Over half of top 500 firms could face liquidity crisis
Data show that 257 companies do not have enough cash to meet their fixed costs and interest
- Over half of the top 500 companies listed on the National Stock Exchange could find themselves strapped for cash to even make routine payments in the aftermath of the COVID-19 induced lockdown.
- Some strong companies such as Reliance Industries (₹1,53,719 crore of cash and cash equivalents as of December 31, 2019), Interglobe Aviation (₹20,068 crore) and Bajaj Auto (₹17,407 crore), to name just three, will obviously ride through the crisis comfortably. But a majority of the firms could find themselves in liquidity trouble, unless if promoters step in with equity or banks lend to them.
- As per data analysed by Acuite Ratings & Research Ltd. exclusively for The Hindu, out of 467 of the top 500 NSE-listed companies, excluding banks, 257, or 55% of them, have less than 100% cushion for bearing fixed and debt-servicing costs.
- If one limits it to only fixed costs and assumes that the lenders will provide moratorium or refinance, then the number of companies having less than 100% cushion reduces to 208 or 45%.
- Out of 208 companies, 153 companies, or 33%, don’t have even 50% cushion i.e. they will not be in a position to pay even half of the fixed costs in Q1 unless if additional cash is generated from business or if promoters infuse funds.
- And 210 companies can service both fixed costs and debt repayments comfortably without any business activity given their liquidity position.
- Contrary to the perception that only SMEs are subject to liquidity challenges, our analysis of the top 500 NSE-listed companies highlight that 257, or around 55%, of these companies, do not have adequate liquidity in their balance sheet to pay for the fixed costs and debt repayment of the current quarter in a complete lockdown scenario.
- A large number of businesses with poor balance sheets will close down. Businesses which have cash in hand and no short-term debt and the ones which can run during this period by meeting fixed costs and some positive cash generation, can rebuild fast and survive
- With businesses dying, people losing jobs and cash-strapped developing nations beginning to teeter, mankind is faced with an economic crisis that is disproportionately bigger than the two-million infected and the 1,56,000 dead from COVID-19.