Large Indian cos sitting on Rs 4.2 lakh cr excess cash: E&Y

The conclusions are based on the working capital performance of 400 leading companies in India

Big Indian companies are sitting on excess cash to the tune of Rs 4.2 lakh crore, as the amount is "unnecessarily" stuck in working capital processes, according to Ernst & Young.

"... The large Indian companies have up to Rs 4,200 billion ($78 billion) unnecessarily tied up in cash in their working capital processes. This is equivalent to 11% of their aggregate sales," global consultancy E&Y has said.

The conclusions, part of the report titled 'All Tied Up India 2012', are based on the working capital performance of 400 leading companies in India.

Going by the report, in FY12, the largest companies in India reported a significant deterioration in the working capital performance as compared to FY11.

Cash-to-cash (C2C) or the average number of days for profit to be converted to cash has increased during this period. The rise came against the backdrop of rapid growth in sales, increased inflation and interest rates and heightened volatility in currency and commodity prices, it said.

Further E&Y noted that since 2009, the C2C of Indian companies has increased by as much as 30%.

When it comes to C2C performance, Indian organisations are at the bottom of the table behind the US, European, Japanese and Asian companies, the report said.

"While these performance gaps may be partly explained by variations in market characteristics, payment practices and supply chain infrastructures, they also highlight fundamental differences in the degree of management focus on cash and the effectiveness of working capital management processes," it added.

According to the consultancy, utilisation of the excess cash would require much greater focus, effort, collaboration and innovation.

Such efforts could be by way of improving the reliability of demand forecast with the help of real-time information sharing with customers, among others.

"Indian companies need to start viewing working capital as an operational issue and not just as a financial issue. Otherwise, in today's global market place we will be at a competitive disadvantage," E&Y Partner (Working Capital Advisory Services) Ankur Bhandari said.