If rising debt levels and high interest outgo was a major cause of concern for India Inc over the last few years, a decline in interest rates in the economy, ease of doing business initiatives by the government along with an uptick in the economic activity seems to be playing a part in reducing the debt levels of companies.
According to a report released by the State Bank of India, based on the study of corporate results of 200 companies, around 60 companies have reported an aggregate decline in debt levels of more than Rs 6,862 crore in the year ended March 2016.
“Clearly, things are now actually looking better contrary to popular perception. Cement, fertiliser, trading, finance and transport are some of the sectors that are showing deleveraging,” said Soumya Kanti Ghosh, chief economic adviser, State Bank of India.
The decline in debt levels for the companies is in line with the 150 basis point reduction in the repo rate (at which RBI lends to commercial banks) by the Reserve Bank of India over the last 16 months and several steps taken by the government towards ease of doing business and providing clearances to stalled projects across sectors.
Analysing the results of 200 listed companies that have announced their corporate results for FY16, Ghosh pointed that companies in sectors such as cement, finance, packaging, transport (airlines) and fertiliser appear to be repaying debt or are less dependent on resorting to debt. This comes even as the Reserve Bank’s sectoral gross credit deployment data for certain sectors such as fertiliser shows an increase in gross bank credit.
While in the finance sector, three companies — Shriram Transport Finance, Cholamandalam Investment Finance and Motilal Oswal Finance reported lower overall debt levels for the year ended March 2016 over that in the previous year, in the fertiliser segment companies such as Gujarat Narmada Valley Fertilizers and Chemicals (GNFC) turned the corner and reported a profit of Rs 226 crore in FY16 as against a loss of Rs 122 crore last year.
“As such, the fertiliser sector is witnessing a silent revolution as the new investor policy is encouraging setting up of gas-based urea plants in country — the first time in the last 25 years. Already, there are 3 plants being set up in Kota (Chambal Fertlisers), Ramagundam (EIL and National Fertilisers Limited) and RCF,” said Ghosh in the report.
He also added that the government is encouraging setting up urea-based plants in the eastern part of country and it has directed NTPC, Coal India and ONGC to help set up plants at Sindhri, Gorakhpur and Barauni for facilitating Jagdishpur to Haldia gas pipeline being laid by GAIL.
Even in the cement sector, UltraTech Cement reported lower overall debt levels especially in long term borrowings.
The cement major reduced its debt by Rs 1,682 crore or by 26 per cent of its total debt of Rs 6,512 crore in the year ended March 2015.
Among other major companies that have managed to reduce their debt levels are Maruti Suzuki and Interglobe Aviation. While MSIL has reduced its debt from a peak total debt level of Rs 1,389 crore in March 2013, to Rs 516 crore in March 2015, the report said that in FY16, the debt levels are expected to be truncated further. Similarly, Interglobe Aviation that is reaping benefits of a low crude oil price, saw its debt levels come down from Rs 3,588 crore in March 2015 to Rs 2,950 crore in March 2016.