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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Indian companies that face a cash crunch
Photographs: Amit Dave/Reuters.
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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Indian companies that face a cash crunch
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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Indian companies that face a cash crunch
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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Indian companies that face a cash crunch
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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Indian companies that face a cash crunch
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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Indian companies that face a cash crunch
Photographs: Sivaram/Reuters.
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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Indian companies that face a cash crunch
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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Indian companies that face a cash crunch
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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Indian companies that face a cash crunch
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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Indian companies that face a cash crunch
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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Indian companies that face a cash crunch
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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Indian companies that face a cash crunch
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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Indian companies that face a cash crunch
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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Indian companies that face a cash crunch
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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Indian companies that face a cash crunch
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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