Reliance Industries and two other oil majors - Indian Oil Corporation and Bharat Petroleum Corporation - apparently managed to diffuse the ticking corporate debt bomb. These conclusions were based on the sample of BSE 500 companies, after excluding the banking and financial firms. The standalone debt of the sample which essentially includes the long-term and short-term borrowings of the companies has actually fallen for the first time since FY11, by Rs 67,976 crore, in the first half of the fiscal.
The aggregate gross debt of the companies had grown over a quarter to Rs 18.3 lakh crore by FY20 compared to Rs 14.4 lakh crore in the previous fiscal. However, these borrowings showed signs of abating by the end of Sep'20, which stood at Rs 17.6 lakh crore, courtesy Reliance Industries. The company which was responsible for almost 14 per cent of the sample's debt loads (as of FY20) and saw a debt reduction of Rs 29,148 crore, during this period. The other two oil majors, IOC and BPCL together managed to trim their debt by Rs over 40,000 crore.
"After rising 27 per cent in FY20, the debt of these firms has fallen by 3.8 per cent in H2 CY21. This is largely on the back of debt reduction seen in Reliance, IOCL and BPCL. Reliance debt reduction is mainly due to stake sale in Jio, while debt reduction for IOCL and BPCL seems to be notional, where-in the figures from debt has reduced but at the same time current liabilities are inflated by the similar amount," said Amar Ambani, Sr. President and Head of Research - Institutional Equities at Yes Securities.
Meanwhile, if we exclude Reliance from the list, the reduction rate reduces to 2.5 per cent. Moreover, if BPCL and IOCL are excluded from the calculations, the debt would drop by meagre 1.6 per cent, adds Ambani.
Furthermore, nearly 58 per cent firms saw a reduction in their debt while over one-third of the sample witnessed an increase in the first half of the fiscal. Thanks to RBI liquidity measures and effective policy transmission, borrowing and interest cost for corporates have softened significantly. Additionally, lower tax outgo has also improved the bottom-line, effectively helping in paring some debt, said Ambani.