Leading global management consultancy firm Ernst & Young has said that most Indian companies may divest their non-core assets due to the current economic events. In a survey of 360 global companies with an annual turnover of $1 billion (Rs 51.30 billion), including 40 such firms in India, E&Y found that nearly 70 per cent of the respondents were willing to sell their non-core assets to overcome the downturn.
"Earlier, there was a silver lining for every opportunity," said Ranjan Biswas, partner and national director, transaction advisory services, Ernst & Young India, in a telephonic interview with this newspaper.
"Now companies will have to think of core versus non-core assets, based on their cash flow, working capital cycle, etc," he added.
In the survey, 56 per cent of the companies said they would divest non-core assets so that they could focus more on their core businesses. Around 23 per cent of the respondents said they wanted to sell the non-core businesses as they needed the money to pay debts, or bolster their balance sheet.
The challenge for the companies, however, remains to make their non-core assets attractive for sale. Some of the responding companies were delaying divestments as valuations remain uncertain. But, as Biswas said, "It's inevitable."
"Sellers will have to be ready to accept flexible financing options for the sale, as it is a buyers' market now," he pointed out.
About 48 per cent the companies surveyed said that the current economic conditions make them more likely to consider multiple transaction types, including third-party sales, spin-offs and joint ventures. Other alternative financing options, according to the report, include vendor finance, partial equity sales, deferred sales, asset swaps or outsourcing.