stock markets with their share prices rising between 8 and 12 per cent. Experts say that the share prices have risen on the enthusiasm around government getting a clear mandate and hope of economic revival that may benefit the real estate industry too.
“The companies that were heavily leveraged had witnessed downgrades and their share prices corrected significantly. With revival of sentiments in equity markets, shares of beaten down companies have jumped more whereas those that were doing relatively better have seen a more rational investor behaviour,” said a fund manager with a mid-sized mutual fund.
Experts say that the balance sheets of the companies in the sector are not in the pink of their health. While their profits have been on a steady on a decline over the last few years, their debt situation has only worsened. “At the time of the global financial crisis, the aggregate debt of top 15 listed entities in the sector stood at around Rs15,000 crore. However since then it has trebled over the last seven years and now is around Rs 50,000 crore,” said Shashank Jain, executive director, PricewaterhouseCoopers India.
This means that even as the overall incomes and profits for these companies are not growing, the interest burden is only on a rise and a major part of their operating income is going towards servicing of debt. “Interest cost for the top 15-20 companies in the sector make up to close to 50 per cent of their aggregate EBITDA,” said Jain. This has been at a time when the companies have lost out on their traditional source of funding i.e. the banks and have been forced to look out at fund raising avenues that are more expensive — be it private equity, funding from HNIs etc.
While the stock markets may have reacted sharply and pushed the stocks significantly higher, experts feel that the overall situation of these companies may not see a turnaround in the near term.
There are few things that have to happen for the sector to take off—demand / sales have to pick up, unsold inventory has to be absorbed, cheaper source of funding has to be made available to the sector and projects need to be completed in time. But all that may not happen at one go.
“The problem is so deep rooted that it can’t get rectified in couple of quarters. It will take atleast 2-3 years to