S&P warns against rising debt levels

“Many companies in India borrowed more to finance expansions despite robust cash flow generation from positive economic factors,” according to the report titled “Indian Top 50 Corporates” which was released by S&P and Crisil today. The report goes on to add that out of the 50 companies, which include names like Wipro, Hero Honda Motors and Bharti Tele-Ventures, around 24 companies had increased their debt by more than 10 per cent to finance expansion in the past two years.

Out of the 50 companies reviewed, only 16 had managed to take advantage of the strong cash flows to lower their debt burden by more than 10 per cent, it said.

The report warned that even though the financial profiles of the reviewed companies were currently strong, those companies which chose to rely mainly on debt to finance their growth could face challenges that could weaken their credit profiles.

“These challenges include product price, product-price volatility, unexpected regulatory actions, slower-than-projected demand, and difficulty in managing rapidly expanding processes,” it said.

The report said the economy had been boosted by favourable financing conditions, including domestic credit availability, declining rates and low inflation but cautioned that Indian firms could still face challenges like low FDI, poor infrastructure, ineffective legal and regulatory processes, and heavy reliance on agricultural sector.

Banks: India ahead of China

MUMBAI: The financial profiles of Indian banks are stronger than their Chinese counterparts, according to a report on the Indian banking sector by S&P and Crisil. The report, which studied the top 20 Indian banks, said that the Indian banking sector’s key fundamentals, such as credit policy, pre-provisioning profitability and capitilisation are stronger than those of Chinese banks. ENS