The balance sheets of some of India’s leading companies have improved sharply, with leverage coming down significantly in FY24. For a universe of 275 companies belonging to the BSE500, the debt to ebitda (earnings before interest, tax, depreciation and amortisation) fell to just 2.7 x, the lowest level in about a decade. The improvement since the recent high of 4.3 x seen in FY20 is significant. reflecting the smart recovery since the pandemic.
Of course, the total borrowings of these companies went up to Rs 26.23 trillion last year, a rise of just 2.1% — the smallest increase in eight years. Moreover, in an elevated interest rate environment, the interest bill has risen sharply in the last couple of years.
However, there are indications that companies are saving on interest costs by paring debt. For example, the interest bill for a group of 889 companies that have announced results for the March quarter, increased by just 8% y-o-y. This is the smallest increase in the past four quarters and much lower than the increases of 14% y-o-y, 18% y-o-y and 23% y-o-y reported in Q3, Q2 and Q1 respectively.
Among the companies that have done a good job of strengthening their balance sheets is Tata Motors. The company generated free cash flows of close to Rs 27,000 crore in FY24, which resulted in a sharp reduction in the overall consolidated net automotive debt. At JSW Steel, the net debt fell to just under Rs 74,000 crore as of March and is expected to reduce further in the coming quarters as profitability improves. Analysts at Motilal Oswal estimate the net debt to ebitda for the steelmaker at 2.6x.
Cement major Ultratech’s net debt which is already modest at Rs2,780 crore is expected to further reduce to just Rs 1,500-2,000 crore by end FY25, according to the management. At Larsen &Toubro, the net debt to equity has been coming down from 1.3X in FY21 to 1.1X in FY22 and further to 0.9xin FY23 before rising slightly to 1xin FY24.
Vedanta Limited’s consolidated net debt went down in Q4FY24 to Rs 56,300 crore from Rs 62,500 in the previous quarter. Companies that remain highly leveraged include Godrej Industries, Tata Teleservices, Adani Green and NLC India. Reliance Industries is among the country’s biggest borrowers with a debt of Rs 3.46 trillion, followed by Vodafone Idea with Rs 2.44 trillion. Bharti Airtel came in third (Rs 2.16 trillion). Indian Oil Corporation (Rs 1.33 trillion), Larsen & Toubro (Rs 1.16 trillion) and Tata Motors and Mahindra & Mahindra (both Rs 1.07 trillion) are the big borrowers.