How India Inc.’s Debt Shrank In Pandemic-Hit FY21

Deferred capex, deep cost cuts and fundraising aided by low bond yields helped Indian companies pare debt in the pandemic-ravaged 2020-21.

The aggregate total debt (short and long-term borrowing) of 403 of the BSE 500 companies (excluding banks and financials) declined 6% year-on-year in FY21 to Rs 31.3 lakh crore, according to data compiled from Bloomberg. 264 saw debt fall, while it rose for 139.

Reliance Industries Ltd. and Tata Steel Ltd. led the companies that slashed their debt by most. This was achieved differently by most using a combination of cost cuts, asset sales, fund raising via both equity and debt as stock markets boomed and interest rates fell to record lows.

“The aggressive reduction in the corporate debt during FY21 was facilitated by the bond market,” SBI Research said in a June report. “Primary issuances of bond increased by 9% as corporates have deleveraged by repaying high-cost loans through funds raised through bond issuances.”

India Inc. also conserved cash.

  • The aggregate cash holding of 403 companies rose 26.3% in 2020-21 to Rs 12.33 lakh crore.

  • Cash with 310 companies rose, while it depleted for 93.

Higher cash holdings improved the net debt position of companies.

  • The aggregate net debt, or borrowings after accounting for cash, of the 403 companies tumbled by a bigger 19.5% on an annual basis to Rs 18.99 lakh crore in FY21.

  • Net debt fell for 308, while it rose for 95 firms.

Lower debt and rates also brought down interest costs. According to a recent RBI report, the total interest cost of 2,608 listed non-government, non-financial companies fell 9.3% over a year earlier to Rs 35,641 crore in the quarter ended March. That compares with an increase of 14.9% in the corresponding period of the previous fiscal.

The interest coverage ratio of manufacturing companies improved to 7.3 in the fourth quarter from 6.6 in the previous quarter, the RBI said. But for non-IT services, it remained below 1.

The ratio of operating income to interest is a measure of the debt servicing capacity. The higher the number, the better is the ability to service debt.

Sectoral Picture

Of the 30 sectors, 23 witnessed a decline in total debt, while the metric rose for seven in FY21.

Selection Criteria

Machinery and entertainment led the sectors that reduced debt by most.

Industrial intermediates and food saw the highest increase in debt.

The cash pile grew the most for machinery and healthcare.

Three sectors saw their cash position worsen.

10 companies in BSE500 turned debt-free in FY21, while 53 pared debt by more than half.

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