Top companies in the BSE 500 borrowed sums nearly 70 per cent more than they got from their own shareholders in the first six months of their current year operations. An analysis of 379 companies for which half-yearly balance-sheets were available showed them raising Rs 135,000 crore in additional loan funds in the previous six months, a 15 per cent increase from the previous balance-sheet date. In contrast, their equity or shareholder funds saw an accretion of only Rs 80,000 crore — a 5 per cent rise.
This imbalance raised the debt-equity ratio for these companies from 0.57 on their earlier balance-sheet date (March 2011 or December 2010) to 0.63 in their latest numbers.
While indebted companies took on more debt, eight companies that had no loans at all last year made fresh borrowings. Companies such as PTC India, VA Tech Wabag, Sun TV lost their zero-debt status in this period.
Highly leveraged
Thirty-one companies saw their debt-equity ratio top the commonly accepted limit of two times the equity in their latest half-year balance-sheet. A sharp spike in loans, even as equity did not match up, led to some companies' leverage rising to precarious levels of over 3:1. Asahi India, Jet Airways, HPCL, Kesoram industries and Kingfisher Airlines were in this position.
Increase in gearing
The increase in the debt-equity ratio was most for companies from sectors such as steel, airline, shipping, oil marketing and infrastructure. Sector-specific concerns ranging from delayed projects to slowed demand to uncertainty about subsidy sharing (for oil marketing companies) could have driven this trend.
Companies such as HPCL, BPCL, Shree Renuka Sugars, Usha Martin, Jindal Steel, and BGR Energy are examples here. Companies with pending FCCB (foreign currency convertible bond) redemptions such as Subex, Hotel Leela and Orchid Chemicals also saw a sharp rise in debt levels as they raised fresh loans to repay the FCCBs.
Taking to debt
Lacklustre equity markets seem to have forced some companies to resort to higher debt to fund capex and acquisitions. Companies such as TTK Prestige, AIA Engineering and BHEL, which have ongoing capital expansion projects, saw a jump in loan funds during this period, while Cox and Kings, which had acquired a UK-based company, also reported an increase in borrowing.
The analysis is based on the standalone numbers for companies in the BSE 500 index (excluding banks and NBFCs).