’Funding through equity route a challenge for corporates’

PTI New Delhi | Updated on October 25, 2012

Corporates are finding it difficult to expand capital base and raise finances through equity route despite showing a handsome increase in the earning per share (EPS), a study by industry chamber Assocham said.

The trends, measured by the study of about 130 companies, point out an increase of about 70 per cent earning per share (EPS) for the quarter ended September 2012 compared to the same quarter in the previous financial year.

However, the trends do not suggest towards celebrations because these also indicate towards inability of the corporates to raise capital required for their investment by expanding the equity base.

In the middle of sluggish stock markets and risk aversion towards equity, the corporates found it unviable to issue fresh capital through equity, it said.

“As a result, the capital base of a large majority of the companies remained more or less stable, which in turn resulted in the higher EPS,” Assocham president Rajkumar Dhoot said.

The companies which have shown an impressive improvement as per the study, include Indo Rama Synthetics (India), Gujarat Mineral Development Corporation, Shree Cement, Somany Ceramics, Mindtree, Mahindra Holidays and Resorts and Exide India Ltd.

However, there are some firms, including the country’s largest private sector company Reliance Industries, which have shown drop in the EPS.

The earning per share of Reliance Industries has shown a decline from Rs 17.4 in the second quarter of 2011-12 to Rs 16.60 in the comparable quarter of the current financial year.

He said a healthy rise in the EPS should have resulted into an improved Price to Earning (PE) multiples. However, this is not seen in the market because of sluggish movement of the stock market barring the last couple of months.

In fact, several companies, instead of increasing their capital base resorted to buy-back of the shares by utilizing their reserves to boost the bottomline for the investors.

Published on October 25, 2012

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