Next time will test the financial resilience of corporates

Mumbai, Ta. 13 March 2020, Friday

The next few months will test the financial resilience of India's corporate India as the revenue and earnings of Indian companies are declining significantly. Recent downturns in commodity and energy prices and coronaviruses have led to a weakening of demand for goods and services that are in economic turmoil.

Analysts are anticipating the immediate impact of metals and mining and oil and gas companies. Non-banking finance and infrastructure companies facing financing are also likely to have an impact as the money market is avoiding risk taking.

The recent drop in metals and energy prices will put pressure on the margins and profits of companies in the sector for a few quarters. Some companies may even go into losses.

Reducing profits can be financially painful for companies with low interest coverage ratios and huge debt.

Interest coverage ratio is a measure of a company's ability to pay its debt, which is calculated by dividing a company's operating profit by its interest liability.

High ratios are generally considered to be favorable. A score below 7.5 indicates a margin or marginal reduction in profits could force the company to default on interest payments.

In addition, the current situation can be painful for companies with higher promoter pledges, ”said an analyst.

A company with higher debt and higher pledges is considered more vulnerable. From this point of view, most metal companies in the country can face financial challenges in the coming quarters.