How India Inc cut debt burden amid lockdown

Mumbai: Aversion to debt unites Warren Buffett and William Shakespeare — and now the top deck of India Inc.The majority of NSE500 companies announcing their earnings so far have surprisingly reduced debt in the first half of the year, despite the lockdown and business disruption.ET data showed that 110 of the 200 non-finance companies and banks in NSE500 have reduced debt on their books; 63 companies reported an increase, by contrast. Overall, the debt of 200 companies declined 10 per cent in the first half of the fiscal year, which coincided with varying degrees of lockdown across vast swathes of India.Why has debt fallen?Delay in capex, a pronounced fall in raw material and fuel costs, renegotiations of rentals, lower working capital needs, and equity infusion helped corporate India to focus on improving free cash flows and reducing the debt-equity ratio, said analysts.“The pandemic caused companies to delay their expansion plans and hence they utilized cash flow to trim debt to strengthen their balance sheet to absorb any incremental shocks,” said Binod Modi, head – strategy, Reliance Securities. “A large number of companies utilised the opportunity of a sharp rebound in stock prices after the March fall to raise funds through equities and a portion of the proceeds was utilized to cut debt.”Since April 1, about 15 companies have raised nearly Rs 53,000 crore through qualified institutional placements (QIPs), while another 15 have raised Rs 60,600 crore through rights issues. Most of these companies raising funds have used the proceeds to repay loans. Reliance Industries has repaid almost Rs 1 lakh crore of debt, while Indian Oil Corp and Bharat Petroleum Corp reduced debt by Rs 32,375 crore, and Rs 16,209 crore, respectively.Some of the other companies that have reduced debt include Jindal Steel & Power, JSW Steel, Tata Motors, Piramal Enterprises, Tata Chemicals, HCL Technologies, Cadila Healthcare, DLF and Vodafone Idea.79051908Indian companies have been deleveraging their balance sheet over the past two-three years. India’s real GDP growth has come off from the peak of 8.3 per cent in FY17 to 4.2 per cent in FY20. This year, GDP is expected to shrink. In this backdrop, most manufacturing companies have been operating at sub-optimum utilisation rates and postponed capex.“The capex cycle has been deferred consistently due to lower utilization levels and most of the companies have been going in for brownfield expansion that entails lesser capex,” said Rusmik Oza, head of research, Kotak Securities. “In the absence of any major capex, the bulk of free cash flows would be used to repay debt, which in turn would help improve the debt-equity ratio.”Mid-cap companies such as Alembic Pharmaceuticals, JK Tyres, Coromandel International, DCM Shriram, Jindal Stainless, Quess Corp, Welspun India, Welspun Corp, Deepak Nitrate, CEAT and Orient Cement have also reduced debt between April and September.

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