Publicly traded companies re-borrowed in the March-ending year, marking a reversal of deleveraging amid years of low interest rates during the pandemic, according to a Mint analysis. Indian companies cut their total debt by 4% and 2% in 2020-21 and 2021-22 respectively. But total debt rose nearly 19% in 2022-23, the steepest increase in more than a decade. Rising borrowing costs increase the risk for financially weak and highly leveraged companies, as they may find it difficult to meet their obligations in the face of tighter monetary policy and financial conditions. A cash buffer may only be a temporary relief. The analysis covers 2,710 listed companies and excludes banks and financial companies.
Publicly traded companies re-borrowed in the March-ending year, marking a reversal of deleveraging amid years of low interest rates during the pandemic, according to a Mint analysis. Indian companies cut their total debt by 4% and 2% in 2020-21 and 2021-22 respectively. But total debt rose nearly 19% in 2022-23, the steepest increase in more than a decade. Rising borrowing costs increase the risk for financially weak and highly leveraged companies, as they may find it difficult to meet their obligations in the face of tighter monetary policy and financial conditions. A cash buffer may only be a temporary relief. The analysis covers 2,710 listed companies and excludes banks and financial companies.
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Companies analyzed: 2,710 BSE-listed companies (excluding banks and financial companies) (companies that announced their financial results for 2022-23)
Total sales: ₹87.1 trillion yen (up 23.3% year-on-year)
Total Net Profit: ₹6 trillion (down 6.9% year-on-year)
Total Borrowed: ₹25.9 trillion yen (up 18.7% year-on-year)
increased burden
Borrowings rose 18.7%, the fastest pace in at least 13 years, the analysis showed. Much of this debt surged due to corporate working capital needs. A period of high wholesale price inflation due to high commodity prices stimulated demand for working capital. Capital-intensive sectors such as oil & gas, power, metals and mining together account for half of India’s debt burden, while individual sectors such as real estate, infrastructure and engineering account for less than 5%. .
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“The increase in corporate credit lending reflects a strong economic outlook,” said Vino Pattipalampil, head of research at Elara Securities India. As a result, companies are finding more ways to invest.” Improved scenarios. ”
rent a beeline
Large public companies borrowed more aggressively in 2022-23. The total debt-to-equity ratio surged from 0.48 in 2021-2022 to 0.57. Smaller ones also increased, but not by much. However, all corporate groups by size reported debt-to-equity ratios lower than pre-pandemic levels. Debt-to-equity ratios by sector showed that the burden was unevenly distributed. Sectors such as metals, mining, and oil and gas saw their ratios rise, while most other major sectors saw declines.
“In a strong demand environment, working capital needs are likely to persist even if commodity prices ease,” said Equirus economist Anitha Rangan, adding that “capacity utilization will peak. In addition to a rebound in business investment, credit growth is likely to pick up further in the medium term.” Overall, the credit outlook is bright. ”
credit profile
Even if the proportion of weak firms (those unable to service their debts) has declined over time and the likelihood of default remains low, prolonged tight financial conditions could reduce their ability to service their debts. there is.
global trends
In countries such as Malaysia and Indonesia, the world appears divided over efforts to improve their balance sheets as the total amount of credit to the private non-financial sector as a share of GDP is declining. Several other countries have seen significant increases in this indicator.
Shrinking net income and sluggish operating profits in 2022-2023 will also prove to be detrimental to companies looking to cover their debt and interest payments. Easing inflationary pressures and falling oil prices could provide tailwinds for the Indian economy, but geopolitical issues remain a major risk.
