StatsGuru: Taking stock of indebtedness in the Indian corporate sector

The indebtedness of Indian companies continues to be a major concern for policy makers. Using the latest audited results, and excluding banking and financial firms, Chart 1 shows that the net debt of BSE 200 companies has increased further in financial year 2016. Not surprisingly, interest costs, too, have risen.

Chart 2 shows the leverage ratio (debt to equity) for private and public sector firms within the BSE 200. While private firms are more leveraged than public sector ones, it is noteworthy that the rise in ratio since FY11, in terms of percentage change, has been higher among the latter.

Chart 3 shows the impact of being over-leveraged. The interest cover ratio, which is profit (before interest, taxes, depreciation and amortisation) divided by interest costs, has been going down.
 

In this regard, the recent focus on family-owned conglomerates, because of the controversy in the Tata group, has shown the combined debt of India’s top family-owned groups has grown faster than their revenue and operating profits in the past five years. Chart 4 shows the leverage ratio for some of these companies.

Chart 5 looks at the same companies from the point of view of interest cover ratio, down across the board when compared to FY11. However, if one compares FY16 data with FY15, several seem to have improved here.

 
Chart 6 looks at sectors that are most leveraged. Infrastructure seems worst placed. Chart 7 looks at sectors that have the lowest interest cover ratios.