A fourth of India's top 1,000 listed companies of FY14 in trouble now

Nearly 25 per cent of India’s top 1,000 listed companies, excluding banks and financials, in terms of revenue have seen shareholder wealth erosion.

These firms have lost more than half their market capitalisation in the past five years and are highly indebted, raising questions on their financial and operational viability.

From a common sample of 964 companies, 225 firms are in financial strain. Of those, 144 companies, accounting for nearly a fifth of corporate borrowings in FY14, have lost 75 per cent or more of their market capitalisation since that financial year.

Most of these are unable to service their borrowings due a sharp fall in profitability in recent years. In all, interest payments exceeded the operating profits of 217 of these troubled firms during the first nine months of FY19, pushing them to the brink of insolvency.

These companies together accounted for 29 per cent of all corporate sector borrowings (in the listed space) in FY14 and 22.4 per cent of all corporate assets that year.

The analysis is based on a sample of 964 companies, which were among the top 1,000 non-financial firms in terms of revenue in 2013-14. Many of these companies have since ceased operations and no longer report their financial figures.

A similar trend is visible in the count of companies reporting their financials. There has been a 15 per cent decline in the number of listed companies reporting their financials in the last five years. For example, 2,875 companies published their annual balance sheets in FY18, down from 3,408 companies in FY14.

In comparison, there was a steady increase in the universe of listed companies in the previous five years, increasing from 2,764 companies in FY09 to 3,408 companies in FY14.

“We now have a situation where companies in the listed space don’t make the stuff that is now consumed or demanded by a growing tribe of affluent consumers. 

Most of the consumer goods are imported, creating a demand drought for corporate India,” said Saurabh Mukherjea, founder of Marcellus Investment Managers.

This, he said, created a wedge between headline economic growth and corporate earnings. “For nearly 10 years now corporate earnings growth has been half that of growth in India’s gross domestic product, creating a serious financial stress in the corporate sector.”

Some of the well-known companies in our list include ABG Shipyard, Amtek Auto, Gitanjali Gems, Orchid Pharma, Videocon Industries, and some of the listed firms of the IL&FS, Jaypee and Anil Ambani groups.

The stress shows in the financials of the troubled companies. The combined borrowings of these troubled companies increased from Rs 8.42 trillion in FY14 to Rs 8.7 trillion in FY18.

In the same period, their combined net worth or equity more than halved to Rs 2 trillion in FY18 from Rs 4.22 trillion in FY14. These companies performed even worse in terms of top line growth and profitability. Their combined revenues declined to Rs 7.55 trillion in FY18 from Rs 9.6 trillion in FY14 while their combined operating was a negative Rs 2,980 crore in FY18 against a combined operating profit of Rs 1.47 trillion in FY14.

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