Despite attempts being made to resolve the high debt levels across the corporate sector, overall corporate stress remained elevated in the first quarter of this fiscal year. Share of debt with companies having interest cover (IC) less than 1 increased to 43 per cent compared to 41 per cent in the fourth quarter of the previous fiscal. An interest coverage ratio below 1 indicates the company is not generating sufficient revenue to pay interest on loans.

According to a Credit Suisse report titled ‘India Corporate Health Tracker’, the share of chronic stress has remained stable with 60 per cent (₹8.4 lakh crore) of debt with companies having IC less than 1 for the last 8 quarters and 55 per cent (₹7.6 lakh crore) of debt has had IC less than 1 for 11 of the last 12 quarters.

Overall corporate profitability growth remained strong in Q1, though aided by a low base. EBITDA increased 21 per cent year-on-year and 1 per cent quarter-on-quarter basis. Aggregate interest cover also continued to increase to 2.6x, which is the higher level seen in the last four years.

“While overall profitability has continued to improve, performance of weaker companies remained weak, as companies with IC less than 1 in Q4 saw sales decline 7 per cent and EBITDA fall 26 per cent YoY and they continue to report losses,” the report said.

Credit Suisse had earlier filed a report titled ‘House of debt’ which had named some of the large corporate houses with huge debt. In its latest report, Credit Suisse said that some of the companies in the house of debt, particularly the metal companies (JSW Steel) continue to see strong improvement in operating performance, with debt to EBITDA falling to 2x and interest cover well above 1x.

“Adani Power’s profitability continued to weaken and interest cover is down to 0.4x and debt-to-EBITDA is 12x. Aggregate losses excluding JSW Steel continued to widen. Reliance Infra has also seen a fall in profitability and has recently defaulted on payments on NCDs, post which it was downgraded to ‘D’ by Crisil. Videocon continued to report huge losses and is currently under the NCLT process, as are Lanco Infra and the Jaypee group,” the report said.

It said that the new bankruptcy process remains the sole credible resolution structure for the banks. “We estimate that through this process in the past year, banks have seen ₹55,000 crore of recoveries at an average 50 per cent haircut. The pick-up in recoveries to 4 per cent of loans in Q1 was also primarily on account of IBC-led resolutions,” it said.

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