The pockets of stress in India Inc’s improving credit health
Mint. To assess this, the analysis used interest coverage ratio (ICR), or the ratio between operating profit and interest outgo: if the former exceeds the latter, a company has sufficient cover for its interest obligations. Companies for which the ratio was less than one were classified as ‘stressed’.
(The analysis excluded India Ratings, where ICR is not relevant due to different accounting methods.) Around 12% of large businesses (annual revenue over ₹500 crore) were found to be stressed in the December-ended quarter, down from a peak of 39% in Q1 FY21. Among mid-sized businesses (revenue ₹50-500 crore), the share improved from 47% in Q1 FY21 to 20%, while for emerging ones (revenue less than ₹50 crore), it fell from 44% to 28%, the analysis found. Based on these numbers, the study observed that mid-sized corporates had reduced their wide gap with large ones since the start of the pandemic, while smaller and more financially fragile businesses had struggled with a flatter recovery trend due to limited operating leverage and financial flexibility.
Abhishek Bhattacharya, senior director and head of large corporate ratings at India Ratings and Research, and the author of the study, attributed the recovery of mid-sized companies in sectors such as auto ancillaries, metals, and power to more nimbleness in their respective supply chains. “They are re-aligning themselves better to the end customer’s product requirement and have started to become more efficient on their own working capital management," he said. Another metric that showed recovery was the debt of companies classified as stressed.
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