One third of India Inc lacks debt servicing muscle

More than 1,300 companies' operating profit is less than interest expense, says the Credit Suisse report

For more than a third of Indian companies, the money they make from operations does not even cover the interest payments of their debt obligations.  

A Credit Suisse Securities report entitled ‘Corporate Financial Health Tracker’ said that 36% of firms that they examined had an interest coverage ratio of less than one, indicating that their interest obligation is greater than the amount they earn from operations.

The report examined data for 3,700 listed non-financial companies whose total debt was around $400 bn.

It added that aggregate interest coverage has actually worsened even though the 36% figure is lower than 38% seen in the previous quarter, and that the proportion of debt with companies who have had an IC of less than one for a year or more has declined.

“The share of debt with chronically stressed corporates declined to 26% vs 31% in 3Q14. However, the share of debt with companies having IC<1 for eight consecutive quarters increased to 35% vs 29% in 3Q14 and the aggregate interest cover worsened marginally to 2.5x.” said the 13 June report authored by research analysts Ashish Gupta, Prashant Kumar and Kush Shah.

Twenty eight per cent of the total debt is with loss-making companies.

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