Number of chronically stressed companies rise: Credit Suisse

By: | Published: September 27, 2016 4:54 PM

According to Credit Suisse India Corporate Health Tracker, contrary to expectations of a recovery in stressed companies, the share of debt with interest cover (IC) of less than 1 saw a slight increase of up to 39 per cent as against 38 per cent in the fourth quarter of 2016.

Credit SuisseAccording to Credit Suisse India Corporate Health Tracker, contrary to expectations of a recovery in stressed companies, the share of debt with interest cover (IC) of less than 1 saw a slight increase of up to 39 per cent as against 38 per cent in the fourth quarter of 2016. (Reuters)

Showing unabated corporate debt troubles, the number of ‘chronically stressed companies’ has gone up this year with a significant 39 per cent firms having insufficient revenue to service even their interest costs, a new survey showed today.

According to Credit Suisse India Corporate Health Tracker, contrary to expectations of a recovery in stressed companies, the share of debt with interest cover (IC) of less than 1 saw a slight increase of up to 39 per cent as against 38 per cent in the fourth quarter of 2016.

Credit Suisse’s sample of 3,700 listed non-financial companies has an aggregate debt of around USD 500 billion.

An interest coverage ratio of below 1 means the company is not generating enough revenue to service its interest costs and may need to draw from its cash reserves or borrow more meet its debt obligations.

Credit Suisse also published a quarterly corporate health index of companies with IC reading of less than one, where 35 per cent had such low score for 12 consecutive quarters.

“The share of chronically stressed companies (having IC of below 1 for four or more of the past eight quarters) also increased to 33.5 per cent (in first quarter of 2017) versus 32 per cent in fourth quarter of 2016,” it said.

However, the share of debt with loss-making companies was back to 30 per cent as seen in third quarter compared to about 34 per cent seen in fourth quarter.

Over the past two quarters, the four large metal companies (Tata Steel, Vedanta, Hindalco, and JSW Steel) having Rs 2.7 trillion of debt have seen improved performance and exited the list.

While the performance of metal sector firms has improved, overall stress has not reduced significantly, Credit Suisse said.

“Total debt with companies having IC of less than 1 remains high at Rs 13.5 trillion as the share of power utilities has increased sharply during the quarter,” the report said.

Many large private power companies, including Adani Power, Tata Power, Reliance Infra and Rattan India have again slipped this quarter. Some of the other companies to be added this quarter were DLF, Jet Airways, Shree Renuka and Bajaj Hindusthan, it added.

Meanwhile, the companies that exited the list along with Tata Steel are NHPC, Tata Communications, Rain Industries, Godrej Industries, and United Spirits.

The report authored by Ashish Gupta, India Head of Research, Credit Suisse indicates the percentage of debt with various companies.

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