Morgan Credits, Yes Capital losses crossed Rs 600 million in FY18

Ability to service principal and interest on borrowings remains strong, say companies

Two YES Bank promoter entities, Morgan Credits (MCPL) and Yes Capital (YCPL), recorded losses of Rs 609.6 million in 2017-18.

Both companies recorded a jump in leverage and a fall in interest coverage ratio, showed an analysis of company filings from the corporate affairs ministry.

MCPL and YCPL have been in the news with reports saying they had raised capital from mutual funds on the strength of their shareholding in the bank.

MCPL recorded a standalone loss of Rs 260.5 million in FY18. This is higher than the previous year's loss of Rs 142.7 million. Higher finance costs of Rs 477.84 million contributed to the loss.

YCPL was profitable in FY17. It had a profit after tax of Rs 46.7 million. This turned into a loss of Rs 349.1 million in FY18. Borrowings of the company rose from Rs 1 billion to Rs 6.7 billion in the same period. The debt-equity ratio of both companies is about 13 at the end of 2017-18. Their interest coverage ratio is less than one.

Both firms are investment companies. This means that they make most of their money through the shares they hold, including through dividends and capital gains. Notes on the borrowings from rating agency CARE Ratings said YES Bank dividends were the company's major source of income.

It noted both companies' financial flexibility was because of their holding of the bank's stock. The YES Bank stock has fallen 49 per cent on a year-to-date basis.

The Reserve Bank of India has rejected the continuation of promoter Rana Kapoor as the company's managing director and chief executive officer.

However, debt servicing is not expected to be hit, according to company executives.

"MCPL and YCPL are on course for realising these revenue streams in the coming years, which will generate profitability for these companies," went the company's statement.

The higher leverage is compensated by the value of the holdings of the companies, according to a spokesperson. The companies are owned by Radha K Khanna, Raakhe K Tandon and Roshini Kapoor. It is said to have investments in start-up ventures across high growth sectors.

"The total borrowing in these companies is lower than their respective adjusted net worth (adjusted for market price of listed securities held by MCPL and YCPL). Hence, the leverage ratio is at comfortable levels. Further, the companies have complied with all debt covenants in the past and will continue to do so in the future as well," said the person.

He added there would not be any issue servicing such obligations in the future. "The ability of these companies to service principal and interest on borrowings remains strong and will only strengthen in the future as the underlying investments grow and generate interest income, dividends, and capital gains,” said the statement.