Coronavirus and lockdown have started to take a toll on businesses, with as many as 27 out of the top 100 companies listed on the National Stock Exchange (NSE) unlikely to sustain current wage bill soon. If their revenues dip by 30% or more due to the nationwide lockdown, there will be salary cuts, Deloitte said in a study. Companies must now evaluate their ability to compensate employees given there is general weakness in consumption across all levels. They may also have to either dip into cash balance or look up borrowings in the short term. “The impact will, in fact, be even larger since the cash stuck in inventory and receivables is likely to increase in such a scenario,” Deloitte said.
While Deloitte has not disclosed the names of these companies, the study was conducted on the 100 companies listed on the NSE in terms of market capitalisation. 11 of the 27 most vulnerable companies have a debt to equity ratio of more than 1, which makes it even difficult to borrow to pay their employees. “All the companies covered have an ability to pay their fixed opex, interest and compensation cost from cash and cash equivalents for about 5.5 months at the median,” the report said, adding for 20 companies, this cover can last for less than a quarter.
The 40-day lockdown imposed to contain the spread of the coronavirus has started to show its impact on businesses in India. With factories shut, flights suspended, trains cancelled and movements of people restricted, many companies stare at massive revenue losses as the economy has come to a grinding halt. India was already reeling under an economic slowdown with effects visible on FMCG to the automobile sector even before the spread of coronavirus led to a lockdown. Sectors like retail, travel and entertainment now continue to have close to zero revenue but because of continued operating expenses, they are now staring at negative cash profits.
