The debt levels of the top 100 corporates in India by market capitalisation have risen sharply over the last five years driven by an upturn in the capex cycles and a focus on organic growth, a report by Standard and Poor’s (S&P) notes. Utilities and infrastructure providers together with metals producers and miners have piled up large amounts of debt as the difficult regulatory environment and economic downturn took a severe toll on their ability to generate sufficient resources to meet their growth plans.
The report shows that debt levels in the utilities & infra sector have increased 2.5 times while in the metals & mining sector, they have gone up by 1.5 times in the five years to the 2013-14. In contrast, the overall debt of all Indian companies increased by less than 1.5 times. “The issues identified with domestic corporates—over indebted and under-performance—are concentrated in a few critical sectors—utilities and infrastructure, and metals and mining,” Mehul Sukkawala, senior director, Corporate Ratings, South Asia, Standard & Poor’s Ratings Service said in a conference call. S&P expects further strain on the books of telecom companies as the spectrum auctions will lead to “significant” borrowings. Certain sectors like IT, healthcare and consumer products have however kept their debt levels at manageable levels.
The debt servicing ability of the top 100 companies has also eroded with the Ebitda growing at slower levels as compared to debt levels. Between 2010-11 and 2013-14, the Ebitda levels have risen from R4.5 lakh crore to R5.8 lakh crore. Sukkawala, said that gaps in cash flows in certain sectors were a result of policy constraints in areas like gas and coal. “If you look at highly leveraged companies or companies with debt-to-Ebitda of more than five times, then about 20% of the companies in India fall into this category ,” Sukkawala said.
Sukkawala however added that on an overall basis Indian companies are better off than their Chinese or ASEAN peers which have higher leverage levels. He also expects the top Indian corporates to manage their debts and meet liabilities. The top 100 corporates in India have a collective debt of $300 billion as 2013-13, but the leverage levels (debt to Ebitda ratio) of over 50% of these corporates stands just at 1.5 times.
S&P also stated that they do not see corporate investments picking up before 2016-17 and called for more structural reforms to help private firms. It believes implementation of key reform measures will be key to the operating performance and the debt servicing capacity of corporate India.
“Capex improvement can return only if government unleashes more reforms, which can help these companies ensure better cashflows,” said Sukkawala.
He said the recent pick up in economic momentum could give plenty of growth opportunities to the country’s top corporates, but companies are likely to consider new projects only after they see the operating environment improving at the ground level.