Listed companies resorted to borrowing again in the year ended March, marking a reversal of the deleveraging spree in the low interest rate regime of the pandemic years, a Mint analysis showed. In the years 2020-21 and 2021-22, Indian firms had pared their gross debt by 4% and 2%, respectively. However, gross debt rose by nearly 19% in 2022-23, the sharpest increase in over a decade. Elevated borrowing costs add to the risks of highly leveraged companies with weak financials, as they could struggle to meet their debt obligations under tightening monetary policy and financial conditions. Cash buffers may only provide a temporary relief. The analysis covered 2,710 listed firms, and excludes banking and financial firms.
Snapshot
Companies analysed: 2,710 BSE-listed companies (excluding banking and financial companies) (those that have declared 2022-23 results)
Aggregate sales: ₹87.1 trillion (Up 23.3% y-o-y)
Aggregate net profit: ₹6 trillion (Down 6.9% y-o-y)
Aggregate borrowings: ₹25.9 trillion (up 18.7% y-o-y)
Rising burden
Borrowings rose 18.7%, the steepest pace in at least 13 years, the analysis showed. A bulk of this debt shot up due to working capital needs of the firms. A period of high wholesale price inflation due to elevated commodity prices stoked the demand for working capital. Capital-intensive sectors such as oil and gas, power, metals and mining collectively contributed to half of India Inc's debt load, while sectors such as real estate and infrastructure and engineering had a less than 5% individual share.
“The higher offtake of credit by corporates is a reflection of a stronger economic outlook,” said Bino Pathiparampil, Head of Research, Elara Securities (India). “The companies are seeing more avenues for investment as they see growth picking up and the demand scenario improving.”
Borrowing beeline
Large listed firms borrowed more aggressively in 2022-23. Their aggregate debt-to-equity ratio rose sharply to 0.57 from 0.48 in 2021-22. The smaller ones, too, saw an increase, but not as much. However, all company groups by size reported a lower debt-to-equity ratio than pre-pandemic levels. Sector-wise debt-to-equity ratios showed uneven distribution of the burden. For segments such as metals and mining and oil and gas, the ratio went up, while most other major sectors showed a decline.
“In a strong demand environment, even if commodity prices have eased, it is likely to keep the need for working capital,” said Anitha Rangan, economist at Equirus. “Alongside, capex recovery may add to the credit growth as capacity utilization peaks. Overall, the credit outlook is positive.”
Credit profile
Even if the susceptibility to default remains low with the share of weaker firms (the ones unable to service their debts) declining over a period, tighter financial conditions for a longer period threaten to reduce their servicing capacity.
Global trends
The world seems to be divided over the efforts to clean balance sheets as peers such as Malaysia and Indonesia have seen a decline in their total credit given to the private non-financial sector as a percent of GDP. For several other economies, this metric has seen a significant rise.
Headline numbers
A contraction in net profits and muted operating profits in 2022-23 also proves detrimental for firms looking to cover their debt interest payments. Softening inflationary pressures and low oil prices could be the possible tailwinds for India’s economy but geopolitical issues remain a key risk.
niti.k@livemint.com