Reliance to SAIL: India Inc on deleveraging spree as economy slows down

Companies don't want debt-fueled growth, seek prudence as banks crack the whip.

India’s top companies are deleveraging by cutting debt, with Reliance Industries leading the pack. The company made a debt cut of Rs 85,000 crore in fiscal 2021.

Opting for lower-cost loans, aggressive asset sales and avoiding new projects were methods Corporate India had adopted to check debt.

Statistics collated by 'Business Standard' shows that state-owned SAIL was the topper in debt reduction in percentage terms at 30.5 per cent. Jindal Steel, which reduced its debt by 29.7 per cent, was next (see chart).  

Analysts said Indian companies don’t want debt-fueled growth, considering the economy is slowing down and banks are cracking the whip. “There are several companies which were taken to the bankruptcy courts by the banks for failing to pay their debt. Some of these bankrupt companies like ADA companies were stock market darlings just a few years ago,” said an analyst with a foreign brokerage firm, referring to the Anil Dhirubhai Ambani  Group companies.

Apart from private groups, public sector companies including oil and gas giants like IOCL, BPCL, and Power Grid Corporation used the Covid-hit financial year to deleverage their balance sheet.

“India Inc is selling assets including international subsidiaries to make sure they do not face the ignominy of banks sending their companies to bankruptcy courts. Apart from public shame, it is also opening the groups to reputational damage. The new projects are also on hold,” said the chief financial officer of a large business group who asked not to be named.

Analysts said lockdowns to contain Covid-19 had devastated sales and profitability in the first quarter, so India Inc will continue its efforts to reduce debt.

“What happened to companies like Videocon and ADA group is a lesson for the rest of corporate India that the days of high cost debt fueled growth is over. Banks are tightening their disbursements to companies with low visibility of cash flows. We are expecting more companies to sell assets in the next few months to reduce their debt,” said a banker.

Despite a recent dip, systemic non-performing assets (NPA) of Indian banks remain high.

In the fiscal 2021, the manufacturing sector accounted for the highest share of bad debt. Manufacturing companies at bankruptcy courts comprised 41% of overall cases. That sector was followed by real estate (20%), construction (10%) and trading (10%). The sectors have largely remained constant compared with last year. Within the manufacturing domain, textile, leather & apparel products and basic metals (at 7 per cent each) continue to have the largest cumulative number of cases admitted under the IBC in the quarter ended March 2021.