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Indian companies that face a cash crunch

Last updated on: September 11, 2012 08:34 IST

Indian companies that face a cash crunch

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BS Reporter in Mumbai

With growth rates slowing and global concerns not abating, the Street is increasingly becoming worried about rising stress levels for corporate India.

Earlier, Credit Suisse had come up with a report on the risks faced by the banking sector due to its exposure to highly-leveraged corporate houses.

Today, Morgan Stanley's team of analysts, led by Ridham Desai, put out a report indicating a list of companies which could face balance sheet stress, based on their quantitative analysis.

Based on its proprietary Altman Z-score and cash flow tests, the brokerage says 20 companies appear stressed on the cash flow measure.

Hathway

Altman's Z Score
: 1.78

A Z score below 1.8 implies an increased probability of financial stress.

Source: Morgan Stanley Research

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Adani Ports and SEZ

Altman's Z Score: 1.71

When they combined the results of the Z-score and cash flow stress tests, five companies have these in common -- Adani Enterprises, Adani Power, Jaiprakash, ITNL and Lanco.

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Image: Workers prepare to stack containers at Thar Dry Port in Sanand in Gujarat.
Photographs: Amit Dave/Reuters.

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Shree Renuka Sugars

Altman's Z Score: 1.68

Altman Z-scores measure the risk of bankruptcy; the cash flow stress test is to assess refinancing risk.

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Great Eastern Shipping

Altman's Z Score: 1.68

The analysts have assumed refinancing will not be available and, hence, any loans taken by the companies will need to be financed out of operating cash flows.

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Tags: Altman

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Educomp Solutions

Altman's Z Score: 1.59

The study is based on 2011-12 numbers and Morgan Stanley's own FY13 estimates.

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Adani Enterprises

Altman's Z Score: 1.53

Of the 104 stocks under Morgan Stanley's coverage, 17 companies which had an Altman Z-score of 1.8 are seen to be at financial risk.

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Bharti Airtel

Altman's Z Score: 1.53

Another seven are considered borderline cases. These include: Tata Power, Indiabulls Real Estate, DLF, JSW Steel, Hindalco, Reliance Infrastructure and NTPC.

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Image: A vendor waits for customers at his grocery shop, painted with an advertisement for Bharti Airtel in Kochi.
Photographs: Sivaram/Reuters.

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Jaiprakash Associates
  
Altman's Z Score: 1.48

Most of these stocks underperformed over the past 12 months, but mere underperformance does not mean that all the potential pain is priced in. "And, hence, these tests still should be of use," says the report.

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JSW Energy

Altman's Z Score:        1.43

Over the past five years, several Indian business houses have borrowed substantial amounts of money to fund projects and acquisitions.

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Tags: , JSW

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Cox and Kings

Altman's Z Score:1.41

With economic growth slowing and interest rates remaining high, corporate India is finding it very hard to generate adequate cash flows to service their pile of debt.

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ITNL

Altman's Z Score: 1.39

Most companies which have borrowed heavily in the past have a very poor interest coverage ratio, which indicates their low ability to repay debt.

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Image: North Karnataka Expressway, ITNL project.

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IRB

Altman's Z Score: 1.36

However, the situation could change. "Balance sheet stress is a cyclical thing in stock picking – it comes to the fore in a rising rate and slowing growth environment. The market's preference for quality will shift if rates soften further and growth bottoms out," the anlysts note.

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Image: RB has emerged as the Preferred Bidder for the project of Six laning of Ahmedabad to Vadodara section of NH-8.

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Aditya Birla Nuvo

Altman's Z Score:        1.29

Morgan Stanley's stress test analysis does not throw up any new name or sector.

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Power Grid

Altman's Z Score: 1.11

However, it does reiterate the severe stress that not only corporate India faces but also the banking system.

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Image: POWERGRID conferred with "3rd Rajeev Gandhi Excellence Award 2011.

Tags: , India

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Lanco Infratech

Altman's Z Score:0.88

At the sector level, it says: "Not surprisingly, real estate, utilities, industrials and telecoms appear to carry maximum financial and cash flow risks, based on our metrics."

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Image: Kondapalli power project.


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Indiabulls Power

Altman's Z Score: 0.64

All these sectors have been at the centre of either scams or policy logjam.

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Adani Power

Altman's Z Score: 0.52





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