India Inc sheds debt to boost ratings, valuations – The Economic Times

Clipped from: https://economictimes.indiatimes.com/markets/stocks/news/india-inc-sheds-debt-to-boost-ratings-valuations/articleshow/82696851.cms

Synopsis–Reliance Industries has reduced its gross debt by nearly Rs 1.21 lakh crore in FY21 to Rs 2.24 lakh crore, riding on a Rs 1.65 lakh crore aggregate fundraising through stake sales of its digital unit Jio Platforms and its retail arm Reliance Retail Ventures.

Mumbai: India Inc is using improved cash flows to cut debt for better ratings and equity valuations. This is despite widespread disruptions to business due to the Covid-19 pandemic.

Data compiled by ET show that 78 of 134 companies — excluding banks and finance firms — in the NSE 500 that have reported results so far reduced debt in the previous fiscal year.

Consequently, the aggregate debt of the 134 companies has fallen by Rs 2 lakh crore (down 18 per cent) in FY21 compared to an increase of 14 per cent (higher by Rs 1.38 lakh crore) for the same set of companies in FY20.

Analysts said a turnaround in the commodity cycle, lower working capital requirements and fundraising through equity issues helped India Inc focus on improving free cash flows and reducing their debt-equity ratio.

companies

“Better cash flow due to turnaround in commodity cycle and rise in prices have helped many companies repay debt mostly in the second half of FY21,” said Deepak Jesani, head of research at HDFC Securities.

“Companies have now realised that deleveraging is necessary to improve the financial health of the balance sheet and thereby corporate rating to get capital at lower cost in future and better valuations in the equity market,” Jesani added.

A sharp rally in metal prices globally has helped companies like Tata Steel, SAIL Ltd, Jindal Steel and Power, and Vedanta to deleverage their balance sheets.

While Tata Steel has reduced its debt by nearly Rs 34,000 crore in FY21, Jindal Steel and Vedanta have repaid debt of Rs 10,300 crore and Rs 8,700 crore, respectively, during the period.

Reliance Industries has reduced its gross debt by nearly Rs 1.21 lakh crore in FY21 to Rs 2.24 lakh crore, riding on a Rs 1.65 lakh crore aggregate fundraising through stake sales of its digital unit Jio Platforms and its retail arm Reliance Retail Ventures.

RIL launched India’s biggest-ever rights issue worth Rs 53,125 crore last year.

Tata Power reduced debt by nearly Rs 6,400 crore on the sale of non-core investments and equity infusion of Rs 2,600 crore from its promoters. UltraTech Cement — which saw strong cash flows — also reduced its debt by Rs 6,200 crore in FY21.

The overall debt of NSE 500 companies, excluding finance and banks, rose 18 per cent, or Rs 4.88 lakh crore, to Rs 32.66 lakh crore in FY20.

Analysts said most companies decided to go slow on fresh capital expenditure due to uncertain demand scenario in the last two fiscal years, focusing instead on improving their balance sheets by deleveraging.

“Factors like low interest rate scenario for the last two years, improved margins supported by low input costs and operating efficiencies, favourable working capital cycle and low capex aided domestic companies to generate healthy free cash flows,” said Binod Modi, head of strategy at Reliance Securities.

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