To achieve moderate growth in the next three years, top Indian companies will require funds worth Rs 1.7 lakh crore...
To achieve moderate growth in the next three years, top Indian companies will require funds worth Rs 1.7 lakh crore towards working capital and capital expenditure, says a report.
While projecting the need for significant funds in the next three years, global consultancy EY said organisations should look at continuously improving their working capital policies.
“Over the next three years, the top 500 companies alone will need Rs 1.7 trillion (USD 27 billion) to fund their working capital and capex requirements to achieve growth at a modest rate of 5 per cent,” the report said.
The findings are based on an analysis of the working capital performance of top 500 companies, in terms of sales, that are headquartered in India. It has taken into account the firms’ fiscal 2014 reports.
Financial institutions, automobile manufacturers, infrastructure and real estate companies were not included in the analysis.
According to the report, rising non-performing assets of PSUs (Public Sector Undertakings) and increased scrutiny by most banks with regard to their funding of businesses has made it difficult for businesses to raise capital,” it noted.
Citing its analysis, EY said that “up to Rs 5,300 billion (Rs 5,30,000 crore) of excess capital, which is equivalent to 12 per cent of their aggregate sales, remains unnecessarily tied up in working capital processes of leading Indian companies, which could help them address their requirements,” it added.
The report said that businesses saw slight improvement in their margins in 2013-14 despite continued decline in sales growth, rise in debt levels and a fall in ROCE (Return on Capital Employed).
“For organisations to realize benefits in their working capital, they will need to drive continuous improvements in their operations and structures by addressing the ‘root and branch’ aspects of their working capital policies, processes and metrics,” it added.
Ankur Bhandari, Partner (Working Capital Advisory Services) at EY said that despite some gains achieved in few pockets, corporate India needs to focus more on capital efficient models for competitive advantage.
“Efficient working capital management is not the job of finance functional alone. Entire operation needs to actively contribute to achieve success with support and drive from the leadership team.
“Moreover, the process of improving working capital will also highlight opportunities in areas such as procurement, conversion, warehousing and logistic costs apart from selling, general and administrative expenses,” he noted.