India Inc’s Covid provisions top ~27K-cr mark
Inventory, impairment losses ran into thousands of crores in March-june
Companies have set aside provisions of ~27,312 crore against potential Covidrelated losses. These include lenders with outstanding loans, as well as firms to which trade receivables are due.
Trade receivable is the amount owed for goods and services provided to customers, for which payment is yet to be made.
The amount is based on a compilation of Covid-related disclosures from S&P BSE 100 firms carried out by Deloitte Touche Tohmatsu India, in association with Business Standard. The S&P BSE 100 entities account for roughly two-thirds of India’s total listed market capitalisation. The analysis covers the March quarter numbers, and the June quarter numbers for 84 firms that declared them.
Financial services accounted for a majority of the expected credit loss adjustment in June (~12,079 crore). The sector accounted for a further ~11,770 crore in the March quarter.
Madhu Sudan Kankani, partner at Deloitte India, said banks and NBFCS had made provisions for loans expected to go bad because of the pandemic. The NBFC segment, too, has to provide for expected credit losses and not just for current defaults.
“Significant losses were recorded in March as well as the June quarters,” said Kankani.
Firms in the pharmaceutical, technology, and the metals and mining sectors, too have made such provisions.
Some judgement has been exercised in calculation of final figures, given that not all entities report them uniformly. For example, while some do it net of taxes, others report gross figures.
Companies have also recorded damages due to the pandemic in other forms. Impairment losses across sectors stood at ~27,831 crore. There was also a ~18,614-crore hit on inventory valuation.
Kankani said it was the oil and gas sector that took the biggest hit on impairment loss, and loss on the year-end valuation of inventory.
Companies value assets based on how much they are expected to earn for the business. With demand declining, many units were expected to earn less. Value of the asset, thus, reduces accordingly. This is referred to as impairment loss, which oil and gas firms have had to book.
The oil and gas sector could see some reversal in losses once the situation normalises, says Pankaj Pandey, head (research) at the retail arm of ICICI Securities (Icicidirect). “Some improvement in profitability is expected in the current quarter itself,” he said.
Abhimanyu Sofat, head (research) at IIFL Securities, said the situation for a lot of lenders has improved. There is more liquidity in the market and analysts had feared worse. Others are more cautious.
Swapnil Pawar, founder of Asqi Advisors, said there was a disconnect between equity markets and the real economy, where the situation remains serious even though liquidity has improved. There is uncertainty over the position firms might find themselves in, regarding the ability to repay creditors, according to him. “Solvency is anybody’s guess,” he said.