Regulatory delays have not just resulted in poor health of infrastructure companies with stressed balancesheets, it has eroded thousands of crores of shareholder wealth parked in the sector as well.
According to an HT analysis, seven of the top 10 companies that saw the highest value erosion (according to market cap) in the last five years were infrastructure firms. The list includes Jindal Steel & Power (Rs 52,297-crore fall in market value), Tata Steel (Rs 18,779 crore), Reliance Power (Rs 17,489 crore), Adani Power (Rs 15,130 crore) and Jaiprakash Associates (Rs 13,559 crore), among others.
Investors lost around Rs 1.65 lakh crore as stocks of the 10 companies plunged on the BSE, of which Rs 1.35 lakh crore came from the fall in shares of infrastructure companies alone.
According to analysts, weak cash flows, along with stressed balancesheets are hitting these companies hard. A decline in the nominal GDP growth rate from 20% to 25% to single-digits of 8.6% in 2015-16 also made matters worse for these companies.
“Some of the stressed companies had started piling up debt since 2010 in the hope of a significant improvement in demand conditions and overall market environment. Capacity utilisation for most of these borrowers was at a decade low, limiting their ability to improve profits. This led to a decline in market value of most companies,” said Priyanka Poddar, analyst, credit and market research group, India Ratings & Research.
“Steel and crude prices have fallen big time, and slow implementation and unviable projects are hurting infrastructure and power sectors. In the last few years, the real estate market has also slowed tremendously,” said Deepak Shenoy, founder & CEO, Capitalmind.
According to a report by the Project Monitoring Group for May 2016, 241 infrastructure projects, including those delayed due to land acquisition, forest clearances and other reasons, have led to a cost overrun of ₹1.59 lakh crore. Of the total 1,076 projects, four projects are ahead of schedule, 252 are on schedule, 330 are delayed, 241 projects reported cost overrun and 70 projects reported both time and cost overrun with respect to their project implementation schedules.
The companies will have to improve their capital structure by lowering debt levels to regain lost ground on the bourses, Poddar added. “Even if demand picks up, borrowing conditions would continue to be difficult for these companies due to stretched balancesheets and higher debt to market cap ratio. The companies will need to deleverage their balancesheets to improve return on assets. Subdued private investment and exports are also playing spoilsport.”