India Inc goes all out to keep debt under control

Top Indian companies are deleveraging in a big way by paring debt across the board with Reliance Industries (RIL) leading the pack with a massive cut of ~85,000 crore in financial year 2020-2021.

Availing low-cost loans, aggressive asset sales and avoiding new projects are the preferred methods adopted by India Inc to keep its debt under control.

Statistics collated by this newspaper shows that SAIL topped in debt reduction in percentage terms at 30.5 per cent followed by Jindal Steel, which reduced its debt by 29.7 per cent (see chart).

Analysts said as the Indian economy slowed down, and banks started cracking the whip on errant firms, Indian companies have not been in favour of highcost debt-fueled growth.

“There are several companies that were taken to the bankruptcy courts by banks for failing to pay their debt. Some of these bankrupt firms, like Anil Dhirubhai Ambani (ADA) companies, were stock market darlings just a few years ago,” said an analyst with a foreign brokerage firm.

Apart from private firms, Indian public sector companies, including Indian Oil Corporation, Bharat Petroleum, and Power Grid, used the Covid-hit financial year to deleverage their balance sheets.

“India Inc is selling assets, including international subsidiaries, to make sure it does not face the ignominy of banks sending their companies to bankruptcy courts. Apart from public shame, it is also opening the groups to reputational damage. New projects are also on hold,” said a chief financial officer (CFO) of a large group.

Analysts said as the Indian economy picks up after the lockdown devastated sales and profitability in the first quarter, India Inc will continue its efforts to reduce debt.

“What happened to companies like Videocon and ADA group is a lesson for the rest of corporate India that the days of high-cost debt-fueled growth are over. Banks are tightening their disbursements to companies with low visibility of cash flows. We are expecting more companies to sell assets in the next few months to reduce their debt,” said a banker.

The non-performing asset (NPA) problem in India has been severe, both in absolute as well as comparative terms. Despite the recent fall, systemic NPAS of Indian banks are higher now compared to earlier as well as international levels.

In the financial year 2021, the manufacturing sector accounts for the highest share of bad debts that were sent to the bankruptcy courts at 41 per cent of overall cases. This was followed by real estate (20 per cent), construction (10 per cent) and trading (10 per cent).

The sectors have largely remained constant compared with last year. Within the manufacturing domain, textiles, leather, apparels and basic metals (at 7 per cent each) continue to have the highest cumulative number of cases admitted under the Insolvency and Bankruptcy Code in the quarter ended March 2021.