Over half of top 500 firms could face liquidity crisis 

#GS3 #Economy 

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. 
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