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Credit Suisse flags chronic stress at India Inc

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. (Reuters)
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. (Reuters)

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.

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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.

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First published on: 28-09-2016 at 06:40 IST
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