Combined net profit was down 41.6 per cent YoY to Rs 1.09 trillion while net sales were down 8.4 per cent to Rs 29 trillion in FY20.
The analysis is based on the unaudited half-yearly balance sheets and profit and loss accounts of the BSE500 index companies for the last 13 quarters beginning March 2014. The sample excludes banks, non-bank lenders, insurance companies, and stock brokers.
“I don’t see corporate deleveraging at macro level. Bank credit and external commercial borrowings by companies continue to grow,” said G Chokkalingam, founder & MD, Equinomics Research & Advisory Services. However, he said there were specific companies or sectors that deleveraged their balance sheets in recent years.
Others, however, say the overall trend in corporate India has been towards deleveraging, but the process slowed due to a decline in profitability in the last few quarters. “There has been very little incremental borrowing by industrial firms in the last four-five years, even as they continue to make profits. This has led to a steady increase in their net worth, leading to a decline in the leverage ratio,” said Dhananjay Sinha, head of research and strategy, Systematix Institutional Equities.
Corporate India’s combined cash and bank balance was up 12.1 per cent YoY to Rs 4.25 trillion at the end of March this year from Rs 4.02 trillion a year ago. Analysts attribute this to a spate of equity raising by companies such as Bharti Airtel, Vodafone Idea, and Tata Motors.
The net debt to equity ratio improved marginally to 0.59x at the end of March this year from 0.6 a year ago. However, the ratio worsened on a sequential basis due to poor profitability in the second half of FY20 that hurt many companies’ net worth.
A bigger worry for India Inc is the growing debt-servicing burden as interest costs continue to rise faster than profitability and revenues.