Despite the liquidity crunch, growth of debt of top 25 industrial houses surged from 26.7% during 2007-08 to 44.4% in 2008-09. In terms of figures, total debt of industrial houses went up from Rs 1.95 lakh crore in 2006-07 to Rs 2.47 lakh crore in 2007-08 and further to Rs 3.57 lakh crore in 2008-09.
Net worth of the companies under study rose from Rs 2.51 lakh crore in 2006-07 to Rs 3.49 lakh crore in 2007-08 and to Rs 4.51 lakh crore in 2008-09.
The debt-equity ratio also increased from 0.47 in 2006-07 to 0.54 in 2007-08 and rose to 0.75 in 2008-09.
The debt-equity ratio helps in assessing the extent to which a company is using borrowed money. It is simply obtained by dividing the total debt (total loan funds) of a company by its shareholders equity (net worth).
The debt-equity ratio is an important tool of financial analysis to apprise the financial structure of a company. It indicates the relative claims of creditors and shareholders against the capital employed by the company.
In 2008-09, only the Hinduja Group had ratios of five and more. The group?s loan funds growth increased from 12.1% during 2007-08 to 23.5% in 2008-09. The equity (net worth) of the group was up 10.5% to Rs 4,138 crore during 2007-08 from Rs 3,744 crore during 2006-07 and further increased by 8.9% to Rs 4,506 crore during 2008-09.
Companies that had a low debt-equity ratio in 2008-09 included the Hero Group of the Munjals and Sterlite.
In the case of Hero group, total loan steadily rose from Rs 397 crore during 2006-07 to Rs 428 crore in 2008-09. Total net worth of this group also surged from Rs 2,793 crore to Rs 4,186 crore during the above period. The debt-equity ratio of this group decreased from 0.14 during 2006-07 to 0.10 during 2008-09.
Similarly, in the case of Sterlite, total loan was up 15.3% to Rs 3,943 crore during 2007-08 from Rs 3,418 crore during 2006-07 and was further up 10.1% to Rs 4,340 crore during 2008-09. Total equity moved up 129.3% to Rs 29,405 crore during 2008-09 from Rs 12,825 crore during 2006-07. This helped to reduce debt-equity ratio from 0.27 during 2006-07 to 0.15 during 2008-09.
The loan funds of Reliance Industries Ltd (RIL) increased 102.6% to Rs 73,929 crore during 2008-09 from Rs 36,538 crore during 2007-08.This is the highest increase among the industrial houses under study during 2008-09.
A significant increase in debt-equity ratio during the last three years was noticed in the case of RIL, Tata Group, Om Prakash Jindal Group, Murugappa Group, Hinduja Group, and Kirloskar.
Companies which saw a sharp decrease in the debt-equity ratio were Aditya Birla Group, Essar, UB Group, among others. In terms of debt, the top five houses during 2008-09 were RIL, Tatas, ADAG, Hindujas and Om Prakash Jindal.
