 per cent growth in their assets during the period. At the end of March this year,
listed PSUs had a total net debt of Rs 5.9 trillion, against Rs 3 trillion at the end of 2015-16. In all, India’s
top listed companies owe nearly Rs 30 trillion to their lenders at the end of FY19, up by around Rs 6
trillion over the last three years.
Read our full coverage on balance sheet
First Published: Mon, July 15 2019. 01:08 IST
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