Over 250 old-economy companies from a dozen-odd sectors have taken full advantage of corporate debt restructuring, falling interest rates and growing consumer demand in the last three years.
Posting a compound annual growth rate of over 24 per cent since 2002-03, these companies registered a net profit of Rs 10,600 crore (Rs 106 billion) in 2005-06, from a net loss of Rs 6,000 crore (Rs 60 billion) in 2002-03.
The major beneficiaries of debt restructuring and buoyant demand have been companies from the cement and steel sectors.
Other debt-ridden companies that have benefited belong to sectors like refineries, fertilisers, copper, sugar, white goods, forgings, textiles (weaving), telephone cables and bulk drugs. They were vulnerable on account of two factors: high-cost debt and demand recession.
The 250-odd firms that scripted an amazing turnaround story account for 10 per cent of sales of listed corporate entities.
They have grown at a three-year compound annual growth rate of 24.4 per cent. These firms collectively posted a net profit of Rs 23,300 crore (Rs 233 billion) in the three years between 2002-03 and 2005-06 on the back of an extraordinary income of Rs 4,600 crore (Rs 46 billion) accrued from revival packages and interest cost savings of Rs 3,300 crore (Rs 33 billion).
Mangalore Refineries and Petrochemicals is one such company. It had suffered a net loss of Rs 1,400 crore (Rs 14 billion) between 2000 and 2003 with high-cost debt leading to an interest burden of Rs 1,800 crore (Rs 18 billion) in that period. Oil and Natural Gas Corporation (ONGC) revived Mangalore Refineries and Petrochemicals by reducing its debt.
The company made good of ONGC's support with refinery sales growing at a compound annual growth rate of 47 per cent and posting an aggregate net profit of Rs 1,700 crore (Rs 17 billion) in the last three years. Its debt burden has declined from Rs 5,000 crore (Rs 50 billion) to Rs 600 crore (Rs 6 billion).
After posting a net loss of Rs 390 crore (Rs 3.90 billion) in 2002-03, Gujarat State Fertiliser Corporation made a turnaround, recording a net profit of Rs 174.27 crore (Rs 1.742 billion) in 2004, Rs 138.07 crore (Rs 1.380 billion) in 2005 and Rs 293.79 crore (Rs 2.937 billion) in 2006.
The demand for the company's products grew at a compound annual growth rate of 15 per cent while debt restructuring reduced its debt from Rs 1,100 crore (Rs 11 billion) to Rs 430 crore (Rs 4.30 billion). Its interest cost declined from Rs 175 crore (Rs 1.75 billion) to Rs 86 crore (Rs 860 million).
Steel Authority of India Ltd (SAIL) had suffered a severe setback a couple of years ago with demand recession and a fall in steel prices to a 10-year low.
The company had made a net loss of Rs 4,460 crore (Rs 44.60 billion) between 2000 and 2003 with sales growing at a meagre compound annual growth rate of 5.64 per cent. It had paid Rs 6,510 crore (Rs 65.10 billion) for its debt.
The turnaround was achieved on the back of rising steel prices as SAIL's sales grew at a compound annual growth rate of 18.5 per cent with demand for steel coming from the domestic market as well as China.
It wiped out its losses by making a huge profit of Rs 13,300 crore (Rs 133 billion) in the next three years (2004-2006). SAIL's debt has declined from Rs 13,000 crore (Rs 130 billion) to Rs 4,300 crore (Rs 43 billion) and interest cost from Rs 6,500 crore (Rs 65 billion) to Rs 2,000 crore (Rs 20 billion) between 2000 and 2003.
The other companies that have reaped the benefit of rising demand and debt restructuring include India Cement, Mukund Ltd, Hind Copper, S Kumar Nationwide, Nocil, Rallis and Rashtriya Chemicals & Fertilisers.
