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FY11 balance sheet analysis
Our analysis of end-FY11 balance sheets of 280 non-financial companies
corroborates the trend seen in 1H FY11. For FY11, net working capital has
grown 39%, significantly outpacing overall balance sheet expansion, on
the back of rising input commodity prices and moderation in demand
growth; metals, cap goods, pharma and cement reported large WC
increases. Capex growth has lagged, but with gearing levels still
comfortable, a pick-up in policy momentum can support a reversal on this
front.
Working capital drives balance sheet expansion
q Balance sheet data for Mar-11 is now available for 280 of the BSE-500 companies.
q Net working capital (excl. cash), up 39% YoY, was the primary driver of 21%
balance sheet expansion during FY11. This was 46% for our (smaller) sample in 1H.
q Working capital measured in days of revenues, was up 17% YoY to 41 days.
q 15/19 sectors saw rise in inventory days; 13/19 had higher debtor days.
q Metals sector has led on working capital and debt increase; cement, pharma and
cap goods are others. For the Real estate sector, the rise is within 20%.
q Fixed asset growth of 18% was lower.
Balance sheet growth lagged profits
q Overall profit growth for the 280 companies, over FY10, was 28% - well ahead of
balance sheet expansion seen during the year. Implied FY11 RoAE was 19%.
q Strong profitability helped 210 of the 280 companies throw-in positive cashflows
from operations, despite the ballooning in working capital.
q As a result, rise in gross debt (as well as net debt), by 21% YoY to US$211bn, has
been inline with that of shareholders’ funds and the overall balance sheet size.
q FY11 balance sheet /debt numbers capture the impact of international acquisitions
too. Adjusted for Bharti’s Zain acquisition, debt growth would drop to 15% YoY.
Comfortably positioned for capex resumption
q Debt/equity remains at a comfortable 0.7x – in line with last ten years average.
q Leveraging at mid cap stocks is higher at 0.9x.
q Since rising commodity prices / high inflation have been key drivers for working
capital expansion, a fall in inflation in 2H FY12 can reflect in slowing credit growth.
q In a recent banks sector note, we highlighted that deposit growth would surpass
credit growth in FY12, leading to easing liquidity and a steeper yield curve.
q With moderate D:E and improving deposit accretion for banks, we see the Indian
corporate sector well positioned to step-up investment spending, if the momentum
on policy actions were to start picking-up.
q Our preferred stocks to play ‘hope’ on a pick-up in policy actions are L&T, ONGC, BHEL,
IDFC, JPA & Coal India, which also offer downside protection on current fundamentals.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
FY11 balance sheet analysis
Our analysis of end-FY11 balance sheets of 280 non-financial companies
corroborates the trend seen in 1H FY11. For FY11, net working capital has
grown 39%, significantly outpacing overall balance sheet expansion, on
the back of rising input commodity prices and moderation in demand
growth; metals, cap goods, pharma and cement reported large WC
increases. Capex growth has lagged, but with gearing levels still
comfortable, a pick-up in policy momentum can support a reversal on this
front.
Working capital drives balance sheet expansion
q Balance sheet data for Mar-11 is now available for 280 of the BSE-500 companies.
q Net working capital (excl. cash), up 39% YoY, was the primary driver of 21%
balance sheet expansion during FY11. This was 46% for our (smaller) sample in 1H.
q Working capital measured in days of revenues, was up 17% YoY to 41 days.
q 15/19 sectors saw rise in inventory days; 13/19 had higher debtor days.
q Metals sector has led on working capital and debt increase; cement, pharma and
cap goods are others. For the Real estate sector, the rise is within 20%.
q Fixed asset growth of 18% was lower.
Balance sheet growth lagged profits
q Overall profit growth for the 280 companies, over FY10, was 28% - well ahead of
balance sheet expansion seen during the year. Implied FY11 RoAE was 19%.
q Strong profitability helped 210 of the 280 companies throw-in positive cashflows
from operations, despite the ballooning in working capital.
q As a result, rise in gross debt (as well as net debt), by 21% YoY to US$211bn, has
been inline with that of shareholders’ funds and the overall balance sheet size.
q FY11 balance sheet /debt numbers capture the impact of international acquisitions
too. Adjusted for Bharti’s Zain acquisition, debt growth would drop to 15% YoY.
Comfortably positioned for capex resumption
q Debt/equity remains at a comfortable 0.7x – in line with last ten years average.
q Leveraging at mid cap stocks is higher at 0.9x.
q Since rising commodity prices / high inflation have been key drivers for working
capital expansion, a fall in inflation in 2H FY12 can reflect in slowing credit growth.
q In a recent banks sector note, we highlighted that deposit growth would surpass
credit growth in FY12, leading to easing liquidity and a steeper yield curve.
q With moderate D:E and improving deposit accretion for banks, we see the Indian
corporate sector well positioned to step-up investment spending, if the momentum
on policy actions were to start picking-up.
q Our preferred stocks to play ‘hope’ on a pick-up in policy actions are L&T, ONGC, BHEL,
IDFC, JPA & Coal India, which also offer downside protection on current fundamentals.
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