Debt of 510 firms rose 17% last fiscal

India Inc borrowed at a faster pace than the rate at which it managed to raise shareholder funds in 2012-13.

The debt-equity ratio (total debt divided by shareholders’ funds) of over 500 companies deteriorated to 1.8 times by end-March 2013, compared with 1.2 in end-March 2012. A debt-equity ratio beyond 2 is considered uncomfortably high by lenders and investors.

Total borrowings for the 510 companies for which latest balance-sheets are available rose 17 per cent by end-March 2013 compared with a year ago.

However, there is a silver lining: The worsening debt situation was driven by companies taking on more long-term loans (meant to be repaid after a year or later). These saw a 20 per cent jump over last year. Equity and reserves increased only by 9 per cent.

The net debt-equity ratio, which is a measure of what companies owe lenders after using up all their surplus cash, also rose to 1.6 in 2012-13 compared with 1.2 the previous year. Cash balances barely changed, even as borrowings rose.

Of the 510 companies, 237 saw their debt-equity ratio worsen. The companies with rising leverage belonged to different sectors. Metal equipment maker Electrotherm (India), automotive glass manufacturer Asahi India Glass and cement-manufacturer Binani Industries were hard hit by a deteriorating debt-equity ratio. For instance, the debt-equity ratio of Electrotherm India worsened from three times to a whopping 160 times. Cases such as these were the result of companies seeing erosion in their net worth due to unprecedented losses. In the case of Asahi Glass, a sharp jump in short-term borrowings, in addition to a decline in profits, saw its leverage spiking.

Power major Lanco Infratech saw its debt-equity ratio worsen from 6 to 8.5, as payment delays and lack of fuel for power projects, forced it to roll over long-term debt. Infrastructure and construction companies such as Hindustan Construction, Gammon India and JMC Projects saw considerable increase in leverage, too. A smaller number, roughly one in every five companies, however, did manage to reduce their leverage.

Those that improved

Network18 Media, Vardhaman Polytex, India Glycols and Ceat figure prominently in the list of companies that have managed to de-leverage their balance-sheet by repaying borrowings. Narrowing losses at Network18 Media, coupled with reduction in short-term borrowings, helped the company improve its debt-equity ratio.

Similarly, for India Glycols, higher profits, coupled with retirement of debt, helped the company reduce its leverage. Rating agency Crisil noted in a recent report that the number of companies in its rating universe facing downgrades (at 616 companies) outnumbered those with upgrades (379) in the second half of 2012-13.

(This article was published on July 13, 2013)
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