India Inc unable to cut debt since the global financial crisis

India Inc is getting weighed down by an ever-increasing debt burden. Even seven years after most countries, be it advanced or emerging market and developing economies, were roiled by the global financial crisis, Indian companies are still feeling the heat of debt.

An analysis by BusinessLine of the balance sheet strength of 238 companies that form a part of CNX 500 index (excluding financials) shows that their cumulative net debt (even after adjusting for net cash positions of some companies) quadrupled during the period to about ₹12 lakh crore.

The balance sheet strength did not improve because the companies witnessed either increase in net debt, decrease in net cash or shift from net cash to net debt. Net debt is total debt minus cash and bank balance.

The attempt by a large number of companies to sell their assets needs to be seen in the context of the surge in debt on their balance sheets.

While the debt position of 238 companies turned worse, the fortunes of 180 others turned for the better. They managed to either decrease net debt, increase their net cash or shift from net debt to net cash over the last seven financial years.

The cumulative net debt position of ₹26,800 crore in FY08 of the 180 companies turned into net cash of ₹13,550 crore in FY-15.

Majority of the 238 companies belong to the core sector, which is usually capital hungry. However, there are also select consumer, information technology, chemicals, auto components, fertiliser and logistics companies in the list.

The top ten companies that saw highest compounded annual growth in total net debt between FY08 to FY-15 are: Sunteck Realty, PS IT Infra, Eros International Media, Lanco Infratech, Opto Circuits, Jaypee Infratech, Adani Power, Allcargo Logistics, Jaiprakash Power Ventures and Oberoi Realty.

Companies which saw decrease in net cash are Maharashtra Seamless, Neyveli Lignite, Oil India, Oil and Natural Gas Corporation and Kaveri Seed Company.

Vedanta, which was a marginally net cash company in FY08, reported the biggest shift and accumulated a consolidated net debt of a whopping ₹37,200 crore by FY-15.

Companies belonging to sectors such as information technology, fast moving consumer goods and pharmaceuticals, which do not require huge capital, were the clear winners. In terms of ownership, they also include public sector undertakings and multinational corporations.

The top four IT companies figure among the top 10 cash generators with Infosys and Tata Consultancy Services at the top. Wipro that had some debt also turned net cash company in FY-15.

Bharti Infratel benefited from its IPO in 2012 and reforms in the telecom sector. Unitech managed to halve its debt in the last seven years thanks to sale of non-core assets.

Suzlon Energy figured at the top in terms of net debt to equity ratio of 79.5 times in FY-15 from a meagre 0.3 times in FY08 despite only 25.6 per cent compounded annual growth rate in net debt during the period. This is due to huge net losses incurred consistently since FY-10.

Lanco Infratech and Jaiprakash Associates not only witnessed some of the biggest surge of 75.3 per cent and 59.3 per cent CAGR, respectively, in their net debt between FY08 and FY-15 partly due to lower base but also saw their gearing worsening to over three times in FY-15 from below one time in FY08.

The abovementioned companies sold some of their key assets over the past few years. Lanco sold Udupi power plant to Adani Power for an enterprise value of Rs 6,300 crore. Jaiprakash Associates sold some of its cement plants to Dalmia Cement and UltraTech Cement.

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