Interest rates have dropped by nearly 2 percentage points over the last eight quarters but much of the benefit seems to have bypassed stressed companies that needed the relief most. What else can explain the fact that the share of debt with interest coverage ratio below 1 has gone up to 40% as of the September quarter, far higher than 35% before the interest rate easing cycle began in January 2015? The chart, taken from a report by Credit Suisse, has the details.

Interest cover determines how easily a company can service its debt. A ratio below 1 should ring alarm bells as profits are insufficient to service its debt.

Moreover, the share of chronically stressed debt, defined by Credit Suisse as having an interest coverage ratio of less than 1 for over one year, has also risen to 38% from 29% before the easing cycle began.

In other words, companies with stressed debt are more in number than before and an already toxic pile is getting even more so. This goes against the reports of reduction of leverage by corporate entities.

Credit Suisse’s latest report underlines the fact that there is little improvement in Indian companies’ debt canvas.

Not dire enough? Sample this. Nearly 55% of the chronically stressed debt, or Rs7.3 trillion, is with companies that have not covered interest for two full financial years.

If overindulgence in debt made Indian companies sick, the depressed demand and investment climate broke their backs. Earnings before interest, tax, depreciation and amortization (Ebitda), an indicator of operating profitability, hasn’t grown much in the last three quarters. Whatever growth companies saw has been fleeting and restricted to just a few sectors. For weak companies, the Ebitda has hardly recovered, making it doubly difficult for them to mend their finances. Companies with interest cover of less than 1 saw their Ebitda fall 17% in the September quarter.

Where is the pain concentrated? Despite the sector outlook improving, steel makers are still languishing with 55% of debt having interest cover below 1. The contributor of increased stress is the telecom sector as 60% of chronically stressed debt arises from there.

Big stressed group companies are mired in the resolution process either under the Insolvency and Bankruptcy Code (IBC) or within bank lending forums. So, while the weighted average lending rate of banks may have fallen 190 basis points and bond yields may have dropped 200 basis points, the highly leveraged companies don’t seem to have benefited much. The only hope now lies the bankruptcy resolution process.

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