While corporate performance in general improved slightly in the three months to June, the share of debt with an interest cover of less than 1 saw a small increase to 39% from 38%, according to a report by Credit Suisse.
Analysts at the brokerage observed that the share of chronically stressed companies also increased to 34% from 32% sequentially and that 30% of the of debt was with loss-making companies.
They pointed out that while impaired assets at banks are now at 12% — non-performing loans at 8.6% and restructured assets at 3.5% — another 4.5% of loans are stressed. As such, “expectations of a turn in asset quality cycle are premature”, the analysts noted.
They pointed out that while 40-45% of steel sector exposure at banks had been recognised as impaired, there could be more haircuts as debt was “right-sized” by lenders.
While steel prices are up 15% following the imposition of the minimum import price, over 50% of steel debt is with companies that reported a debt/Ebitda of over 12 times.
The report revealed that companies in the power sector had not done as well as expected in Q1FY17; operating profits for several large firms, the analysts pointed out, fell 35-40% sequentially while their interest cover fell below 1. Moreover, capacities currently under construction have seen large overruns and 50%-plus of the 13 GW of capacity expected to be completed over next couple of years does not have a power purchase agreement.