Coronavirus impact | Unlike 2008, stunted earnings growth to foil resurgence of Indian companies: Report

Battling the coronavirus outbreak, India Inc may not not able to absorb the losses as it did during the  global financial crisis in 2008 as their liabilities now far outweigh their earnings and revenues, according to a report in Business Standard.

The initial 21-day lockdown is now extended till May 3, Prime Minister Narendra Modi announced on April 14. The second phase of lockdown is expected to be more stringent and the PM said that relaxations would be considered from April 20 only for areas with no COVID-19 cases.

Higher debt levels and lower profitability are the factors behind this grim outlook.

The report compared the combined gross debt-equity of companies in March 2008-end at 0.65x, with 0.82x in March 2019-end (excludes oil, finance companies); the net debt to equity ratio has doubled from 0.26x in March 2008 to 0.53x in March 2019.

Notably, the bulk of software and FMCG companies (Infosys, TCS, ITC, Nestle and Hindustan Unilever) are relatively debt-free. Thus, if these are also excluded, the net debt-equity ratio drops to 0.73x for March 2019 compared to 0.29x in March 2008, the paper states.

In terms of reserve cash, while this accounted for 40 percent of company worth in FY08, it is now only 29 percent in FY19—this means companies earlier had enough to cover 23 months of employee salaries v/s 13 months presently, it added.

Further for available data comparing FY19 to FY20, the condition has worsened, with net profit down 11 percent year-on-year (YoY) and interest payments up 15 percent YoY.

Even before the COVID-19 crisis hit, companies were in precarious situation (poor earnings, tilted return ratios) which has been amplified by the economic upheaval, it added.