Corporates with adequate balance sheet strength may manage Covid impact: Report
In the current exceptional circumstances, it is futile to look at profit and loss parameters, according to the SBI's research report, Ecowrap.
"What will be more important to closely observe the balance sheet strength. Ideally, corporates with such strength will be able to navigate through this exceptional times," the report said.It said no sector is untouched with the impact of COVID-19 and subsequent lockdowns even after opening up will prolong the economic pain.Advertisement
The report has looked into balance sheet strength of various sectors based on some key parameters such as debt-to-equity (DE), debt service coverage (DSCR), interest service coverage ratio (ISCR) and cash and bank balance to debt.
Sectors such as automobile, FMCG, consumer durable though have reported negative growth in all key parameters in the fourth quarter of FY2020, have the requisite balance sheet strength to come out from the current situation, the report said.While the automobile sector has a DE ratio of 0.20 and DSCR and ISCR of 1.57 and 5.56 respectively, the consumer durable sector has a DE of 0.25 and DSCR and ISCR of 4.77 and 8.93 respectively.
There are sectors such as sugar, steel, telecom services and constructions among others that do not have the balance sheet strength and may face difficulties in this uncertain period, it said.For example, sugar sector which is not performing well is also having high DE of 1.58 and low DSCR and ISCR of 1.03 and 1.52 respectively. The report said sectors such as textile and construction have DSCR and ISCR that are significantly low which shows the weak repayment capacity of loan as well as interest. Advertisement
Within such sectors also there may be some corporates with higher DE as compared to others and may be affected more, it said.
Dividend pay out by IT firms likely to dip as companies are looking at conserving cash due to COVID-19 uncertainties and after effects, it said.The report said the pandemic has resulted in unprecedented rating downgrade across sectors. Advertisement
In capital goods (capital goods and engineering) a massive 870 downgrades was seen as compared to only 50 upgrades in the first quarter of FY2021.
Construction, textile, steel, reality, auto ancillary, gems and jewellery have reported huge downgrades during the period as compared to very small or no upgrades.There were 182 rating upgrades and 2,996 rating downgrades, for the select sectors during this time, it said. Advertisement
"In terms of rating downgrades, it seems the current crisis is unprecedented and it is important to look at corporates within sectors that have adequate balance sheet strength" the report said. HV MR
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