The bad news doesn’t end only at the steady decline in revenue yield for companies, led by mainly those in construction and infra, realty, metals and mining, telecom and the power sector.
The infrastructure and real estate boom proved too costly for Indian companies.
The ability of companies to generate profits has also declined, with return on capital employed declining to 11.2 per cent in 2012-13 from around 18.5 per cent in 2007-08.
The same is the story on other financial parameters.
Operating margin declined by 430 basis points, while return on net worth nearly halved to 12 per cent in FY13, from 22.7 per cent in FY08.
The analysis is based on 621 companies that are part of either the BSE 500 index or BSE Midcap or BSE Smallcap.
They cover 90 per cent of all non-banking, non-financial companies by market capitalisation.
The assets include net worth and borrowings comprising deferred tax liabilities and other non-debt liabilities.
In the past five years, the combined revenues for the sample of companies nearly doubled to Rs 47.9 lakh crore (Rs 47.9 trillion) at the end of FY13 from Rs 22.5 lakh crore (Rs 22.5 trillion) in FY08, growing at a compounded annual rate of 16.3 per cent.
Their assets during the period grew at a CAGR of 18.6 per cent and expanded by 2.3x to Rs 46.4 lakh crore (Rs 46.4 trillion) at the end of FY13.
The surge was largely funded through borrowings, with net debt (excluding cash & equivalent) growing at a CAGR of 35 per cent during the period and nearly quadrupling during the period.
Companies in infrastructure and related sectors accounted for the bulk of the incremental growth in assets even as their revenue growth lagged.
In FY13, companies in these sectors accounted for nearly 45 per cent of all assets, much higher than their 27 per cent revenue share.
The biggest villain in the pack, it appears, have been construction and infrastructure companies, followed by real estate developers, telecom and metal & mining companies.
Their revenues failed to keep pace with growth in their balance sheet and this resulted in low capacity utilisation, poor profitability and high indebtedness.
For example, in the construction & infra space, every rupee of asset generated Rs 0.5 worth of revenues, down from Rs 0.9 in 2007-08. Real estate developers were even worse.
They generate only 20 paise of revenue over every Rs 1 worth of assets down from 0.5 in 2007-08.
In telecom and metals & mining, the ratios declined to Rs 0.5 and Rs 0.8 from from Rs 0.6 and Rs 1.3, respectively in 2007-08.
In comparison, companies in sectors such as cement, fast-moving consumer goods, consumer durables (including two-wheelers & passenger cars), oil & gas, pharma, information technology and textile either maintained their revenue to assets ratio or improved it since FY08.
Besides demand slowdown, the yields were affected by big-ticket acquisitions abroad, such as the Bharti Airtel-Zain Africa deal, Tata Steel-Corus and Hindalco-Novelis
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