India Inc records modest growth in cash reserves

The Sensex flight masks an ugly reality of India Inc. With Sensex having closed at record high level of 25,580 on Monday, comes the bad news of marginal growth in cash reserves of Sensex companies’ last fiscal.

Amid economic slowdown, Sensex companies (index has 30 companies) have piled Rs 2.75 lakh crore cash reserves during 2013-14, registering merely seven% growth over last fiscal. It is for the second consecutive year when Sensex companies have witnessed dismal growth in their cash reserves. Interestingly, during 2012-13, cash reserves grew by only six%. The depressed growth in cash reserves is accounted for by two key developments: poor profitability and the mounting insecurity in regard to deploying cash elsewhere.  

A Zee Research Group (ZRG) study of the balance sheets of Sensex companies showed that at the end of last fiscal (31st March 2014), out of remaining 24 companies in Sensex (excluding SBI, ICICI Bank, Axis Bank, HDFC Bank, HDFC Ltd., Sesa Sterlite) 15 (63%) have witnessed a jump in cash levels when compared to 31st March 2013 levels. The banking companies were excluded for the study in view of their stipulated liquidity requirement. Even, Sesa Sterlite has been excluded from the study owing to the scheme of merger and restructuring.

During the last one year, Bharti Airtel has seen the maximum jump of around 210% in cash levels followed by TCS (113%), Sun Pharma (87%), Dr Reddy’s (65%), and BHEL (53%).

Furthermore, IT firms which generally are cash rich have sustained the trend this fiscal as well. Cash levels of IT companies like TCS, Wipro, and Infosys have increased by 113%, 35%, and 19% respectively.

In case of Auto companies, funding the working capital requirements seems to be the main culprit which has hit the cash accruals. Barring Tata Motors, M&M, cash reserves of Bajaj Auto, Hero Motocorp, Maruti Suzuki have witnessed a degrowth of 11.6%, 35%, and 20.4% respectively.

Corporate profitability has taken a hit amid the weak economic scenario. For the second straight year, India’s GDP grew below 5% mark. The GDP for the last fiscal (FY14) grew at 4.7%.

Importantly, corporate profits as a percentage of GDP collapsed from 7.8% in FY08 to nearly 4.2% in FY14. However, there are expectations that investment activity would pick up owing to the formation of stable government at the centre. A Motilal Oswal report stated, “The positive election outcome coupled with a strong majority government can lead to a more business friendly environment and revival in domestic demand. This will drive earnings upgrades for corporate India over the next few years. Corporate sector earnings are expected to grow at 16% CAGR over FY14-16."

Exhibit: Cash and bank balance of Sensex companies (Rs crore)

Note: Banking and financial companies namely SBI, ICICI Bank, Axis Bank, HDFC Bank, HDFC Limited are excluded in this analysis as their balance sheet is different from others firms owing to the nature of business. Further, Sesa Sterlite has been excluded from the list due to the scheme of merger and restructuring.