Easing burden: Amount borrowed by non-financial firms fell 5.6% in FY21

The boom in corporate profits and a sharp fall in capex allowed India Inc to ease its debt burden last financial year. The combined borrowing by the top listed companies, excluding banks, insurance, and non-banking financial companies (NBFCs), were down 5.6 per cent year-on-year to Rs 30.8 trillion at the end of FY21 from Rs 32.7 trillion.

It is the first decline in actual corporate borrowings in nearly two decades as loan repayments by companies exceeded fresh borrowings.

"The jump in corporate profits and cash flows, especially for commodity producers, accelerated the process of corporate deleveraging that started with a cut in corporate tax in the second half of FY20," says Dhananjay Sinha, MD & chief strategist, JM Financial Institutional Equity.

According to him, most firms used the improvement in their cash flows to pre-pay debt rather than make fresh capex.

The numbers also suggest a big jump in India Inc’s cash pile or cash reserves. Companies in the Business Standard sample were sitting on all-time high cash & equivalents worth Rs 1275 trillion, up 10 per cent from Rs 10.65 trillion a year ago. Cash reserves were equivalent to 15.5 per cent of India Inc’s all assets last year -- the highest since FY13.

The combined capex by non-financial companies in the Business Standard sample was down 45.2 per cent year-on-year to Rs 4.27 trillion in FY21, from Rs 7.78 trillion a year ago. The incremental capex in FY21 was the lowest since FY17.

In comparison, the combined net profit of non-financial companies was up 72.5 per cent to Rs 3.93 trillion in FY21, from Rs 2.28 trillion a year ago, while their combined net sales were down 7.4 per cent YoY to Rs 59.6 trillion in FY21. The sample companies’ combined earnings in FY21 were second only to FY18 when earnings had peaked at Rs 3.97 trillion.

The big jump in earnings led to a 14.3 per cent YoY rise in the combined net worth that grew to around Rs 41 trillion, from Rs 35.9 trillion a year ago.

A combination of the decline in actual borrowings and rise in earnings led to a big decline in the balance sheet leverage ratio. The gross debt-to-equity ratio for listed non-financial firms in the sample declined to an 11-year low of 0.75X while the net debt-to-equity ratio improved to a 10-year low of 0.44X in FY21.

The decline in corporate debt was largely led by top commodity producers in sectors, such as oil & gas, steel, cement, and power. Among individual companies, Reliance Industries saw the sharpest fall in borrowings (down around Rs 85,000 crore), followed by Tata Steel (down Rs 28,000 crore), Steel Authority of India (Rs 16,500 crore), Indian Oil (Rs 13,150 crore), and Bharat Petroleum Corporation (Rs 11,000 crore). 

Other firms with a decline in borrowings include Jindal Steel & Power, UltraTech Cement, Vedanta, Hindalco, Power Grid Corporation, Tata Power, UPL, and Suzlon Energy.

At the other end of the spectrum, many top companies made fresh borrowings last financial year leading a further rise in their indebtedness. Tata Motors topped the list with fresh borrowings worth around Rs 17,300 crore, raising its total gross debt to Rs 1.42 trillion at the end of March this year. It is followed by Bharti Airtel (up Rs 14,500 crore), NTPC (Rs 9,500 crore), IRB Infra (Rs 9,400 crore), Adani Green (Rs 9300 crore), and Interglobe Aviation (Rs 7100 crore).

The analysis is based on annual finance of a constant sample of 770 companies that are part of the BSE500, BSE Midcap, and BSE Smallcap indices. The sample excludes banks, insurance, and NBFCs. It also excludes listed subsidiaries of listed companies in the sample to avoid double counting.